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December 22, 2020 – The Court hearing the Intelsat S.A. cases approved (i) a 2021 key employee incentive plan (the “2021 KEIP”) with award values of $6,720,038, $13,440,075 and $19,003,606 under Threshold, Target and Stretch Performance Levels, respectively, covering eight (six from the Debtors' 2020 KEIP and two from newly acquired Gogo CA) key insiders [Docket No. 1206]. The modified 2021 KEIP is attached as Exhibit 1 to the order.
The order reduces the Total Award Values from the amounts of $7,305,038, $14,610,075 and $21,915,113 initially requested in the Debtors' KEIP motion.
In the Debtors' response to an objection filed by the U.S. Trustee assigned to the case, the Debtors explained [Docket No. 1175], "Since the filing of the Motion, the Debtors have continued to engage with their creditor constituencies, including the Official Committee of Unsecured Creditors (the 'Creditors' Committee'). As a result of these discussions, the Debtors made several modifications to the KEIP, including a reduction in the overall opportunities for the 2021 KEIP Participants and certain modifications to the performance goals and weightings."
The 2021 KEIP Participants are eight members of the Debtors’ management team, all of whom are considered “insiders” under the Bankruptcy Code (each, a “2021 KEIP Participant” and collectively, the “2021 KEIP Participants”). The 2021 KEIP Participants include the same six participants from the 2020 KEIP, in addition to two insiders from the newly acquired Gogo CA.
The Debtors’ business is extraordinarily complex. The pool of executives with the skills and experience needed to execute the required tasks is limited. And the company’s ongoing circumstances exacerbate the need for the Debtors to continue to incentivize these specific employees. The fact remains that the Debtors have a limited time frame to clear 60 percent of the C-band, a 500-megahertz band of spectrum that has been used for decades by the Company and others to beam content to video and audio broadcasters, cable systems and other content distributors. To earn nearly $5 billion in incentive payments, approximately $1.2 billion of which the Debtors are eligible to earn in 2021, the Debtors must rearrange and reconfigure their satellites to operate in the upper portion of the C-band. The Satellite KEIP Participants were instrumental to the Debtors’ C-band clearing progress during 2020, and their expertise will continue to be necessary in 2021.
This endeavor requires, among other things, that the Debtors procure, configure and launch seven additional satellites on an expedited timeframe; coordinate the transition of their U.S. media customers from current transponders to other transponders on the same satellite or a different satellite while ensuring corresponding ground stations and antennas are properly configured to support this transition; ensure the limited free satellite capacity is effectively utilized to support existing customers, while notifying and migrating customer contracts appropriately; install state of the art compression technologies at certain of their U.S. media customers to allow them to use less bandwidth while freeing up capacity to incorporate others; deploy certain frequency filters to minimize interference on approximately 22,500 antennas in the continental United States; engage, contract with and potentially deploy hundreds of technicians to gather site and antenna information from approximately 10,500 earth station sites registered with the FCC and to schedule site visits to perform installation services or ship equipment to the earth station operators; and renegotiate and amend existing customer contracts to reflect new commitments and reduce the overall contracted backlog for each contract relative to the amount of spectrum each customer will no longer be using.
2021 KEIP Performance Metrics (attached to the Order as Exhibit 1)
2021 KEIP Payouts (attached to the Order as Exhibit 2)
The Debtors' KEIP motion stated [Docket No. 1120], “In approximately eight months since the Petition Date, the Debtors have made substantial progress, including: securing a $1 billion debtor-in-possession financing; stabilizing and transitioning their business into chapter 11; advancing the transformative C-band clearing process; launching a new satellite and mission extension vehicle that will dock with and extend the useful life of an aging existing satellite; maximizing estate value by acquiring Gogo Inc.’s commercial aviation business ('Gogo CA'); and finalizing their long-term business plan. The Debtors have also progressed negotiations and designs for software-defined satellites containing next generation technology that will ensure that the Debtors’ satellite fleet and connectivity infrastructure, which is the largest in the world, remains the most advanced. The Debtors have done all of this and more while continuing to maintain their global operations….
The Debtors could not have achieved such progress without the properly incentivized efforts of their senior management team. There is, however, significant work left to be done in these chapter 11 cases including the continued implementation of the Debtors’ business plan and the C-band clearing process. Maintaining a properly incentivized senior management team remains critical to the efficient and effective completion of the Debtors’ restructuring and emergence from chapter 11, progress toward clearing C-band spectrum according to FCC guidelines, integration of Gogo CA, and optimal business performance…
In anticipation of the approaching expiration of the 2020 KEIP, the Debtors and their advisors again engaged in a review of the Debtors’ compensation and incentive programs, incorporating their experience from the 2020 KEIP. As a result of this review, the Debtors and the Compensation Committee, in consultation with their advisors, concluded that putting in place a further incentive program for 2021 was necessary to continue to appropriately incentivize management. Thus, the Debtors and the Compensation Committee have determined to pursue implementation of the 2021 KEIP for eight insider employees, as discussed in this Motion
The proposed 2021 KEIP provides opportunities to earn incentive payments to the extent the 2021 KEIP Participants are able to achieve certain challenging performance targets. Incentive opportunities are regularly a key part of the compensation package for senior management teams at companies like the Debtors. The 2020 KEIP was instrumental in facilitating the Debtors’ operational success and strides made in the C-band clearing process in 2020. At this point, it is critical that the senior management team remain properly motivated and incentivized to handle the critical day-to-day responsibilities required to maintain strong operational performance, particularly in light of the additional workload required to clear C-band spectrum, the integration of Gogo CA and the impact of the COVID-19 global pandemic, while working towards a comprehensive restructuring for the benefit of all stakeholders.
Similar to the 2020 KEIP, the total compensation opportunities for the 2021 KEIP Participants are reasonable compared to relevant benchmarks in the broader telecommunications industry and, if the 2021 KEIP were not in place, the 2021 KEIP Participants’ compensation opportunities would lag the market by a significant amount.”
About the Debtors
Intelsat S.A. is a publicly held operator of one of the world’s largest satellite services businesses, which provides a diverse array of communications services to a wide variety of clients, including media companies, telecommunication operators, internet service providers, and data networking service Providers.
The Debtors add: “Through its global and extra-terrestrial network of satellites and teleports, the Company provides diversified communications services to the world’s leading media companies, fixed and wireless telecommunications operators, data networking service providers for enterprise and mobile applications in the air and on the seas, multinational corporations and internet service providers in the most challenging and remote locations across the globe. The Company is also the leading provider of commercial satellite communication services to the U.S. government and other select military organizations and their contractors. The Company’s administrative headquarters are in McLean, Virginia, and the Company has extensive operations spanning across the United States, Europe, South America, Africa, the Middle East, and Asia.”
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