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THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO

UNISEN INC/STAR TRAC. AND SHALL NOT BE USED OR DISCLOSED, IN WHOLE OR IN PART, WITHOUT FIRST OBTAINING THE WRITTEN PERMISSION OF UNISEN, INC.

REV DATE DESCRIPTION ECO

NO. CHG BY

A 04/15/2004 DOCUMENT RELEASE. 11123 RKL

ORIGINATOR:

TERRY WOODS UNISEN, INC. / STAR TRAC 14410 MYFORD ROAD, IRVINE, CA 92606 USA TITLE: CHECKER:

TERRY WOODS DOCUMENT, MRD, ROYAL TRAIN

DOCUMENT NUMBER: REVISION ENGINEER: MARK CHILES

620-7374 A FILENAME: MANAGER:

KEVIN CORBALIS

620-7374A.doc SHEET 1 OF 26

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Royal Train - 2004 Marketing Requirements Document/

Customer Requirements Specification

January 2004 Original March 2004 revision

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Confidentiality Statement

Revision History: Rev. Revised by Revision Date Description of Changes Robin Doody 10/28/03 Content organization. Details. Robin Doody 11/13/03 Integrated comments from mech eng Robin Doody 1/27/04 Integrated VOC –users & buyers 7.0 Robin Doody 1/29/04 Integrated specs into VOC; deleted

redundancies 8.0 Terry Woods 03/15/2004 Update Kevin’s comments, addition of

Business Requirments, Rename to Royal Train, Addition of approvals

Approvals

Vice President of Product Development: ___________________________________ Director of Marketing: ___________________________________________________ Chief Operating Officer: _________________________________________________ Project Manager: _______________________________________________________ Product Manager: ______________________________________________________

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Table of Contents

TERMINOLOGY 5 STRATEGIC RATIONALE 9

History of the Natural Runner 9 Natural Runner – Current User Experience 10 Next Generation - Overview 11 Staging 12 Marketplace Summary 13

USER DEMOGRAPHICS 17 USER NEEDS 18 PRIMARY USE COMPARISON CHART 18 ANALYSIS OF USER AND BUYER INTERVIEWS – THE KEY CUSTOMER REQUIREMENTS 18

Comfort of Lower Body 18 Easy to Use, Both Physically and Mentally 19 Comfort of Upper Body 19 Variety of Motion 20 Ideation 20 Total Body Workout 20 Buyer Requirements 21 Endorsement from Fitness Professionals 21 The “3rd Place” Environment 22

COMPETITIVE ANALYSIS 23 The “Must Have” Requirements 24 The “Over the Top” Requirements 24 The “Other” Requirements 24 Conclusions Derived From the Competitive Analysis 24

BUSINESS REQUIREMENTS 25

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Terminology 1.1. Average Sales Price (ASP)

1.1.1. The average price at which a unit is sold, calculated by dividing the total income resulting from product sales by the number of products sold. Usually lower than list price.

1.2. Buyer

1.2.1. The agent who makes the purchasing decisions. This person may or may not be a user. This person may also make purchasing decisions for large geographic regions

1.3. Cardiovascular (CV)

1.3.1. Relating to or involving the heart and blood vessels.

1.4. Fitness Industry Suppliers Association (FISA)

1.4.1. A membership based organization representing commercial equipment manufacturers and suppliers of information technology. Source of proprietary market information available only to members.

1.5. Footprint

1.5.1. The amount of floor space that the unit requires.

1.6. Heart Rate (HR) Acquisition

1.6.1. Contact: User grips conductive pads, usually silver colored metal, that detect arterial blood flow pulses.

1.6.2. Telemetry: User wears a transmitting strap around the chest that detects and transmits to receiver in display housing their HR.

1.6.3. HR acquired by either means is displayed in beats per minute.

1.7. Infrared (IR)

1.7.1. Electromagnetic waves in the frequency range just below visible light corresponding to radiated heat. IR waves can be generated by a kind of LED (light emitting diode) and are often used for remote controls, or in the case of Pro Partner, for sending and receiving data between two different devices.

