United States
Securities and Exchange Commission
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant To Section 14(a) of the
Securities Exchange Act of 1934
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¨ | Preliminary Proxy Statement |
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x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material under Rule 14a-12 |
NAUTILUS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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NAUTILUS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERSSTOCKHOLDERS
To the ShareholdersStockholders of Nautilus, Inc.:
The annual meeting of shareholdersstockholders of Nautilus, Inc. (the “Company”) will be held on Tuesday, June 3, 2008,9, 2009, at the Company’s World Headquarters, 16400 SE Nautilus Drive, Vancouver, Washington 98683, beginning at 11:00 a.m. Pacific Daylight Time, for the following purposes:
1. To elect a boardBoard of directors,Directors, consisting of six (6) members, to serve until the next annual meeting of shareholdersstockholders or until their successors are duly elected and qualified;
2. To approve the reimbursement of expenses incurred by Sherborne Investors LP and its affiliates in connection with the December 18, 2007 special meeting of shareholders, such reimbursement not to exceed $560,000 and to be paid only following subsequent review and approval by the disinterested members of the Board of Directors. The Board of Directors currently expects that no reimbursement would be made until the Company returns to profitability;
3. To approve the Amended and Restated Articles of Incorporation in the form adopted by the Board of Directors;
4. To ratify the Audit Committee’s appointment of Deloitte & Touche LLP as the Company’s independent registered public accountant firm;accounting firm for the year ended December 31, 2009; and
5.3. To consider and act upon any other matter which may properly come before the annual meeting or any adjournment thereof.
Only shareholdersstockholders who held their shares at the close of business on March 28, 2008,April 27, 2009, the record date, are entitled to notice of and to vote at the annual meeting or any adjournment or postponement thereof.
All shareholdersstockholders are cordially invited to attend the annual meeting.Whether or not you plan to attend the annual meeting, please sign and promptly return the enclosed proxy card, which you may revoke at any time prior to its use. A prepaid, self-addressed envelope is enclosed for your convenience. Your shares will be voted at the annual meeting in accordance with your proxy.
By Order of the Board of Directors | |||||
WAYNE M. BOLIO
|
Vancouver, Washington
April 30,29, 2009
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to Be Held On June 9, 2009:
Pursuant to new rules promulgated by the Securities and Exchange Commission, or the SEC, we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a notice of annual meeting, and 2008 Annual Report to Shareholders, and by notifying you of the availability of our proxy materials on the Internet. The notice of annual meeting, proxy statement, and 2008 Annual Report to Shareholders are available at http://www.nautilus.com/proxy. In accordance with the new SEC rules, the materials on the site are searchable, readable and printable, and the site does not have “cookies” or other tracking devices which identify visitors. Directions to the Company’s World Headquarters are available at http://www.nautilus.com.
20082009 ANNUAL MEETING OF SHAREHOLDERSSTOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
16400 SE Nautilus Drive
Vancouver, Washington 98683
General Information
Our Board of Directors is furnishing this proxy statement and the accompanying Annual Report to Shareholders,Stockholders, notice of annual meeting and proxy card in connection with its solicitation of proxies for use at our 20082009 annual meeting of shareholdersstockholders or any adjournment thereof. The annual meeting will be held on Tuesday, June 3, 2008,9, 2009, beginning at 11:00 a.m., Pacific Daylight Time at the following location:
Nautilus World Headquarters
16400 SE Nautilus Drive
Vancouver, Washington 98683
Our Board of Directors has designated the two persons named on the enclosed proxy card, Edward J. Bramson and Wayne M. Bolio, to serve as proxies in connection with the annual meeting. These proxy materials and the accompanying Annual Report to ShareholdersStockholders are being mailed on or about April 30, 2008May 6, 2009 to our shareholdersstockholders of record as of March 28, 2008.April 27, 2009.
Our principal executive offices are located at 16400 SE Nautilus Drive, Vancouver, Washington 98683. As used in this proxy statement, the terms “we,” “our,” “us,” “Nautilus,” and “Company” refer to Nautilus, Inc. and its subsidiaries.
Revocability of Proxies
You may revoke any proxy you execute at any time prior to its use at the annual meeting by:
delivering written notice of revocation to our Secretary;
delivering an executed proxy bearing a later date to our Secretary; or
attending the annual meeting and voting in person.
Record Date
Our Board of Directors has fixed the close of business on March 28, 2008April 27, 2009 as the record date for determining which of our shareholdersstockholders are entitled to notice of and to vote at the annual meeting. At the close of business on the record date, 31,557,13630,614,336 shares of our common stock were outstanding.
Voting; Quorum
Each share of common stock outstanding on the record date is entitled to one vote per share at the annual meeting. ShareholdersStockholders are not entitled to cumulate their votes. The presence, in person or by proxy, of the holders of a majority of our outstanding shares of common stock is necessary to constitute a quorum at the annual meeting.
Votes Required to Approve each Proposal
If a quorum is present at the annual meeting:
(i) the six nominees who receive the greatest number of votes cast for the election of directorsDirectors by the shares present and voting in person or by proxy will be elected as directors;Directors; and
(ii) the expenses of Sherborne Investors LP and its affiliates (“Sherborne”) incurred in connection with the December 18, 2007 special meeting of shareholders will be reimbursed by the Company following subsequent review and approval by the disinterested members of the Board of Directors (which currently expects that no payment would be made until the Company returns to profitability), if the number of votes cast in favor of the proposal exceeds the number of votes cast against it;
(iii) the Amended and Restated Articles of Incorporation will be adopted as proposed upon the affirmative vote of a majority of the shares entitled to vote at the meeting; and
(iv) the ratification of Deloitte & Touche LLP as our independent registered public accounting firm will be approved if the number of votes cast in favor of the proposal exceeds the number of votes cast against it.
Effect of Abstentions
If you abstain from voting, your shares will be deemed present at the annual meeting for purposes of determining whether a quorum is present. Directors are elected by a plurality of the votes cast, and only votes cast in favor of a nominee will have an effect on the outcome. Therefore, abstention from voting will not affect the outcome of the election.election of Directors. Abstentions will also not affect the outcome of the proposalsproposal to reimburse Sherborne’s expenses or ratify Deloitte & Touche LLP as our independent registered public accounting firm. However, abstentions will have the effect of a vote “against” the proposal to amend and restate our Articles of Incorporation.
Effect of Broker Non-Votes
If you hold your shares in “street name” through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to the proposals to be voted upon at the annual meeting of shareholders.stockholders. Thus, if you do not give your broker or nominee specific voting instructions, your shares may not be voted on these matters. Such “broker non-votes” will be counted for determining whether there is a quorum, but will not be counted as votes “for” or “against.” Thus broker non-votes will not have any effect on the proposalsproposal for reimbursement of Sherborne’s expenses or ratification of Deloitte & Touche LLP as our registered independent public accounting firm, and will have the effect of a vote “against” the proposal to amend and restate our Articles of Incorporation.firm.
Proxy Procedure
When a proxy card is properly dated, executed and returned, the shares it represents will be voted at the annual meeting in accordance with the instructions specified in the proxy. If no specific instructions are given, the shares will be voted FOR the election of the directorDirector nominees described below, FOR the reimbursement of Sherborne’s expenses, FOR approval of the Amended and Restated Articles of Incorporation, and FOR the ratification of Deloitte & Touche LLP as our registered independent public accounting firm. If other matters come before the annual meeting, the persons named in the accompanying proxy will vote in accordance with their best judgment with respect to such matters.
Cost of Proxy Solicitation
The Company plansdoes not plan to hire a proxy solicitor in connection with the annual meeting. Themeeting, but to the extent the Company chooses to use proxy solicitor services, the Company will pay the related fees and expenses of its proxy solicitor and the cost of solicitation of proxies by mail, on behalf of the Board of Directors, which costs, in the aggregate, are expected to be approximately $10,000.expenses.
Procedures for ShareholderStockholder Proposals and Nominations
Under Nautilus’ Bylaws, nominations for directorsDirectors at an annual meeting may be made only by (1) the Board of Directors or a committee of the Board, or (2) a shareholderstockholder entitled to vote who has delivered notice to the
Company within 90 to 120 days before the first anniversary of the date of the mailing of the notice for the preceding year’s annual meeting.
Our Bylaws also provide that business may not be brought before an annual meeting unless it is (1) specified in the notice of meeting (which includes shareholderstockholder proposals that the Company is required to include in its proxy statement under SEC Rule 14a-8), (2) brought before the meeting by or at the direction of the Board, or (3) brought by a shareholderstockholder entitled to vote who has delivered notice to the Company (containing certain information specified in the Bylaws) within 90 to 120 days before the first anniversary of the date of the mailing of the notice for the preceding year’s annual meeting. In addition, you must comply with SEC Rule 14a-8 to have your proposal included in the Company’s proxy statement.
A copy of the full text of the Company’s Bylaws may be obtained upon written request to the Corporate Secretary at the address provided on page 1 of this proxy statement.
Where You Can Find More Information
We file our proxy statements and other information with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). You can inspect and obtain a copy of our proxy statement and other information filed with the SEC at the offices of the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC maintains an Internet site at http://www.sec.gov/ where you can obtain most of our SEC filings. We also make available, free of charge, on our website at www.nautilusinc.comwww.nautilus.com, our proxy statements filed with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they are filed electronically with the SEC.
ELECTION OF DIRECTORS
In accordance with our amended and restated bylaws, our Board of Directors shall be comprised of seven (7) directors,Directors, provided, however that the number may be decreased pursuant to by resolution of our Board of Directors. At the time of this proxy statement, the Board has six (6) directors.Directors.
At the annual meeting, our shareholdersstockholders will elect a Board of six (6) directorsDirectors to serve until the 20092010 annual meeting or until their respective successors are elected and qualified. Our Board of Directors has nominated the individuals listed below to serve on our Board. All of the nominees currently are members of our Board of Directors. If any nominee is unable or unwilling to serve as a directorDirector at the time of the annual meeting, our Board of Directors may provide for a lesser number of directorsDirectors or designate a substitute. If our Board of Directors designates a substitute, the proxy holders will have the discretionary authority to vote for the substitute. Proxies may not be voted for more than six nominees.
The Board unanimously recommends that you vote FOR each of the following nominees for election as director:Director:
Edward J. Bramson,57, 58, Chairman, was elected to our Board of Directors, in December 2007, and he became our Chief Executive Officer (“CEO”) on March 26, 2008. In addition to his duties as our Chairman and Chief Executive Officer,CEO, Mr. Bramson serves as the managing member of Sherborne Investors GP, LLC (“Sherborne Investors GP”) and Sherborne Investors Management GP, LLC (“Sherborne Management GP”) and, as such, manages the investment activities of certain funds controlled by Sherborne Investors GP and Sherborne Management GP. Mr. Bramson has held these positions since May of 2006. SinceFrom December 2006 to September 2008, Mr. Bramson has served as Executive Chairman of Spirent Communications plc (“Spirent”), a global communications technology company listed on the London Stock Exchange (the “LSE”). From September 2008 to the present, he has served as non-executive chairman of Spirent. Investment vehicles managed by affiliates of Mr. Bramson own approximately 17%20% of the outstanding ordinary shares of Spirent. Previously, Mr. Bramson served as
Chairman and a directorDirector of (i) Ampex Corporation, a manufacturer of specialized data recording devices and a licensor of proprietary digital video technologies listed on the NASDAQ Stock Market, from 1992 until February 2007, (ii) Elementis plc, a global specialty chemicals company listed on the LSE, from June 2005 to September 2006 and (iii) 4imprint Group PLC, a U.K. promotional products company listed on the LSE, from October 2003 to July 2004. Ampex Corporation filed for bankruptcy reorganization under Chapter 11 of the United States Bankruptcy Code on March 31, 2008. Investment vehicles managed by affiliates of Mr. Bramson effected operational turnarounds with respect to, and invested in, Elementis and 4imprint.
Ronald P. Badie, 65,66, joined our Board of Directors in August 2005. Mr. Badie spent over 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. Over the years, Mr. Badie held a variety of senior level positions with the firm and its predecessor, Bankers Trust Company, in both New York and Los Angeles. Mr. Badie currently serves as a directorDirector and audit committee member of Obagi Medical Products, Inc., Amphenol Corporation, and Merisel Inc. In addition, Mr. Badie serves on the compensation committee and is the chairman of the compensation committee for Obagi Medical Products. Mr. Badie is a graduate of Bucknell University and received an MBA from New York University’s Stern School of Business.
Gerard L. Eastman, 50, 51, was elected to the Board of Directors in December 2007. Mr. Eastman is a managing directorManaging Director of Sherborne Investors GP and Sherborne Management GP, positions he has held with Sherborne or its affiliates since March 2006. Since December 2006, Mr. Eastman has also served as a non-executive directorDirector of Spirent. From 1997 to February 2006, Mr. Eastman served as a managing directorManaging Director and in other senior executive positions at Citigroup Global Markets Inc., focusing on corporate finance and mergers and acquisitions. Previously, Mr. Eastman held senior positions in investment banking at S.G. Warburg & Co. Inc. and its successor firm from 1993 to 1997. Mr. Eastman received a B.S. in electrical engineering from the Massachusetts Institute of Technology and a M.B.A. from Harvard University.
Richard A. Horn, 60, 61, was elected to our Board of Directors in December 2007. Mr. Horn has been a private investor since February 2002. Mr. Horn was General Manager of the PetsHotel Division of PETsMART, Inc. from April 2001 through February 2002. From January 1999 through March 2001, he was Senior Vice President and General Merchandise Manager of PETsMART.com, Inc. and from July 1994 through December 1998, he was Vice President and General Merchandise Manager of PETsMART, Inc. From 1992 to 1994, Mr. Horn was the chief financial officerChief Financial Officer of Weisheimer Companies, Inc., and, from 1980 to 1992, Mr. Horn was a partner at Coopers & Lybrand. Mr. Horn currently serves on the Board of Directors of Lucky Litter L.L.C., a privately financed manufacturer and marketer of pet products, as welland as the Treasurer of the Board of Trustees of The Saint Joseph’s Hospital Foundation.
Marvin G. Siegert, 59,60, joined our Board of Directors in August 2005. Mr. Siegert is currently a private investor. Mr. Siegert was President and Chief Operating Officer of The Pyle Group LLC, a private equity investment group, from 1996 through July 2007. Prior to The Pyle Group, Mr. Siegert spent 26 years with Rayovac Corporation, a manufacturer of batteries and lighting products, where he held various positions, with his most recent position as Senior Vice President and Chief Financial Officer. Mr. Siegert graduated from the University of Wisconsin, Whitewater and has a master’s degree in management from the University of Wisconsin, Madison.
Michael A. Stein, 58, 59, was elected to our Board in December 2007. From January 2001 until its acquisition by Eli Lilly in January 2007, Mr. Stein served as Chief Financial Officer of ICOS Corporation, a biotechnology company based in Bothell, Washington. From October 1998 to September 2000, Mr. Stein was Chief Financial Officer of Nordstrom, Inc. From 1989 to September 1998, Mr. Stein served in various capacities with Marriott International, Inc., including Chief Financial Officer from 1993 to 1998. Prior to 1989, Mr. Stein was a partner with Arthur Andersen & Co. Mr. Stein serves on the BoardsBoard of Directors of Getty Images, Inc. and Apartment Investment and Management Company, which are botha publicly held companies,company, and the Board of Directors of Providence Health & Services, a not-for-profit health system operating 2627 hospitals and more than 35 other health care facilities across Alaska, Washington, Montana, Oregon
and California. He is a Certified Public Accountant and received his B.S. in business administration from the University of Maryland at College Park, MD.
No family relationship exists among any of the directorsDirectors or executive officers. No arrangement or understanding exists between any directorDirector or executive officer and any other person pursuant to which any directorDirector was selected as a directorDirector or executive officer of the Company.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors oversees the overall performance of the Company on your behalf. Members of the Board stay informed of the Company’s business through discussiondiscussions with the Chief Executive Officer and other members of the executive team andof the Company, by reviewing materials provided them, and by participating in regularly scheduled Board and committee meetings.
Corporate Governance
The Nautilus Board of Directors is elected by the shareholdersstockholders to govern the business and affairs of the Company. The Board selects the senior management team, which is charged with conducting the Company’s
business. Having selected the senior management team, the Board acts as an advisor to senior management and monitors itstheir performance. The Board reviews the Company’s strategies, financial objectives and operating plans. It also plans for management succession of the Chief Executive Officer, as well as other senior management positions, and oversees the Company’s compliance efforts.
The Board of Directors has determined that each of Ronald P. Badie, Richard A. Horn, Marvin G. Siegert, and Michael A. Stein qualify as an “independent director” for purposes of the Company’s Corporate Governance Guidelines and(available on the Company’s website at www.nautilusinc.com), Section 303A.02 of the Listed Company Manual of the New York Stock Exchange, and applicable rules of the SEC, and that each such person is free of any relationship that would interfere with the individual exercise of independent judgment. The Board of Directors has further determined that each member of the three committees of the Board of Directors meets the independence requirements applicable to those committees prescribed by the Listed Company Manual and the Securities and Exchange Commission,SEC, including Rule 10A-3(b)(1) under the Securities Exchange Act of 1934 (the “Exchange Act”) related to audit committee member independence.
