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Exhibit 99.3

TERRESTAR CORPORATION
Index to Consolidated Financial Statements and Financial Statement Schedule

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
TerreStar Corporation

        We have audited the accompanying consolidated balance sheet of TerreStar Corporation as of December 31, 2009, and the related consolidated statement of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TerreStar Corporation at December 31, 2009, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

        The accompanying financial statements have been prepared assuming that TerreStar Corporation will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses and will require additional financing in 2010 to meet its obligations. The Company's ability to obtain the needed additional financing on acceptable terms, or at all, is uncertain. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The 2009 financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

        As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for noncontrolling interests effective January 1, 2009.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), TerreStar Corporation's internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2010 expressed an unqualified opinion thereon.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
TerreStar Corporation

        We have audited the accompanying consolidated balance sheet of TerreStar Corporation (formerly Motient Corporation) and subsidiaries (the "Company") as of December 31, 2008, and the related statements of operations, stockholders' equity and cash flows for the two years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TerreStar Corporation and subsidiaries as of December 31, 2008, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

/s/ Friedman LLP

East Hanover, New Jersey
March 12, 2009

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TERRESTAR CORPORATION

Consolidated Balance Sheets

As of December 31, 2009 and 2008

(In thousands)

See accompanying Notes to Consolidated Financial Statements

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TERRESTAR CORPORATION

Consolidated Statements of Operations

For the Years Ended December 31, 2009, 2008 and 2007

(In thousands, except per share amounts)

See accompanying Notes to Consolidated Financial Statements

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TERRESTAR CORPORATION

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2009, 2008 and 2007

(In thousands)

See accompanying Notes to Consolidated Financial Statements

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TERRESTAR CORPORATION
Consolidated Statements of Changes in Stockholders' (Deficit) Equity
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands, except per share amounts)

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TERRESTAR CORPORATION
Consolidated Statements of Changes in Stockholders' (Deficit) Equity—(Continued)
For the Years Ended December 31, 2009, 2008 and 2007
(In thousands, except per share amounts)

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TERRESTAR CORPORATION
Notes to Consolidated Financial Statements

Note 1.  Organization and Description of Business

General

        TerreStar Corporation (formerly Motient Corporation) was incorporated in 1988 under the laws of the State of Delaware. TerreStar Corporation is in the mobile communications business through its ownership of TerreStar Networks, its principal operating subsidiary, and TerreStar Global.

        TerreStar Networks, in cooperation with its Canadian partner, 4491165 Canada Inc, a majority-owned subsidiary of Trio 2 General Partnership (Trio), plans to launch an innovative wireless communications system to provide mobile coverage throughout the United States and Canada using integrated satellite-terrestrial smartphones. This system build out will be based on an integrated satellite and ground-based technology intended to provide communication service in most hard-to-reach areas and will provide a nationwide interoperable, survivable and critical communications infrastructure. We intend to provide multiple communications applications, including voice, data and video services.

        As of December 31, 2009, we had three wholly-owned subsidiaries, MVH Holdings Inc., Motient Holdings Inc., and TerreStar Holdings Inc. Motient Ventures Holding Inc., a wholly-owned subsidiary of MVH Holdings Inc., directly holds approximately 89.0% and 86.5% interest in TerreStar Networks and TerreStar Global, respectively.

Going Concern, Liquidity and Capital Resources

        In assessing our liquidity, we analyze our cash, our investments, anticipated revenue streams and our financing, operating and capital expenditure commitments, including preferred stock redemption obligations. Our principal liquidity needs are to satisfy working capital requirements, operating expenses, capital expenditure, debt and preferred stock redemption obligations. Based on our current plans, there is substantial doubt that the available cash balance, investments and available borrowing capacity as of December, 31, 2009 will be sufficient to satisfy the projected funding needs for all of 2010. We will likely require additional funding in the second quarter of 2010 unless we are able to extend our obligations and commitments to future periods. We cannot guarantee that financing will be available or available on favorable terms. If we fail to obtain necessary financing on a timely basis, we may be forced to curtail operations or take other actions that will impact our ability to conduct our operations as planned. Our 2009 financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result from this uncertainty.

        We are currently considering various alternatives to extend our liquidity and raise capital. The redemption obligation under the Series A and Series B preferred stock may be satisfied by permitting the holders of such preferred stock, voting as a class, to elect a majority of our Board of Directors. We have also commenced an exchange offer for our outstanding preferred stock as more fully described in Note 18. Further, we are evaluating other potential sources of funding including those described in Note 18.

        Our principal sources of liquidity consist of our current cash balances, which includes advances of $30.0 million from our 1.4GHz terrestrial spectrum lease agreement ("Lease Agreement") received in January 2010, investments and credit available through our secured borrowing under TerreStar-2 Purchase Money Credit Agreement ("Credit Agreement"), of which $42.5 million is available as of December 31, 2009 and which is available solely for construction and completion of our second satellite, TerreStar-2. As of December 31, 2009, we had $45.1 million of cash and cash equivalents and $0.5 million of restricted cash. After giving effect to the net proceeds and advances available under the

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Lease Agreement and Credit Agreement, we have approximately $118.1 million of liquid resources available to fund operations.

        Our short-term liquidity needs are principally related to our operating expenses, continuing commitments related to the design and development of our handset and chipset, development of our ground based satellite infrastructure and the potential redemption obligation under our Series A and B Preferred Stock. As of December 31, 2009, we had contractual obligations of $562.2 million due within one year, consisting of approximately $429.9 million related to the redemption of Series A and B Preferred Stock, which if not previously converted into shares of our common stock or if the holders have not been given the right to elect a majority of our Board of Directors, will be due on April 15, 2010, $51.5 million related to our satellite system, $0.2 million related to interest or debt obligations, $76.1 million related to our handset, chipset, terrestrial network and orbital incentive payments related to our satellite contract and $4.5 million for operating leases.

        We will require additional financing to fund operations and ongoing network development. As of December 31, 2009, we had aggregate operational contractual payment obligations of approximately $212.2 million, consisting of approximately $119.2 million for the TerreStar Networks' satellites and incentive payments; approximately $9.1 million for our operating leases in Reston, Virginia, Lincolnshire, Illinois and Richardson Park, Texas, data centers, and site hosting agreements and approximately $83.9 million for obligations related to the build out of our terrestrial network and handset and chipset costs. The ability to fund these costs will depend on our future performance, which is subject in part to the execution of post satellite launch activities, general economic, financial and regulatory conditions and other factors that are beyond our control, including trends in the industry and technology developments. Also, we may not be able to obtain this additional financing on acceptable terms or at all. Additionally, the terms of our current financing and contractual arrangements include significant limitations, among other factors, on our ability to incur additional debt, collateralize any additional new financing with our assets and the structure of any new financing transaction.

Description of the Business

TerreStar Networks Inc.

        TerreStar Networks is our principal operating subsidiary. TerreStar Networks, in cooperation with its Canadian partner, 4491165 Canada Inc, a majority-owned subsidiary of Trio 2 General Partnership ("Trio"), plans to launch an innovative wireless communications system to provide mobile coverage throughout the United States and Canada using integrated satellite-terrestrial smartphones.

