UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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Nautilus, Inc.
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 Investor
Presentation |
 2 This presentation includes forward-looking statements, including statements
concerning estimated future sales and earnings, new product introduction, and operational improvement. Factors that could cause Nautilus, Inc.’s (“Nautilus”) actual results to differ materially from these forward-looking statements include
availability of media time and fluctuating advertising rates, a decline in
consumer spending due to unfavorable economic conditions, its ability to effectively develop, market, and sell future products, its ability to get foreign-sourced
product through customs in a timely manner, its ability to effectively identify, negotiate and integrate any future strategic acquisitions, its ability to protect its intellectual property, introduction of lower-priced competing products,
unpredictable events and circumstances relating to international operations
including its use of foreign manufacturers, government regulatory action, and general economic conditions. Please refer to our reports and filings with the Securities and
Exchange Commission, including our most recent annual report on Form
10-K and quarterly reports on Form 10-Q, for a further discussion of these risks and uncertainties. We also caution you not to place undue reliance on
forward-looking statements, which speak only as of the date they are
made. We undertake no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made or to reflect the
occurrence of unanticipated events. All views and estimates expressed
herein are based on economic and market conditions and other circumstances as they exist and can be evaluated as of November 20, 2007. In connection with the solicitation of proxies, Nautilus has filed with the SEC and
mailed to shareholders a definitive proxy statement (the "Proxy
Statement"). The Proxy Statement contains detailed information about Nautilus, the special meeting and individuals who are deemed to be participants in Nautilus' solicitation of
proxies. Nautilus' shareholders are urged to read the Proxy Statement
carefully in its entirety. Shareholders may obtain additional free copies of the Proxy Statement and other relevant documents filed with the SEC by Nautilus through the
website maintained by the SEC at www.sec.gov or at Nautilus' website at
www.nautilusinc.com. If you have any questions or need assistance in voting
your shares, please contact our proxy solicitor, Innisfree M&A Incorporated, toll-free at (888) 750-5834; banks and brokers may call collect at
(212) 750-5833. |
 3 Summary Why We Are Here Sharp Contrast in Value Creation Plans Stewards of Shareholder Value • Nautilus’ Board of Directors, after the Company’s second quarter operating loss (its first
quarterly operating loss in Nautilus’ history as a public company), fired its former CEO and launched a restructuring plan to maximize shareholder value. • The Company hired Bob Falcone, Nike’s former CFO, as the new CEO to implement this
turnaround. • At this critical juncture in Nautilus’ history, Sherborne Investors LP (“Sherborne”) is seeking to have its nominees control Nautilus’ Board and unwind Nautilus’ strategy. • Management is vigorously pursuing a diversified strategy. – Strategy takes advantage of large retail and commercial markets. • Sherborne would like to focus on the Direct channel, an approach that has already proven to be unsuccessful for Nautilus. – The Direct channel has been relatively flat with diminished profit profile over the
last five years and is Nautilus’ smallest market. • Nautilus management and Board: – Experienced, proven fitness industry and operational leadership. • In process of aggressively implementing turnaround plan. • Best stewards for value creation. • Sherborne: – Turned down a Nautilus offer of proportional Board representation. – Trying to control Company’s Board without ownership of a controlling economic
interest. – Mixed track-record; limited relevant experience. Who We Are • Nautilus is a leading provider of high performance fitness equipment. • The Company has five of the industry’s top brands by quality and
performance. • Nautilus designs, produces and markets products for a wide range of end-users to help people achieve a fit and healthy lifestyle. |
 4 New Executive Leadership: Robert Falcone $3,405 $3,931 $3,790 $4,761 $6,471 $9,187 $9,553 $2,000 $4,000 $6,000 $8,000 $10,000 1992 1993 1994 1995 1996 1997 1998 • 21 years with PricewaterhouseCoopers; last seven as engagement partner on the Nike account. • Chief Financial Officer of Nike, Inc. (1992 – 1998). – Responsible for company’s global finances and investor relations. • Senior Vice President and Chief Financial Officer of 800.com (2000 – 2002). • Executive Vice President and Chief Financial Officer of BearingPoint, Inc. (2003 – 2004). • Chief Executive Officer of private equity firm Catalyst Acquisitions Group (2004 – 2006). • Chief Executive Officer of GCR Custom Research (2005 – 2007). – Sold in 2007. • Nautilus Board of Directors (2003 – Present). • President and CEO (October 2007 – Present) (Interim CEO from August 2007 to October 2007). Biography Nike Sales During Mr. Falcone’s Tenure ($ in millions) Source: Capital IQ. • Named Nautilus’ Chairman, President, and CEO in October 2007. • More than 33 years of management and board experience. • Significant domestic and international operational experience, complemented by
accounting, financial and capital markets experience.