Ronald P. Badie has served as the Lead Independent Director pursuant to the Company’s Corporate Governance Policies since August, 2007. Prior to that, Robert S. Falcone held this position. The Lead Independent Director presides at the executive sessions of the Board of Directors and reviews and consults with the Chairman and Chief Executive Officer concerning the agenda for each regular meeting of the Board. The Lead Independent Director may also periodically help schedule or conduct separate meetings of the independent directors and perform such other duties as may be determined by the Board of Directors.
The Board met 23twelve times last year. In 2007,in 2008, and all of the directors attended at least 75% or more of the total number of meetings of the Board and of the meetings held by the committee(s) on which he or shethey served. In addition, membersAll of our directors attended the Company’s Board of Directors typically attend the2008 annual meeting of shareholders if the Company has scheduled a Board meeting coincident with the annual meeting of shareholders. All of the directors who were in office at the time of the meeting attended the Company’s 2007 annual meeting of shareholders. Therestockholders, although there is no formal policy regarding director attendance at the annual meeting of shareholders.such meetings.
Transactions with Related Persons
The Company’s Board of Directors recognizes that related person transactions present a heightened risk of conflictsconflict of interest and/or improper valuation (or the perception thereof) and, therefore, has adopted a related person transaction policy which shall be followed in connection with all related person transactions. Specifically, this policy addresses our procedures for the review, approval and ratification of all related person transactions.
The Board of Directors has determined that the Audit Committee of the Board is best suited to review and approve related person transactions. Accordingly, any related person transactions recommended by management shall be presented to the Audit Committee for approval at a regularly scheduled meeting of the Audit Committee. Any “transaction” with a “related person” (as such terms are defined in Item 404 of Regulation S-K) shall be consummated or shall continue only if the Audit Committee approves the transaction, the disinterested members of the Board of Directors approve the transaction, or the transaction involves compensation approved by the Company’s Compensation Committee.
The Company’s largest shareholder, Sherborne Investors LP (“Sherborne”) undertook a successful action to replace four of the Company’s Directors with Sherborne nominees in a December 2007 special meeting of shareholders. In May 2008, shareholders approved the reimbursement of up to $0.6 million of expenses incurred by Sherborne in connection with the shareholder action. Payment requires the approval of the disinterested members of the Company’s Board and is not anticipated until some time after the Company returns to profitability.
In February 2009, the disinterested members of the Company’s Board of Directors approved a separate agreement with Sherborne Investors Management (“Sherborne Investors”) under which the Company is obligated
to reimburse Sherborne Investors, $20,000 per month, for the use of Sherborne’s New York office space and administrative, information technology and communications services to support the Company’s Chief Executive Officer.
Committees of the Board
The Nautilus Board of Directors currently has three standing committees: an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. Each committee is governed by a written charter that may be amended by the Board at any time. The full text of each committee charter and our Corporate Governance Guidelines are available on the Company’s website located at www.nautilusinc.comwww.nautilus.com or in print to all interested parties who request it. Requests should be sent to the Corporate Secretary at the address provided on page 1.1 of this Proxy Statement.
The Audit Committee
Under the terms of its charter, theThe Audit Committee represents and assists the Board in fulfilling its oversight responsibility relating to (i) the integrity of the Company’s financial statements and other financial information furnished by the Company, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the Company’s systems of internal accounting and financial controls, (iv) the registered independent public accounting firm’s qualifications, performance, compensation and independence, and (v) the performance of the Company’s internal audit function, as well as its registered independent public accounting firm.and (vi) compliance with the Company’s code of business conduct and ethics.
In fulfilling the duties outlined in its duties,charter, the Audit Committee, among other things, shall:
have the sole authority and responsibility to select, evaluate and, where appropriate, replace the registered independent public accounting firm;
review and discuss with management and the registered independent public accounting firm, prior to release to the general public and legal and regulatory agencies, the annual audited financial statements and quarterly financial statements, including disclosures contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and matters required to be reviewed under applicable legal, regulatory or New York Stock Exchange requirements;
reviewdiscuss polices developed by Company management and discuss the Company’s major financialBoard with respect to risk exposuresassessment and risk management and steps Company management has taken by management to monitor and mitigate such exposures;control financial risk exposure, including anti-fraud programs and controls;
review with managementthe responsibilities, functions and performance of the Company’s internal audit function, theincluding internal audit charter and plan,audit’s charters, plans, budget, and the purpose, authority, activities, staffingscope and organizational structureresults of the internal audit function;audits;
review management’s report on internal control over financial reporting and discuss with management and the registered independent public accounting firm any significant deficiencies or material weaknesses in the effectivenessdesign or operation of the Company’s internal control over financial reporting and the internal audit function;controls; and
establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including procedures for the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting, auditing matters or violations of the Company’s code of conduct.
The Audit Committee consists of three independent Directors, Marvin G. Siegert (Chairman), Ronald P. Badie, Robert S. Falcone, Evelyn V. Follit, Richard A. Horn Paul F. Little and Michael A. Stein served on the Audit Committee during 2007. Mr. Little retired from the Board of Directors at the end of his term in May 2007.Stein. Mr. Siegert replaced Mr. Falconehas served as Chairman of the committee insince May 2007. Mr. Falcone stepped down from the Audit Committee after being named Interim Chief Executive Officer and President in August 2007. Ms. Follit was appointed to the Audit Committee in September of 2007
concurrent with her appointment as a member of the Board of Directors. Ms. Follit left the Board of Directors in December 2007 after she was not re-elected to the Board of Directors at the special meeting of shareholders held on December 18, 2007. Mr. Badie stepped down from the Audit Committee in December 2007 when he was appointed Lead Independent Director and a member of the Compensation Committee. Mr. Horn and Mr. Stein were appointed to the Committee on December 31, 2007. Each current member of the Audit Committee meets the independence, financial literacy and experience requirements contained in the corporate governance listing standards of the New York Stock Exchange (NYSE) relating to audit committees. The Board of Directors has determined that Mr. Siegert isall Audit Committee members qualify as “audit committee financial experts”
under the regulations of the SEC. Although all members of our Audit Committee meet the current NYSE regulatory requirements for accounting or related financial management expertise, and the Board of Directors has determined that each of them qualifies as an “audit committee financial expert” as defined by the rulesexpert,” members of the Securities and Exchange Commission. Each member of theour Audit Committee is financially literate, knowledgeableare not professionally engaged in the practice of auditing or accounting and able to review and understand financial statements. In 2007, theare not technical experts in auditing or accounting. The Audit Committee met six times.eight times during 2008.
A copy of the full text of the Company’s Audit Committee Charter can be found on our website at www.nautilusinc.com.
The Compensation Committee
Under the terms of its charter, theThe Compensation Committee has overall responsibilityis responsible for evaluatingoverseeing the Company’s compensation, including equity-based plans, and approvingemployee benefit plans and practices, including the officer compensation plans, policies and programsbenefits of the Company.Company’s executive officers. The Compensation Committee also acts as the administrator of the Company’s 2005 Long Term Incentive Plan.
In fulfilling the duties outlined in its duties,charter, the Compensation Committee, among other things, shall:
review and approve on an annual basisperiodically the corporateCompany’s executive compensation plans in light of the Company’s goals and objectives with respect to such plans, and, if the Committee deems appropriate, adopt, or recommend to the Board the adoption of, new, or the amendment of existing, executive compensation for the chief executive officer, (ii) evaluate the chief executive officer’s performance in light of these established goals and objectives, and (iii) based upon these evaluations, set the chief executive officer’s annual compensation, including salary, bonus, incentive and equity compensation;plans;
review and approve on an annual basis the evaluation process and compensation structure for the Company’s senior executive officers, (ii) evaluate annually the performance of the Company’s seniorCEO and, with the CEO’s participation and input, the executive officers in light of the goals and (iii)objectives of the Company’s executive compensation plans. Determine and approve the annualCEO’s and, with the CEO’s participation and input, other executive officer’s compensation including salary, bonus, incentive and equity compensation, for such senior executive officers;levels based on this evaluation;
reviewapprove any equity compensation awarded to any officer of the Company’s stock option and other stock-based plans and recommend changes in such plansCompany, subject to the Board as needed; andrequirements of the applicable compensation plans;
preparewith respect to SEC reporting requirements, review and publish an annualdiscuss with management the Company’s compensation discussion and analysis, and oversee the preparation of, and approve, the Committee report on executive compensation reportto be included in the Company’s proxy statement.Proxy Statement.
A copy of the full text of the Company’s Compensation Committee Charter can be found on our website at www.nautilusinc.com.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of three independent Directors, Michael A. Stein (Chairman), Ronald P. Badie Peter A. Allen,and Richard A. Horn, Frederick T. Hull, Donald W. Keeble and Diane L. Nealeach of whom served on the Compensation Committee of the Board of Directorscommittee during 2007. Mr. Hull retired from the Board of Directors upon the expiration of his term in May 2007. Mr. Keeble replaced Mr. Allen as Chairman of the committee in May 2007. Mr. Allen, Mr. Keeble and Ms. Neal left the Board of Directors in December 2007 after they were not re-elected to the Board of Directors at the special meeting of shareholders held on December 18. Messrs2008. Messrs. Stein and Horn were appointed to the committee on December 31, 2007 and Mr. Stein was named the committee’s Chairman. AllNone of the members of the committee have a relationship with Nautilus, Inc. other than as Directors and security holders. No member of the Compensation Committee are independent directors.is or was formerly an officer or an employee of the Company. None of Nautilus’ executive officers served, during the year ended December 31, 2008, as a member of the compensation committee or board of directors of any entity that has an executive officer serving as a member of the Compensation Committee or Board of Directors of Nautilus, Inc. Although Messrs. Hammann andMr. Falcone, our former Chief Executive OfficersOfficer and membersmember of the Board of Directors, participated in compensation discussions during 2007, neither participated2008, he did not participate in any deliberations or decisions regarding theirhis own compensation. In 2007,Mr. Bramson does not receive compensation from the Company. The Compensation Committee met six times.ten times during 2008.
The Nominating and Corporate Governance Committee
Under the terms of its charter, theThe Nominating and Corporate Governance Committee is responsible for considering and making recommendations concerning the membership and function of the Board, and the reviewdevelopment and developmentreview of corporate governance guidelines.
In fulfilling the duties outlined in its duties,charter, the Nominating and Corporate Governance Committee, among other things, shall:
identify individuals qualified to become members of the Board and to select directorDirector nominees to be presented for shareholderstockholder approval at the annual meeting;
review the Board’s committee structure and recommend to the Board for its approval directorsDirectors to serve as members of each committee;
develop and recommend to the Board for its approval a set of corporate governance guidelines;
develop and recommend to the Board for its approval an annual self-evaluation process of the Board and its committees; and
review on an annual basis directorDirector compensation and benefits.
The Nominating and Corporate Governance Committee will consider recommendations for directorships submitted by shareholders. Shareholdersstockholders. Stockholders who wish the Nominating and Corporate Governance Committee to consider their recommendations for nominees for the position of Director should submit their recommendations in writing to the Nominating and Corporate Governance Committee, Attention: Chairman, Nautilus, Inc., 16400 SE Nautilus Drive, Vancouver, WA 98683. Recommendations by shareholdersstockholders that are made in accordance with these procedures will receive the same consideration given to nominations made by the Nominating and Corporate Governance Committee.
Nominees may be suggested by directors,Directors, members of management, shareholdersstockholders or, in some cases, by a third party firm. In identifying and considering candidates for nomination to the Board of Directors, the Nominating and Corporate Governance Committee considers a candidate’s quality of experience, the needs of the Company and the range of talent and experience represented on the Board. In evaluating particular candidates, the Committee will review the nominee’s personal and professional integrity, judgment, experience, and ability to serve the long-term interest of the shareholders.stockholders. The Committee will also take into account the ability of a Director to devote the time and effort necessary to fulfill his or her responsibilities.
Richard A. Horn (Chairman), Peter A. Allen, Ronald P. Badie, Frederick T. Hull, Donald W. Keeble, Diane L. Neal and Michael A. Stein served on theThe Nominating and Corporate Governance Committee is comprised of three independent Directors, Richard A. Horn (Chairman), Ronald P. Badie and Michael A. Stein, each of whom served on the committee during 2007. Mr. Hull retired from the Board of Directors upon the expiration of his term in May 2007. Mr. Allen, Mr. Keeble and Ms. Neal left the Board of Directors in December 2007 after they were not re-elected to the Board of Directors at the special meeting of shareholders held December 18, 2007.2008. Messrs. Horn and Stein were then appointed to the committee on December 31, 2007, and Mr. Horn replaced Mr. Keeble aswas named the committee’s Chairman. All members ofIn 2008, the Nominating and Corporate Governance Committee are non-employee, outside directors. In 2007, The Nominating and Corporate Governance Committee met fourtwo times.
Communications with Directors
All interested parties may send correspondence to our Board of Directors or to any individual directorDirector at the following address: Nautilus, Inc., 16400 SE Nautilus Drive, Vancouver, Washington 98683.
Your communications should indicate that you are a shareholderstockholder of Nautilus. Depending on the subject matter, we will either forward the communication to the directorDirector or directorsDirectors to whom it is addressed, attempt to handle the inquiry directly, or not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic. Correspondence marked confidential will not be opened prior to forwarding to the Board or any individual director.Director.
Code of Business Conduct and Ethics
We have adopted the Nautilus, Inc. Code of Business Conduct and Ethics (the “Code of Ethics”), which is a code of conduct and ethics that applies to all of our directors,Directors, officers and employees. You can view the Code of Ethics on our website at www.nautilus.com. A copy of the Code of Ethics will be provided in print without charge to all interested parties who submit a request in writing to Corporate Communications, Nautilus, Inc., 16400 SE Nautilus Drive, Vancouver, Washington 98683.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directorsDirectors and executive officers, as well as persons who own more than 10% of our outstanding common stock, to file with the Securities and Exchange CommissionSEC initial reports of beneficial ownership and reports of changes in beneficial ownership of shares of our common stock. Based solely on a review of copies of such forms furnished to us and written representations from executive officers, directorsDirectors and 10% shareholders,stockholders, we believe that all Section 16(a) filing requirements during 2007applicable to Nautilus, Inc. were met.timely made with respect to the year ended December 31, 2008.
Beneficial Owners of Nautilus StockBENEFICIAL OWNERS OF NAUTILUS STOCK
The following table summarizes certain information regarding the beneficial ownership of our outstanding common stock, as of March 22, 200831, 2009, by: (1) each director and director nominee; (2) each of the named executive officer whose name appearsofficers included in the summary compensation table;Summary Compensation Table; (3) all persons that we know are beneficial owners of more than 5% of our common stock; and (4) all directorsDirectors and executive officers as a group. Except as otherwise indicated, below and subject to applicable community property laws, each owner has sole voting and sole investment powers with respect to the common stock listed.all shares beneficially owned.
Total Shares Beneficially Owned | Shares Covered by Options(2) | Percentage Beneficially Owned(1) | Total Shares Beneficially Owned | Shares Covered by Options(2) | Percentage Beneficially Owned(1) | |||||||||||
Name and Address of Beneficial Owners | ||||||||||||||||
Sherborne Investors LP 135 East 57th Street New York, NY 10022 | 8,438,426 | (3) | 26.74 | % | ||||||||||||
SCSF Equities, LLC 5200 Town Center Circle, Suite 470 Boca Raton, Florida 33486 | 3,122,853 | (4) | 9.90 | % | ||||||||||||
Putnam LLC. d/b/a Putnam Investments One Post Office Square Boston, MA 02109 | 1,624,130 | (5) | 5.15 | % | ||||||||||||
Sherborne Investors GP, LLC 135 East 57th Street New York, NY 10022 | 9,887,764 | (3) | 32.30 | % | ||||||||||||
Putnam LLC d/b/a Putnam Investments One Post Office Square Boston, MA 02109 | 2,331,728 | (4) | 7.62 | % | ||||||||||||
Dimensional Fund Advisors, LP Palisades West, Building One 6300 Bee Cave Road Austin, Texas 78746 | 1,930,401 | (5) | 6.31 | % | ||||||||||||
Barclays Global Investors, NA 400 Howard Street San Francisco, California 94105 | 1,901,734 | (6) | 6.21 | % | ||||||||||||
Current Non-Employee Directors | ||||||||||||||||
Gerard L. Eastman, Director | — | — | * | |||||||||||||
Ronald P. Badie, Director | 20,000 | 12,500 | * | 25,000 | 17,500 | * | ||||||||||
Gerard L. Eastman, Director | 0 | 0 | * | |||||||||||||
Richard A. Horn, Director | 0 | 0 | * | 2,500 | 2,500 | * | ||||||||||
Marvin G. Siegert, Director | 15,500 | 12,500 | * | 20,500 | (7) | 17,500 | * | |||||||||
Michael A. Stein, Director | 0 | 0 | * | 2,500 | 2,500 | * | ||||||||||
Current Employee Director | ||||||||||||||||
Edward J. Bramson, Chairman, CEO and Director | 8,438,426 | (6) | 0 | 26.74 | % | |||||||||||
Edward J. Bramson, Chairman of the Board of Directors and Chief Executive Officer | 9,887,764 | (8) | — | 32.30 | % | |||||||||||
Current Named Executive Officer | ||||||||||||||||
William D. Meadowcroft, CFO, Secretary and Treasurer | 67,050 | 55,000 | * | |||||||||||||
Kenneth L. Fish, Chief Financial Officer | 159,440 | 27,125 | * | |||||||||||||
Wayne M. Bolio, Senior Vice President, Law and General Counsel | 83,375 | 76,875 | * | |||||||||||||
Sebastien Goulet, Senior Vice President, Operations | 50,000 | 50,000 | * | |||||||||||||
Timothy J. Joyce, Senior Vice President, General Manager Nautilus | 26,500 | 21,500 | * | |||||||||||||
Former Named Executive Officers | ||||||||||||||||
Robert S. Falcone, Former Director, CEO and President | 452,500 | 427,500 | 1.35 | % | 40,000 | (9) | 15,000 | * | ||||||||
Greggory Hammann, Former Director, CEO and President | 607,100 | (7) | 576,100 | 1.92 | % | |||||||||||
Juergen Eckmann, Former President, Apparel Division | 20,750 | 18,250 | * | |||||||||||||
William D. Meadowcroft, Former CFO, Secretary and Treasurer | 101,800 | (9) | 89,750 | * | ||||||||||||
Stephen Eichen, Former Chief Information Officer | 59,064 | 58,750 | * | 314 | (9) | — | * | |||||||||
Darryl K. Thomas, Former President, International Equipment Business | 39,000 | 39,000 | * | — | (9) | — | * | |||||||||
Current Directors and Executive Officers as a Group (10 persons) | 8,770,541 | 170,750 | 27.79 | % | ||||||||||||
Current Directors and Executive Officers as a Group (11 persons) | 10,277,079 | 235,000 | 33.57 | % |
* | Less than 1%. |
(1) |
(2) | Includes currently exercisable options and options exercisable within 60 days after March |
(3) | Information based on |
(4) | Information based on a Schedule |
(5) | Information based on a Schedule 13G filed by Dimensional Fund Advisors, LP, on February 9, 2009, disclosing sole power to vote or to direct vote as to 1,873,677 shares and sole power to dispose or to direct the disposition as to 1,930,401 shares. |
(6) | Information based on a Schedule 13G filed jointly, on February 5, 2009, by Barclays Global Investors, NA; Barclays Global Fund Advisors; and Barclays Global Investors, Ltd. Barclays Global Investors, NA disclosed sole power to vote or to direct vote as to 768,601 shares and sole power to dispose or to direct the disposition as to 873,407 shares. Barclays Global Fund Advisors disclosed sole power to vote or to direct vote as to 763,084 shares and sole power to dispose or to direct the disposition as to 1,014,132 shares. Barclays Global Investors, Ltd disclosed sole power to dispose or to direct the disposition of 14,195 shares. |
(7) | Includes 3,000 shares held by the Siegert Trust, of which Marvin G. Siegert is a trustee. |
(8) | Mr. Bramson, as the managing member of each of Sherborne Investors GP and Sherborne Management GP, is the indirect beneficial owner of and has the sole indirect power to vote or dispose of |
Information based on a Definitive Proxy Statement filed on April 30, 2008. No additional Form |
The following table identifies our current executive officers, the positions they hold and the year in which they began serving as officers of the Company. The Board of Directors elects all officers, who hold office until their respective successors are elected and qualified.
Name | Age | Current Position(s) with Nautilus | Officer Since | Age | Current Position(s) with Nautilus | Officer Since | ||||||
Edward J. Bramson | 57 | Chief Executive Officer and Chairman of the Board | 2007 | 58 | Chairman and Chief Executive Officer | 2007 | ||||||
Kenneth L. Fish | 54 | Chief Financial Officer | 2007 | |||||||||
Wayne M. Bolio | 52 | Senior Vice President, Law and General Counsel | 2003 | |||||||||
Sebastien Goulet | 39 | Senior Vice President, Operations | 2008 | |||||||||
Timothy J. Joyce | 52 | Senior Vice President, General Manager Nautilus | 2007 | 53 | Senior Vice President, General Manager Nautilus | 2007 | ||||||
William D. Meadowcroft | 45 | Chief Financial Officer, Secretary and Treasurer | 2004 | |||||||||
Wayne M. Bolio | 50 | Senior Vice President, Law and General Counsel | 2004 | |||||||||
Kenneth Fish | 53 | Chief Administrative Officer and Vice President, General Manager Commercial | 2007 | |||||||||
Deborah Marsh | 49 | Senior Vice President, Human Resources | 2007 | |||||||||
Mark Meussner | 52 | Senior Vice President, Manufacturing and Operations | 2007 | |||||||||
Deborah H. Marsh | 50 | Senior Vice President, Human Resources | 2007 |
For information on Edward J. Bramson’s business background, see “Nominees” under “Election of Directors” above.
Timothy J. JoyceKenneth L. Fishwas appointed Chief Financial Officer in November 2008, having previously served as Chief Administrative Officer and Vice President/General Manager Commercial Business since April 2008. Mr. Fish joined Nautilus in 2005, initially serving as Vice President, Financial Analysis; then Vice President and Corporate Controller; Vice President, Global Finance; and, in December 2007, was promoted to the newly formed position of Senior Vice President of Global Sales in September 2007. In April 2008 he was named Senior Vice President/General Manager Nautilus.Strength Business. He brings more than 25 years of senior level finance and operations experience, including Vice President, Finance for Vestas Wind Systems from 2003 to 2005, a manufacturer of equipment for the production of wind generated electricity, and various financial positions including Asia-Pacific Finance Director for NACCO Materials Handling Group from 1977 to 2002. Mr. Joyce most recently was President and Chief Operating Officer of HO Sports, a water sports company based in Redmond, Washington. Mr. Joyce was with Nike, Inc. for 19 years from 1980 to 1999, where he progressed to serve as director of European sales, and as vice president of global sales. He was president of Internet sporting goods retailer fogdog.com from 1999 to 2000, and served as executive vice president of retail and wholesale sales for Adidas America from 2001 to 2004. Mr. Joyce completedFish has a B.A. in Business Administrationbusiness administration degree from Ohio University.
William D. Meadowcroft joined Nautilus in 2000 as the Corporate Controller. Mr. Meadowcroft was appointed as Principal Accounting Officer in July 2004 and Chief Financial Officer, Secretary and Treasurer in March 2005. Mr. Meadowcroft has over 20 years of accounting and finance experience, including eight years with Deloitte & Touche LLP in Portland, Oregon and Ernst & Young LLP in Providence, Rhode Island. From 1997 to 2000, he worked as Controller for the American Automobile Association of Oregon/Idaho, which represents and protects motorists’ interests. Mr. Meadowcroft has been a Certified Public Accountant in Oregon, has a B.S. in Accounting from Pennsylvania State University, and haswas certified as a M. Div. degree from Western Seminary in Portland, Oregon.management accountant.
Wayne M. Bolio was promoted to Senior Vice President, Law in January of 2006 and was named General Counsel in April 2008. Mr. Bolio joined Nautilus in June 2003 as Vice President, Human Resources. He was appointed Senior Vice President, Human Resources in March 2004 and Senior Vice President, Law and General Counsel in May 2004. From 1997 to 2002 he served as the chief human resources officer for Consolidated Freightways, a major transportation company, and most recently held the position of Vice President of Human Resources and Assistant General Counsel. Prior to that, he was employed by Southern Pacific Transportation Company as Assistant General Counsel with responsibility for labor relations, human resources, and employment law matters. Mr. Bolio received a B.A. from the University of California at Berkeley and a J.D. from UCLA.
Kenneth FishSebastien Gouletjoined the Company as Senior Vice President, Operations in May 2008. Mr. Goulet was, promotedsince 2006, Vice President of Global Operations and General Manager, Specialty Lighting at PerkinElmer OptoElectronics, a provider of digital imaging, specialty lighting, and sensors technologies. Previous to these positions, Mr. Goulet was, from 2002 to 2006, in operational roles with Flakt Woods Group, a manufacturer of industrial air handling and distribution systems, first as Vice President, European and US Operations, and then as Vice President, Global Operations UK. Mr. Goulet earned M.S. degrees in Engineering Management and Manufacturing Engineering, and B.S. degrees in Mechanical Engineering and Aerospace Engineering from the L.C. Smith College of Engineering and Computer Science at Syracuse University.
Timothy J. Joyce was appointed to the newly formedcreated position of Senior Vice President/General Manager Strength BusinessPresident of Global Sales in December 2007 after joining Nautilus in 2005 and serving as Vice President, Financial Analysis, Vice President and Corporate Controller and most recently Vice President, Global Finance.September 2007. In April 2008 he was named Chief Administrative Officer andSenior Vice President/General Manager Commercial Business. He brings more than 25Nautilus. Mr. Joyce most recently was President and Chief Operating Officer of HO Sports, a water sports company based in Redmond, Washington. Mr. Joyce was with Nike, Inc. for 19 years from 1980 to 1999, where he ultimately served as Director of senior level financeEuropean Sales and operations experience, includingthen as Vice President Financeof Global Sales. He was President of Internet sporting goods retailer fogdog.com from 1999 to 2000, and served as Executive Vice President of Retail and Wholesale Sales for wind generation company Vestas Wind SystemsAdidas America from 20032001 to 2005, and Asia-Pacific Finance Director for NACCO Materials Handling Group from 1977 to 2002.2004. Mr. FishJoyce has a business administration degreeB.A. in Business Administration from Oregon State University, and was certified as a management accountant.Ohio University.
Deborah H. Marshjoined Nautilus in March 2007 as Senior Vice President, Human Resources, where she is responsible for personnel management, human resources systems, compensation and benefits. Ms. Marsh has 20 years of human resources experience from high tech, forest products, manufacturing and the public sector. Previously, she was the senior Human Resources Executive for TriQuint Semiconductor, from 2002 to 2007, and senior consultant for Arthur Andersen Human Capital Services and KPMG Compensation and Benefits practice from 1998 to 2002. She serves as faculty for WorldatWork and was on the University of Washington faculty for three years.WorldatWork. Ms. Marsh is a Certified Employee Benefits Specialist, Certified Compensation Professional and Certified Benefits Professional. She has a masters degree in Community/Clinical Psychology, from Pepperdine University, and a bachelor of arts from California State University Los Angeles.
Mark Meussnerjoined Nautilus in October 2005 as the Plant Manager of the Tulsa manufacturing facility, and was promoted to his current position in 2007 where he now oversees all manufacturing and operations for Nautilus, Inc. He brings 30 years of experience from Ford Motor Company and its component company Visteon, where he served in engineering and manufacturing leadership roles from 1985 to 2005. His experience there included serving as plant manager for Visteon’s Chassis plant in Indianapolis (2 million sq. ft., 2,500 employees) and the Tulsa glass facility (1.5 million sq. ft., 900 employees), along with managing and sourcing for two plants in Mexico and for a joint venture company in Shanghai, China. He has guided implementation and achievement of OSHA SHARP and ISO-9000 certifications and pursuit of the ISO-14000 environmental standard, which have become the foundation for safety, quality and environmental systems at Nautilus, Inc. Mark received his Bachelors Degree in Systems Engineering and Organizational Sciences, as well as Organizational and Behavioral Sciences, from the University of Michigan in 1987.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
April 14, 2009
The Compensation Committee of the Board of Directors (the Committee) managesoversees the Company’s compensation programs on behalf of the Board of Directors.
The Committee reviewed and discussed with the Company’s management theCompensation Discussion and Analysis included in this Proxy Statement. In reliance with management. Based on the review and discussions referred to above,discussion, the Committee recommended to the Board of Directors that theCompensation Discussion and Analysisbe included in the Company’s Proxy Statement, in connection with the Company’s 20082009 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission.
Dated March 26, 2008
Respectfully Submitted,submitted,
Michael A. Stein, Chairman
Ronald P. Badie
Richard A. Horn
COMPENSATION DISCUSSION and ANALYSIS
The following Compensation Discussion and Analysis provides an overview and analysisIn this section of the proxy statement we identify the material elements of our compensation programs for the Nautilus, Inc. executive officers, identifiedincluding an overview of our executive compensation philosophy and the processes and methodology we use in making executive pay decisions. We also provide the material elements of the compensation of each of the executive officers whom we refer to as our named executive officers:
Name | Position | |
Edward J. Bramson(1) | Chief Executive Officer (effective 3/26/2008) and Chairman of the Board | |
Robert S. Falcone | Former President and Chief Executive Officer (employment ceased on 3/26/2008) | |
William D. Meadowcroft | Former Chief Financial Officer (employment ceased on 12/31/2008) | |
Kenneth L. Fish | Chief Financial Officer (effective 11/11/2008) | |
Timothy J. Joyce | Senior Vice President, General Manager Nautilus | |
Sebastien R. Goulet | Senior Vice President, Operations (hired 5/06/2008) | |
Wayne M. Bolio | Senior Vice President, Law & General Counsel | |
Darryl K. Thomas | Former President, International Equipment Business (employment ceased on 4/18/2008) | |
Stephen L. Eichen | Former Chief Information Officer (employment ceased on 5/02/2008) |
(1) | Mr. Bramson has declined to receive compensation from the Company. |
Executive Summary
In late 2007 and early 2008, considerable changes occurred in the Summary Compensation Table (“Named Executive Officers”). Themembership of the Board of Directors, the Compensation Committee of the Board of Directors makes all decisions regarding(“Committee”) and the Company’s named executive officers. These changes and the current economic downturn have had a profound impact on the Company and how it approaches executive compensation, resulting in the following:
Changed compensation philosophy to increase targeted ratio of variable compensation to total compensation;
Modified incentive program to include more explicit, measurable short-term restructuring and turnaround objectives;
Suspension of annual equity awards; and,
Implementation of a new process for reviewing executive compensation.
Governance of the Company’s Executive Compensation Program
The Committee has overall responsibility for the evaluation, approval and oversight of the Company’s compensation plans, policies and programs and the total direct compensation of the Company’s executive officers. Direct compensation includes base salary, incentive compensation, stock options and performance units.
The day-to-day designCommittee has sole responsibility for determining the Chief Executive Officer’s compensation and administrationreviewing it with the Board of indirectDirectors. The Chief Executive Officer provides recommendations to the Committee on compensation such as employee welfare benefits, including medical and life insurance as well as a 401(K) plan, is managed bymatters for the Company’s Human Resource department and are generally applicable to all U.S. based employees.other executive officers. The Committee seeks input from an independent consultant who advises the Committee regarding executive compensation matters.
Compensation Philosophy and Objectives
The Company’s overall goal in compensating executive officers is to attract, retain and motivate key executives of superior ability who are critical to our future success. The overall compensation program is designed to reward executives for meeting financial goals and increasing shareholder value. The total executive compensation awarded under each component is based on the Board’s estimation of each executive officer’s contribution to long-term growth and profitability for the Company, relying on input from management and direct interaction relating to business performance.
The Company’s executive compensation program is designed with two primary objectives in mind:
Attracting, retaining and motivating key executives critical to encourage, compensatethe Company’s turnaround and reward employees on the basis of individualfuture success; and, corporate performance, both in the short and long term. Each executive compensation package is comprised of a base salary and an annual incentive bonus tied to corporate and individual performance and is supplemented by long-term equity incentives in the form of stock options, restricted stock,
Rewarding executives for meeting ambitious financial and performance units. The Company believes this compensation structure increases the mutuality of interest between our executive officersgoals and shareholders. The Company’s compensation decisionstaking effective actions which are expected to increase shareholder value over time.
Consistent with respect to executive officer salaries, incentive compensation, stock options, restricted stock, and performance units are influenced by (a) the executive’s individual performance and level of responsibility and function withinthese objectives, the Company (b) the overall performance and profitability of the Company and (c) our assessment of the competitive marketplace, including other peer companies. Our philosophy is to focus on total direct compensation opportunities throughoffers a mix of base salary, short-term incentive compensation, long-term equity based incentives, health and long-term incentives including stock optionswelfare benefits and performance units. Weemployment contracts. While we do not target any particular weighta specific percentage allocation for base salary, short-term incentive compensation or long-term incentives as(as a percent of total direct compensation), we operate under the general philosophy of targeting a total direct compensation opportunity that is competitive within our market for executive talent. Relative to our peer group, we believe that we generally target a greater percentage of the executives’ total direct compensation opportunity as variable compensation.
AllAt least annually, the Committee reviews the compensation of our executive officers. Because of significant changes in the Board of Directors and the Committee, which occurred in late 2007 and early 2008, the Committee did not conduct an executive compensation analysis in 2008. Late in 2008 and early 2009, the Committee implemented a new process for executive compensation review, analysis and approval which is described herein at the section entitled New Process for Executive Compensation Review, Analysis and Approval.
Chief Executive Officer Compensation
Mr. Bramson, Chief Executive Officer and Chairman of the Board, has elected not to take any salary, benefits or incentives from the Company. As a partner of Sherborne Investors Management LP, a significant
shareholder of Nautilus, Inc., Mr. Bramson hopes to realize substantial economic benefit in the form of appreciation in the value of Nautilus, Inc. stock which is beneficially owned by him.
The Company reimburses Sherborne Investors Management LP, $20,000 per month, for the use of New York office space and administrative, information technology and communications services to support Mr. Bramson in his role as the Company’s Chief Executive Officer. The Company also reimburses Mr. Bramson for customary travel and other business expenses incurred while conducting Company business.
