Nautilus 2006 Annual Report Download - page 74

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5
(b) For purposes of determining whether an adjustment to the rebate amount is required during the term of the rebate program,
reference shall be made to the “Base Cost” of the Products. The “Base Cost” of the Bowflex Ultimate 2 shall be U.S(*) and
the Base Cost of the Bowflex Extreme 2 shall be U.S(*) (each a “Base Cost Product” and collectively, the “Base Cost
Products
”
).
(c) At the end of each calendar quarter during the period for which the rebate program is in effect hereunder, Seller shall
calculate the average per unit cost in U.S. Dollars of the Base Cost Products for such calendar quarter. If for any calendar
quarter the average per unit cost of the Base Cost Products exceeds the Base Cost by more than (*), then within 30 days
following the end of the applicable calendar quarter Seller shall certify to Purchaser in writing the amount of such excess
expressed in terms of a percentage and provide Purchaser with reasonable supporting documentation to enable Purchaser to
confirm that the methodology used in arriving at such figure and the accuracy of such certification. If Purchaser accepts such
certification it shall confirm its acceptance in writing. The average will be calculated giving equal weighting to the
percentage increase of each of the Base Cost Products. If Purchaser is unable to confirm that the methodology used was
consistent with that used in arriving at the Base Case figure or disputes the accuracy of such certification, it will notify Seller
in writing of such fact and the parties shall then promptly jointly engage an international accounting firm to examine the
Seller’s books and records and determine the per unit cost of each Base Cost Product for the calendar quarter in question.
The determination of the accounting firm as to the average per unit cost of the Base Cost Products shall be final and binding
on the parties absent manifest error.
(d) Adjustments to the rebate rate will only be made when the average per unit cost of the Base Cost Products as certified by
Seller within 30 days following the end of the applicable calendar quarter and accepted by Purchaser or as determined by the
accounting firm, as the case may be, in accordance with Subsection 6.4(c) above, exceeds the Base Cost by more than (*).
When the average per unit cost of the Base Cost Products for any calendar quarter exceeds the Base Cost by more than (*),
the rebate rate for the next quarter will be adjusted down by (*) percentage points for each full (*) incremental increase;
provided
, however
, that in no case will the rebate rate be adjusted by more than (*) lower than that rebate rate applicable for
the previous quarter and never below zero during the effective term of the rebate program Once the base cost has been
exceeded by more than (*) in any quarter, Seller agrees to regularly
(*) Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested
with respect to the omitted portions.