• Active Nautilus Board member for four years (Audit Committee Chair, Lead
Director). • Informed vision for building upon Nautilus’ 21-year legacy, with conviction required for making tough decisions quickly. |
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 7 Key Recent Events July 16, 2007 Nautilus announces 2nd quarter results with a $0.04 per share net income, including gain from legal settlement. Excluding the gain from the legal settlement, 2nd quarter loss is $0.30 per share. July 26, 2007 Sherborne files 13D indicating it has acquired 19.9% of Nautilus' equity. August 12, 2007 Nautilus announces Gregg Hammann will step down as CEO and Robert Falcone will act as Interim CEO. October 11, 2007 Nautilus announces workforce reduction. October 17, 2007 Nautilus announces 3rd quarter results with a $0.42 unadjusted net income loss per share. Excluding non-recurring charges, 3rd quarter loss is $0.29 per share. Management also reviews restructuring plan. October 19, 2007 Sherborne files 13D/A indicating it has acquired a 25.0% stake in Nautilus. Notice of Special Meeting sent to shareholders. October 29, 2007 Nautilus announces implementation of limited duration Shareholder Rights Plan. August 22, 2007 Sherborne and Nautilus meet to discuss Nautilus’ business and turnaround strategy. September 13, 2007 Representatives of Nautilus’ Board meet with Sherborne who indicates that it wants to actively participate in Nautilus’ operations and to have one of its representatives serve as Chairman of the Board. September 20, 2007 Sherborne sends a demand letter to Nautilus to call a special meeting to, among other things, remove a majority of the Nautilus directors and replace them with Sherborne’s nominees. October 4, 2007 Nautilus offers Sherborne two board seats and representation on each of its committees; Sherborne rejects the proposal. October 12, 2007 In response to Sherborne’s request to participate in the Company’s operations, Nautilus offers to create a new executive committee, on which Sherborne nominees would serve. October 16, 2007 Sherborne rejects Nautilus’ revised proposal. Robert Falcone named President and CEO. November 6, 2007 Sherborne commences soliciting proxies to elect directors controlling a majority of Nautilus’ Board. Implementation of Strategic Plan |
 8 Both Nautilus and the Industry Have Experienced Recent Difficulties Indexed Stock Price Performance Source: Capital IQ. * Peer index includes Amer and Brunswick. S&P 500: 2.8% Cybex: (30.7%) Nautilus: (72.0%) • The industry has suffered recent weakness in consumer spending. – Mortgage crises. • Slower housing starts and slower home sales have decreased short-term demand for
home fitness equipment products. – Significant competition for discretionary spending. • Higher fuel prices. • Consumer credit issues with certain segments of the Direct channel buying
base. 20 40 60 80 100 120 140 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Nautilus Cybex S&P 500 Peer Index * Peer Index: (11.9%) |
 9 U.S. Retail $3.5 U.S. Commercial $1.1 Direct $1.0 International Equipment $4.5 Prospects for Nautilus and the Industry Are Strong • Nautilus plays in a $10.2 billion global market. – Market has grown at 3.0% - 5.0% per annum historically. – 41.3 million Americans belonged to a health club in 2005, up from 32.8 million in 2000. – 70% of Americans intend to increase their exercise regimen in the next 12 months. • Obesity is an epidemic in the United States. – 28% of Americans seriously tried to lose weight in 2006. – The CDC estimated that in 2000, nearly $200 billion in direct and indirect costs were related to obesity and inactivity. Proportion of State Populations Facing Obesity Crises No Data
<10% 10%–14% 15%–19%
20%–24% 25%–29% = 30% Sources: Nautilus, CDC Behavioral Risk Factor Surveillance System, SGMA.
