By Joseph Checkler
LightSquared wants to alter a proposed bonus package for its top
executives by removing the regulatory hurdles tied to the
payments.
In a Tuesday filing with U.S. Bankruptcy Court in Manhattan,
LightSquared said it wants to pay Chief Executive Doug Smith, Chief
Financial Officer Marc Montagner, Executive Vice President Jeffrey
Carlisle and General Counsel Curtis Lu bonuses of 75% of their
annual salaries once the company pays off a bankruptcy loan and the
hedge funds that hold its bank debt. It wants to pay another 75%
for a "successful completion of a change of control."
A prior bonus package, proposed late last year, tied the bonuses
to three things: clearing certain regulatory hurdles, getting its
restructuring approved by a judge, and emerging from Chapter 11.
Since LightSquared's latest restructuring proposal doesn't include
any extra regulatory approvals, neither does the new bonus
package.
Next week, LightSquared will begin making the case for approval
of its restructuring plan, which is led by Fortress Investment
Group LLC and calls for a $1.65 billion loan while the company is
in bankruptcy proceedings, and then a fresh $1 billion loan to
finance the company once it exits Chapter 11.
"LightSquared anticipates that it will be required to heavily
rely on the Key Employees throughout March 2014 and into April
2014, as LightSquared embarks upon what may be a highly contentious
confirmation hearing and related process," the company said in a
filing.
In late 2012, Judge Shelley C. Chapman approved a LightSquared
bonus proposal, which called for as much as two times the
executives' salary if full regulatory approval was received, with
lower amounts for lower levels of approvals.
Incentive bonuses are nearly always an issue in bankruptcy
cases, including LightSquared's. Judge Chapman's 2012 approval came
only after creditors and the federal bankruptcy watchdog argued
that the milestones tied to the bonuses were too easy to reach,
causing LightSquared to set more difficult goals. Top management
and executives aren't eligible for bonuses designed simply to keep
them at a company, while lower-level employees are.
The LightSquared restructuring proposal is scaled down from a $4
billion Fortress-led reorganization that LightSquared abandoned
earlier.
Because the new plan isn't tied to regulatory approval, it
requires less funding because LightSquared would emerge from
bankruptcy proceedings much sooner than under the prior one.
Phil Falcone's Harbinger Capital Partners, which currently
controls LightSquared, would participate in the new financing and
retain an equity stake. Harbinger would own about 36% of
LightSquared's equity if this proposal gets approved, a person
familiar with the matter has said.
LightSquared's main adversaries in the case are Dish Network
Corp. and Chairman Charlie Ergen.
LightSquared and Mr. Ergen have been fighting ever since he
began buying debt and Dish separately made a $2.2 billion offer for
the company's wireless spectrum assets last year. Dish has since
abandoned that bid, but LightSquared continues to fight Mr. Ergen
on the purchases of debt, saying he acquired it improperly on
behalf of Dish, a competitor that was prohibited from buying
it.
If LightSquared wins the case against Mr. Ergen, his claims
could be disallowed or pushed behind those of other creditors.
Closing arguments in the trial are set for next week, as is a
multiday hearing on whether LightSquared's restructuring plan
should be approved.
Mr. Ergen owns $850 million of the bank debt, making him the
company's largest secured lender.
Theoretically, the restructuring proposal would pay Mr. Ergen in
full for his holdings but would give him a "third-lien" note that
would be repaid over seven years rather than cash. A group of hedge
funds that own a large chunk of that same bank debt would get cash
under the plan.
LightSquared filed for protection from creditors in May 2012
after federal regulators refused to clear its plans to launch a
wireless network, which they said could interfere with
global-positioning systems. Its previous proposals all were
contingent on the Federal Communications Commission approving
modifications to LightSquared's network, which the agency has said
isn't imminent.
Write to Joseph Checkler at joseph.checkler@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires