DEF 14A 1 d808891ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14A-101)

Information Required in Proxy Statement

Schedule 14A Information

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant                           Filed by a Party other than the Registrant  

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Soliciting Material Pursuant to §240.14a-12

AVAYA HOLDINGS CORP.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

   No fee required.
   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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Title of each class of securities to which transaction applies:

     

   2)   

Aggregate number of securities to which transaction applies:

     

   3)   

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

     

   4)   

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   5)   

Total fee paid:

     

   Fee paid previously with preliminary materials.
   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
   1)   

Amount Previously Paid:

     

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Table of Contents

 

 

 

LOGO

4655 Great America Parkway

Santa Clara, California 95054

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MARCH 4, 2020

 

 

 

To the Stockholders of Avaya Holdings Corp.:

The Annual Meeting of Stockholders (the “Annual Meeting”) of Avaya Holdings Corp. (the “Company” or “Avaya”) will be held virtually via live webcast at www.virtualshareholdermeeting.com/AVYA2020, on Wednesday, March 4, 2020, at 9:00 a.m. Eastern time. You will be able to attend the meeting online and submit questions during the meeting by visiting the website listed above. You will also be able to vote your shares electronically at the Annual Meeting. The meeting will be held online only, and will be held for the following purpose:

 

  1.

To elect seven directors, each to serve until the next annual meeting of stockholders or until his or her successor is duly elected and qualified;

 

  2.

To approve, on an advisory basis, the Company’s named executive officers’ compensation;

 

  3.

To approve the Avaya Holdings Corp. 2019 Equity Incentive Plan;

 

  4

To approve the Avaya Holdings Corp. 2020 Employee Stock Purchase Plan;

 

  5.

To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2020; and

 

  6.

To transact any other business as may properly come before the 2020 Annual Meeting and any adjournment or postponement thereof.

The foregoing items of business are more fully described in the proxy statement accompanying this notice. The Company’s board of directors (the “Board”) has fixed the close of business on January 6, 2020 as the record date for determining stockholders of the Company entitled to receive notice of and vote at the Annual Meeting and any adjournment or postponement thereof.

The Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the Annual Meeting. Please read it carefully.

By Order of the Board of Directors,

 

 

LOGO

Shefali Shah

Executive Vice President, Chief Administrative

Officer and General Counsel

January 17, 2020


Table of Contents

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting

to be Held on March 4, 2020

The Notice of Annual Meeting, Proxy Statement and Form of Proxy are first being distributed and made available on or about January 17, 2020 to all stockholders entitled to vote at the Annual Meeting. This Proxy Statement and the enclosed Form of Proxy, the Notice of Annual Meeting of Stockholders, and the Company’s 2019 Annual Report are available on the Internet at http://materials.proxyvote.com/05351X, as well as the Annual Meeting website referenced below.

Virtual Meeting Admission

Stockholders of record as of January 6, 2020 will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/AVYA2020. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials.

The Annual Meeting will begin promptly at 9:00 a.m. Eastern time on Wednesday, March 4, 2020. Online check-in will begin at 8:45 a.m. Eastern time, and you should allow approximately 15 minutes for the online check-in procedures.

Voting. Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of shares of the Company’s common stock that you own, please cast your vote, at your earliest convenience, as instructed in the proxy card. Your vote is very important. Your vote before the Annual Meeting will ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may submit your vote by the Internet, telephone, mail or in person. Voting over the Internet or by telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual Meeting even if they plan on virtually attending the meeting in person. Submitting a vote before the Annual Meeting will not preclude you from voting your shares at the meeting should you decide to virtually attend. You may vote using the following methods:

 

LOGO   

Prior to the Annual Meeting, visit the website listed on your

proxy card/voting instruction form to vote via the Internet.

 

During the Annual Meeting, visit our Annual Meeting website

at www.virtualshareholdermeeting.com/AVYA2020

LOGO   

Sign, date and return your proxy card/voting instruction form

to vote by mail.

LOGO   

Call the telephone number on your proxy card/voting

instruction form to vote by telephone.


Table of Contents

Table of Contents

 

TABLE OF CONTENTS

 

    Page  

PROXY SUMMARY

    1  

PROXY AND VOTING INFORMATION

    8  

CORPORATE GOVERNANCE

    13  

Overview

    13  

Code of Conduct

    13  

Corporate Responsibility

    13  

Prohibition on Hedging or Pledging of Company Stock

    15  

Leadership Structure of the Board

    15  

Board Independence

    15  

Board Composition and Director Qualifications

    16  

Board and Committee Meetings

    16  

Board Committees

    17  
Compensation Committee Interlocks and Insider Participation     18  

Selection of Board Nominees

    19  

RingCentral Board Nominee

    19  

Board Oversight of Risk Management

    20  

Communications with the Board

    20  

PROPOSAL 1

 

ELECTION OF DIRECTORS

    21  

STOCK OWNERSHIP

    28  

Security Ownership of Certain Beneficial Owners and Management

    28  

DIRECTOR COMPENSATION

    32  
COMPENSATION DISCUSSION AND ANALYSIS     35  

PROPOSAL 2

 
ADVISORY APPROVAL OF THE COMPANY’S NAMED EXECUTIVE OFFICERS’ COMPENSATION (“SAY-ON-PAY”)     60  

PROPOSAL 3

 
APPROVAL OF THE AVAYA HOLDINGS CORP. 2019 EQUITY INCENTIVE PLAN     62  
    Page  

PROPOSAL 4

 
APPROVAL OF THE AVAYA HOLDINGS CORP. 2020 EMPLOYEE STOCK PURCHASE PLAN     75  
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS     83  

Related Party Transaction Policy

    85  

EXECUTIVE OFFICERS

    86  

PROPOSAL 5

 
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     88  

Pre-Approval  Policies and Procedures

    88  

Principal Accountant Fees and Services

    89  

AUDIT COMMITTEE REPORT

    90  
PROCESS FOR DIRECTOR NOMINATIONS AND STOCKHOLDER PROPOSALS     91  

Director Nominations

    91  

Stockholder Proposals For Inclusion in Our Proxy Materials

    92  

Other Matters to be Brought Before the 2021 Annual Meeting of Stockholders

    92  

ADDITIONAL FILINGS

    93  

ANNUAL REPORT

    93  

OTHER BUSINESS

    93  
ANNEX A: RECONCILIATION OF GAAP TO NON-GAAP (ADJUSTED) FINANCIAL MEASURES     A-1  
ANNEX B: AVAYA HOLDINGS CORP. 2019 EQUITY INCENTIVE PLAN     B-1  
ANNEX C: AVAYA HOLDINGS CORP. 2020 EMPLOYEE STOCK PURCHASE PLAN     C-1  
 

 

 

 

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      2020 Proxy Statement       i  


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Proxy Summary

 

PROXY SUMMARY

This summary highlights certain information contained in the Proxy Statement. This summary does not contain all the information that you should consider, and you should read the entire Proxy Statement before voting. For more complete information regarding the Company’s performance in the fiscal year which ended on September 30, 2019 (“Fiscal 2019”), please review the Company’s Annual Report on Form 10-K for the year ended September 30, 2019 (the “Form 10-K”) that accompanied this Proxy Statement.