1.8. Market Segments

1.8.1. Club Market

1.8.1.1. The market segment composed of dues-collecting clubs and having many member-visits per day. The equipment in these facilities is subject to be heavy use by many different members

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over the course of each day. This segment includes, for example, 24 Hour Fitness and YMCAs.

1.8.2. Home Market

1.8.2.1. The market segment composed of individuals purchasing equipment for personal use in their home. The equipment in this category, in general, is subject to the lightest use of any category.

1.8.3. Vertical Market

1.8.3.1. The market segment composed of businesses that offer access to fitness equipment as an amenity to primary business, such as apartment complexes and hotels. The equipment in these facilities is usually subject to less wear than that located in a fitness club, but more than in a private home.

1.9. Mean Time Between Failure (MTBF)

1.9.1. The average time between any failure occurring on a single unit.

1.9.1.1. A failure is defined as any time a unit cannot be safely or effectively used.

1.10. Maintenance Settings

1.10.1. Variable settings that allow facility management (owners, not users) to customize configuration of a unit.

1.11. Personal Digital Assistant (PDA)

1.11.1. A small personal computing device, such as those made by Palm and Handspring.

1.11.2. For use with the Pro Partner software, the PDA must have infrared communication ability.

1.12. Pro Bike

1.12.1. Model series numbers 6300 / 6400 introduced Q4 ’03

1.13. Pro Partner

1.13.1. Software suite that runs on PalmOS handheld devices that allows the user to create workout regimen on a PDA, transmit the workout via infrared communication to the computer in the machine (in this case, the elliptical) and then capture and record the post-workout summary data from the machine. It is composed of three programs:

1.13.1.1. Workout Partner

1.13.1.1.1. For individuals to create, save and record workouts

1.13.1.2. Training Partner

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1.13.1.2.1. For trainers to create and save workouts and to collect workout data for a number of individual clients

1.13.1.3. Service Partner

1.13.1.3.1. A tool set for service and maintenance technicians that allows maintenance settings to be saved and uploaded to any Pro Partner compatible unit, thereby saving set-up time. This software utility is not for general release; it is only distributed to qualified personnel.

1.14. Product Components

1.14.1. Upper Body (UB)

1.14.1.1. The movable arms that the user may activate an upper body workout.

1.14.2. Rails

1.14.2.1. The rails that are connected to the crank on which the footpads are located.

1.14.3. Display Housing

1.14.3.1. The physical housing located at the top front of the unit that contains fans to cool the user, the display circuit board, and the user interface (keypad and LED displays).

1.14.4. User Interface

1.14.4.1. All the devices that allow the machine to provide information to the user, such as display windows and audible indications, and that allow the user to interface with the machine, such as buttons.

1.14.5. Hand Rails

1.14.5.1. The stationary rails on the unit that the user may grasp for maintaining balance while mounting, using and dismounting the unit.

1.15. Programs

1.15.1. Pre-programmed workout or testing routines that incorporate variable changes specific to the program.

1.16. Rate of Perceived Exertion (RPE)

1.16.1. A subjective scale that allows individuals to rate how strenuously they are exercising. It considers the total amount of exertion or fatigue, and is not limited to individual factors like shortness of breath or leg fatigue.

1.17. Stride

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1.17.1. A stride is the motion one foot makes as the crank moves from the 9 o’clock to the 3 o’clock position.

1.17.2. Speed on an elliptical is often referred to in “strides per minute” or SPM.

1.18. User

1.18.1. The individual who uses the machine to obtain their exercise.

1.19. Watt

1.19.1. The expression of the mechanical rate of work (power output) for a device

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Strategic Rationale

Star Trac currently has a complete line of cardiovascular products in the club markets. Our goal is to become the market leader and have “best in class” (BIC) products in every category. We believe we have best in class products in treadmills and Spinning bikes, and we will continue to monitor our launch of the Pro Bikes which we believe be best in class products. Our elliptical product, the Natural Runner, is not currently best in class.