Base Salaries of Executives Other Than the Chief Executive Officer
Base salaries for the executive officers other than Mr. Bramson are typically considered by the Committee on an annual basis in conjunction with the Company’s annual performance review process. Base salaries are also considered in connection with the hiring of a new executive from outside the company, a promotion or other changes in an incumbent executive’s job responsibilities. Base salaries for executives are determined by evaluating the responsibilities of the position and experience of the individual, and by referencing the competitive marketplace median for corporate executives in comparable positions (similarity in scope, duties and responsibilities). We obtain competitive marketplace salary information from a pre-defined peer group (discussed later herein) and also reference published compensation surveys which provide additional market-based analytical data for executive pay at companies similar in industry and annual revenues.
Compensation studies were conducted in connection with the hiring of Mr. Goulet on May 6, 2008 as Senior Vice President, Operations, and the promotion of Mr. Fish, on November 11, 2008, to the position of Chief Financial Officer. In each case, competitive survey information was obtained from an independent consultant used by the Company. A recommendation from the Chief Executive Officer was provided to the Committee, taking into consideration the market data, as well as the individuals’ experience, level of responsibility and, in the case of Mr. Fish, his prior performance at the Company. The Committee approved the compensation arrangements in each instance. Mr. Goulet’s base salary was positioned to approximate the market 50th percentile, with total cash compensation (i.e., base pay plus short-term incentive) targeted at the 75th percentile. Mr. Fish’s base salary, as a newly appointed Chief Financial Officer, was positioned to approximate the market 25th percentile, with total cash compensation targeted at the 50th percentile.
Short-Term Incentive Program for Executives Other Than the Chief Executive Officer
The Company’s short-term incentive program for executives other than the Chief Executive Officer is designed to reward accomplishment of strategic financial and individual goals. Achievement relative to measurable, pre-determined Company goals provides the basis of the program. Individual goals are also established which further impact the potential to earn a short-term incentive. The Company’s short-term incentive program evolved in 2008 as described herein.
In February 2008, the Committee approved the original 2008 annual incentive program. The performance objectives were a combination of operating income achievement, based on the operating plan presented to the Board of Directors by the then Chief Executive Officer, and individual management objectives established for each executive.
Company Performance Criteria | Operating Income (as defined) Payout Multiplier | ||
Threshold | 50 | % | |
Target | 100 | % | |
Maximum | 150 | % |
Individual bonus targets for executive officers ranged from 40% to 100% of annual eligible wages. The payout under the plan could range from 0 to 150% of the bonus target, based on operating income achievement. However, minimum achievement of 80% of plan operating income was required in order to earn any short-term incentive. Thereafter, an additional individual performance multiplier would be applied to the result based on Company performance, as follows:
Eligible Named Executive Officer | Individual Bonus Target (as a % of eligible wages) | Individual Performance Multiplier | |||
Robert S. Falcone(1) | 100 | % | N/A | ||
William D. Meadowcroft | 50 | % | 80%-120% | ||
Timothy J. Joyce | 50 | % | 80%-120% | ||
Kenneth L. Fish | 40 | % | 80%-120% | ||
Wayne M. Bolio | 40 | % | 80%-120% | ||
Darryl K. Thomas(1) | 50 | % | 80%-120% | ||
Stephen L. Eichen(1) | 40 | % | 80%-120% |
(1) | Employment ended during the first half of 2008. These employees are not subsequently reflected as participants in the program for the remaining portion of the year. |
No payouts were earned under this program for the period January through June 2008.
Following Mr. Bramson’s appointment as Chief Executive Officer of the Company, on March 26, 2008, this program was modified, effective July 1, 2008, to intensify focus on specific short-term objectives to improve the Company’s financial performance and accelerate needed turnaround efforts. The modified program was intended to reward achievement relative to specific Company and individual performance criteria, with quarterly measurements and payments. Bonus targets were increased, reflecting the Company’s emphasis on leveraging variable pay upon achievement of ambitious performance objectives. The modified incentive program continues in effect in 2009.
Earnings per share (EPS) was the sole Company performance metric for the 2008 third quarter. For the 2008 fourth quarter, the Company performance metrics included both an EPS target (50% weighting) and a Consolidated Net Debt target (50% weighting). For the 2009 first quarter, the Company performance metrics included both a Consolidated Operating Income/Loss target (50% weighting) and a Consolidated Net Debt target (50% weighting).
Company Performance Criteria | Third Quarter 2008(1) | ||
EPS(2,3) Payout Multiplier | |||
Threshold | 25 | % | |
Target | 100 | % | |
Maximum | 150 | % |
Company Performance Criteria | Fourth Quarter 2008(1) | |||||
EPS(2,3) Payout Multiplier (50% weighting) | Consolidated Net Debt Payout Multiplier(3) (50% weighting) | |||||
Threshold | 20 | % | 40 | % | ||
Target | 100 | % | 100 | % | ||
Maximum | 150 | % | 150 | % |
Company Performance Criteria | First Quarter 2009(1) | |||||
Consolidated Operating Income/(Loss)(2,3) Payout Multiplier (50% weighting) | Consolidated Net Debt Payout Multiplier(3) (50% weighting) | |||||
Threshold | 20 | % | 25 | % | ||
Target | 100 | % | 100 | % | ||
Maximum | 100 | % | 150 | % |
(1) | Levels of financial performance between the percentages shown will result in a multiplier that is determined on a linear basis. |
(2) | Financial results calculated after giving effect to earned incentives. |
(3) | Measures of achievement may be adjusted to exclude non-recurring, one-time and/or other unusual items, subject to review with the Committee. |
In addition to Company performance criteria, individual performance objectives are established for each executive in the form of formal written goals. The specific, measurable actions, for example, included but were not limited to expense reduction targets, accounts receivable and inventory reductions, on-time product delivery, closure of the Company’s compensationTulsa, Oklahoma facilities and benefitstransition of production to other locations, and specific product milestones.
Individual bonus targets for its Named Executive Officers described below have as a primary purposeexecutive officers ranged from 50% to 100% of quarterly eligible wages. The payout under the Company’s needplan could range from 0% to attract, retain and motivate the highly talented individuals who engage in behavior necessary to enable150% of target based on achievement of the Company performance criteria, subject to succeed in its mission while upholding our values in a highly competitive marketplace.specified minimum performance threshold required to earn any incentive under the plan. Thereafter, an additional individual performance multiplier would be applied to the result based on Company performance, as follows:
Base salary and benefits are designed to attract and retain employees over time and provide fixed compensation based on competitive market factors.
Eligible Named Executive Officer | Individual Bonus Target (as a % of eligible wages) | Individual Performance Multiplier | ||
Timothy J. Joyce | 100% | 0% - 100% | ||
Sebastien R. Goulet | 100% | 0% - 100% | ||
Kenneth L. Fish(1) | 75% / 100% | 0% - 100% | ||
William D. Meadowcroft(2) | 50% / n/a | 0% - 100% | ||
Wayne M. Bolio | 50% | 0% - 100% |
(1) | Mr. Fish’s bonus target changed to 100% after the 2008 third quarter, as a result of his promotion to Chief Financial Officer in November 2008. |
(2) | Mr. Meadowcroft was not eligible in the 2008 fourth quarter due to his pending separation of employment. |
Annual incentive compensation is designed to focus Named Executive Officers on
Since certain Company and individual objectives set atperformance targets were achieved in the beginningfourth quarter of 2008, the named executive officers earned the following short-term incentive amounts:
Name | Fourth Quarter 2008 | ||
Timothy J. Joyce | $ | 12,858 | |
Sebastien R. Goulet | $ | 24,682 | |
Kenneth L. Fish | $ | 8,966 | |
Wayne M. Bolio | $ | 4,651 |
A “holdback” provision requires 20% of each year thatquarterly incentive earned be withheld, with payment to be made after year-end audited annual financial results are critical toavailable.
Other Cash Incentives
Mr. Bolio received a discretionary bonus, in the amount of $25,000, in May 2008, in connection with his work on the sale of the Company’s success.apparel business. The bonus was recommended by Mr. Bramson and reviewed and approved by the Committee.
Equity Compensation
Long-term incentives including stock options and performance units are intended to focus executive behavior on making decisions that ensuremeaningfully contribute to the long-term success of the Company, as reflected in increases in the Company’s stock priceprice. Under the 2005
Long-Term Incentive Plan (the Plan), the Committee may grant equity awards (stock options, stock appreciation rights, restricted stock, performance units or stock units) to executive officers and other employees. Stock options are priced at fair market value as defined by the Plan. In granting these awards, the Committee may establish conditions or restrictions it deems appropriate.
Executive officers are generally provided an equity grant upon commencement of employment with the Company. Additionally, an executive’s overall equity position is reviewed at the time of promotion and an additional grant may be considered.
Prior to 2009, the Company had a practice of granting annual equity awards to executive officers. In February 2008, the Company granted options to eligible executive officers and other employees, as part of the annual grant process. The size of the overall grant pool was recommended by the then Chief Executive Officer and was consistent with prior year grant pools.
The executive grants (excluding the Chief Executive Officer) were recommended by the Chief Executive Officer and approved by the Committee. Executive officers, who had not received a new hire grant in the past 6 months, received a grant of options for 18,000 shares, vesting 25% annually over a period of severalfour years. Due to concerns about executive retention, each executive officer was also awarded a “retention” grant of options for 18,000 shares, vesting 50% annually over two years. The decision to award the same size grant to each executive was made because of the numerous changes that occurred early in the year, including the changes in Committee membership and new Chief Executive Officer.
In view of the current stock price and market conditions, the Committee has opted to suspend regular annual equity grants. The Company will consider equity awards for new hires, promotions and retention purposes, on a case by case basis. The annual grant program may be resumed in the future.
A grant of options for 200,000 shares of Company common stock was provided to Mr. Goulet upon commencement of his employment with the Company. The grant vests on the anniversary date of Mr. Goulet’s employment, over three years, at a rate of 25%, 25% and growth50%, respectively. The award was intended to provide a competitive long-term grant, without recurring annual grants.
A grant of options for 75,000 shares was provided to Mr. Fish upon his promotion to Chief Financial Officer in its earnings per share.
Mr. Goulet’s and Mr. Fish’s grants were recommended to the Committee by Mr. Bramson. The Committee considered input from an independent compensation consultant prior to approving the stock option grants.
GeneralNew Process for Executive Compensation LevelsReview, Analysis and Approval
In October 2008, the Committee engaged Compensia to serve as its independent compensation consultant. Compensia will assist the Committee in reviewing the Company’s compensation practices and will provide advice to the Committee regarding compensation of the Company’s executive officers.
Compensia reports directly to the Committee and will support the Committee by:
Providing information on executive compensation best practices and current trends;
Reviewing compensation guiding principles and recommending assessment methodologies;
Conducting detailed executive compensation assessments and providing preliminary recommendations for executive compensation adjustments; and,
Providing conceptual guidance and design advice on short-term and long-term incentive programs.
As a first step, the Committee asked Compensia to assess the competitiveness of the Company’s executive compensation relative to an appropriate peer group.
A consumer products industry peer group was established, with the Company trending toward middle of the range, based on total annual revenues. Secondarily, the Committee also considered equity market capitalization. In the Committee’s judgment total annual revenues and product/market similarity were deemed most important. Based upon the selection criteria, the following companies were chosen for the peer group:
Audiovox Corporation (VOXX) | Movado Group, Inc (MOV) | |
Flexsteel Industries, Inc. (FLXS) | National Presto Industries Inc. (NPK) | |
Golfsmith International Holdings, Inc. (GOLF) | Plantronics, Inc. (PLT) | |
Johnson Outdoors Inc. (JOUT) | Salton, Inc. (SFPI) | |
Leapfrog Enterprises, Inc. (LF) | Select Comfort Corp.(SCSS) | |
Libbey Inc. (LBY) | Steinway Musical Instruments, Inc. (LVB) | |
Lifetime Brands, Inc. (LCUT) |
Peer group data will be used to compare the Company’s compensation program for top executives with that of executives in comparable roles at peer group companies. The compensation comparison will include base salaries, and short-term and long-term incentive targets. Peer group data will be supplemented by data from published compensation surveys, providing additional market-based analytical data for corporate executive pay at companies similar in industry and annual revenues.
Compensia’s initial analysis and recommendations were presented to the Committee in February 2009, including an overview of current trends and best practices, a summary executive compensation assessment and a pay-for-performance analysis. The Committee discussed and established a desired competitive position for target total cash compensation levels in the 50th to 75th percentile range of the peer group. Placement of individuals within this range would also be reflective of experience, performance and potential.
The analysis summarized the current position of executive officers, noting base salaries generally below the market 50th percentile, target total cash compensation averaging near the market 65th percentile, and equity granted in 2008 between the market 25th and 50th percentiles. Given current business and market conditions, the decision was made not to make any changes to current cash compensation levels at this time. The Chief Executive Officer and the entire Compensation Committee, of the Company were changed in the second half of 2007. As a result of this change there have been modificationsworking with its independent consultant, will continue to the compensation practices of the Company between 2007 and 2008 which are described herein.
Each year, the Company reviews the base salaries and annual and long-term incentive opportunities offered to our executives, including the Named Executive Officers, to ensure that they are competitive with market practices, support our executive recruitment and retention objectives, and are internally equitable among executives. (While we do not set specific total compensation targets, our process essentially results in ade facto target—that is, a total amount of compensation that we will pay an executive ifevaluate all corporate and individual performance objectives are fully met.) Each of our key program components is generally set with market median as a guideline, except that long-term incentives are generally based upon a combination of affordability, market practices and retention objectives. The Compensation Committee approves the salaries and option grants made to the named executive officers. The full Board of Directors approves the annual incentive compensation plan earnings target after receiving the recommendation of the Compensation Committee.
As part of this process, for 2007, the Committee considered market data and input provided by its compensation consultant, Hay Group, and our management. This data was used to match our specific executive positions to those with similar functional descriptions at companies with similar business characteristics.
In most cases, each Named Executive Officer was matched to comparable positions within the compensation surveys to ascertain the appropriate placement relative to market. Where it was not possible to match a Named Executive Officer’s role, he or she was compared with several other senior executive positions based on functional responsibilities, revenue size of the business unit, and individual experience. We also take into consideration market trends to determine how base salary and annual cash incentives are changing from year to year and how each component relates as a percentage of total compensation. We generally start by setting base salary at the relevant market median and build on that, factoring in performance and the experience and skills of the Named Executive Officer. However, we use the market data as context only, and any cash compensation decisions also factor individual experience, performance and internal equitability. Accordingly, base salary will—and does—vary among the Named Executive Officers. Annual cash incentive award target levels are set as a percentage of base salary. Through this process, we believe that the cash compensation package for our Named Executive Officers has been balanced for both internal and external fairness.
For each of the elements of compensation identified below, the Company’s Chief Executive Officer reviews the components for each Named Executive Officer, except himself, and makes a recommendation to the Compensation Committee as to the level of each component. This recommendation is prepared based on each executive’s performance against established objectives and overall contribution to the success of the Company. In 2007, the recommendations were reviewed by the Compensation Committee along with a market analysis completed by the Hay Group. After discussion and review, the Compensation Committee may propose changes in Named Executive Officer compensation to the Company’s Board of Directors. Recommended changes are impacted by individual performance as well as company performance against the established plan and analysis of market compensation data.
In 2007 the Company’s results of operations were significantly below our expectations and we experienced our first operating loss since our initial public offering in 1998. As a result, the Compensation Committee of the Board of Directors determined not to increase 2008 base compensation for the Named Executive Officers from 2007.
The Elements of Nautilus’ compensation program
As described above, we used several compensation elements in our executive compensation program in 2007, including:
Cash Compensation composed of:
Base salary
Annual Incentive Compensation
Long-term equity incentives composed of:
Stock Options
Performance Units
Restricted Stock
Other Benefits and Indirect Compensation
Cash Compensation
In 2007, we provided cash compensation to our Named Executive Officers through base salary and annual incentive opportunities. This is consistent with both general market practice and the practices of our peer group of leading, comparably sized public consumer product companies, which typically provide base salary and annual incentives in the form of cash.
Base Salary—We set base salary to be competitive with the general market and our peer group. In addition to base salary, we rely on other forms of compensation (both cash and equity) to motivate and reward the Named Executive Officers.
Base salaries are based on job responsibilities and individual contribution, as well as the executive’s experience, taking into consideration competitive pay levels relative to other companies in our peer group. The base salary component of compensation is designed to retain employees in a competitive market situation.
Generally, the median of the relevant market data as described above is used as a guideline for determining base salary. Annually, the base salary of each of our Named Executive Officers is reviewed and approved by our Compensation Committee. Adjustments to base salary levels on a year-over-year basis depend largely on the Committee’s assessment of market data and Company, business unit, and individual performance. The Named Executive Officers’ experience, expertise, and internal positioning are also factored into the annual review, and the CEO provides recommendations as to pay actions with respect to the Named Executive Officers other than himself. Base salaries are typically reviewed and adjusted, as described above, for the Company’s Named Executive Officers during the first Compensation Committee meeting of the calendar year.
The base salaries paid to the Named Executive Officers during 2007 are reported in the Summary Compensation Table on page 22.
Annual Incentive Compensation—We believe it is important to provide annual cash incentives to motivate our executive officers to attain specific performance objectives that, in turn, further our long-term objectives. The Company’s annual bonus plans seek to ensure that a significant portion of each executive officer’s cash compensation is “at risk” and payable only when our shareholders have also benefited from his or her efforts.
