Insiders and industry experts alike knew that Loral faced challenges after their failed attempt at acquiring 5 satellites from New Skies Holdings Ltd.

Michael Targoff knew the challenges faced by Loral, and when he was made the Company’s CEO, he immediately began re-engaged with Mark Rachesky and MHR’s counsel, Doron Lipshitz, in order to re-initiate a capital investment discussion with MHR.

Michael Targoff’s actions during March 2006 began to take Loral, the board of directors, and an eventual Special Committee in a direction that would lead to conflicts.

Targoff immediately began to focus solely on one investor, MHR, instead of taking a broader approach and seeking other sources of financing. This severely limited Loral’s options to one source of financing coming from one investor. In doing this, Targoff and the potential investor, MHR, ignored warnings by their respective counsels that the type of deal they were considering may be in violation of their fiduciary duties under Delaware law.

On March 6, 2006, Targoff received an email from Loral’s outside counsel, Bruce Kraus, stressing that the entire fairness standard would apply and that Loral should appoint a special committee. Ten days later on March 16, 2006, without a special committee in place, Targoff solicited an equity infusion from MHR. As noted in documentation presented in a Delaware court, Rachesky responded with a letter indicating that MHR would be willing to invest up to $250M into Loral. After receiving this letter, Targoff began to try and gain a consensus that further investment was needed to allow Loral to participate in a joint venture with Telesat, a Bell Canada Enterprises subsidiary.

Vice Chancellor Leo Strine of the Delaware Chancery Court stated in his Memorandum of Opinion:

“… The Special Committee immediately allowed itself to go down
the most dangerous path for anyone dealing with a controlling stockholder – that of believing that its only option was to do a deal with the controller. From the get-go, the Special Committee was pushed by Targoff and MHR to move very rapidly to acquire $300 million in equity capital, leading the Special Committee to believe that time was of the essence. Although the Special Committee’s literal mandate varied over time, substantively the Special Committee was only empowered to consider an equity investment from MHR. “