The cross trainer category is the most rapidly growing category in the cardiovascular segment. In 1997, Precor introduced the first elliptical product, one incorporating an elevating ramp requiring external electrical power. Following this, Life Fitness introduced their elliptical product using different mechanics to create the elliptical pattern, added an upper body component and incorporated a cordless system, eliminating the need for external electrical power to generate resistance. In 2001, Precor responded with a model offering upper body and a cordless system to generate resistance, but no elevation feature. Some projections show the elliptical category unit sales matching treadmill unit sales in the next five years. Users continue to gravitate toward products in this category and consistently describe them as non-impact and easier to use compared to a treadmill. Essentially, the market is demanding products that are non- or low-impact, allow for a cardiovascular (CV) workout with a low rate of perceived exertion, and that are fun and easy to use. The attribute particular to ellipticals that satisfies these preferences is a weight bearing motion that is more fluid than that of a stepper and less jarring than running on a treadmill.

Today, the club market is dominated by Precor and Life Fitness, who together control about 80%, leaving four other players—Star Trac, True, Technogym and Cybex—to fight it out for the remaining 20%. In July 2002, Cybex launched the Arc Trainer, positioned as a 3rd generation cross-trainer, and it has been gaining market share. The Arc Trainer employs a swing-like mechanism to provide the exercise motion, a configuration significantly different from the rail and crank mechanism employed by other elliptical cross-trainer manufacturers.

History of the Natural Runner Star Trac entered the elliptical cross-trainer category with a product called the Elliptical Edge in 1999. It incorporated a patented Stride-Multiplier technology that allows the footpad to move along the rail a distance equal to four times the crank arm length. This mechanism allowed the unit to have a footprint consistent with industry standards. Within three months, one of two things would fail:

2.1. Rails would develop cracks 2.2. Belts in the Stride-Multiplier skate mechanism would snap

Solutions were found and a global retrofit was undertaken to address these issues in fielded units. In 2001, the product was renamed and repositioned as the Natural Runner. The same year, the Natural Runner+, which incorporates an upper body modality, was introduced. The Natural Runner is available in one of two stride lengths, 20” or 24”. The Natural Runner+ has a 20” stride length. To address user complaints, in early 2003 the start up resistance of both models was reduced. In late 2003, the name “Natural Runner” was officially registered as a trademark. All Natural Runner products continue to use the Stride-Multiplier technology.

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Today’s Natural Runners are much more reliable, but some ongoing issues remain:

2.3. Noise (considered a reliability issue)

2.3.1. Wheels under the footpad (skate mechanism) squeak

2.3.2. Misalignment of the drive pulley, crank arms, and drive belt cause the parts to rub together and squeak, and it is very difficult to maintain alignment. Nearly every unit must have its parts aligned (“tuned”), both at the factory and upon installation.

2.3.3. The design calls for a curved track along the length of the ski through which the rounded wheels of the footpad run. As it is nearly impossible to match the velocity of two rounded surfaces (in this case as two different areas of the circumference of the wheel come into contact with the rail), one will always dominate and a squeak will be produced.

2.4. Aesthetics

2.4.1. Its appearance is dated and is no longer in accordance with the Star Trac family look specifications.

2.5. Ergonomics

2.5.1. The machine is too hard to start and there is high resistance at low settings. The comment we hear repeatedly is that it is physically too difficult to use.

Natural Runner – Current User Experience 2.6. It is more difficult to start and use compared to more popular elliptical brands.

2.6.1. When a user first steps on the machine, the crank moves to a very stable position.

2.6.1.1. The user must supply a lot of force to get out of this position and to build up momentum in the flywheel.

2.6.2. It requires that the user have a good sense of rhythm and learns to transfer weight from one foot to the other at a specific place in the revolution so as to minimize energy expenditure.

