Exhibit 10

 

DEMAND MASTER PROMISSORY NOTE

 

$40,000,000

  August 18, 2005

 

FOR VALUE RECEIVED, the undersigned, NAUTILUS, INC., a Washington corporation
(“Borrower”), promises to pay to the order of KEYBANK NATIONAL ASSOCIATION
(“Lender”) at its main office at 127 Public Square, Cleveland, Ohio 44114, the
principal sum of FORTY MILLION DOLLARS ($40,000,000) or the aggregate unpaid
principal amount of all Advances made by Lender to Borrower hereunder, whichever
is less, in lawful money of the United States of America, on the earlier of
DEMAND or the Maturity Date.

 

Advances may be requested hereunder as Base Rate Advances or Eurodollar
Advances. Borrower promises to pay interest (based on a year having three
hundred sixty (360) days and calculated for the actual number of days elapsed)
on the principal balance of each Advance at a variable rate per annum equal to
the Interest Rate applicable to such Advance, with such interest to be due and
payable (a) with respect to any Base Rate Advance, on the first day of each
calendar month, commencing September 1, 2005, and on the Maturity Date, and
(b) with respect to any Eurodollar Advance, on the last day of the Interest
Period applicable to such Advance. The principal balance of each Advance that
remains outstanding after the Maturity Date applicable thereto shall bear
interest at a rate per annum equal to the Default Rate. Any Base Rate Advance
may be prepaid at any time. No Eurodollar Advance may be prepaid prior to the
last day of the Interest Period applicable thereto; provided that each Advance
must be paid upon the Maturity Date and any prepayment of a Eurodollar Advance
resulting therefrom shall be subject to the reimbursement provisions set forth
below.

 

This Note shall serve as a master note to evidence all Advances; provided,
however, that the aggregate unpaid principal amount of all Advances shall not at
any time outstanding exceed the Line of Credit. Borrower shall make an immediate
prepayment on this Note in the event that the aggregate unpaid principal amount
of all Advances shall at any time exceed the Line of Credit and such prepayment
shall be subject to the reimbursement provisions set forth below. Lender shall
record (a) the principal amount of each Advance, the Interest Rate applicable
thereto and the Interest Period, if any, and (b) the amount of any principal,
interest or other payment and the applicable dates with respect thereto, by such
method as Lender may generally employ; provided that failure to make any such
entry shall in no way detract from Borrower’s obligations under this Note. The
aforesaid information with respect to the Advances set forth on the records of
Lender shall be rebuttably presumptive evidence of the principal and interest
owing and unpaid on this Note. Borrower shall provide notice to Lender of a
requested Eurodollar Advance no fewer than two Business Days (before 11:00 A.M.
Eastern time) prior to the proposed date of borrowing. Borrower may request same
day borrowings with respect to Base Rate Advances provided that the request for
such Advance is made before 1:00 P.M. Eastern time. Whenever any payment to be
made under this Note shall be due on a day that is not a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in each case be included in the computation of the interest payable
hereunder; provided, however, that, with respect to any Eurodollar Advance, if
the next succeeding Business Day falls in the succeeding calendar month, such
payment shall be made on the preceding Business Day and the relevant Interest
Period shall be adjusted accordingly. Borrower waives presentment, demand,
notice, protest and all other demands and notices in connection with delivery,
acceptance, performance, default or enforcement of this Note.