 

 

2020 Annual Meeting Overview

 

Date and Time

 

March 4, 2020 at 9:00 a.m., Eastern time

Place

 

Virtually via webcast

Participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/AVYA2020.

There will not be a physical meeting in North Carolina, New York or anywhere else.

Record Date

 

January 6, 2020

Voting

 

Stockholders of record as of the close of business on the record date are entitled to vote for each director nominee and for each of the other proposals to be voted on. Each share of common stock of the Company (“Common Stock”) is entitled to one vote. Each share of Series A Convertible Preferred Stock of the Company (“Series A Stock”) is entitled to one vote for each share of Common Stock that would be issuable upon conversion of such Series A Stock immediately prior to the record date.

Common Stock Outstanding on Record Date

 

 

99,517,295 shares of Common Stock

 

Series A Stock Outstanding on Record Date

 

 

125,000 shares of Series A Stock entitled to vote on an as-converted to Common Stock basis for a total of 7,852,311 votes

 

Total Votes Comprised of Total Common Stock and as-converted Series A Stock Outstanding on the Record Date

 

 

107,369,606 votes

Registrar & Transfer Agent

 

 

American Stock Transfer & Trust Company LLC

 

 

Company’s State of Incorporation

 

 

 

Delaware

 

 

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Proxy Summary  

 

 

Virtual Stockholder Meeting

 

 

 

Our 2020 Annual Meeting will be conducted exclusively online via live webcast, allowing all of our stockholders the option to participate in the live, online meeting from any location convenient to them, providing stockholder access to our Board and management, and enhancing participation. Stockholders at the close of business on January 6, 2020 will be allowed to communicate with us and ask questions in our virtual stockholder meeting forum before and during the meeting. All directors and key executive officers are expected to be available to answer questions. For further information on the virtual meeting, please see the “Proxy and Voting Information” section in this Proxy Statement.

 

2  

 

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  2020 Proxy Statement


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Proxy Summary    Roadmap of Voting Matters

 

ROADMAP OF VOTING MATTERS

Stockholders are being asked to vote on the following matters at the 2020 Annual Meeting:

 

 

Proposals

 

       

Proposal

 

Board  
    Recommendation        

 

    More Information        

 

            Votes Required             

for Approval

       

1. Election of Directors

  FOR each
Nominee
  Page 21  

The seven director nominees who receive the most affirmative votes of shares of our Common Stock virtually present or represented by proxy, and entitled to vote, will be elected to the Board

       

 

2. Advisory approval of the Company’s named executive officers’ compensation

 

  FOR   Page 60  

The affirmative vote of a majority of votes cast by the stockholders virtually present or represented by proxy, and entitled to vote, is necessary for approval of each of proposals 2-5

 

3. Approval of the Avaya Holdings Corp. 2019 Equity Incentive Plan (the “2019 Plan”)

 

  FOR   Page 62

 

4. Approval of the Avaya Holdings Corp. 2020 Employee Stock Purchase Plan (“ESPP”)

 

  FOR   Page 75

 

5. Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2020 (“Fiscal 2020”)

 

  FOR   Page 88

 

 

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Proxy Summary    Governance Highlights

 

GOVERNANCE HIGHLIGHTS

We are committed to the highest standards of corporate governance, which we believe promotes the long-term interests of stockholders. The Corporate Governance section beginning on page 13 describes our governance framework, which includes the following highlights:

 

 

Governance Highlights

 

   

Board Practices

 

 

Stockholder Matters

 

   

 Non-Executive Chairman

 

 

 Recommended Annual “Say-on-Pay” Advisory Vote

 

   

 6 of 7 Directors Are Independent

 

 

 Stockholders’ Right to Call Special Meeting in Accordance With Our Amended and Restated Bylaws

 

   

 Fully Independent Board Committees

   
   

 Regular Executive Sessions of Independent Directors

 

Other Best Practices

   

 

 Annual Election of All Directors

 

 

 Robust Share Ownership Guidelines

   

 Annual Board and Committee Self-Evaluations

 

 

 Prohibition on Executives Hedging and Pledging Stock

 

   

 Structured Process for Board’s Risk Oversight

 

 

 Executive Compensation Clawback Policy

 

 

4  

 

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Proxy Summary    Director Nominees

 

DIRECTOR NOMINEES

 

 

Snapshot of 2020 Director Nominees

 

       

LOGO

William D. Watkins

Chair of the Board

Director since 2017

Independent

 

Former Chairman and

Chief Executive Officer of

Imergy Power Systems

 

Avaya Board Committees:

NCGC

 

Other Public Company

Boards: 2

LOGO

James M. Chirico, Jr.

Director since 2017

 

President and Chief

Executive Officer of the

Company

 

Avaya Board Committees:

N/A

 

Other Public Company

Boards: None

LOGO

Stephan Scholl

Director since 2017

Independent

 

Former President, of Infor,

Inc.

 

Avaya Board Committees:

CC; NCGC

 

Other Public Company

Boards: None

LOGO

Susan L. Spradley

Director since 2017

Independent

 

Chief Executive Officer of

Motion Intelligence, Inc.

 

Avaya Board Committees:

AC; NCGC (Chair)

 

Other Public Company

Boards: 2

 

LOGO

Stanley J. Sutula, III

Director since 2017

Independent

 

Executive Vice President and Chief

Financial Officer of Pitney Bowes Inc.

 

Avaya Board Committees: AC (Chair)

 

Other Public Company Boards: None

 

LOGO

Scott D. Vogel

Director since 2017

Independent

 

Managing Member of Vogel Partners

LLC

 

Avaya Board Committees: AC; CC

(Chair)

 

Other Public Company Boards: 3

 

LOGO

Jacqueline E. Yeaney

Director since 2019

Independent

 

Executive Vice President, Marketing of

Tableau Software

 

Avaya Board Committees: CC

 

Other Public Company Boards: None

AC = Audit Committee

CC = Compensation Committee

NCGC = Nominating and Corporate Governance Committee

 

 

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Proxy Summary    Business Overview and Fiscal 2019 Performance at a Glance

 

BUSINESS OVERVIEW AND FISCAL 2019 PERFORMANCE AT A GLANCE

The Company is a global leader in digital communications products, solutions and services for businesses of all sizes. We enable organizations around the globe to succeed by creating intelligent communications experiences for customers and employees. The Company builds open, converged and innovative solutions to enhance and simplify communications and collaboration in the cloud, on-premises or through a hybrid of both. Our global, experienced team of professionals delivers award-winning services, from initial planning and design, to seamless implementation and integration, to ongoing managed operations, optimization, training and support. As of September 30, 2019, we had a presence in approximately 175 countries worldwide and during the past four fiscal years we served more than 90% of the Fortune 100 organizations.