1998 2006 1990 2006 Market Size ($ Billions) |
 10 Key Points of Differentiation Equip Nautilus To Be The Leader in the Global Fitness Industry Strong Portfolio of Brands • Five strong brands, each with their own history, reputation and target consumer.
- Nautilus, Bowflex, Stairmaster, Universal, Schwinn Fitness. • 244 years of brand heritage. Multidimensional Distribution Strategy • Target the global fitness equipment market. • Ability to reach consumers wherever they shop or exercise. • Ability to place the right brand in the right channel. - Bowflex in Direct, Nautilus and Stairmaster in Commercial and Specialty Retail,
Universal in big box retail, and Schwinn in multiple channels. • Not reliant on any individual channel for value creation. • Growing penetration among retailers and fitness clubs. Leveragable Global Footprint • Products available in approximately 50 countries. • As turnaround strategy takes root, ability to leverage SG&A and research and
development costs across a global footprint. Vertical Integration Creates Competitive Advantage • Land America acquisition provides significant margin expansion opportunity, more
control over the supply chain, and improved ability to serve big box retail
profitably. • Renegotiated purchase price. Innovative Product Line • Portfolio of market leading, innovative products. |
 11 • #1 brand in home fitness equipment leveraging 20-years of experience. • Target fitness participants primarily through infomercials, internet, and big box retailers. Unmatched and Valuable Brand Portfolio Brand Year Founded / Added to Portfolio Overview • Brand recognition nearly double that of any other fitness brand. • Product line that spans strength and cardio categories. • Numerous industry awards from trade organizations such as FIBO. • Portfolio of five heritage brands provides ability to sell products at the full spectrum
of price points through multiple channels, globally. • Strong patent support: 109 issued and 62 pending in the U.S., 91 issued and 112 pending internationally. 1970 / 1999 1986 / 1986 • Iconic stepping brand with strong name recognition. • Selected Top 25 Eureka Innovations in past 25 years by USA Today. 1983 / 2002 • Leading brand in indoor cycling. • 112-year brand heritage. 1895 / 2001 • Highly recognizable brand purchased in 2006. 1957 / 2006 Note: Excludes PEARL iZUMi because of potential divestiture.
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 13 • Targets fitness participants for home use. • Product enables home gym consumers a full free-weight workout at a significant discount to a full free-weight system. • Full rack of free-weight dumbbells in a compact and convenient package. Innovative, Industry-Leading Product Portfolio Bowflex SelectTech Dumbbells Bowflex Revolution Nautilus One Nautilus TreadClimber • Targets fitness participants for home use. • Innovative evolution of Bowflex’s legacy rod-based home gym. – Utilizes linear elastic resistance technology developed by SpiraFlex Inc. and NASA. • Ranked among Men’s Health’s Top 100 Products in 2005. • Innovative new weight selection mechanism for Commercial strength equipment. • Only product of its kind; significant differentiator for the Nautilus brand. • Cardio machine that provides the benefits of a treadmill with lower impact. • Burns twice the calories of walking on a traditional treadmill. • Won the Global Innovation Award at the FIBO 2007 international trade show for health and fitness. |
 14 • Global footprint, but relatively low market share in most markets. – Significant opportunity to grow in multiple international markets. • Completing comprehensive review of global operations. • In process of bringing selected distribution in-house. Significant International Opportunity Significant International Experience Global Reach Office Locations Nautilus Products Available $2,278 $2,532 $2,436 $3,004 $3,973 $5,532 $5,173 $1,127 $1,399 $1,353 $1,757 $2,498 $3,655 $4,380 $3,405 $3,931 $3,790 $4,761 $6,471 $9,187 $9,553 $0 $2,000 $4,000 $6,000 $8,000 $10,000 1992 1993 1994 1995 1996 1997 1998 Nike Domestic Sales Nike International Sales ($ in millions) • Robert Falcone and Timothy Joyce have a combined 26 years of experience with Nike. • From 1992 to 1998 when both Falcone and Joyce were on the Nike team, the duo was able to help drive the company’s sales at a CAGR of 19%, while increasing the international portion of sales from 33% to 46% over the same time period. |
 15 Vertical Integration through Land America Acquisition Creates Competitive Advantage • Exercised option to purchase Land America. – Largest contract manufacturer for Nautilus. – Nautilus currently represents 95%+ of capacity. – Manufactures home gyms, benches, and TreadClimber products for the home. – Immediate gross margin improvement of 150 to 200 bps with potential for additional improvement with increased volume. • Renegotiated Land America transaction terms and extended payment. – $7.0 million price concession, reducing the purchase price to $65.0 million, including
the purchase of $5.0 million in inventory. – $22.5 million payment delayed by 10 months. • Work flow optimization project underway. • Will enable Nautilus to more tightly protect intellectual property and quality.
