Could LightSquared walk away from its agreement with Inmarsat?

Posted in Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 3:52 pm by timfarrar

It now appears that Harbinger is focusing its energies on the 2GHz MSS band, with the potential assistance of MetroPCS in its $2.6B bid for DBSD and TerreStar. It is therefore interesting to note that LightSquared has a largely unrecognized way to get out of its spectrum agreement with Inmarsat if the uncertainty created by GPS interference makes it impossible to fund that deployment. According to the Cooperation Agreement filed with the SEC in December 2007, either party could terminate the Agreement if a “regulatory change” makes it impossible to renegotiate in a way that maintains “the benefit of the bargain”.

Section 7.3 Regulatory Change. Without limiting any specific provision herein to the contrary, if any court or federal, state or local government authority or international body with jurisdiction orders or takes any action which becomes effective and which requires the termination or material modification of this Agreement to comply with such action or otherwise with Applicable Law (a “Permissibility Determination”), the Parties shall use their respective best efforts to renegotiate this Agreement in good faith and recast this Agreement in terms that are likely to cure the defects caused by the Permissibility Determination while maintaining the benefit of the bargain to the Parties hereunder and to return a balance of benefits to the Parties comparable to the balance of benefits provided by the Agreement in its current terms and otherwise in a manner consistent with this Agreement. If the Parties are unable to recast this Agreement in a manner that cures such defects and otherwise is mutually agreeable to the Parties, this Agreement will terminate, subject to Section 7.4, effective on such date as the Parties’ activities are required to terminate pursuant to the Permissibility Determination.

Section 7.4 Force Majeure. If any Party is affected by Force Majeure it shall immediately notify the other Parties of the nature and extent of the Force Majeure event. No Party shall be deemed to be in breach of this Agreement, or otherwise be liable to another Party, by reason of any delay in performance, or non-performance, of any of its obligations under this Agreement to the extent that such delay or non-performance is due to any Force Majeure of which it has notified the other Parties and the time for performance of that obligation shall be extended accordingly. Each Party shall use its reasonable efforts to minimize the effects of or shorten the duration of any Force Majeure event and resume the performance of its obligations under this Agreement as soon as possible. If the Force Majeure in question prevails for a continuous period in excess of one hundred eighty (180) days and prevents any Party from carrying out any of its material obligations hereunder (which for the avoidance of doubt shall without prejudice to the generality of the foregoing include any obligation to pay money in excess of $1,000,000, any obligation to issue stock and any obligation to implement any Spectrum Plan), the Parties shall enter into bona fide discussions with a view to mitigating its effects, or to agreeing upon such alternative arrangements as may be fair and reasonable and failing agreement on the same within a further 90 days, any Party may unilaterally and in its absolute discretion terminate this Agreement with immediate effect by notice in writing to the other Parties.

Although Harbinger has invested a great deal in LightSquared to date, it is facing a major battle over GPS interference issues in the L-band. Indeed LightSquared now apparently “concedes there may be some interference to GPS signals which…may require modification to some existing GPS units”. If these problems cause a significant delay in its ability to roll out a terrestrial network in the L-band, it looks like LightSquared would have strong grounds to at least suspend its agreement and payments to Inmarsat, while it focused on rolling out an alternative terrestrial network in the 2GHz spectrum. Of course that would presumably require a waiver from the FCC to allow terrestrial-only devices, similar to the waiver LightSquared was granted in the L-band just a few weeks ago, but at this stage it wouldn’t be a surprise if the FCC came up with such a deal “to save GPS”.

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