During Fiscal 2019, we demonstrated meaningful progress in advancing our transformation strategy to position the Company for future growth. Fiscal 2019 annual revenue was $2,887 million and non-GAAP annual revenue was $2,908 million. The Company continued to maintain its industry-leading business model, with gross margin of 54.6% and non-GAAP gross margin of 61.4% and Adjusted EBITDA margin of 24.3% for Fiscal 2019.* The Company generated cash flow from operations of $241 million and ended Fiscal 2019 with $752 million in cash and cash equivalents. In addition, the Company achieved each of its following strategic priorities:

 

  1.

The Company continued its transformation into a software and services company, with non-GAAP recurring revenues increasing to 58.4% in Fiscal 2019 from 57.4% in the fiscal year ended September 30, 2018 (“Fiscal 2018”) and derived over 83.1% of its revenues from software and services in Fiscal 2019 up from 82.2% in Fiscal 2018.

 

  2.

The Company entered into new strategic partnerships and expanded existing partnerships to broaden its cloud capabilities and extend its market reach. Notably, shortly after the end of Fiscal 2019, Avaya successfully concluded its comprehensive review of strategic alternatives culminating in a strategic partnership with RingCentral. Together with RingCentral, Avaya created a new solution - Avaya Cloud Office by RingCentral (“Avaya Cloud Office”) - combining RingCentral’s leading Unified Communications as a Service (“UCaaS”) platform with Avaya’s technology, services and migration capabilities enabling us to market and sell a highly differentiated UCaaS offering solution.

 

  3.

The Company enhanced the breadth and depth of its cloud offerings with investments in ReadyNow, its private cloud offering, generating total contract value (“TCV”) of $90 million in Fiscal 2019. In addition, the Company achieved traction in its transformation to a cloud company increasing total cloud seats at the end of Fiscal 2019 to approximately 4 million, with over half a million public cloud seats, representing approximately 160% year-over-year growth.

 

  4.

The Company continued to generate momentum by signing over 352 deals with a TCV over $1 million, 40 deals with a TCV over $5 million and 9 deals with a TCV over $10 million during Fiscal 2019.

 

*

Non-GAAP revenue, non-GAAP gross margin, Adjusted EBITDA and Adjusted EBITDA margin are financial performance metrics that are not calculated and presented in accordance with generally accepted accounting principles in the United States of America (GAAP). See the Reconciliation of GAAP to non-GAAP (Adjusted) Financial Measures in Annex A at the end of this Proxy Statement for additional discussion of non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measure.

 

6  

 

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Proxy Summary    Executive Compensation Highlights

 

EXECUTIVE COMPENSATION HIGHLIGHTS

The Compensation Committee successfully transitioned the Company’s Fiscal 2019 executive compensation program to better reflect certain best market practices, industry standards, operating environments and results, enhance the incentive and retentive elements of the program and create greater alignment with stockholders’ interests.

Each of the short- and long-term incentive programs for Fiscal 2019 were based, in part, on Company performance to enhance the linkage between pay and performance and further align the executive compensation program with stockholders’ interests. Consistent with the Company’s key objective of achieving revenue growth in Fiscal 2019, the Compensation Committee approved a Fiscal 2019 Executive Annual Incentive Plan (“AIP”) with funding determined by Fiscal 2019 revenue against established threshold, target and maximum levels; and further subject to achievement of a minimum level of Adjusted EBITDA. While the Company made meaningful progress to position the Company for future growth during Fiscal 2019, the AIP was not funded and no bonus awards were made to the Company’s employees under the AIP for Fiscal 2019 because the Company’s actual Fiscal 2019 performance was below the threshold level.

During Fiscal 2019, the Company’s Chief Executive Officer received his first ordinary course annual equity grant, consisting solely of performance-based restricted stock units (“PRSUs”) that vest based on stock price performance. The annual equity grants to the other Named Executive Officers consisted of a mix of time-based restricted stock units and PRSUs. As a result of the Company’s performance during Fiscal 2019 as measured against the applicable performance goals, none of the PRSUs that were eligible to be earned in respect of Fiscal 2019 were earned as of the end of Fiscal 2019.

In January 2020, at the request of our Chief Executive Officer, we amended Mr. Chirico’s employment agreement to remove the change of control excise tax gross-up provision, reduce his target annual cash incentive and adjust his maximum annual cash incentive. This amendment was principally based on Mr. Chirico’s and our Compensation Committee’s desires to reflect good corporate governance practices. No compensation or other benefits were provided in exchange for eliminating the excise tax gross-up benefit.

 

 

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Proxy and Voting Information

 

PROXY AND VOTING INFORMATION

Why am I receiving these materials?

The Board of Directors (the “Board”) of Avaya Holdings Corp. (which we refer to in this Proxy Statement as we, our, us, our Company or the Company) is providing you these proxy materials in connection with the Board’s solicitation of proxies from our stockholders for our 2020 annual meeting of stockholders (the “Annual Meeting”) and any adjournments and postponements of the Annual Meeting. The Annual Meeting will be held exclusively virtually, conducted via a live audio webcast on Wednesday, March 4, 2020, at 9:00 a.m. Eastern time. These materials were first mailed to stockholders on or about January 17, 2020. You are invited to virtually attend the Annual Meeting and requested to vote on the items described in this Proxy Statement.

What is the purpose of the Annual Meeting?

You and our other stockholders entitled to vote at the Annual Meeting are requested to vote on proposals to (i) elect seven members of our Board of Directors to serve until our 2020 annual meeting of stockholders; (ii) to approve, on an advisory basis, our named executive officers’ compensation; (iii) to approve the 2019 Plan; (iv) to approve the ESPP; and (v) to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for Fiscal 2020.

Who is entitled to vote at the Annual Meeting?

Only holders of record of our Common Stock and our Series A Stock at the close of business on January 6, 2020, the record date for the Annual Meeting, are entitled to notice of, and to vote at, the Annual Meeting. Holders of the Series A Stock vote on an as-converted basis together with the Common Stock as a single class. A list of our stockholders will be available for review at our executive offices in Santa Clara, California during ordinary business hours for a period of ten (10) days prior to the meeting. Each stockholder is entitled to one vote for (i) each share of Common Stock held and (ii) each share of Common Stock that would be issuable upon conversion of Series A Stock held on the record date. Shares of our Common Stock represented virtually or by a properly submitted proxy will be voted at the Annual Meeting. At the close of business on the record date, 99,517,295 shares of our Common Stock and 125,000 shares of our Series A Stock (representing 7,852,311 shares of Common Stock on an as-converted basis) were outstanding representing a total of 107,369,606 votes eligible to be cast at the Annual Meeting.

When we refer to our stockholders in our proxy materials we are referring to the stockholders entitled to vote at the Annual Meeting consisting of holders of our Common Stock and Series A Stock.

Why are you holding a virtual meeting instead of a physical meeting?

We are excited to embrace the latest technology to provide expanded access, improved communication and cost savings for our stockholders and our Company. We believe that hosting a virtual meeting will enable more of our stockholders to attend and participate in the meeting since our stockholders can participate from any location around the world with Internet access.

How can I attend the virtual Annual Meeting?

The Annual Meeting will be a completely virtual meeting of stockholders conducted exclusively by a live audio webcast.

