8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant To Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report: December 1, 2005

(Date of earliest event reported)

NAUTILUS, INC.

(Exact name of registrant as specified in its charter)

Washington	001-31321	94-3002667
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

16400 SE Nautilus Drive

Vancouver, Washington 98683

(Address of principal executive offices and zip code)

(360) 694-7722

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b))

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

NAUTILUS, INC.

FORM 8-K

Item 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

On December 1, 2005, Nautilus, Inc. (the “Company”) and Greggory C. Hammann (“Executive”) entered into an Amended and Restated Executive Employment Agreement (the “Amended Agreement”), which amends the employment agreement with Mr. Hammann originally entered into in July 2003.

The following is a summary of the material revisions to the Executive’s prior employment agreement that are incorporated in the Amended Agreement:

Section 1.1 – Employment, Services and Duties. The title of Chairman was added.

Section 3.5 – Life Insurance. The face amount of Company paid term life insurance was increased to $5.0 million from $3.0 million.

Section 5.1 – Severance Pay Upon Termination Without Cause or for Good Reason. The severance payment period was increased from one year to two years.

A copy of the Amended Agreement is attached hereto as Exhibit 99.1 and is incorporated herein. The foregoing description of the Amended Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.

In addition, on December 1, 2005, the Executive and the Company also entered into a Performance Unit Agreement, documenting the terms of a performance unit award approved by the Company’s Compensation Committee pursuant to the Nautilus, Inc. 2005 Long Term Incentive Plan. The Performance Unit Agreement provides for the following two Performance Unit Awards:

(a) Initial Award. The first Performance Unit award (the “Initial Award”) entitles Executive to receive 62,500 shares of the Company’s common stock if, for any completed fiscal year ending on or before December 31, 2011, (i) Executive is employed by the Company on the last day of such fiscal year, and (ii) the Company’s Earnings Per Share (as defined in the Performance Unit Agreement) for such fiscal year equal or exceed two dollars ($2.00) (the “Performance Goal”). The year in which the Performance Goal for the Initial Award is achieved is referred to as the “Initial Award Year.”

(b) Subsequent Award. The second Performance Unit award (the “Subsequent Award”) entitles the Executive to receive 62,500 shares of the Company’s common stock if (i) the Performance Goal for the Initial Award is achieved, (ii) the Initial Award Year is a fiscal year ending on or before December 31, 2010, and (iii) the Company’s Earnings Per Share in the fiscal year immediately following the Initial Award Year increase by 10% or more over the Earnings Per Share of the Initial Award Year.

A copy of Mr. Hammann’s Performance Unit Agreement is attached hereto as Exhibit 99.2 and is incorporated herein. The foregoing description of the Performance Unit Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.

Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS

(c) Exhibits

Exhibit No.	Description
99.1	Amended and Restated Executive Employment Agreement dated December 1, 2005, by and between the Company and Greggory C. Hammann.
99.2	Performance Unit Agreement dated December 1, 2005, by and between the Company and Greggory C. Hammann.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	NAUTILUS, INC.
	(Registrant)
December 7, 2005	By:	/s/ William D. Meadowcroft
(Date)		William D. Meadowcroft, Chief Financial
		Officer, Secretary and Treasurer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Amended and Restated Executive Employment Agreement dated December 1, 2005, by and between the Company and Greggory C. Hammann.
99.2	Performance Unit Agreement dated December 1, 2005, by and between the Company and Greggory C. Hammann.

EX-99.1

EXHIBIT 99.1

Execution Original

AMENDED & RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT

THIS AMENDED & RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”) is executed this 1st day of December, 2005 by and between NAUTILUS, INC., a Washington corporation (the “Company”), and Greggory C. Hammann, an individual (“Executive). In consideration of the mutual covenants and agreements hereinafter contained, it is hereby agreed by and between the parties hereto as follows:

RECITALS

A. The Company and Executive are parties to that certain Executive Employment Agreement, dated July 2, 2003, pursuant to which the Company employed Executive to serve as the Company’s Chief Executive Officer.

B. The parties are entering into this Amended and Restated Executive Employment Agreement in order to provide for the terms and conditions pursuant to which Executive will continue to serve as the Company’s Chief Executive Officer.

NOW, THEREFORE, it is hereby agreed as follows:

AGREEMENT

1. Employment, Services and Duties

1.1 Employment. The Company hereby employs Executive as the Chief Executive Officer of the Company (“CEO”) and as its Chairman of the Board of Directors, and Executive hereby accepts such employment upon the terms, covenants and conditions set forth herein. So long as Executive is CEO of the Company, the Company’s Board of Directors shall nominate Executive for election to the Board at the Company’s annual meeting of shareholders.

1.2 Duties. As CEO, Executive shall report to the Board of Directors, or their designee, and shall have such duties and responsibilities as determined by the Board, including generally such duties and powers that are commonly incident to that position. Executive shall (a) devote his entire professional time, attention, and energies to his positions, (b) use his best efforts to promote the interests of the Company; (c) perform faithfully, honestly and efficiently his responsibilities and duties to the satisfaction of the Company, and (d) refrain from any endeavor outside of his employment which interferes with his ability to perform his obligations hereunder. Executive additionally agrees to abide by any general employment guidelines or policies adopted by the Company such as those detailed in the Company’s handbook or communicated to the Company’s employees, as such guidelines or policies may be implemented and/or amended from time to time.

1.3 Volunteer Activities. Executive may serve in various capacities for various non-profit civic, charitable and educational organizations from time to time. Any such non-profit work that has the potential to interfere to any degree with Executive’s services to the Company,

or where Executive will be taking a visible role in the organization, must be disclosed to, and approved by, the Board of Directors prior to Executive performing such services.

1.4 Outside Activities. Executive agrees that he shall not accept any position with, be employed by, provide any paid services to, or serve on any Board of Directors for a for profit organization or entity other than the Company without the express written prior approval of the Company’s Board of Directors.

2. Employment Relationship

Executive agrees that his employment relationship is “at-will” and may be terminated with or without Cause. The at-will character of the employment relationship may be changed only by resolution adopted by the Board of Directors. However, during the term of this Agreement, the various possible ways in which Executive’s employment with the Company may be terminated will determine the payments that may be due to Executive under this Agreement.

