Nautilus 2009 Annual Report Download - page 181

(b) Inventory : Prior to the Closing, Nautilus conducted the Inventory and prepared the Physical Inventory Report to reflect the
results of the Inventory. The Physical Inventory Report will be used to determine the Inventory Purchase Price, as more fully provided below. As
noted above, the Physical Inventory Report will be adjusted as of the close of business on February 18, 2010 to reflect sales of items of Inventory
after the date on which the Inventory was performed. Table 2.3A also illustrates that the Inventory Purchase Price will be calculated by
multiplying the estimated Standard Cost in column 4 by the applicable Valuation % in column 5. Column 6 on line E of Table 2.3A shows the
currently estimated aggregate amount of the Inventory Purchase Price, i.e. $3,284,825. The following provisions of this Section 2(b) describe
how the Inventory Purchase Price will be determined.
(i) Raw Materials (Parts B and C) : Table 2.3A contains two raw materials-materials-related categories – “Raw Materials
and WIP” and “Raw Materials at Supplier.” The term “Raw Materials” shall mean and include both such categories. This Section 2(b)(i) shall
apply to all Raw Materials. The portion of the Inventory Purchase Price to be paid for the various items of Raw Materials listed in column 1 of
Parts B and C shall be determined by multiplying the Standard Cost in Column 4 by the corresponding Valuation % in Column 5. To illustrate,
the portion of the Inventory Purchase Price to be paid for the Raw Materials listed in column 1 on line B.3 will be $330,289 (i.e. $660,578 x
50%). It is understood that Nautilus is retaining ownership of the Clubtrack Raw Materials listed on Line B.2.
(ii) Spare Parts (Part D)
: The Spare Parts listed on Line D.1 of Table 2.3A will be sold at an Inventory Purchase Price equal
to the Standard Cost in Column 4 multiplied by the Valuation % in Column 5. Nautilus will retain ownership of Spare Parts relating to
TreadClimber, EV916 and Clubtrack products and will not be sold or transferred to Buyer at the Closing.
(iii) Finished Goods (Part A) : The sale of Finished Goods will be conducted as provided in Section 2.8 of the Agreement.
3. Determination of Purchase Price :
(a) Purchase Price
. The parties agree that before the Closing occurs, the amount of the Inventory Purchase Price will be determined,
agreed and stated as a fixed amount using (1) the information contained in the Physical Inventory Report and (2) the methodology set forth in
this Schedule 2.3 and Table 2.3A. The sum of the portions of the Purchase Price allocated to the Tangible Personal Property and the Inventory
Purchase Price, respectively, shall be the Purchase Price. The Purchase Price is subject to adjustment pursuant to Section 3(b) below.
(b) Adjusted Purchase Price . The aggregate Purchase Price (the “Adjusted Purchase Price”) actually payable by Buyer shall be the
sum of the amounts determined pursuant to Sections 2(a) and 2(b) above, minus a warranty liability offset in the amount of One Million Two
Hundred Thousand Dollars ($1,200,000) granted Buyer for assuming certain warranty liabilities for Fitness Products previously sold by Nautilus
The $1,200,000 credit shall be