2.7. It continues to be more difficult to operate in terms of energy expenditure than the competition.

2.7.1. Leaning forward makes it easier to use, but many users never learn this.

2.8. The pattern of the motion and the foot speed at different parts of the revolution, doesn’t feel natural.

2.9. The stride length is too long for significant segment of potential users.

2.10. The unit causes specific localized fatigue in both conditioned and de-conditioned users.

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2.10.1. There is an unusual amount of work focused in thigh above knee.

2.11. There is constant pressure placed on the ball of the foot.

2.12. The motion “kicks” at back of revolution

2.13. It is preferred by conditioned athletes, often runners, who prefer the higher resistance and who have an inherently good ability to maintain a consistent stride frequency.

Next Generation - Overview 3.1. This product will be part of Star Trac’s cardiovascular product line and it will

compete in the cross-trainer category. It will replace all models of the Natural Runner and Natural Runner+.

3.2. The machine must be the most comfortable commercially available unit to use.

3.2.1. In direct comparison, users must express a preference for this unit over the available competition at least 6 out of 10 times when specifically asked about upper and lower body comfort.

3.3. The product is intended to be used in a commercial fitness club environment

3.3.1. Each unit will have many different users per day

3.3.2. Users will have different exercise goals ranging from five minute warm-ups to 20+ minute cardiovascular training sessions

3.4. The users will not be involved in purchase decision

3.5. The users will have no access to written instructions

3.6. The product must be an attractive option to more than half of the club clientele (defined below) seeking a cardiovascular workout

3.6.1. Customers that utilize the elliptical/cross trainer workout are 60% female

3.6.2. The average age of the elliptical / cross trainer user is 36 years of age

The challenge is that more and more of our customers want to buy a complete cardiovascular package—treadmills, bikes, steppers, and ellipticals--and not having a competitive elliptical keeps us from winning a significant number of deals. If we develop a reliable product, in the new Star Trac family look, that has a similar modality to the leading brands, we can double our market share. This new product may require technology licensing in order to avoid any patent infringement claims on the modality. If we can improve on the modality, then we can take significantly more market share. Our current share is 5% in the US and less internationally.

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Staging 4.1. Initial product release date is Q4 ‘04

4.1.1. This product must be complete in terms of

4.1.1.1. Mechanics

4.1.1.2. Computer hardware and software

4.1.1.3. Entertainment add-on options

4.1.1.3.1. Ability to connect to RS232 port within 2 feet of console for easy access, within a user’s reach.

4.1.1.4. Connectivity / Pro Partner

4.1.1.4.1. CSAFE Level 3 capable

4.1.1.4.2. IrDA Stack compliant

4.2. This platform should be assumed as the starting point for our Sport Line series

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Marketplace Summary

5.1. Global Market Size 5.1.1. Extrapolated from FISA data published in 2001 5.1.2. Includes responses from Star Trac, Life Fitness, Precor, the Nautilus

Group and Cybex 5.1.2.1. Technogym is not included

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Treadmill Elliptical Group Cycle Bikes Stepper

200020012002200320042005

($1,000)

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Global Market Share 5.1.3. In-house estimate based on internal numbers, industry trends, various

market reports and other antidotal information

5.2. The current Natural Runner is in “no-man’s land”—it is too expensive for the

low usage, vertical markets and does not have the value composition demanded by the value market

5.2.1. For this discussion, the perception of the buyer, and not the user, is relevant

5.2.2. At similar ASPs, the Natural Runner and Natural Runner+ are behind the market leaders in terms of perceived value

5.2.3. No manufacturer is serving the needs of the high end customer well

5.2.4. Factors that affect perceived value include

5.2.4.1. Reliability

35%

37%

14%

4%

10%

Life FitnessPrecorTechnogymStar TracOther

"Elliptical" Market

Estimated Market Share l i

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5.2.4.2. Price relative to alternatives

5.2.4.3. Safety & ergonomics

5.2.4.4. Completeness of product line in terms of product variety (treadmill, bike, stepper and elliptical), family look and attractiveness