• Further cost reductions expected through global sourcing of raw materials and
components. Land America Xiamen, China |
 16 Aggressive Moves to Deliver Shareholder Value • Board replaced former CEO after a second quarter operating loss. – Conducted extensive CEO search and Board of Directors unanimously hired Robert S.
Falcone as President and Chief Executive Officer. • Within his first three months as CEO, key actions have been taken: – Undertaking a comprehensive review of global strategy in three channels of
business: Direct, Retail, Commercial. – Approximately $10.0 million annual savings created by reducing workforce by 140
persons. – Improving liquidity by securing a new $150.0 million asset-based loan with a $50.0
million accordion. – Exploring the divestiture of non-core assets, including Pearl iZUMi. – Hiring of Timothy Joyce as Senior Vice President of Global Sales. – Increasing cash available for operations by approximately $13.0 million annually as a
result of the suspension of the Company’s quarterly cash dividend.
– Improving financial terms of previously announced Land America acquisition through a
price concession and delayed payments. – Executing $20 million inventory reduction plan. – Comprehensive evaluation of distribution network; bringing selected international
markets in-house. Under the Board’s and Robert Falcone’s leadership, management has a turnaround plan, which it is in the process of implementing, utilizing the Company’s competitive advantages to drive shareholder value. |
 17 Nautilus’ Strategic Vision • Nautilus is making significant changes to drive growth and improve the Company’s
financial performance. – Attracting new talent in marketing; research, design, and development; and business /
product segments. – Developing business unit matrix structure for maximum accountability and
performance. – Investing more selectively in product innovation – fewer, better introductions. – Initiating market research to understand global product / brand priorities. – Re-evaluating distribution infrastructure to drive out costs (including
transportation). – Securing and strengthening key account relationships in retail and commercial markets
(including global). – Eliminating aging, low-margin products, and assorted parts. – Driving more commercial business directly from the Company. – Developing country / region specific sales / distribution plans globally. – Initiating comprehensive review of all existing facilities. – Launching new strategic platform, focusing first on costs, quality, and product
segmentation. |
 18 Management Is Already Addressing Areas Highlighted by Sherborne Sherborne Identified Consideration Action Completed / Currently Being Undertaken by Nautilus Retail Channel Setting minimum acceptable financial targets, including standard margin and minimum order
requirements. Focusing sales efforts on those customers and products that are best suited for
channel: Presence in 6,800 doors in North America. Penetration of more than four SKUs per door. Greater presence of cardio; fewer home gyms. Making efficient use of fixed operating costs: Reduced compensation expense by 12% through workforce reductions. Direct to Consumer Channel Focusing on quality leads with high probability of conversion instead of focusing on increasing the
quantity of leads (ROI focus rather than growth focus). Performing market research to ensure products brought to market in the Direct channel will be
profitable. Focusing on core print and television advertising with high conversion rates.
