A LIFESTYLE COMPANY

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OUR COMPETITIVE STRENGTHS We believe the following factors have contributed to our growth and success: • Focus on Large Market Gaiam believes that the expansion and fast growth of the LOHAS industry is being fueled by Conscious Commerce, a trend of making purchasing decisions based on lifestyle and personal values, driven by a growing population segment called Cultural Creatives. A study published by the Institute of Noetic Sciences in 1996 coined the term "Cultural Creatives." Paul Ray, who authored this study, is now a member of our board of directors. American Demographics (February 1997) estimates that this growing population segment, which has in common the values of environmental awareness, healthy lifestyles and personal development, numbered 44 million adults in the United States alone in 1996 and according to Mr. Ray, grew to 50 million in 1998. We believe the growth of these consumers is evidenced also by the growth of our customer base. Cultural Creatives tend to be well-educated consumers, with a median age of 42, a 60/40 women-to-men ratio and an average annual income of $52,000. Gaiam targets Cultural Creatives and we believe that our customer demographics and loyalty contribute significantly to our high average order value of approximately $90 for the year ended December 31, 2000, as compared to a lower average for the direct marketing industry and the e-commerce sector. See Note 1 to Gaiam’s Consolidated Financial Statements for information about our international sales. PART I • Experienced Executive Team Gaiam has an experienced team of corporate managers. Our founder and Chief Executive Officer, Jirka Rysavy, was the founder and Chief Executive Officer of Corporate Express, Inc., which he built to a Fortune 500 company. He was also the founder and CEO of Crystal Market, Inc., which was sold to become the first Wild Oats Markets store. Our President and Chief Operating Officer, Lynn Powers, has over 15 years of senior management experience in the retail industry as a Senior Vice President of Merchandising, Marketing and Strategic Planning for Miller’s Outpost, which she helped to grow from a $25 million startup to over $500 million in revenues. Our Chief Information Officer, Pavel Bouska, was a member of the founding team and an officer of Corporate Express for over 10 years, serving in various positions, including Chief Information Officer and Vice President of Information Systems. • Distinctive, Branded Products Gaiam offers information, proprietary products and services under its brand name. These products appeal to Gaiam’s well-educated customers and are not widely available in conventional stores. These products are designed to enhance customers’ lifestyles and experiences and provide healthy, natural solutions while being eco-friendly and promoting a sustainable economy. Private brand product sales were approximately 37% in year 2000, up from 24% in 1999 and 10% in 1998. Because we use a multi-channel approach to our business we are able to leverage our product development costs across all channels of our business. • Exceptional Customer Service Gaiam maintains a customer-focused approach at all stages of its business to build long-term customer relationships based on loyalty and trust. Gaiam stands by its advertised "no-risk guarantee" by providing its customers a full refund of the purchase price for products that are returned any time, for any reason. We believe that this guarantee, coupled with the quality of our customer service personnel, encourages greater customer loyalty and repeat sales. We ensure that we have on hand inventory to support 90% of in-stock orders. It is our practice to ship each order no later than the next business day. According to Jupiter Communications, 90% of online customers prefer human interaction when they require customer service. Our in-house customer service department includes product specialists, who have specific product knowledge and assist customers in selecting products and solutions that meet their needs, design, price and style criteria. Gaiam also enhances its customer service through initiatives such as extensive product training for customer service representatives. We believe that, by offering exceptional customer service, we encourage repeat purchases by our customers, enhance our brand identity and reputation and build stronger relationships with our customers. 24
• Established Infrastructure Gaiam has invested in its physical facilities, technology and information systems. In 2000, we expanded our distribution to a 208,100 square foot fulfillment center near Cincinnati, Ohio, a facility that is in the central United States and conveniently located to hubs for major shipping companies. This location allows us to achieve shipping cost efficiency to most locations across the Continental United States. It is located within 30 minutes of both UPS and Airborne hubs. We also installed our supply chain management information system to support virtually all segments of our business, including, merchandising, customer database management and marketing, order processing, fulfillment, inventory management, customer service and financial reporting. This investment reduced our costs of fulfillment by providing an integrated system that reduces labor costs and time needed to procure inventory and fill orders. This existing infrastructure is allowing us to integrate acquired businesses in an efficient and cost-effective manner. • Operating Model Our business structure is designed to provide high operating leverage on the revenue growth and enable each Gaiam distribution channel to achieve individual sales growth, while realizing cost savings from the combined enterprise. The managers of our channels retain responsibility for merchandising and creative presentation. Gaiam provides strategic direction, technology, financial resources and administrative services, as well as marketing, customer service, fulfillment, purchasing and sourcing, thus leveraging our current infrastructure in a highly scaleable model. OUR OPERATING STRATEGIES • Strengthen our Brand We are striving to establish the Gaiam brand as an authority in the LOHAS industry. We plan to strengthen the Gaiam brand by increasing marketing efforts, strengthening relationships with traditional and e-commerce retailers, and increasing the breadth of our proprietary product and audio, video and digital informational offerings while maintaining our high level of customer service. Our products, services and information will generally bear the Gaiam symbol. We believe that the expanding demand by consumers for eco-friendly and natural products will permit us to obtain products in greater volume and, in turn, offer the products at lower prices than might otherwise be available. As we are able to lower prices in this manner, we expect to attract additional customers. PART I • Capitalize on our Multi-channel Approach We intend to make purchasing quality, natural and healthy lifestyle products from us convenient regardless of the channel customers prefer. In our direct business, we are open 24 hours a day, and shopping for our products does not need to require a trip to a store. We offer our entire selection of products on our Internet site. We cross-market between our catalogs and our e-commerce, introducing our customers to all aspects of LOHAS. A direct customer coming to us for a yoga videotape will also be exposed to our organic cotton performance wear line. In our business-to-business sector, we are expanding our retail exposure, which is currently at 21,000 retail points, and building store-within-store concepts in Whole Foods Markets, Discovery Stores, Dicks and Galyans. We are expanding into women’s beauty stores such as Ulta and Origins, sporting goods chains such as Dicks and Galyans, and bed and bath specialty stores such as Bed Bath and Beyond. This expansion at the retail level increasingly allows our customers to find Gaiam products no matter how or where they shop. Our media, especially TV broadcast, is also an excellent opportunity for Gaiam to strengthen its brand. We partner with experts in LOHAS to produce proprietary content that we leverage through TV broadcast, on demand programming as well as audio, video and digital products, which we market through our consumer and B-to-B channels. • Expand our Proprietary Products We grew our proprietary products from 24% of our business in 1999 to 37% of our business in 2000. These products carry a higher margin and distinguish us from many of our competitors. We now offer over 2000 SKUs of proprietary product that range from audio and video tapes to organic cotton baby clothes. We are expanding our supply chain with overseas suppliers in Europe and South America. Our merchants are continuing to develop and source new product in all aspects of LOHAS. We leverage our development costs over all sales channels. 25
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A LIFESTYLE COMPANY

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