        We successfully launched our first satellite "TerreStar-1" on July 1, 2009 and placed it into its assigned orbital slot in the geosynchronous arc, marking a significant milestone in offering the mobile satellite service ("MSS") using frequencies in the 2GHz band. When our MSS service is offered in conjunction with ancillary terrestrial component ("ATC") service, we will provide an integrated satellite and terrestrial wireless communications network. The network will also allow a user to utilize a mobile device that can communicate with a traditional land-based wireless network when in range of that network, but communicate with TerreStar-1 when not in range of such a land-based network or when such network is unavailable.

        Our ability to offer MSS/ATC services depends on TerreStar Networks' ability to maintain certain regulatory authorizations allowing it to provide MSS/ATC in the S-band. We also may be required to obtain additional approvals from national and local authorities in connection with the services that we wish to provide in the future.

        TerreStar Networks, initially created as a subsidiary of SkyTerra, entered into an agreement with SkyTerra's wholly-owned subsidiary, ATC Technologies, LLC ("ATC Technologies") pursuant to which

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TerreStar Networks has a perpetual, royalty-free license to utilize ATC Technologies' patent portfolio in the S-band, including those patents related to ATC, which allows us to deploy a communications network that seamlessly integrates satellite and terrestrial communications, giving a user ubiquitous wireless coverage in the U.S. and Canada.

        We have the right to use two 10 MHz blocks of contiguous and unshared MSS S-band spectrum covering a population of over 330 million throughout the United States and Canada. Our entire spectrum is eligible for ATC status. On January 13, 2010, TerreStar Networks was granted authority by the FCC to operate dual-mode mobile terminals that can be used to communicate either via TerreStar's geosynchronous-orbit MSS satellite or ancillary terrestrial component base stations. ATC base station operations were also authorized. These ATC authorizations provide the ability to integrate terrestrial mobile services with MSS. We anticipate using this ATC authorization to create a two-way wireless communications network providing coverage, services and applications to mobile and portable wireless users. This may be achieved through a strategic partnership with one or more other communications providers.

        In September 2009, we entered into a Mobile Satellite Services and Support Agreement with AT&T Mobility under which AT&T will offer certain of our satellite communications services initially to its government and enterprise customers. We believe our network's satellite and terrestrial mobile capabilities will serve the needs of various users, such as U.S. and Canadian government and emergency first responder personnel who require reliable, uninterrupted and interoperable connectivity that can be provided by an integrated satellite and terrestrial network. In October 2006, we entered into a Cooperative Research and Development Agreement ("CRADA") with the U.S. Defense Information System Agency ("DISA") to jointly develop a North American emergency response communications network. On October 3, 2008 the CRADA was extended for an additional two years. We expect the CRADA to result in the development of products that will mutually benefit us and the U.S. government. We also believe that our planned network will appeal to a broad base of potential end users, customers and strategic partners, including those in the media, technology and communications sectors, logistics and distribution sectors and other sectors requiring uninterrupted wireless service.

        As of December 31, 2009, we owned approximately 89.0% of the outstanding shares of TerreStar Networks and have included the financial results of TerreStar Networks for the purpose of consolidated financial statements.

Our Relationship with TerreStar Canada and 4491165 Canada

        TerreStar Canada Holdings owns 80% of the voting equity of TerreStar Canada, which in turn holds the Industry Canada approvals needed to operate TerreStar-1 for the purposes of providing mobile satellite services in Canada. We maintain our existing 20% of the voting equity of TerreStar Canada. TerreStar Canada holds legal title to the TerreStar-1 satellite and under the terms of an amended and restated Indefeasible Right of Use Agreement dated August 11, 2009 between TerreStar Networks and TerreStar Canada, TerreStar Networks has been granted a right to use up to ninety percent of the capacity on the TerreStar-1 satellite.

        In July 2009, Trio through 4491165 Canada Inc, a then wholly-owned subsidiary of Trio, completed its acquisition of a 66²/3% voting equity stake in TerreStar Canada Holdings previously held by 4371585 Canada Inc., a wholly-owned subsidiary of BCE Inc. We retain our existing 33¹/3% voting equity ownership in TerreStar Canada Holdings.

Our Relationship with 4491190 Canada

        4491190 Canada Inc. ("RetailCo") is a Canadian registered entity established for the purpose of providing commercial MSS/ATC services in Canada using the TerreStar-1 satellite and 2GHz terrestrial

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spectrum. On August 11, 2009, TerreStar Networks and 4491181 Canada Inc. ("4491181 Canada") entered into a Shareholder's Agreement pursuant to which TerreStar Networks became the 20% holder of RetailCo Class A stock and 100% owner of RetailCo non-voting Class B stock. 4491181 Canada is under common ownership with 4491165 Canada. The Shareholder's agreement grants TerreStar Networks some limited minority shareholder rights and the ability to nominate one of five directors. In the event of a dilutive event including issuing a debt instrument, a share issuance or a share transfer or sale, TerreStar Networks has various options to maintain its relative percentage ownership amounts. Such options include pre-emptive rights, right of first offer, co-sale, and drag along.

        RetailCo has entered a Wholesale Satellite Capacity Agreement with TerreStar Canada whereby RetailCo has the right to use up to 10% of the capacity of TerreStar-1 on a per minute/per megabyte basis. RetailCo intends to enter into various agreements to allow for the use of TerreStar Networks handsets in Canada and for the sale of end user devices in the Canadian market.

        RetailCo has entered a Rights and Services agreement under which it is expected to procure some network and technical services from TerreStar Networks to facilitate the development and integration of its network with TerreStar Canada and TerreStar Networks.

TerreStar Global Ltd.

        TerreStar Global was initially formed in 2005 as a wholly-owned subsidiary of TerreStar Networks. We have consolidated the financial results of TerreStar Global since its inception. In late 2006, TerreStar Corporation became the indirect majority holder of TerreStar Global. As of December 31, 2009, we owned approximately 86.5% of the outstanding shares of TerreStar Global.

        Through a wholly-owned subsidiary of TerreStar Global, TerreStar Europe Limited, our goal is to build, own and operate a Pan-European integrated mobile satellite and terrestrial communications network to address public safety and disaster relief as well as provide broadband connectivity in rural regions. As Europe's first next-generation integrated mobile satellite and terrestrial communication network, TerreStar Europe plans to deliver universal access and tailored applications over a fully-optimized IP network.

        While TerreStar Europe was not awarded a 2 GHz MSS S-band spectrum authorization in the recent European Commission proceeding, TerreStar Global continues to explore ways in which it can participate in the European market.

TerreStar Holdings Inc.

        TerreStar Holdings was formed in September 2009 as a wholly-owned subsidiary of TerreStar Corporation. TerreStar 1.4 Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of TerreStar Holdings, holds the FCC licenses for certain 1.4GHz terrestrial spectrum and has entered into a lease of that spectrum with an entity controlled by Harbinger. At December 31, 2009, TerreStar Corporation's consolidated financial statements include TerreStar Holdings and its wholly-owned subsidiary TerreStar 1.4 Holdings LLC.

