The complaint seeks, among other things, damages in an unspecified amount and reimbursement of plaintiffs’ reasonable costs and expenses. The complaint alleges (a) that Loral's former CEO violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state material facts about our financial condition relating to the sale of assets to Intelsat and our chapter 11 filing and (b) that the defendant is secondarily liable for these alleged misstatements and omissions under Section 20(a) of the Exchange Act as an alleged “controlling person” of Old Loral.
Specifically, the complaint alleges that on June 30, 2003, the beginning of the Class Period, Loral made two announcements that purportedly would assist in strengthening its balance sheet and its future prospects. Loral announced that "it has collected approximately $55 million from Intelsat representing an acceleration of a receivable for agreed-upon milestone performance payments" and that Loral had resolved all outstanding legal disputes with Alcatel thereby eliminating potential exposure to $350 million in liability to Alcatel. However, the complaint alleges that the Company failed to disclose that Loral was actively negotiating the sale of six of its satellites with Intelsat and that Intelsat was pressuring Loral to file for Chapter 11 bankruptcy as a condition of closing the deal. Rather than disclose such material information, the announcement and subsequent statements issued by defendant Loral's Chief Executive Officer and the Chairman of its Board of Directors left potential investors in Loral with the misleading impression that Loral was "on plan" as discussed in the prior quarter's conference call, that Loral was not only current on its debt payments, but also was not in any danger of default and was focused on preparing for a recovery in its business. What the Company communicated to investors was substantially different than the reality that it was contemplating a Chapter 11 bankruptcy filing. On July 15, 2003, prior to the market open, and to the horror of recent investors who had purchased Loral securities based on the positive news from the Company, Loral announced that it was filing for Chapter 11 bankruptcy as a precondition to an agreement with Intelsat to sell its six North American satellites for approximately $1.1 billion. Once the stock resumed trading after being halted on the news, the stock lost 90% of its value.
As summarized by the Company's Form 10-K For The Fiscal Year Ended December 31, 2010, in November 2003, three other complaints against the former Chief Executive Officer of Old Loral with substantially similar allegations were consolidated into the Beleson case. The defendant filed a motion for summary judgment in July 2008, and plaintiffs filed a cross-motion for partial summary judgment in September 2008. In February 2009, the court granted defendant’s motion and denied plaintiffs’ cross motion. In March 2009, plaintiffs filed a notice of appeal with respect to the court’s decision. Pursuant to stipulations entered into in February, May, July, August and October 2010 among the parties and the plaintiffs in the Christ case [...], the appeal, which had been consolidated with the Christ case, was withdrawn, provided however, that plaintiffs could reinstate the appeal on or before November 19, 2010. In November 2010, plaintiffs did reinstate the appeal, which is fully briefed and pending before the Second Circuit. Since this case was not brought against Old Loral, but only against one of its officers, we believe, although no assurance can be given, that, to the extent that any award is ultimately granted to the plaintiffs in this action, the liability of Loral, if any, with respect thereto is limited solely to the D&O Claims.
In April 2011, the Second Circuit affirmed the decision of the District Court. As a result of this decision, unless plaintiffs successfully appeal to the United States Supreme Court within the applicable time period for filing such an appeal and prevail on such an appeal, Loral will not incur any liability as a result of this case.