UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK---------------------------------------------------------------XIN RE GLOBALSTAR, INC.SECURITIES LITIGATION,
THIS DOCUMENT RELATES TO:
IN RE GLOBALSTAR, INC.SECURITIES LITIGATION.---------------------------------------------------------------X
MASTER FILE NO. 07-CV-0976AND RE Q̀j'^^ C1 (r1 (
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SECURITIES CLASS ACTION CONSOLIDATED AMENDED COMPLAINT
I.
INTRODUCTION
1. This action is brought by Lead Plaintiff, The Connecticut Laborers' Pension
Fund, on behalf all purchasers of Globalstar, Inc. ("Globalstar" or the "Company") common
stock pursuant or traceable to a $127.5 million initial public offering of 7.5 million shares of
Globalstar common stock at $17.00 per share on or about November 3, 2006 (the "Offering" or
the "IPO"), (the "Class"). It is alleged that the Registration Statement filed with the Securities
and Exchange Commission ("SEC") in connection with the IPO contained materially false and
misleading statements and omitted to state material facts in violation of Sections 11, 12(a)(2),
and 15 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§77k , 771(a)(2) and 77(o),
respectively. The action is brought against Globalstar; two Globalstar officers who signed the
Registration Statement (i.e., its Chief Executive Officer, Chairman of the Board and Director,
James Monroe III; and its Vice President and Chief Financial Officer; Fuad Ahmad); and the
three co-lead underwriters of the IPO (i.e., Wachovia Capital Markets, LLC ((Wachovia
Securities")), JPMorgan Securities, Inc. and Jeffries & Company, Inc.).
2. Since inception, Globalstar, in its various organizational forms, always has
engaged in the business of providing global telephone and data services through a "constellation"
of low earth orbit ("LEO") satellites.' The constellation was originally composed of 52
satellites, including four in-orbit spares, launched between 1998 and 2000 (the "First Generation
Satellites" or the "First Generation Constellation"). On February 15, 2002, Globalstar Inc.'s
predecessor entity, Globalstar L.P. ("Old Globalstar"), a publicly traded company, and three of
its subsidiaries filed petitions for bankruptcy under Chapter 11 of the United States Bankruptcy
Code. In November 2003, Thermo Capital Partners LLP ("Thermo") formed Globalstar, LLC,
and completed the acquisition and transfer of all of Old Globalstar's business and assets into that
entity. On or about March 17, 2006, Globalstar, LLC became incorporated under Delaware Law
as Globalstar, Inc., and all partnership interests in the LLC were transferred into shares of
Globalstar, Inc. Globalstar, Inc. continued to operate as a privately held company from March
2006 until the decision was made to take it public in November of that year. The IPO in
November 2006 thus represented Globalstar's re-emergence for the first time as a public
company following its reorganization in bankruptcy.2
3. From the time Globalstar emerged from bankruptcy protection in late 2003,
however, the Company faced a critical and immense operational and financial hurdle: replacing
` LEO satellites orbit the Earth at altitudes which range from 500 kilometers (311 miles) toaround 3000 kilometers (1,864 miles). In contrast, Middle Earth Orbit ("MEO") andGeosynchronous Earth Orbit ("GEO") satellites orbit at significantly higher altitudes of up to15,000 (9,321) and 40,000 (24,852) kilometers (miles), respectively. Moreover, because of theirrelative light weight, exposure to radiation, and the large number of power and thermal cycles inlow orbit, LEO satellites are typically designed for an average life span of five to seven years,whereas MEO and GEO satellites have life spans in excess of 15 and 20 years, respectively.
2 Post-reorganization , Thermo became the principal owner of Globalstar, holding anownership interest of 81.25%, four percent of which was to be transferred to QUALCOMM,
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its existing, and significantly degrading, First Generation Satellites. In comparison to the
satellite networks of its industry competitors, such as Iridium, Inc. ("Iridium"), Globalstar's
constellation is operated with fewer satellites and these satellites are orbited at much higher
altitudes. The placement of satellites at higher elevations was an attempt to achieve greater
efficiency by covering a larger geographic area with fewer satellites. There was, however, a cost
to this strategy: launching satellites into higher altitude LEO orbits resulted in a more rapid
deterioration of the satellites due to the adverse effects radiation had on the "S-band" frequency
antennas, which were key to the transmission of satellite voice communications, at that altitude.
4. Globalstar officers, directors and underwriters were presented with, but ultimately
ignored, a clear "red flag" in connection with S-band antenna problems only weeks before the
November 2006 IPO. It was disclosed in an October 16, 2006 article in Satellite Week, a
prominent industry publication, that as Globalstar satellites age, "nearly all have begun or will
begin to exhibit a modest degree of reduced call capacity due to S-band antenna amplifiers" and
that indeed, eight Globalstar satellites are "temporarily out of service because of S-band
antenna subsystem problems " and nine other satellites were "dead. "
5. The Prospectus filed only a few weeks later on November 3, 2006 sought to
dispel any investor concern about the current functioning and commercial viability of
Globalstar's constellation of satellites. While the Prospectus set forth a laundry list of "risk
factors" describing "potential" problems with the satellites, Defendants were careful to
specifically affirm the current strength of its satellites, as well as the anticipated strength of its
satellites into 2010, stating that:
INC. ("Qualcomm") after the completion of the sale. The reorganization agreement provided the
creditors of Old Globalstar with an 18.75% minority ownership interest in Globalstar.
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(a) its current service had solid voice quality sufficient to not only retain
existing clients but attract new ones - "We believe we are able to retain our current customers
and attract new customers because of ... the voice quality ofour network." (j¶ 91-95);
(b) its "subscribers" had increased by 21 % in the recent period prior to the
IPO - "At June 30, 2006, we served approximately 236,500 subscribers. We added
approximately 54,000 and 41,000 net subscribers in the year ended December 31, 2005 and in
the six months ended June 30, 2006, respectively" (¶¶ 96-99);
(c) there was no anticipated period of time when Globalstar would have less
than the minimum number of satellites required to maintain operations since Globalstar's First
Generation Satellites would be "commercially viable into 2010" while a second-generation
constellation would be launched "in 2009"(11 100- 110); and,
(d) its "current satellites" and constellation were also capable of supporting
ancillary terrestrial component ("ATC") services. (ATC provides cellular voice service using
satellite frequencies by relying on less costly "terrestrial" (i.e., cellular phone towers) where
available and only on satellite components where no cell towers exist) (¶¶ 111-113).
6. Unfortunately for the IPO investors, however, each of these representations was
materially false and misleading and omitted material facts as follows:
(a) the true misrepresented and deteriorated condition of Globalstar's
satellites was such that 66% of the total number of subscriber voice calls were "dropped" or
disconnected within the first three minutes of being connected (Jj 9, 77-84, 95);
(b) the Company's "growth" in subscribers was due mainly from an increase
in the usage of Globalstar's satellite data transmission services - not in the more profitable area
of satellites voice communication services (Jj 54-59, 99);
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(c) in Globalstar's 2006 Form 10-K filed with the SEC after the IPO was
consummated , Global was forced to concede and reveal that "effective October 1, 2006" - prior
to the date of the IPO - the actual useful life of Globalstar's First Generation Satellites would
extend only into 2008 - not "into 2010 " (11 70-73); thus, the assurances to investors that there
would be no interval of time where there would be complete loss of satellite voice
communication service, as indicated in the Prospectus, was false (¶11 100-107); and
(d) Globalstar' s constellation did not contain the forty-one working satellites
required in order to provide ATC services (¶¶ 111-113);
7. Each of these representations and omissions were highly material to the IPO
investors since the bulk (i.e., $600-$800 million) of the $1.0-$1.2 billion in funds needed to
replace the First Generation Satellites - which was vital in order to sustain continuing operations
- was to be derived not from the $117 million proceeds raised by the IPO, but rather from
revenue derived from Globalstar' s continuing business operations . If Globaistar 's current
operations were enfeebled and rapidly deteriorating, no reasonable or rationale investor would
purchase Globalstar common stock on the IPO since there would be no hope that Globalstar
could generate the required additional funds in excess of the IPO proceeds needs to secure the
manufacture and launch of a Second Generation Satellite Constellation (the "Second Generation
Satellites" or the "Second Generation Constellation") and continue operations . Further, the ATC
services Globalstar claimed to be able to support with its constellation would provide additional
cellular communication market-share and revenue.
8. The falsity of the Prospectus misrepresentations began to emerge in the period
shortly after the IPO was consummated in November 2006. On February 8, 2007, a mere three-
months later, Globalstar filed a Form 8-K with the SEC which disclosed that the useful life of its
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satellites, allegedly based on "new data "; reflected that the life of the satellites may well end
before the Second Generation Satellites are launched, such that there could be a loss of service
for most subscribers for twelve months beginning in fiscal year 2008 until the next generation
satellites are launched (170). This disclosure caused a precipitous 28% decline in Globalstar's
common stock price on February 8, 2007 from the prior day's closing (¶71).
9. The Company's claim on February 8, 2007 that its revised assessment of the
satellites useful life was based on only "recent data" which the Company obtained was severely
undermined by subsequent disclosures . On February 26, 2007, Frost & Sullivan ("Frost"), a
respected third-party industry consultant , published the results of a study it conducted comparing
Globalstar's performance with that of Iridium's. Iridium engaged Frost & Sullivan to conduct
the study after its monitoring of Globalstar's performance as of August 2006 - again well before
the IPO -showed extremely high drop off rates and a significant increase in subscriber migration
from Globalstar to Iridium. The Frost study concluded that Iridium's average call success rate
was around 95%, while Globalstar had a call success rate of only 34%. In other words, 66% of
Globalstar calls were dropped within the first three minutes they were connected.
10. Further, in Globalstar's fiscal 2006 Form 10-K, filed on April 2, 2007, the
Company revised and significantly reduced the useful life of satellite constellation "effective
October 1, 2006" - one-month prior to the IPO - from 39 months-down to only 27 months. This
placed the true end of the constellation's useful life as of October 1, 2006 - one month before
the IPO - to be in 2008 as opposed to 2009, thus presenting IPO investors with the stark reality -
undisclosed at the time of the IPO - that there would be sustained periods of time where the
constellation would be completely non-operational.