Note 2.  Significant Accounting Policies

Basis of Presentation

        The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"). The consolidated financial statements include the accounts of TerreStar Corporation, the accounts of our majority-owned subsidiaries and TerreStar Canada, a variable interest entity ("VIE") for which we are the primary beneficiary. We consolidated the results of TerreStar Canada into our financial statements effective January 1, 2008. All intercompany accounts are eliminated upon consolidation. Investments in which we

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do not have the ability to exercise significant influence are carried at the lower of cost or estimated realizable value.

        In the opinion of management, the accompanying consolidated financial statements reflect all adjustments necessary to summarize fairly our financial position, results of operations and cash flows for the periods presented. The operating results for the periods presented are not necessarily indicative of the results that may be expected for future periods.

        In June 2009, the Financial Accounting Standards Board ("FASB") established the Accounting Standards Codification as the source of authoritative GAAP recognized by the FASB. The Codification is effective in the first interim and annual periods ending after September 15, 2009 and had no effect on our financial position or results of operations.

Reclassifications

        Certain reclassifications have been made to the prior year's financial statements and notes thereto to conform to the current year presentation primarily relating to property and equipment disclosures.

Use of Accounting Estimates

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to the fair value of derivatives, stock-based compensation, income taxes, long-lived assets, intangible assets and legal contingencies. Due to the inherent uncertainty involved in using estimates, actual results reported in future periods could differ from those estimates.

Cash and Cash Equivalents

        We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments.

Restricted Cash

        Our restricted cash at December 31, 2009, $0.5 million, primarily pertains to various operating lease and related security deposits. The restricted cash balance at December 31, 2008, $1.4 million, related to cash held in money market escrow accounts in connection with our FCC Surety Bond and various leases and security deposits and asset purchase agreements. The carrying amount of the restricted cash approximates fair value due to short term maturities.

Fair Value Measurements

        The carrying amounts of certain of our financial instruments, such as cash and cash equivalents, restricted cash, investments, receivables, accounts payable and accrued liabilities, approximate their fair values based on their short maturities. The fair value of certain financial instruments such as our notes, exchangeable notes and related long-term debt, whose carrying value differs from the fair value are disclosed as additional information in the notes to the financial statements. Refer Note 14 for details.

        We adopted the FASB's accounting standard guidance for fair value measurements as of January 1, 2008 for financial assets and liabilities and for certain non-financial assets and liabilities as of

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January 1, 2009. The standard establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

        Level 1: Observable inputs such as quoted prices in active markets;

        Level 2: Inputs other than quoted prices in active markets that are either directly or indirectly observable;

        Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions and methodologies that result in management's best estimate of fair value.

Property and Equipment

        We record property and equipment ("P&E"), including leasehold improvements at cost. P&E consists of costs associated with our satellites and associated ground network infrastructure, lab, office and computer equipment, software, and leasehold improvements. The satellite and terrestrial network assets under construction primarily include materials, labor, equipment, satellite launch insurance premium and interest related to the construction and development of our satellite and terrestrial network. Assets under construction are not depreciated until placed into service. As of December 31, 2009, we have not commenced the depreciation of TerreStar-1 as it is determined not yet ready for its intended use. Repairs and maintenance costs that do not improve or extend the life of an asset are expensed as incurred. Interest capitalized in connection with the satellite and terrestrial network assets under construction totaled $96.7 million and $60.6 million in 2009 and 2008, respectively.

        We capitalize costs incurred for software developed internally or purchased for internal use during the application development stage including design, installation and testing. These costs are included in property and equipment and, when the software is placed in service, are depreciated over an estimated useful life of three years. Costs incurred during the preliminary project stage, as well as maintenance, upgrades or modification costs that do not result in additional functionality are expensed as incurred.

        P&E is depreciated on a straight-line basis over the estimated economic useful lives as follows:

Intangible Assets

        Intangible assets primarily consist of Federal Communications Commission ("FCC") spectrum licenses and other intellectual property that were obtained in connection with several exchange transactions of TerreStar Corporation common stock for TerreStar Networks common stock with shareholders pursuant to an exchange agreement entered into in 2006 and financing transaction we entered in February 2008. Intangible assets that have finite useful lives are amortized over their estimated useful life of 15 years. We have also determined that certain of our FCC licenses have indefinite useful lives, and as such, are not amortized.

Impairment of Long-Lived and Intangible Assets

        We evaluate whether long-lived assets and finite-lived intangible assets are impaired, at least annually or whenever events or circumstances indicate the carrying value of those assets may not be recoverable. For such assets, the impairment exists when its carrying value exceeds the sum of estimates

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of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of an asset are under consideration, a probability-weighted approach is used for developing estimates of future undiscounted cash flows. If the carrying value of the asset is not recoverable based on these estimated future undiscounted cash flows, the impairment loss is measured as the excess of the asset's carrying value over its fair value, such that the asset's carrying value is adjusted to its estimated fair value.

        Indefinite lived intangibles are not amortized and tested for impairment when circumstances indicate the carrying value may not be recoverable, or at least annually. Our intangible assets with indefinite lives consist of 1.4GHz licenses. We have determined that our 1.4GHz licenses have indefinite useful lives due to the fact that we believe our 1.4GHz spectrum is a non-depleting asset. We determined that our 1.4GHz spectrum licenses, as of December 31, 2009, were not impaired.

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Income Taxes

        We use the asset and liability method of accounting for income taxes. In 2007, we adopted the provisions of amendments to accounting standard guidance which clarify the accounting for uncertain tax positions recognized in the financial statements. This amendment prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes.

        Deferred tax assets and liabilities recognized are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Significant accounting judgment is required in determining the provision for income taxes and deferred tax assets and liabilities. The actual result may differ from these estimates.

        We, together with our U.S. subsidiaries, file consolidated income tax returns in the U.S. federal jurisdiction. We, along with our U.S. subsidiaries, also file tax returns in various state and local jurisdictions. We have no periods under audit by the Internal Revenue Service ("IRS"). The statutes of limitation are open for our 2005, 2006, 2007 and 2008 returns. We are not aware of any issues for open years that upon examination by a taxing authority are expected to have a material effect on results of operations. As of December 31, 2009, we have fully reserved our deferred income tax assets.

Revenue Recognition

        On September 17, 2009, we entered into a Spectrum Manager Lease Agreement leasing the rights to use certain 1.4GHz terrestrial spectrum. The lease has an initial term through April 23, 2017, renewable, at the lessee's option, for two additional terms of ten years each, subject to FCC renewal of the licenses and no earlier termination. The lease payments due from the lessee are initially $1 million per month and will increase to $2 million per month no later than eight months after lease commencement and could increase to $2 million per month earlier depending upon the satisfaction of certain conditions. Subject to certain conditions, the lessee has an option, but not the obligation, to purchase the licenses, subject to the approval of our Board and other necessary consents. The lessee also has a right of first refusal to match the price (less credit for certain amounts paid under the Spectrum Manager Lease Agreement) in any potential transfer of the licenses to a third party.

