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5.08 Bullet Point Executive SummaryEXECUTIVE SUMMARY OF FINAL LEGAL DUE DILIGENCE RESULTS (see attached memorandum for more detailed analysis) 1. Litigation (potential exposure: in excess of U.S. $2 million plus on-going annual legal fees in excess of U.S. $200,000.00): ¥ There are at least nine pending lawsuits and three potential lawsuits. ¥ Lawsuits include product liability, personal injury, patent/trademark infringement claims, and wrongful termination claims. ¥ Many suits are normal course-of-business litigation, but a few such as Bom (New Mexico car accident) could represent significant exposure (more than U.S. $1.5 million). ¥ Joe Smith was unable to estimate on-going defense costs, but a likely minimum estimate would exceed U.S. $100,000.00 per year; any actual damage award would be in addition to this amount. ¥ We did not identify any claims which were not represented to us by BON Future Services, Inc. ("BON") to be covered by insurance, but in each instance Longshot is responsible for a self-insurance retention ranging from U.S. $100,000.00 to $450,000.00. ¥ Based on telephone interviews with each of the attorneys handling these matters, we have summarized the relevant facts, current status and estimated potential exposure associated with each of these claims in Appendix I to the foregoing Executive Summary of Final Legal Due Diligence Findings, Section 5.07 (form), supra. 2. Warranty Claims (potential exposure: to be determined by ZAP operational/financial team): ¥ Despite stated "six-month" warranty policy, the actual practice has been to provide greater warranty coverage. ¥ Such practice can, under U.S. law, constitute a warranty modification. ¥ Adequacy of current warranty reserve must be assessed in this light. 3. Benefit Plans (potential exposure: limited but will vary as a result of volatility in the public securities market): ¥ Defined pension benefit plan resulting from merger of two plans, one of which was underfunded. ¥ Current state of funding should be analyzed by benefits consultant. ¥ Satisfaction of legal requirements in connection with plan merger--as well as in connection with establishment of defined contribution plan--to be determined pre-closing. ¥ Continued declines in public stock values will threaten status of funding.¥ Substantial additional information needed to complete investigation in this area. 4. Labor Matters (potential exposure: limited): ¥ Proposed reduction in work force to be undertaken upon completion of the acquisition may trigger contract, race discrimination, sex discrimination or Worker Adjustment and Retraining Notification Act ("WARN") litigation. ¥ Primary legal concern will be the issue of perceived age discrimination and attendant claims under the Age Discrimination in Employment Act of 1967 ("ADEA"). ¥ Labor counsel should be consulted in connection with the following areas: ¥ Analyzing whether any minor structuring or timing changes in the planned lay-off may allow Longshot to avoid triggering a WARN Act notice and assistance in meeting notice requirements should such notice be required. ¥ Applicable New Mexico law, which places additional WARN-like notification burdens on employers engaging in lay-offs. ¥ Any immigration arrangements to be made for foreign employees working in the U.S. ¥ Developing a plan by which Longshot can retain the best-qualified employees while avoiding or minimizing litigation potential. 5. Enforceability of Representations, Warranties and Indemnities Made by Magic PLC ("Magic") and Magic Motor Company, Inc. ("MMC") (potential exposure: high): ¥ Uncertainty exists as to whether the representations, warranties and indemnification provisions of the Amera Bank purchase agreement are enforceable by Longshot against Magic. ¥ Such provisions may be held to accrue in favor of and be enforceable by Longshot either through (a) Longshot as an intended third-party beneficiary of the Agreement or (b) Longshot as successor-in-interest to all of the rights and benefits enjoyed by Longshot Acquisition Corporation under the Agreement. ¥ Drafting ambiguities in previous documents and other errors render a conclusive determination of the issue impossible, meaning that in the event of a dispute, resolution would likely fall to a judge or jury. ¥ ZAP should consider seeking (a) an express acknowledgment by Magic that Longshot is entitled to enforce the Agreement, (b) indemnification from Amera Bank which would only be triggered in the event Longshot were held not to have an enforcement right under the Agreement, and/or (c) an opinion of Joe Smith as to matters of enforceability. 6. Leases/Performance Guaranties (potential exposure: in excess of U.S. $1 million): ¥ Prior Longshot management entered into a number of such arrangements without proper authority. ¥ Because execution of such agreements was done as part of a course of improper actions taken by prior management, Longshot is now unable to determine precisely how many performance guaranties exist (Magic did not warrant the accuracy of its disclosure in this regard). ¥ We reviewed four such arrangements, with total possible exposure to Longshot in excess of U.S. $1.5 million. 