Reducing the number of products promoted in the Direct channel in order to focus advertising spend on
key products. Manufacturing Land America acquisition: Opens up opportunities for additional segments and other portions of the retail channel. Allows for the consolidation of contract manufacturers from 12 to three to five. Evaluating the complete manufacturing and distribution process to improve margins. Management Recently hired Timothy Joyce as Head of Global Sales. Continuing to secure talent in key areas: Marketing and creative development. Product-focused general managers. Research, design, and development. Balance Sheet Strengthening the balance sheet: Secured the current line of credit and finalizing a new facility in order to address liquidity
concerns. Pursuing the sale of Pearl iZUMi. Pursuing the sale of inefficient and unprofitable facilities and investments. Liquidating aging and discontinued inventory and parts. Other Pursuing new volume through key accounts. Seeking co-tenant for surplus space at headquarters. |
 19 Comparison of Strategic Plan with Sherborne’s Platform • Sherborne embraces a channel strategy that has proven to be flawed. – Conditions in the Direct channel have since deteriorated, adding further execution difficulty to a Direct-focused model. • Sherborne is relatively ill-equipped to execute a turnaround at Nautilus. Consideration Nautilus Plan Sherborne Platform Channel Strategy Focus on $10.2 billion global opportunity through Focus on smallest channel: $1.0 billion Direct multiple channels. channel. Smart retail expansion strategy for $3.5 billion Retail strategy lacks details. market. Uncertain commercial, international, and apparel Clear commercial plan for $1.1 billion market. strategies. Greater ROI focus in $1.0 billion Direct market. Management Significant fitness industry and operational Hire two un-named CEOs sequentially. experience. Strategic plan is well underway. Up to four CEOs in 12 - 18 months. Key hires in place. Business unit structure announced. Staff stabilized after reduction. Board Membership Four directors that Sherborne is seeking to replace To our knowledge, four proposed directors have no have significant retail and operational experience Nautilus or fitness experience and limited retail and a combined 10 years of experience with experience. Nautilus. Disruption and Associated Execution Risk Key transition largely complete. Significant. New management team in place. Changes in Board and management. Executing robust turnaround plan. Uncertainty creates customer risk. Limitations on Ability to Implement Changes None. Significant. Washington Business Corporation Law prevents Sherborne from completing any further reductions in workforce over the next 5 years that may turn out to be in the best interests of the Company. |
 20 • Nautilus has diversified away from its dependence on the Direct channel because:
– Only about 30% of customers are willing to consider shopping direct. – The Company’s revenues declined from 2002 to 2003 due to an over-reliance on
the Direct channel. • Bowflex was copied in late 2002 before its patent expiration in 2004, by a competitor
who sold a product with a similar name and appearance in the retail
market. – The Direct channel has become far more complex. • A significant number of competitors have entered the channel. • Cost of advertising has increased as more competition vies for media time. – Since 2004, rates on ESPN have increased 600% to 700%, Dish Custom Clusters have
increased 1,000% and USA rates have increased 50 to 75%. (1) – Customers demand a multi-channel distribution strategy. • Customers who see products on television want to buy them in whatever channel they
prefer. Success Requires a Multi-Channel Strategy Successful Multi-Channel Diversification $198.1 $292.5 $392.6 $246.9 $266.5 $293.9 $283.1 $71.4 $192.0 $251.9 $257.4 $337.4 $397.1 $223.9 $363.9 $584.7 $498.8 $523.8 $631.3 $680.3 $25.8 $0.0 $200.0 $400.0 $600.0 $800.0 2000 2001 2002 2003 2004 2005 2006 Direct Sales Other Sales ($ in millions) (1) Source: Nautilus proprietary results reporting; ESPN rate cards. Competitor launched extremely similar product in retail channel taking market share. Changing Market Conditions in Direct Channel 2001 and prior 2002 - Present Competition Grass Roots Entrepreneurial – Ronco , Bowflex, Time Life, Seal a Meal. Sophisticated advertising market for Fortune 500 advertisers as well as entrepreneurs. Purpose Direct sales response – tied to ROI . Many purposes – direct sales response , driving web traffic, driving retail traffic, initial trial, buildin databases, etc. Rates Rates paid to obtain a given response rate reasonable. Rates paid to obtain similar response rate much higher due to heightened competition. Marketing Channel Nautilus singularly focused on TV. Diverse strategy – TV, print, online, radio, promotional media, emerging media. Product Approach Nautilus focused on one aging product: the Bowflex Power Pro. Advertising includes Power Rod Gyms, Revolutio Gyms, TreadClimber products, and SelectTech Dumbbells. |
