Elektrobit Oyj - Company Announcement

SUBSIDIARY OF EB, ELEKTROBIT CORPORATION, ELEKTROBIT INC. AND TERRESTAR CORPORATION AND CERTAIN OF ITS PREFERRED SHAREHOLDERS ENTER INTO CONDITIONAL SETTLEMENT AGREEMENT IN THE REORGANIZATION CASE ...

STOCK EXCHANGE RELEASE
Free for publication on August 3, 2012 at 8.00 a.m. (CEST+1)
SUBSIDIARY   OF  EB,  ELEKTROBIT  CORPORATION,  ELEKTROBIT  INC.  AND  TERRESTAR
CORPORATION  AND CERTAIN  OF ITS  PREFERRED SHAREHOLDERS  ENTER INTO CONDITIONAL
SETTLEMENT AGREEMENT IN THE REORGANIZATION CASE OF TERRESTAR CORPORATION

On  August  2, 2012, Elektrobit  Inc.,  a  subsidiary  of Elektrobit Corporation
("EB"),  and TerreStar  Corporation and  certain of  its preferred shareholders,
entered  into a  conditional agreement  of settlement  (the "Settlement") of the
various disputes between them in TerreStar Corporation Chapter 11 reorganization
cases. TerreStar Corporation has filed a motion seeking approval from the United
States  Bankruptcy  Court  for  the  terms  and  conditions  set  forth  for the
Settlement  and  authorization  to  TerreStar  Corporation  to  enter  into  the
Settlement.  Additionally, TerreStar Corporation  has filed a  motion seeking an
approval  for  new  financing  to  enable  TerreStar  Corporation to satisfy its
obligations  under  the  proposed  Settlement.  According  to the Settlement, if
conditions  to its effectiveness  are fulfilled (as  described below), TerreStar
Corporation  shall be  obligated to  pay to  Elektrobit Inc.,  an immediate cash
payment  of USD  13.5 million (EUR  10.9 million as  per exchange rate of August
2, 2012) (the  "Settlement Payment") in full and final satisfaction of its claim
against  TerreStar Corporation and in resolution  of all disputes between EB and
the  other  parties  in  the  TerreStar  Corporation  reorganization  cases. The
Settlement  does  not  include  the  TerreStar  Networks Chapter 11 cases, which
remain  pending, and  does not  include any  distribution therefrom  that may be
available for EB.

The implications of the TerreStar Corporation and TerreStar Networks Chapter 11
cases  on EB's profit, financial position  and outlook can be finally determined
only  when the outcome  of both Chapter  11 cases is known,  including all costs
related  to collecting  the receivables,  and e.g.  confirmed tax  treatment. If
approved  by  the  Bankruptcy  Court  and  funded  by TerreStar Corporation, the
Settlement  Payment  in  the  TerreStar  Corporation Chapter 11 cases alone, and
without  any further distribution from  the TerreStar Networks Chapter 11 cases,
would  result  a  positive  effect  of   approximately USD 1.6 million (EUR 1.3
million  as per exchange rate  of August 2, 2012) on EB's  result and a positive
effect  on EB's cash flow of approximately USD 13.0 million (EUR 10.5 million as
per  exchange  rate  of  August  2, 2012) after  estimated  tax  effects. If the
Settlement  is  approved  by  the  Bankruptcy  Court  and  TerreStar Corporation
receives  the  requested  new  financing,  the  Settlement Payment would be paid
within  two business days  after the Settlement  becomes effective by its terms,
i.e. during the third year quarter of 2012.

