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NAUTILUS, INC.
FORM 10-K
(Annual Report)
Filed 03/17/08 for the Period Ending 12/31/07
Address 16400 SE NAUTILUS DRIVE
VANCOUVER, WA 98683
Telephone 3606947722
CIK 0001078207
Symbol NLS
SIC Code
3949 - Sporting and Athletic Goods, Not Elsewhere Classified
Industry Retail (Catalog & Mail Order)
Sector Technology
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2008, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ...(Annual Report) Filed 03/17/08 for the Period Ending 12/31/07 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 16400 SE NAUTILUS DRIVE VANCOUVER, WA 98683 3606947722 0001078207 NLS 3949 - Sporting and Athletic Goods, Not Elsewhere Classified Retail (Catalog & Mail Order) Technology...

  • Page 2
    ... equity held by non-affiliates computed by reference to the last sales price ($12.04) as reported on the New York Stock Exchange as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2007) was $379,803,437. The number of shares outstanding of the...

  • Page 3
    ... Contents NAUTILUS, INC. 2007 FORM 10-K ANNUAL REPORT PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Item 10. Item 11. Item 12. Item 13. Item 14. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings...

  • Page 4
    ... 2007 the Company experienced a decline in net sales after several years of growth achieved through a combination of internal growth of our Bowflex brand and a series of strategic acquisitions of well-recognized brands, including Nautilus International, Inc. ("Nautilus") in January 1999, the fitness...

  • Page 5
    ... the Nautilus, Bowflex, Schwinn Fitness, and StairMaster brand names and is responsible for servicing customers outside of the Americas. The International Equipment Business primarily reflects sales in the commercial business sector. Sales in this segment have grown over the last three years and...

  • Page 6
    ...broad range of technology, price points, and features that are believed to be among the best in categories in which they compete Our Nautilus brand includes four distinct lines of strength equipment, free weights and benches, and a complete line of cardio equipment including treadmills, ellipticals...

  • Page 7
    ...the direct sales channel. Company sponsored marketing programs have been developed to ensure that our Nautilus, Schwinn Fitness, Bowflex, and StairMaster brands remain prominent in the minds of customers and consumers and drive consumers to their local retailers. International Equipment Business The...

  • Page 8
    ... 31, 2007, 2006, and 2005, respectively. We did not have any customer-sponsored research and development expenses in any of these years. SEASONALITY Fitness Equipment Products In general, U.S. and international sales in our direct, commercial, and retail fitness equipment channels are seasonal. We...

  • Page 9
    ...Retail Fitness Equipment: Our Nautilus, Schwinn Fitness, StairMaster, and Bowflex brands compete against the products of other retail fitness equipment companies such as Johnson Health Tech, ICON Health & Fitness and many others. In our International Equipment Business, our Nautilus, Schwinn Fitness...

  • Page 10
    ... products by our competitors. Building our intellectual property portfolio is an important factor in maintaining our competitive position in the fitness equipment and apparel industries. We have followed a policy of filing applications for the U.S. and foreign patents on inventions, new designs...

  • Page 11
    ... 2007, we initiated a number of actions to improve the strength of our balance sheet, including efforts to divest our Fitness Apparel Business through the sale of Pearl Izumi and the negotiation of a new $100 million asset-based line of credit, which will be reduced to $70 million upon the close...

  • Page 12
    ... products sold in the commercial channel due to durability issues, we closed the Australia direct sales operations, we announced the closure of the Winnipeg, Canada call center and Bolingbrook, Illinois distribution center. By themselves, these actions are not sufficient to return the Company...

  • Page 13
    ... of new products; Variations in product selling prices and costs and the mix of products sold; The size and timing of customer orders, which, in turn, often depend upon the success of our customers' business or specific products; Changes in the conditions in the markets for consumer and commercial...

  • Page 14
    ...new products that we market may not generate sufficient net sales or profits to recoup their development or acquisition costs. A delay in getting foreign sourced products through customs in a timely manner could result in cancelled orders and unanticipated inventory accumulation Many of our imported...

  • Page 15
    ..., the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for particular types of fitness equipment. In addition, our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice...

  • Page 16
    ... reserve for future warranty claims but the actual costs of servicing future warranty claims may exceed the reserve and have a material adverse effect on our results of operations and financial condition. In early 2008, the Company suspended sales of the commercial TreadClimber products as a result...

  • Page 17
    ... principal properties owned or leased by the Company. Reportable Segment Location Primary Function(s) Owned or Leased Fitness Equipment Washington Oregon Virginia Virginia Virginia Virginia Virginia Virginia Illinois Colorado Oklahoma Oklahoma Canada World headquarters, call center, retail store...

  • Page 18
    ...to a Vote of Security Holders A special meeting of shareholders of Nautilus, Inc. was held on December 18, 2007, at which the following actions were taken: 1. The shareholders approved a proposal to remove the following four incumbent members of Nautilus' board of directors (the "Board"). The voting...

  • Page 19
    Table of Contents PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for our Common Stock Our common stock is listed on the New York Stock Exchange (the "NYSE") and trades under the symbol "NLS." As of February 29, 2008...

  • Page 20
    ... believe we can reasonably identify an industry index or specific peer issuer that would offer a meaningful comparison. The S&P SmallCap 600 Index represents a broad-based index of companies with similar market capitalization. Our common stock was added to the S&P SmallCap 600 on March 19, 2003. The...

  • Page 21
    ...Factors located at Part I, Item IA of this Form 10-K. EXECUTIVE OVERVIEW We are a leading designer, developer, manufacturer and marketer of branded fitness products sold around the world. We operate in two segments; the Fitness Equipment Business and the International Equipment Business. During 2007...

  • Page 22
    ...suspended sales and production of the commercial TreadClimber and retired certain commercial grade elliptical trainers due to quality and reliability issues resulting in pretax charges of $16.9 million charged to cost of goods sold in 2007; We stopped or delayed development of certain products which...

  • Page 23
    ... brand names. Depending on the brand, our fitness equipment is marketed and sold through the direct, commercial, and retail channels of distribution located in North and South America. Net sales for the fitness equipment business were $423.9 million in 2007 as compared to $553.4 million last year...

  • Page 24
    ... International Equipment Business markets and sells fitness products sold under the Nautilus, Bowflex, Schwinn Fitness, and StairMaster, brand names through the commercial, retail and direct channels of distribution located outside of the Americas. Net sales for the International Equipment Business...

  • Page 25
    ... in support of growing revenue, and as a result of costs related to expansion into new markets including China and Australia. These increases were offset by a sales volume decline in the direct channel resulting in lower marketing expenses and financing fees within the Fitness Equipment Business. As...

  • Page 26
    ... specific patents related to the development of new products. Litigation Settlement During 2007, the Company settled a lawsuit with ICON Health and Fitness, Inc. and as a result we received the rights to utilize a variety of fitness equipment related patents and technologies. We valued those assets...