 21 • Nautilus tried to work constructively with Sherborne without subjecting all shareholders
to a distracting, expensive proxy contest. • From August to September 2007, representatives of Nautilus and Sherborne had three
face-to-face meetings and several other separate
discussions. Nautilus Has Attempted to Work Constructively
With Sherborne Nautilus Offer • Offered Sherborne board representation proportional to its share ownership. • Offered Sherborne representation on all of its committees, including a new executive committee which would have increased oversight over operational matters in response to Sherborne’s concerns. • Nautilus was also prepared to offer another large institutional shareholder board membership. Sherborne Response • Sherborne indicated no interest in Nautilus’ proposals. • Soliciting proxies to replace a majority of the Board. • Seeking control of the Board without a corresponding controlling ownership interest. – Underscored by Bramson’s stated desire to serve as Chairman. If the Sherborne proposals are defeated, Nautilus intends to increase the size of the Board and offer Sherborne and Sun Capital Securities, LLC, Nautilus’ next largest shareholder, Board representation. |
 22 Ampex – A Cautionary Tale Situation Overview Ampex Stock Price Performance Under Bramson • Ampex Corporation engages in the development and licensing of visual information technology products. • A Bramson-led company purchased Ampex in 1987 for $479 million and took the company public in 1992. • Through numerous changes in strategy, work force reductions, and management team changes, Ampex struggled under Bramson’s leadership. • Since the stock’s IPO in 1992, Ampex shares have been delisted twice on two different public exchanges. • Ampex shares traded down significantly in early November 2007, after the company announced that it might be forced to file for bankruptcy. – Prior to this announcement, Bramson reduced his position in Ampex from 12.5% of shares outstanding in August 2006 to 4.99% of shares outstanding in October 2007. • $1.00 invested in Ampex’s 1992 IPO was worth less than $0.02 on November 20, 2007. $0.00 $50.00 $100.00 $150.00 $200.00 $250.00 $300.00 $350.00 Jul-92 Sep-94 Nov-96 Feb-99 Apr-01 Jun-03 Aug-05 Nov-07 Sources: Capital IQ, San Jose Mercury News, Financial Times (London), public
filings. Ampex Revenue Under Bramson $461 $401 $318 $238 $170 $127 $96 $96 $93 $68 $71 $60 $46 $37 $43 $101 $53 $36 $0 $100 $200 $300 $400 $500 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 ($ in millions) • Edward Bramson’s only apparent operational role at a publicly-listed U.S. company reduced shareholder value significantly. • Sherborne turnaround strategies can present significant risk to a business. Key Lessons Learned Note: Adjusted for 1:20 reverse stock split, which occurred in June 2003. Note: Revenue figures are from most recent public filing in which the respective
year’s figures are presented; excludes reclassification of discontinued
segment’s revenues in 1999 and 2000. |
 23 Strong Corporate Governance Directors are elected annually. Does not have blank check preferred stock. Does not have a requirement for a supermajority vote to remove directors. Directors may be removed with or without cause by a majority of the shares entitled to vote. Limited duration Shareholder Rights Plan compliant with multiple ISS policy guidelines (i.e., 3-year term, 20% trigger, subject to shareholder
approval in the next year). • Nautilus has maintained strong corporate governance practices. • Its Board of Directors is focused on the needs of all shareholders. – Independent Audit, Compensation, Nominating and Corporate Governance Committees.
– Six of the seven Nautilus Directors are independent Directors. • Nautilus has not adopted many of the measures other companies use to protect the Board
and management from outside interference. Overview of Defenses |
 24 Nautilus Board Possesses Significant Experience in Retail, Operations, Finance and Strategy Board Member Committee Memberships Relevant Experience Background Robert S. Falcone ¦ Financial, Retail, Apparel, ¦ Mr. Falcone has served on the Nautilus, Inc. Board of Directors since 2003. He
was President and Fitness Industry Chief Executive Officer of GCR Custom Research from July 2005 until August 2007. From
2004 to 2006, Mr. Falcone was Chief Executive Officer of private equity firm
Catalyst Acquisitions Group. Mr. Falcone was Executive Vice President and
Chief Financial Officer of BearingPoint, Inc. from 2003 to 2004. He
was the former Senior Vice President and Chief Financial Officer of 800.com, an Internet retailer of consumer electronics from 2000 to 2002, and was the Chief Financial Officer
of Nike, Inc. from 1992 to 1998. Additionally, Mr. Falcone spent 21
years with Pricewaterhouse Coopers, the last seven as engagement partner on
the Nike account. Evelyn V. Follit* ¦ Audit Committee ¦ Information Technology, ¦ Operates Follit Associates, a corporate technology and executive assessment practice.
