Start-up mobile satellite services provider TerreStar Corp.’s decision to dismiss its management team, cut its staff by some 40 percent and slow its investment in a ground-based infrastructure will permit it to continue to operate with its available cash on hand until mid-2009 – several months after its first satellite is scheduled for launch, TerreStar Chief Technical Officer Dennis W. Matheson said April 25.
In an interview, Matheson said no major strategy changes are expected at the company in the wake of the changes and the addition of satellite-telephone provider EchoStar as a major TerreStar shareholder. But he said TerreStar’s board of directors may decide to place less emphasis, in the near term, on securing a European license for its S-band mobile satellite system and instead focus on building the North American business.
In separate announcements April 18 and April 22, Reston, Va.-based TerreStar said it had dismissed Chief Executive Robert H. Brumley and three other members of the management team, with immediate effect. Leaving the company along with Brumley are Chief Operating Officer Michael J. Reedy, Chief Marketing Officer Douglas Sobieski and Robert B. Siegel, executive vice president for finance.
Jeffrey W. Epstein, who has been TerreStar’s chief counsel, will replace Brumley as president.
In an April 18 filing with the U.S. Securities and Exchange Commission, TerreStar did not disclose the reasons for the departures beyond saying that, under the employment contracts of Brumley, Reedy and Sobieski, the dismissals constitute “termination without cause” and thus will lead to cash payouts.
Brumley will receive $1.97 million in cash, plus 382,000 TerreStar shares that are exercisable immediately. Reedy and Sobieski each will receive $594,000 in cash. These departures, plus the layoffs of 75 other people, will cause TerreStar to take a $6.2 million charge for employee severance and benefits.
TerreStar told the U.S. Securities and Exchange Commission (SEC) in a March 31 filing that it would need $341 million to fund its ongoing operations this year. The company raised $300 million from EchoStar and Harbinger Capital in February.
Matheson said the EchoStar investment, which gave EchoStar two seats on TerreStar’s board, was unrelated to the management changeout.
“What we are doing is changing the buildout rate we had intended for this year,” Matheson said. “We will be delaying our ATC buildout to preserve cash, and the executives we had were more for initial startup and not the people you want there in the later stages. It was an amicable separation, by mutual consent.”
Two officials familiar with TerreStar said the company had hired a surprisingly large number of people to help design an Ancillary Terrestrial Component (ATC) network that will be needed to assure that TerreStar’s two-way communications signals are delivered in places that satellites cannot reach. Having failed up to now to find a partner to help in the ATC deployment, TerreStar now will reduce that activity to free up cash for more urgent investment in the satellite, the launch aboard a European Ariane 5 rocket and its insurance.
TerreStar is developing an S-band mobile two-way communications network for the United States. Its first satellite, TerreStar-1, is under construction at in Palo Alto Calif., and
originally was scheduled for launch in November 2007. The company had invested in the ground infrastructure on the assumption that it would need it to coincide with the satellite’s initial operations.
Loral informed TerreStar in February that development of the innovative S-band antenna was taking longer than expected, forcing a delay of several months in the launch of the satellite. Loral said it hoped to resolve the issues in time for a launch between December and February.
Matheson said Loral
recently has surmounted the difficulties it had faced on the satellite. TerreStar-1 is in thermal-vacuum testing, one of the final series of major tests necessary before it is shipped. Shipment
now is scheduled for November, with a launch between December and February, he said.
Brumley had said a high TerreStar priority would be coming to a spectrum-sharing agreement with the other S-band mobile satellite services company in the United States, ICO Global Communications of Reston, Va. Brumley had pointed to a spectrum agreement between Mobile Satellite Ventures of Reston and of London, both of which operate in L-band.
But the agreement with ICO has not been
realized, and ICO’s April 14 launch of its satellite now puts ICO in a stronger negotiating position than before with respect to TerreStar, industry officials said.
Matheson said he is confident that an agreement with ICO will be reached, but that TerreStar management’s immediate priority will be focusing on getting its first satellite in orbit.