  • Page 27
    ...decrease in sales of our Bowflex TreadClimbers, Nautilus strength products, and the discontinued Trimline cardio products. During the year, we also revised our supply chain strategy to increase the number of shipments to our retail customers directly from our Asian manufacturing partners. While this...

  • Page 28
    ... and continued vendor contract negotiations as we seek strong partnerships with fewer vendors. These cost savings were offset by an increase in freight costs and changes in both the sales channel and product sales mix within the product categories. International Equipment Business - Gross profit for...

  • Page 29
    ... Business primarily consists of Pearl Izumi which designs, markets and sells branded fitness apparel and footwear sold primarily under the Pearl Izumi brand globally. In February 2008 the Company entered into an agreement to sell Pearl Izumi and the Company anticipates the sale to be completed...

  • Page 30
    ...financial statements located at Item 8 of this Form 10-K, from time to time, we arrange for leases or other financing sources with third parties to enable certain of our commercial customers to purchase our commercial products. While most of these financings are without recourse, in certain cases we...

  • Page 31
    ... unable to pass these costs to the customer, our gross margins may continue to be negatively impacted. SEASONALITY In general, based on historic trends, we expect our sales from fitness equipment products both in the U.S. and internationally to vary seasonally with sales typically the strongest in...

  • Page 32
    ... expected product returns, are estimated using historical experience. In addition, from time to time, we arrange for leases or other financing sources to enable certain of our commercial customers to purchase our equipment. In the event that a guarantee of the commercial customer's lease obligation...

  • Page 33
    ... certain product innovations, the Company determined certain of the intangible assets obtained from the legal settlement during the second quarter of 2007 were impaired during the fourth quarter and recorded as impairment charge of $3.0 million in general and administrative expenses in 2007. Income...

  • Page 34
    ... a ten percent change in any applicable foreign currency exchange rate to be approximately $1.5 million. Interest Rate Risk Fluctuations in the general level of interest rates on our current variable rate credit agreements expose us to market risk. As of December 31, 2007, our outstanding borrowings...

  • Page 35
    Table of Contents Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2007 and 2006 Consolidated Statements of Operations for the years ended December 31,...

  • Page 36
    ... Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March...

  • Page 37
    ...-term note receivable Assets of discontinued operations Assets held for sale Deferred tax assets Total current assets PROPERTY, PLANT AND EQUIPMENT, net GOODWILL INTANGIBLE AND OTHER ASSETS, net TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade payables Accrued liabilities...

  • Page 38
    ... OF OPERATIONS YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (In Thousands, Except Per Share Amounts) 2007 2006 2005 NET SALES COST OF SALES Gross profit OPERATING EXPENSES: Selling and marketing General and administrative Research and development Litigation settlement Total operating expenses...

  • Page 39
    ... loss Dividends paid $0.30 per share Cumulative change from adoption of FIN 48 Share-based compensation Restricted stock released Options exercised Tax benefit of exercise of nonqualified options BALANCES at DECEMBER 31, 2007 $ $ $ $ $ See notes to consolidated financial statements. 36

  • Page 40
    ...Share-based compensation Litigation settlement Loss on sale of property, plant and equipment Tax benefit from exercise of nonqualified options Excess tax benefit from stock-based compensation Deferred income taxes Foreign currency transaction gain Changes in assets and liabilities, net of the effect...

  • Page 41
    Table of Contents NAUTILUS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 (In Thousands) 2007 2006 2005 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment, and assets held for...

  • Page 42
    ..., developer, manufacturer and marketer of branded fitness products sold under such well-known brand names as Nautilus, Bowflex, Schwinn Fitness and StairMaster. Nautilus was founded in 1986 and incorporated in the State of Washington in 1993. The Company's headquarters is located in Vancouver...

  • Page 43
    ... country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. Revenue for commercial products is recognized upon final installation of commercial equipment if the Company is responsible for installation. Revenue is recognized net of applicable 40

  • Page 44
    ... effect of the warranty trends on future claims. The Company recorded an increase in warranty reserves (recorded in cost of goods sold) during 2007 related to the commercial TreadClimber product. In January 2008, the Company suspended sales of the commercial TreadClimber products as a result of...

  • Page 45
    ...) 2006 As Previously As Reported Adjusted (*) Twelve Months ended December 31, Revision Revision 2005 As Adjusted NET SALES COST OF SALES Gross profit OPERATING EXPENSES: Selling and marketing General and administrative Research and development Royalties Total operating expenses OPERATING INCOME...

  • Page 46
    ... sources to enable sales of its commercial fitness equipment. While most of these financing arrangements are without recourse, in certain cases the Company provides a guarantee or other recourse provisions to an independent finance company for either all or a portion of the lease payments in order...

  • Page 47
    ...SFAS 123(R), the Company recognizes compensation expense from share-based payments over the requisite service periods of the individual grants which generally equal the vesting periods. Consistent with prior years, the fair value of each equity award is estimated at the date of grant using the Black...

  • Page 48
    ... consists of Pearl Izumi which designs, markets and sells branded fitness apparel and footwear sold primarily under the Pearl Izumi brand on a global basis. In February 2008 the Company entered into an agreement to sell Pearl Izumi and the Company anticipates completing the sale of Pearl Izumi late...

  • Page 49
    ...assets and liabilities of the discontinued operations were adjusted to fair market value resulting in an impairment charge of $13.2 million in the fourth quarter of 2007. No costs associated...158 6,288 $16,030 As part of the acquisition of Pearl Izumi, the Company became obligated on two non-interest...

  • Page 50
    ... process consists of capitalizable costs associated with tooling being developed for new products and internally developed software that are not yet in service. Capitalized interest was not material for the years ended December 31, 2007, 2006 and 2005. In 2006, as part of the plan to consolidate its...

  • Page 51
    ... 31, 2007 The International Equipment Business reportable segment did not have goodwill at December 31, 2007 or 2006. 6. INTANGIBLE AND OTHER ASSETS, net Intangible assets and other assets, net consisted of the following at December 31: Estimated Useful Life (In Thousands) (in years) 2007 $ 32...

  • Page 52
    ...a financing pursuant to which a third party takes a first priority lien in certain intellectual property assets of the Company. The interest rate on amounts outstanding under the revolving credit facility will be either (a) the prime rate announced by Bank of America N.A. from time to time plus zero...

  • Page 53
    ... expense Net operating loss carryforward Basis difference on subsidiary held for sale Special and non-recurring charges Other Valuation Allowance Liabilities: Prepaid advertising Other prepaids Basis difference on long-lived assets Undistributed earnings of foreign subsidiaries Net deferred tax...

  • Page 54
    ...expense Tax benefit related to U.S. export sales Qualified domestic production activity deduction Penalties Impact of foreign results Nondeductible operational expenses Tax exempt interest Research and development credit Change in deferred tax measurement rate Change in tax contingency reserve Other...

  • Page 55
    ... would reduce the Company's effective tax rate. The Company's federal income tax returns for 2004 through 2007 are open tax years. The Company's state tax returns are open from 2001 through 2007 depending on each state's statute of limitation. In addition, the Company files in numerous foreign...