 

If any Eurodollar Advance becomes due and payable or is prepaid prior to the
Maturity Date applicable thereto, Borrower promises to reimburse Lender on
demand for any resulting loss, cost or expense incurred by Lender as a result
thereof, including, without limitation, any loss incurred in obtaining,
liquidating or employing deposits from third parties (including loss of margin
for the period after any such payment). If, because of the introduction of or
any change in, or because of any judicial, administrative or other governmental
interpretation of any law or regulation, there shall be any increase in the cost
to Lender of making, funding, maintaining or allocating capital to any
Eurodollar Advance, then Borrower shall, from time to time upon demand by
Lender, pay to Lender additional amounts sufficient to compensate Lender for
such increased cost. If, because of the introduction of or any change in, or
because of any judicial, administrative or other governmental interpretation of,
any law or regulation, it becomes unlawful for Lender to make, fund or maintain
any Eurodollar Advance, then Lender’s obligation to make, fund or

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maintain such Eurodollar Advance shall terminate and such Eurodollar Advance
shall be converted to a Base Rate Advance on the earlier of (a) the last day of
the Interest Period applicable thereto, or (b) the date the making, funding or
maintaining of such Eurodollar Advance becomes unlawful.

 

Borrower agrees to provide to Lender within three days of Lender’s written
request, such information about the financial condition, properties and
operations of Borrower as Lender may from time to time reasonably request.

 

Borrower agrees to pay on demand all costs and expenses of Lender, including,
but not limited to, reasonable attorneys’ fees and expenses in connection with
the collection of the Obligations incurred under this Note.

 

Borrower agrees to defend, indemnify and hold harmless Lender from and against
any and all liabilities, damages, penalties, actions, judgments, suits, costs or
expenses (including attorneys’ fees) that may be imposed on, incurred by or
asserted against Lender in connection with any investigative, administrative or
judicial proceeding (whether or not Lender shall be designated a party thereto)
or any other claim by any Person relating to or arising out of this Note, the
Line of Credit, Borrower or any Advance; provided that Lender shall not have the
right to be indemnified under this paragraph as a result of Lender’s gross
negligence or willful misconduct.

 

Upon the occurrence of an Event of Default and at all times thereafter, at the
option of Lender (but automatically with respect to Events of Default
(e) through (h)), all Obligations shall become immediately due and payable,
Lender may terminate the Line of Credit and no further Advance may be requested
by Borrower. In addition, Lender may apply or setoff any Deposit Account against
all Obligations, all without any notice to or demand upon Borrower, in addition
to any other rights and remedies Lender may have pursuant to law, this Note and
any other instruments or agreements, which rights and remedies shall be
cumulative; provided, however, that, notwithstanding anything herein to the
contrary, with respect to Events of Default (b) through (d), Lender agrees to
(i) give Borrower written notice of the conduct or actions alleged to constitute
any such Event of Default five Business Days prior to taking any of the actions
identified in this paragraph, and (ii) give Borrower five Business Days to fully
correct such Event of Default after the giving of a written notice pursuant to
subpart (i) hereof.

 

This Note shall bind Borrower and Borrower’s successors and assigns and shall
inure to the benefit of Lender and its successors and assigns. Borrower may not
assign or otherwise transfer any of its rights under this Note without the
express written consent of Lender. All provisions hereof shall be subject to,
governed by, and construed in accordance with Ohio law, without regard to
principles of conflicts of laws. Unenforceability of any provision hereof or any
application of any provision hereof shall not affect the enforceability of any
other provision or application of any provision. This Note constitutes a final
written expression of all of the terms of this instrument, is a complete and
exclusive statement of those terms and supersedes all oral representations,
negotiations and prior writings, if any, with respect to the subject matter
hereof. The relationship between Borrower and Lender with respect to this Note
is and shall be solely that of debtor and creditor, respectively, and Lender
shall have no fiduciary obligation toward Borrower with respect to this Note or
the transactions contemplated hereby. Any amendment or waiver hereof or any
waiver of any right or remedy otherwise available must be in writing and signed
by the party against whom enforcement of the amendment or waiver is sought.

 

For the purposes of this Note, the following terms shall have the following
meanings:

 

“Advances” means, collectively, all loan advances made by Lender to Borrower, at
the sole discretion and option of Lender, Borrower acknowledging that the Line
of Credit relating to this Note is purely discretionary and Lender may, without
prior notice to Borrower, refuse to honor any request by Borrower for borrowing
hereunder; “Advance” means any of the Advances.