        In January 2010, we entered into an Exclusivity Agreement with Harbinger wherein we received $30 million prepayment of lease payments under the Lease Agreement and in exchange, for a period of 90 days from the date of the Exclusivity Agreement, we would negotiate in good faith on an agreement to lease our S-band spectrum. Additionally, the agreement imposes on us, certain solicitation restrictions for entering into any transaction regarding the S-band Spectrum with a third party during the 90 day period.

        We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured. We recognize spectrum lease revenue over the term of the lease.

Research and Development Costs

        The costs of research and development activities are expensed when incurred. Research and development activities consist of time and material costs related to the development of our handset technology, integrated satellite and terrestrial communications network, salaries, wages and other related costs of personnel engaged in research and development activities, and the costs of intangible assets that are purchased from others for use in research and development activities that have no alternative future uses.

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Loss per Share

        Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted loss per share reflects the conversion of obligations and the assumed issuing of securities computed using the if-converted method and the effects of shares issuable under our equity plans and warrants computed using the treasury method, if dilutive. We considered certain unvested restricted stock which has non-forfeitable dividend rights as participating securities for the purpose of calculating basic loss per share.

Translation of Foreign Currencies

        The assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated into U.S. dollars at average rates of exchange prevailing during the period. The gains and losses that result from this process are accumulated in a separate component of shareholders' equity.

Comprehensive Loss

        Accumulated other comprehensive loss, consists solely of cumulative foreign currency translation adjustments. Reconciliation of comprehensive loss (net of taxes) for the year ended December 31, 2009 and 2008 are as follows:

Recently Issued Accounting Pronouncements

        On January 1, 2009 we adopted authoritative guidance on fair value measurements for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of new guidance did not have a material impact on our consolidated financial statements.

        Effective January 1, 2009, we adopted the FASB accounting standard update which provided guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity's own stock. This update applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative instrument or an instrument which may be potentially settled in an entity's own stock regardless of whether the instrument possesses derivative characteristics and provides a two-step approach to assist in making these determinations. The adoption of this guidance did not have any impact on our consolidated financial statements.

        Effective January 1, 2009, we adopted the FASB accounting standard update which addresses whether unvested instruments granted in share-based payment transactions that contain non forfeitable rights to dividends or dividend equivalents are participating securities subject to the two-class method of computing earnings per share under the FASB authoritative guidance. The adoption of this update did not have a material impact on our consolidated financial statements.

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        Effective April 1, 2009, we adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. The first update provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update changes accounting requirements for other-than-temporary-impairment for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update requires disclosure about fair value of financial instruments for interim reporting periods as well as in the annual financial statements. The adoption of these accounting updates did not have any impact on our consolidated financial statements.

        Effective April 1, 2009, we adopted a new accounting standard issued by the FASB for subsequent events which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. In February 2010, the FASB amended this new accounting standard to eliminate the disclosure requirement regarding the date through which subsequent events have been evaluated. The adoption of the new accounting standard did not have a material impact on our consolidated financial statements.

        In June 2009, the FASB issued an accounting standard which requires an enterprise to perform an analysis to determine whether the enterprise's variable interest or interests give it a controlling financial interest in a variable interest entity and to continuously assess whether they must consolidate VIE's. This standard is effective for us beginning January 1, 2010. We are currently evaluating the impact, if any, of this standard on our consolidated financial statements.

        In October 2009, the FASB issued an accounting guidance update related to revenue arrangements with multiple deliverables. The guidance relates to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting and modifies the manner in which the consideration under the arrangement is allocated across the individual deliverables. The guidance will be effective for us beginning on January 1, 2011, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted provided that the guidance is retroactively applied to the beginning of the year of adoption. We are currently assessing the impact, if any, on our consolidated financial statements.

Concentrations of Credit Risk

        Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and investments. We periodically invest our cash balances in temporary or overnight investments. Our short-term investments have included debt securities such as commercial paper, time deposits, certificates of deposit, banker acceptances and marketable direct obligations of the United States Treasury with high credit quality financial institutions. At December 31, 2009, we had approximately $44.6 million in money market funds. To date, we have not experienced any losses on cash or investments.

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Note 3.  Sale of SkyTerra Investment

        Our investment in SkyTerra was obtained as a result of the MSV Exchange Agreement in 2006. Our MSV Partnership Units were exchanged for shares in SkyTerra in both 2006 and 2007. We held approximately 44.3 million shares of non-voting common stock of SkyTerra Communications as of December 31, 2007. This was accounted for under the cost method and valued at approximately $325 million. We also had a corresponding contractual commitment with SkyTerra to distribute 25.5 million of these shares to our shareholders, and had recorded a dividend liability of $183 million as of December 31, 2007 using the same adjusted cost basis as our investment. In the first quarter of 2008, we sold 14.4 million of our SkyTerra shares to Harbinger for an aggregate sales price of $76 million. We recognized a loss on this sale of $27 million.

        On September 16, 2008, we sold our remaining 29.9 million shares of SkyTerra for gross proceeds of $124 million. We recognized a loss of approximately $99 million on this transaction. Harbinger purchased approximately 24 million shares and the remaining shares were sold to other purchasers.

        In order to permit us to sell these SkyTerra shares, SkyTerra agreed to waive the contractual requirement for TerreStar to distribute 25.5 million of the SkyTerra shares to our shareholders. We eliminated the $183 million dividend liability. We recorded a benefit to decrease the dividend liability of $78 million due to a change in value of the shares, and as a corresponding offset to the loss on the sale of the SkyTerra shares, and the remaining $105 million was recorded to Additional Paid-in Capital in the consolidated balance sheets as an offset to the originally recorded transaction.

        We also granted to SkyTerra the right to sell to third parties the 4,216,270 shares, or approximately 11.1% of the total outstanding common shares, of TerreStar Networks held by SkyTerra. Subject to certain conditions, purchasers of these shares would have the right to exchange them for 4.37 shares of our common stock per TerreStar Networks share, and would have registration rights with respect to these shares. We would also receive 3,126,428 shares of TerreStar Global, another TerreStar Corporation subsidiary, currently owned by SkyTerra in conjunction with this exchange. If consummated, this exchange would result in us owning more than 99.9% of TerreStar Networks and TerreStar Global.

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Note 4.  Property and Equipment

        The components of property and equipment as of December 31, 2009 and 2008 are presented in the table below.

        The asset under construction includes $185.3 million and $88.6 million respectively, of interest capitalized as of December 31, 2009 and 2008.

        Depreciation expense for the years ended December 31, 2009, 2008 and 2007 was $6.2 million, $4.7 million and $2.6 million, respectively.

Note 5.  Orbital Performance Incentives

        Our contract with the TerreStar-1 manufacturer requires us to make future in-orbit performance incentive payments over the design life of TerreStar-1 effective upon our acceptance of TerreStar-1 on August 31, 2009. These satellite performance incentives are payable in future periods ranging from one to fifteen years dependent on the continued satisfactory performance of the satellite. We recorded the net present value of these expected future payments as a liability and as a component of the cost of the satellite. As of December 31, 2009, we have a liability of $27.4 million recorded relating to satellite performance incentives, of which $19.3 million and $8.1 has been classified as current and non-current, respectively.

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Note 6.  Intangible Assets

        Intangible assets as of December 31, 2009 and 2008 are presented in the table below.

        Amortization expense related to our definite lived intangibles for the years ended December 31, 2009, 2008 and 2007 was $17.9 million, $17.7 million and $15.7 million, respectively. Based on the current intangibles subject to amortization, the estimated amortization expense for each of the succeeding years from 2010 to 2014 is $17.9 million; and cumulatively thereafter $95.5 million.

Note 7.  Accounts Payable and Accrued Expenses

        Accounts payable and accrued expenses of continuing operations consist of the following:

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Note 8.  Long-Term Debt

February 2008 Financing Transactions

        On February 7, 2008, TerreStar Corporation and TerreStar Networks entered into a series of separate agreements with EchoStar Corporation, Harbinger and other investors constituting a commitment of $300 million in investments in TerreStar Corporation and TerreStar Networks, with $200 million made available at the close of the transaction and the balance made available to fund the construction of the TerreStar-2 satellite as required. Additionally, in June 2008, we consummated the purchase of 1.4 GHz spectrum licenses from EchoStar and Harbinger.

        We recorded these transactions as an integrated transaction for accounting purposes. In exchange for the net cash proceeds received of $191.0 million and the spectrum licenses, we issued common stock of $265.8 million and debt with a face value of $200.0 million. The accounting for these transactions resulted in an aggregate debt discount of $141.9 million, a beneficial conversion feature of $23.6 million and a deferred tax liability of $21.0 million for the book and tax basis differences on the spectrum licenses. These amounts reflect the adjustments recorded in 2009 related to this transaction as described below.

        During the fourth quarter of 2009, we identified certain errors in the initial recording of the integrated transaction that impacted prior periods. The cumulative effect of correcting these errors was recorded in the three months ended December 31, 2009. The correction of these errors resulted in an increase to the spectrum licenses and deferred tax liability of $21.0 million and $7.9 million, respectively. The correction of these errors also increased the beneficial conversion feature by $12.3 million and decreased the aggregate debt discount by $3.5 million. In connection with this adjustment, we also corrected certain errors in the capitalization of interest related to this transaction which resulted in an increase in assets under construction (for capitalized interest) of $1.4 million. The correction of these errors had the effect of understating interest expense by $1.4 million and overstating interest expense by $1.3 million for the three and twelve months ended December 31, 2009, respectively. We believe that the effects of these errors was not material to the consolidated financial statements for any prior interim or annual period nor was the impact material to the consolidated financial statements for the three months and year ended December 31, 2009. Accordingly, the retroactive adjustment of previously issued financial statements is unnecessary.

TerreStar Notes

        On February 14, 2007, TerreStar Networks issued $500 million aggregate principal amount of Senior Secured Paid-in-Kind ("PIK") Notes due 2014 (the "TerreStar Notes") pursuant to an Indenture (the "Indenture"), among TerreStar Networks, as issuer, the guarantors from time to time party thereto (the "Guarantors") and U.S. Bank National Association, as trustee.

        On February 5, 2008, TerreStar Corporation and TerreStar Networks entered into a Master Investment Agreement (the "EchoStar Investment Agreement"), with EchoStar Corporation ("EchoStar"). The EchoStar Investment Agreement provided for, among other things, the purchase by EchoStar of $50 million of TerreStar Notes in accordance with the First Supplemental Indenture dated February 7, 2008.

        The additional $50 million TerreStar Notes were issued at an issue price of 93%. As part of the acquisition accounting related to the $50 million TerreStar Notes and in conjunction with the acquisition of the 1.4GHz spectrum, a debt discount was recorded for approximately $41.9 million dollars. The debt discount is being accreted using the effective interest method over the six year term of the TerreStar Notes.

        The TerreStar Notes bear interest from the date of issuance at a rate of 15% per annum. Per the provisions of the TerreStar Notes, additional interest of up to 1.5% per annum may accrue if certain

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milestones are not met by TerreStar. We are required to account for the potential interest rate adjustments, in accordance with FASB authoritative guidance relating to derivatives. Accordingly, we estimated the value of the contingent interest derivative using a discounted cash flow analysis considering the probability of different scenarios for satisfying the milestone requirements under the terms of the TerreStar Notes, to estimate the interest rate to be incurred, compared to the stated base interest rate of 15.0% per annum. At December 31, 2009 the carrying amount of TerreStar Notes includes $3.0 million relating to the fair value of the contingent interest derivative.

        Until and including February 15, 2011, interest on the TerreStar Notes will be payable in additional TerreStar Notes on each February 15 and August 15 semi-annually, starting August 15, 2007. Thereafter, interest on the TerreStar Notes will be payable in cash on February 15 and August 15, starting August 15, 2011. As of December 31, 2009, certain milestones continue to not be met under the Notes agreement and, accordingly, our current interest rate is 16% per annum.

        The TerreStar Notes are secured by a first priority security interest in the assets of TerreStar Networks, subject to certain exceptions, pursuant to a U.S. Security Agreement (the "Security Agreement"), dated as of February 14, 2007, among TerreStar Networks, as issuer, and any entities that may become Guarantors (as defined in the Indenture) in the future under the Indenture in favor of U.S. Bank National Association, as collateral agent. The assets of TerreStar Networks that collateralize the TerreStar Notes amount to $972.1 million as of December 31, 2009, consisting primarily of satellites under construction, property and equipment and cash and cash equivalents.

        During 2009 and 2008, $114.2 and $87.7 million of interest was paid-in-kind as additional TerreStar Notes, respectively, in accordance with covenants under the Indenture. As of December 31, 2009 and 2008, the carrying value of the TerreStar Notes, net of discount including the contingent interest derivative and accrued interest, was $791.9 million and $671.9 million, respectively.

        During the third quarter of 2009, we identified and recorded adjustments to recognize contingent interest derivatives that should have been recognized in financial statements for prior periods. The cumulative effect of correcting this error was recorded in the financial statements for the three months ended September 30, 2009. The adjustment to correct the error had the effect of overstating interest expense by $2.8 million and $4.8 million for the three months ended September 30, 2009 and the twelve months ended December 31, 2009, respectively. The adjustment also resulted in an increase in assets under construction of $2.6 million (for capitalized interest) and an increase in debt by $4.5 million as of September 30, 2009. We believe that the effects of this error was not material to the consolidated financial statements for any prior interim or annual period, nor was the impact material to the consolidated financial statements for the three months ended September 30, 2009 or the year ended December 31, 2009. Accordingly, the retroactive adjustment of previously issued financial statements is unnecessary.

TerreStar Exchangeable Notes

        The EchoStar Investment Agreement also provided for the purchase by EchoStar of $50 million of TerreStar Networks' newly issued 6.5% Senior Exchangeable PIK Notes due 2014, exchangeable for TerreStar Corporation common stock, at a conversion price of $5.57 per share (the "TerreStar Exchangeable Notes"). In addition, on February 5, 2008, TerreStar Corporation and TerreStar Networks entered into a Master Investment Agreement (the "Harbinger Investment Agreement"), with certain affiliates of Harbinger. The Harbinger Investment Agreement provided for, among other things, purchase by Harbinger of $50 million of TerreStar Exchangeable Notes. In connection with the foregoing transactions, certain of our existing investors entered into separate investment agreements ("Shareholder Investment Agreements") to purchase in the aggregate $50 million of the TerreStar Exchangeable Notes.