  • Page 56
    ... with an exercise price equal to the closing market price of the Company's common stock on the date preceding the grant date. Stock option awards generally vest based on four years of continuous service and, starting with the adoption of the 2005 Plan, have a seven year contractual term (options...

  • Page 57
    ...the Company meets earnings targets set by the Compensation Committee of the Board of Directors. The fair value of the performance units is based on the closing market price of the Company's common stock on the date preceding the grant date and is amortized over the estimated requisite service period...

  • Page 58
    ...year cliff vesting period. In addition, the Company hired an interim chief executive officer and issued a restricted stock grant for 4,000 shares per month...the weighted average number of common shares outstanding plus the effect of outstanding stock options calculated using the treasury stock method....

  • Page 59
    ... equipment sold under the Nautilus, Bowflex, Schwinn Fitness, and StairMaster brand names and is responsible for servicing customers outside of the Americas. The reportable segments are supported by teams that provide services to support the entire entity including finance and reporting, legal...

  • Page 60
    ... Year ended December 31, 2005: Net sales Gross profit Depreciation and amortization expense Interest income, net Income tax expense from continuing operations Income (loss) from continuing operations Total assets Additions to property, plant and equipment Fitness Equipment(*) International...

  • Page 61
    ...development, administration, and product sales. The Company also has operating leases for certain equipment mainly consisting of product delivery trucks used in its commercial fitness equipment business, and product service vans used for warranty related matters. These leases expire at various times...

  • Page 62
    ...display of credit card information for customers who place an order for products on the Company's website. Plaintiff seeks the statutory penalty set forth in FACTA for each violation which ranges from $100 to $1000 per violation, as well as punitive damages, and attorneys fees and costs. The case is...

  • Page 63
    ... the fourth quarter of 2007, Nautilus, Inc. management committed to a plan to sell the operations of Pearl Izumi. Within the next year, the Company expects to sell Pearl Izumi and accordingly all assets and liabilities and results of operations associated with these assets have been presented in the...

  • Page 64
    ...reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. • Because of its inherent limitations, internal control over financial reporting may not prevent or...

  • Page 65
    ... assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of control effectiveness to future periods are subject to risk. The Company's internal control over financial reporting as of December 31, 2007 has been audited...

  • Page 66
    Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Nautilus, Inc. Vancouver, Washington We have audited Nautilus, Inc. and subsidiaries' (the "Company's") internal control over financial reporting as of December 31, 2007, based on ...

  • Page 67
    ... We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2007, of the Company and our report dated March 17, 2008 expressed an unqualified opinion on those...

  • Page 68
    ... is included under the captions Election of Directors , Section 16(a) Beneficial Ownership Reporting Compliance, Executive Officers and Information Concerning the Board of Directors in the Company's Proxy Statement for its 2008 Annual Meeting of Shareholders and is incorporated herein by reference...

  • Page 69
    ... Statements in Item 8. (a)(2) Financial Statement Schedule There are no financial statement schedules filed as part of this annual report, since the... page 59 for a description of the documents that are filed as Exhibits to this Annual Report on Form 10K or incorporated herein by reference. 66

  • Page 70
    ...undersigned, thereunto duly authorized. Date: March 17, 2008 N AUTILUS , I NC . By: / S/ R OBERT S. F ALCONE Robert S. Falcone, Chief Executive Officer and President (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 71
    ... for the three months ended September 30, 2006, as filed with the Commission on November 9, 2006. Form of Employee Incentive Stock Option Agreement under the Company Stock Option Plan - Incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December...

  • Page 72
    ... by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Commission on March 15, 2004. Lease Agreement, dated November 23, 2004, between Columbia Tech Center LLC and the Company - Incorporated by reference to Exhibit 99.1 of...

  • Page 73
    ...Company's Annual Report for the year ended December 31, 2006 filed with the Commission on March 16, 2007. [Confidential treatment has been requested for certain portions of this exhibit.] Asset Purchase Agreement dated as of October 17, 2007 by and among Nautilus, Inc., Land America Health & Fitness...

  • Page 74
    ...-Oxley Act of 2002. Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Indicates management contract, compensatory agreement or arrangement, in which the Company's directors or executive officers may participate. 71

  • Page 75
    ... 1.1 and by substituting in lieu thereof the following sentence: "Executive shall serve as Chairman of the Company's Board of Directors during his employment hereunder other than at any time the Board of Directors designates an executive or a nonexecutive Chairman." (b) By deleting from the first...

  • Page 76
    ... for the sole purpose of designating an executive or a nonexecutive chairman of the Board of Directors immediately thereafter, in which case such removal shall not constitute a breach of this Agreement); 2. Effect on Executive Employment Agreement Except as specifically amended and modified by this...

  • Page 77
    IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Executive Employment Agreement as of the date first above written. COMPANY: NAUTILUS, INC. By: Title: EXECUTIVE: Robert S. Falcone

  • Page 78
    Exhibit 10.28 NAUTILUS, INC. and NAUTILUS INTERNATIONAL S.A., as Borrowers LOAN AND SECURITY AGREEMENT Dated as of January 16, 2008 $100,000,000 CERTAIN FINANCIAL INSTITUTIONS, as Lenders and BANK OF AMERICA, N.A ., as Agent

  • Page 79
    ... Delay in Requests Funding Losses Maximum Interest LOAN ADMINISTRATION Manner of Borrowing and Funding Revolver Loans Notices Defaulting Lender Number and Amount of LIBOR Loans; Determination of Rate Borrower Agent One Obligation Effect of Termination PAYMENTS General Payment Provisions i 1 1 30 30...

  • Page 80
    ...; Payments Set Aside Post-Default Allocation of Payments Application of Payments Loan Account; Account Stated Taxes Foreign Lenders Nature and Extent of Each Borrower's Liability CONDITIONS PRECEDENT Conditions Precedent to Initial Loans Conditions Precedent to All Credit Extensions Limited Waiver...

  • Page 81
    ...Field Examination Reports Reliance By Agent Action Upon Default Ratable Sharing Indemnification of Agent Indemnitees Limitation on Responsibilities of Agent Successor Agent and Co-Agents Due Diligence and Non-Reliance Replacement of Certain Lenders Remittance of Payments and Collections Agent in its...

  • Page 82
    ...14.16 14.17 14.18 Performance of Borrowers' Obligations Credit Inquiries Severability Cumulative Effect; Conflict of Terms Counterparts Entire Agreement... Responsibility Confidentiality GOVERNING LAW Consent to Forum; Arbitration Waivers by Borrowers Parallel Debt Limitations - Swiss Borrower Patriot...

  • Page 83
    ... (cont'd) Page LIST OF EXHIBITS AND SCHEDULES...Equipment Appraised Real Estate Deposit Accounts Business Locations Names and Capital Structure Former Names and Companies Patents, Trademarks, Copyrights and Licenses Environmental Matters Restrictive Agreements Litigation Pension Plans Labor Contracts...