3. Salary, Benefits, and Equity Compensation

3.1 Salary. As payment for the services rendered by Executive under this Agreement, Executive shall receive a salary approved by the Compensation Committee of the Board of Directors in accordance with the Company’s executive compensation policies as established by the Compensation Committee. Executive’s salary shall be subject to such payroll deductions as required by law or as are appropriate under the Company’s payroll deduction procedures and policies. Executive’s salary as in effect on the date hereof shall be reviewed annually by the Compensation Committee of the Board of Directors and may be increased (but not decreased), which increased amount shall thereafter constitute Executive’s “salary” for all purposes under this Agreement.

3.2 Equity Compensation. The Board shall review Executive’s performance each year and determine the appropriate level of equity compensation based on performance.

3.3 Bonus.

(a) Executive shall be eligible to receive a performance-based annual cash bonus based upon Executive’s and the Company’s performance in the fiscal year. Executive shall be eligible to receive 100% of Executive’s annual salary for attainment of plan-level performance of annual Company and individual goals established by the Compensation Committee, and up to 150% of annual salary for attainment of stretch-level (i.e., in excess of a plan-level) performance of such goals. The terms and amount of such bonus shall be determined by the Compensation Committee of the Board of Directors in its sole discretion, after consulting Executive, based on performance factors such as the Company’s sales and profits versus targets and other performance based goals and objectives that are established not later than 90 days after the first day of the fiscal year; provided, Executive shall be entitled to payment under such annual cash bonus plan, and under all other cash-based annual and long-term incentive plans and arrangements, not later than the fifteenth day of the third month after the completion of the

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performance period in which such amount is earned and otherwise not subject to a substantial risk of forfeiture.

(b) Any bonus payment shall be subject to such payroll deductions as required by law or as are appropriate under the Company’s payroll deduction procedures and policies.

3.4 Benefits. Executive shall be entitled to participate in or receive benefits under any formal or informal benefit plan or other arrangement made available by the Company generally to all its officers and key management executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements, as such may be amended from time to time; provided, Executive shall be entitled to not less than six weeks vacation per year. The Company shall reimburse Executive for the reasonable professional fees incurred by Executive in connection with this Agreement and Exhibits thereto.

3.5 Life Insurance. Assuming that Executive is insurable at a reasonable and normal cost, the Company shall purchase and maintain in force during Executive’s employment with the Company life insurance covering Executive in the face amount of Five Million Dollars ($5,000,000) with the primary beneficiary being Executive’s spouse. At Executive’s election, if allowable under the policy at no cost to the Company and with no risk of potential future obligation to the Company, the Company shall assign such life insurance policy to Executive or other assignee designated by Executive upon a termination of Executive’s employment.

3.6 Disability Insurance. Assuming that Executive is insurable at a reasonable and normal cost, the Company shall purchase a disability insurance policy covering Executive in the event that he is unable to work for greater than 90 consecutive days due to disability. Such policy shall provide at a minimum salary continuation to Executive in an amount equal to sixty (60%) of his salary for a period of ten years. At Executive’s election, if allowable under the policy at no cost to the Company and with no risk of potential future obligation to the Company, the Company shall assign such disability insurance policy to Executive upon a termination of Executive’s employment.

4. Termination

Executive’s employment may be terminated pursuant to the following:

4.1 Termination for Cause. The Company may terminate Executive’s employment for Cause. Termination of Executive’s employment for “Cause” shall mean a termination due to a preponderance of objective evidence of any of the following: (i) Executive’s indictment for, or conviction (or plea of nolo contendere) of a felony; (ii) a material¹ act of dishonesty by Executive related to his employment; (iii) proof of willful violation of a key Company policy by Executive (such policy violation must be of a substantial nature similar in magnitude to acts of harassment or discrimination or use of unlawful drugs or drunkenness on Company property during normal work hours); (iv) insubordination (i.e. willful conduct such as refusal to follow

¹ As used in this Agreement, “material” shall be given a reasonable interpretation.

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lawful direct orders of the Board of Directors) or gross dereliction of duty by Executive after written warning;² (v) Executive’s competition with the Company, diversion of any corporate opportunity, breach of fiduciary duty, a serious conflict of interest, or self-dealing inuring to Executive’s direct or indirect benefit and the Company’s detriment; (vi) willful or grossly negligent conduct by Executive that is demonstrably and significantly injurious to the Company or its affiliates; (vii) a material breach of this Agreement that is not corrected within thirty (30) days of the date of receipt by Executive of such written notice from the Company; or (viii) a material breach by Executive of the Amended and Restated Business Protection Agreement (as contemplated by Section 7 below) by and between Executive and the Company. An act or omission shall not be “willful” if conducted with a reasonable belief that such act or omission is in the best interests of the Company. Executive shall not be terminated for Cause, other than pursuant to clause (i), except upon the affirmative vote of two-thirds of the Board of Directors (excluding Executive). Other than pursuant to clause (i), Executive shall receive reasonable prior notice of any Board meeting where a vote will be taken on the possible termination of Executive for Cause. Such notice shall include a description of the circumstances that may constitute Cause. Executive shall have the opportunity to attend such Board meeting and present relevant information to the Board prior to any vote on the matter. Legal counsel may be present and may participate in the presentation.

4.2 Termination Without Cause. The Company may terminate the employment of Executive and all of the Company’s obligations hereunder (except as expressly provided) at any time and for any reason or for no reason (“without Cause”).

4.3 Termination Due to Disability or Death. Executive’s employment shall terminate immediately upon Executive’s death and shall be immediately terminable after an indefinite leave or a leave of more than ninety (90) days due to disability. “Disability” is defined for purposes of this subsection as a condition that renders Executive eligible to commence disability benefits pursuant to the policy provided pursuant to Section 3.6. Hence, neither party can claim Executive is disabled for any purpose unless the condition renders Executive eligible to commence disability benefits. The parties agree that due to the importance of Executive’s position with the Company, either an indefinite leave or a leave of absence in excess of 90 days within a twelve month period would cause an undue hardship to the Company and would not constitute a reasonable accommodation. Nothing in this Section 4.3 is intended to violate any federal or state law regarding medical leave. In the event Executive’s employment terminates due to Executive’s death, all stock options vested as of the date of death shall remain exercisable for a period of three (3) years from such date.

4.4 Voluntary Termination by Executive. Executive may terminate his employment with the Company at any time by giving the Company written notice of such termination, to be effective thirty (30) days following the giving of such written notice. The Company, at its election, may or may not require Executive to continue to perform his duties hereunder for all or some of such thirty (30) day notice period.

² The parties intend the gross dereliction of duty standard to be a high one.