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11. Finally, from its offices in San Jose and El Dorado Hills, California, Globalstar
monitored its satellites twenty-four hours a day. As of June 2006 - again well prior to the IPO -
projections of the life span of the remaining First Generation Satellites, referred to internally as
"Plots", showed that the constellation would cease all commercial viability in 2008.
12. Plaintiff' s allegations are based on extensive investigation of counsel, including
without limitation: (a) review and analysis of filings made by Globalstar with the Securities and
Exchange Commission ("SEC") (J¶ 8, 61-73, 85-90); (b) Globalstar' s press releases (¶¶ 70-73);
(c) Globalstar' s presentations made to analysts (183); (d) media reports about the Company (J¶
3, 25, 36-38, 44-49, 60); (e) publicly available trading data relating to the price and volume of
Globalstar's common stock (J 71); (f) telecommunications and satellite industry analyst reports
on Globalstar and its competitors (1139-43, 54-59); (g) securities analysts reports on G1obaIstar
(1j 73); (h) interviews with former Globalstar employees, including a former employee engaged
in monitoring Globalstar satellites (% 50-59, 108-113); and (i) interviews with analysts from
Frost & Sullivan in connection with their independent report on Globalstar and Iridium satellite
communications services published on or about February 26, 2007. (¶¶ 74-84).
II.JURISDICTION AND VENUE
13. The claims asserted herein arise under and pursuant to Sections 11, 12(a)(2), and
15 of the Securities Act (15 U.S.C. §§ 77k, 771(a)(2) and 77o).
14. This Court has jurisdiction over the subject matter of this action pursuant to
Section 22 of the Securities Act (15 U.S.C. § 77v), and pursuant to 28 U .S.C. § 1331, in that this
is a civil action arising under the laws of the United States.
15. Venue is proper in this Judicial District pursuant to Section 22 of the Securities
Act and pursuant to 28 U.S.C. § 1391(b). Many of the acts and transactions alleged herein,
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including the preparation and dissemination of materially false and misleading information in
the Prospectus, occurred in substantial part in this Judicial District. Additionally, the IPO was
actively marketed and sold in this District. In addition, two of the Underwriter Defendants
(JPMorgan and Jefferies) maintain principal executive offices and reside in this District.
16. In connection with the acts, conduct and other wrongs alleged in this complaint,
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to, the United States mails, interstate telephone communications and
the facilities of the national securities exchange.
III.PARTIES
17. Lead Plaintiff, The Connecticut Laborers' Pension Fund, as set forth in its
certification, incorporated by reference herein, purchased Globalstar common stock at artificially
inflated prices pursuant or traceable to the Company's IPO and has been damaged thereby.
18. Defendant Globalstar is a Delaware corporation with its principal place of
business located at 461 South Milpitas Boulevard, Milpitas, California. Globalstar's common
stock is listed on the NASDAQ under ticker symbol "GSAT," with approximately 76.6 million
shares of common stock outstanding. During all relevant times, Globalstar maintained
operations in North America as a provider of mobile voice and data communication services via
satellite . Globalstar provides mobile and fixed satellite voice and data services , asset tracking
and monitoring services, high-speed internet access, video and audio broadcasting, supervisory
and data control applications, and remote file transfer and virtual private networking services.
19. Defendant James Monroe III ("Monroe") was, at all relevant times, Globalstar's
Chairman of the Board, Chief Executive Officer and a Director of Globalstar.
Defendant Monroe signed the Registration Statement. Mr. Monroe is the principal owner of
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Thermo. Together, Defendant Monroe and Thermo own sixty-three percent of Globalstar's
outstanding shares.
20. Defendant Fuad Ahmad ("Ahmad") was, at all relevant times , Globalstar's
Chief Financial Officer ("CFO") and Vice President. Defendant Ahmed signed the Registration
Statement.
21. Defendants Monroe and Ahmed are collectively referred to herein as the
"Individual Defendants." The Individual Defendants, because of their ownership interests and
positions with Globalstar, possessed the power and authority to contr I the contents of
Globalstar's submissions to the SEC and the market.
22. Defendant Wachovia Capital Markets, LLC (operating under the trade name
"Wachovia Securities") is an investment banking firm and a limited liability company organized
in Delaware, with its principal executive offices located at Riverfront Plaza, 901 E. Byrd St.,
Richmond, Virginia 23219-4069. Wachovia Securities was one of three underwriters in the
November 2006 offering. Wachovia Securities was a co-lead underwriters and acted as a joint
book-runner, and was allocated forty-five percent of the common stock to be sold in the IPO
23. Defendant, JPMorgan Securities, Inc. ("JPMorgan"), is in investment banking
firm incorporated in Delaware, with its principal place of business at 270 Park Avenue, New
York, New York. JPMorgan was one of the three underwriters in the November 2006 offering.
JPMorgan was a co-lead underwriter and acted as a joint book-runner, and was allocated forty-
five percent of the common stock to be sold through the IPO.
24. Defendant, Jeffries & Company, Inc. ("Jeffries"), is an investment banking firm
incorporated in Delaware with its principal place of business located at 520 Madison Avenue,
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12`h Floor, New York, New York. Jeffries was one of the three underwriters in the November
2006 offering. Jefferies was allocated ten percent of the common stock to be sold in the IPO.
25. Defendants Wachovia Securities, JPMorgan and Jeffries are hereinafter
collectively referred to as the "Underwriters" or the "Underwriter Defendants." The
Underwriter Defendants substantially participated in the drafting, editing and dissemination of
the Prospectus and commission of the wrongs alleged herein through their involvement in the
Offering of Globalstar common stock. The Underwriter Defendants were at all relevant times
entities engaged in the business of investment banking, underwriting and selling securities to the
investing public. For their services underwriters for the IPO, the Underwriters collectively
received fees of $10,263,750. As set forth herein, the Underwriters performed a deficient due
diligence review in connection with the IPO because, inter alia, they ignored specific and readily
apparent red flags indicating that the degradation and deterioration of Globalstar satellites was
far more significant than that which was disclosed in the Prospectus and, as a result, the
Prospectus contained false and misleading affirmative statements concerning the voice quality of
Globalstar's current and future system and the growth and anticipated future growth of
Globalstar's subscribers. These red flags included, inter alia, the report in Satellite Week on
October 16, 2006 that eight satellites were "temporarily out of service" and nine other satellites
were "dead" (¶3); the internal Plots of the satellites ' estimated life (11¶ 50-53); and the stagnant
growth in voice, as opposed to data transmission, subscribers prior to the Offering (I¶ 54-59).
26. The Individual Defendants had access to all of Globalstar's detailed internal
reporting data on its system. This system contained detailed satellite health and performance
data, as well as sales and subscription data. Globalstar's internal reporting data on each
individual satellite's health and performance, as well as the total constellation's health and
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performance, was monitored twenty-four hours a day, seven days a week (% 50-53). Globalstar
employed a team of personnel over three eight-hour daily work shifts for the sole purpose of
monitoring the performance of their satellites. Id. Globalstar's personnel were responsible for
monitoring and tracking satellite temperature, power supply, electrical components and signal
strength. Following each eight-hour shift, that team of personnel briefs the personnel who will
be tracking the satellites during the subsequent eight-hour shift . Id. Each morning there is a nine
o'clock meeting at which the individual satellites' and the entire constellation ' s health and
performance are reported to management . Id. Present at these meetings were personnel from
Globalstar ' s monitoring team and senior management, including Megan Fitzgerald
("Fitzgerald "), Vice President of Strategic Planning and Operations , Claudia Duncan ("Duncan")
and Thomas Lewietski ("Lewietski "). Id. Fitzgerald , Duncan and Lewietski reported directly to
Monroe and Ahmed and as such would brief Monroe and Ahmed on the health and performance
of the satellites . Id. Internal reporting also showed Globalstar ' s sales by dollar amount and
subscriber base for each quarter versus the forecast , so the Individual Defendants saw the
adverse effects of Globalstar ' s deteriorating satellites and constellation system.
27. The Individual Defendants were directly involved in the day-to-day operations of
the Company and had access to internal Company documents and reports concerning the health
and performance of the Globalstar satellites . Id. By reason of their positions as senior
management with the Company , the Individual Defendants also attended management and/or
board of directors meetings and were responsible for the truthfulness and accuracy of the
Company's public reports and releases described herein, and were involved in drafting,
producing, reviewing and/or disseminating the misleading statements and information alleged
herein . It is therefore appropriate to treat the Individual Defendants as a group for pleading
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purposes and to presume that the misleading and incomplete information conveyed in the
Company's public filings, press releases and other publications concerning Globalstar's
operations, as alleged herein, were their collective actions.
28. The Individual Defendants , as officers and/or directors of a publicly-held
company whose securities were, and are, registered with the SEC pursuant to the Securities Act,
each had a duty to promptly disseminate accurate and truthful information with respect to
Globalstar, and to correct any previously issued statements issued by, or on behalf of the
Company that had become materially misleading. The Individual Defendants'
misrepresentations and omissions in the Prospectus violated these specific requirements and
obligations. The Individual Defendants were signatories to the Registration Statement filed with
the SEC on November 1, 2006, incorporated by reference in the Prospectus at page 123.
29. The Defendants are all liable , jointly and severally, as participants in the issuance
of Globalstar common stock, including issuing, causing , or making materially misleading
statements in the Prospectus.
IV.
PLAINTIFF'S' CLASS ACTION ALLEGATIONS
30. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or
otherwise acquired Globalstar common stock pursuant or traceable to the Company's November
2, 2006 IPO, and who were damaged thereby. Excluded from the Class are Defendants, the
officers and directors of the Company, at all relevant times, members of their immediate families
and their legal representatives , heirs , successors or assigns and any entity in which Defendants
have or had a controlling interest.
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31. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Globalstar's common stock was actively traded on
the NASDAQ. While the exact number of Class members is unknown to Plaintiff at this
time and can only be ascertained through appropriate discovery, Plaintiff believe that there are
hundreds or thousands of members in the proposed Class. Record owners and other members of
the Class may be identified from records maintained by Globalstar, the Underwriter
Defendants or Globalstar's transfer agent and may be notified of the pendency of this action by
mail, using the form of notice similar to that customarily used in securities class actions.
32. Plaintiff' s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants' wrongful conduct in violation of
federal law that is complained of herein.
33. Plaintiff will fairly and adequately protect the interests of the members of the
Class and have retained counsel competent and experienced in class and securities litigation.
34. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by Defendants' acts as
alleged herein;
(b) whether statements made by Defendants to the investing public during the
Class Period misrepresented and/or omitted to state material facts about the business,
operations, financial condition and management of Globalstar; and
(c) to what extent the members of the Class have sustained damages and the
proper measure of damages.
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35. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
V.
FACTUAL BACKGROUND AND SUBSTANTIVE ALLEGATIONS
A. Globalstar's Bankruptcy And Reorganization
36. Globalstar is a public company incorporated in the state of Delaware in March
2006. Its principal office is in Milpitas, California, and its common stock is listed on the
NASDAQ under ticker symbol "GSAT," with approximately 76.6 million shares of common
stock outstanding. During all relevant times, Globalstar maintained operations in North America
as a provider of mobile voice and data communication services via satellite. Globalstar provides
mobile and fixed satellite voice and data services, asset tracking and monitoring services, high-
speed internet access, supervisory and data control applications, and remote file transfer and
virtual private networking services.
37. Globalstar is the successor company to Globalstar L.P. On February 15, 2002,
Old Globalstar and three of its subsidiaries filed voluntary petitions for bankruptcy under
Chapter 11 of the United States Bankruptcy Code. In 2003, Thermo became the principal owner
of Globalstar , LLC, after completing the acquisition of all of the business and assets of Old
Globalstar. On March 17, 2006, all partnership interests of Globalstar, LLC, were converted into
shares of Globalstar, Inc. when the company became incorporated under Delaware Law.
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Globalstar, Inc. continued to operate as a privately held company until the decision was made to
take it public in November 2006.
38. Key to the Company' s emergence from Bankruptcy was maintaining the 10-year
useful lifespan of the First Generation Constellation to 2010, which were initially launched in
1998 and became operational in early 2000, in conjunction with the Company's long-term
business plan to raise the over $1 billion of capital that would be necessary in order to
manufacture, launch and activate a Second Generation Constellation.
B. Globalstar's First Generation
Satellite Constellation Begins To Fail
1. Background Of The First Generation Constellation
39. Globalstar' s First Generation Satellite Constellation , acquired from Old
Globalstar in 2003, was built during the late 1990's by Loral Space & Communications, Ltd.
("Loral") and launched into orbit between 1998 and 2000. The agreement with Loral called for
the design, manufacture and delivery of sixty-four low earth orbit ("LEO") satellites. Despite the
loss of twelve satellites in 1998 during an unsuccessful launch, Globalstar's First Generation
Constellation , consisting of fifty-two LEO satellites , became operational in early 2000, with
forty-eight functional satellites , plus four in-orbit spares.
40. Globalstar's communications service network consists of in-orbit satellites and
ground stations, referred to as "gateways," which work in concert to provide voice and data
communications services to the Company's subscribers. A completed voice communication on
the Globalstar system would work as follows: (1) the handset user dials the party with whom
they wish to speak and a signal is sent from the handset to the Globalstar satellite passing
overhead (this signal is transmitted via the L-band frequency); (2) the satellite then passes a
signal down to earth to a gateway (using a specific C-band frequency); (3) a return signal is sent
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back to the satellite from the gateway (using another C-band frequency); and (4) the handset user
receives a signal from the satellite (using the S-band frequency). Only after the handset user
receives a signal back from the satellite (on the S-band) is the call connected . The Globalstar
satellites have separate antennas for voice communications (transmitted via S-band frequency)
and L-band transmissions for one- and two-way data transmissions . The S-band antenna has 91
elements . Each element is driven by a solid state power amplifier know as the Field Effect
Transistor ("FET") that produces a maximum power of 4.2 Watts. This array of elements is used
to produce 16 antenna beams (one central beam, six middle beams, and nine outer beams). The
S-band electrical power that is delivered by the FET is continuously adjusted by sampling the
input power level. The lower the power level the less data that could be shifted across the
satellite's S-band antenna - directly impacting the number of connected calls and whether a
connected call would be dropped. The FETs used in Globalstar 's satellites could only support a
maximum charge or current of 200 Amps - above 200 Amps the FET would blow out and
become permanently inoperable . Each satellite was equipped with two FETs - a primary and a
back-up. A Globalstar satellite could effectively operate with just a single FET' however, the
destruction of both the primary and the back-up FET would result in the satellite ' s complete
catastrophic failure.
41. Globalstar sought to revolutionize satellite telecommunications with a "cheaper,
better, faster" attitude towards the design, manufacture and launch of their satellite constellation.
Globalstar's plan was to manufacture relatively inexpensive satellites and place them at higher
altitude orbits above the Earth's surface. Globalstar's satellites orbit the Earth at an altitude of
876 miles, or 1,414 kilometers.
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42. In comparison to Globalstar's constellation, Iridium, Inc. ("Iridium"), Globalstar's
foremost industry competitor in the market of mobile and fixed satellite voice and data
transmission services, maintains a constellation of sixty-six satellites (plus six in-orbit spares)
which orbit the Earth at an altitude of around 476 miles, or 766 kilometers. Iridium has a larger
constellation because their constellation, operating at a lower orbit altitude, requires more
satellites to cover the same area of the Earth's surface as a constellation such as Globalstar's.
The chart below illustrates the relationship between satellite altitude and the number of satellites
necessary to provide coverage to a given geographic area.
Globalstar (1,414 km) Iridium (766 km)
Earth'sSurface
43. As evident above, the lower the orbit altitude of a satellite, the smaller the amount
of geographic surface area its "cone" will have the ability to cover. Thus, because Iridium's
satellites orbit at a lower altitude, they require a higher number of satellites to cover the same
geographical area as the higher flying Globalstar satellites, thereby costing less overall.
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2. Globalstar ' s Satellites Orbit Through The Van AllenBelts Hastens Deterioration Of Their S-Band Antennas
44. Globalstar 's satellites , because of the altitude at which they orbit the Earth, are
significantly affected by large bands of charged particles, known as the radiation belts, which
orbit around the Earth ' s magnetic poles . The innermost of the radiation belts, the "Van Allen
Belts" are extremely intense bands of high-energy protons and other bi-products of the impact
between solar radiation (cosmic rays) and nuclei of the Earth 's upper atmosphere . The Van
Allen Belts are known for their high levels of radiation and their damaging effect on instruments
and satellites which travel through them. These inner belts hold charged particles in a constant
orbit above the Earth's surface.
45. Scientific studies and research have shown that as a result of the orbit altitude at
which Globalstar chose for their satellites to orbit, Globalstar satellites are exposed to upwards of
10 times more radiation as lower flying LEO satellites, such as the Iridium satellites . Iridium's
satellites , at an altitude of only 766 kilometers (476 miles), spend much of their orbital period
underneath the Van Allen Belts, avoiding much of the negative effects the radiation may have on
the satellites ' on board instruments and ability to function.
46. Globalstar satellites are equipped to handle both voice, as well as data traffic.
Voice signals are received by the satellites on what is known as the S-band frequency by the S-
band antenna, and then relayed back down to Earth on the S-band frequency. The satellites' one-
way data communication operates on an L-band frequency and is relayed using a completely
different receiver and antenna on the satellites. The continued exposure to, and periodic surges
of, intense radiation have a damaging effect on the electronic instruments and components on the
satellites. One of the most damaging effects that radiation has had on Globalstar's satellites is
the acceleration of the degradation of the satellites S-band antennas. The excessive amount of
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radiation to which Globalstar's satellites are exposed has caused persistent degradation and
deterioration of the S-band antennas on many of their First Generation satellites, resulting in
partial, and in some cases total, loss of the satellites' capacity to transmit S-band signals.
3. Radiation From Solar Flares Hastens TheDeterioration Of Globalstar' s Satellites
47. In addition to being placed largely in the Van Allen Belts, Globalstar's satellites
were subjected to radiation from solar flares. A solar flare is a violent explosion in the Sun's
atmosphere releasing a tremendous amount of energy - as intense as a 10 billion megaton
nuclear bomb. Solar flares take place in the solar corona heating plasma to tens of millions of
Kelvins and accelerating electrons , protons and heavier ions to near the speed of light. They
produce electromagnetic radiation across the electromagnetic spectrum at all wavelengths from
long-wave radio to the shortest wavelength gamma rays. Most flares occur in active regions
around sunspots, where intense magnetic fields emerge from the Sun's surface into the corona.
The average solar cycle - or sunspot cycle - is 11.1 years, but cycles as short as nine years and
as long as fourteen years have been observed. The occurrence frequency of solar flares is
strongly modulated by the solar activity cycle. Flares of any given size are some fifty times
more frequent at solar maximum than at minimum (which refers respectively to epochs of
maximum and minimum sunspot counts). Large solar flares occur on average a few times a day
at solar maximum, down to one every few days at solar minimum. Flares are powered by the
sudden (timescales of minutes to tens of minutes) release of magnetic energy stored in the
corona. X-rays and UV radiation emitted by solar flares can affect Earth's ionosphere and
disrupt long-range radio communications. Direct radio emission at decimetric wavelengths may
disturb operation of radars and other devices operating at these frequencies.
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48. The solar cycle was discovered in 1843 by amateur astronomer Samuel Heinrich
Schwabe, and each cycle has been sequentially numbered. Solar Cycle 23 approximately began
in 1996, and peaked in 2001. Although the peak of Cycle 23 was not particularly noteworthy,
two record-setting solar flares came as part of a string of solar storms that struck planet Earth
during October-November 2003 and on January 20, 2005. The January 20, 2005 solar flare had
the hardest spectrum observed during solar cycle 23 and also reached the highest >100 MeV
("megaelectron volt") intensity level in approximately 30 years, reaching its peak intensity at 1
AU (1 Astronomical Unit = 149,598,000 kilometers or 92,955,888 miles, the distance from the
sun to Earth) within minutes. The culmination of these two record-setting solar flares and
numerous less intense solar flares wreaked havoc on Globalstar's satellites.
49. By 2003, radiation from the Sun and the Van Allen Belts forced Globalstar to
reduce its constellation from a 48-satellite constellation, with six satellites on each of eight
orbital planes, to a 40-satellite constellation, decreasing the available satellite coverage at any
given time to only five satellites on each of eight orbital planes. While still able to maintain
operations with only forty functional satellites, the decrease in the number of satellites to forty
results in less coverage over certain areas - the consequences of which are an increase in
dropped calls, inability to obtain service in specific areas with less satellite coverage, and
scheduled blackouts in less populated areas in order to maintain coverage in areas with larger
subscriber bases. As the total number of satellites in the constellation falls below forty, these
issues become more prevalent, and should the constellation ever drop below thirty-two satellites
(capable of S-band signal transmission) the Globalstar system would cease all commercial
viability.
