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Elektrobit Initiates Legal Proceedings Against Terrestar Corporation

 

 

19 November 2010

 

Elektrobit Inc. has filed a lawsuit against its customer TerreStar Corporation (TerreStar) in the Supreme Court of the State of New York seeking payment of its outstanding receivables in the amount of approximately USD 25.8 million from TerreStar.

 

The claim is based on a guarantee issued by TerreStar for EB's receivables from TerreStar's majority-owned subsidiary TerreStar Networks Inc. (TerreStar Networks) that has filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code, as informed by EB on October 20, 2010. Further, the claim is also based TerreStar's direct contractual obligations towards EB. At the moment, EB's receivables from TerreStar Networks amount to approximately USD 25.9 million (EUR 19.0 million as per exchange rate of November 18, 2010).

 

The lawsuit filed by EB is not expected to affect EB's rights in the reorganization proceedings initiated by TerreStar Networks. The court filings relating to such proceedings continue to contain limited information on how EB's receivables will be treated in the reorganization, but the plan of reorganization filed by TerreStar Networks and its affiliated debtors suggests that payment of EB's receivables may take the form of newly issued common stock and rights to purchase newly issued preferred stock in the reorganized debtors. The plan of reorganization is subject to court and creditor approval under United States bankruptcy law.

 

Currently, TerreStar is not part of the reorganization proceedings initiated by TerreStar Networks. According to court filings relating to the reorganization proceedings, it is contemplated by TerreStar Networks that TerreStar (and its subsidiary TerreStar Holdings Inc.) will file their own voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the near term.  It is EB's understanding that if TerreStar did file for reorganization, the legal proceedings brought by EB against TerreStar would be stayed under the United States bankruptcy law.

 

Based on information currently available to EB, the above legal proceedings and TerreStar Networks' reorganization proceedings so far will not affect EB's earlier assessments on the effects of the reorganization proceedings and nor do they affect the outlook for EB's profit and financial position. EB has disclosed assessments on the effects of the proceedings and information on the effects and outlook for EB's profit and financial position on October 25, 2010 and in the January-September 2010 interim report of October 28, 2010. It is possible that, based on later information related to TerreStar Network's reorganization and/or any possible filings for reorganization by TerreStar, this view may need to be reconsidered.