 

 

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Proxy and Voting Information

 

If you are a stockholder of record as of the close of business on January 6, 2020, the record date for the Annual Meeting, you will be able to virtually attend the Annual Meeting, vote your shares and submit your questions online during the meeting by visiting www.virtualshareholdermeeting.com/AVYA2020. You will need to enter the 16-digit control number included on your notice, on your proxy card or on the instructions that accompanied your proxy materials.

If you are a stockholder holding your shares in “street name” as of the close of business on January 6, 2020, you may gain access to the meeting by following the instructions in the voting instruction card provided by your broker, bank or other nominee. You may not vote your shares electronically at the Annual Meeting unless you receive a valid proxy from your brokerage firm, bank, broker dealer or other nominee holder.

The online meeting will begin promptly at 9:00 a.m., Eastern time. We encourage you to access the meeting prior to the start time. Online check-in will begin at 8:45 a.m., Eastern time, and you should allow approximately 15 minutes for the online check-in procedures.

If you wish to submit a question for the Annual Meeting, you may do so in advance at www.virtualshareholdermeeting.com/AVYA2020, or you may type it into the dialog box provided at any point during the virtual meeting (until the floor is closed to questions).

What can I do if I need technical assistance during the Annual Meeting?

If you encounter any difficulties accessing the virtual Annual Meeting webcast please call the technical support number that will be posted on the Annual Meeting website log-in page.

If I cannot participate in the live Annual Meeting webcast, can I vote or listen to it later?

You may vote your shares electronically before the meeting by visiting www.proxyvote.com and following the instructions on your proxy card. You do not need to access the Annual Meeting webcast to vote if you submitted your vote via proxy in advance of the Annual Meeting. An audio replay of the Annual Meeting, including the questions answered during the meeting, will be available at https://investors.avaya.com until the 2021 Annual Meeting of Stockholders.

What constitutes a quorum?

The presence at the Annual Meeting, virtually or by proxy, of a majority in voting power of the issued and outstanding shares of our stock, including both Common Stock and Series A Stock (on an as-converted basis), entitled to vote at the Annual Meeting constitutes a quorum for the transaction of business at such meeting.

How are abstentions and broker non-votes counted?

Abstentions and broker non-votes (described below) will be counted for purposes of determining whether a quorum is present at the Annual Meeting. Abstentions will not affect the outcome of the election of directors. Abstentions will have the same effect as votes against any matter other than the election of directors.

Under the New York Stock Exchange (“NYSE”) rules, brokers are permitted to vote their clients’ proxies in their own discretion as to certain “routine” proposals. However, where a proposal is considered “non-routine,” a broker who has not received instructions from its client generally does not have discretion to vote its clients’ uninstructed shares on that proposal. When a broker indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular proposal, the

 

 

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Table of Contents

Proxy and Voting Information

 

missing votes are referred to as “broker non-votes.” Those shares would be considered present for purposes of determining whether a quorum is present, but would not be counted in determining the number of votes present for, or determining the outcome of, the non-routine proposal. Under NYSE rules, only Proposal 5 (Ratification of Independent Accounting Firm) in this Proxy Statement is a routine matter. Therefore, no broker non-votes are expected on Proposal 5. Proposal 1 (Election of Directors), Proposal 2 (Say-on-Pay), Proposal 3 (Approval of the 2019 Plan) and Proposal 4 (Approval of the ESPP) are considered non-routine matters. Accordingly, your broker may not vote your shares with respect to these items if you have not provided instructions and broker non-votes will not affect the outcome of these proposals.

What vote is required to approve each item to be voted on at the Annual Meeting and how does the Board recommend I vote?

Only votes cast “For” a nominee will be counted in the election of directors. Votes that are withheld in respect of one or more nominees will result in those nominees receiving fewer votes but will not count as a vote against the nominees. Abstentions and broker non-votes (described above) are not counted for purposes of the election of directors and will not affect the outcome of such election. You have the right to vote “For” or “Against”, or to “Abstain” from voting in connection with Proposals 2, 3, 4 and 5. The following table summarizes each proposal, the Board’s recommendation, the affirmative vote required for approval and whether broker discretionary voting is allowed.

 

Proposal
Number
  Proposal   Board
Recommendation
  Affirmative
Vote Required
for Approval
  Broker
Discretionary
Voting
Allowed

1

 

Election of Directors

 

FOR ALL

 

Plurality vote

 

No

2

 

Advisory approval of the Company’s named executive officers’ compensation

 

FOR

 

Majority of

votes cast

 

No

3

 

Approval of the 2019 Plan

 

FOR

 

Majority of

votes cast

 

No

4

 

Approval of the ESPP

 

FOR

 

Majority of

votes cast

 

No

5

 

Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for Fiscal 2020

 

FOR

 

Majority of

votes cast

 

Yes

Will any other matters be voted on?

We are not aware of any other matters that will be brought before the stockholders for a vote at the Annual Meeting. If any other matter is properly brought before the Annual Meeting, your proxy will authorize each of Sara R. Bucholtz and Shefali Shah to vote on such matters in her discretion.

How do I vote?

Stockholders of record can vote as follows:

 

   

by telephone by calling the toll-free number 1-800-690-6903 (have your proxy card in hand when you call);

 

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Proxy and Voting Information

 

   

by Internet before the Annual Meeting at www.proxyvote.com (have your proxy card in hand when you access the website);

 

   

during the Annual Meeting at www.virtualshareholdermeeting.com/AVYA2020 by using the 16-digit control number included with these proxy materials; or

 

   

by completing, dating, signing and promptly returning the accompanying proxy card, in the enclosed postage-paid, pre-addressed envelope provided for such purpose. No postage is necessary if the proxy card is mailed in the United States (“US”). Date and sign your name exactly as it appears on your proxy card.

We recommend that you vote by proxy even if you plan to virtually attend the Annual Meeting. As described below, you can revoke your proxy or change your vote at the Annual Meeting.

The Internet and telephone voting procedures are designed to authenticate stockholders by use of a control number and to allow you to confirm that your instructions have been properly recorded. The deadline for voting by telephone or electronically over the Internet is 11:59 p.m., New York City time, on Tuesday, March 3, 2020. Mailed proxy cards with respect to shares held of record should be mailed to allow sufficient time for delivery and tabulation.

If you hold your shares through a bank, broker or other nominee (also known as “street name”), such entity/person will give you separate instructions for voting your shares. “Street name” stockholders who wish to vote virtually at the Annual Meeting will need to obtain a proxy form from the institution that holds their shares and those institutions will likely require your instructions to be submitted before the deadline listed above.

Can I change my vote after I return my proxy card?

Yes. Even after you have voted electronically through the Internet, by telephone or submitted your proxy card, you may change your vote at any time before the proxy is exercised at the Annual Meeting. You may change your vote by (i) sending written notice of revocation to Sara R. Bucholtz, Corporate Secretary, Avaya Holdings Corp., 4655 Great America Parkway, Santa Clara, CA 95054; (ii) submitting a valid proxy with a subsequent date by the Internet, telephone or mail; or (iii) virtually attending the Annual Meeting and voting. Your virtual attendance at the Annual Meeting will not by itself revoke a proxy that you have previously submitted. Stockholders who hold shares through a bank, broker or other nominee should consult with that party as to the procedures to be used for revoking a vote.