20
C. Globalstar Employs A Team Of Satellite Engineers ToMonitor Its Satellites And "Plot" Satellite Useful Lives
50. To monitor it satellites , Globalstar employs three teams of satellite engineers,
stationed at two different locations, San Jose and El Dorado Hills, California responsible for the
twenty-four hour a day, seven day a week monitoring of each of Globalstar' s individual satellites
in the constellation. During each of three eight-hour shifts, Globalstar teams, consisting of as
many as four satellite engineers , monitor and chart satellite temperature, power supply, electrical
sensors, signal strength and other essential satellite metrics. Following each eight-hour shift, the
exiting team of satellite engineers briefs the incoming team that will be monitoring the satellites
during the subsequent eight-hour shift. Each morning, at the San Jose, California, location there
is a nine o'clock a.m. meeting at which the individual satellites ', as well as the entire
constellation's, health and performance is reported to senior management, i.e., Fitzgerald,
Duncan and Lewietski, who then reported directly to Individual Defendants Monroe and Ahmad.
The metrics and statistics gathered on satellite health and performance were entered into a
database in order to determine the existence of trends in certain measurements and also in order
to predict future health and performance. Throughout 2006, Globalstar's monitoring team
tracked the signal strength ofthe constellation, which, by early summer of2006, had revealed an
alarming decline in overall signal strength of the constellation. By July and August 2006, the
diminished signal strength was clearly problematic to Globalstar's future and its constellation's
continued commercial viability.
51. Furthermore, by running these diagnostic tests on its satellites , Globalstar was
able to determine the expected lifespan of each satellite. These projections were commonly
referred to as "Plots." Globalstar calculated Plots on a daily basis and tracked changes or
21
deviations from the previous day's Plot for each satellite in its constellation. In June 2006,
Globalstar 's Plots revealed that the constellation would cease all commercial viability in 2008.
52. By June 2006, as a result of the combination of the critical issues pertaining to
Globalstar ' s rapidly degrading and deteriorating constellation , the number of satellites in the
constellation able to "carry traffic " had declined to only thirty-seven in total. Satellites are
only able to "carry traffic" if the signal strength is strong enough to support voice or data
transmissions. As the signal strength decreases (due to failure in the S-band antenna, FET
failure, or inability of the satellite to carry enough power) the signal to noise (e.g., static or
interference) ratio increases. The higher the noise ratio the more likely a call would be dropped
due to loss of signal by the user terminal (i.e., handset) as well as, in the first instance, an
increased likelihood that a call would not even connect. When the noise level is high enough,
the satellite thinks that the subscriber hung up the phone, which results in a dropped call, or
thinks that the subscriber has no service, which prevents a call from being completed for that
subscriber.
53. Because of the reconfiguration of the satellites in 2003 to a "Walker 40" pattern
of five satellites in each of eight orbital planes in 2003, the Company was forced to plan
scheduled "blackouts" (periods during which there would be little to no satellite coverage over a
given geographic region) so that more populated regions would have the necessary satellite
coverage. From 2003 to early 2006, these blackouts affected geographic areas that had little to
no Globalstar subscriber base. However, by June 2006, when the number of healthy satellites
decreased to thirty-seven, these blackouts began to seriously affect the quality of service in more
populated geographic areas as their length of time and the impacted geographic area expanded.
22
D. Globalstar's Heavy Reliance On VoiceSubscribers To Drive Service Revenue
54. Globalstar provides both voice and data communications services via its satellite
constellation . On a per subscriber basis, mobile and fixed voice services generate substantially
more revenue for the Company. While the majority of Globalstar revenue prior to 2006 was
principally derived from their mobile and fixed voice communications operations , in 2006
Globalstar began to experience an increase in the amount of total revenue which is derived from
these data services. This coincided with the increasing deterioration and degradation of the S-
band antennas on Globalstar satellites . As Globalstar' s voice communication capabilities
became increasingly impaired throughout 2006, the Company became more dependent on
revenues derived from data subscribers - from which Globalstar did not derive as much revenue
from as compared to voice subscribers. The increase in the Company's subscriber base from
196,000 in January 2006 to over 256,000 at the time of the Prospectus, coupled with relatively
small increases in service revenue from quarter to quarter, was a result of a large decrease in
high-revenue yielding voice service subscriber growth and a large increase in the low-revenue
yielding data service subscriber growth. A large portion of Globalstar's total revenue is now
derived from the use of high and low speed data services.
55. In its financial statements filed with the SEC, Globalstar does not break down its
total service revenues into separate subcategories for revenue derived from the use of voice
services and for revenue derived from data services by customers. Instead, Globalstar combines
the two distinct revenue streams . For fiscal 2006, Globalstar's total service revenue was $93.04
million, and broken down by quarter was $20.69 (first quarter 2006), $21.51 (second quarter
2006), $27.65 (third quarter 2006) and $22.19 (fourth quarter 2006). But for a small spike in
service revenue during the third quarter of 2006 - which may be accounted for by factors
23
unrelated to the strength or quality of Globalstar's satellite services, namely the expiration of a
large amount of Globalstar "Liberty" Plan service contracts - Globalstar's total service revenue,
on a quarterly basis remains relatively constant throughout the year, despite continuing increases
in total subscriber base over the same period. In August, 2004, Globalstar began offering these
"Liberty Plans," annual service plans with "bundled" minutes to its subscribers as an alternative
to monthly per-minute service plans. The Liberty Plan requires a subscriber to pre-pay usage
charges for an entire twelve month period. Under the Company's revenue recognition policy for
its Liberty Plans, it revenue derived from those plans is deferred until the earlier of when the
minutes are used by a subscriber or when those minutes expire at the end of the twelve month
period. All unused minutes on the Liberty Plans are recognized as revenue at the end of the
twelve month contract period. Furthermore, the Company states in the Prospectus, "most of our
customers have not used all the minutes that are available to them or have not used them at the
pace anticipated, which, with the rapid acceptance of our Liberty Plans, has caused us to defer
increasingly large amounts of service revenue." (Prospectus at 48). The Company goes on to
state that as of June 30, 2006, the total amount of deferred revenue for the remainder of 2006
derived from services provided under their Liberty Plans was approximately $21.8 million.
56. Because of the relative deal that subscribers were getting by pre-paying for an
entire year of satellite communication service, Liberty Plans had become very popular with
subscribers beginning in mid-summer 2005. All of the unused Liberty Plan minutes held by
subscribers who began their contracts in summer 2005 expired in summer 2006. By Globalstar's
own admission, most customers do not use all of the minutes allotted to them under the Liberty
Plan, and as such, all of those unused minutes are recorded as revenue in the third quarter 2006
upon their expiration, resulting in a twenty-five percent increase in service revenue that quarter.
24
57. In addition, Globalstar provides total subscriber data in the periodic reports which
it submits to the SEC, detailing the total number of subscribers at the end of a given fiscal period.
Globalstar reported in its fiscal 2006 Form 10-K filing that it had 196,000 "total" subscribers as
of December 31, 2005. According to their September 30, 2006, Form 10-Q filing, as of June 30,
2006 the Company's subscriber base had increased to 236,515 total subscribers over the first six
months of the 2006 fiscal year. The number then increased to 256,000 and 263,000 at the end of
the third and fourth quarters of 2006, respectively.
58. Globalstar's total subscriber numbers for the period covering the first nine months
of 2006 were deceptive for two reasons . First, the Company did not break down the total
subscribers figure into voice versus data subscribers. Globalstar experienced an increase of over
70,000 subscribers in the nine months ending September 30, 2006, though at the same time total
service revenues remained relatively constant and total revenue decreased consistently quarter
over quarter. This decrease in total revenue, over the same period during which Globalstar's
service revenue remained constant while subscriber base increased, could only be explained by a
large increase in the number of data service subscribers and a simultaneous decrease in the
amount of voice service subscribers added during the period.
59. Second, the Company also had to compensate for the customers that were lost
from month to month. To truly gauge the subscriber base growth of Globalstar, the figures in
the above paragraph must be read in conjunction with the Company's churn rate - the
Company's self-proclaimed indicator of business health and customer satisfaction, signifying the
average monthly loss of subscribers. In the Company's third quarter 2006 Form 10-Q filing, the
company reported that the churn rate for the third quarter was .90%, and for the nine months
ending September 30, 2006, the churn rate was 1.00%. In their Form 10-K filing for fiscal 2006,
25
the Company stated that its churn rate for the fiscal year was 1.09%. Based on the information
provided by Globalstar in their quarterly and year-end SEC filings, and calculating the chum rate
for periods for which none is provided, Globalstar's churn rate for the fourth quarter 2006
increased dramatically to the area of 1.4% - indicating a loss of almost 4,000 subscribers per
month during October, November and December 2006. For the first nine months of fiscal 2006,
Globalstar lost an average of 2,560 customers each month, totaling over 23,000 customers lost
over the same period. Hence, Globalstar actually increased their customer base by over 93,000
customers 'over the first nine months of fiscal 2006 - a large percentage of which were low-
revenue yielding data customers.
E. Globalstar's Poor Service And High Dropped Call Rate ResultIn A Loss Of Business To Its Largest Competitor - Iridium
60. In addition to Globalstar monitoring its satellites , its main competitor, Iridium,
routinely monitored Globalstar's call connectivity and quality of service. Iridum's internal
reports showed a decrease in Globalstar's connectivity rate and quality of service. During the
summer and fall of 2006, Iridium's internal reports regarding Globalstar's poor service quality,
high dropped call rate and failing satellites coincided with a rapid increase in Iridium's voice-
service subscriber growth rate.
26
F. Globalstar Goes To The Capital Markets To Finance TheResurrection Of A Second-Generation Constellation
61. In mid-2006, Globalstar disclosed its long-term business plan to the market,
specifically, its intentions to replace its First Generation Satellites with a state-of-the-art Second
Generation Constellation beginning in 2009. The Company estimated the cost of this "upgrade"
would be between $1.0 and $1.2 billion.