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        On February 7, 2008, TerreStar Networks issued $150 million aggregate principal amount of TerreStar Exchangeable Notes due 2014 pursuant to an Indenture (the "Exchangeable Note Indenture"), among TerreStar Networks, TerreStar Corporation and certain subsidiaries, as issuer, the guarantors from time to time party thereto (the "Exchangeable Note Guarantors") and U.S. Bank National Association, as trustee.

        The TerreStar Exchangeable Notes bear interest from February 7, 2008 at a rate of 6.5% per annum, payable on a quarterly basis. Until and including June 15, 2011, interest on the TerreStar Exchangeable Notes will be payable in additional TerreStar Exchangeable Notes quarterly, starting March 15, 2008. Thereafter, interest on the TerreStar Exchangeable Notes will be payable in cash quarterly, starting June 15, 2011. The TerreStar Exchangeable Notes are scheduled to mature on June 15, 2014.

        The TerreStar Exchangeable Notes rank senior in right of payment to all existing and future subordinated indebtedness, and pari-passu with all other unsubordinated indebtedness. The TerreStar Exchangeable Notes are guaranteed by subsidiaries of TerreStar Networks.

        As part of the integrated transaction accounting related to the TerreStar Exchangeable Notes, a debt discount was recorded that is being accreted over the six year term of the TerreStar Exchangeable Notes.

        During 2009 and 2008, $10.6 million and $8.7 million of interest was paid-in-kind as additional TerreStar Exchangeable Notes, respectively, in accordance with the TerreStar Exchangeable Notes Indenture. As of December 31, 2009 and 2008, the carrying value of the TerreStar Exchangeable Notes, net of discount including accrued interest, was $94.7 million and $63.2 million, respectively.

Beneficial Conversion Feature

        The effective conversion rate of the TerreStar Exchangeable Notes after considering the debt discount, as compared to the fair market value of the common stock on the date of commitment, represents a beneficial conversion feature. Thus, as part of integrated transaction, we recorded an additional discount to the TerreStar Exchangeable Notes, with a corresponding increase in additional paid-in capital.

TerreStar-2 Purchase Money Credit Agreement

        On February 5, 2008, we entered into a $100 million TerreStar-2 Purchase Money Credit Agreement ("Credit Agreement") among TerreStar Networks, as the borrower, the guarantor's party thereto from time to time, U.S. Bank National Association, as collateral agent, and Harbinger and EchoStar, as lenders.

        Amounts outstanding under the Credit Agreement bear interest at a rate of 14% per annum and mature on February 5, 2013. This interest is payable in additional notes through February 2012 and payable in cash thereafter.

        The Credit Agreement contains restrictive covenants customary for credit facilities of this type, including, but not limited to the following: limitations on incurrence of additional indebtedness; a limitation on liens; a limitation on asset sales of collateral and limitation on transactions with affiliates. The Credit Agreement also contains certain events of default customary for credit facilities of this type (with customary grace periods, as applicable). If any events of default occur and are not cured within the applicable grace periods or waived, the outstanding loans may be accelerated. The financing will be advanced as required and used to fund the completion of the TerreStar-2 Satellite.

        According to the provisions of the Credit Agreement, additional interest of up to 3% may accrue if certain milestones are not met by TerreStar Networks. The interest rate adjustment was recorded as

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contingent interest derivative. As of December 31, 2009 and 2008, the carrying value of the Credit Agreement, net of discount, including the contingent interest derivative and accrued interest, was $67.9 million and $36.8 million, respectively. At December 31, 2009, certain milestones continue to not be met under the Credit Agreement accordingly our current interest rate was 17% per annum. On January 13, 2010, we met these milestones under the Credit Agreement, thereby reducing the interest rate to 14% per annum prospectively from this date.

Leases

        As of December 31, 2009, we had non-cancelable leases for office space, co-location sites, calibration earth stations, towers and furniture and equipment under operating leases expiring through 2018.

        Rent expense totaled approximately $6.1 million, $10.8 million and $2.9 million for the years ended December 31, 2009, 2008 and 2007, respectively. Rent expense is recognized on a straight-line basis over the term of the lease agreement. We also had sublease income which totaled approximately $0.3 million, $0.3 million and $0.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.

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Note 9.  Stockholders' Equity

        As of December 31, 2009, we had authorized 5 million shares of preferred stock and 240 million shares of common stock. For each share of common stock held, common stockholders are entitled to one vote on matters submitted to the stockholders.

        The preferred stock may be issued in one or more series at the discretion of the Board of Directors (the "Board"), without stockholder approval. The Board is authorized to determine the number of shares in each series and all designations, rights, preferences and limitations on the shares in each series, including, but not limited to, determining whether dividends will be cumulative or non-cumulative.

Common Stock

        In 2007, we exchanged approximately 15 million shares of our common stock for approximately 9 million shares of TerreStar Networks common stock and approximately 2 million shares of TerreStar Global common stock with holders of TerreStar Networks common stock or options to purchase shares of TerreStar Networks common stock that were exercised immediately prior to the exchange. In 2008, we exchanged approximately 1.7 million shares of our common stock for approximately 0.9 million shares of TerreStar Networks common stock and approximately 0.3 million shares of TerreStar Global common stock with minority share holders. Accordingly, our ownership interests in TerreStar Networks and TerreStar Global was approximately 89% and 86.5%, respectively, as of December 31, 2009.

Shares Reserved for Future Issuances

        As of December 31, 2009, we reserved common stock for future issuance, as detailed below:

Preferred Stock

        As of December 31, 2009, we had 5.0 million authorized shares of preferred stock, consisting of 0.5 million Series A shares, 0.5 million Series B shares, 1 Series C share, 1 Series D share, 1.9 million Series E shares and approximately 2.1 million shares undesignated. See Note 18 for Subsequent Events concerning our preferred Stock.

Series A and B Preferred Stock

        We account for the Series A and Series B Redeemable Convertible Preferred Stock ("Series A and B Preferred") as temporary equity. In April 2005, we sold 408,500 shares of non-voting Series A Cumulative Convertible Preferred Stock ("Series A Preferred"), $0.01 par value in a private placement exempt from the registration requirements of the Securities Act of 1933. The rights, preferences and privileges of the Series A Preferred are contained in Certificates of Designations of the Series A Cumulative Convertible Preferred Stock. The following is a summary of these rights, preferences and privileges:

•

The Series A Preferred Stock has voting rights limited to those listed below, or except as required by applicable law. Upon (a) the accumulation of accrued and unpaid dividends on the outstanding shares of Series A Preferred for two or more six month periods, whether or not consecutive; (b) our failure to properly redeem the Series A Preferred Stock, or (c) our failure

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to comply with any of the other covenants or agreements set forth in the continuance of such failure for 30 consecutive days or more after receipt of notice of such failure from the holders of at least 25% of the Series A preferred then-outstanding shares of Series A Preferred, with the holders of shares of any parity securities issued after April 15, 2005 upon which like voting rights have been conferred and are exercisable, voting as a single class, will be entitled to elect two directors to our Board of Directors for successive one-year terms until such defect listed above has been cured. In addition, we must obtain approval of the holders of a majority of the then outstanding shares of Series A Preferred to modify the rights, preferences or privileges of the Series A Preferred in a manner adverse to the holders of Series A Preferred.

