Audit Committee Charter

AUDIT COMMITTEE CHARTER
(as of July 22, 2008)

NAUTILUS, INC.

Purpose

The primary purpose of the Audit Committee (the "Committee") is to assist the Board of Directors of Nautilus, Inc. (the "Board") in fulfilling its responsibility to oversee (a) the integrity of the Company's financial statements and other financial information furnished by the Company, (b) the Company's compliance with legal and regulatory requirements, (c) the Company's systems of internal accounting and financial controls, (d) the independent auditor's engagement, qualifications, performance, compensation and independence, (e) the performance of the Company's internal audit function, (f) compliance with the Company's code of ethics for the Chief Executive Officer and senior financial officers and compliance with the Company's code of conduct for all Company personnel; and (g) the Company’s control environment and internal control over financial reporting.

Membership

Members of the Committee shall be appointed by the Board. The Committee shall be comprised of not less than three independent members of the Board. The Committee's composition shall meet all applicable standards required by the New York Stock Exchange ("NYSE") and any other applicable laws and regulations.

Accordingly, all Committee members will be directors:

Who have no relationship to the Company that may interfere with the exercise of their independence from management and the Company;
Who are financially literate as such qualification is interpreted by the Board in its business judgment, or who become financially literate within a reasonable period of time after appointment to the Committee; and
Who meet the independence standards set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934 (the "Exchange Act"), and Section 303A.02 of the Listed Company Manual of the NYSE (the "Manual").

The Committee shall endeavor to include at least one member who qualifies as an "audit committee financial expert" for purposes of Item 401(h) of Regulation S-K under the Exchange Act. At a minimum, at least one member of the Committee will have accounting or related financial management expertise, as the Board interprets such qualification in its business judgment.

Key Responsibilities and Powers

In furtherance of its purpose, the Committee shall have the following authority and responsibilities:

The Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company. The Committee shall have authority to retain such outside counsel, experts and other advisors as the Committee may deem appropriate in its sole discretion. The Committee shall have sole authority to approve related fees and retention terms.
The Committee shall review and discuss with management and the independent auditor, 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 NYSE requirements. As part of this review process, the Committee shall review management's report on internal control and the independent auditor's attestation on management's assertion, as required by Section 404 of the Sarbanes-Oxley Act of 2002, and discuss with management and the independent auditors any significant deficiencies or material weaknesses in the design or operation of internal controls.
The Committee shall discuss with management and the independent auditor, as appropriate, prior to release to the general public and legal and regulatory agencies, earnings press releases and financial information and earnings guidance provided to analysts and to rating agencies. The responsibility to discuss earnings releases, as well as financial information and earnings guidance, may be done generally (i.e., discussion of the types of information to be disclosed and the type of presentation to be made).
The Committee shall be directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, and each such registered public accounting firm shall report directly to the Committee. Without limiting the generality of the foregoing, the Committee shall:
- have the sole authority and responsibility to select, evaluate and, where appropriate, replace the independent auditor;
- have the sole authority to approve all audit engagement fees and terms, and the Committee, or a designated member of the Committee, must pre-approve any non-audit service to be provided to the Company by the independent auditor;
- on a periodic basis, meet separately with the independent auditor to discuss any matters that the Committee or auditor believe should be discussed privately; and,
- discuss with management and the independent auditor, as appropriate, any audit problems or difficulties and management's response.
The Company's Lead Internal Auditor shall report jointly to the Committee and the Chief Financial Officer. With respect to the Company's internal audit function, the Committee shall:
- review the responsibilities, functions and performance of the Company's internal audit function, including internal audit’s charter, plans, budget, and the scope and results of internal audits;
- approve the hiring, promotion, demotion or termination of the lead internal auditor.;
- oversee the lead internal auditor’s periodic performance review and changes to his or her compensation.; and
- on a periodic basis, meet separately with the Lead Internal Auditor to discuss any matters that the Committee or the Lead Internal Auditor believe should be discussed privately.
The Committee shall discuss policies developed by Company management and the Board of Directors with respect to risk assessment and risk management and steps Company management has taken to monitor and control financial risk exposure, including anti-fraud programs and controls.
The Committee shall prepare an audit committee report in accordance with SEC regulations to be included in the Company's annual proxy statement.
The Committee shall set policies for the hiring of employees or former employees of the Company's independent auditor.
The Committee shall review and investigate any matters pertaining to the integrity of management, including conflicts of interest, or adherence to standards of business conduct as required in the policies of the Company. The Committee shall review and approve related party transactions according to such policies as may be adopted by the Board of Directors from time to time.
The Committee shall review the Company's financial reporting and accounting standards and principles, significant changes in such standards or principles or in their application and the key accounting decisions affecting the Company's financial statements, including alternatives to, and the rationale for, the decisions made.
Periodically meet separately with the Chief Executive Officer, Chief Financial Officer, General Counsel or other members of senior management to discuss any matters that the Committee or management believe should be discussed privately.
The Committee shall obtain and review at least annually a formal written report from the independent auditor delineating:
- the auditor's internal quality-control procedures;
- any material issues raised by the most recent internal quality-control review, or peer review of the auditor, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the auditor, and any steps taken to deal with any such issues; and
- all relationships between the independent auditor and the Company, in order to assess the auditor's independence.
Upon receipt of such written report, the Committee shall discuss with the independent auditor any such disclosed relationships and their impact on the independent auditor's objectivity and independence, and shall recommend that the Board take appropriate action in response to the auditor's report to satisfy itself of the independence of the independent auditor.
The Committee shall 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 Committee shall report its recommendations to the Board after each Committee meeting. The Audit Committee will maintain written minutes of its meetings, which will be filed in the Company's minute book along with the minutes of the meetings of the Board.
The Committee shall review at least annually the adequacy of this charter and recommend any proposed changes to the Board for approval.
The Committee shall conduct and present to the Board an annual performance evaluation of the Committee.