62. It became readily apparent, because of the potential and actual deterioration of
what remained of Globalstar's First Generation Constellation, that Globalstar was in dire need of
a massive cash infusion in order to successfully manufacture and launch their Second Generation
Satellite Constellation. The decreasing health of their First Generation Satellites drove the need
to consummate a $127.5 million IPO in November 2006 . However, an IPO for that amount
alone was insufficient to fund the manufacture and launch of the entire Second Generation
Satellite Constellation which was estimated to cost in excess of $1.0-1.2 billion. In fact, the
Company stated in the Prospectus that $600-800 million of the over $1.0 billion needed would be
funded by revenue from ongoing operations through the year 2014. For this to become a reality,
Globalstar would need not only to maintain, but also spur substantial growth in subscriber
revenue in order to successfully complete the manufacture, launch and activation of the Second
Generation Satellites.
63. As a result, from the perspectives of potential IPO investors, there were at least
two critical concerns which presented themselves pertaining to the future of Globalstar's
business operations. First, investors had to be assured both that the current satellite constellation
would remain operational through the date the Second Generation Constellation would become
operational, and also be assured that the current subscriber base was sufficiently solid and would
27
continue to grow, so as to provide the necessary funds to pay for the Second Generation
Constellation.
64. As part of Globalstar' s long-term business plan, on November 2, 2006, the
Prospectus with respect to the IPO, which forms part of the Registration Statement, became
effective, indicating that the Company sought to sell 7.5 million shares of its common stock to
the public at $17.00 per share, thereby raising approximately $117 million after underwriting fees.
G. Satellites' Commercial Viability Through 2010 WasEssential to Globalstar' s Operations And Business Plan
65. According to the November 2006 Prospectus, proceeds from the public offering
were going to be used by the Company to cover part of the cost associated with the manufacture
and launch of the Second Generation LEO Satellite Constellation. Central to the long-term
business plan was the maintenance and viability of the Company's First Generation LEO
Constellation through 2010, when the Second Generation Constellation was scheduled to be in
service. Above all, the main concern for Globalstar was preventing any gap in satellite coverage
resulting from the loss of viability of the First Generation Satellites prior to the manufacture,
delivery and launch of the Second Generation.
66. As such, the Prospectus was riddled with statements claiming that based both on
outside assessments and internal monitoring of the Company 's satellites , the estimated useful life
of the First Generation Constellation was 10 years from commencement of service , which would
extend the useful life of the current constellation into 2010. Globalstar's claim that its
constellation would remain "commercially viable" until 2010 was premised on its representation
that its "satellite network include[d] 43 in-orbit low earth satellites, including in-orbit spares
temporarily placed into service and satellites that are temporarily out of service but are
considered restorable." (Prospectus at 87).
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67, Thus, based on the Prospectus , the First Generation Constellation was, according
to the Company, capable of providing full satellite voice and data transmission services to
Globalstar subscribers until such time when the Second Generation Constellation manufactured,
launched and ready to become operational.
68. It was also essential to Globalstar's viability and business plan success to
maintain their First Generation LEO Satellites until 2010 because they depended on their
ongoing operations to fund a large part of the Second Generation LEO Constellation. The
Company estimated, as of the Prospectus date, that the cost to procure and launch the Second
Generation Satellites and upgrade their facilities would be approximately $1.0 to $1.2 billion.
The Company stated in the Prospectus that they intended to use the entire net proceeds from the
Offering to pay part of the cost, funding the remaining balance of the costs from proceeds from a
delayed term loan under their credit agreement, remaining proceeds from sales of common stock
to Thermo under an irrevocable standby stock purchase agreement and approximately $600 to
$800 million in cash generated by ongoing business operations.
69. In December 2006, Globalstar announced it entered into a Contract with Alcatel
Alenia Space ("Alcatel") for the design, development and manufacture by Alcatel of Globalstar's
Second Generation LEO Satellites. The contract called for Globalstar to pay Alcatel $880
million in exchange for the design , manufacture and delivery of forty-eight Second Generation
Satellites. Delivery of the satellites is expected to begin in or around summer 2009, with
launches beginning soon after.
H. February 2007 Form 8-K Reveals Worst
Case Scenario On Horizon For Globalstar
70. On February 5, 2007, Globalstar filed a Form 8-K with the SEC. Therein, the
Company, in relevant part, revealed that "the degradation of amplifiers is now occurring at a
29
faster rate than previously experienced and faster than the Company had previously
anticipated"; that "to date the Company has been unable to correct the amplifier problem and
may be unable to do so"; and thus, that "it will take substantially longer to establish calls and
the average duration of calls may be impacted adversely":
Satellite Constellation Operations.
As reported in the Company's prior public filings, in early 2006 the Companyundertook a comprehensive third party review of this problem and the likelyimpact of the degradation of performance of these amplifiers in individualsatellites on the performance of the constellation as a whole. At that time, basedin part on the third-party report, the Company concluded that, althoughthere was risk, with the addition of the eight spare satellites in 2007, theconstellation would continue to provide commercially viable two-waycommunication services until the next generation satellites were placed inservice in 2009 . Based on data recently collected from satellite operations,the Company has concluded that the degradation of the amplifiers is nowoccurring at a rate that is faster than previously experienced and faster thanthe Company had previously anticipated . In response, the Company, inconsultation with outside experts, has implemented innovative methods, and plansto continue to implement additional corrective measures , to attempt to amelioratethis problem, including modifying the configuration of its constellation asdescribed above, and thereby extend the life of the two-way communicationcapacity of the constellation. Nonetheless , to date the Company has beenunable to correct the amplifier problem and may be unable to do so.
Based on its most recent analysis, the Company now believes that, if thedegradation of the S-band antenna amplifiers continues at the current rateor further accelerates, and if the Company is unsuccessful in developingadditional technical solutions, the quality of two-way communicationsservices will decline, and by sometime in 2008 substantially all of theCompany's currently in-orbit satellites will cease to be able to support two-way communications services. As the number of in-orbit satellites withproperly functioning S-band antenna decreases, despite a successfullaunch and optimized placement in orbit of the eight spare satellites inmid-2007, increasingly larger coverage gaps will recur over areas in whichthe Company currently provides two-way communication services.Subscriber service will continue to be available, but at certain times in anygiven location it will take substantially longer to establish calls and theaverage duration of calls may be impacted adversely.
(Emphasis added.)
30
71. On the release of this "bad news," shares of the Company's stock declined $4.08
per share, or twenty- eight percent, to close on February 6, 2007 at $10.40 per share
(approximately $6.60 below the IPO price of $17.00 per share) on unusually heavy trading
volume, for a market loss of $45,581,000.
72. This disclosure was crucial to the long-term business plan of Globalstar for two
reasons. First, the Company would cease to be able to provide satellite service to their customers
before the end of 2008, almost a year before they even take delivery of the first of the Second
Generation Satellites, let alone launch them into orbit. Second, because they would be unable to
provide satellite uplinks to their customers beginning in late-2008, analysts and industry experts
believe that Globalstar's revenues will decrease drastically, calling into question their ability to
fund the $1.2 billion expense of securing and putting into service a Second Generation
Constellation with $600-800 million with cash from operations.
73. Globalstar stock was almost immediately downgraded by analysts at Wachovia,
and Jeffries & Co. based on the information contained in the February 5th Form 8-K filing,
Specifically, in a February 7, 2007 Analyst Report, Jeffries & Co. analysts stated:
As we discussed in our note yesterday , GSAT's satellites are experiencingdegradation in the amplifiers for the S-band satellite antennas . GSAT is workingon a solution and has hired third party experts to help analyze the problem andmake recommendations . If GSAT is unsuccessful in slowing down thedegradation of the existing satellites or accelerating the deployment of a portionof the next generation satellites, there could be a loss of service for mostsubscribers for 12 months beginning in FY08 until the next generation satellitesare launched.
Moreover, in regards to the Company's ability to fund the over $1 billion network upgrade,
Jeffries analysts stated, in part:
As we noted in our initiation report, we expected GSAT would require additionalfunding for the deployment of its $1.2 billion next generation satelliteconstellation. Our concern increases as GSAT had intended to fund $600-
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800MM of the costs of the next generation satellite constellation using cash flowfrom operations. In light of the recent satellite disclosures , we believe it isunlikely that GSAT will achieve the expected $600-800MM in OCF.
1. Frost & Sullivan Investigate Globalstar's Connectivity RateAnd Found That Approximately 66% Of All Calls Are EitherNot Connected Or Dropped With Three Minutes
74. Frost & Sullivan ("Frost") is a firm which specializes in providing independent
third-party market consulting, monitoring of new technologies, tracking changes in distribution
channels, forecasting market trends and performing strategic analysis and market research of
industry competitors. Frost was a pioneer of this type of business beginning in the 1960's and is
considered today to be a leader in providing consumers and the public with fair and impartial
studies on inter-industry competition, new technology and market research.
75. In December 2006, Iridium contacted Frost to discuss conducting a
comprehensive and comparative study on the health and quality of service of their system and
the system of their closest industry competitor, Globalstar. Iridium sought the independent study
to confirm the results of their own internal monitoring which signaled a significant decline in
Globalstar' s satellite performance and quality of service.
76. However, Frost analysts and Iridium executives agreed to postpone the strategic
analysis until after the newest Globalstar technology, the Qualcomm GSP-1700 satellite
communications handset, was made available to the public in mid-January 2007.
77. The Frost study commenced in late-January 2007 and a comprehensive report of
their findings were published and released to the public on February 26, 2007 (the "Frost
Report"). The results were shocking. The study concluded that while Iridium's average call
success rate was around 95%, Globalstar had a call success rate of only 34%.
32
78. The Frost study focused solely on the Quality of Service ("QoS") metric in
comparing Iridium and Globalstar. This metric is calculated using the most basic of
measurements: voice call completion and termination of voice calls. The test was conducted in
two geographic locations - Northern California and Central Texas. Moreover, two types of
satellite phones were used in these tests. Frost used fixed unit models (Iridium's CTX 1147M
and Globalstar's Qualcomm GSP-2400) which were supplemented by handheld units (the
Iridium 9505A and Globalstar 's Qualcomm GSP-l 700).