 

“Base Rate” means a rate per annum equal to the greater of (a) the Prime Rate or
(b) one-half of one percent (.50%) in excess of the Federal Funds Effective
Rate. Any change in the Base Rate shall be effective immediately from and after
such change in the Base Rate.

 

“Base Rate Advance” means an Advance that bears interest determined with
reference to the Base Rate.

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“Business Day” means (a) if the applicable Business Day relates to a Base Rate
Advance, any day that is not a Saturday, Sunday or other day on which national
banks are authorized or required to close in Cleveland, Ohio, or (b) if the
applicable Business Day relates to a Eurodollar Advance, a day of the year on
which dealings are carried on in the London interbank eurodollar market.

 

“Default Rate” means a floating rate per annum equal to three percent (3%) in
excess of the Base Rate from time to time in effect, which rate shall be
immediately adjusted to correspond with each change in the Base Rate.

 

“Deposit Account” means any demand, time, statement, savings, passbook or
similar account or balance (including, without limitation, any certificate of
deposit) presently or at any time hereafter maintained with Lender at any of its
foreign or domestic offices either by Borrower severally or jointly by Borrower
and another person or entity.

 

“Dollar” or the sign $ shall mean lawful money of the United States of America.

 

“Eurocurrency Liabilities” shall have the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.

 

“Eurodollar Advance” means an Advance that bears interest determined with
reference to the Eurodollar Rate.

 

“Eurodollar Rate” shall mean, with respect to a Eurodollar Advance, for any
Interest Period, a rate per annum equal to the quotient obtained (rounded
upwards, if necessary, to the nearest 1/16th of 1%) by dividing (a) the rate of
interest, determined by Lender in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) as of approximately
11:00 A.M. (London time) two Business Days prior to the beginning of such
Interest Period pertaining to such Eurodollar Advance, as listed on British
Bankers Association Interest Rate LIBOR 01 or 02 as provided by Reuters (or, if
for any reason such rate is unavailable from Reuters, from any other similar
company or service that provides rate quotations comparable to those currently
provided by Reuters) as the rate in the London interbank market for Dollar
deposits in immediately available funds with a maturity comparable to such
Interest Period, provided that, in the event that such rate quotation is not
available for any reason, then the Eurodollar Rate shall be the average (rounded
upward to the nearest 1/16th of 1%) of the per annum rates at which deposits in
immediately available funds in Dollars for the relevant Interest Period and in
the amount of the Eurodollar Advance to be disbursed or to remain outstanding
during such Interest Period, as the case may be, are offered to Lender (or an
affiliate of Lender, in Lender’s discretion) by prime banks in any Eurodollar
market reasonably selected by Lender, determined as of 11:00 A.M. (London time)
(or as soon thereafter as practicable), two Business Days prior to the beginning
of the relevant Interest Period pertaining to such Eurodollar Advance hereunder;
by (b) 1.00 minus the Reserve Percentage.

 

“Event of Default” means the occurrence of any of the following events: (a) the
failure of Borrower to pay any principal or interest hereunder or perform any
Obligation when it becomes due and payable; (b) untruthfulness, proved to the
satisfaction of Lender, of any statement, representation or certification
contained in any financial statement, loan request or other document given by
Borrower to Lender in connection with this Note, the Line of Credit or any
Advance; (c) any condition or event that Lender determines has or is reasonably
likely to have a material adverse effect on the business, prospects, operations
or financial condition of Borrower, or on the rights and remedies of Lender
under this Note, or the ability of Borrower to perform its obligations
hereunder; (d) breach by Borrower of any provision, agreement, representation,
warranty or covenant set forth in this Note or in any other instrument, document
or agreement evidencing or relating to any Obligation, or in any mortgage deed,
assignment, pledge or security agreement given as or evidencing security for any
Obligation of Borrower; (e) dissolution, termination of existence, insolvency,
business failure or appointment of a receiver of Borrower, or any part of the
property of Borrower; (f) assignment for the benefit of creditors by Borrower;
(g) failure or inability of Borrower to pay its debts as they come due; (h) the
commencement of any proceedings under any bankruptcy or insolvency laws by or
against Borrower; or (i) any judgment, attachment, execution, or similar process
is rendered, issued, or levied against Borrower, or any material amount of the
property of Borrower, and is not fully satisfied, released, vacated, or bonded
within thirty (30) days after its rendering, issue or levy.