5.2.4.5. Brand reputation

5.2.4.6. Usability

5.2.4.7. WOW Factor – features that differentiate a product line such as elevation, caloric expenditure, etc.

2200

2400

2600

2800

3000

3200

3400

0 1 2 3 4 5 6Perceived Value

ASP

($ 0

00)

Low Usage

High EndCustomer

Value Customer

2003 “Elliptical” Perception

LF 9500

Precor 556

Precor 546

NR+

NR

LF 9100LF 8500

P 534/532

SM Ellip*

Cybex Arc Trainer

True 650

True 750 E/EA

Synchro 700E

Synchro 700SP

Synchro 700

* SM Ellip = StairMaster (a Nautilus Group brand) elliptical scheduled to ship by the end of 2003.

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5.3. The goal for the Next Generation elliptical product is to move into the high perceived value area while maintaining a competitive ASP

5.3.1. This product will meet the needs of both the value and the high end customers

5.3.1.1. Life Fitness is expected to have a response to Technogym’s high end unit, the Synchro 700 in Q1 ‘04, by offering products with touch screens and TVs, but we believe that neither company has optimized the value-to-ASP relationship

2200

2400

2600

2800

3000

3200

3400

0 1 2 3 4 5 6Perceived Value

ASP

($ 0

00)

Low Usage

High EndCustomer

Value Customer

2004 “Elliptical” Perception

LF 9500

Precor 556

Precor 546

NR+

NR

LF 9100LF 8500

P 534/532

SM Ellip

Cybex Arc Trainer

True 650

True 750 E/EA

Synchro 700E

Synchro 700SP

Synchro 700

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User Demographics 6.1. Elliptical users are 61% female and 39% male

6.2. The average age of an elliptical user is 36

6.2.1. Majority of gym members are between 30 and 55 years old

6.2.2. Fastest growing segment of gym members is 55+ years old

6.3. Most elliptical users are former stepper users

6.3.1. more recent converts to ellipticals are former treadmill walkers

6.4. Fitness professionals frequently recommend elliptical cross-trainers to

6.4.1. Individuals with previous knee or back injuries

6.4.2. Novice exercisers

6.4.3. The de-conditioned and obese

6.5. Females prefer

6.5.1. Ability to vary motion

6.5.2. Ability to target specific muscle locations

6.5.3. Lower perception of exertion

6.6. Males prefer

6.6.1. Efficient workout

6.6.2. Ability to push and pull with upper body

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User Needs For the category, performance is very different for each of the individuals who are associated with the product. Some users are more casual exercisers who strongly prefer very easy to perform movements, while others seek to improve their athletic performance and desire a much more challenging workout. Analysis of nearly 50 user intercept interviews resulted in the following data.

Primary Use Comparison Chart 7.1. The top three reasons sited for using an elliptical, as derived from user

interviews, are

7.1.1. Efficient workout

7.1.2. Ease of use (physically and mentally)

7.1.3. Muscle isolation

Analysis of User and Buyer Interviews – The Key Customer Requirements

In order of importance as determined by in-house polls.

Comfort of Lower Body 8.1. The product will provide a motion that will reduce the impact as compared to

Primary Use Comparison

0%5%

10%15%20%25%30%35%40%45%

Enjoy M

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Injury

Prev

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Upper

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Health

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TotalLife 9500Precor 546

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treadmills and steppers

8.2. The product must not cause numbness in the user’s feet

8.3. The product must not cause localized fatigue

8.4. The product shall not cause discomfort in hips, knees or ankles

8.5. The product should be designed to absorb bouncing, but not necessarily eliminate it.

8.6. Users of other equipment must be able to transfer comfortably to our product

8.7. The product will allow a range of Strides Per Minute of 60 to 200

8.8. The product will allow a range of Watts of 15 to 600+

8.9. The footpads should be large enough to allow users of different body types to adjust their foot placement to a location that is comfortable for them

8.9.4. Forward / backward relative to display and upper body components

8.9.5. Left / right relative to hip width

8.10. The footpads shall provide a surface that does not allow the user’s shoe to slip out of position or off the pad

Easy to Use, Both Physically and Mentally 9.1. The product will allow a “beginner” to start their workout in less than 10 seconds

9.1.1. The display will stay powered even when the user strides at minimum SPM of 60 while entering data

9.2. The change of any stride pattern must occur with the use of our interface and software

9.3. The level of perceived exertion at the “level 5” setting must be comparable to competitive products out of a maximum of 25 levels or 25% of maximum level offered.