  • Page 84
    ... used herein, the following terms have the meanings set forth below: Account : as defined in the UCC, including all rights to payment for goods sold or leased, or for services rendered. Account Debtor : a Person who is obligated under an Account, Chattel Paper or General Intangible. Accounts Formula...

  • Page 85
    ... the Applicable Margin that would have been in effect if the error was not made. Approved Fund : any Person (other than a natural person) that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in its ordinary course of activities...

  • Page 86
    ... the Closing Date through either (i) the funding of the Proposed IP Financing, or (ii) if the Proposed IP Financing is not consummated, such time after June 30, 2008 as Borrowers have demonstrated to Agent's reasonable satisfaction that Borrowers will have ongoing liquidity sufficient to meet its...

  • Page 87
    ... costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day...

  • Page 88
    ... in clause (b); (d) commercial paper rated A-1 (or better) by S&P or P-1 (or better) by Moody's, and maturing within nine months of the date of acquisition; and (e) shares of any money market fund that has substantially all of its assets invested continuously in the types of investments referred to...

  • Page 89
    ...directive (whether or not having the force of law) by any Governmental Authority. Change of Control : an event or series of events by which: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan...

  • Page 90
    ... proceedings), whether or not the applicable Indemnitee is a party thereto. Closing Date : as defined in Section 6.1 . Code : the Internal Revenue Code of 1986. Collateral : all Property described in Section 7.1 , all Property described in any Security Documents as security for any Obligations, and...

  • Page 91
    ... Person is a general partner or joint venturer. Default : an event or condition that, with the lapse of time or giving of notice, would constitute an Event of Default. Default Rate : for any Obligation (including, to the extent permitted by law, interest not paid when due), 2% plus the interest rate...

  • Page 92
    ... Quarter of 2008 in connection with future warranty costs resulting from outsourcing of warranty processing in an amount up to $3,000,000. Eligible Account : an Account owing to a Borrower or DashAmerica that arises in the Ordinary Course of Business from the sale of goods , is payable in Dollars...

  • Page 93
    ... Section 4975 of the Code or any other Applicable Law; and (c) during any Event of Default, any Person acceptable to Agent in its discretion. Eligible Equipment : equipment owned by US Borrower hereafter approved by Agent as part of the Equipment Formula Amount, which equipment meets each of the...

  • Page 94
    ... in good working order and condition (ordinary wear and tear excepted) and is used or held for use by US Borrowers in the Ordinary Course of Business; (g) such equipment is not subject to any agreement which restricts the ability of US Borrower to use, sell, transport or dispose of such equipment or...

  • Page 95
    ... or Event of Default has occurred and is continuing, (iv) the amount of such Equipment Formula Amount Reload does not exceed 80% of US Borrower's invoiced cost of the new Eligible Equipment, (v) following such Equipment Formula Amount Reload, the Equipment Formula Amount shall decrease on a monthly...

  • Page 96
    ...; (b) in the case of the Swiss Borrower, types of Property for which security interest grants and pledges may not be validly granted as a matter of Swiss law; (c) any Investment Property or General Intangibles or assets governed thereby (including any license, contract, permit, lease or franchise to...

  • Page 97
    ... law or (i) a security interest may not be granted under the express terms of the governing documents applicable to such General Intangible or Investment Property, without the consent of one or more applicable parties thereto; (d) equipment acquired after the Closing Date pursuant to Capital Leases...

  • Page 98
    ...Collateral); and (c) a release of any Claims of Obligors against Agent, Lenders and Issuing Bank arising on or before the payment date. No Loans shall be deemed to have been paid in full until all Commitments related to such Loans have expired or been terminated. GAAP : generally accepted accounting...

  • Page 99
    ...Property of a Person, including inventions, designs, patents, copyrights, trademarks, service marks, trade names, trade secrets, confidential or proprietary information, customer lists, know-how, software and databases; all embodiments or fixations thereof and all related documentation, applications...

  • Page 100
    ... of any kind that are or could be used in connection with the manufacture, printing, packing, shipping, advertising, sale, lease or furnishing of such goods, or otherwise used or consumed in a Borrower's business (but excluding Equipment). Inventory Formula Amount : the lesser of (a) $50,000,000; or...

  • Page 101
    ..., instruments and agreements (including LC Requests and LC Applications) delivered by Borrowers or any other Person to Issuing Bank or Agent in connection with issuance, amendment or renewal of, or payment under, any Letter of Credit. LC Obligations : the sum (without duplication) of (a) all...

  • Page 102
    ... a.m. (London time) two Business Days prior to commencement of such Interest Period, for a term comparable to such Interest Period, equal to (a) the British Bankers Association LIBOR Rate (" BBA LIBOR "), as published by Reuters (or other commercially available source designated by Agent); or (b) if...

  • Page 103
    ..., net of (a) reasonable and customary costs and expenses actually incurred in connection therewith, including legal fees and sales commissions; (b) amounts applied to repayment of Debt secured by a Permitted Lien senior to Agent's Liens on Collateral sold; (c) transfer or similar taxes; and...

  • Page 104
    ...other Person to Agent or a Lender in connection with any transactions relating hereto. Other Taxes : all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery...

  • Page 105
    ...or contested by the company to be acquired; (b) the business acquired in connection with such Acquisition is not primarily engaged, directly or indirectly, in any line of business other than the businesses in which the Loan Parties are engaged on the Closing Date and any business activities that are...

  • Page 106
    ... as no Default or Event of Default exists and all Net Proceeds are deposited into the Dominion Account, an Asset Disposition that is (a) a sale of Inventory in the Ordinary Course of Business; (b) a disposition of Equipment that, in the aggregate during any 12 month period, has a fair market or book...

  • Page 107
    ... of Agent; and (f) if the obligation results from entry of a judgment or other order, such judgment or order is stayed pending appeal or other judicial review. Property : any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Proposed IP Financing...

  • Page 108
    ... effective date; (b) such assignments of leases, estoppel letters, attornment agreements, consents, waivers and releases as Agent may reasonably require with respect to other Persons having an interest in the Real Estate, provided that Borrowers are required to use commercially reasonable efforts...

  • Page 109
    ... Obligor as Agent may request; (h) the Investments in existence on the Closing Date set forth on Schedule 10.2.5 ; (i) securities, instruments or other investments that an Obligor or its Subsidiaries may acquire in connection with Permitted Asset Disposition, provided that the original of any such...

  • Page 110
    ... Revolver Termination Date : January 16, 2013. Royalties : all royalties, fees, expense reimbursement and other amounts payable by a Borrower under a License. S&P : Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors. Secured Parties : Agent, Issuing...

  • Page 111
    ... ownership by a Borrower through other entities in which the Borrower directly or indirectly owns 50% of the voting securities or Equity Interests). Swingline Loan : any Borrowing of Base Rate Revolver Loans funded with Agent's funds, until such Borrowing is settled among Lenders pursuant to Section...