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4.5 Termination by Executive for Good Reason. Executive may terminate his employment with the Company for Good Reason (as defined below) by giving the Board of Directors thirty (30) calendar days written notice of intent to terminate, which notice sets forth in reasonable detail the facts and circumstances claimed to provide a basis for such Good Reason termination.

For the purposes of this Agreement, “Good Reason” shall mean, without Executive’s express consent, the occurrence of any one or more of the following: (i) the assignment of Executive to duties or title substantially inconsistent with his position as CEO; (ii) a failure to be reelected as a member of the Board of Directors; (iii) removal from either of Executive’s positions as CEO or Chairman of the Board of Directors (other than removal as Chairman for the sole purpose of designating a nonexecutive chairman of the Board of Directors immediately thereafter, in which case such removal shall not constitute a breach of this Agreement); (iv) a reduction by the Company in Executive’s salary; (v) a reduction in Executive’s target bonus opportunity, benefits or perquisites, other than a reduction applicable to all senior executives of the Company; (vi) the Company’s relocation of its headquarters more than 50 miles away from its current location, and requirement that Executive relocate to the new headquarters; or (vii) a material breach by the Company of this Agreement or the Nonstatutory Stock Option Agreement relating to the stock option granted to Executive on July 15, 2003. Except for an event under clause (ii) or (iii) hereof, no event shall constitute “Good Reason” unless Executive shall have notified the Company as set forth above of the conduct allegedly constituting Good Reason and the Company shall have failed to correct such conduct within thirty (30) days of the date of its receipt of such written notice from Executive. Moreover, unless Executive shall have notified the Company of the conduct allegedly constituting Good Reason within six months of the first occurrence of such conduct, then Executive shall have waived his right to claim that such conduct constitutes “Good Reason” under this Agreement.

In the event that there is a Change of Control of the Company, for a window of time from the conclusion of six months following the Change of Control until the end of twelve months following the Change of Control, Executive may terminate his employment for Good Reason without making any showing beyond Change of Control. Such Good Reason related to the Change of Control shall expire twelve months after each such Change of Control. For the purpose of this Agreement, Change of Control shall mean any event whereby any person or entity, including any “person” as such term is used in Section 13(d)(3) of the Exchange Act, becomes the “beneficial owner,” as defined in the Exchange Act, of Common Stock representing fifty percent (50%) or more of the combined voting power of the voting securities of the Company.

4.6 Termination by Mutual Agreement of the Parties. Executive’s employment pursuant to this Agreement may be terminated immediately at any time upon a mutual agreement in writing of the parties.

5. Severance

5.1 Severance Pay Upon Termination Without Cause or for Good Reason. Upon termination of Executive’s employment under this Agreement by the Company without Cause (as defined hereunder) or by Executive for Good Reason, then, in lieu of any further or other

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payments, the Company shall pay to Executive (a) his salary accrued through the date of termination and any unreimbursed business expenses submitted in accordance with Company policy (collectively, the “Accrued Obligations”), (b) severance equal to his monthly salary (determined without regard for any reduction constituting Good Reason) for twenty four (24) months, and (c) a pro-rated bonus payment for the portion of the fiscal year completed prior to the termination of Executive’s employment, calculated on the basis of the average bonus paid to Executive in the three preceding fiscal years (e.g., if Executive’s employment terminated on June 30 and the average bonus paid to Executive in the preceding three years was $500,000, Executive would receive a pro-rated bonus of $250,000). Additionally, upon a termination of Executive’s employment under this Agreement by the Company without Cause or by Executive for Good Reason at any time, (i) the Company shall continue health benefits for Executive and his covered dependents, at active-employee premium rates, during the period in which he is entitled to severance payments, and (ii) the stock option exercisable for 850,000 shares of the Company’s Common Stock granted to Executive July 15, 2003 (the “July 2003 Option”) shall continue to vest as if Executive had remained employed with the Company during the period that Executive is entitled to receive severance pay pursuant to this Section 5.1. Any severance payment shall be made according to the Company’s normal payroll process spread out equally over the severance period. Violation of this Agreement, the Amended and Restated Business Protection Agreement (as contemplated by Section 7 below) and/or failure to sign the Release and Waiver Agreement shall immediately relieve the Company from its obligation to pay severance or bonus compensation under this Section 5.1 and entitle it to recover any severance or bonus compensation previously paid under this Section 5.1. In addition, notwithstanding that the non-competition covenant set forth in such Amended and Restated Business Protection Agreement is limited to one year, the Company shall be immediately relieved from its obligation to make severance payments in the event Executive, at any time during the twenty-four month severance period, engages in an activity proscribed in such non-competition covenant.

If required to comply with Section 409A(a)(2)(B)(i) of the Internal Revenue Code, (a) payments to which Executive would otherwise be entitled during the first six months following the date of Executive’s separation from service with the Company shall be accumulated and paid as of the first payment date in the seventh month following separation from service, and (b) July 2003 Option shares that vest during the second twelve months Executive is entitled to receive severance pursuant to this Section 5.1 shall not be exercisable after the date that is fifteen months after the last date on which July 2003 Option shares vest during the first twelve months Executive is entitled to receive severance under this Section 5.1.

Executive shall not be required to mitigate the amount of any payment provided for in this Section 5.1 by seeking other employment or otherwise, and no such payment shall be offset or reduced by the amount of any compensation provided to Executive in any subsequent employment.

5.2 Termination for Cause, Death or Disability, or Without Good Reason. If the Company terminates Executive’s employment for Cause, due to Executive’s death or disability, or if Executive terminates his employment without Good Reason, then the Company shall have no payment obligations to Executive other than paying the Accrued Obligations.

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6. Return of Documents

Executive understands and agrees that all equipment, records, files, manuals, forms, materials, supplies, computer programs, and other materials furnished to him by the Company or used on Company’s behalf, or generated or obtained during the course of his employment shall remain the property of Company. Upon termination of Executive’s employment or at any other time upon the Company’s request, Executive agrees to return all documents and property belonging to the Company in his possession including, but not limited to, customer lists, contracts, agreements, licenses, business plans, equipment, software, software programs, products, work-in-progress, source code, object code, computer disks, information reasonably deemed confidential by the Company (including, without limitation, information subject to the confidentiality and trade secret provisions of the Amended and Restated Business Protection Agreement, books, notes and all copies thereof, whether in written, electronic or other form). In addition, Executive shall certify to the Company in writing as of the effective date of termination that none of the assets or business records belonging to the Company is in his possession, remain under his control, or have been transferred to any third person.