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“Federal Funds Effective Rate” means, for any day, the rate per annum (rounded
upward to the nearest one one-hundredth of one percent (1/100 of 1%)) announced
by the Federal Reserve Bank of New York (or any successor) on such day as being
the weighted average of the rates on overnight federal funds transactions
arranged by federal funds brokers on the previous trading day, as computed and
announced by such Federal Reserve Bank (or any successor) in substantially the
same manner as such Federal Reserve Bank computes and announces the weighted
average it refers to as the “Federal Funds Effective Rate” as of the date of the
Note.

 

“Interest Period” means, with respect to any Eurodollar Advance, the period
commencing on the date such Advance is made and ending on the last day of such
period pursuant to the provisions hereof and, thereafter, each subsequent period
commencing on the last day of the immediately preceding Interest Period and
ending on the last day of such period as selected by Borrower pursuant to the
provisions hereof. The duration of each Interest Period for any Eurodollar
Advance shall be one month. Borrower shall not request that Eurodollar Advances
be outstanding for more than three different Interest Periods at any time.

 

“Interest Rate” means (a) as to any Base Rate Advance, a rate per annum equal to
the Base Rate from time to time in effect, and (b) as to any Eurodollar Advance,
a rate per annum equal to the sum of the Eurodollar Rate (as determined by
Lender) from time to time in effect, plus eighty (80) basis points.

 

“Line of Credit” means the uncommitted line of credit established by Lender for
Borrower pursuant to which Borrower may request Advances as Lender may be
willing to grant up to the aggregate principal amount at any time outstanding of
Forty Million Dollars ($40,000,000).

 

“Maturity Date” means the earlier of (a) DEMAND, or (b) October 17, 2005.

 

“Obligation” means any present or future obligation, indebtedness or liability
of Borrower owed to Lender, of whatever kind and however evidenced, together
with all extensions, renewals, amendments, restatements and substitutions
thereof or therefor (including, without limitation, each Advance evidenced by
this Note or pursuant to the Line of Credit).

 

“Person” means an individual, sole proprietorship, partnership, joint venture,
unincorporated organization, corporation, limited liability company, unlimited
liability company, institution, trust, estate, government or other political
subdivision thereof or any other entity.

 

“Prime Rate” means that interest rate established from time to time by Lender as
Lender’s Prime Rate, whether or not such rate is publicly announced; the Prime
Rate may not be the lowest interest rate charged by Lender for commercial or
other extensions of credit. Each change in the Prime Rate shall be effective
immediately from and after such change.

 

“Reserve Percentage” shall mean for any day that percentage (expressed as a
decimal) that is in effect on such day, as prescribed by the Board of Governors
of the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, all basic, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements) for a member bank of the
Federal Reserve System in Cleveland, Ohio, in respect of Eurocurrency
Liabilities. The Eurodollar Rate shall be adjusted automatically on and as of
the effective date of any change in the Reserve Percentage.

 

JURY TRIAL WAIVER. BORROWER AND LENDER WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE BETWEEN BORROWER AND LENDER ARISING OUT OF, IN CONNECTION WITH,
RELATING TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED
THERETO.

 

Executed as of the date set forth above.

 

Address:

 

1400 NE 136th Avenue

Vancouver, WA 98684

     

NAUTILUS, INC.

   

Attention:

 

James Tener

     

By:

 

/s/ Gregg Hammann

               

Name:

 

Gregg Hammann

               

Title:

 

Chairman & CEO