The  Settlement will not become effective without Bankruptcy Court approval, and
EB  expects that the  Settlement Payment will  not be made  unless and until the
agreed  funding is actually received by TerreStar Corporation. The Court hearing
is  now scheduled  to be  held on  August 23, 2012 and  before the hearing other
stakeholders  in  the  TerreStar  Corporation  Chapter  11 cases  may file their
objections,  if any, to the abovementioned  Settlement and financing motions. At
this  time there  is no  assurance that  the motions  for the Settlement and new
financing  will be approved by the Court and that the agreed funding is received
by  TerreStar  Corporation.  In  the  event  that  these  contingencies  are not
fulfilled,  nothing contained in the  Settlement motion shall be  deemed to be a
waiver  of any claims or an admission of  liability by any party thereto and, in
such event, all rights and remedies of the parties shall be preserved.

The  now filed Settlement motion does not include the TerreStar Networks Chapter
11 cases  or any distribution therefrom that may be available for EB. Based upon
information  contained in  the TerreStar  Networks debtors' disclosure statement
accompanying the their reorganization plan, the reorganized debtors' first post-
confirmation  status report, or otherwise available to EB, EB estimates that its
pro  rata distribution under the TerreStar Networks  plan may be in the range of
8-10% of the face amount of its allowed claim. However, this estimate is subject
to various assumptions, and therefore the amount and timing of EB's distribution
on  the remaining portion of its claim in the TerreStar Networks re-organization
cases  cannot be  predicted with  certainty at  this time.  On March 29, 2012 EB
received  a USD 650,890 distribution  on the priority  portion of its claim from
TerreStar   Networks.  As  part  of  the  process  of  reconciling  accounts  in
preparation  for making distributions under a plan, Chapter 11 debtors and other
estate  representatives often challenge the amount  or validity of some creditor
claims.  To date neither  TerreStar Networks nor  the liquidating trustee of The
TerreStar  Networks, Inc.  Liquidating Trust  (the trust  having been  formed in
connection  with confirmation of the Chapter  11 plan of TerreStar Networks) has
asserted an objection to the amount or validity of EB's claims in its bankruptcy
proceeding, and EB is not aware that any such objection is contemplated.

On   October  19, 2010, TerreStar  Networks  and  certain  other  affiliates  of
TerreStar  Corporation and  on February  16, 2011, the parent  company TerreStar
Corporation filed voluntary petitions for reorganization under Chapter 11 of the
United  States Bankruptcy Code to strengthen  their financial position.   EB has
claimed  its receivables  in the  amount of  approximately USD 25.8 million (EUR
20.9 million as per exchange rate of August 2, 2012), in the Chapter 11 cases of
both  TerreStar Networks  and TerreStar  Corporation. In  addition to the booked
receivables, EB has also claimed additional costs in the amount of approximately
USD  2.1 million (EUR  1.7 million as  per exchange  rate of August 2, 2012) and
resulting  mainly  from  the  ramp  down  of the business operations between the
parties.  Thus, EB has asserted claims against each of the TerreStar entities in
amounts  totaling USD  27.9 million (EUR  22.6 million as  per exchange  rate of
August  2, 2012).  Due to uncertainties  related to the  accounts receivable, EB
booked an impairment of the accounts receivable in the amount of EUR 8.3 million
during the second half of 2010.

Information  on TerreStar Networks'  and TerreStar Corporation's reorganizations
are  presented  in  the  October  20 and 25, November 20 and December 30, 2010,
February  17, 2011, November 18, 2011 and June  21, 2012 stock exchange releases
as   well   as   in   EB's   interim   reports   and   financial   statement  at
www.elektrobit.com.

Oulu, August 3,2012

EB, Elektrobit Corporation
Jukka Harju
CEO

Further information:

Jukka Harju
CEO
Tel. + 358 40 344 5466

Päivi Timonen
CLO
Tel. +358 40 344 2794

Distribution:

NASDAQ OMX Helsinki
Principal media

EB, Elektrobit Corporation
EB creates advanced technology and turns it into enriching end-user experiences.
EB  is specialized  in demanding  embedded software  and hardware  solutions for
wireless and automotive industries. The net sales for the year 2011 totaled MEUR
162.2. Elektrobit    Corporation    is    listed   on   NASDAQ   OMX   Helsinki.
www.elektrobit.com

[HUG#1631624]