9.3.1. Subsequent increases in resistance will follow a curve TBD within system requirement specification

9.4. A beginner must be able to complete a 30 minute workout

9.4.1. Beginners are defined as having never used a product in the category and workout less than 2 days a week

9.5. The product must be Pro Partner compatible and labeled as such

Comfort of Upper Body 10.1. The product shall provide a comfortable upper body modality as

compared to the Precor EFX 546 and EFX 556 and Life Fitness cross-trainers

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10.2. There must be feedback options that will prompt a user to utilize the UB feature

10.3. The product must not cause localized fatigue

10.4. The product must not cause discomfort in upper body during use

10.5. The product shall allow the user to opt to not use the upper body feature

10.6. When not in use, the upper body shall not interfere with the user’s motion or vision

Variety of Motion 11.1. The product must provide a change in motion to accommodate the need

for variety during a workout or workouts

11.2. The product must provide a change in motion to accommodate the user’s need to isolate certain muscles during a workout

11.3. The product must convey to the user the specific muscle that the machine is targeting

11.4. The product must allow for adjustment of stride to accommodate stride preferences from an 8” step to a 20” “run”

11.4.1. Emulation of dancing, walking, running, stepping motions is desirable

11.5. The upper body shall be designed to allow the user to select a variety of workouts solely with the upper body feature

Ideation 12.1. The design of the product must convey stability

12.2. The design of the product must convey ease of use

12.2.1. Methods of mounting, use and dismounting must be apparent

12.3. Ideation must be an honest design to the user demographics of the category

12.3.1. Someone seeing it for the first time will have a good idea of what it does

12.4. The design must convey prevention of injury

12.5. The design will communicate the Star Trac Pro Series family look

Total Body Workout 13.1. Feedback must convey the benefit of using the upper body feature

13.2. The upper and lower body resistance levels shall be independent of each other

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13.3. The product must provide proactive software to utilize the total body feature

Buyer Requirements 14.1. The product must be in compliance with both domestic and international

safety standards

14.2. The product must allow for adjustment of stride to meet the needs of users of various heights and body types

14.2.1. Users parameters: height 4’10” to 6’5”, weight 90 to 400 lbs

14.3. The footprint of the product should be smaller than that of the Star Trac Pro treadmill

14.3.1. The length of the product shall be smaller than that of the Star Trac Pro treadmill

14.3.2. The width of the product shall be smaller than that of the Star Trac Pro treadmill

14.4. The product shall allow for one person to move it from location to location

14.5. The product shall be designed so that all replacement parts can be accessed within 10 minutes by one person

14.6. The product shall be designed so that one individual can assemble it in less than 40 minutes

14.7. The product must be cordless (and not require external power)

14.8. The product shall be designed for a life-span of 5 years

14.8.1. All ingress points for sweat and dirt must be covered or sealed

14.9. The product shall be designed to maintain a clean appearance

14.9.1. No rust will appear on the exterior

Endorsement from Fitness Professionals 15.1. The product motion must allow for core strengthening

15.2. The product must provide variety in stride so that professionals can use it in fitness assessments

15.3. The product will provide for heart rate, calorie, Watt, and Met monitoring

15.4. The product should be designed to absorb, but not eliminate, bouncing

15.5. The product will provide warm-up and cool-down aspects

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The “3rd Place” Environment 16.1. The product will provide an open platform for connecting with third party

companies

16.1.1. Electronically

16.1.2. Software Compatibility

16.1.3. Mechanically

16.2. The product shall provide areas for

16.2.1. reading a book, magazine or newspaper in a position that is comfortable for 20 minutes or more

