Poor Operational Management

The value of TerreStar did not decline solely as a function of governance failures and conflicts of interest. Also at issue was the seeming inability of TerreStar to properly manage operations. In fact, TerreStar even described itself as having “limited experience in running a satellite communications business.” The stock performance cited herein would seem to confirm the Company’s own negative assertions about its abilities. This lack of operating experience might have been the reason behind the Company’s need to apply to the FCC for milestone extensions on more than one occasion. Investors can only wonder how much further ahead TerreStar would have been had management been focused on operations instead of allegedly spending time figuring out ways to enrich themselves through “sweetheart” consulting agreements and questionable strategic transactions.

Despite its poorly performing stock the management of TerreStar claimed that it had achieved “stellar financial and operational results.” This statement was made despite declining year-over-year revenues for four consecutive years, an increase of more than 130% in SG&A expenses in 2003, and a net loss available to common stockholders of $158 million for the year ended December 31, 2005. (Source for preceding paragraph: Filing at sec.gov)

Despite its poor financial performance, TerreStar was in possession of the requisite assets to create significant shareholder value. Highland Capital, in its presentation to TerreStar (then Motient) investors in June of 2006, explained:

“We believe Motient has exciting potential and could create significant value for its stockholders. We also believe that Motient’s true potential will not be realized under current leadership.

Among the reasons cited in the presentation for needing new leadership at TerreStar were the Company’s poor operational performance and financial reporting issues. TerreStar, through its interest in TerreStar and MSV, held unique spectrum assets that should have driven shareholder value. (Source for preceding paragraph: Filing at sec.gov)

The Mobile Satellite Service/Ancillary Terrestrial Component (MSS/ATC) license that TerreStar held significant interest in was, and many believe still is, of great value to wireless providers who face spectrum constraints. Through its MSS/ATC spectrum interests, TerreStar could potentially offer ubiquitous wireless service throughout North America, as well as give wireless providers a significant “national footprint in a single spectrum band.” That the share price of TerreStar could continue to nosedive in spite of these assets seems to be an indictment of the Company’s alleged inability to properly manage its assets, operations, and fiduciary responsibility to create shareholder value.

Compounding the Company’s operational deficiencies is the inability of TerreStar to properly disclose and report its financial history. In its 2005 10-K filing, TerreStar admitted to insufficient oversight and review of its quarterly and year-end financial reporting processes. This admission is part of the Company’s litany of financial reporting issues:

– The Company failed to file audited financial statements for the 12-month period ending on March 31, 2003;

– The Company filed amended 10-Qs for the first, second, and third quarters of 2004 to amend certain disclosures in response to comments from the SEC;

– The Company restated its financials for each quarter of 2005;

– The Company filed amended 10-Ks for 2004 and 2003 to amend certain disclosures in response to comments from the SEC;

– It was announced that TerreStar’s audited financial statements for the periods ended December 31, 2002, 2003 and 2004 as well as the unaudited financial statements for the period ended March 31, 2004 and 2005 should not relied upon;

– TerreStar dismissed PricewaterhouseCoopers (PwC) as its auditor in 2003 after PwC detailed significant disagreements with management over accounting and reporting issues.

Despite these issues, and the Company’s own admissions of financial reporting deficiencies, TerreStar increased the compensation of the two officers who held the primary responsibility for accounting and financial reporting. Additionally, Abbruzzese and CTA saw its consulting retainer fee increase 66% in November 2005 despite TerreStar’s continued poor operational performance.

(Source for previous paragraph and all bulleted points made directly above in this section: Filing of Presentation to Investors at secinfo.com)

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