  • Page 112
    ...16) of ERISA, over the current value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. Upstream Payment : a Distribution by a Subsidiary of a Borrower to such Borrower or to...

  • Page 113
    ... in the State of California from time to time: "Chattel Paper," "Commercial Tort Claim," "Deposit Account," "Document," "Equipment," "General Intangibles," "Goods," "Instrument," "Investment Property," "Letter-of-Credit Right" and "Supporting Obligation." 1.4 Certain Matters of Construction . The...

  • Page 114
    ... solely (a) to satisfy existing Debt; (b) to pay fees and transaction expenses associated with the closing of this credit facility; (c) to pay Obligations in accordance with this Agreement; and (d) for working capital and other lawful corporate purposes of Borrowers. 2.1.4 Voluntary Termination of...

  • Page 115
    ...to respond (which shall in no event be less than 10 Business Days from the date of delivery of such notice to the Lenders). Each Lender shall notify Agent within such time period whether or not it agrees to increase its Commitment with respect to Loans and Letters of Credit and, if so, whether by an...

  • Page 116
    ... incurred in the Ordinary Course of Business; or (ii) for other purposes as Agent may approve from time to time in writing. The renewal or extension of any Letter of Credit shall be treated as the issuance of a new Letter of Credit, except that delivery of a new LC Application shall be required at...

  • Page 117
    ... Date, Agent shall promptly notify Lenders and each Lender shall promptly (within one Business Day) and unconditionally pay to Agent, for the benefit of Issuing Bank, the Lender's Pro Rata share of such payment. Upon request by a Lender, Issuing Bank shall furnish copies of any Letters of Credit...

  • Page 118
    ... Documents and, if no payment date is specified, shall be due and payable on demand . Notwithstanding the foregoing, interest accrued at the Default Rate shall be due and payable on demand . 3.1.2 Application of LIBOR to Outstanding Loans . (a) Borrowers may on any Business Day, subject to delivery...

  • Page 119
    ... amount of Letters of Credit during any month. Such fee shall be payable in arrears, on the first day of each month and on the Commitment Termination Date. 3.2.2 LC Facility Fees . Borrowers shall pay (a) to Agent, for the Pro Rata benefit of Lenders, a fee equal to the Applicable Margin in effect...

  • Page 120
    ... and administration of Letters of Credit, which charges shall be paid as and when incurred. During an Event of Default, the fee payable under clause (a) shall be increased by 2% per annum. 3.2.3 Agent Fees . In consideration of Agent's syndication of the Commitments and service as Agent hereunder...

  • Page 121
    ... Rate Loan. 3.7 Increased Costs; Capital Adequacy . 3.7.1 Change in Law . If any Change in Law shall: (a) impose modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended...

  • Page 122
    .... In determining whether the interest contracted for, charged or received by Agent or a Lender exceeds the maximum rate, such Person may, to the extent permitted by Applicable Law, (a) characterize any payment that is not principal as an expense, fee or premium rather than interest; (b) exclude...

  • Page 123
    ... funding date (which must be a Business Day), (C) whether the Borrowing is to be made as Base Rate Loans or LIBOR Loans, and (D) in the case of LIBOR Loans, the duration of the applicable Interest Period (which shall be deemed to be one month if not specified). (b) Unless payment is otherwise timely...

  • Page 124
    ... good faith by Agent or any Lender to be a person authorized to give such instructions on a Borrower's behalf, except to the extent that such loss is as a result of gross negligence or willful misconduct of Agent or such Lender. 4.3 Defaulting Lender . If a Lender fails to make any payment to Agent...

  • Page 125
    ... incur as a result of the dishonor or return of Payment Items applied to Obligations, Agent receives (a) a written agreement, executed by Borrowers and any Person whose advances are used in whole or in part to satisfy the Obligations, indemnifying Agent and Lenders from any such damages; or (b) such...

  • Page 126
    ... least 10 Business Days prior to such repayment. 5.3.4 Interest; Application of Prepayments . Each prepayment of Term Loans shall be accompanied by all interest accrued thereon and any amounts payable under Section 3.9 , and shall be applied to principal in inverse order of maturity. 5.4 Payment of...

  • Page 127
    ...distributed with respect to any Bank Product Debt relating to Cash Management Services provided by a Lender (or its Affiliates) other than Bank of America shall be the lesser of the applicable Bank Product Amount last reported to Agent or the actual Bank Product Debt as calculated by the methodology...

  • Page 128
    ...of such application, a credit balance exists, the balance shall not accrue interest in favor of Borrowers and shall be made available to Borrowers as long as no Default or Event of Default exists. As long as no Default or Event of Default exists, Borrower Agent may direct the application of payments...

  • Page 129
    ...any Taxes paid by Borrower pursuant to this Section 5.9.2 , such Person shall within 30 days from the date of actual receipt of such refund or the filing of the tax return in which such credit or other reduction results in a lower tax payment, pay over such refund or the amount of such tax reduction...

  • Page 130
    ... to Agent and Borrower Agent, at the time or times prescribed by Applicable Law or reasonably requested by Agent or Borrower Agent, such properly completed and executed documentation prescribed by Applicable Law as will permit such payments to be made without withholding or at a reduced rate of...

  • Page 131
    ... If, in taking any action in connection with the exercise of any rights or remedies, Agent or any Lender shall forfeit any other rights or remedies, including the right to enter a deficiency judgment against any Borrower or other Person, whether because of any Applicable Laws pertaining to "election...

  • Page 132
    ...; provided that no surveys shall be required with respect to the properties located in Virginia that are subject to Mortgages on the Closing Date. (d) Agent shall have received duly executed agreements establishing Agent's control over, and springing dominion with respect to, the Dominion Accounts...

  • Page 133
    ... Agent shall have completed its business, financial and legal due diligence of Obligors, with results satisfactory to Agent. No Material Adverse Effect shall have occurred since August 31, 2007. (k) Borrowers shall have paid all fees and expenses to be paid to Agent and Lenders on the Closing Date...

  • Page 134
    ... Commercial Tort Claims; (d) all Deposit Accounts; (e) all Documents; (f) all General Intangibles, including Payment Intangibles, Software and Intellectual Property; (g) all Goods, including Inventory, Equipment and fixtures; (h) all Instruments; (i) all Investment Property; (j) all Letter-of-Credit...

  • Page 135
    ... the payment of any Obligations, in such order as Agent may elect pursuant to Section 5.6.1 or 5.7 , as applicable, as they become due and payable. Each Cash Collateral Account and all Cash Collateral shall be under the sole dominion and control of Agent. No Borrower or other Person claiming through...

  • Page 136
    ... of this Agreement. Each Borrower authorizes Agent to file any financing statement that indicates the Collateral as "all assets" or "all personal property" of such Borrower, or words to similar effect, and ratifies any action taken by Agent before the Closing Date to effect or perfect its Lien on...

