GeoSentric Oyj - Company Announcement

FINANCING UPDATE, REVIEW OF ALTERNATIVE PROPOSAL FROM MAJOR HOLDERS COMPLETED WITH CONCLUSION THAT COMPANY IS NOT ABLE TO APPROVE IT, FAIRNESS OPINION RECEIVED AND LEAD INVESTOR'S PROPOSAL EXPECTED TO BE EXECUTED

GEOSENTRIC OYJ      STOCK EXCHANGE RELEASE June 23, 2011 at 17.30



FINANCING UPDATE, REVIEW OF ALTERNATIVE PROPOSAL FROM MAJOR HOLDERS COMPLETED
WITH CONCLUSION THAT COMPANY IS NOT ABLE TO APPROVE IT, FAIRNESS OPINION
RECEIVED AND LEAD INVESTOR'S PROPOSAL EXPECTED TO BE EXECUTED 



As previously announced on June 20, 2011 the Company has received an indicative
non-binding alternative funding proposal from a group of the Company's largest
shareholders. This is an alternative to Company's lead investor proposal that
was delivered to the Company in April 2011 (“Proposal”). The Company was given
a deadline by these shareholders for its response to the alternative proposal
of Wednesday, June 22, 2011. The Company has sought certain clarifications
about the alternative proposal from the group of largest shareholders in order
to be able to fully assess the viability of the proposal. The key questions
asked to be clarified included the amount and timing of available funding,
source of funds, plans to secure short-term solvency, plans to cut costs below
the level management has determined to be achievable by any legal means, and
the plans to secure solvency after the first 6-9 months period. 



The Company has not received all of the requested clarifications from the group
of large shareholders enabling it to fully assess all the aspects of the
alternative proposal and to be able to satisfy itself that the alternative
proposal is viable. There are also several conditions in the alternative
proposal, set for the lead investor, requiring among others, them to waive some
of their currently existing rights. Without the lead investor's agreement to do
so, the Company is not in a position to give its approval, even if the
alternative proposal was otherwise deemed viable. However, provided that this
group of large shareholders approached the lead investor with their
requirements targeted to limit or waive some of the lead investor's currently
existing rights, and the parties came into agreement, the Company would
naturally re-consider its position with respect to the alternative proposal. 



On the above-explained grounds, the Company has not been able to approve the
alternative funding proposal by the group of large shareholders by the approval
deadline set in the alternative proposal. Therefore, the Proposal as delivered
by the lead investor in April, remains as the only proposal available. As
previously reported, the lead investor has confirmed that it is still in
support of the Proposal. 



As the Company reported on May 13, 2011, as a result of cancellation of the
EGM, the Company would alternatively seek an external confirmation of the
valuation applied to the conversion of the lead investor's preferred
convertible notes (“Notes”) issued by the Company's Dutch subsidiary
GeoSolutions Holdings N.V. (“GHNV”). In the case where the lead investor
decided to exercise the Notes as stipulated in their Proposal, the Company
engaged KPMG Helsinki to prepare and issue a fairness opinion in relation to
the possible conversion of the Notes and a fair valuation of the Group's
business.  The Company has now received the opinion from KPMG. The detailed
KPMG report, underlying the public opinion, used traditional discounted cash
flow methods as well as alternative option pricing methods in assessing a
valuation range for the business. As would be expected in respect of an early
stage business operating a newly emerging business area, the data can support a
wide range of potential valuations. Their conclusion was that the implied
valuation of the business used by the lead investor in their Proposal, which is
approximately 4.4M€, was within the most likely valuation range. A public
summary of the opinion will be published on the Company's web site at 17:45 pm
Finnish time today. 



Based on its discussions with the different parties, the Company has reasonable
cause to assume that the lead investor will initiate a conversion of its Notes
into the shares of GHNV before the Company's Annual General Meeting on June 29,
2011. This is also supported by the fact that the fairness opinion supports the
conversion rate for the Notes as implied by the Proposal and that the
conversion is a part of the process stipulated by the Proposal making the
urgently required additional funding available for the group. As announced on
June 8, 2011 the 750k€ bridge funding made available by the lead investor will
take the group only until the end of June. The Company has not received any
official conversion request as of yet, but assumes it will receive such a
request within the next few days. The request, if delivered, will be announced
to the markets without delay. 



The Company also expects the group of large shareholders behind the alternative
funding proposal to be in contact with the lead investor to discuss their
requirements referred to in the above. As announced to the markets a number of
times during the process, the lead investor has encouraged the major
shareholders to engage with the lead investor to discuss any investment offers
they may have. The Company has also been informed by the lead investor of their
willingness to review the terms and conditions of their existing investments in
the event there were any other funded and viable offers of investments on the
table. 



As the Board of Directors has already approved the Proposal, its role in the
process is to represent the Company's best interests in the execution of the
Proposal, if the lead investor elects to convert its Notes. As also explained
before, the Board has made its own assessment and consulted its auditors and
other external experts and has concluded that the lead investor's Proposal
presents a better alternative for the Company's shareholders as compared to
insolvency. In addition, the Board is mindful of the fact that the Proposal
involves mainly exercising rights that the lead investor has already been
granted under the financing terms approved by the Company's Annual General
Meeting on June 30, 2010. 



GeoSentric Oyj





For more information, please contact: investors@gypsii.com



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