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3rd
August 2006
ORBITAL
R & D SYNDICATES - UPDATE
PERTH, AUSTRALIA:
This information is provided as an update to Orbital's announcement
on 28 April 2006.
In 1995 and 1996 Orbital
Corporation Ltd and subsidiaries ("Orbital") entered into
joint venture R & D syndicated arrangements with Coles Myer
Ltd and subsidiaries ("CML") to undertake research and
development relating to production of vehicles using Orbital's technology.
The JV arrangements required payment of licence fees for the use
of Orbital's technology by the CML/Orbital JV.
At all stages Orbital took
advice from and relied on reputable experts and advisors in relation
to the JV transactions.
The JV arrangements led
to the successful technical completion of research and development
in relation to two stroke engines in 100 vehicles (the Genesis Project)
and application of Orbital's technology to four stroke engines.
The JV arrangements contained
conditions precedent, including that CML received satisfactory determinations
from the IR&D Board, independent valuations as to the licence
fees and private tax rulings confirming tax deductibility of licence
fees that would provide CML with reductions in tax in 1995/1996
and 1996/1997.
On 28 April 2006 Orbital
announced that:
- CML had advised Orbital that the ATO
has formed a preliminary opinion that some portion of the licence
fees may not be tax deductible and that the ATO may reassess CML.
- CML has advised Orbital that "should
CML ultimately receive assessments or amendments disallowing deductions
previously claimed in respect of the Orbital R&D Syndicates,
CML considers that it is entitled to claim from Orbital (Australia)
Pty Ltd and Orbital Engine Corporation Limited (together 'Orbital')
any amounts assessed and any costs pertaining thereto pursuant
to the representations, warranties, indemnities and guarantees
provided by Orbital in the Transaction Documents entered into
as part of the Orbital R&D Syndicates" and that "CML
reserves all its rights against Orbital in this regard …".
- CML has not identified any particular
representation or warranty that Orbital is alleged to have given
in relation to the JV arrangements nor identified any particular
alleged breach of any representation or warranty by Orbital. Orbital
cannot say on what basis CML has any claim against Orbital.
CML has now identified provisions
of the relevant Transaction Documents that it asserts are a warranty
by Orbital that CML would be entitled to tax deductions for licence
fees paid by CML in the R&D transactions. It has further asserted
that any reassessment of CML by the ATO would be a breach of that
asserted warranty.
At no stage has Orbital
believed that it has a liability in respect of the matters raised
by CML. Orbital disputes that the asserted warranty identified by
CML amounts to a warranty that CML would be entitled to tax deductions
and therefore denies that it has any indemnity liability to CML.
Orbital will defend any claim made by CML for the asserted indemnity.
Orbital will provide further
information as to any future developments within the constraints
of properly conducting a defence to any proceedings that CML have
threatened to bring against Orbital.
Forward Looking Statements
This release includes forward-looking statements that involve risks and uncertainties. These forward-looking statements are based upon management's expectations and beliefs concerning future events. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the Company, that could cause actual results to differ materially from such statements. Actual results and events may differ significantly from those projected in the forward-looking statements as a result of a number of factors including, but not limited to, those detailed from time to time in the Company's Form 20-F filings with the US Securities and Exchange Commission. Orbital makes no undertaking to subsequently update or revise the forward-looking statements made in this release to reflect events or circumstances after the date of this release.
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