Each year, the Chief Executive Officer recommends to the Compensation Committee targets for overall corporate performance for the fiscal year. The Compensation Committee in turn reviews these targets and applies any adjustments as deemed prudent. For 2007, the targets were based on actual earnings per share (“EPS”) and other significant factors, such as cash management, strategic business development, operating efficiency, revenue generation, and other specific objectives. At the end of each year, the Compensation Committee evaluates
corporate performance in light of these goals. If the Company meets or surpasses the pre-established performance goals, the Compensation Committee generally will award a bonus to each executive officer equal to between 40% and 100% of his or her base salary, as stipulated during the goal-setting period. The percentage of annual base salary that is paid as incentive compensation is based on both Company performance and executive officer performance. The Company performance component increases or decreases in the event the Company achieves greater than, or less than, 100% of the earnings target as approved by the Board of Directors. The individual performance component is based on achieving individual performance goals approved at the beginning of the fiscal year. In 2007, achieving three, four or five out of five individual goals leads to incentive compensation payouts of 50%, 75% and 100%, respectively. No incentive compensation is paid to the individuals achieving less than three goals.
For 2008, the Company will determine executive incentive compensation based on the following process:
The incentive compensation target for each of the Company’s executives was determined by the Compensation Committee in early 2007 based on competitive market factors. Incentive compensation rates for each Named Executive Officer are reviewed annually by the Compensation Committee. These rates are based on job responsibilities and the estimation of each executive officer’s contribution to long-term growth and profitability for the Company taking into consideration competitive pay levels relative to other leading, comparably sized public consumer product companies. The incentive compensation rates for 2007 were reviewed by the Hay Group for market competitiveness. For 2007, baseline award targets for our named executive officers as a percentage of base salary were as follows:
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There were no annual cash incentive awards earned by the Named Executive Officers for 2007.
Long-Term Equity Incentives
A substantial portion of our executives’ total compensation is delivered in the form of equity compensation awarded under our 2005 Long Term Incentive Plan (the “2005 Plan”). This portion has varied with each executive’s role and degree of responsibility in the Company. In 2007, we used stock options, performance units, and restricted stock to provide long-term incentives to our Named Executive Officers.
We consider affordability to the Company as a factor in determining the size and mix of each equity award we grant. The accounting expense recognized by the Company with respect to long-term incentive awards earned by the Named Executive Officers is reported in the Summary Compensation Table on page 22. Additional information on these awards, including the number of shares subject to each award, is reported in the Grants of Plan-Based Awards Table on page 24 and the Outstanding Equity Awards at Fiscal Year-End Table on page 25.
In 2007, the Named Executive Officers each received awards including stock options, performance units and restricted stock. While a stock option provides a direct link to financial performance as measured by growth in the market price of our common stock and emphasizes our overall performance in the market, the performance unit awards drive results since their payout is directly tied to the achievement of specific pre-established financial performance goals that have been crafted to help us reach our long-term strategic objectives. The restricted stock grants were intended to enhance retention of certain key employees in the Company.
Stock Options—The Compensation Committee views stock options as a key long-term element in its performance-based executive compensation program. Stock options provide for financial gain derived from the potential appreciation in stock price from the date the option is granted until the date the option is exercised. The exercise price of stock options is set at fair market value of the Company’s common stock on the date of the grant. The 2005 Plan, as approved by the Company’s shareholders, provides that fair market value is equal to the closing price of our common stock on the New York Stock Exchange on the date preceding the grant date. Historically, the Compensation Committee has awarded options at regularly scheduled meetings. The Company does not backdate options or grant options retroactively. In addition, the Company does not plan to coordinate grants of options so that they are made before announcement of favorable information, or after announcement of unfavorable information. Stock options become exercisable in equal installments over time periods designated by the Compensation Committee, generally ranging from one to five years for Named Executive Officers. The
Company’s long-term performance ultimately determines the value of stock options, because gains from stock option exercises are dependent on the long-term appreciation of the Company’s stock price.
The Compensation Committee grants stock options to executive officers based on the Board’s estimation of each executive officer’s contribution to our long-term growth and profitability. For 2007, the Company, with the assistance of an independent consultant, Hay Group, collected and analyzed competitive market data to assess the adequacy of compensation paid to the Named Executive Officers. The analysis compared the Company’s Named Executive Officers to positions in similar companies and included an evaluation of the value of stock options granted for comparable positions.
Performance Unit Awards—The Compensation Committee views performance units as an additional key long-term element in its performance-based executive compensation program. Performance units also enhance the Company’s ability to attract and retain highly qualified personnel and align the long-term interests of executives with those of the shareholders.
A performance unit entitles the Named Executive Officer to receive a share of the Company’s common stock for each performance unit, for any completed fiscal year in which certain EPS targets are met. The awards vest annually over three years with a rolling provision that allows for an unvested award from year 1 or year 2 to vest if a subsequent period’s targets are met. If none of the targets are met within the three year period, the performance unit award is cancelled.
For the awards made in 2007, the target level for our performance units was set at a projected long-term business growth objective over the next three years. In making determinations of the desired threshold, target, and maximum performance levels, management and the committee, at the time, also considered the general economic climate and the specific market conditions that we were expected to face in the upcoming years. We set the target performance levels for performance unit awards such that the levels were believed to be challenging but achievable, in that the target levels represent projected long-term meaningful growth of the Company. Actual results of operations in 2007 were significantly below our expectations and we experienced our first operating loss since our initial public offering in 1998. At this time we do not expect that we will achieve the target performance levels necessary for the performance units to become vested. Those target levels for the 2007 performance unit award were annual earnings per share of $1.00, $1.25 and $1.55 for 2007, 2008 and 2009, respectively. Additional information on all outstanding performance unit awards, including the number of shares subject to each award, is reported in the Outstanding Equity Awards at Fiscal Year-End Table on page 25.
Restricted Stock—The Compensation Committee granted restricted stock in August 2007 to certain key employees including the Named Executive Officers in order to facilitate retention of these officers during a period of uncertainty resulting from the termination of Mr. Hammann, the Company’s former CEO, in August 2007. The grant amounts were set by the Compensation Committee based in part on an analysis provided by the Hay Group. Awards varied by Executive and were based on a percentage of annual compensation. Restricted stock awards will vest in full two years from grant date, provided that the employee remains with the Company during such time.periodic basis.
Perquisites and Other Benefits and Indirect Compensation
Executive officers are eligible to participate in various broad-based employee benefit plansthe Company’s medical, dental, vision, flexible spending, life, disability, and 401(k) programs on substantially the same terms as eligible non-executive employees, subject to any legal limits on the amounts that may be contributed or paid to executive officers under these plans. We offer a 401(k) plan which allows employees to invest in an array of funds on a pre-tax basis and which provides for employer matching contributions of up to three percent of eligible compensation, subject to IRS regulations.
The Named Executive Officers are eligible to participate in our Company-wide medical, dental, life, and disability insurance plans. Any participant, including a Named Executive Officer, may purchase higher levels of coverage for particular benefits. Some ofIn 2008, the Named Executive Officers have taken advantage of this option.
The Company also reimburses the costdiscontinued reimbursement of income tax return preparation services for Named Executive Officers subjectto executives.
The Company generally does not provide tax gross ups to executive officers. However, in connection with Mr. Goulet’s employment, the Compensation Committee approved a partial tax gross up, resulting in $6,859 of additional compensation, related to certain dollar limits. Tax fees paid or reimbursedtravel expenses incurred by the CompanyMr. Goulet during 2007 ranged from $0 to $5,000 for each Named Executive Officer.
Additional information about these awards is reported in the Summary Compensation Table on page 22.2008.
Severance AgreementsPost-Employment Obligations
To ensureThe Company believes that wemodest post-employment benefits are offeringan important factor in maintaining stability of the executive management team, especially at a competitive executive compensation program, we believe ittime when there is important to provide reasonable severance benefits to our executive officers, includingsignificant uncertainty about market conditions for the Named Executive Officers.Company’s products and the economy in general.
We have
The Company has a separate severance arrangement with each Named Executive Officerexecutive officer under their respective employment agreementagreements. These agreements outline the terms and conditions of the post employment benefits. The agreements generally provide that we entered into with them when they either began employment with the Company or through promotion into their current role. The agreement provides that, in the event we terminate their employment (other than for cause) or in some cases, if they were to voluntarily terminate employment for good reason, then, in lieu of any further salary, bonus, or other payments for periods subsequent to the Date of Termination, the Company shallwill pay to the employee severance, ranging from six months to twenty-fourtwelve months of the employee’s average monthly annual base salary. salary, in the event of an involuntary termination of employment for reasons other than cause. In general, the definition of “cause” includes: indictment or conviction of the employee for a crime that, in the Company’s judgment, makes the employee unfit or unable to perform his or her duties, or adversely affects the Company’s reputation; employee dishonesty related to his or her employment; violation of key Company policies; insubordination; serious conflicts of interest or self-dealing; intentional or grossly negligent conduct by the employee that is significantly injurious to the Company; certain serious performance failures by the employee; and, death or disability of the employee.
Severance payments are made according toin accordance with the Company’s normal payroll process spread out equallycycle over the severance period.
Under the employment agreement with our CFO, William Meadowcroft, Mr. Meadowcroft’s stock options shall continue to vest The agreements also generally provide for continuation, during the period Mr. Meadowcroft is entitled to severance payments.
Under the employment agreement with our former Chief Executive Officer, Robert S. Falcone, and as the result of his termination without cause thereunder, the Company is providing Mr. Falcone with salary continuation for a period, of twenty-four months, as well as health benefits under COBRA for Mr. Falconethe employee and his covered dependents, at active-employeeactive employee premium rates, during such period. Mr. Falcone will also be entitled under his employment agreement to receive a pro-rated bonus payment for the portion of fiscal year 2008 completed prior to his termination if the applicable bonus targets are achieved. In addition, as the result of Mr. Falcone’s termination without cause, the vesting of stock options granted to Mr. Falcone was fully accelerated. Such stock options will remain exercisable for three months following the date of his termination. In connection with the termination of his employment on March 26, 2008, the Company is currently providing, or will provide, Mr. Falcone with severance benefits in accordance with the terms of the employment agreement.
Under the employment agreement with our former Chief Executive Officer, Greggory C. Hammann, and as the result of his termination without cause thereunder, the Company is providing Mr. Hammann with salary continuation for a period of twenty-four months, as well as health benefits for Mr. Hammann and his covered dependents, at active-employee premium rates, during such period. Mr. Hammann is also entitled under his employment agreement to receive a pro-rated bonus payment for the portion of the fiscal year completed prior to his termination, calculated on the basis of the average bonus paid to Mr. Hammann in the three preceding fiscal years. In addition, the stock option exercisable for up to 850,000 shares of common stock that was granted to Mr. Hammann when he joined the Company in 2003 (the “Initial Option Award”) will continue to vest as if Mr. Hammann had remained employed during the twenty four-month period in which he is entitled to receive severance pay. The Initial Option Award will be exercisable for fifteen months after the date of termination of employment asrates. Refer to the shares vested on or before such date of termination and for fifteen months after the date of vesting as to shares vesting after the date of termination. In connection with the termination of his employment on August 13, 2007, the Company has provided, or is currently providing, Mr. Hammann with severance benefits in accordance with the terms of the employment agreement.
The actual payments made or being made to Named Executive Officers who are no longer with the Company, and estimated payments and benefits payable to the Named Executive Officers assuming an
event triggering payment under these plans and arrangements as of the last day of 2007 are reported in the discussion oftable entitled Other Potential Post-Employment Payments on page 26.and related notes, elsewhere herein, for information regarding severance and post-employment benefits that may be payable to our named executive officers upon their termination.
Deductibility of CompensationTax and Accounting Considerations
Section 162(m) of the Internal Revenue Code of 1986 limits to $1,000,000 per person$1 million the amount that wethe Company can deduct for compensation paid to any of ourits Chief Executive Officer and three other most highly paidcompensated executive officers (excluding the Chief Financial Officer) in any year. With the exception of our President and Chief Executive Officer, we generally do not expect any of our employee’s salary and bonus levels to exceed that limit. However, depending on individual and corporate performance, total compensation for certain executives may be greater than $1,000,000. The limit on deductibility however, does not apply to performance-based compensation that meetsmeeting certain requirements. Our current policy is generally to grant long-term incentive awards that meet those requirements so that we may deduct compensation related to these awards when recognized by an executive.
Our general philosophy is to structure executive compensation to maximize deductibility under Section 162(m). In 2008, 100% of our executive compensation was deductible by the Company. Stock option awards granted to named executive officers under our 2005 Long-Term Incentive Plan meet the performance-based compensation exception of Section 162(m). Base salary is not performance-based under Section 162(m), and our short-term incentive awards do not meet the performance-based compensation requirements of Section 162(m) because these awards are not granted under a shareholder-approved plan. However, we were able to deduct all of this compensation because no named executive officer exceeded the $1 million limit. Should executive officer compensation approach $1 million in the future, our Compensation Committee will consider deductibility of compensation under Section 162(m) as one (but not the sole) factor in setting executive compensation.
Summary Compensation TableSUMMARY COMPENSATION TABLE
The following table that follows this discussion summarizes the total compensation paid to or earned by each of our Named Executive Officersnamed executive officers for the fiscal yearyears ended December 31, 2007. The narrative below describes current employment agreements2008, 2007 and material employment terms with each of our Named Executive Officers, as applicable.2006.
