Page 4 of 5

Without product, Lotus Cars USA would not likely have been able to maintain its 35-dealer network, much less upgrade it, and building a new network from scratch to handle the M250’s eventual replacement could well have cost more than federalizing the Elise in the first place. The timely arrival of the Elise will moot that potential problem.

The approval of the federal Elise project also means significant work for an engineering staff that sorely needs it. The major development efforts on the S2 Elise and the VX220/Speedster were concluded last year. When work on the M250 was suspended last January, its 100-person project team – which was slated to grow to 250 had the model reached the full-blown development phase – was reassigned to other projects. And the near-empty pipeline of new business for Lotus Engineering, which was a major factor in the workforce cutbacks last spring, has not yet significantly refilled. As a result, in a historic turnabout for the company, Lotus Cars is currently helping to support Lotus Engineering’s underutilized staff. The federal Elise project will not be a panacea, but, with the M250’s replacement still not out of the starting gate, it should significantly help.

Finally, the production capacity to build the federal Elise will be available at the time that it is needed. Roughly half of Lotus’s current output consists of the VX220/Speedster, but that model is slated for only a three-year run. Lotus poured substantial funds into expanding its carbuilding facilities in the expectation that the M250 would come on stream in 2002 and sales of the current Elise would remain strong, but the former is defunct and the latter is no longer a given. Next Page