7. Non-Competition, Confidentiality, Non-Solicitation

By virtue of his employment, Executive will have access to confidential, proprietary and trade secret information, the ownership and protection of which is very important to the Company. Executive hereby agrees to execute the Amended and Restated Business Protection Agreement attached as Exhibit A hereto at the same time as his execution of this Agreement. Executive agrees that the Amended and Restated Business Protection Agreement shall remain in full force and effect after the termination of his employment without regard to the circumstances of such termination.

8. Notification to New Company

If Executive leaves the employ of the Company, Executive consents to the Company’s notification to any new employer of Executive’s obligations under this Agreement.

9. Release of Claims

As a precondition to receipt of the severance provided in Section 5.1 of this Agreement, Executive acknowledges and understands that he must sign a Waiver and Release of Claims in substantially the form attached hereto as Exhibit B. Executive understands that he will not be entitled to receive any severance payments under this Agreement until he executes and delivers the Waiver and Release of Claims Agreement, and the revocation period set forth in the Waiver and Release of Claims Agreement has run.

10. Transitional Assistance

During the severance period while Executive is receiving severance payments from the Company, or for ninety (90) days following a voluntary termination by Executive of his employment without Good Reason, Executive agrees to provide the Company with any

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reasonable assistance requested by the Company without the necessity of any additional payment to Executive other than payment of Executive’s reasonable out-of-pocket expenses.

11. Assignment

This Agreement is personal in nature, and neither this Agreement nor any part of any obligation herein shall be assignable by Executive. The Company shall be entitled to assign this Agreement to any other person or entity.

12. Severability

Should any term, provision, covenant or condition of this Agreement be held to be void or invalid, the same shall not affect any other term, provision, covenant or condition of this Agreement, but such remainder shall continue in full force and effect as though each such voided term, provision, covenant or condition is not contained herein.

13. Governing Law and Submission to Jurisdiction

This Agreement shall be governed by and construed in accordance with the laws of the State of Washington applicable to contracts made and to be carried out in Washington. Each of the parties submits to the exclusive jurisdiction of any state or federal court sitting in Clark County or King County, Washington in any action or proceeding arising out of or relating to this Agreement and further agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner so provided by law.

14. Binding Agreement

This Agreement shall inure to the benefit of and shall be binding upon the Company, its successors, and assigns.

15. Captions

The Section captions herein are inserted only as a matter of convenience and reference and in no way define, limit or describe the scope of this Agreement or the intent of any provisions hereof.

16. Entire Agreement

This Agreement and the Amended and Restated Business Protection Agreement attached as Exhibit A contain the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement that are not set forth otherwise herein. This Agreement supersedes any and all prior employment agreements, written or oral, between Executive and the Company, including without limitation the Executive Employment Agreement, dated July 2, 2003,

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previously entered into by the parties. Any such prior agreements are hereby terminated and of no further effect. No modification of this Agreement shall be valid unless authorized by the Board of Directors of the Company and set forth in a writing executed by Executive and a duly authorized representative of the Company. The parties hereto agree that in no event shall an oral modification of this Agreement be enforceable or valid.

17. Notice

All notices under this Agreement shall occur upon receipt in writing (including, without limitation, telegraphic, telex, telecopy, or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand or by a nationally recognized courier service guaranteeing overnight delivery to a party at the following address (or to such other address as such party may have specified by notice given to the other party pursuant to this provision):

If to Company:	Nautilus, Inc.
	16400 SE Nautilus Drive
	Vancouver, WA 98683
	Attn: General Counsel

With a copy or copies to such other persons as the Board may designate to Executive in writing from time to time.

If to Executive:	Greggory C. Hammann
	at his last designated home address
	on the Company records

18. Attorney’s Fees

In the event that any party shall bring an action, arbitration or proceeding in connection with the performance, breach or interpretation of this Agreement, then the prevailing party in such action, arbitration or proceeding as determined by the court or other body having jurisdiction shall be entitled to recover from the losing party all reasonable costs and expenses of such action, arbitration or proceeding, including reasonable attorneys’ fees, court costs, costs of investigation, expert witness fees and other costs reasonably related to such proceedings.

19. Counterparts

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

20. Acknowledgment

Executive acknowledges that he has read this Agreement, he understands that the Company has been represented by Garvey Schubert Barer in this matter, he has been encouraged to consult with an attorney representing him regarding the terms and conditions hereof, and has

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done so, and that he accepts and signs this Agreement as his own free act and in full understanding of its present and future legal effect.

21. Indemnification

The Company shall indemnify Executive and hold him harmless to the maximum extent permitted under the articles of incorporation and by-laws of the Company and applicable law, and shall provide for directors and officers liability insurance to the same extent as provided to officers of the Company and members of the Board of Directors.

22. Inconsistency

This Agreement (and Exhibits hereto) shall govern any inconsistency between this Agreement and any plan, program, policy, practice or other agreement (collectively, “Plans”) by or with the Company in existence on the date of this Agreement or as any such Plan may be adopted, amended or terminated thereafter.

[Remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, this Agreement is executed as of the day and year above written.

“COMPANY”		“EXECUTIVE”
NAUTILUS, INC.
By:
	Signature	Greggory C. Hammann
	Print Name

Title:

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EXHIBIT A

TO

AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

BUSINESS PROTECTION AGREEMENT

In consideration of the agreement by Nautilus, Inc., a Washington corporation (“Company”), to enter into an Amended and Restated Employment Agreement dated December 1, 2005, Greggory C. Hammann, (“Executive”) an individual resident of Vancouver, Washington, agrees to enter into this Amended and Restated Business Protection Agreement (“Agreement”) as follows:

1. Work for Hire, Inventions and Assignment

1.1 Work for Hire/Assignment of Inventions. Executive agrees that all creative work, whether tangible or intangible, including without limitation designs, drawings, specifications, techniques, models, processes and software, prepared or originated by Executive during or within the scope of his or her employment by Company (collectively “Work”), whether or not subject to protection under federal copyright or other law constitutes Work Made for Hire, all rights to which are owned by Company. Executive further agrees that any and all ideas, inventions, discoveries, improvements, whether or not patentable, created during or within the scope of his or her employment by Company (collectively “Inventions”) shall be owned by Company and hereby assigns to Company all right, title and interest, whether by way of copyright, patent, trade secret or otherwise, in such Work and Inventions. Executive represents and warrants to Company that all Work and Inventions are original, that he or she has not copied any Work or Inventions from another’s work, and that the Work and/or Inventions do not infringe the rights of any third party.