  • Page 137
    ...other reports in form reasonably satisfactory to Agent and (ii) a detailed aged trial balance of all Accounts as of the end of the preceding month, specifying each Account's Account Debtor name and address, amount, invoice date and due date, showing any discount, allowance, credit, authorized return...

  • Page 138
    ... keep accurate and complete records of its Inventory, including costs and daily withdrawals and additions, and shall submit to Agent inventory and reconciliation reports in form reasonably satisfactory to Agent, on or before the 15 th day of each month prepared as of the close of business of the...

  • Page 139
    ...or other Person, whether for cash, credit or otherwise, unless (a) such return is in the Ordinary Course of Business; (b) no Default, Event of Default or Overadvance exists or would result therefrom; (c) Agent is promptly notified if the aggregate Value of all Inventory returned in any month exceeds...

  • Page 140
    ... insurers (with a Best Rating of at least A+, unless otherwise approved by Agent) satisfactory to Agent. All proceeds under each policy shall be payable to Agent. From time to time upon request, Borrowers shall deliver to Agent the originals or certified copies of its insurance policies and updated...

  • Page 141
    ... proceeds of insurance as permitted hereunder) that come into Agent's possession or control; and (b) During an Event of Default, (i) notify any Account Debtors of the assignment of their Accounts, demand and enforce payment of Accounts, by legal proceedings or otherwise, and generally exercise any...

  • Page 142
    ... years preceding the Closing Date, except as shown on Schedule 9.1.5 , no Borrower or Subsidiary has been known as or used any corporate names, has been the surviving corporation of a merger or combination, or has acquired any substantial part of the assets of any Person. The chief executive offices...

  • Page 143
    ...credit, deduction or return has been authorized with respect to the Account, except discounts or allowances granted in the Ordinary Course of Business for prompt payment that are reflected on the face of the invoice related thereto and in the reports submitted to Agent hereunder; and (g) to the best...

  • Page 144
    ... time to time after the Closing Date). 9.1.13 Governmental Approvals . Each Borrower and Subsidiary has, is in compliance with, and is in good standing with respect to, all Governmental Approvals necessary to conduct its business and to own, lease and operate its Properties and all necessary import...

  • Page 145
    ... required by law or by the terms of the Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices; (ii) the fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance, or the...

  • Page 146
    ... "investment company" or a "person directly or indirectly controlled by or acting on behalf of an investment company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Federal Power Act, the Interstate Commerce Act or any other Applicable Law regarding...

  • Page 147
    ... on the Closing Date or such other internal procedures as may be reasonably acceptable to Agent) bases for Borrowers and their Subsidiaries, setting forth in comparative form corresponding figures for the preceding Fiscal Year and certified by the chief financial officer of Borrower Agent as being...

  • Page 148
    ...; and copies of any press releases or other statements made available by a Borrower to the public concerning material changes to or developments in the business of such Borrower; (h) promptly after the sending or filing thereof, copies of any annual report to be filed in connection with each Plan or...

  • Page 149
    ... with respect to Collateral, maintain insurance with insurers (with a Best Rating of at least A+, unless otherwise approved by Agent) satisfactory to Agent, (a) with respect to the Properties and business of Borrowers and Subsidiaries of such type (including product liability, workers' compensation...

  • Page 150
    ... to an insurance company, the proceeds which are used by such Credit Parties or such Subsidiaries to finance their insurance premiums payable on workers' compensation insurance policies maintained by such Borrowers or such Subsidiaries, in each case incurred in the Ordinary Course of Business; 67

  • Page 151
    ... after the Closing Date in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security benefits; (g) deposits made in the Ordinary Course of Business to secure the performance of tenders, bids, leases, contracts (except those...

  • Page 152
    ... UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by any Obligor or Subsidiary located on the premises of such Obligor or Subsidiary (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course...

  • Page 153
    ... Event of Default; (v) pledges and deposits of cash after the Closing Date to secure obligations under appeal bonds or as otherwise required in connection with court proceedings (including, without limitation, surety bonds, security for costs of litigation where required by law and letters of credit...

  • Page 154
    ... to any Person, except (a) advances to an officer or employee for salary, travel expenses, commissions and similar items in the Ordinary Course of Business; (b) prepaid expenses and extensions of trade credit made in the Ordinary Course of Business; (c) deposits with financial institutions permitted...

  • Page 155
    ...amortization; (d) increases the interest rate (unless such increase is acceptable to Agent); (e) increases or adds any fees or charges (unless such increase or addition is acceptable to Agent); (f) modifies any covenant in a manner or adds any representation, covenant or default that is more onerous...

  • Page 156
    ... as of the last day of such calendar month for the period of twelve calendar months then ending; provided that in the event that a Trigger Period commences in between measurement dates, this covenant shall be measured for the immediately preceding measurement date at the time of commencement of such...

  • Page 157
    ... permitted by Applicable Law, all Obligations shall become automatically due and payable and all Commitments shall terminate, without any action by Agent or notice of any kind. In addition, or if any other Event of Default exists, Agent may in its discretion (and shall upon written direction of...

  • Page 158
    ... hardware and software, trade secrets, brochures, customer lists, promotional and advertising materials, labels, packaging materials and other Property, in connection with the advertising for sale, marketing, selling, collecting, completing manufacture of, or otherwise exercising any rights or...

  • Page 159
    ... Action or otherwise exercise any rights or remedies with respect to any Collateral under the Loan Documents, Applicable Law or otherwise. The duties of Agent shall be ministerial and administrative in nature, and Agent shall not have a fiduciary relationship with any Lender, Secured Party...

  • Page 160
    ... Lenders. In no event shall Agent be required to take any action that, in its opinion, is contrary to Applicable Law or any Loan Documents or could subject any Agent Indemnitee to personal liability. 12.2 Agreements Regarding Collateral and Field Examination Reports . 12.2.1 Lien Releases; Care of...

  • Page 161
    ... or with the written consent of Agent and Required Lenders, it will not take any Enforcement Action, accelerate Obligations under any Loan Documents, or exercise any right that it might otherwise have under Applicable Law to credit bid at foreclosure sales, UCC sales or other similar dispositions of...

  • Page 162
    ...of any Applicable Law denying or restricting the right of financial institutions to transact business in any jurisdiction. If Agent believes that it may be limited in the exercise of any rights or remedies under the Loan Documents due to any Applicable Law, Agent may appoint an additional Person who...

  • Page 163
    ...bear interest from the due date until paid at the rate determined by Agent as customary in the banking industry for interbank compensation. In no event shall Borrowers be entitled to receive credit for any interest paid by a Lender to Agent. 12.11.3 Recovery of Payments . If Agent pays any amount to...

  • Page 164
    ...13.2 Participations . 13.2.1 Permitted Participants; Effect . Any Lender may, in the ordinary course of its business and in accordance with Applicable Law, at any time sell to a financial institution ("Participant") a participating interest in the rights and obligations of such Lender under any Loan...