79. Each fixed unit was operated for twenty-four hours successively from the same
location. In addition to auto-dialer tests, 25 calls were attempted on a handheld unit from each
location with each satellite service in order to validate the auto-dialer results. In total, over 1,500
phone calls were made with the Iridium and Globaistar fixed and handheld units and two
geographically dispersed test sites. In order to assure comparable results, tests at each site were
conducted from exactly the same locations, under identical environmental conditions.3
80. The auto-dialer equipped fixed units were run continuously for a period of
twenty-four hours to ensure that a full cycle of the constellation was witnessed. In total, the
Frost team conducted ninety-six hours of auto-dialer testing (twenty-four hours for each Iridium
and Globalstar at each of the two geographic locations). Three minute calls were made with a
one minute buffer in between each - resulting in about 360 calls per twenty-four hour period.
81. For the purposes of the Frost study, successful calls were considered those in
which the satellite phones connected with the satellite, the call went through to the intended
recipient and the call then remained connected for a period of three minutes. Calls that did not
3 Test sites in each location were chosen in order to minimize obstructions, 15 degreesabove the horizon, and to avoid interference from external signal sources such as industrialparks, airports, etc.
33
connect were recorded as failed and calls that connected but were not maintained for the full
three minutes were recorded as dropped. The auto-dialer results were then validated using the
handheld devices of both Iridium and Globalstar.
82. On February 26, 2007 the Frost Report was released to the public. Iridium's call
success rate was measured to be 98.1% in Northern California and 94.7% in Central Texas.
Globalstar, on the other hand, had a call success rate in Northern California of 36.2% and
only 31. 8% in Central Texas.
83. In response, Globalstar quickly released a five page report of their own attempting
to discount the Frost Report with their own internal "test results ." Globalstar did not provide any
methodology or system of controls which would allow industry experts or consultants to
replicate the Globalstar tests to either confirm or discount Globalstar ' s conclusions , While the
Frost Report made it clear that the study being conducted was only focusing on voice Quality of
Service as of January 2007 in respect to Iridium and Globalstar, Globalstar's response was a full
explanation about data service, 2002 reports on performance and service, and excuses for the
poor quality of service at the time of the report, namely the unsubstantiated claim of
repositioning of Globalstar satellites.
84. It was only at a time subsequent to the release of Globalstar's response to the
Frost Report that Iridium disclosed their confidential internal monitoring and testing results to
the Frost analysts. The Frost Report was confirmed by the data gathered by Iridium prior to the
initiation of the Frost study.
34
J. Globalstar's Year-Ended 2006 Form 10-K Filing DisclosedThe True Lifespan Of The First Generation Satellites
85. On April 2, 2007, Globalstar filed their Form 10-K for the fiscal year ending
December 31, 2006. In the Form 10-K filing, the Company disclosed the true life span of their
satellites to be more than a year shorter than what they had provided for in the Prospectus , stating
that the First Generation LEO Constellation would only remain commercially viable up to
December 2008. Buried in Globalstar's Form 10-K filing on page 82, the Company revealed:
Effective October 1, 2006, the Company reduced the estimated remaininglives for the Globalstar System assets from 39 months to 27 months due tothe uncertainties about their remaining useful lives.
(Emphasis added.)
86. This decrease in the estimated useful life of the First Generation satellites from
thirty-nine months to twenty-seven months meant that by December 2008, Globalstar current
satellite constellation would no longer be commercially viable - Globalstar would be unable to
support any two-way satellites voice communication.
87. Statement of Financial Accounting Standards No. 154, Accounting Changes and
Error Corrections ("SFAS 154") defines a change in an accounting estimate and lists the change
in the service life of depreciable assets as one example of a change in an accounting estimate:
Definitions
2. The following terms are defined as used in this Statement:
d. Change in accounting estimate-a change that has the effect of adjustingthe carrying amount of an existing asset or liability or altering the subsequentaccounting for existing or future assets or liabilities. A change in accountingestimate is a necessary consequence of the assessment, in conjunction with theperiodic presentation of financial statements, of the present status and expectedfuture benefits and obligations associated with assets and liabilities. Changes inaccounting estimates result from new information. Examples of items for whichestimates are necessary are uncollectible receivables, inventory obsolescence,service lives and salvage values of depreciable assets, and warranty obligations.
35
88. SFAS 154 also prescribes that a change in an accounting estimate should be
reflected in the financial statements prospectively, meaning that the financial statements should
reflect the new information in the period in which the new information becomes known:
Change in Accounting Estimate
19. A change in accounting estimate shall be accounted for in (a) the period ofchange if the change affects that period only or (b) the period of change andfuture periods if the change affects both. A change in accounting estimate shallnot be accounted for by restating or retrospectively adjusting amounts reported infinancial statements of prior periods or by reporting pro forma amounts for priorperiods.
89. Since the changes in accounting estimates are accounted for prospectively - i.e.,
from the date on which the change becomes known - Globalstar's disclosure in its Annual
Report that the change in depreciable lives was "effective October 1, 2006" (emphasis added)
was an admission that the "period of change" in the estimable life of the satellite was in the very
same quarter that the IPO occurred.
90. The disclosure of the accounting change in the 2006 Form 10-K "effective
October 1, 2006" amounted to nothing less than an admission by Globalstar that problems with
the First Generation Satellites existed in the period when the IPO was consummated, which
rendered the statements contained in the Prospectus filed in connection with the IPO materially
false and misleading, in violation of Sections 11 and 12 (a)(2) of the Securities Act, 15 U.S.C.
§§77k and 771(a)(2).
36
VI.
PROSPECTUS' MATERIAL MISREPRESENTATIONS AND FALSE STATEMENTS
A. The Prospectus Misrepresented That Globalstar ' s Voice Quality WasCapable Of Retaining Current Customers And Attracting New Customers
91. Since the Company's continued operations were essential to its ability to
replace its degrading constellation of satellites, it was critical to emphasize to IPO investors
that the existing constellation of satellites functioned well enough to both sustain existing
customers and attract new ones as follows:
Service and Product Offerings. We believe we are able to retain our currentcustomers and attract new customers because of our pricing plans and the voicequality of our network . We offer pricing plans with rates as low as $0.14 perminute.
Existing Global Satellite Communications Network. Our constellation of lowearth orbit satellites and terrestrial gateways has been in commercial operationsince 2000 and serves as the backbone of our communications network. Webelieve our existing network is capable of handling the expected growth indemandfor our services.
(Prospectus at 3) (emphasis added).
92. On page 76 of the Prospectus, under the heading "Competitive Strengths",
Globalstar largely reiterated verbatim the same misrepresentations set forth in the preceding
paragraph:
Competitive StrengthsWe believe that our competitive strengths position us to enhance our growth andprofitability:
Service and Product Offerings. We believe we are able to retain our currentcustomers and attract new customers because our pricing plans, which offerrates as low as $0.14 per minute, are the lowest in the mobile satellite servicesindustry and our voice services provide the best audio quality in our industry. Areport published by Frost & Sullivan in 2002 concluded that our voice servicesprovide audio quality that is superior to that of our principal mobile satelliteservices competitor and approach that of a good quality cellular call. We believethe voice and data products that we expect to introduce in 2006 and 2007 will be
37
cheaper, lighter and better performing than those previously available to mobilesatellite services customers and will be equal to or better than those offered by ourcompetitors. We believe our high quality and low cost services and products offer
us a competitive advantage in retaining our current customers and attractingnew customers in our vertical markets.
Existing Global Satellite Communications Network. Our constellation of lowearth orbit satellites and terrestrial gateways has been in commercial operationsince 2000 and serves as the backbone of our communications network. Gartner
has described our satellite constellation as "simple, yet proven technology." We
believe our existing network is capable of handling the expected growth indemandfor our services, as evidenced by our ability to handle increased usage ofover 500% in the areas affected by Hurricane Katrina while terrestrialcommunications networks were impaired. We plan to supplement ourconstellation by launching our eight spare satellites during 2007.
(Emphasis added).
93. On page 42 of the Prospectus, Globalstar misrepresented that its satellite
communication business provides "reliable mobile communications to [its] customers" and that
its subscriber base has been "growing rapidly" as a result of "improved voice and data
transmission quality" as follows:
Material Trends and Uncertainties. Our satellite communications business, by
providing critical, reliable mobile communications to our subscribers, servesprincipally the following markets: government, public safety and disaster relief;recreation and personal; maritime and fishing; business, financial and insurance;natural resources, mining and forestry; oil and gas; construction; utilities; andtransportation. Both our industry and our own subscriber base have beengrowing rapidly as a result of:
• favorable market reaction to new pricing plans with lower service charges;• awareness of the need for remote and reliable communication services;• increased demand for reliable communication services by disaster and reliefagencies and emergency first responders;• improved voice and data transmission quality; and• a general reduction in prices of user equipment.
(Emphasis added).
38
94. On Page 88 of the Prospectus, Globalstar in a blatant misrepresentation touted
that it offered "superior call clarity, virtually no discernable delay and a low incidence of
dropped calls":
Compared to other satellite and network architectures , we offer superior callclarity, virtually no discernable delay and a low incidence ofdropped calls. Theworldwide call success rate average for all of our users varies between 79% and82%.
(Emphasis added).
95. The statements in the preceding paragraphs 91 to 94, supra, were materially false
and misleading because it was readily apparent to Globalstar, based on the Company' s internal
monitoring of their satellite constellation, that due to the deteriorated and degraded condition of
its constellation it could not adequately support Globalstar's current subscriber base - let alone a
growing subscriber base. Even Iridium began to notice a significant increase in conversion to
Iridium services by Globalstar customers. Moreover, this was linked to Iridium's findings in
mid-2006 that Globalstar' s satellites ' health and performance were seriously degraded. As a
result, in early January 2007, Iridium contracted a third-party independent consultant to confirm
the results of Iridium 's monitoring of both Globalstar's and their own service quality and
performance. The third-party consultant, Frost & Sullivan, performed an impartial survey of the
Iridium and Globalstar systems and concluded overwhelmingly that Globalstar's satellite service
capacity was seriously degraded - with a call success rate in Northern California of 36.2% and
only 31.8% in Central Texas. See ¶¶ 74-84, supra.
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B. The Prospectus Falsely Touted Subscriber
Growth Qualified As Of June 30, 2006
96. To further promote the underlying strength of its operations - which, again, was
to serve as the primary source of replacing the First Generation Satellites - the Prospectus
quantified a twenty-one percent subscriber growth as of June 30, 2006 as follows:
At June 30, 2006, we served approximately 236,500 subscribers. We added
approximately 54,000 and 41,000 net subscribers in the year ended December 31,
2005 and in the six months ended June 30, 2006, respectively. We count
"subscribers" based on the number of devices that are subject to agreements
which entitle them to use our voice or data communication services rather than
the number of persons or entities who own or lease those devices.
