Med-Fit Systems recently bought this manufacturing plant in Independence, VA, from Nautilus. Photo courtesy of Med-Fit Systems.

FALLBROOK, CA -- Less than two weeks before a deadline, Med-Fit Systems Inc. has purchased a Virginia manufacturing and warehouse facility from Nautilus Inc.

Med-Fit Systems, Fallbrook, CA, bought the Independence, VA, facility for $2.1 million, according to a press release from Med-Fit Systems, which manufactures Nautilus commercial products. The purchase includes a 262,000-square-foot facility and a 56-acre campus.

Nautilus and Med-Fit Systems had entered a lease agreement in which Med-Fit was to lease the facility through Dec. 31, 2012. Med-Fit had the option to purchase the facility by Aug. 31 of this year.

“Now that we have complete ownership of the facility, we will be better able to utilize and expand the plant’s manufacturing capabilities,” Med-Fit Systems CEO Dean Sbragia said in a statement. “We have already initiated the move to bring our Asian-based cardiovascular equipment back to Independence, where we will have better quality control, while providing more jobs for Virginia.”

The Portland (OR) Business Journal reported that Nautilus, Vancouver, WA, disclosed the purchase in a filing with the Securities and Exchange Commission. In the filing, Quinton Commercial Fitness LLC, an affiliate of Med-Fit Systems, completed the transaction on Aug. 19, the newspaper reported.

Had Med-Fit not purchased the facility, Med-Fit would have had to pay Nautilus a monthly rental fee of $40,000 through the remainder of the term. After Aug. 31, Med-Fit would have paid a total of $1.12 million in rent over 28 months.

“The acquisition of the Independence, VA, campus included a new business incentive from the Commonwealth of Virginia,” says Mark Meussner, president of Med-Fit Systems. “This incentive allowed for the purchase of these assets without any capital investment from Med-Fit Systems Inc. and also resulted in a significantly lower monthly cost than the proposed lease agreement with Nautilus Inc.”

Med-Fit purchased most of the Nautilus commercial business, excluding Schwinn and Stairmaster, for $2.8 million in February. Med-Fit paid $300,000 at closing for the Nautilus asset license. The remainder of the $2.8 million will be paid in installments through 2011.

Under the license agreement, Nautilus is entitled to royalties based on net sales of the licensed products by Med-Fit. Royalties are subject to minimum annual payments, ranging from $300,000 to $800,000, beginning in 2010 and subject to adjustment based on the consumer price index each year thereafter. The license agreement extends through Dec. 31, 2013, and is subject to a two-year extension term with respect to cardio products and a perpetual renewal term with respect to strength products.

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