•

From April 15, 2007 to April 15, 2010, we are required to pay dividends on each share of Series A Preferred either in cash at the Cash Rate or in shares of our common stock at a rate of 6.25% per annum.



•

If any shares of Series A Preferred remain outstanding on April 15, 2010, we are required to redeem such shares for an amount equal to the purchase price paid per share plus any accrued but unpaid dividends on such shares.



•

Each holder of shares of the Series A Preferred shall be entitled to convert their shares into shares of our common stock at any time. Each share of Series A Preferred will initially be convertible into 30 shares of our common stock. Upon conversion, any accrued but unpaid dividends on such shares will also be issued as shares of common stock, in a number of shares determined by dividing the aggregate value of such dividend by $33.33. Upon conversion all amounts paid to holders of Series A Preferred will be paid in shares of our common stock.



•

Upon a change in our control, each holder of Series A Preferred shall be entitled to require us to redeem such holder's shares of Series A Preferred for an amount in cash equal to $1,080 per share plus all accrued and unpaid dividends on such shares.



•

No dividends may be declared or paid, and no funds shall be set apart for payment, on shares of our common stock, unless (i) written notice of such dividend is given to each holder of shares of Series A Preferred not less than 15 days prior to the record date for such dividend and (ii) a registration statement registering the resale of the Conversion Shares has been filed with the SEC and is effective on the date we declare such dividend.

        Upon our liquidation, dissolution or winding up, the holders of Series A Preferred are entitled to receive, prior and in preference to any distributions to holders of shares of our common stock, an amount equal to $1,000 per share plus all accrued and unpaid dividends on such shares.

        In October 2005, we completed an exchange offer in which we allowed each holder of Series A Preferred the opportunity to exchange their shares of Series A Preferred and a release of any claims relating to the issuance of the Series A Preferred for shares of Series B Preferred, which will have rights, preferences and privileges substantially identical to the Series A Preferred, except that upon (a) the accumulation of accrued and unpaid dividends on the outstanding shares of Series B Preferred for two or more six month periods, whether or not consecutive; (b) our failure to properly redeem the Series B Preferred Stock, or (c) our failure to comply with any of the other covenants or agreements set forth in the Certificate of Designations for the Series B Preferred Stock, and the continuance of such failure for 30 consecutive days or more after receipt of notice of such failure from the holders of at least 25% of the Series B Preferred then outstanding, then the holders of at least a majority of the then-outstanding shares of Series B Preferred, with the holders of shares of any parity securities upon which like voting rights have been conferred and are exercisable, voting as a single class, will be entitled to elect a majority of the members of our Board of Directors for successive on-year terms until such defect listed above has been cured. All of the holders of the Series A Preferred except for those affiliated with Highland Capital Management exchanged their shares in this offer. Accordingly,

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approximately $318.5 million in the face amount of Series A Preferred shares were exchanged for Series B Preferred shares of the same face amounts and $90 million in face amount of Series A Preferred shares remain outstanding.

Dividends on Series A and B Preferred Shares

        Dividends on Series A and B Preferred are due bi-annually in April and October, payable at TerreStar Corporation's option in cash at a rate of 5.25% per annum or in common stock at a rate of 6.25% per annum through April 15, 2010. Currently, we are unable to pay the Series A dividend in common stock due to the ongoing litigation with certain investors. We recorded dividends amounting to $25.3 million, $19.1 million and $23.2 million for the year ended December 31, 2009, 2008 and 2007 respectively, towards the Series A and B Preferred Stock. Per the terms of the issuance, on April 15, 2010, we have a redemption obligation of $408.5 million in principal plus unpaid dividends, if the Series A and B Preferred are not converted into shares of our common stock on or before the redemption date or we may provide the holders with the right to elect a majority of our Board of Directors.

Series C and D Preferred Stock

        In February 2008, we issued one share of non-voting Series C preferred stock, $0.01 par value ("Series C preferred") to EchoStar and one share of non-voting Series D preferred stock, $0.01 par value ("Series D preferred") to Harbinger for a purchase price equal to par value of $0.01. Issuance of these shares was exempt from the registration requirements of the Securities Act of 1933.

        The rights, preferences and privileges of the Series C and Series D preferred are contained in Certificates of Designations of the Series C and D preferred stock. The following is a summary of these rights, preferences and privileges:

•

The Series C and Series D holders are not entitled to or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Corporation.



•

The Series C and Series D Preferred are not convertible into any other class of our capital stock.



•

Series C and Series D preferred stock rank senior and prior to our common stock and each other class or series of our equity securities whether issued or issued in the future with respect to payment of dividends, redemption payments, rights upon our liquidation, dissolution or winding up of affairs. Additionally, the Series C and Series D rank junior to the Series A and Series B Cumulative Convertible Preferred Stock.



•

In the event of any voluntary or involuntary liquidation, dissolution or winding-up of our affairs, no distribution shall be made (a) to the holders of any shares of our capital stock ranking junior (with respect to rights upon liquidation, dissolution or winding up) to the Series C and Series D preferred stock, unless the Series C and Series D holders shall have received $1,000 per share each, or (b) to the holders of shares of capital stock of the Company ranking on a parity (with respect to rights upon liquidation, dissolution or winding up) with the Series C and Series D preferred stock, except for distributions made ratably on the Series C and Series D preferred stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up.



•

By virtue of their ownership of shares of Series C and Series D preferred stock, EchoStar and Harbinger have consent rights for, among other things, certain sales of assets, making any material change in our line of business, amending or permitting the amendment of our certificate of incorporation, by-laws, or our other organizational documents or any of our

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subsidiaries, certain acquisitions of assets, certain capital expenditures and consolidations and mergers and rights to appoint directors.

Series E Junior Participating Preferred Stock

        In June 2008, we issued 1.2 million shares of our Series E preferred stock to Harbinger, convertible into 30 million shares of our common stock. Except as otherwise required under Delaware law, the holders of Series E Preferred Shares are not entitled to vote on any matter required or permitted to be voted on by the stockholders. The holders of Series E Preferred Shares are entitled to participate ratably in any dividends paid on the shares of common stock. In the event of a liquidation, the holders of Series E Preferred Shares will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount in cash equal to $0.0001 per share (subject to adjustment), before any distribution may be made or any assets distributed in respect of the shares of common stock. Subject to certain restrictions related to the change of control provisions under the existing indenture and existing preferred stock, each Series E Preferred Share may be converted into 25 shares of common stock (subject to adjustment).