(Prospectus at 1).
97. Defendants reiterated this misrepresentation throughout the Prospectus, as
follows:
At June 30, 2006, we served approximately 236,500 subscribers, which
represented a 50% increase since June 30, 2005. We believe the heightened
demand for reliable communications services , particularly in the wake of the
September 11, 2001 terrorist attacks, the December 2004 Asian tsunami and the
U.S. Gulf Coast hurricane activity in 2004 and 2005, will continue to drive our
strong growth in sales of both voice and data services. We have a diverse
customer base, including the government (including federal, state and local
agencies), public safety and disaster relief; recreation and personal; maritime and
fishing; business, financial and insurance; natural resources, mining and forestry;
oil and gas; construction; utilities; and transportation sectors, which we refer to as
our vertical markets. According to Gartner, we are one of the two key mobile
satellite services providers whose networks can deliver voice and datacommunication services over most of the world's landmass.
(Prospectus at 73)(emphasis added).
98. Defendants misrepresented subscriber growth yet again on Page 77 of the
Prospectus, as follows:
Continuing Rapid and Profitable Growth of Our Subscriber Base. In 2005, weadded approximately 54,000 net subscribers , a 39% growth rate over the numberof subscribers at the end of 2004. We intend to continue to increase ourpenetration of the growing mobile satellite services market and our market share
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of key vertical markets by continuing to provide compelling service and productofferings and utilizing our strong distribution network.
99. The statements in the preceding paragraphs 96 to 98, supra, were materially false
and misleading because while Globalstar's total subscriber numbers did increase throughout
2006, it was mainly due to the addition of Simplex and Duplex data communication subscribers
and not the higher revenue-yielding voice subscribers. As set forth in paragraphs 54 to 59,
supra, Globalstar relies heavily on voice subscribers to drive revenue growth in comparison to
lower revenue yielding data customers. However, due to the degrading and deteriorating nature
of the First Generation Constellation , which began to accelerate by the summer of 2006,
completing voice transmissions via the Globalstar satellite network became increasingly
difficult, though data transmissions were barely affected by those issues.
C. The Prospectus Falsely Stated Satellites Would Be"Commercially Viable" Through The Year 2010
100. Since it was essential to the business plan presented by Globalstar to the market
that here be no gap between current operations of the First Generation Satellites and operations
of the Second Generation Constellation, Defendants repeatedly advised investors that the
satellites would provide "commercially viable" and "commercially acceptable" service to
customers "into 2010".
101. On Page 2 of the Prospectus, Globalstar stated that its current First Generation of
satellites was viable "into 2010" while the Second Generation would begin to be deployed "in
2009" as follows:
"Our satellite constellation was launched in the late 1990s. We intend to launcheight spare satellites in 2007 to supplement those currently in orbit. We believethat, as supplemented, our constellation will continue to provide commerciallyacceptable service at least into 2010.
We are currently in the process of designing and procuring our second-generation
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satellite constellation , which we expect to deploy beginning in 2009 to extend thelife of our network until approximately 2025."
(Prospectus at 2) (emphasis added).
102. On Page 16 of the November 2006 Prospectus, in the section titled "Risk
Factors", the Company claims that the First Generation Satellite Constellation will provide
"commercially viable" service to customers until the year 2010, at which time the Second
Generation Constellation be put into service.
We expect that our current satellite constellation will provide commerciallyviable service into 2010 and plan to deploy our second-generation satelliteconstellation beginning in 2009. If we are unable for any reason, includingmanufacturing or launch delays, launch failures, delays in receiving regulatoryapprovals or insufficient funds, to deploy our second-generation constellationbefore our current constellation ceases to provide commercially viable service weare likely to lose subscribers, and will incur a decline in revenues and profitabilityas our ability to provide commercially viable service declines.
(Emphasis added).
103. Furthermore, under the heading "Constellation life and health" on Page 43 of the
Prospectus, the company reiterates the fact that the "current satellite constellation will provide a
commercially acceptable quality of service into 2010."
Our current satellite constellation was launched from 1998 to 2000. We plan tolaunch our eight spare satellites during 2007. Assuming the successful launch ofthese spare satellites , we believe our current satellite constellation will providea commercially acceptable quality of service into 2010.
(Emphasis added).
104. On page 49 of the Prospectus the company touted its belief that the First
Generation Constellation will have a useful life of "10 years from the commencement of service,
or through December 31, 2009."
Depreciation is provided using the straight-line method over the estimated useful
lives [of the satellites]. For this purpose, we have estimated that our satellites
have an estimated useful life of 10 years from commencement of service, or
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through December 31, 2009.
(Emphasis added).
105. On Page 88 of the Prospectus, Globalstar again misrepresented that its in-space
constellation will provide a commercially acceptable quality of service into 2010:
We believe our in-space constellation will provide a commercially acceptablequality of service into 2010. We have eight spare satellites which are beingprepared for launch during 2007 to augment our constellation . We plan to placethe eight satellites into a constellation configuration which seeks to optimize ourservice at that time . We have entered into a launch service agreement withStarsem for two launches, with the launches of the spare satellites scheduled forMarch and May, 2007
(Emphasis added).
106. On Page 89 of the Prospectus, Globalstar misrepresented the results of its internal
satellite and constellation monitoring operations and again misrepresented that its constellation
should provide "commercially acceptable quality of service into 2010":
We monitor the health of our satellites for quick identification of"out-of-family" conditions . Our control phones located at selected gateways,which are placed in clear line of sight to the sky, make three-minute calls every10 minutes and are used to recognize and pinpoint problems quickly if theyoccur on the system. These phones have a call success rate of over 98%. Werecently hired an independent third party consultant to conduct a survey on thehealth of our satellites . The report confirmed that the constellation shouldprovide a commercially acceptable quality of service into 2010, assuming thespare satellites are launched during 2007, no major new anomalies are detectedand those anomalies currently known are controlled satisfactorily.
(Emphasis added).
107. The material statements in paragraphs 100 to 106 above were disclosed to be false
when Globalstar admitted that "effective October 1, 2006" - over one month before the Offering
date - the true useful life of the current satellite constellation would end in 2008, it would not
last "into 2010." Additionally, the material statements in paragraphs 100 to 106 above were
disclosed to be false and inconsistent with facts available earlier in 2006. The February 5, 2007
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Form 8-K filing acknowledges that by early 2006, Globalstar believed its satellite constellation
would be commercially viable under the Second Generation Satellites were operable in 2009.
Moreover, the Company learned throughout 2006 that efforts "to date" had been unsuccessful in
correcting the amplifier degradation.
D. The Prospectus Misrepresented That It Had 43 In-Orbit SatelliteWhen, In Fact, Only 37 Satellites Could "Carry Traffic"
108. According to the November 2006 Prospectus, as of June 30, 2006, Globalstar's
constellation was made up of forty-three in-orbit satellites , including in-orbit spares and
satellites which were temporarily out of service, but which the Company was attempting to
restore to service . Moreover, the Prospectus states that the satellites orbit the Earth in a 40-
satellite configuration, referred to more commonly as a "Walker pattern."
109. On page 87 of the Prospectus, Globalstar misrepresented its number of
commercially viable satellites, as follows:
Our Network
Our satellite network includes 43 in-orbit low earth orbit satellites, includingin-orbit spares temporarily placed into service and satellites that aretemporarily out of service but are considered restorable. The design of ourorbital planes and the positioning of our ground stations ensure that generally atleast two satellites, and often more, are visible to subscribers from any point onthe earth's surface between 70° north latitude to 700 south latitude, covering mostof the world's population. All of our satellites are virtually identical in design andmanufacture, and each satellite contributes equally to the constellationperformance, which allows satellite diversity for mitigation of service gaps fromindividual satellite outages. Our constellation currently orbits in a 40-satelliteconfiguration known as a "Walker pattern" orbital geometry. Each satellite hasa high degree of on-board subsystem redundancy, an on-boardfault detectionsystem and isolation and recoveryfor safe and quick risk mitigation. Our abilityto reconfigure the orbital location of each satellite provides us with operatingflexibility and continuity ofservice. The design of our space and ground controlsystem facilitates the real time intervention and management of the satelliteconstellation and service upgrades via hardware and software enhancements.
(Emphasis added.)
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110. The statements in paragraph 109 above are false and misleading because, as of
June 2006, according to confidential sources, including former employees of Globalstar, the
Company only had thirty-seven fully functioning satellites in orbit which were capable of
carrying satellite communication traffic, i.e., able transmit and receive band signals from
terrestrial sources . The fact that the Company had at most thirty-seven fully functioning
satellites at the time of the Offering in November is material because once Globalstar's
constellation falls below forty satellites, outages, loss of service, and decreased call capacity in
populated areas become more common. Additionally, Globalstar failed to mention that despite
redundancy of certain satellite components, destruction of a FET was irreparable, and destruction
of both FETs would complete incapacitate the satellite. Many of Globalstar's thirty-seven
operable satellites were down to their last FET and a subsequent solar flare could compromise
the viability of entire constellation.
E. Globalstar Misrepresented And Omitted Material Facts RegardingIts Ability To Provide Terrestrial Cellular Phone Services
111. According to the Prospectus, Globalstar , in describing its business, and
consequently its revenue generating capabilities, represented that it was "licensed by the U.S.
Federal Communications Commission, or the FCC, to provide an ancillary terrestrial component,
known as ATC services, in combination with our existing communication services." (Prospectus
at 1). ATC, or hybrid terrestrial-satellite, networks blend the most powerful aspects of each
technology. Satellites historically have provided the best and most comprehensive coverage of
low-density populations across large land masses while terrestrial facilities (i.e., traditional
cellular tower service) have provided the highest bandwidth, lowest cost coverage of high-
density populations in urban environments . ATC networks utilize common devices to provide a
45
user experience which utilizes the power and cost efficiency of terrestrial networks where they
are available and the ubiquity and disaster-tolerance of satellite networks when necessitated.
Globalstar ' s touted ability to provide ATC services would provide a tremendous financial benefit
to the Company, and in turn significant common stock value.
