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Official statement by Motor Sich JSC

Official statement made by Motor Sich JSC in response to the information spread by Prosecutor General of Ukraine Yu. Lutsenko during briefing in Dnipro city on 21 July, 2017.

   Prosecutor General of Ukraine made an announcement during his briefing that there are several criminal proceedings related to Motor Sich JSC which are being currently investigated based on the results of the matter. Taking into account that misperception of such information may result in negative reputational and economic impact on our company, we deem it necessary to present our position regarding these issues to our business partners, shareholders and investors.

   Our company knows about criminal proceedings investigated by the Security Service of Ukraine and General Prosecutor Office of Ukraine. In the course of the investigation into these proceedings we gave law enforcement officers all required evidence, explanation, and information regarding the questions raised, and we provided the full amount of the requested documents.

   According to investigating authorities, the matter investigated by the Security Service of Ukraine relates to possible ­­ illegal conduct by officers of our Company, namely sale of the company shares to the foreign citizens for the purpose of further transfer of unique production equipment created by the company to such citizens and dissolution of the company.

   Prosecutor General of Ukraine alleges that Motor Sich JSC as a defense company of Ukraine was obliged to coordinate carve-out of the company’s shares with the respective state institutions, which was not done, so this carve-out is illegal. Concerning these considerations, it is necessary to point out that since 1994 Motor Sich is a privately owned joint stock company, and its shares are the property of separate legal and natural persons. Turnover of these shares is free and not controlled by the emitter – Motor Sich JSC. Our company receives information related to the shareholders from the depositary institution only with the aim of informing the shareholders on results of its activity and payment of dividends. The shareholders are independent legally capable participants of the stock market that are acting at their own discretion, have right to sell their shares to any legal or natural person, and are personally responsible for their transactions. Turnover of these shares is implemented through the licensed financial institutions and it cannot be controlled by the emitter – Motor Sich JSC and its officers.

   In addition, Motor Sich JSC is not a defense company of Ukraine, because by the Order of Cabinet of Ministers of Ukraine No. 993 dated 31.08.2011 Motor Sich JSC is not included in the list of companies which are participants of Ukroboronprom concern.

   Therefore, the statements made by Prosecutor General of Ukraine Yu. Lutsenko are not based on legislative requirements and do not correspond to reality. His information concerning the Antimonopoly Committee of Ukraine refusal to consider allegations available at the moment about concentration of Motor Sich’s share package is also not true.

   Prosecutor General of Ukraine Yu. Lutsenko also informed at the briefing about the disclosure by General Prosecutor Office of Ukraine of the fact of embezzlement by Motor Sich JSC management of state funds by overshooting of engine prices with subsequent withdrawal of these funds with the use of dummy companies.

   Participation of Motor Sich JSC in the defense industry complex of the country is limited exclusively by execution of some defense orders under contracts concluded in accordance with procedures set by the Act of Ukraine “About Government Procurements”. The execution of such orders and price formation are supervised by the state authorities in accordance with Resolution of the Cabinet of Ministers of Ukraine No.464 “On Issue of State Defense Order” dtd 24.04.2011.  The price of such defense orders is fixed by the Ministry of Defense representatives after their actual fulfillment by way of control and analysis of the company’s expenditure. Taking into account that the list of expenditures for manufacture of defense products and services subject to approval by the Ministry of Defense of Ukraine is limited and does not compensate all expenses, the above contracts are unprofitable for the company. Besides, the price of products and services related to the government's defense order is not established by our company, and is established (approved) on the level of the customer – the Ministry of Defense of Ukraine. When fulfilling such orders, Motor Sich JSC acts within normative regulations that govern this issue and, despite unprofitability for the company, draws them out for improvement of the defense potential of the country, launching production of military products for replacement of worn out and outdated military equipment which has been purchased for a long time from foreign producers.

   Consequently, there is no legal or actual basis for charges of overpricing Motor Sich’s products. By virtue of the fact that there is no profit in total amount of government contracts implemented within the defense order, the charge of state funds embezzlement by Motor Sich Management via transfer of such funds through dummy companies is subject to rebuttal.     

   It should also be understood that upon receipt of state (budgetary) funds as a payment of rendered services or executed work within defense order into Motor Sich current accounts, these funds are no longer the state (budgetary) funds, and ownership title to these funds passes to Motor Sich, so it is impossible to embezzle these funds as state funds. Unfortunately, this logically, factually and legally simple truth is neglected by  Prosecutor General of Ukraine, Yu. Lutsenko, and as a result this led to non sequitur. 

    Prosecutor General of Ukraine Yu. Lutsenko and his press secretary L. Sargan also charged Motor Sich JSC officials with embezzlement of Company funds and their appropriation by transfer to the accounts of companies – showing signs of dummy companies – as payment for the securities acquired by the Company from them. These charges, just as the previous ones, are not based on either factual or judicial circumstances of the matter.

    Indeed, for the period of 2013 to 2016, Motor Sich JSC bought ordinary shares and investment certificates of a number of companies at the price of stock exchange by entering into legitimate contracts through legal persons authorized by the state, which possessed relevant licenses. The state registration of the companies that are sellers of the securities was neither cancelled at the time of entering into those contracts nor it is cancelled currently. The companies that are emitters of the securities have not been deprived of the right to issue securities and to put them into circulation; the emission of the shares and the certificates was not cancelled by relevant state authorities in conformity with the legally provided procedure. Hence, the efforts of Motor Sich JSC to buy the securities have met exactly legislation requirements. The securities bought are on the balance sheet of Motor Sich JSC, and they represent tangible assets of the company. The efforts to buy and sell financial instruments, which include securities, are a common business practice in the securities market of Ukraine, which Motor Sich JSC has carried out in accordance with the established procedure through licensed and state controlled security traders.

   We stress that Motor Sich JSC has kept properly and strictly the law of Ukraine throughout the period of its activities. The strategic company goal is economic development, ensuring the country presence in the markets of high-tech knowledge-intensive equipment, preserving current employment and providing new employment for stability in the regions and in the whole country.

   In view of the above, Motor Sich JSC will take all legally provided measures to protect its honor, dignity and business reputation.

    Board of Directors and Trade-Union Committee

    Motor Sich JSC


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