Summary Compensation Table
Name and Principal Position | Salary | Bonus | Stock Awards(7) | Option Awards(8) | All Other Compensation | Total | |||||||||||||||
Robert S. Falcone | 2007 | $ | 186,058 | $ | — | $ | 75,240 | $ | 43,554 | $ | 2,300 | $ | 307,152 | (1) | |||||||
Former Chief Executive Officer & President | 2006 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||
Greggory C. Hammann | 2007 | $ | 457,691 | $ | 135,420 | $ | — | $ | 921,789 | $ | 1,556,839 | $ | 3,071,739 | (2) | |||||||
Former Chairman, CEO, & President | 2006 | $ | 550,000 | $ | 206,500 | $ | — | $ | 824,340 | $ | 362,861 | $ | 1,943,701 | ||||||||
William D. Meadowcroft | 2007 | $ | 285,154 | $ | — | $ | — | $ | 69,413 | $ | 5,700 | $ | 360,267 | (3) | |||||||
Chief Financial Officer, Secretary and Treasurer | 2006 | $ | 282,846 | $ | 53,000 | $ | — | $ | 116,544 | $ | 6,052 | $ | 458,442 | ||||||||
Darryl K. Thomas | 2007 | $ | 235,341 | $ | — | $ | — | $ | 42,293 | $ | 316,202 | $ | 593,836 | (4) | |||||||
Former President, International Equipment Business | 2006 | $ | 245,616 | $ | 34,500 | $ | — | $ | 69,765 | $ | 112,230 | $ | 462,111 | ||||||||
Juergen Eckmann | 2007 | $ | 282,961 | $ | — | $ | — | $ | 57,104 | $ | 16,502 | $ | 356,567 | (5) | |||||||
Former President, Fitness Apparel Business | 2006 | $ | 235,000 | $ | 35,500 | $ | — | $ | 95,300 | $ | 16,554 | $ | 382,354 | ||||||||
Stephen L. Eichen | 2007 | $ | 228,848 | $ | — | $ | — | $ | 61,424 | $ | 7,650 | $ | 297,922 | (6) | |||||||
Former Chief Information Officer | 2006 | $ | 224,700 | $ | 33,705 | $ | — | $ | 96,768 | $ | 6,787 | $ | 361,255 |
Name and Principal Position | Year | Salary | Bonus(9) | Stock Awards(10) | Option Awards(10,11) | All Other Compensation(12) | Total | ||||||||||||||
Edward J. Bramson(1) | 2008 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||
Chairman and Chief Executive Officer | |||||||||||||||||||||
Kenneth L. Fish(2) | 2008 | $ | 221,769 | $ | 8,966 | $ | 27,266 | $ | 67,845 | $ | 8,362 | $ | 334,208 | ||||||||
Chief Financial Officer | 2007 | $ | 194,923 | $ | — | $ | 10,430 | $ | 44,654 | $ | 6,659 | $ | 256,666 | ||||||||
2006 | $ | 180,308 | $ | 27,046 | $ | — | $ | 35,028 | $ | 2,760 | $ | 245,142 | |||||||||
Wayne M. Bolio | 2008 | $ | 233,688 | $ | 29,651 | $ | 42,978 | $ | 115,949 | $ | 8,050 | $ | 430,316 | ||||||||
Senior Vice President Law and General Counsel | 2007 | $ | 232,997 | $ | — | $ | 16,440 | $ | 97,072 | $ | 6,750 | $ | 353,259 | ||||||||
2006 | $ | 224,700 | $ | 33,316 | $ | — | $ | 83,973 | $ | 6,600 | $ | 348,589 | |||||||||
Sebastien R. Goulet(3) | 2008 | $ | 201,808 | $ | 41,182 | $ | — | $ | 90,069 | $ | 26,966 | $ | 360,025 | ||||||||
Senior Vice President, Operations | |||||||||||||||||||||
Timothy J. Joyce(4) | 2008 | $ | 285,000 | $ | 12,858 | $ | — | $ | 45,324 | $ | 8,875 | $ | 352,057 | ||||||||
Senior Vice President, General Manager Nautilus | 2007 | $ | 71,250 | $ | 100,000 | (9) | $ | — | $ | 9,099 | $ | — | $ | 180,349 | |||||||
Robert S. Falcone(5) | 2008 | $ | 161,442 | $ | — | $ | — | $ | 1,047,148 | $ | 1,170,510 | $ | 2,379,100 | ||||||||
Former Chief Executive Officer & President | 2007 | $ | 186,058 | $ | — | $ | 75,240 | $ | 43,554 | $ | 2,300 | $ | 307,152 | ||||||||
William D. Meadowcroft(6) | 2008 | $ | 286,000 | $ | — | $ | 106,711 | $ | 185,922 | $ | 303,830 | $ | 882,463 | ||||||||
Former Chief Financial Officer | 2007 | $ | 285,154 | $ | — | $ | 25,278 | $ | 69,413 | $ | 5,700 | $ | 385,545 | ||||||||
2006 | $ | 282,846 | $ | 53,000 | $ | — | $ | 116,544 | $ | 6,052 | $ | 458,442 | |||||||||
Stephen L. Eichen(7) | 2008 | $ | 88,152 | $ | — | $ | 42,054 | $ | 79,823 | $ | 122,037 | $ | 332,066 | ||||||||
Former Chief Information Officer | 2007 | $ | 228,848 | $ | — | $ | 16,086 | $ | 61,424 | $ | 7,650 | $ | 314,008 | ||||||||
2006 | $ | 224,700 | $ | 33,705 | $ | — | $ | 96,768 | $ | 6,787 | $ | 361,960 | |||||||||
Darryl K. Thomas(8) | 2008 | $ | 86,183 | $ | — | $ | 43,440 | $ | 81,161 | $ | 367,839 | $ | 578,623 | ||||||||
Former President, International Equipment Business | 2007 | $ | 235,341 | $ | — | $ | 16,617 | $ | 42,293 | $ | 316,202 | $ | 610,453 | ||||||||
2006 | $ | 245,616 | $ | 34,500 | $ | — | $ | 69,765 | $ | 112,230 | $ | 462,111 | |||||||||
(1) | Mr. |
(2) | Mr. Fish was appointed Chief Financial Officer on November 11, 2008. In connection with his appointment, Mr. Fish’s annual salary was increased to $245,000, and he received a stock option, issued under the 2005 Long-Term Incentive Plan, exercisable for up to 75,000 shares of |
(3) | Mr. Goulet became the Company’s Senior Vice President, Operations on May 6, 2008. Pursuant to his employment contract, Mr. Goulet’s annual salary is $330,000. Upon commencement of his employment, Mr. Goulet received a cash bonus in the amount of $16,500 and a stock option, issued under the 2005 Long- Term Incentive Plan, exercisable for |
(4) | Mr. Joyce joined the Company as Senior Vice President, General Manager Nautilus on September 17, 2007. |
(5) | Mr. Falcone’s employment |
Mr. |
(7) | Mr. |
(8) | Mr. |
(9) |
|
The amounts reported in |
(11) | For Messrs. Falcone and Meadowcroft, amounts include the impact of the |
(12) | The table below sets forth the components of All Other Compensation for 2008. |
Name | Severance | Severance Benefits(a) | 401(k) Company match | Other | All Other Compensation | ||||||||||||
Edward J. Bramson | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
Kenneth L. Fish | $ | — | $ | — | $ | 7,762 | $ | 600 | $ | 8,362 | |||||||
Wayne M. Bolio | $ | — | $ | — | $ | 8,050 | $ | — | $ | 8,050 | |||||||
Sebastien R. Goulet | $ | — | $ | — | $ | 2,424 | $ | 24,542 | (b) | $ | 26,966 | ||||||
Timothy J. Joyce | $ | — | $ | — | $ | 8,050 | $ | 825 | $ | 8,875 | |||||||
Robert S. Falcone | $ | 1,150,000 | (c) | $ | 12,356 | $ | 3,154 | $ | 5,000 | $ | 1,170,510 | ||||||
William D. Meadowcroft | $ | 286,000 | (c) | $ | 9,780 | $ | 8,050 | $ | — | $ | 303,830 | ||||||
Stephen L. Eichen | $ | 114,597 | (c) | $ | 4,355 | $ | 3,085 | $ | — | $ | 122,037 | ||||||
Darryl K. Thomas | $ | 235,870 | (c) | $ | 5,945 | $ | 3,090 | $ | 122,934 | (d) | $ | 367,839 |
(a) | Reflects continued health benefits for the former employee and his covered dependents in accordance with terms of the individual’s employment agreement. |
(b) | Reflects $17,683 in travel expenses paid by the Company in accordance with the terms of Mr. Goulet’s employment agreement and $6,859 in related tax reimbursements approved by the Compensation Committee. |
(c) | Continued salary obligations payable (accrued) as a result of the employee’s termination of employment in 2008. During 2008, the Company made payments pursuant to these obligations of $413,558 to Mr. Falcone, $114,597 to Mr. Eichen and $149,687 to Mr. Thomas. Mr. Meadowcroft’s severance payments begin in 2009. |
(d) | Reflects payments made to Mr. Thomas of $61,819 for corporate housing, $46,426 for expatriat tax equalization and $14,689 for quarterly currency exchange rate changes. |
Grants of Plan-Based AwardsGRANTS OF PLAN-BASED AWARDS
Name | Grant Date(1) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Unit Awards: Number of Securities Underlying Units (#)(6) | All Other Option Awards: Number of Securities Underlying Options (#)(7) | Exercise or Base Price of Option Awards ($ /Sh)(8) | Grant Date Fair Value of Stock and Option Awards ($)(9) | Grant Date(1) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2) | All Other Unit Awards: Number of Securities Underlying Units (#) | All Other Option Awards: Number of Securities Underlying Options (#)(6) | Exercise or Base Price of Option Awards ($/Sh)(13) | Grant Date Fair Value of Stock and Option Awards ($)(14) | |||||||||||||||||||||||||||
Threshold ($)(2) | Target ($)(3) | Maximum ($)(4) | Threshold (#) | Target (#)(5) | Maximum (#) | Threshold ($)(3) | Target ($)(4) | Maximum ($)(5) | ||||||||||||||||||||||||||||||||
Edward J. Bramson | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Kenneth L. Fish | 02/25/08 | 18,174 | 141,201 | 224,402 | — | 18,000 | (7) | 4.15 | 32,087 | |||||||||||||||||||||||||||||||
11/24/08 | — | — | — | 75,000 | (8) | 2.37 | 100,395 | |||||||||||||||||||||||||||||||||
Wayne M. Bolio | 02/25/08 | 19,493 | 105,160 | 171,761 | — | 18,000 | (7) | 4.15 | 32,087 | |||||||||||||||||||||||||||||||
02/25/08 | — | — | — | 18,000 | 4.15 | 34,924 | ||||||||||||||||||||||||||||||||||
Sebastien R. Goulet | 05/06/08 | 2,805 | 201,807 | 302,711 | — | 200,000 | (9) | 4.57 | 412,660 | |||||||||||||||||||||||||||||||
Timothy J. Joyce | 02/25/08 | 30,446 | 213,750 | 342,000 | — | 18,000 | (7) | 4.15 | 32,087 | |||||||||||||||||||||||||||||||
Robert S. Falcone | 05/07/07 | — | — | — | — | 10,000 | — | — | 10,000 | 13.75 | 23,625 | — | 230,000 | 575,000 | 1,035,000 | — | — | — | — | |||||||||||||||||||||
08/13/07 | — | — | — | — | — | — | 4,000 | — | — | 36,920 | ||||||||||||||||||||||||||||||
William D. Meadowcroft | 02/25/08 | 29,576 | 143,000 | 235,950 | — | 18,000 | (10) | 4.15 | 32,087 | |||||||||||||||||||||||||||||||
02/25/08 | — | — | — | 18,000 | (11) | 4.15 | 34,924 | |||||||||||||||||||||||||||||||||
09/01/07 | — | — | — | — | — | — | 4,000 | — | — | 38,080 | ||||||||||||||||||||||||||||||
10/01/07 | — | — | — | — | — | — | 4,000 | — | — | 31,880 | ||||||||||||||||||||||||||||||
10/17/07 | — | — | — | — | 400,000 | — | — | 400,000 | 6.26 | 634,244 | ||||||||||||||||||||||||||||||
William D. Meadowcroft | 01/28/07 | 7,129 | 143,000 | 214,500 | — | 22,200 | — | 4,200 | 18,000 | 16.10 | 89,763 | |||||||||||||||||||||||||||||
Stephen L. Eichen | 02/25/08 | 36,671 | 91,678 | 165,020 | — | 18,000 | (11)(12) | 4.15 | 32,087 | |||||||||||||||||||||||||||||||
08/13/07 | — | — | — | — | 14,300 | — | 14,300 | — | — | 73,320 | 02/25/08 | — | — | — | 18,000 | (12) | 4.15 | 34,924 | ||||||||||||||||||||||
Darryl K. Thomas | 01/28/07 | 4,707 | 94,137 | 141,205 | — | 15,000 | — | 3,000 | 12,000 | 16.10 | 61,682 | 02/25/08 | 47,174 | 117,935 | 212,283 | — | 18,000 | (12) | 4.15 | 32,087 | ||||||||||||||||||||
08/13/07 | — | — | — | — | 9,400 | — | 9,400 | — | — | 48,196 | 02/25/08 | — | — | — | 18,000 | (12) | 4.15 | 34,924 | ||||||||||||||||||||||
Juergen Eckmann | 01/28/07 | 5,659 | 113,184 | 169,777 | — | 16,200 | — | 4,200 | 12,000 | 16.10 | 72,726 | |||||||||||||||||||||||||||||
08/13/07 | — | — | — | — | 9,600 | — | 9,600 | — | — | 49,222 | ||||||||||||||||||||||||||||||
10/29/07 | (10) | 239,580 | 239,580 | 239,580 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Stephen L. Eichen | 01/28/07 | 4,577 | 91,539 | 137,309 | — | 13,800 | — | 1,800 | 12,000 | 16.10 | 50,639 | |||||||||||||||||||||||||||||
08/13/07 | — | — | — | — | 9,100 | — | 9,100 | — | — | 46,658 | ||||||||||||||||||||||||||||||
Greggory C. Hammann | 1/28/2007 | — | — | — | — | 65,000 | — | 15,000 | 50,000 | 16.10 | 321,965 |
(1) | Awards are generally effective on the date of approval. |
(2) |
(3) | The amounts in this column represent the potential award |
(6) | The amounts reported in this column reflect the number of options to purchase shares that were awarded to the named executive officers in 2008 pursuant to the 2005 Long-Term Incentive Plan. Unless noted otherwise below, each of these awards is subject to a four year vesting schedule, during which 25% of the award vests on each anniversary of the grant date except as noted. |
(7) | Each of these awards is subject to a two year vesting schedule, during which 50% of the award vests on each anniversary date. |
(8) | This award was granted upon Mr. Fish’s appointment as Chief Financial Officer. This award vests at a rate of 25% of the total shares on each of the second and third anniversaries of the date of grant, and 50% of the total shares on the fourth anniversary of the date of grant. |
(9) | This award was granted upon Mr. Goulet’s joining the Company. This award vests at a rate of 25% of the total shares on each of the first and second anniversaries of the date of grant, and 50% of the total shares on the third anniversary of the date of grant. |
(10) | These awards were originally subject to a two year vesting schedule. Pursuant to Mr. Meadowcroft’s separation agreement, the rights to purchase 9,000 of the 18,000 shares of the Company’s common stock are expected to vest through December 31, 2009. Mr. Meadowcroft may exercise any vested stock options through March 31, 2010. |
(11) | These awards were originally subject to a four year vesting schedule. Pursuant to Mr. Meadowcroft’s separation agreement, the rights to purchase 4,500 of the 18,000 shares of the Company’s common stock are expected to vest through December 31, 2009. Mr. Meadowcroft may exercise any vested stock options through March 31, 2010. |
(12) | Each of these awards was cancelled following the employee’s termination. |
(13) | The exercise price was determined based on the NYSE closing price of Nautilus, Inc. common stock on the last business day preceding the date of grant. |
(14) | Reflects the aggregate grant date fair value of the applicable stock option grant, calculated in accordance with FAS 123R. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth certain information regarding outstanding equity awards held by our named executive officers at December 31, 2008.
Option Awards | Restricted Stock Awards | ||||||||||||||||||
Name | Option Grant Date | Number of Securities Underlying Unexercised Options (#) | Number of Securities Underlying Unexercised Options (#) | Option Exercise Price ($) | Option Expiration Date(1) | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) | ||||||||||
Exercisable | Unexercisable | ||||||||||||||||||
Edward J. Bramson | — | — | — | — | — | — | — | — | — | ||||||||||
Kenneth L. Fish | 06/20/05 | (4) | 7,500 | 2,500 | 27.72 | 06/20/12 | 5,900 | 13,039 | 1,200 | 2,652 | |||||||||
01/29/06 | (4) | 3,250 | 3,250 | 15.15 | 01/29/13 | — | — | — | — | ||||||||||
01/28/07 | (4) | 1,625 | 4,875 | 16.10 | 01/28/14 | — | — | — | — | ||||||||||
12/03/07 | (4) | 2,500 | 7,500 | 5.75 | 12/03/14 | — | — | — | — | ||||||||||
02/25/08 | (6) | — | 18,000 | 4.15 | 02/25/15 | — | — | — | — | ||||||||||
11/24/08 | (7) | — | 75,000 | 2.37 | 11/24/15 | — | — | — | — | ||||||||||
Wayne M. Bolio | 07/15/03 | (4) | 1,500 | — | 10.39 | 07/15/13 | 9,300 | 20,553 | 2,100 | 4,641 | |||||||||
02/04/04 | (5) | 22,000 | 6,000 | 14.25 | 02/04/14 | — | — | — | — | ||||||||||
06/07/04 | (5) | 20,000 | 5,000 | 15.66 | 06/07/14 | — | — | — | — | ||||||||||
01/29/06 | (4) | 5,250 | 5,250 | 15.15 | 01/29/13 | — | — | — | — | ||||||||||
01/28/07 | (4) | 3,000 | 9,000 | 16.10 | 01/28/14 | — | — | — | — | ||||||||||
02/25/08 | (4) | — | 18,000 | 4.15 | 02/25/15 | — | — | — | — | ||||||||||
02/25/08 | (6) | — | 18,000 | 4.15 | 02/25/15 | — | — | — | — | ||||||||||
Sebastien R. Goulet | 05/06/08 | (8) | — | 200,000 | 4.57 | 05/06/15 | — | — | — | — | |||||||||
Timothy J. Joyce | 09/17/07 | (4) | 12,500 | 37,500 | 8.28 | 09/17/14 | — | — | — | — | |||||||||
02/25/08 | (6) | — | 18,000 | 4.15 | 02/25/15 | — | — | ||||||||||||
Robert S. Falcone | — | — | — | — | — | — | — | — | — | ||||||||||
William D. Meadowcroft(9) | 07/15/03 | 20,000 | — | 10.39 | 03/31/10 | 14,300 | 31,603 | 4,200 | 9,282 | ||||||||||
10/25/04 | 12,000 | 3,000 | 23.15 | 03/31/10 | — | — | — | — | |||||||||||
02/23/05 | 18,000 | 12,000 | 21.68 | 03/31/10 | — | — | — | — | |||||||||||
01/29/06 | 7,500 | 7,500 | 15.15 | 03/31/10 | — | — | — | — | |||||||||||
01/28/07 | 4,500 | 13,500 | 16.10 | 03/31/10 | — | — | — | — | |||||||||||
02/25/08 | — | 18,000 | 4.15 | 03/31/10 | — | — | — | — | |||||||||||
02/25/08 | — | 18,000 | 4.15 | 03/31/10 | — | — | — | — | |||||||||||
Stephen L. Eichen | — | — | — | — | — | — | — | — | — | ||||||||||
Darryl K. Thomas | — | — | — | — | — | — | — | — | — |
(1) | Options granted under the Company’s 2005 Long-Term Incentive Plan, adopted on June 6, 2005, generally expire seven years from the date of grant. Outstanding options granted to the named executive officers under previous plans (granted prior to June 6, 2005) generally expire ten years from the date of grant. |
(2) | Amounts reflect restricted stock awards granted on August 13, 2007. The awards fully vest twenty-four months from the date of grant. The market value presented above reflects the number of shares granted multiplied times the NYSE closing price of Nautilus, Inc.’s common stock on December 31, 2008 ($2.21 per share). |
(3) | Amounts pertain to performance stock units granted in 2005. Pursuant to the terms of the awards, Nautilus, Inc. common stock will be granted to the |
Each individual may receive one third of the targeted shares per year as long as they are employed by the Company on the last day of such fiscal year and the EPS target is met. If the award is not achieved in 2007 or 2008, but the 2009 target is achieved, the |
The |
Outstanding Equity Awards at Fiscal Year-End
The following table provides detailed information about all outstanding equity awards of the Named Executive Officers at December 31, 2007.