1.2 List of Inventions. Executive warrants that any invention(s) that Executive created, alone or with others, before beginning work for Company, and that Executive has rights in are listed on the attached Exhibit A (“Prior Inventions”). Executive acknowledges and agrees that Company would not employ Executive if Company did not believe all information provided by Executive to Company, including without limitation the information listed on Exhibit A, to be true, accurate and complete. If Executive does not list any inventions on Exhibit A, Executive’s signature on this Agreement acknowledges that Executive does not claim any Prior Inventions. In the event that Executive fails to include a Prior Invention on Exhibit A, Executive hereby grants to Company a perpetual, royalty-free, irrevocable, world-wide license to make, have made, use, modify, sell and otherwise exploit such invention(s) at Company’s discretion for use in Company’s business, and to license such rights to third parties.

1.3 Exceptions. Section 1.1 does not apply to any invention, discovery or improvement that Executive developed or develops during the period of time he or she is employed by Company if such invention, discovery or improvement is developed by Executive entirely on his or her own time without using Company’s equipment, supplies, facilities, or trade secret information, except for those inventions that either (a) related at the time of conception or

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reduction to practice to Company’s business, or to actual or demonstrably anticipated research or development of Company, or (b) result from any work performed by Executive for Company.

2. Perfection of Rights, Title and Interest

Executive agrees, without further consideration, to perform, at the request and expense of Company, all lawful acts and execute, acknowledge and deliver all instruments deemed necessary or desirable by Company to vest in Company the entire right, title and interest in works to which the Company has rights, including without limitation all Work and Inventions, and to enable Company to properly prepare, file and prosecute applications for and obtain and defend patents, copyrights and other rights in the United States and foreign countries, as well as reissues, renewals and extensions of such rights, and to obtain and record title to such applications, so that Company shall be the sole and absolute owner thereof in any and all countries in which it may desire protection.

3. Confidential Information

3.1 Definition. During the course of his or her employment by Company, Executive may have access to Company’s Confidential Information, as defined below. Executive understands that the ownership and confidential status of the Confidential Information is highly important to Company, and that Company has a vital and substantial interest in (a) maintaining the confidentiality of its Confidential Information, (b) maintaining a stable work force, (c) continuing its relationships with its Business Contacts, as defined below, (d) remaining in business and (e) avoiding or minimizing any disruption of, damage or impairment to, or interference with its business. For purposes of this Agreement, “Confidential Information” shall include all information that (i) is treated by Company as confidential or proprietary; (ii) would reasonably be viewed as confidential; (iii) would reasonably be viewed as having value to a competitor of Company; or (iv) Company is under an obligation to a third party to keep confidential. Consistent with this definition, Confidential Information shall include:

confidential, nonpublic or proprietary information concerning Company’s business, customers, employees, vendors, products and services, including without limitation information concerning Company’s financial affairs; methods of conducting or obtaining business; marketing plans or strategies; current or future business opportunities; current or future products; technology; licenses; software or other programs (including source code); customer or contact lists; relationships with third party companies; actual or prospective (to be “prospective,” there have been business discussions with such persons during the twelve months prior to termination of Executive’s employment with the Company and are known to Executive) clients, customers, business partners, or investors (collectively “Business Contacts”); contract terms; reports; legal affairs; ideas; inventions; methods; processes; research; development; operations; systems; algorithms; improvements; know-how or any other information disclosed by Company or a third party under Company’s authority or discovered by Executive in connection with any such disclosure, including without limitation all such

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information disclosed in writing, or other fixed media or disclosed in any other manner, including without limitation oral, visual, or electronic disclosure.

“Confidential Information” does not include information that is generally known to the public or is disclosed to Executive by Company without restriction.

3.2 Ownership. Executive acknowledges that all Confidential Information is the valuable and confidential property of Company. Executive acknowledges and agrees that all Confidential Information is, and shall continue to be, the exclusive and permanent property of Company, whether or not prepared in whole or in part by Executive, and whether or not disclosed or entrusted to Executive in connection with his or her employment by Company.

3.3 Restrictions on Disclosure and Use of Confidential Information. Executive agrees to hold all Confidential Information in a fiduciary capacity, to exercise the highest degree of care in safeguarding Confidential Information against loss, theft, or other inadvertent disclosure, and to take all steps reasonably necessary to maintain the confidentiality of the Confidential Information. Executive shall not, without the prior written permission of Company, directly or indirectly, either during the term of his or her employment (except as required in the normal course of the performance of his or her duties, and only for the sole benefit of Company), or at any time after his or her employment is terminated for any reason:

3.3.1. Disclose to any person, corporation or other entity or use in his or her own or in any other person’s business, any Confidential Information;

3.3.2. Remove any Confidential Information from Company’s premises without the prior written permission of Company; or

3.3.3. Take advantage of any business opportunity obtained on the basis of Confidential Information known to Executive in the course of his employment by Company.

Executive acknowledges and agrees that the restrictions contained in this Agreement on the use and disclosure of Confidential Information are in addition to any other restrictions that may apply under contract, statute or common law including, without limitation, trade secret, copyright, and patent.

3.4 Disclosures to Governmental Entities. If Executive becomes legally obligated to disclose Confidential Information to any governmental entity with jurisdiction over Executive, Executive will give Company prompt written notice of such obligation, sufficient to allow Company to obtain a protective order or other appropriate remedy. Executive agrees to disclose only such information as Executive is legally required to disclose, and to use his or her reasonable best efforts to obtain confidential treatment for any Confidential Information he or she is required to disclose.

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3.5 Trade Secret. Executive agrees that all Confidential Information constitutes the valuable trade secret property of the Company; that Company has taken steps that are reasonable under the circumstances to maintain the confidentiality of such information; and that such information derives independent economic value from not generally being known to and by not readily being ascertainable by others. Executive further agrees that if, for any reason, a court or other body with jurisdiction to determine the trade secret status of the Confidential Information declares that any portion of the Confidential Information is not subject to protection as a trade secret, such information shall nevertheless remain subject to the limitations on use and disclosure of Confidential Information contained in this Agreement.