If I dissent to any matter to be voted on, what are my rights?

None of Delaware law, our Certificate of Incorporation, as amended (including the Certificate of Designation for the Series A Stock), or our Bylaws, as amended, provides for appraisal or other similar rights for dissenting stockholders in connection with any of the proposals to be voted upon at the Annual Meeting. Accordingly, our stockholders will have no right to dissent and obtain payment for their shares.

What if I return a proxy card but do not make specific choices?

If we receive a signed and dated proxy card from you that does not specify how your shares are to be voted on one or more matters, your shares will be voted “For” the election of each of the director nominees and “For” Proposals No. 2, 3, 4 and 5. If any other mater is properly presented at the Annual Meeting, the individuals named as proxy holders on your proxy card will vote your shares in the manner recommended by the Board on all proposals presented in the Proxy Statement and as they may determine in their best judgment as to any other matters properly presented for vote at the Annual Meeting.

 

 

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Proxy and Voting Information

 

What does it mean if I receive more than one proxy card or voting instruction form?

It means your shares are registered differently or are held in more than one account at the transfer agent and/or with one or more banks, brokers or other nominees. Please vote all your shares.

How will votes be recorded?

Votes will be tabulated by Broadridge, and the results will be certified by one or more Inspectors of Election, who are required to resolve impartially any interpretive questions as to the conduct of the vote. In tabulating votes, the Inspectors of Election will make a record of the number of shares voted for or against each nominee and each other matter voted upon, the number of shares abstaining with respect to each nominee or other matter, and the number of shares held of record by banks, brokers or other nominees and present at the Annual Meeting but not voting.

What is “householding” and how does it affect me?

We have adopted the “householding” procedure approved by the Securities and Exchange Commission (“SEC”), which allows us to deliver one set of documents to a household of stockholders instead of delivering a set to each stockholder in a household, unless we have been instructed otherwise. This procedure is more environmentally friendly and cost-effective because it reduces the number of copies to be printed and mailed. We and some banks, brokers or other nominees send household annual reports and proxy statements, delivering a single annual report and proxy statement to multiple stockholders sharing an address unless we have been instructed otherwise.

If, at any time, you no longer wish to participate in householding and would prefer to receive a separate annual report and proxy statement in the future, please notify your bank, broker or other nominee if your shares are held in a brokerage account or notify us at the address or telephone number below if you hold registered shares. Alternatively, if, at any time, you and another stockholder sharing the same address wish to participate in householding and prefer to receive a single copy of our annual report and proxy statement, please notify your bank, broker or other nominee if your shares are held in a bank or brokerage account or notify us if you hold registered shares.

At any time, you may request a separate copy of our annual report or proxy statement by sending a written request to the Corporate Secretary at Avaya Holdings Corp., 4655 Great America Parkway, Santa Clara, CA 95054, or by calling (908) 953-6000.

Who is paying for this proxy solicitation?

We will pay for the entire costs of soliciting proxies. In addition to these proxy materials, our directors, officers and employees may also solicit proxies in person, by phone or other means of communications. Directors, officers and employees will not be paid any additional compensation for soliciting proxies.

In addition, we have engaged D.F. King, a proxy solicitation firm, to assist us in the solicitation of proxies for a fee of approximately $8,500, plus reasonable out-of-pocket expenses.

Where can I find the voting results of the Annual Meeting?

We plan to announce preliminary voting results at the Annual Meeting and to publish the final results in a current report on Form 8-K following the Annual Meeting.

 

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Corporate Governance

 

CORPORATE GOVERNANCE

Overview

Our Board is responsible for providing oversight over the Company’s business and affairs, including the Company’s strategic direction, as well as the management and financial and operational execution that can best perpetuate the success of the business and support the long-term interests of our stockholders. To effectively support its responsibilities, the Board has three committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each of these Board committees is currently comprised solely of independent directors. These Board committees carry out responsibilities set out in specific committee charters approved by the Board that are consistent with applicable requirements of the NYSE and the SEC. The Board and each committee may from time to time form other committees for specified purposes. The Board and each committee may also, at its discretion, retain outside advisors at the Company’s expense in carrying out its responsibilities.

Our Board is committed to good corporate governance practices and seeks to represent stockholder interests through the exercise of sound judgment. To this end, the Board has adopted Corporate Governance Guidelines (“Guidelines”) that provides the framework for the governance of the Board and Company and a Code of Ethics and Business Conduct (“Code of Conduct”) that represents our commitment to the highest standards of ethics and integrity in the conduct of our business. The Board committee charters, the Guidelines and the Code of Conduct, as well as any amendments we may make to these documents from time to time, may be found in the Investor Relations section of our website under “Corporate Governance” at https://investors.avaya.com/corporate-governance/governance-policies, and, together with our charter and bylaws, serve as our governance and compliance framework. Information on our website, including the information on the Investor Relations section referenced here and below, is not considered part of this Proxy Statement.

Code of Conduct

Our Code of Conduct is designed to help directors and employees worldwide resolve ethical issues in an increasingly complex global business environment. The Code of Conduct applies to all directors and employees, including, without limitation, the Chief Executive Officer (“CEO”), the Chief Financial Officer, the Chief Accounting Officer, the Corporate Controller and any other employee with any responsibility for the preparation and filing of documents with the SEC. The Code of Conduct covers a variety of topics, including those required to be addressed by the SEC. Topics covered include, but are not limited to, conflicts of interest, confidentiality of information and compliance with applicable laws and regulations. Directors and employees of the Company receive periodic updates regarding corporate governance policies and are informed when there are any material changes to the Code of Conduct.

We will post amendments to or waivers of the provisions of the Code of Conduct made with respect to any of our directors and executive officers on the Investor Relations section of our website within four business days of effecting any such amendment or waiver. During Fiscal 2019, no amendments to or waivers of the provisions of the Code of Conduct were made with respect to any of our directors or executive officers.

Corporate Responsibility

In addition to upholding high ethical standards in the ways we conduct business, we recognize that our Company has opportunities to bring about positive social, environmental and economic change. We

 

 

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call this our corporate responsibility and work with our customers, partners, employees, and community to make a positive impact in the world. Our Corporate Responsibility Policy and annual Corporate Responsibility Report, which details our commitments, goals, and initiatives, are available on our website at https://www.avaya.com/en/about-avaya/corporate-responsibility.

 

 

Corporate Responsibility Highlights

 

Environment

  

•   Avaya is a member of We Are Still In, the largest climate action group in the US.

•   Avaya tracks and reports its carbon emissions annually to the CDP (formerly known as the Carbon Disclosure Project). In 2015, we set a goal to reduce our Scope 1 and Scope 2 emissions by 15% cumulatively by 2020. We exceeded this goal and achieved a cumulative 40% reduction from 2014 to 2019.