She Retail, Human Resources, previously occupied corporate leadership roles with RadioShack Corporation, ACNielsen,
Dun & Fitness Industry, Marketing Bradstreet, ITT, and IBM. Beginning December 2007, Ms. Follit will join the board
of retail department store Bealls Inc. Peter A. Allen* ¦ Compensation Committee ¦ Information Technology ¦ Partner & Managing Director, Market Development, for Technology Partners
International (“TPI”), a and Nominating & Corporate Strategy, Fitness Industry global management consulting firm. TPI advises major corporations in the optimization
of business Governance Committee operations through the best combination of in-sourcing, off-shoring, shared
services and outsourcing. Diane Neal* ¦ Compensation Committee ¦ Retail, Apparel, ¦ Appointed Chief Executive Officer of Bath & Body Works in June 2007, Ms. Neal had
previously and Nominating & Corporate Fitness Industry, served, since October 2006, as President and COO. Prior to joining Bath &
Body Works, Ms. Governance Committee Marketing Neal served as President of the Gap Outlet. She also was a senior leader at the
Target Corporation and held the position of President of Mervyn’s
Stores. Ronald P. Badie ¦ Audit Committee ¦ Financial, Fitness Industry ¦ Spent more than 35 years with Deutsche Bank and its predecessor, Bankers Trust Company,
retiring in 2002 as Vice Chairman of Deutsche Bank Alex Brown (now Deutsche
Bank Securities), the firm's investment banking subsidiary. Marvin G. Siegert ¦ Chairman of Audit Committee ¦ Financial, Manufacturing, ¦ Recently retired as President and Chief Operating Officer of The Pyle Group LLC, a
private equity Retail, Fitness Industry, investment group. Prior to joining The Pyle Group in 1996, Mr. Siegert spent 26
years with Rayovac Corporation, a manufacturer of batteries and lighting
products. Don Keeble* ¦ Chairman of Nominating & ¦ Financial, Retail, ¦ Executive Vice President at Hilco Trading Company, Inc., which provides platform
services including Corporate Governance Fitness Industry, legal and accounting, marketing and capital. Mr. Keeble previously worked for Kmart
Corporation, a Committee and Chairman of Marketing large consumer retail company, for 29 years, most recently as its President of Store
Operations Compensation Committee through 2000. * Denotes a Board member Sherborne is seeking to remove. |
 25 Nautilus Board: Looking Out for the Best Interests of ALL Shareholders • Focused on executing turnaround plan based on leveraging the Company’s core
competitive advantages and key market opportunities. – Targeting a large, growing market. – Increasing margins through vertical integration and other cost saving
initiatives. • Nautilus’ Board took decisive action in response to the Company’s second quarter operating
loss. • The election of Sherborne’s slate of director-nominees could jeopardize shareholders’ opportunity to maximize value of their shares. – To our knowledge, neither Sherborne nor its nominees have any meaningful experience in
the fitness industry. – Nautilus’ current Board has a great deal more retail experience. – Sherborne proposals would cause significant disruption to the business at a critical
juncture in its history. – Sherborne’s strategy for Nautilus is misguided as it relies on an antiquated
business model and ignores many valuable customers. • Sherborne is attempting to have its nominees control the Company without ownership of a corresponding controlling ownership interest. Robert Falcone’s turnaround plan presents the right strategy at the right time with the right leadership. |
 26 Vote the WHITE Proxy • Protect your investment – vote the WHITE proxy. The Board unanimously recommends that shareholders vote: 1. AGAINST the removal of four of the current Nautilus directors. 2. AGAINST Sherborne’s proposal to amend the bylaws such that Board vacancies resulting from the removal of directors by Nautilus’ shareholders may only be filled by the shareholders. 3. AGAINST Sherborne’s proposal to amend the bylaws such that the size of the Board is fixed
at seven seats, provided that such number may be decreased (but not increased) by the Board of Directors. 4. FOR the current directors of Nautilus in the event that Proposal 1 is passed. 5. AGAINST Sherborne’s ability to adjourn the special meeting and solicit additional
proxies. • Do NOT sign or return any green proxy card that may be sent to you by Sherborne.
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