Exchange Offer

        On October 9, 2009, we, commenced an offer to exchange our Series A, B, C, D and E preferred stock for newly issued Series F Preferred Stock and Series G Junior Preferred Stock of TerreStar Holdings Inc., our 100% owned subsidiary, subject to certain conditions. In connection with this offer, we are soliciting consents to certain proposed amendments to the certificate of designation of our Series B preferred stock. The initial offer was amended for certain provisions in the offer and currently the exchange offer will expire on April 2, 2010, unless extended or terminated prior to such date.

Common Stock Purchase Warrants

        As of December 31, 2009, there were approximately 0.4 million fully vested warrants exercisable for our common stock outstanding.

        The following table summarizes our warrant activity as of December 31, 2009.

        The outstanding warrants as of December 31, 2009 have a term of five years and expire in April 2010.

Variable Interest Entities

        In July 2009, Trio through 4491165 Canada Inc., a then wholly-owned subsidiary of Trio, completed its acquisition of a 66²/3% voting equity stake in TerreStar Canada Holdings previously held by 4371585 Canada Inc., a wholly-owned subsidiary of BCE Inc., (a Canadian corporation). We retain our existing 33¹/3% voting equity ownership in TerreStar Canada Holdings.

        TerreStar Canada Holdings owns 80% of the voting equity of TerreStar Canada, which in turn holds the Industry Canada approvals needed to launch and operate TerreStar-1 for the purposes of

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providing mobile satellite services in Canada. We also maintain our existing 20% holding of the voting equity of TerreStar Canada. TerreStar Canada holds legal title to TerreStar-1 and under the terms of an amended and restated Indefeasible Right of Use Agreement dated August 11, 2009 between TerreStar Networks and TerreStar Canada, TerreStar Networks has been granted a right to use capacity on the TerreStar-1 satellite.

        As per the terms of TerreStar Canada Shareholders' Agreement, we do not have ability to make unilateral decisions regarding operation of TerreStar Canada or the utilization of its assets or incurrence of indebtedness. We have no negative approval rights with respect to appointment or termination of senior officers or creation of budgets for TerreStar Canada or TerreStar Canada Holdings. Also per the agreement, subject to certain change of control provisions, we are obligated to fund any operating cash shortfalls at TerreStar Canada upon the request of TerreStar Canada, so long as the provision of such funding does not conflict with applicable Canadian regulatory requirements. Neither 4491165 Canada Inc nor Trio has any obligation to provide financial support to TerreStar Canada Holdings or TerreStar Canada.

        TerreStar Canada is subject to foreign ownership restrictions imposed by the Telecommunications Act (Canada) and the Radiocommunication Act (Canada) and regulations made pursuant to these Acts. The shareholders agreement relating to TerreStar Canada permits its shareholders to transfer their shares in certain circumstances, provided that all such share transfers are made to parties that are eligible to hold such shares under the restrictions or are otherwise carried out in accordance with the restrictions. Although we believe that TerreStar Canada is in compliance with the relevant legislation, there can be no assurance that a future determination by regulatory authorities, or events beyond its control, will not result in TerreStar Canada ceasing to comply with the relevant legislation. If such a development were to occur, the ability of TerreStar Canada to operate as a Canadian carrier under the Telecommunications Act (Canada) or to maintain, renew or secure its Industry Canada approval could be jeopardized and our business could be materially adversely affected.

        We consider TerreStar Canada a variable interest entity under the FASB's authoritative guidance for VIE. We determine TerreStar Networks to be the primary beneficiary of TerreStar Canada, in which we hold an effective 46.6% interest, based on our historical and contractual obligation to fund the operations of TerreStar Canada and accordingly include TerreStar Canada in the consolidated financial statements.

        Our current maximum direct financial exposure to loss includes the historical investment in TerreStar Canada and intercompany receivables from TerreStar Canada. Creditors of TerreStar Canada have no recourse or rights to our assets or general credit. As of December 31, 2009 TerreStar Canada has no debt or financing arrangements with any third parties. Subject to certain limitations, we can exercise our contractual rights to prevent TerreStar Canada from undertaking business activities that may expose them to undue financial or other business risks.

Non-Controlling Interests

        On January 1, 2009, we adopted the accounting standard issued by the FASB which required reporting for minority interests by re-characterizing them as non-controlling interests and classifying them as a component of equity in the consolidated balance sheet. As required by this standard, the consolidated statements of operations are adjusted to include the net loss attributed to the non-controlling interest and the prior year consolidated financial statements have been reclassified to conform to the current year's presentation. Prior to the January 1, 2009 the noncontrolling interest had been reduced to zero, therefore we had no beginning balance of the noncontrolling interests at January 1, 2009. The adoption of this standard did not have a material impact on our consolidated financial statements.

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Note 10.  Employee Benefit Plans

Summary

        We offer stock options and other long-term equity based incentive awards to the employees, directors and other service providers. We account for stock-based compensation based on fair value measured at the grant date and recognize as expense over the related service period. During 2006, TerreStar Corporation adopted the 2006 TerreStar Corporation Equity Incentive Plan (the "2006 Plan") which replaced the 2002 TerreStar Corporation Plan (the "2002 Plan"). During 2007, the TerreStar Corporation and TerreStar Networks respective Board of Directors and Compensation Committees decided to cease issuing options and other awards under the TerreStar Networks 2002 Stock Incentive Plan (the "2002 TerreStar Networks Plan") and exchange certain outstanding options under the 2002 TerreStar Networks Plan for options to purchase common stock of TerreStar Corporation under the 2006 Plan. As of December 31, 2009, we now offer stock options and other long-term incentive awards under the following two plans to eligible persons:

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the 2006 TerreStar Corporation Equity Incentive Plan (the "2006 Plan"); and



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the TerreStar Global Ltd. 2007 Share Incentive Plan (the "Global Plan").

        Our stock based compensation expense is included in the following line items in the consolidated statement of operations for the periods indicated (in thousands) for the awards outstanding under the 2006 Plan and the Global Plan:

        As of December 31, 2009, the total unrecognized stock compensation expense was approximately $3.5 million. The weighted average contractual remaining life of our outstanding stock options is 7.62 years.

2006 TerreStar Corporation Equity Incentive Plan

        The 2006 Plan initially authorized to issue a total of 10,000,000 (and was later amended in October 2007 to increase to 11,000,000) Incentive Stock Options, Non-Qualified Stock Options, Restricted Shares, Performance Shares and Performance Units. As of December 31, 2009, approximately 2.6 million shares remain available to be issued under the Plan.

        The fair value of each option was estimated on the grant date using the Black-Scholes option pricing model. The expected volatility was based on the historical volatility of our common stock for a period of time commensurate with the expected term of the options. We determined the expected life based on an analysis of historical exercise and forfeiture behavior as well as expectations about future behavior. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the grant date for a period of time commensurate with the expected term of the options.

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        The following table summarizes the fair values and weighted average assumptions related to the stock option grants under the 2006 Plan.

Stock Option Awards

        The following tables summarize our stock option activity under the 2006 Plan for 2009:

 

Restricted Stock Awards

        The fair value of restricted stock awards is based on the stock price at the date of grant. Restricted stock awards generally vest over three years and are settled in shares of TerreStar Corporation common stock.

        The following table summarizes our restricted stock activity as of December 31, 2009.

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