•   Avaya’s ISO 14001 certified Design for Environment (“DfE”) program focuses on continually reducing the environmental impact of our solutions and services; current initiatives include developing energy efficient products and eliminating single-use plastic packaging in our supply chain. Our commitment to demonstrating care for the environment through the DfE program is stated in our R&D Environmental Policy.

•   Our technology helps our customers achieve their environmental goals. For example, the Avaya Equinox videoconferencing platform reduces or eliminates the need for business travel by enabling customers to host engaging and effective meetings remotely. This results in significant Scope 3 carbon emission reductions for our customers, which helps mitigate climate change.

 

Human Rights and Supply Chain Responsibility

  

•   Avaya is a member of the Responsible Business Alliance (“RBA”), the world’s largest industry coalition dedicated to upholding social, environmental, and ethical standards in global supply chains, and has adopted the Supplier Code of Conduct.

•   Avaya has policies and programs in place to identify risks and prevent the use of child labor, slavery, and human trafficking in our business operations and supply chain, including our Code of Conduct, Human Rights Statement, and UK Modern Slavery Transparency Act Statement.

•   Avaya has a Conflict Minerals Policy and submits an annual Conflict Minerals Report to the SEC all with the aim of eliminating the social and environmental harm brought from sourcing conflict minerals from the Democratic Republic of Congo.

 

Diversity and Inclusion

  

•   Avaya is a member of CEO Action for Diversity and Inclusion, the largest CEO-driven business commitment to advance diversity and inclusion in the workplace.

•   Avaya’s Diversity and Inclusion Policy states our commitment to promote diversity and foster a culture of inclusion within our company, industry, and communities.

•   In March 2019, we launched our Avaya for Communities program to provide significantly discounted softphone solutions to Economically Disadvantaged Women-Owned Small Businesses in the US.

•   Avaya’s Talent Exchange Program gives employees the opportunity to perform their job in other parts of the world in order to build cultural intelligence and foster a diverse workforce.

•   Avaya has a Supplier Diversity Program to promote a network of diverse strategic supplier alliances to deliver exceptional products and services to our customers.

 

 

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Corporate Responsibility Highlights

 

Community   

•   We sponsor a Month of Giving each year in an effort to support fundraising and volunteering efforts by our worldwide employees, partners and customers. We raised nearly $175,000 in 2018 and collected over $100,000 to date in 2019 and, through the collective efforts of our global team, donated thousands of pounds of materials and contributed thousands of hours of volunteering to benefit charities around the world. We supported and partnered with well-respected organizations, including Save the Children, ALS Association, Doctors Without Borders, Save Our Shores, and the National Multiple Sclerosis Society.

•   Avaya launched a Devices for Diversity marketing campaign to support girls who have been denied an education because of their gender and where they were born. For each Avaya multimedia device sold in the first quarter of Fiscal 2019, we made a contribution to Girls Educational Programming through our nonprofit partner, Save the Children.

 

Prohibition on Hedging or Pledging of Company Stock

Our Insider Trading Policy prohibits Covered Individuals (as defined below) (and such individuals’ immediate family and household members) from entering into hedging transactions involving our securities. “Covered Individuals” refers to our (i) directors, (ii) officers who are designated as being subject to Section 16 of the Securities Exchange Act of 1934, as amended, and (iii) certain other officers and key employees of the Company designated by our General Counsel (which currently includes Senior Vice Presidents, Vice Presidents and Senior Directors, and individuals involved in the preparation of internal and external financial reports and SEC reports). Covered Individuals (and such individuals’ immediate family and household members) are also prohibited under this policy from holding our stock in a margin account as collateral for a margin loan or otherwise pledging our stock as collateral for a loan.

Leadership Structure of the Board

Under our bylaws, our Board appoints our corporate officers, including the CEO. Our Board understands that there is no single, generally accepted approach to providing Board leadership and that given the dynamic and competitive environment in which we operate, the right Board leadership structure may vary as circumstances warrant. Currently, our bylaws provide that the chairman of the Board may not simultaneously serve as our CEO. The Board believes that the current Board leadership structure is best for Avaya and its stockholders at this time. Our Nominating and Corporate Governance Committee periodically reviews the Company’s governance structure and practices, including the provisions of our certificate of incorporation and our bylaws.

Board Independence

Among other considerations, the Board values independent board oversight as an essential component of strong corporate performance. On at least an annual basis, the Board undertakes a review of the independence of each director and considers whether any director has a material relationship with Avaya. The Board evaluates each director under the independence rules of the NYSE, the Guidelines and the audit committee independence requirements of the SEC.

The NYSE rules require listed company boards to have at least a majority of independent directors. Based on its evaluation, our Board determined that each of Messrs. Scholl, Sutula, Vogel and Watkins

 

 

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and Mses. Spradley and Yeaney, representing six of Avaya’s seven current directors, are independent directors as defined under the NYSE rules. Mr. Chirico, who serves as our President and CEO, is the only current member of the Board who is not independent.

Board Composition and Director Qualifications

The Company seeks to align Board composition with the Company’s strategic direction such that Board members bring skills, experience and backgrounds relevant to the strategic and operational issues that they will oversee and approve. Director candidates are typically selected based on their integrity and character, sound and independent judgment, track record of accomplishments in leadership roles, as well as based on their professional, corporate and industry expertise, skills and experience. More specifically, among others, the Nominating and Corporate Governance Committee and the Board considers the following criteria in the selection of director candidates:

 

   

the independence, judgment, strength of character, reputation in the business community, ethics and integrity of the individual;

 

   

the business or other relevant experience, skills and knowledge that the individual may have that will enable him or her to provide effective oversight of the Company’s business and to serve on or chair, as appropriate, relevant Board committees;

 

   

the fit of the individual’s skill set and personality with those of the other Board members so as to build a Board that works together effectively and constructively;

 

   

diversity with respect to experience, gender, race, ethnicity and age; and

 

   

the individual’s ability to devote sufficient time to carry out his or her responsibilities as a director in light of his or her occupation and the number of boards of directors and committees of other public companies on which he or she serves.

Board and Committee Meetings

Our Board met 40 times during Fiscal 2019. During Fiscal 2019, each current Board member attended 75% or more of the meetings of the Board and each of the committees on which he or she served (during the period he or she served on the Board and on such committees.) In addition, our Board met in executive session without management present during many of its meetings, including but not limited to its three regularly scheduled in-person meetings in Fiscal 2019. Our chairman of the Board presides over the executive sessions of the Board. Committees of the Board also meet in executive session as they deem appropriate.

We encourage our directors to attend our annual meetings of stockholders and we anticipate that each director will virtually attend our Annual Meeting.

 

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Corporate Governance    Board Committees

 

Board Committees

 

 

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Each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee is currently comprised of independent directors. In addition, each member of the Audit Committee is financially literate and two members of the Audit Committee qualify as audit committee financial experts pursuant to SEC rules. The composition and some of the key responsibilities of each of these committees are described below. In addition to the responsibilities listed below, each Board committee conducts an annual performance self-evaluation and an annual review of its committee charter. Each of these committees has authority under its respective charter to access such internal and external resources, including retaining legal, financial or other advisors, as the committee deems necessary or appropriate to fulfill its responsibilities. To view each committee’s full responsibilities, see the specific committee charters under “Corporate Governance” in the Investor Relations section of our website at https://investors.avaya.com/corporate-governance/governance-policies.

 

Committees and

Membership

 

   Key Committee Responsibilities

AUDIT

 

Stanley J. Sutula, III, Chair*

Susan L. Spradley

Scott D. Vogel*

 

* Qualifies as an audit

committee financial expert

 

Meetings in Fiscal 2019: 16

  

•   Select, and evaluate the performance of, the Company’s independent registered public accounting firm (including its qualifications, performance and independence);

 

•   Review and discuss with management and our independent registered public accounting firm the content of our financial statements prior to filing our quarterly reports on Form 10-Q, and the annual audited financial statements, including disclosures made in management’s discussion and analysis of financial condition and results of operations, and recommend to our Board whether the audited financial statements should be included in our annual report on Form 10-K;

 

•   Oversee the Company’s systems of internal accounting and financial controls and review the activities and qualifications of the Company’s internal audit function;

 

•   Review and discuss risk management and controls, including policies and guidelines with respect to risk assessment and risk management;

 

•   Review and approve related party transactions for potential conflicts of interest; and

 

•   Oversee the processes for handling complaints relating to accounting, internal accounting controls and auditing matters.

 

 

 

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Corporate Governance    Board Committees

 

Committees and

Membership

 

   Key Committee Responsibilities

COMPENSATION

 

Scott D. Vogel, Chair

Stephan Scholl

Jacqueline E. Yeaney

 

Meetings in Fiscal 2019: 7

  

•   Approve the compensation of each of the Company’s senior officers who are, as determined from time to time by our Board, subject to the provisions of Section 16 of the Exchange Act (the “Senior Executives” or “Section 16 Officers”), and approve (as appropriate) employment agreements and severance plans;

 

•   Review the CEO’s individual goals and objectives and set the CEO’s compensation after evaluating his performance;

 

•   Review, approve and make recommendations to the Board regarding equity-based plans and incentive compensation plans in which the CEO and the other Senior Executives may participate;

 

•   Approve grants of stock options, restricted stock awards and/or other awards under equity-based plans;

 

•   Recommend to the Board compensation of the non-employee Board members and committee members;

 

•   Monitor compliance with the Company’s share ownership guidelines;

 

•   Develop and periodically review with the Board succession plans with respect to the CEO and other senior executives; and

 

•   Administer the Company’s clawback policy.

 

NOMINATING AND

CORPORATE

GOVERNANCE

 

Susan L. Spradley, Chair

Stephan Scholl

William D. Watkins

 

Meetings in Fiscal 2019: 2

  

•   Evaluate the performance, size and composition of the Board to determine the qualifications and areas of expertise needed to further enhance the composition of the Board and working with management in attracting candidates with those qualifications;

 

•   Identify individuals qualified to become directors and review the qualifications of prospective nominees, including nominees recommended by stockholders, and recommend to the Board candidates for election at the Company’s Annual Meeting of Stockholders and to fill Board vacancies;

 

•   Recommend to the Board committee chairs and members, as well as changes in number or function of committees;

 

•   Establish procedures, subject to the Board’s approval, for the annual performance self-evaluation of the Board and its committees; and

 

•   Develop and oversee a Company orientation program for new directors and an education program for all directors.

 

Compensation Committee Interlocks and Insider Participation

Each current member of the Compensation Committee is an independent director. No individual who was a member of the Compensation Committee during Fiscal 2019: (i) was an officer or employee of the Company or any of its subsidiaries during Fiscal 2019; (ii) was formerly an officer of the Company or any of its subsidiaries; or (iii) served on the board of directors of any other company any of whose executive officers served on the Company’s Compensation Committee or its Board.

 

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Corporate Governance    Selection of Board Nominees

 

Selection of Board Nominees

The Nominating and Corporate Governance Committee is responsible for identifying, evaluating and recommending qualified candidates for election to the Board. To fulfill these responsibilities, the Nominating and Corporate Governance Committee reviews the composition of the Board to determine the qualifications and areas of expertise needed to further enhance the composition of the Board and works with management to attract candidates with those qualifications.

To identify new director candidates, the Nominating and Corporate Governance Committee seeks advice and names of candidates from its members, other members of the Board, members of management and other public and private sources. The Nominating and Corporate Governance Committee, in formulating its recommendation of candidates to the Board, considers each candidate’s personal qualifications and how such personal qualifications effectively address the then perceived current needs of the Board and its committees, including the criteria described above under “Board Composition and Director Qualifications.” The selection process includes, among other things, interviews with Board members, the CEO and other members of senior management, as appropriate, and reference checks of identified candidates. The Nominating and Corporate Governance Committee gives the same consideration to director candidates submitted by stockholders. See the procedures described in this Proxy Statement under the heading “Process for Director Nominations and Stockholder Proposals” for more details.

The Nominating and Corporate Governance Committee has sole authority under its charter to retain and terminate, at the Company’s expense, any search firm or advisor to be used to identify director candidates and has sole authority to approve the search firm’s or advisor’s fees and other retention terms. After the Nominating and Corporate Governance Committee completes its evaluation, it presents its recommendations to the Board for consideration and approval.

In May 2018, the Board engaged Heidrick & Struggles International, Inc., a worldwide executive search firm (“Heidrick & Struggles”), to help the Board identify individuals to possibly join the Board to fill the vacancy created by Ronald A. Rittenmeyer’s resignation from the Board, which was effective April 30, 2018. In addition, the Board appointed an ad hoc committee of the Board, comprised of Messrs. Chirico, Scholl and Watkins, to evaluate potential director candidates and recommend candidates to the Nominating and Corporate Governance Committee. This committee considered director candidates identified by Heidrick & Struggles and the directors interviewed certain director candidates based upon the committee’s recommendation. After consideration of a recommendation from the Nominating and Corporate Governance Committee, the Board elected Ms. Yeaney to serve on the Board, effective as of March 18, 2019. Ms. Yeaney was then re-elected by the Company’s stockholders at the Company’s 2019 Annual Meeting.

The Nominating and Corporate Governance Committee evaluated the director nominees and recommended that the Board nominate each director nominee named above for re-election.

RingCentral Board Nominee

In connection with our strategic partnership with RingCentral, Inc. (“RingCentral”) and RingCentral’s acquisition of the Series A Stock, in October 2019 we entered into an Investor Rights Agreement with RingCentral. This agreement entitles RingCentral to nominate one person (the “RingCentral Nominee”) to our Board until such time as RingCentral and its affiliates no longer hold or beneficially own, in the aggregate, shares of Series A Stock that can be converted into more than 4,759,339 shares of our Common Stock assuming conversion of all Series A Stock then held. In addition, the RingCentral

 

 

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Nominee has the option (i) to serve on our Audit and Nominating and Corporate Governance Committees or (ii) to attend (but not vote at) all of Board committee meetings. We anticipate that the RingCentral Nominee will be identified by RingCentral and nominated to our Board at some point after the Annual Meeting. For further information on our relationship with RingCentral, please see the “Certain Relationships and Related Transactions” section in this Proxy Statement.