3.6 No License. Executive understands that, during employment by Company, Executive may have access to information that does not meet the definition of Confidential Information, but is nevertheless protected from unauthorized use by copyright, patent, and other laws. Executive acknowledges that the fact that any such information is not Confidential Information as defined herein does not give Executive any right or license to use such information or limit the other protections available to the Company for such information under contract, statute or common law.

4. Protection of Third Party Information

Executive understands that he/she may have access to information submitted by or relating to third parties, including individuals, that may be protected from use, disclosure, and/or infringement by laws and regulations governing such information including copyright laws, trade secret laws and other laws and regulations and by contract with third parties. Executive shall strictly safeguard and maintain the security and privacy of any such protected information and shall adhere to any policies and procedures with respect to the safeguarding of such information as from time to time directed by the Company. Executive further understands failure to comply with these requirements may subject the Company and Executive to liability and may be grounds for discharge.

5. Scope of Company Protection

Company is or expects to be a multi-national concern that conducts business throughout the world. In employment with the Company Executive has performed and/or will perform services in more than one city, county, state or country, and has gained and/or will gain access to Confidential Information that pertains not only to the specific area in which Executive lives and/or works but also to other cities, counties, states and countries in which Company does business. The parties acknowledge that due to the character of Company’s business, a geographic restriction on this Agreement would not adequately protect Company’s legitimate business interests. The protections stated herein are intended to protect Company to the fullest extent possible in all of the cities, counties, states, and countries in which Company does business or contemplates doing business.

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6. Additional Protections

Executive acknowledges that his or her position with Company is such that he or she has had and/or will have access to important and sensitive information that is unique to the Company regarding the Company’s business, including without limitation its strategies for designing and delivering services and/or goods, identifying markets for services and/or goods, developing and introducing services and/or goods, selecting business partners and third party products, targeting and exploiting business opportunities and pricing services and/or goods. Executive acknowledges that all such information is critical to Company’s success and/or to the success of Company’s affiliates, parents, partners and subsidiaries (collectively, “Company Group”), constitutes Confidential Information and/or trade secret information, and gives Company an advantage over its competitors. Executive understands that such information would be extremely valuable to a competitor of Company Group, since it would permit the competitor to anticipate and potentially pre-empt Company Group’s future business plans and that such disclosure would seriously damage Company Group’s business.

7. Disclosure of Prior Restrictions

Company is not employing Executive to obtain any information that is the property of any previous employers or any other person or entity. Executive represents and warrants that he or she is not currently subject to any restriction that would prevent or limit Executive from carrying out his or her duties for Company. Executive agrees not to take any action on behalf of Company that would violate a prior restriction or agreement to which Executive is subject, to notify Company immediately if any such restriction or situation should arise, and to fulfill all obligations to present or former employers and others during his or her service to Company.

8. Return of Company Property

Upon termination of employment, or upon demand by Company, Executive agrees to promptly return to Company all Confidential Information, including all tangible and intangible work product containing or reflecting Confidential Information or any part thereof, and all other Company property in Executive’s possession or control, including but not limited to: all papers, records, memoranda, notes, or other documents of any kind; all video and audio tapes; all computer software or hardware in any form, all computer tapes, disks and other magnetic media; any and all copies of any of the above; all equipment; all credit cards; all keys; and any other property or Confidential Information that belongs to Company, whether or not generated by Company. Executive understands and agrees that his or her obligations under this Agreement shall survive the termination of his or her employment, and shall inure to the benefit of any successor of Company.

9. Non-Competition

Executive acknowledges that Company is engaged in a highly competitive business and that by virtue of his position with Company, Executive will perform services that are of a competitive value to Company and which, if used in competition with Company, could cause it serious harm. Accordingly, Executive agrees as follows: during the term of his employment by

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Company, and for one (1) year after termination, Executive shall not directly or indirectly own, operate, provide financial, technical or other assistance or services to, or be connected with as stockholder (other than as an owner of less than 5% of the stock of a publicly held corporation whose stock is traded on a national securities exchange or in the over-the-counter market) any organization or entity which designs, manufactures or distributes exercise or fitness equipment.

10. Non-solicitation of Employees/Contractors

10.1 Unless Executive receives the prior express written consent of Company, Executive shall not, during employment, or for two (2) years after termination of employment, induce or solicit, or attempt to induce or solicit, directly or indirectly, any person who is in the employment of, or is providing services to, Company, to leave or terminate such employment or business relationship.

10.2 If Executive violates Section 10.1 above, then at the sole election of Company, Company shall be entitled to seek and obtain an injunction in addition to any other remedies available under this Agreement or by law.

11. Non-Interference with Business Contacts

Unless Executive receives the prior, express, written consent of Company, Executive shall not, during employment, or for one (1) year after the termination of employment, solicit or entice any Business Contact to decrease, discontinue, terminate, cancel or revoke its relationship with Company.

12. Extension of Obligations

The periods in which the obligations under Sections 6, 9, 10, and 11 remain in effect shall be extended day-for-day for any period in which Executive is in breach of this Agreement.

13. At-Will Employment Status

Executive acknowledges and agrees that Executive’s employment with the Company is at-will. As a result, either Executive or Company may terminate the employment relationship at any time, with or without cause. Nothing in this Agreement shall alter the at-will nature of the employment relationship.

14. Injunctive Relief

Executive acknowledges that breach of Section 3, 6, 9, 10 and/or 11 of this Agreement, or of any other term or provision of this Agreement with regard to Company’s ownership or confidentiality rights, would irreparably injure Company, which injury could not adequately be compensated by money damages. Accordingly, Executive agrees that Company may seek and obtain injunctive relief from the breach or threatened breach of any provision, requirement or covenant of this Agreement, without any requirement to post bond and in addition to and not in limitation of any other legal remedies.

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15. Bankruptcy

In the event Company becomes subject to (a) an insolvency proceeding where there is a liquidation of substantially all of Company’s assets; or (b) a Chapter 7 bankruptcy liquidation, then Company agrees the provisions of Sections 6, 9, 10 and 11 shall terminate upon such liquidation.

16. Governing Law, Jurisdiction, and Attorneys’ Fees

This Agreement shall be construed and enforced in accordance with the laws of the State of Washington, without giving effect to its choice of law provisions. Executive agrees that the exclusive jurisdiction and venue for any dispute arising out of this Agreement shall be the state courts located in Clark County and/or King County, Washington or the federal district court for the Western District of Washington in Seattle, and Executive further consents to the jurisdiction of such courts; provided that Company may seek injunctive relief in another venue when Company believes such relief may not be effective unless obtained in such other venue. In any action to enforce this Agreement, including, as applicable, gaining injunctive relief, the prevailing party shall be entitled to recover, in addition to all other relief, its reasonable attorneys’ fees, costs and expenses incurred in such enforcement action.