16.2.2. placing CD, tape, or MP3 player, where the headphone cord does not interfere with upper body motion

16.2.3. water bottle

16.2.4. towel

16.2.5. The product shall provide a stable environment for watching TV

16.3. The product will provide a personal fan that will allow adjustment of air flow and settings of “off”, “low”, and “high”

16.4. The product will be as quiet as the Pro Bike series 6300/6400 while in operation

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Competitive Analysis Using the criteria derived from the user and buyer interviews, an in-house team evaluated the performance of each of the following units: Star Trac NR+, Precor EFX546 and EFX 556, Life Fitness 9500, Cybex Arc Trainer, and the Vision Fitness 6600HRT. Each individual requirement associated with every key requirement was scored. These scores were then averaged to give each key requirement a single score. These are charted below.

Main Category AVG

0.001.002.003.004.005.006.007.008.009.00

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(5 = average, 1 = worst, 10 = outstanding)

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The “Must Have” Requirements

17.1. The left most section (red) contains the requirements that must be met to an absolute minimum of “average” to have a feasible product for the market.

17.1.1. The better the rating, the better the product will be received

The “Over the Top” Requirements 18.1. The middle section (yellow) are requirements that, if met, will make a

superior product

The “Other” Requirements 19.1. The right most section (green) is the set of requirements that have a

significant impact on the success of the product, but, if the “must have” and “over the top” requirements are met, many of these will also have been met.

Conclusions Derived From the Competitive Analysis The primary source of the experience on any elliptical / cross-trainer is the lower body action. A product that achieves (1) comfort of lower body (2) ease of use, both mentally and physically, (3) comfort of the upper body, and (4) the ideation criteria will satisfy the key needs of the customers and users. It would be comparable to existing competition and it would enter a very price sensitive market segment. A superior product would meet these needs better than competitive products (for detail see “123103 MRD Elliptical.ppt”), as well as offer the user (5) variety of motion and (6) a true “total body workout” option. Getting items 1 –4 right can move a product, at a given ASP, up the perceived value scale. Getting items 1 – 6 right would allow the product to achieve a higher ASP as well as higher perceived value.

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Business Requirements 20.2. Star Trac Sales

20.2.58. Sales By Region – 20.2.58.1. North American:

St Share '03 5%Rev. 03 5750 St Share '04 4%Rev '04 5400 St Share '05 8%Rev '05 10500 St Share '06 12%Rev '06 17400

20.2.58.2. Europe: St Share '03 2%Rev. 03 1809 St Share '04 2%Rev '04 1800 St Share '05 4%Rev '05 3850 ST Share '06 5%Rev '06 6000

20.2.58.3. Asia:

St Share '03 5%Rev. 03 912 St Share '04 4%Rev '04 756 St Share '05 7%Rev '05 1430 St Share '06 8%Rev '06 1920

20.3. Forecast – Steve

20.3.58. Projected market share – See above 20.3.59. ASP – 3300 anticipated from sales estimates 20.3.60. units projected

20.3.60.1. 2003 combined units = 3000 20.3.60.2. 2004 units = 4500 20.3.60.3. 2005 units = 6721

20.4. Competitive Landscape 20.4.58. Time to market requirements – anticipated launch date of 1st

quarter 2004 20.4.59. Competitive responses

Rev: 8.0 Page 26 of 26

20.5. Financial Analysis 20.5.58. NPV / ROI:

PROJECTS Project cost INCREMENTAL REVENUE INCREMENTAL NET INCOME 2003 2004 Total Cost 2004 2005 2006 2004 2005 2006

Discount Rate

Net Present Value

Natural Runner 30% 30% 30% NR '04 400,000 1,111,189 1,511,189 0 4,275,000 11,713,500 0 1,282,500 3,514,050 8% 2,277,986

Discount Rate

Net Present Value

8% 2,277,986 20.5.59. COGS = estimated at $1600 (MLO)

20.5.59.1. Royalty fees? (estimated at c.6%/unit)