Option Awards | Stock Awards | |||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) | Number of Securities Underlying Unexercised Options (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(1) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||
Exercisable | Unexercisable | |||||||||||||||||||
Robert S. Falcone | 5,000 | — | N/A | 27.68 | 06/06/12 | — | — | |||||||||||||
2,500 | 7,500 | (2) | N/A | 18.29 | 05/08/13 | N/A | N/A | |||||||||||||
5,000 | — | N/A | 12.40 | 06/09/13 | N/A | N/A | ||||||||||||||
— | 10,000 | (2) | N/A | 13.75 | 05/07/14 | N/A | N/A | |||||||||||||
10,000 | — | N/A | 15.66 | 06/07/14 | N/A | N/A | ||||||||||||||
— | 400,000 | (6) | N/A | 6.26 | 10/17/17 | N/A | N/A | |||||||||||||
William D. Meadowcroft | 3,750 | 11,250 | (2) | N/A | 15.15 | 01/29/13 | 14,300 | 69,355 | 4,500 | (4) | 21,825 | |||||||||
16,000 | 4,000 | (3) | N/A | 10.39 | 07/15/13 | N/A | N/A | 4,200 | (5) | 20,370 | ||||||||||
— | 18,000 | (2) | N/A | 16.10 | 01/29/14 | N/A | N/A | |||||||||||||
9,000 | 6,000 | (3) | N/A | 23.15 | 10/25/14 | N/A | N/A | |||||||||||||
12,000 | 18,000 | (3) | N/A | 21.68 | 02/23/15 | N/A | N/A | |||||||||||||
Darryl K. Thomas | 3,000 | 9,000 | (2) | N/A | 15.15 | 01/29/13 | 9,400 | 45,590 | 3,000 | (4) | 14,550 | |||||||||
10,000 | 10,000 | (3) | N/A | 13.59 | 01/14/14 | N/A | N/A | 3,000 | (5) | 14,550 | ||||||||||
— | 12,000 | (2) | N/A | 16.10 | 01/29/14 | N/A | N/A | |||||||||||||
15,000 | 10,000 | (3) | N/A | 15.66 | 06/07/14 | N/A | N/A | |||||||||||||
Juergen Eckmann | 10,000 | 10,000 | (2) | N/A | 28.91 | 07/11/12 | 9,600 | 46,560 | 3,600 | (4) | 17,460 | |||||||||
2,625 | 7,875 | (2) | N/A | 15.15 | 01/29/13 | N/A | N/A | 4,200 | (5) | 20,370 | ||||||||||
— | 12,000 | (2) | N/A | 16.10 | 01/29/14 | N/A | N/A | |||||||||||||
Stephen Eichen | 2,375 | 7,125 | (2) | N/A | 15.15 | 01/29/13 | 9,100 | 44,135 | 2,400 | (4) | 11,640 | |||||||||
16,000 | 4,000 | (3) | N/A | 10.39 | 07/15/13 | N/A | N/A | 1,800 | (5) | 8,730 | ||||||||||
— | 12,000 | (2) | N/A | 16.10 | 01/29/14 | N/A | N/A | |||||||||||||
15,000 | 10,000 | (3) | N/A | 14.25 | 02/04/14 | N/A | N/A | |||||||||||||
15,000 | 10,000 | (3) | N/A | 15.66 | 06/07/14 | N/A | N/A | |||||||||||||
Greggory Hammann | 491,100 | 170,000 | (7) | N/A | 10.39 | 10/15/09 | — | — |
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Option Exercises and Stock Vested
Option Awards | Stock Awards | |||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise (#) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||
Robert S. Falcone | — | — | 12,000 | 75,240 | ||||
Greggory Hammann | 18,900 | 138,726 | — | — | ||||
William D. Meadowcroft | — | — | — | — | ||||
Darryl K. Thomas | — | — | — | — | ||||
Juergen Eckmann | — | — | — | — | ||||
Stephen L. Eichen | — | — | — | — |
Robert Falcone received 4,000 restricted shares for each of the three months he served as interim CEO of the Company.
(7) | The grant vests as to 25% of the total shares on each of the second and third anniversaries of the date of grant, and as to the remaining 50% of the total shares on the fourth anniversary of the date of grant. |
(8) | The grant vests as to 25% of the total shares on each of the first and second anniversaries of the date of grant, and as to the remaining 50% of the total shares on the third anniversary of the date of grant. |
(9) | Pursuant to the terms of his separation agreement, Mr. Meadowcroft’s stock options continue to vest through December 31, 2009. Mr. Meadowcroft may exercise any vested stock options through March 31, 2010. |
Other Potential Post-Employment PaymentsOPTION EXERCISES AND STOCK VESTED
Name | Salary Continuation or Severance(1) | Pro-rated Bonus | Benefits or Perquisites | Continued Vesting on the amendment to the “Initial Option Grant” | Value of Options | |||||||||
Robert S. Falcone | 1,150,000 | — | (2) | 12,356 | (3) | — | — | (4) | ||||||
Greggory Hammann | 1,200,000 | 135,420 | 6,843 | (3) | 340,000 | (7) | — | (5) | ||||||
William D. Meadowcroft | 286,000 | — | — | — | — | (6) | ||||||||
Darryl K. Thomas | 235,870 | — | 25,945 | (3)(8) | — | — | ||||||||
Juergen Eckmann | 146,154 | — | — | — | — | |||||||||
Timothy Hawkins | 145,000 | — | — | — | — | |||||||||
Stephen L. Eichen | 114,597 | — | — | — | — |
The following table provides information regarding our named executive officer’s stock option exercises during 2008 and the number of shares acquired, if any, upon the vesting of restricted stock during 2008.
Option Awards | Stock Awards | ||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||
Edward J. Bramson | — | — | — | — | |||||
Kenneth L. Fish | — | — | — | — | |||||
Wayne M. Bolio | — | — | — | — | |||||
Sebastien R. Goulet | — | — | — | — | |||||
Timothy J. Joyce | — | — | — | — | |||||
Robert S. Falcone | 90,000 | $ | 33,750 | — | — | ||||
William D. Meadowcroft | — | — | — | — | |||||
Stephen L. Eichen | — | — | — | — | |||||
Darryl K. Thomas | — | — | — | — |
(1) |
OTHER POTENTIAL POST-EMPLOYMENT PAYMENTS
The following table sets forth certain information regarding amounts potentially payable to our current named executive officers, and being paid to certain former executive officers, pursuant to the termination provisions of their employment or separation agreements, as applicable.
Name | Salary Continuation or Severance(1) | Pro-rated Bonus | Benefits or Perquisites(2) | Value of Stock | |||||||||||
Edward J. Bramson | $ | — | $ | — | $ | — | $ | — | |||||||
Kenneth L. Fish | $ | 122,500 | (3) | $ | — | $ | 4,890 | $ | — | ||||||
Wayne M. Bolio | $ | 116,844 | (3) | $ | — | $ | 4,890 | $ | — | ||||||
Sebastien R. Goulet | $ | 247,500 | (3) | $ | — | $ | 7,335 | $ | — | ||||||
Timothy J. Joyce | $ | 285,000 | (3) | $ | 142,500 | (5) | $ | 9,780 | $ | 47,651 | (6) | ||||
Robert S. Falcone | $ | 1,150,000 | (4) | $ | — | $ | 12,356 | $ | 982,163 | (7) | |||||
William D. Meadowcroft | $ | 286,000 | (4) | $ | — | $ | 9,780 | $ | 74,454 | (7) | |||||
Stephen L. Eichen | $ | 114,597 | (4) | $ | — | $ | 4,355 | $ | — | ||||||
Darryl K. Thomas | $ | 235,870 | (4) | $ | — | $ | 5,945 | $ | — |
(1) | Each of our named executive officers is employed “at-will,” meaning employment may be |
(2) |
named executive officers, other than Mr. |
(3) | Figures reflect estimated amounts that may be paid under each executive’s employment agreement assuming termination occurred on December 31, 2008. |
(4) |
(5) | According to the terms of his employment contract, Mr. Joyce is eligible to receive an annual bonus targeted at 50% of his base salary. Upon termination without cause, the Company would be obligated to pay Mr. Joyce an amount equal to the pro-rata target bonus which could have been earned for the year in which termination occurs. |
(6) | Pursuant to his employment agreement, should Mr. Joyce be terminated without cause, any outstanding options and awards that would have vested in the year in which termination occurs or the subsequent year shall immediately vest and shall become exercisable within one year of the date of |
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TheNautilus has established a Director Compensation Program which provides for the payment of annual retainers annual equity grants and meeting fees, and the award of initial and annual equity grants, to non-employee members of Nautilus’the Company’s Board of Directors.
Annual RetainerUnder the Director Compensation Program, as approved by the Board on May 7, 2007,June 3, 2008, each non-employee member of the Nautilus Boarddirector receives an annual retainer of $35,000. In addition, each member receives$35,000 and a fee of $1,500 for attendance at each Board meeting. Each director serving on a Committee of the Board of Directors receives an additional meeting fee of $1,500. The ChairsChair of the Audit Committee receivesand the Lead Independent Director each receive an additional annual retainer of $10,000, while the ChairChairs of the Compensation Committee and the Nominating & Corporate Governance Committee each receive an additional annual retainer of $5,000.
Initial Equity GrantThe Director Compensation Program provides that, upon initial election to the Board, each non-employee director will be granted an option to purchase 10,000 shares of our common stock priced on the date prior to grant. Such stock options vest ratably over four years.stock.
Annual Equity GrantThe Director Compensation Program also provides that, upon reelection to the Board, each non-employee director receives a stock option to purchase an additional 10,000 shares of our common stock.
Stock options granted under the Director Compensation Program have an exercise price equal to the NYSE market closing price of our common stock priced on the last business day preceding the date prior to grant.of the award. Such stock options vest ratably over four years.
On May 7, 2007,June 3, 2008, our Board of Directors granted to each non-employee director ana stock option representing the rights to purchase 10,000 shares of our common stock at an exercise price equal to the market price of our common stock at close of trading on the New York Stock Exchange on the date prior to the grant date ($13.75$6.61 per share). The options vest over a four-year period. On December 31, 2007, our Board of Directors granted options to purchase 10,000 shares of our common stock to each of Richard A. Horn and Michael A. Stein.share. Messrs. Bramson and Eastman who were alsodeclined to participate in the award as they have elected to our Board of Directors in December 2007 declined to receiveforego director compensation. Directors who are Company employees receive no additional or special remuneration for serving as directors.
20072008 Directors Compensation Table
Name | Fees Earned or Paid in Cash | Option Awards ($)(1) | Total ($) | ||||
Peter A. Allen | 74,000 | 9,543 | 83,543 | ||||
Ronald P. Badie | 71,000 | 9,543 | 80,543 | ||||
Robert S. Falcone | 44,000 | 9,543 | 53,543 | ||||
Evelyn V. Follit | 20,750 | 861 | 21,611 | ||||
Frederick T. Hull | 21,313 | 6,794 | 28,107 | ||||
Donald W. Keeble | 75,500 | 9,543 | 85,043 | ||||
Paul F. Little | 22,313 | 6,794 | 29,107 | ||||
Diane L. Neal | 61,500 | 9,543 | 71,043 | ||||
Marvin G. Siegert | 70,500 | 9,543 | 80,043 | ||||
Richard A. Horn | 1,500 | * | 1,500 | ||||
Michael A. Stein | 1,500 | * | 1,500 |
Name | Fees Earned or Paid in Cash | Option Awards ($)(1,4) | Total ($) | ||||||
Edward J. Bramson | — | — | ** | ||||||
Gerard L. Eastman | — | — | ** | ||||||
Ronald P. Badie(2) | $ | 81,000 | $ | 32,525 | $ | 113,525 | |||
Richard A. Horn(3) | $ | 86,500 | $ | 10,381 | $ | 96,881 | |||
Marvin G. Siegert(2) | $ | 75,000 | $ | 32,525 | $ | 107,525 | |||
Michael A. Stein(3) | $ | 88,000 | $ | 10,381 | $ | 98,381 |
** | Mr. Bramson and Mr. Eastman have declined to receive director compensation. |
(1) | The |
(2) | As of |
(3) | As of December 31, 2008, Messrs. Horn and Stein each held outstanding stock option awards representing the right to purchase 20,000 shares of the Company’s common stock. |
(4) | The aggregate grant-date fair value of stock options granted to each director during 2008, as determined in accordance with FAS 123R, was $30,601. Except for Mr. Eastman, each of our current non-employee directors were granted stock options during 2008. |
The graph below compares the cumulative total shareholder return of our common stock with the cumulative total return of theNYSE Composite Index, theS&P SmallCap 600 Index, and theNASDAQ, for the period commencing December 31, 2003 and ending on December 31, 2008. TheS&P SmallCap 600 Index was chosen because we do not believe we can reasonably identify an industry index or specific peer issuer that would offer a meaningful comparison. TheS&P SmallCap 600 Index represents a broad-based index of companies with similar market capitalization. Our common stock was added to theS&P SmallCap 600 Index on March 19, 2003.
The graph assumes $100 was invested, on December 31, 2003, in our common stock and each index presented. The comparisons in the table below are not intended to forecast or be indicative of future performance of our common stock.
AUDIT COMMITTEE REPORT TO SHAREHOLDERSSTOCKHOLDERS *
Each current member of the Audit Committee meets the independence, financial literacy and experience requirements contained in the corporate governance listing standards of the New York Stock Exchange (NYSE) relating to audit committees. The Board of Directors has determined that all Audit Committee members qualify as “audit committee financial experts” under the regulations of the SEC. Although all members of our Audit Committee meet the current NYSE regulatory requirements for accounting or related financial management expertise, and the Board of Directors has determined that each of them qualifies as an “audit committee financial expert,” members of our Audit Committee are not professionally engaged in the practice of auditing or accounting and are not technical experts in auditing or accounting.
The Audit Committee oversees Nautilus, Inc.’s financial reporting process on behalf of the Board. Management hasBoard and operates under a written charter, approved by the primary responsibility forAudit Committee and ratified by the financial statements and the reporting process, including internal control over financial reporting and disclosure controls and procedures.Board. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report on Form 10-K with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. A written charter approved by the Audit Committee and ratified by the Board governs the Audit Committee.
Management has the primary responsibility for the preparation, presentation and integrity of the Company’s financial statements and the reporting process, including internal control over financial reporting and disclosure controls and procedures. Management is responsible for maintaining and evaluating appropriate accounting and financial reporting principles and internal controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations.
The Audit Committee reviewed with the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of thoseNautilus, Inc.’s audited financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles. The Audit Committee also has discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T.3200T,Communication with Audit Committees. In addition, the Audit Committee has received from the independent registered public accounting firm the written disclosures and letter required by Independence Standards Board Standard No. 1, as adopted by the Public Company Accounting Oversight Board in Rule 3600T, and has discussed with the independent registered public accounting firm their independence from the Company and its management, and has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company is compatible with maintaining such firm’s independence.
The Audit Committee discussed with the Company’s independent registered public accounting firm the overall scope and plans for their audit. TheIn addition, the Audit Committee meetsmet with the independent registered public accounting firm, with and without management present, to discuss the results of their examination, their evaluation of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting. The Audit Committee held seven meetings during fiscalreporting for the year 2007.
None of the Audit Committee members have a relationship with the Company that might interfere with exercise of his independence from the Company and its management.ended December 31, 2008.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements and management’s report on internal control over financial reporting be included in the Annual Report on Form 10-K for the year ended December 31, 2007,2008, for filing with the Securities and Exchange Commission.SEC. The Audit Committee has also determined that provision by Deloitte & Touche LLP of other non-audit services is compatible with maintaining Deloitte & Touche LLP’s independence. The Audit Committee and the Board have also recommended, subject to shareholderstockholder ratification, the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2008.2009.
Respectfully Submitted,
Marvin G. Siegert, Chairman
Richard A. Horn
Michael A. Stein
* The information contained in the Report of the Audit Committee shall not be deemed “soliciting material” or be incorporated by reference by any general statement incorporating this Proxy Statement into any filings under either the Securities Act of 1933, as amended, or the Exchange Act of 1934 (together the “Acts”), except to the extent the Company specifically incorporates such report by reference, and further, such Report shall not otherwise be deemed filed under the Acts.
REIMBURSEMENT OF PROXY EXPENSES OF SHERBORNE INVESTORS
During 2007, Sherborne Investors LP and certain of its affiliates (“Sherborne”) undertook a successful proxy contest to replace four of the Company’s directors with its nominees, Edward J. Bramson, Gerard L. Eastman, Richard A. Horn and Michael A. Stein. Although Sherborne stated in its proxy statement that it intended to seek reimbursement from the Company for its expenses incurred in connection with the proxy contest without submitting the question of reimbursement to the Company’s shareholders for approval, the Board of Directors of the Company now believes that such submission is appropriate.
Sherborne has submitted to the Company an invoice detailing reimbursable expenses of approximately $560,000 incurred in connection with the proxy contest. Accordingly, should this proposal be approved by the shareholders, any reimbursement of Sherborne would not exceed such amount. Moreover, the Board of Directors does not intend to make any payments to Sherborne unless and until the independent members of the Company’s Board of Directors who are not affiliates of Sherborne review such proposed payment and determine that such payment is appropriate in light of the Company’s financial condition at such time. The Board of Directors currently expects that no payment with respect to reimbursement of Sherborne’s proxy expenses would be made prior to when the Company returns to profitability.
The Board of Directors recommends that the shareholders approve the proposal to reimburse Sherborne’s expenses incurred in connection with the proxy contest, in an amount not to exceed $560,000, subject, prior to any payment to Sherborne, to further review and approval by the independent members of the Board of Directors who are not affiliates of Sherborne.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF REIMBURSEMENT OF SHERBORNE’S PROXY SOLICITATION EXPENSES.
APPROVAL OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
The Board of Directors has approved, subject to shareholder approval, an amendment and restatement of our Articles of Incorporation in order to clarify certain of its terms, aggregate the terms of multiple amendments to our Articles of Incorporation into a single document and shorten it to conform more closely to those of other Washington public corporations and modern corporate governance practices. The full text of the proposed Amended and Restated Articles of Incorporation is set forth as Exhibit A of this Proxy Statement.
If the shareholders approve the proposed amendment and restatement of our Articles of Incorporation described in this Proposal No. 3, our current Articles of Incorporation will be replaced in their entirety by the Amended and Restated Articles of Incorporation included as Exhibit A of this Proxy Statement.
Reasons for Amendment
Our Articles of Incorporation were filed with the Secretary of State of Washington in 1992 as the Articles of Incorporation of Stratford Software Corporation, USA. These Articles of Incorporation remained as the governing document of our company through a series of mergers, internal reorganizations and changes to our name. Other than amendments to (i) increase our authorized capital (ii) change our name and (iii) delete provisions specifying the required vote for certain corporate actions, our Articles of Incorporation have remained largely unchanged from those filed in 1992. Over the course of the intervening years there have been a number of substantive changes made to the Washington Business Corporation Act, as well as changes in the practical application of the law. Also, as a result of multiple reorganizations, amendments and changes to our name, our current Articles of Incorporation are difficult to read as a unified document and differ in some respects from the articles of incorporation of other public Washington corporations, particularly those that have gone public more recently.
Effect of Amendment
The effect of the proposed amendment and restatement would be to unify our Articles of Incorporation into a more readable and user-friendly document. The proposed amendment and restatement would also amend or eliminate certain obsolete provisions. The proposed amendment and restatement would not, however, alter the number of shares or classes of the Company’s authorized capital stock. A table providing an Article-by-Article summary of the proposed amendment follows below.
Approval Requirements
The Amended and Restated Articles of Incorporation will be approved if a majority of the shares entitled to vote at the meeting are cast “for” the proposed amendment and restatement. If the proposal is approved, it will become effective upon the filing of the Articles of Amendment with the Secretary of State of Washington, which will occur as soon as reasonably practicable after approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE AMENDMENT AND RESTATEMENT OF OUR ARTICLES OF INCORPORATION.
Detailed Summary of Recommended Changes to our Articles of Incorporation
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RATIFICATION OF APPOINTMENT OF REGISTERED INDEPENDENT PUBLIC
ACCOUNTING FIRM FOR 20082009
The Audit Committee has appointed Deloitte & Touche LLP (“Deloitte & Touche”) as our registered independent public accounting firm to audit our consolidated financial statements for 2008.the year ended December 31, 2009. Although we are not required to seek shareholderstockholder approval of this appointment, the Board has determined it to be sound corporate governance to do so. If the appointment is not ratified by shareholders,stockholders, the Audit Committee will investigate the possible bases for the negative vote and will reconsider the appointment in light of the results of its investigation.
We employed Deloitte & Touche as our registered independent public accounting firm during 2007 and 2006.2008. There have been no disagreements with Deloitte & Touche on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Deloitte & Touche, would have caused Deloitte & Touche to make reference to the matter in their report. A representative of Deloitte & Touche is expected to be present at the annual meeting. The representative will be given the opportunity to make a statement on behalf of Deloitte & Touche if the representative so desires, and the representative will be available to respond to appropriate shareholderstockholder questions.
We understand the need for Deloitte & Touche to maintain objectivity and independence in its audit of our financial statements. To minimize relationships that could appear to impair the objectivity of Deloitte & Touche, our Audit Committee has restricted the non-audit services that Deloitte & Touche may provide. These determinations are among the key practices adopted by the Audit Committee in its “Policies and Procedures for the Approval of Audit and Non-audit Services Provided by the Independent Auditor,” effective April 2003.
Under these policies, with Audit Committee pre-approval, the Company may use Deloitte & Touche for the following categories of non-audit services: merger and acquisition due diligence and audit services; tax services; internal control reviews; employee benefit plan audits; and reviews and procedures that the Company requests Deloitte & Touche to undertake to provide assurances on matters not required by laws or regulations.
The aggregate fees and expenses billed for professional services rendered by Deloitte & Touche infor the years ended December 31, 2008 and 2007 and 2006 for these various services were approximately:as follows:
Type of Fees | 2007 | 2006 | 2008 | 2007 | ||||||||
Audit Fees | $ | 1,469,000 | $ | 1,109,000 | $ | 1,551,000 | $ | 1,469,000 | ||||
Audit-Related Fees | $ | 170,000 | $ | 125,000 | — | 170,000 | ||||||
Tax Fees | $ | 198,000 | $ | 71,000 | 126,000 | 198,000 | ||||||
All Other Fees | $ | 63,000 | $ | 95,000 | 28,000 | 63,000 | ||||||
Total | $ | 1,900,000 | $ | 1,400,000 | $ | 1,705,000 | $ | 1,900,000 | ||||
“Audit fees” are fees we paid Deloitte & Touche for professional services for the audit of our consolidated financial statements included in our Form 10-K and review of financial statements included in our Form 10-Qs, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, including the audit required by Section 404 of the Sarbanes-Oxley Act of 2002. “Audit-related
“Audit-related fees” are fees billed by Deloitte & Touche for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. “Tax
“Tax fees” are fees for tax compliance, tax advice and tax planning. “All
“All other fees” are fees billed by Deloitte & Touche to us for any services not included in the first three categories.
None of the services disclosed above under “Audit Related Fees,” “Tax Fees,” or “All Other Fees” were approved by the Audit Committee pursuant to the waiver of pre-approval provisions set forth in applicable rules of the SEC.
The Audit Committee believes that the foregoing expenditures are compatible with maintaining the independence of the Company’s registered independent public accounting firm.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERSSTOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE AUDIT COMMITTEE’S APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM.
As of the date of this proxy statement, the Board of Directors is not aware of any other matters that may come before the annual meeting. The persons named in the enclosed proxy card intend to vote the proxy in accordance with their best judgment if any other matters properly come before the annual meeting.
We will provide, without charge, on the written request of any beneficial owner of shares of our common stock entitled to vote at the Annual Meeting of Shareholders,Stockholders, a copy of our Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission for our fiscal year ended December 31, 2007.2008. Written requests should be mailed to the Secretary, Nautilus, Inc., 16400 SE Nautilus Drive, Vancouver, Washington 98683.
Please return the enclosed proxy card as soon as possible. Unless a quorum consisting of a majority of the outstanding shares entitled to vote is represented at the annual meeting, no business can be transacted. Therefore, please be sure to date and sign your proxy card exactly as your name appears on your stock certificate and return it in the enclosed postage prepaid return envelope. Please act promptly to ensure that you will be represented at this important meeting.
By Order of the Board of Directors
William D. Meadowcroft
Wayne M. Bolio
Chief Financial Officer,Senior Vice President Law, General Counsel and Secretary and Treasurer
Vancouver, Washington
April 30, 200829, 2009
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NAUTILUS, INC.
Pursuant to RCW 23B.10.070 of the Washington Business Corporation Act (the “Act”), Nautilus, Inc. (the “Corporation”) does hereby adopt the following Amended and Restated Articles of Incorporation of the Corporation, which supersede the original Articles of Incorporation and all amendments and restatements thereto.
ARTICLE I
NAME
The name of this corporation is Nautilus, Inc. (the “Corporation”).
ARTICLE II
DURATION
The Corporation is organized under the Washington Business Corporation Act and shall have perpetual existence.
ARTICLE III
PURPOSE
The Corporation is organized for the purpose of engaging in any business, trade or activity which may be conducted lawfully by a corporation formed under the Washington Business Corporation Act.
ARTICLE IV
CAPITAL STOCK
4.1Authorized Shares. The total number of shares of stock that the Corporation shall have authority to issue is Seventy Five Million (75,000,000) shares of common stock, no par value per share. Except as otherwise provided in accordance with these Articles of Incorporation, the Common Shares shall have unlimited voting rights, with each share being entitled to one vote, and the rights to receive the net assets of the Corporation upon dissolution, with each share participating on a pro rata basis.
ARTICLE V
ELECTION OF DIRECTORS
Shareholders entitled to vote at any election of directors shall have the right to vote, in person or by proxy, the number of shares they are entitled to cast for as many persons as there are directors to be elected. Shareholders shall not have the right to cumulate votes in the election of directors.
ARTICLE VI
PREEMPTIVE RIGHTS
No shareholder of the Corporation shall have, as such holder, any preemptive or preferential right or subscription right to any stock of the Corporation or to any obligations convertible into stock of the Corporation, or to any warrant or option for the purchase thereof, except to the extent provided by written agreement with the Corporation.
ARTICLE VII
MERGERS, SHARE EXCHANGES AND OTHER TRANSACTIONS
A merger, share exchange, sale of substantially all of the Corporation’s assets, or dissolution of the Corporation must be approved by the affirmative vote of two-thirds of the Corporation’s outstanding shares entitled to vote, or if separate voting by voting groups is required then by not less than two-thirds of all the votes entitled to be cast by that voting group.
ARTICLE VIII
DIRECTORS
8.1 The number of directors of the Corporation shall be fixed as provided in the Bylaws and may be changed from time to time by amending the Bylaws.
8.2 The Board of Directors is expressly authorized to make, alter and repeal the Bylaws of the Corporation, subject to the power of the shareholders of the Corporation to change or repeal such Bylaws.
8.3 Any vacancy occurring in the Board of Directors (whether caused by resignation, death, an increase in the number of directors, or otherwise) may be filled as specified in the Bylaws.
8.4 To the fullest extent permitted by the Washington Business Corporation Act, as it exists on the date hereof or may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for conduct as a director. Any amendment to or repeal of said act or this Article 8.4 shall not adversely affect a director of the Corporation with respect to any conduct of such director occurring prior to such amendment or repeal.
ARTICLE IX
INDEMNIFICATION
9.1 Right to Indemnification. Each individual (hereinafter an “indemnitee”) who was or is made a party or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director or officer of the Corporation or, that while serving as a director or officer of the Corporation, he or she is or was also serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation or of a foreign or domestic partnership, joint venture, trust, employee benefit plan or other enterprise, whether the basis of the proceeding is alleged action in an official capacity as such a director, officer, employee, partner, trustee, or agent or in any other capacity while serving as such director, officer, employee, partner, trustee, or agent, shall be indemnified and held harmless by the Corporation to the full extent permitted by applicable law as then in effect, against all expense, liability and loss (including attorneys’
fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee, partner, trustee, or agent and shall inure to the benefit of the indemnitee’s heirs, executors and administrators; provided, however, that no indemnification shall be provided to any such indemnitee if the Corporation is prohibited by the Washington Business Corporation Act or other applicable law as then in effect from paying such indemnification; and provided, further, that except as provided in Section 9.2 with respect to proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if a proceeding (or part thereof) was authorized or ratified by the Board of Directors. The right to indemnification conferred in this section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition (hereinafter an “advancement of expenses”). Any advancement of expenses shall be made only upon delivery to the Corporation of a written undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this section and upon delivery to the Corporation of a written affirmation (hereinafter an “affirmation”) by the indemnitee of his or her good faith belief that such indemnitee has met the standard of conduct necessary for indemnification by the Corporation pursuant to this article.
9.2 Right of Indemnitee to Bring Suit. If a written claim for indemnification under Section 9.1 is not paid in full by the Corporation within sixty (60) days after the Corporation’s receipt thereof, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part, in any such suit or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. The indemnitee shall be presumed to be entitled to indemnification upon submission of a written claim (and, in an action brought to enforce a claim for an advancement of expenses, where the required undertaking and affirmation have been tendered to the Corporation) and thereafter the Corporation shall have the burden of proof to overcome the presumption that the indemnitee is so entitled. Neither the failure of the Corporation (including the Board of Directors, independent legal counsel or the shareholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances nor an actual determination by the Corporation (including the Board of Directors, independent legal counsel or the shareholders) that the indemnitee is not entitled to indemnification shall be a defense to the suit or create a presumption that the indemnitee is not so entitled.
9.3 Nonexclusivity of Rights. The right to indemnification and the advancement of expenses conferred in this article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or Bylaws of the Corporation or its parent corporation, if any, general or specific action of the Board of Directors, contract or otherwise.
9.4 Insurance, Contracts and Funding. The Corporation may maintain insurance, at its expense, to protect itself and any individual who is or was a director, officer, employee or agent of the Corporation or who, while a director, officer, employee or agent of the Corporation, is or was serving at the request of the Corporation as a agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss asserted against or incurred by the individual in that capacity or arising from the individual’s status as a director, officer, employee or agent, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Washington Business Corporation Act. The Corporation may enter into contracts with any director, officer, employee or agent of the Corporation in furtherance of the provisions of this article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this article.
9.5 Indemnification of Employees and Agents of the Corporation. The Corporation may, by action of the Board of Directors, grant rights to indemnification and advancement of expenses to officers, employees and agents of the Corporation with the same scope and effect as the provisions pertaining to the indemnification and advancement of expenses of directors and officers of the Corporation or pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act or otherwise.
9.6 Persons Serving Other Entities. Any individual who is or was a director, officer or employee of the Corporation who, while a director, officer or employee of the Corporation, is or was serving (a) as a director or officer of another foreign or domestic corporation of which a majority of the shares entitled to vote in the election of its directors is held by the Corporation, (b) as a trustee of an employee benefit plan and the duties of the director or officer to the Corporation also impose duties on, or otherwise involve services by, the director or officer to the plan or to participants in or beneficiaries of the plan, or (c) in an executive or management capacity in a foreign or domestic partnership or limited liability company, joint venture, trust or other enterprise of which the Corporation is an equity interest holder or in which a wholly owned subsidiary of the Corporation is a general partner or has a majority ownership or interest shall be deemed to be so serving at the request of the Corporation and entitled to indemnification and advancement of expenses under this article.
ARTICLE X
OTHER MATTERS
Except as otherwise provided in these articles, as amended from time to time, the Corporation reserves the right to amend, alter, change, or repeal any provision contained in these articles in any manner now or hereafter prescribed or permitted by statute. All rights of shareholders of the Corporation are subject to this reservation.
DATED this day of 2008.
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Electronic Voting Instructions
You can vote by Internet or telephone!
Available 24 hours a day, or 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on June 3, 2008.9, or 2009.
Vote by Internet
• Log on to the Internet and go to www.investorvote.com/NLSJwww.envisionreports.com/NLS
• Follow the steps outlined on the secured website.
Vote by telephone
• Call toll free 1-800-652-VOTE (8683) within the United States, Canada & Puerto Rico any time on a touch tone telephone. There is NO CHARGE to you for the call.
• Follow the instructions provided by the recorded message.
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.
Annual Meeting Proxy Card
123456
C0123456789
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IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPEENVELOPE.
A Proposals — The Board of Directors unanimously recommends a vote FOR all the nominees listed and FOR Proposals 2, 3 and 4.Proposal 2.
1. Election of Directors: For Withhold For Withhold For Withhold
01—Edward J. Bramson
04—Richard A. Horn
For Withhold
02—Ronald P. Badie
05—Marvin G. Siegert
For Withhold
03—Gerard L. Eastman
04—Richard A. Horn 05—Marvin G. Siegert 06—Michael A. Stein
For Against AbstainWithhold
2. Approval of Reimbursement of Sherborne Expenses.
For Against Abstain
3. Approval of Amended and Restated Articles of Incorporation.
4. Ratification of selection of Deloitte & Touche LLP as Registered Independent Public Accounting Firm.
5. Upon such other matters as may properly come before, or incident to the conductFor Against Abstain
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of the annual meeting or any adjournment thereof, theand proxy holders shall vote in such manner as they determine to be our best interests of Nautilus, Inc. Management is not presently aware of any such matters to be presented for actionstatement are available at the annual meeting.http://nautilus.com/proxy.
B Non-Voting Items
Change of Address — Please print new address below.
Meeting Attendance
Mark box to the right if you plan to attend the Annual Meeting.
C Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
Date (mm/dd/yyyy) — Please print date below.
Signature 1 — Please keep signature within the box.
Signature 2 — Please keep signature within the box.
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Proxy — Nautilus, Inc.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 3, 20089, 2009
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement, each dated April 30, 2008,2009, and names, constitutes and appoints Edward J. Bramson and Wayne M. Bolio, or either of them acting in absence of the other, with full power of substitution, my true and lawful attorneys and proxies for me and in my place and stead to attend the Annual Meeting of the Shareholders of Nautilus, Inc., to be held at 11:00 a.m. PDT on June 3, 2008,9, 2009, and at any adjournment thereof, and to vote all the shares of common stock held of record in the name of the undersigned on March 28, 2008,April 27, 2009, with all the powers that the undersigned would possess if personally present.
Our Board of Directors is soliciting this proxy. If no specific direction is given as to the items stated on the reverse side, this proxy will be voted FOR the nominees named in Proposal 1 and FOR Proposals 2, 3 and 4.Proposal 2.
The shareholder signed on the reverse side reserves the right to revoke this proxy at any time prior to its exercise by written notice delivered to our Secretary at our corporate offices at 16400 SE Nautilus Drive, Vancouver, Washington 98683, prior to the annual meeting. The power of the proxy holders shall also be suspended if the shareholder signed above appears at the annual meeting and elects in writing to vote in person.
(Items to be voted appear on reverse side.)