17. Severability

If any provision of this Agreement or portion thereof shall be held by a court of competent jurisdiction to be illegal, invalid or unenforceable, the remaining provisions and all other portions thereof shall remain in full force and effect.

18. Entire Understanding

This Agreement sets forth the entire understanding with respect to its subject matter and supersedes all previous agreements to which Executive is a party regarding its subject matter, including without limitation the Business Protection Agreement previously executed by Executive on July 2, 2003. No provision of this Agreement shall be deemed waived, amended, or modified by either party unless such waiver, amendment, or modification is in writing and signed by the party against whom it is sought to be enforced. Executive hereby agrees that all Confidential Information disclosed or learned, and all Work and/or Inventions created, produced or developed, prior to the date of this Agreement shall be subject to the provisions contained herein.

19. Notice to Executive

Executive acknowledges that this Agreement may require the transfer to Company of certain inventions and may restrict Executive’s ability to perform services in the future. Executive further acknowledges that the Company has recommended that he consult with independent legal counsel for advice concerning his rights and obligations under this Agreement.

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By executing this Agreement, Executive and Company agree to be bound by its terms.

Executive	Nautilus, Inc.
FOR EXHIBIT PURPOSES ONLY—NO SIGNATURE REQUIRED
	By:
Greggory C. Hammann		Signature
Date: December 1, 2005
		Print Name and Title Date: December 1, 2005

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EXHIBIT A

TO

BUSINESS PROTECTION AGREEMENT

LIST OF EXECUTIVE’S PRIOR INVENTIONS

List all Inventions created prior to work with Company:

None.

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EXHIBIT B

TO

AMENDED & RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

CONFIDENTIAL WAIVER AND RELEASE OF CLAIMS AGREEMENT

This Waiver and Release of Claims Agreement and Release (herein “Agreement”) dated this              day of                                 ,                     , is entered into by and between Employer (“Nautilus, Inc.” or “We”) and Greggory C. Hammann (herein “Hammann” or “You/Your”).

NOW, THEREFORE, in consideration of the mutual promises and undertakings herein, the parties agree as follows:

AGREEMENT

1. Separation of Employment

We and you agree that your employment with the Company is terminated as of                              (“date of separation”).

2. Compensation

You have been paid all wages and other amounts owed to you through the date of termination. In addition, you will receive severance and other benefits as set forth in your Employment Agreement. You expressly acknowledge and agree that no further payments or monies are owing from us to you relating in any way to your employment/termination or otherwise under the terms of this Agreement or your Employment Agreement. You also acknowledge that absent execution of this Waiver and Release of Claims Agreement you have no right to severance pay.

3. Release

(a) In exchange for severance, you, on your own behalf, as well as on behalf of your marital community and your heirs, executors, administrators and assigns, hereby release in full and forever discharge, acquit and hold harmless The Nautilus Group, Inc. and any parent, subsidiary or otherwise affiliated corporation, partnership or other business enterprise, and all of its or their past or current affiliates, related entities, partners, subsidiaries, insurers, predecessors, successors, assigns, directors, officers, shareholders, investors, representatives, agents, attorneys and employees (herein collectively referred to as “Associated Persons”) from any and all claims, causes of action, demands, suits, liabilities, damages, expenses and obligations of every nature, character or kind, (collectively “Claims”), whether known or unknown, suspected or unsuspected, matured or contingent, existing or hereafter discovered, including, but not limited to, any Claims which in any manner or fashion arise from or relate to your employment with us, any contractual agreements between us, or your separation from Employment with us. You understand that this release specifically refers to and includes any Claims arising under the Federal Age Discrimination in Employment Act and any applicable provisions of state or local

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law, as well as any other Claims arising under any federal, state, local or provincial law, regulation, ordinance or order or otherwise. You further understand that this release specifically refers to and includes any damages or other personal remedies that you could obtain as a result of prevailing on a claim or charge filed with the EEOC or any other administrative agency.

(b) Through this release you are fully, finally, and for all times settling and releasing all disputes and differences within the scope of matters known or unknown, suspected or unsuspected, which now exist, may exist or have existed between you and us or Associated Persons. In furtherance of this intention, this release shall be and remain in effect as a full and complete release notwithstanding the discovery or existence of any such additional or different Claim or fact. The provisions of any law, regulation, statue or ordinance providing in substance that releases shall not extend to Claims, damages or injuries which are unknown or unsuspected to exist at the time of the person executing the release are hereby expressly waived by you.

4. Strict Confidentiality

You agree to keep the terms and conditions of this Agreement, including any payments made hereunder, strictly confidential. You further agree not to disclose such terms or conditions in any manner whatsoever, unless required by law; provided that you may share the provisions with your spouse, attorneys, mental health counselor and tax advisors. In such cases you shall take reasonable precaution to ensure that such information will be protected within the spirit of this Agreement and agree to be personally responsible for any disclosure as if you had made it.

5. Nonadmission of Liability

You expressly agree and acknowledge that this Agreement in no way constitutes an admission of liability on our part, including Associated Persons, and this Agreement does not constitute the admission of any fact from which liability to us, including Associated Persons, can be attributed now or at any time in the future.

6. Promise Not To Sue

You represent that you have not filed any complaints, charges, or lawsuits against us, including Associated Persons, and agree that you will not do so at any time hereafter for Claims released herein, except as may be necessary to enforce your rights pursuant to this Agreement.

7. Non-disparagement

Except as required by law, you agree not to make public disparaging or negative remarks about The Nautilus Group, Inc. and Associated Persons. Except as required by law, the officers and executives of the Company shall not make public disparaging or negative remarks about you.

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8. Representations

You acknowledge that no other party or person, nor any agent or attorney of any party or person, has made any promise, representation or warranty whatsoever, express or implied, not contained herein concerning the subject matter hereof, to induce you to execute this instrument, and you acknowledge that this Agreement has not been executed in reliance on any such promise, representation or warranty not contained herein.

9. Enforceability of Prior Agreements

You acknowledge and agree that any previous agreement, including the Business Protection Agreement, you have signed relating to noncompetition, confidential information and materials, assignment of rights, and nonsolicitation, will continue in full force and effect in accordance with the terms of any such agreement.