  • Page 165
    ... execute and deliver to Agent, for its acceptance and recording, an Assignment and Acceptance; provided , however , that (i) the total number of creditors (other than Qualifying Banks) of the Swiss Borrower under the Loan Documents shall not at any time exceed the number of ten (10), in each case...

  • Page 166
    ...THE NEGLIGENCE OF AN INDEMNITEE EXCEPT TO THE EXTENT SUCH CLAIM IS AS A RESULT OF BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR ITS AGENTS, OFFICERS, DIRECTORS, ATTORNEYS, ADVISORS OR AFFILIATES. Without limiting in any way the foregoing, each Borrower shall fully indemnify...

  • Page 167
    ...the date of payment thereof at the Default Rate applicable to Base Rate Revolver Loans. Any payment made or action taken by Agent under this Section shall be without prejudice to any right to assert an Event of Default or to exercise any other rights or remedies under the Loan Documents. 14.5 Credit...

  • Page 168
    ... and agree that (a)(i) this credit facility and any related arranging or other services by Agent, any Lender, any of their Affiliates or any arranger are arm's-length commercial transactions between Borrowers and such Person; (ii) Borrowers have consulted their own legal, accounting, regulatory and...

  • Page 169
    ...a source other than Borrowers. Notwithstanding the foregoing, Agent and Lenders may issue and disseminate to the public general information describing this credit facility, including the names and addresses of Borrowers and a general description of Borrowers' businesses, and may use Borrowers' names...

  • Page 170
    ... or control of any Collateral; (d) any bond or security that might be required by a court prior to allowing Agent to exercise any rights or remedies; (e) the benefit of all valuation, appraisement and exemption laws; (f) any claim against Agent or any Lender, on any theory of liability, for special...

  • Page 171
    ... Section 14.16 , Agent acts in its own name and on behalf of itself and not as agent, representative or trustee of any other Lender, and its claims in respect of a Parallel Debt shall not be held on trust. The security granted to Agent to secure a Parallel Debt is granted to Agent in its capacity as...

  • Page 172
    ...In the event that the Swiss Obligor is required to make a payment or otherwise dispose of its assets under the Loan Documents and such payment or disposal is subject to the limitations set out in Section 14.17(a) above, the Swiss Obligor shall immediately: (i) procure that, within five Business Days...

  • Page 173
    ... accordance with the Patriot Act. Agent and Lenders will also require information regarding each personal guarantor, if any, and may require information regarding Borrowers' management and owners, such as legal name, address, social security number and date of birth. [Remainder of page intentionally...

  • Page 174
    IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date set forth above. BORROWERS: NAUTILUS, INC., a Washington corporation By: Title: Address: Attn: Telecopy: NAUTILUS INTERNATIONAL S.A., a Swiss By: Title: Address: Attn: Telecopy: S-1

  • Page 175
    AGENT AND LENDERS: BANK OF AMERICA, N.A., as Agent and Lender By: Title: Address: Attn: Telecopy: S-2

  • Page 176
    .... Terms are used herein as defined in the Loan and Security Agreement dated as of January 16, 2008, among Borrowers, Bank of America, N.A., as Agent, Lender, and certain other financial institutions, as such agreement may be amended, modified, renewed or extended from time to time (" Loan Agreement...

  • Page 177
    ... by the laws of the State of California, without giving effect to any conflict of law principles (but giving effect to federal laws relating to national banks). IN WITNESS WHEREOF , this Revolver Note is executed as of the date set forth above. NAUTILUS, INC. By Title: NAUTILUS INTERNATIONAL S.A. By...

  • Page 178
    .... Terms are used herein as defined in the Loan and Security Agreement dated as of January 16, 2008, among Borrowers, Bank of America, N.A., as Agent, Lender, and certain other financial institutions, as such agreement may be amended, modified, renewed or extended from time to time (" Loan Agreement...

  • Page 179
    ... by the laws of the State of California, without giving effect to any conflict of law principles (but giving effect to federal laws relating to national banks). IN WITNESS WHEREOF , this Term Note is executed as of the date set forth above. NAUTILUS, INC. By Title: NAUTILUS INTERNATIONAL S.A. By...

  • Page 180
    ... made to the Loan and Security Agreement dated as of , 20__, as amended (" Loan Agreement "), among NAUTILUS, INC. and NAUTILUS INTERNATIONAL S.A. (collectively, " Borrowers "), BANK OF AMERICA, N.A. , as agent (" Agent ") for the financial institutions from time to time party to the Loan Agreement...

  • Page 181
    ...laws of the State of California. If any provision is found to be invalid under Applicable Law,...address (or to such other address as Assignee may designate from time to time If to Assignor, to the following address (or to such other address as Assignor may designate from time to time (b) Payments...

  • Page 182
    IN WITNESS WHEREOF , this Assignment and Acceptance is executed as of , ("Assignee") By Title: ("Assignor") By Title: . C-3

  • Page 183
    ... to (1) the Loan and Security Agreement dated as of , 20__, as amended (" Loan Agreement "), among NAUTILUS, INC. and NAUTILUS INTERNATIONAL S.A. (collectively, " Borrowers "), BANK OF AMERICA, N.A. , as agent (" Agent ") for the financial institutions from time to time party to the Loan Agreement...

  • Page 184
    ... By Title: ("Assignor") By Title: ACKNOWLEDGED AND AGREED, AS OF THE DATE SET FORTH ABOVE: BORROWER AGENT :* By Title: * No signature required if Assignee is a Lender, U.S.-based Affiliate of a Lender or Approved Fund, or if an Event of Default exists. BANK OF AMERICA, N.A., as Agent By Title: D-2

  • Page 185
    SCHEDULE 1.1 to Loan and Security Agreement COMMITMENTS OF LENDERS Lender Revolver Commitment Term Loan Commitment Total Commitments

  • Page 186
    SCHEDULE 8.5 to Loan and Security Agreement DEPOSIT ACCOUNTS Depository Bank Type of Account Account Number

  • Page 187
    ... Security Agreement BUSINESS LOCATIONS 1. Borrowers currently have the following business locations, and no others: Chief Executive Office: Other Locations: 2. 3. In the five years preceding the Closing Date, Borrowers have had no office or place of business located in any county other than as set...

  • Page 188
    SCHEDULE 9.1.4 to Loan and Security Agreement NAMES AND CAPITAL STRUCTURE 1. The corporate names, jurisdictions of incorporation, and authorized and issued Equity Interests of each Borrower and Subsidiary are as follows: Name Jurisdiction Number and Class of Authorized Shares Number and Class of ...

  • Page 189
    ... on Schedule 9.1.4. In the conduct of their businesses during five years preceding the Closing Date, Borrowers and Subsidiaries have used the following names: Entity Fictitious, Trade or Other Name 3. 4. In the five years preceding the Closing Date, no Borrower or Subsidiary has been the surviving...

  • Page 190
    ... and Security Agreement PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES 1. Borrowers' and Subsidiaries' patents: Patent Owner Status in Patent Office Federal Registration No. Registration Date 2. Borrowers' and Subsidiaries' trademarks: Trademark Owner Status in Trademark Office Federal Registration...