112. In addition, on Page 3 of the Prospectus, under the heading "Competitive
Strengths," Globalstar stated as follows:
Our current satellites and gateways are capable ofsupporting A TC services and,therefore, in combination with a terrestrial network, we will be able to provideservices where satellite services generally do not function, such as urban areasand inside buildings. We believe this capability will allow us to be among thefirst to introduce these services, potentially as soon as 2007.
(Emphasis added).
113. The statements in the preceding paragraph 112, supra, are patently false and
materially misleading . Although Globalstar obtained an FCC license to provide ATC service,
the approval was subject to certain conditions that Globalstar does not currently meet. For
example, a satellite provider that provides ATC service must have a fully functioning
constellation plus one in-orbit spare. This means that Globalstar would need forty-one fully
functioning satellites under its current "Walker 40" constellation; however, as set forth in
paragraphs 50-53 and 108-110, supra, at the time of the Offering the Company had at most
thirty-seven functioning satellites and thus, this condition could not be met. Additionally, based
on a variety of material factors - which Globalstar omitted to disclose - it is unlike that it would
"be among the first" to introduce ATC services. Besides Globalstar, there are several
competitors who also qualify to provide ATC services, including, for example, TerreStar
Networks , ICO Satellite Management , LLC (formerly ICO Global Communications), and
Mobile Satellite Ventures. Each of these companies is willing to provide the space segment, but
46
not the terrestrial infrastructure. Additionally, each of these companies has attempted,
unsuccessfully, to structure a joint venture with cellular operators or other established service
providers to provide the terrestrial infrastructure. One reason is that the business model for
cellular involves vendor financing by major infrastructure providers such as Motorola and
Ericsson, which took significant MSS losses ten years ago and are not willing to invest in space-
based cellular again. Most significantly, Globalstar is the least desirable of the alternative
systems for providing ATC because its user frequencies are widely separated (in S and L-bands).
Consequently, the same terrestrial antenna cannot be used to receive and transmit and, therefore,
the terrestrial tower equipment would be more expensive.
MISREPRESENTATIONS AND OMISSIONS CAUSED LOSS
114. Defendants' wrongful conduct, as alleged herein , directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
115. Pursuant or traceable to the Prospectus, Plaintiff and the Class purchased the
common stock of Globalstar at artificially inflated prices and were damaged thereby. The
price of Globalstar's common stock declined when the misrepresentations made to the market,
and/or the information alleged herein to have been concealed from the market, and/or the effects
thereof, were revealed, causing investors' losses.
COUNT I
Violation of Section 11 of The Securities ActAgainst All Defendants
116. This claim is brought by Plaintiff and asserted on behalf of all other members of
the Class who purchased or acquired Globalstar common stock issued in the November 2006
Offering. This claim does not sound in fraud, and Plaintiff does not incorporate herein any
allegations of fraud in connection with this Count.
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117. Globalstar is the registrant for the Offering and filed the Registration Statement as
the issuer of the stock, as defined in Section 11(a)(5) of the Securities Act.
118. The Individual Defendants were directors of Globalstar at the time the
Registration Statement for the Offering became effective, and with their consent were identified
as such in the Registration Statement. In addition, they signed the Registration Statement or
authorized it to be signed on their behalf.
119. The Underwriter Defendants served as the underwriters of the Offering and
qualify as such according to the definition contained in Section 2(a)(11) of the Securities Act, 15
U.S.C. § 77b(a)(11). As such, they participated in the solicitation, offering, and sale of
Globalstar common stock to the investing public pursuant to the Registration Statement.
120. The Registration Statement, at the time it became effective, contained material
misrepresentations of fact and omitted facts necessary to make the facts stated therein not
misleading, as set forth 11 91-113 above . The facts misstated and omitted would have been
material to a reasonable person reviewing the Registration Statement.
121. The Individual Defendants and the Underwriter Defendants did not make a
reasonable investigation and did not possess reasonable grounds for believing that the statements
contained in the registration statements were true, did not omit any material fact, and was not
materially misleading.
122. Plaintiff and the other Class members did not know, and in the exercise of
reasonable diligence, could not have known of the misstatements and omissions contained in the
Registration Statement.
123. Plaintiff and other Class members sustained damages as a result of misstatements
and omissions in the Registration Statement, for which they are entitled to compensation.
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124. Plaintiff brought this action within one year after the discovery of the untrue
statements and omissions , and within three years after the Offering.
COUNT II
Violation of Section 12(a)(2) of the Securities ActAgainst All Defendants
125. Lead Plaintiff repeats and realleges each and every allegation contained above.
126. This Count is brought pursuant to Section 12(a)(2) of the Securities Act on behalf
of the Class, against all defendants.
127. By means of the Registration Statement and Prospectus, and by using means and
instruments of transportation and communication in interstate commerce and of the mails, the
Underwriter Defendants through the Offering sold Globalstar stock to Plaintiff and other
members of the Class.
128. The Underwriter Defendants, Globalstar and the Individual Defendants each
successfully solicited these purchases motivated at least in part by its or his own financial
interest. The Individual Defendants each signed the Registration Statement, and the Underwriter
Defendants, Globalstar and the Individual Defendants each reviewed and participated in drafting
the Prospectus and participated in "road shows" at which the Offering was presented to
investors . Through ensuring the successful completion of the Offering, the Underwriter
Defendants obtained substantial underwriting fees; Globalstar received more than $100 million
in needed capital; and the Individual Defendants (who were Globalstar's principal officers)
ensured that Globalstar would obtain that needed capital. Also, defendant Monroe sought to
protect the substantial investment that Thermo had made in Globalstar.4
4 Defendant Monroe, "controls, either directly or indirectly, each of Globalstar SatelliteLP, Globalstar Holdings, LLC and Thermo Funding Company LLC and, therefore, is deemed the
49
129. The Registration Statement, at the time it became effective, contained material
misrepresentations of fact and omitted facts necessary to make the facts stated therein not
misleading , as set forth above at 11 91-113. The facts misstated and omitted would have been
material to a reasonable person reviewing the Registration Statement.
130. Defendants as "sellers" owed to the purchasers of Globalstar securities, including
Plaintiff and other Class members, the duty to make a reasonable and diligent investigation of the
statements contained in the IPO materials, including the Prospectus contained therein, to
ensure that such statements were true and that there was no omission to state a material fact
required to be stated in order to make the statements contained therein not misleading.
Defendants knew of, or in the exercise of reasonable care should have known of, the
misstatements and omissions contained in the IPO materials as set forth above.
131. Plaintiff and other members of the Class purchased or otherwise acquired
Globalstar securities pursuant to the defective Registration Statement and Prospectus . Plaintiff
did not know, or in the exercise of reasonable diligence could not have known, of the untruths
and omissions contained in the Prospectus.
132. Plaintiff, individually and representatively, hereby offers to tender to defendants
those securities which plaintiff and other Class members continue to own, on behalf of all
members of the Class who continue to own such securities, in return for the consideration paid
for those securities together with interest thereon. Class members who have sold their
Globalstar stock are entitled to rescissionary damages.
133. By reason of the conduct alleged herein, these defendants violated, and/or
controlled a person who violated Section 12(a)(2) of the Securities Act. Accordingly, Plaintiff
beneficial owner of the shares held by such entities ." (Prospectus at 109, fn. 5).
50
and members of the Class who hold Globalstar securities purchased in the IPO have the right
to rescind and recover the consideration paid for their Globalstar securities and hereby elect to
rescind and tender their Globalstar securities to the defendants sued herein. Plaintiff and Class
members who have sold their Globalstar securities are entitled to rescissionary damages.
COUNT III
Violation of Section 15 of The Securities ActAgainst Individual Defendants
134. This claim is brought by Plaintiff and asserted on behalf of all Class members
who purchased or acquired common stock in the Offering. This claim does not sound in fraud
and Plaintiffs do not incorporate herein any allegations of fraud in connection with the Count.
135. The Individual Defendants at all relevant times participated in the operation and
management of the Company, and conducted and participated, directly and indirectly, in the
conduct of Globalstar's business affairs.
136. As officers and directors of a publicly owned company, the Individual Defendants
had a duty to disseminate accurate and truthful information with respect to Globalstar's financial
condition and results of operations.
137. Globalstar has admitted that its financial statements included and incorporated in
the Registration Statement and Prospectus for the Offering were materially false and misleading.
This admission by itself proves Globalstar's primary violation of Section 11 of the Securities Act
with respect to the Offering.
138. Because of their positions of control and authority as senior officers and directors
of Globalstar, the Individual Defendants were able to, and did, control the contents of the
Registration Statement which contained materially false information. The Individual Defendants
51
were therefore "controlling persons" of Globalstar within the meaning of § 15 of the Securities
Act.
139. Plaintiff and other Class members purchased Globalstar common stock issued
pursuant , or traceable , to the Offering. The Offering was conducted pursuant to the Registration
Statement.
140. The Registration Statement, at the time it became effective, contained material
misrepresentations of fact and omitted facts necessary to make the facts stated therein not
misleading. The facts misstated and omitted would have been material to a reasonable person
reviewing the registration statement.
141. Plaintiff and the Class did not know, and in the exercise of reasonable diligence,
could not have known of the misstatements and omissions in the Registration Statement.
142. Plaintiff and the Class have sustained damages as a result of the misstatements
and omissions of the registration statement , for which they are entitled to compensation.
143. Plaintiff brought this action within one year after the discovery of the untrue
statements and omissions, and within three years after the Offering.
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a) Determining that this action is a proper class action under Rule 23 of the
Federal Rules of Civil Procedure;
52
(b) Awarding compensatory damages in favor of Plaintiff and the other
Class members against all Defendants, jointly and severally, for all damages sustained as a result
of Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;
(c) Awarding Plaintiff and the Class their reasonable costs and expenses
incurred in this action, including counsel fees and expert fees; and
(d) Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated : August 15, 2007New York, New York
Respectfully submi
By:Samuel P . po (SP-4444)Joel P . L man (JL-8177)Christopher Lometti (CL-3775)Ashley Kim (AK-0105)Frank R . Schirripa ( FS-1960)Daniel B. Rehns (DR-5506)SCHOENGOLD SPORN LAITMAN &LOMETTI, P.C.19 Fulton Street , Suite 406New York, New York 10038Telephone : ( 212) 964-0046
Lead Counselfor the Plaintiff
53