7. Environmental (potential exposure: appears to be limited, but environmental exposure should be considered a material risk in all transactions): ¥ Under applicable U.S. environmental laws and regulations, both owner and non-owner operators (current and former) can be held liable for releases of hazardous substances onto property. ¥ There do not appear to be any significant environmental conditions at the Bunker facility. ¥ ZAP should verify that the remaining two underground storage tanks ("UST's") at Bunker have been properly removed and replaced with a single above- ground storage tank. ¥ Transfers of industrial properties in New Mexico must comply with the New Mexico Industrial Site Recovery Act ("ISRA"). ¥ Pursuant to ISRA, MMC entered into a Remediation Agreement with the New Mexico Department of Environmental Protection ("NMDEP"); ZAP and Amera Bank should seek a Remediation in Progress Waiver from NMDEP and secure an environmental consultant to verify that conditions at Bunker have not changed. ¥ ZAP and Amera Bank should review Magic's remediation plan, comply with notification and funding requirements of ISRA, and seek other assurances from the NMDEP that the proposed transfer remains in compliance with ISRA. ¥ ZAP must have contractual assurance that it need not and will not assume any remedial obligation imposed on Magic by ISRA. 8. Accounting Irregularities (potential exposure: limited): ¥ Although Longshot has only limited third-party recourse, Longshot would not appear to have material exposure as a result of the financial irregularities. ¥ Potential tax liability exists to the extent that overstated reserves affect tax filings (e.g., fraudulent overstatement of bad business debt deductions) (see separate memorandum). 9. Required Refinancing (potential exposure: facility fees, commitment fees, expenses, etc., could exceed U.S. $2 million if refinanced through a U.S. lender): ¥ The contemplated transaction will trigger a default under Longshot's loan agreement with Rapid Corp ("Rapid"). ¥ As a result, ZAP may either seek Rapid's consent to the transaction or arrange for an alternative source of financing. ¥ Any refinancing will involve additional transaction costs and may involve additional lender fees and expenses. 10. Intellectual Property (potential exposure: appears to be limited; in addition, you have advised us that, from a business perspective, this is an area of no concern to you): ¥ Only limited due diligence was performed by Amera Bank on intellectual property. ¥ As a result, it is now impossible to value the portfolio or assess exposure to infringement or other claims. ¥ Longshot owns intellectual property in addition to that disclosed pursuant to the Amera Bank acquisition. ¥ Additional diligence is needed to ensure that title to the identified properties can be transferred in connection with the proposed sale. ¥ Various threatened and actual infringements appear to be immaterial. ¥ The Hot Buy license is likely to be invalid and unenforceable. ¥ Magic has filed an opposition to the registration of the mark "LONGSHOT COMPANIES, INC." as used in connection with tarpaulins and other textile materials. ¥ We must determine whether any limitations the use of the "LONGSHOT" trademark exist as a result of an "Agreement Not to Interfere" recorded in the U.S. Patent and Trademark Office in conjunction with Magic's opposition. 11. Insurance Coverage/Risk Management (potential exposure: to be determined by ZAP's English insurance consultant): ¥ The BON report concluded that Longshot's "catastrophic loss" risk is "moderate." ¥ Longshot's single location creates serious business interruption exposure from loss by fire or other natural disaster since no other Longshot facility exists which could increase productivity to make up for a loss at the Bunker location. ¥ Additional or revised coverages, including director and officer liability insurance, were suggested by BON, as well as a recommendation that additional reserves be added for various outstanding claims, including the Bom claim (see description at Item 1 above). 12. Information Technology (potential exposure: if IT licenses are triggered, potentially material; if not, then immaterial. Final assessment to be made pre- closing based on precise structure and percentages): ¥ The Andersen Ernst Due Diligence Report ("AE Report") notes that IT expense is currently 1.5% of revenues; 5% to 7% of revenues is more typical, according to AE. Hence, is the target company antiquated vis-ˆ-vis information technology and will that make it noncompetitive on a level playing field?¥ It is currently unclear whether change-of-control provisions in IT licenses were triggered by the Amera Bank acquisition and, if so, whether required consents were obtained. ¥ If change-of-control provisions in IT licenses were or will be triggered, additional costs may be incurred. 13. Tax Matters (potential exposure: limited; however, valid tax indemnity is essential): ¥ As noted in Item 5, whether the representations, warranties and indemnities (including those relating to tax matters) made by Magic and MMC in favor of Longshot and LAC under the Amera Bank Agreement will be enforceable by Longshot cannot be determined with certainty. ¥ Amera Bank and MMC are still ascertaining the Section 1060 allocation of consideration among Longshot's assets, which determines Longshot's basis in assets it held as of the date of the Amera Bank Agreement. ¥ Longshot has not had any federal payroll tax audits in the last twenty- five years, making determination of any potential exposure difficult; moreover, AE noted that significant exposure may exist. ¥ Longshot is currently filing voluntary tax compliance with various states and is negotiating amounts to be paid in connection with overdue state income, sales and use taxes; we are awaiting AE's estimate of such tax exposure for post-1998 taxable periods. 14. Foreign Joint Ventures (potential exposure: unable to estimate at present): ¥ Upon your instruction, no analysis of local filing, notification or other requirements was undertaken in connection with the Amera Bank acquisition. ¥ Until local counsel is retained, it will be impossible to assess whether there is any risk associated with these joint ventures or other exposures resulting from the Amera Bank acquisition. ¥ No environmental information has been provided with respect to the joint venture facilities.