  • Page 191
    SCHEDULE 9.1.15 to Loan and Security Agreement ENVIRONMENTAL MATTERS

  • Page 192
    SCHEDULE 9.1.16 to Loan and Security Agreement RESTRICTIVE AGREEMENTS Entity Agreement Restrictive Provisions

  • Page 193
    SCHEDULE 9.1.17 to Loan and Security Agreement LITIGATION 1. 2. Proceedings and investigations pending against Borrowers or Subsidiaries: Threatened proceedings or investigations of which any Borrower or Subsidiary is aware:

  • Page 194
    SCHEDULE 9.1.19 to Loan and Security Agreement PENSION PLAN DISCLOSURES

  • Page 195
    SCHEDULE 9.1.21 to Loan and Security Agreement LABOR CONTRACTS Borrowers and Subsidiaries are party to the following collective bargaining agreements, management agreements and consulting agreements: Parties Type of Agreement Term of Agreement

  • Page 196
    SCHEDULE 10.2.2 to Loan and Security Agreement EXISTING LIENS

  • Page 197
    SCHEDULE 10.2.17 to Loan and Security Agreement EXISTING AFFILIATE TRANSACTIONS

  • Page 198
    ...or any other party of any payments made to Agent or such Lender prior to the date hereof, or any other action or failure to act on the part of Agent or any Lender shall not constitute (a) a modification of any Loan Document, or (b) a waiver of any Default or Event of Default under the Loan Documents...

  • Page 199
    ... with all of the present and former directors, officers, agents and employees of any of the foregoing (each a " Released Party "), from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or...

  • Page 200
    ... . All other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered or executed or recorded and shall be in form and substance reasonably satisfactory to Agent. 7. Representations and Warranties . Each Borrower represents and...

  • Page 201
    ... be determined under, governed by, and construed in accordance with the internal laws of the State of California governing contracts only to be performed in that State. 9. Counterparts . This Agreement may be executed in any number of counterparts and by different parties and separate counterparts...

  • Page 202
    ... this Agreement as of the date first above written. BORROWERS: NAUTILUS, INC., a Washington corporation By: Name: Title: NAUTILUS INTERNATIONAL S.A., a Swiss private share company By: Name: Title: AGENT AND LENDERS: BANK OF AMERICA, N.A., a national banking association, as Agent and the sole Lender...

  • Page 203
    ... facts. Guarantor understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions...

  • Page 204
    ... institutions signatory hereto (each a " Lender " and collectively the " Lenders "), BANK OF AMERICA, N.A. , as administrative agent for the Lenders (in such capacity, " Agent "), NAUTILUS, INC. , a Washington corporation (" US Borrower "), NAUTILUS INTERNATIONAL S.A. , a Swiss private share company...

  • Page 205
    ...,400,000 taken during the fourth Fiscal Quarter of 2007 relating to costs and payments incurred in connection with the LandAmerica Acquisition; and (xxiii) a warranty accrual taken during the fourth Fiscal Quarter of 2007 relating to the discontinued Treadclimber 9.16 line in an amount up to $12,000...

  • Page 206
    ...to respond (which shall in no event be less than 10 Business Days from the date of delivery of such notice to the Lenders). Each Lender shall notify Agent within such time period whether or not it agrees to increase its Commitment with respect to Loans and Letters of Credit and, if so, whether by an...

  • Page 207
    ...,000 ; provided that in the event that a Trigger Period commences in between measurement dates, this covenant shall be measured for the immediately preceding measurement date at the time of commencement of such Trigger Period. 2. Waiver of Known Existing Default . Agent and the Lenders hereby waive...

  • Page 208
    ... representations and warranties set forth herein must be true and correct. (c) No Default . Other than the Known Existing Default, no event has occurred and is continuing that constitutes an Event of Default. (d) Other Required Documentation . All other documents and legal matters in connection with...

  • Page 209
    ... like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as modified and amended hereby. (b) Except as specifically amended... constitute the legal, valid, binding and enforceable obligations of Borrowers to Agent and the Lenders. (c) The execution, delivery and...

  • Page 210
    IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. BORROWERS NAUTILUS, INC. , a Washington corporation By: Name: Title: NAUTILUS INTERNATIONAL S.A. , a Swiss private share company By: Name: Title:

  • Page 211
    AGENT AND LENDERS BANK OF AMERICA, N.A., as Agent and as sole Lender By: Name: Title:

  • Page 212
    ..., being a Guarantor (" Guarantor ") under that certain Guaranty and Security Agreement dated as of January 16, 2008 made in favor of Agent (" Guaranty "), hereby acknowledges and agrees to the foregoing First Amendment to Loan and Security Agreement and Waiver (the " Amendment ") and confirms and...

  • Page 213
    ... OF NAUTILUS, INC. Nautilus, Inc., a Washington corporation Nautilus International Holdings, S.A., a Swiss corporation Nautilus International, S.A., a Swiss corporation Nautilus Switzerland, S.A., a Swiss corporation Nautilus Fitness Deutschland GmbH, a German corporation Nautilus Fitness UK...

  • Page 214
    ... expresses an adverse opinion on the effectiveness of the Company's internal control over financial reporting because of a material weakness) appearing in the Annual Report on Form 10-K of Nautilus, Inc. for the year ended December 31, 2007. DELOITTE & TOUCHE LLP Portland, Oregon March 17, 2008

  • Page 215
    ..., 2007, and any amendments or supplements thereto, and to file this Power of Attorney and the Form 10-K, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, granting unto said attorney-in-fact and agent...

  • Page 216
    ..., 2007, and any amendments or supplements thereto, and to file this Power of Attorney and the Form 10-K, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, granting unto said attorney-in-fact and agent...

  • Page 217
    ..., 2007, and any amendments or supplements thereto, and to file this Power of Attorney and the Form 10-K, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, granting unto said attorney-in-fact and agent...

  • Page 218
    ..., 2007, and any amendments or supplements thereto, and to file this Power of Attorney and the Form 10-K, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, granting unto said attorney-in-fact and agent...

  • Page 219
    ... this annual report on Form 10-K of Nautilus, Inc.; Based on my knowledge, this report does ...board of directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting...

  • Page 220
    ... this annual report on Form 10-K of Nautilus, Inc.; Based on my knowledge, this report does not...board of directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting...

  • Page 221
    ... of Title 18, United States Code), the undersigned officer of Nautilus, Inc., a Washington corporation (the "Company"), does hereby certify that: To my knowledge, the Annual Report on Form 10-K for the year ended December 31, 2007 (the "Form 10-K") of the Company fully complies with the requirements...

  • Page 222
    ... of Title 18, United States Code), the undersigned officer of Nautilus, Inc., a Washington corporation (the "Company"), does hereby certify that: To my knowledge, the Annual Report on Form 10-K for the year ended December 31, 2007 (the "Form 10-K") of the Company fully complies with the requirements...