10. Entire Agreement

This Agreement, your Employment Agreement, the Business Protection Agreement and your Nonstatutory Stock Option Agreement express the full and complete agreement between us and you regarding the subject matters hereof. The terms of those Agreements are contractual, and not a mere recital of promises. The promises are mutually beneficial. There is no understanding or agreement to make any payment or perform any act other than what is provided for in those Agreements. Any modification of this Agreement shall not be effective unless it is in writing signed by all parties to this Agreement.

11. Voluntary Agreement

We have encouraged you to consult with an attorney before signing this Agreement. We and you acknowledge that you may consider this Agreement for a period of up to twenty-one (21) days before signing it and that you may revoke this Agreement within seven (7) days after all parties have signed it. Only after the seven-day period has passed will this Agreement become effective and binding on the parties. You acknowledge that you have read this entire Agreement, have had the opportunity to consult with your attorney and secure advice with regard thereto, and endorsed your name hereon with the full and complete understanding of the terms of this Agreement and its present and future legal effect.

12. Breach of Agreement

In the event there is a breach of this Agreement or non-compliance with a term contained herein, the non-prevailing party shall be responsible for the payment of any and all reasonable attorneys’ fees, expenses and costs incurred by the other party in enforcing this Agreement, including reasonable attorneys’ fees and costs at all levels of proceedings.

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13. Governing Law and Submission to Jurisdiction

This Agreement shall be governed by and construed in accordance with the laws of the State of Washington applicable to contracts made and to be carried out in Washington. Each of the parties submits to the exclusive jurisdiction of any state or federal court sitting in Clark County or King County, Washington in any action or proceeding arising out of or relating to this Agreement and further agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner so provided by law.

IN WITNESS WHEREOF, the parties have executed this Agreement voluntarily and free of all duress or any other encumbrance as of the date and year set forth above.

HAMMANN	NAUTILUS, INC.
FOR EXHIBIT PURPOSES ONLY—NO SIGNATURE REQUIRED
	By:
Greggory C. Hammann		Signature
		Print Name
		Title:

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EX-99.2

Exhibit 99.2

Execution Original

PERFORMANCE UNIT AGREEMENT

Nautilus, Inc. (the “Company”), through its Board of Directors or a Committee thereof (the “Plan Administrator”), has granted to Greggory C. Hammann (the “Executive”) Performance Unit awards pursuant to the Nautilus, Inc. 2005 Long Term Incentive Plan (the “Plan”), which is incorporated herein by reference. Capitalized terms not otherwise defined in this Agreement shall be defined as set forth in the Plan.

1. Performance Units and Performance Goals. Subject to the terms of the Plan and achievement of the Performance Goals as set forth below, the Company hereby grants to Executive the following two Performance Unit awards:

(a) Initial Award. The first Performance Unit award (the “Initial Award”) shall entitle the Executive to receive Sixty-Two Thousand Five Hundred (62,500) shares of the Company’s common stock if, for any completed fiscal year ending on or before December 31, 2011, (i) Executive is employed by the Company on the last day of such fiscal year, and (ii) the Company achieves the following Performance Goal: the Company’s Earnings Per Share (as defined below) for such fiscal year equal or exceed two dollars ($2.00). (The year in which the Performance Goal for the Initial Award is achieved is referred to herein as the “Initial Award Year.”)

(b) Subsequent Award. The second Performance Unit award (the “Subsequent Award”) shall entitle the Executive to receive Sixty-Two Thousand Five Hundred (62,500) shares of the Company’s common stock if (i) the Performance Goal for the Initial Award is achieved, (ii) the Initial Award Year is a fiscal year ending on or before December 31, 2010, and (iii) the Company achieves the following Performance Goal: the Company’s Earnings Per Share in the fiscal year immediately following the Initial Award Year increase by 10% or more over those of the Initial Award Year.

As used in this Agreement, “Earnings Per Share” shall mean the Company’s earnings per share for a completed fiscal year as reported in the Company’s consolidated statement of income as set forth in the report of the Company’s independent auditors.

2. Price Paid by Executive. If earned in accordance with Section 1, the Initial Award and the Subsequent Award shall be paid to Executive in shares of common stock of the Company within 60 days after the last day of the fiscal year in which such award is earned. The Executive shall not be required to make any payment for such shares.

3. Termination of Employment. In the event Executive’s employment with the Company shall terminate for any reason prior to the close of the Initial Award Year, the Initial Award and the Subsequent Award shall be cancelled and of no further force or effect. In the event Executive’s employment with the Company shall terminate for any reason during the fiscal year that immediately follows the Initial Award Year, Executive shall be entitled to receive the Subsequent Award if all the conditions to payment of the Subsequent Award are met, including achievement of the Performance Goal for the Subsequent Award.

4. No Rights of Shareholder. Until the Company has issued shares to Executive in accordance with the terms of the Plan, the Performance Units granted herein shall not entitle the Executive to any rights of a shareholder, including without limitation the right to receive dividends or to vote the shares underlying such Performance Units.

5. Non-Transferability of Awards. These Performance Unit awards may not be transferred in any manner otherwise than by will or by the laws of descent or distribution.

6. Adjustments Upon Recapitalization or Reorganization. In the event of a material alteration in the capital structure of the Company on account of a recapitalization, stock split, reverse stock split, stock dividend or otherwise, these Performance Unit awards shall be subject to adjustment by the Plan Administrator in accordance with the Plan.

7. Taxation Upon Payment of Awards. Executive understands that he may recognize income for federal income tax purposes in an amount equal to the fair market value of shares received under these Performance Unit awards. The Company will be required to withhold tax from Executive’s current compensation with respect to such income; to the extent that Executive’s current compensation is insufficient to satisfy the withholding tax liability, the Company may require the Executive to make a cash payment to cover such liability as a condition of issuing such shares; provided, at Executive’s election, withholding tax may be paid by withholding from the earned award such number of shares as have an aggregate Fair Market Value on the date of withholding as equals the amount of withholding tax so payable.

8. Governing Law. This agreement shall be interpreted and construed in accordance with the laws of the State of Washington.

9. Section 409A. Anything herein to the contrary notwithstanding, any earned amount payable to Executive hereunder shall be paid on or deferred until the earliest date as may be required to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended.

[Remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, this Agreement has been executed December 1, 2005.

EXECUTIVE	NAUTILUS, INC.
	By:
Greggory C. Hammann		Signature
		Print Name
		Its:

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