NAUTILUS, INC. STOCK UNIT AGREEMENT

THIS STOCK UNIT AWARD AGREEMENT (the “Agreement”), dated as of February 28, 2014 (the “Grant Date”), is made by and between Nautilus, Inc., a Washington corporation (the “Company”), through its Board of Directors or a Committee thereof (the “Administrator"), and Sidharth Nayar (the “Grantee”).

WHEREAS, the Company has adopted the Nautilus, Inc. 2005 Long Term Incentive Plan, as amended (the “Plan”), pursuant to which the Company may grant Stock Units; and

WHEREAS, the Company desires to give Grantee an opportunity to acquire or enlarge his equity ownership in the Company for the purpose of augmenting Grantee’s proprietary interest in the success of the Company and thereby focusing Grantees efforts on increasing shareholder value; and

WHEREAS, the Company wishes to award Stock Units to the Grantee as provided for herein;

NOW, THEREFORE, in consideration of the recitals and the mutual agreements herein contained, the parties hereto agree as follows:

1.    Grant of Stock Unit Award.

1.1    In accordance with the Plan, the Company hereby grants the Grantee a Stock Unit Award (the “Award”) representing the right to receive shares of the Company’s common stock (“Shares”) with an aggregate value determined in accordance with this Agreement of One Hundred Thousand Dollars $100,000 (the “Award Amount”).

 

1.2    The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan.

2.    Vesting.

2.1    The Award shall vest and become payable as to one third (¹/₃) of the total Award Amount on each of the first, second and third anniversaries of the Grant Date (each a “Vesting Date”). On each Vesting Date, subject to Sections 2.2 through 2.4 below, Grantee shall be entitled to receive a number of Shares equal to the quotient obtained by dividing: (i) Thirty-Three Thousand Three Hundred Thirty-Three Dollars ($33,333) (the “Vesting Amount”) by (ii) the average daily closing sales price per Share on the New York Stock Exchange (or such other exchange or source of quotation on which the Shares are listed or quoted if the Shares are not then traded on the New York Stock Exchange) (the “Average Price”) for the twelve months preceding the applicable Vesting Date.

2.2    If (a) on or prior to the second anniversary of the Grant Date Grantee’s employment or service with the Company is terminated without Cause (as defined in the that certain Employment Agreement dated February 10, 2014 by and between Company and Grantee (the “Employment Agreement”)), or Grantee resigns for Good Reason (as defined in the Employment Agreement), or (b) Grantee’s employment or service with the Company is terminated as a result of Grantee’s death, then the unvested portion of the Award shall immediately become vested and Grantee shall be entitled to receive a number of Shares equal to the quotient obtained by dividing: (i) the unpaid portion of the Award Amount by (ii) the Average Price for the twelve months preceding the date of such termination.

2.3    Upon the occurrence of any Corporate Event (as defined below) the unvested portion of the Award shall immediately become vested and Grantee shall be entitled to receive a number of Shares equal to the quotient obtained by dividing: (i) the unpaid portion of the Award Amount by (ii) the Average Price for the twelve months preceding the day immediately prior to the effectiveness of the Corporate Event. For purposes hereof, the term “Corporate Event” means the occurrence of any of the following events: (A) the sale, liquidation or other disposition of all or substantially all of the Company’s assets, other than to a related person (as described in Treas. Reg. 1.409A‑3(i)(5)(vii)(B)); (B) a merger or consolidation of the Company with one or more corporations as a result of which, immediately following such merger or consolidation, the shareholders of the Company as a group hold less than a majority of the outstanding capital stock of the surviving corporation; or (C) any person or entity, including any “person” as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), becomes the “beneficial owner”, as defined in the Exchange Act, of shares of the Company’s common stock representing fifty percent (50%) or more of the combined voting power of the voting securities of the Company.

2.4     Except as expressly provided in Section 2.2 and Section 2.3, if Grantee's employment or service with the Company terminates for any reason prior to a Vesting Date, then Grantee shall forfeit all rights, title, and interest in and to that portion of the Award which has not vested as of the date of such termination. Neither Grantee nor any of Grantee's successors, heirs, assigns or personal representatives shall have any rights or interests in any portion of the Award that is so forfeited.    

3.    Terms and Conditions of Award.

The Award shall be subject to the following terms, conditions and restrictions:

3.1    Prior to the issuance and delivery of Shares in settlement of the Award on a Vesting Date or pursuant to Sections 2.2 or 2.3 the Grantee shall have no rights as a stockholder of the Company, no dividend rights and no voting rights with respect to any Shares issuable pursuant to this Award.

3.2    The rights represented by this Award may not be transferred in any manner except as expressly permitted by the Plan. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Grantee.

4.    Delivery of Shares.    

4.1    As soon as administratively practicable after the date upon which any portion of the Award vests, and provided Grantee shall have paid the Withholding Liability to the Company pursuant to Section 5 hereof, the Company shall issue to Grantee or, at Grantee’s request, Grantee’s designated broker, the number of Shares determined in accordance with Section 2.1, Section 2.2 or Section 2.3, as applicable, free and clear of any restrictions in settlement of the vesting portion of the Award.

5.    Income Taxes.

5.1    The Grantee shall be liable for all applicable income and withholding taxes, including without limitation, any federal, state, local or other income taxes, or any FICA, state disability insurance tax or other employment tax (“Withholding Taxes”) with respect to any compensation income arising out of the award, vesting and settlement hereunder.

5.2    If the Company becomes obligated to withhold an amount on account of any Withholding Taxes imposed in connection with the vesting or settlement of the Award, Grantee shall, on the date the Shares are issued, or such other date upon which the Company becomes so obligated to withhold (the “Withholding Date”), pay such amount (the “Withholding Liability”) to the Company in cash or check payable to the Company.

5.3    If Grantee does not pay such Withholding Liability to the Company on or before the Withholding Date, Grantee hereby authorizes the Company to withhold and/or reacquire from the earned award such number of whole shares as have an aggregate Fair Market Value on the date that the amount of tax to be withheld is to be determined as equals the amount of withholding tax so payable (the “Net Share Settlement”). Such withholding obligation shall be determined based on any applicable minimum statutory withholding rates. The Grantee will receive a cash refund for any fraction of a surrendered share not necessary for required Withholding Taxes.

5.4    In the event the Company cannot (under applicable legal, regulatory, listing or other requirements, or otherwise) satisfy such Withholding Liability in such methods as described in Sections 5.2 and 5.3, the Company may satisfy such withholding by deducting such amount out of any other compensation otherwise payable to the Grantee. Grantee hereby consents to the Company withholding the full amount of the Withholding Liability from any compensation or other amounts otherwise payable to Grantee (including, without limitation, any Shares issuable in settlement of the Award) if Grantee does not pay the Withholding Liability to the Company on the Withholding Date, and Grantee agrees that the withholding and payment of any such amount by the Company to the relevant taxing authorities shall constitute full satisfaction of the Company’s obligation to pay such compensation of other amounts to Grantee.

 

    

IN WITNESS WHEREOF, the Company and the Grantee have executed this Stock Unit Award Agreement as of the date first set forth above.

By: /s/ Bruce Cazenave        

Name: Bruce Cazenave

Title: Chief Executive Officer

Sidharth Nayar