Board Oversight of Risk Management

While the Board has the ultimate oversight responsibility for the risk management process, its committees oversee risk in certain specified areas. In particular, our Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements and the incentives created by the compensation awards it administers. Our Audit Committee oversees management of enterprise risks and receives and reviews briefings concerning the Company’s information security and technology risks (including cyber security), financial risks and potential conflicts of interests. Pursuant to the Board’s instruction, management regularly reports on applicable risks to the relevant committee or the Board, as appropriate, with additional review or reporting on risks conducted as needed or as requested by the Board and its committees.

Communications with the Board

Stockholders or interested parties may contact the Board, the Non-Executive Chairman and/or independent directors about corporate governance or other matters related to the Board by writing to the following address (indicating by name or title to whom the correspondence should be directed):

Avaya Holdings Corp. Board of Directors

Attention: Corporate Secretary

4655 Great America Pkwy

Santa Clara, CA 95054

Communications may also be sent by email to bdofdirectors@avaya.com. The Corporate Secretary manages all communications received as set forth above to determine whether the contents represent a message to the Board, its committees or any member, group or committee of the Board.

 

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Proposal 1 Election of Directors

 

PROPOSAL 1 – ELECTION OF DIRECTORS

Under our bylaws, our Board shall consist of at least seven directors and not more than nine. All directors will be in one class. Currently our Board has seven members. At each annual meeting of stockholders, the directors will be elected to serve until the earlier of their death, resignation, retirement, disqualification, removal or incapacity or until their successors have been elected and qualified.

Upon the recommendation of the Nominating and Corporate Governance Committee, the Board has nominated James M. Chirico, Jr., Stephan Scholl, Susan L. Spradley, Stanley J. Sutula, III, Scott D. Vogel, William D. Watkins and Jacqueline E. Yeaney for election as directors, each to serve until the next annual meeting of stockholders or until his or her successor is duly elected and qualified, except in the case of their earlier death, resignation, retirement, disqualification, removal or incapacity. Each nominee is currently serving as a director and has consented to serve for the new term. Should any nominee become unavailable for election, your proxy authorizes the named proxies to vote for such other person, if any, as the Board may recommend.

The following table identifies the experience and qualifications that our director nominees bring to the Board. As described above under “Board Composition and Director Qualifications,” the Nominating and Corporate Governance Committee formulates its recommendation of candidates to the Board after consideration of each candidate’s personal qualifications and how such personal qualifications effectively address the then perceived current needs of the Board and its committees.

 

  Directors
               

 Experience/Skills

Chirico

Scholl

Spradley

Sutula

Vogel

Watkins

Yeaney

               

Senior Leadership

               

Finance, Accounting or Financial Reporting

 

 

               

Corporate Governance

 

 

 

               

Executive Compensation

 

 

 

 

               

International Experience

 

               

Other Public Company Board experience

 

 

 

               

Risk Management

 

               

Strategic Planning, Business Development, Business Operations

 

 

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Proposal 1 Election of Directors

 

Each director to be elected by stockholders is elected by a plurality of votes, which means that the seven nominees receiving the most “for” votes will be elected. Votes withheld from any nominee will have no effect on the outcome of the election of directors. Votes may not be cast “against” the election of a nominee. Abstentions and broker non-votes will not be counted for any purpose in determining whether a nominee is elected. Directors may be removed, with or without cause, upon the affirmative vote of the holders of at least a majority of our voting stock. Directors need not be stockholders but are subject to certain share ownership requirements as described in the “Compensation Discussion & Analysis” below.

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE

“FOR” EACH OF THE DIRECTOR NOMINEES NAMED BELOW.

 

   
Director Nominees     

 

   

  James M. Chirico, Jr.

  Director since 2017

  Age 62

 

  Committees: N/A

 

Mr. Chirico has been our President and CEO since October 1, 2017 and a member of our Board since December 15, 2017. Prior to that, from September 1, 2016 through September 30, 2017, he served as our Executive Vice President and Chief Operating Officer and was also named Head of Global Sales in November 2016. Previously he served as our Executive Vice President, Business Operations and Chief Restructuring Officer from June 14, 2010 through August 31, 2016. He served as President, Operations from January 2008 until June 14, 2010 and was appointed Chief Restructuring Officer on February 3, 2009. Prior to joining Avaya, from February 1998 to November 2007, Mr. Chirico held various senior management positions at Seagate Technology, a designer, manufacturer and marketer of hard disc drives, including Executive Vice President, Global Disc Storage Operations, from February 2006 until November 2007, and Senior Vice President and General Manager, Asia Operations, from September 2000 to February 2006. In addition, Mr. Chirico served on the Board of Directors of Caraustar Industries, Inc., an integrated manufacturer of 100% recycled paperboard and converted paperboard products, from 2009 until 2013.

 

Experience, Qualifications, Attributes and Skills

Mr. Chirico’s role as CEO, the management perspective he brings to Board deliberations and his extensive management experience at Avaya, as well as other companies, led to the conclusion that he should serve as a director of our Company.

 

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Proposal 1 Election of Directors

 

   

  Stephan Scholl

  Director since 2017

  Age 49

 

  Committees:

 Compensation

 Nominating &
Corporate
Governance

 

Mr. Scholl joined our Board on December 15, 2017. Mr. Scholl currently sits on the boards of EG Software and 1010 Data and is an advisor to several private equity firms. Prior to that, from April 2012 until July 11, 2018, he served as President of Infor, Inc., a privately held provider of enterprise software products and services. Previously, from 2011 until 2012, he served as President and Chief Executive Officer of Lawson Software, Inc. He helped merge Lawson into Infor in 2012. He joined Infor in 2010 as Executive Vice President of Global Sales and Consulting. Earlier, Mr. Scholl held various leadership roles at Oracle Corporation, including Senior Vice President and General Manager of the Tax and Utilities Business and before that as Senior Vice President of the North America Consulting business. He joined Oracle in 2005 with the company’s acquisition of PeopleSoft.

 

Experience, Qualifications, Attributes and Skills

Mr. Scholl’s experience in software and services, including with a cloud business, his service as an executive officer of companies including as President and Chief Executive Officer, as well as his independence from the Company, led to the conclusion that he should serve as a director of our Company.

 

 

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Table of Contents

Proposal 1 Election of Directors

 

   

  Susan L. Spradley

  Director since 2017

  Age 58

 

  Committees:

 Audit

 Nominating & Corporate Governance (Chair)

 

Ms. Spradley joined our Board on December 15, 2017. Ms. Spradley is Chief Executive Officer of Motion Intelligence, Inc., a SaaS company specializing in mobile device location and identification services, a position she has held since December 2017. Ms. Spradley is also the principal of Spradley Consulting LLC, a consulting firm that she founded in February 2017 that offers management consulting and leadership and talent coaching. Previously, she was a partner in the Tap Growth Group, a senior executive consulting firm focused on helping new ventures and Fortune 500 companies drive growth, from August 2017 until June 2019. In addition, she served in senior executive roles at Viavi Solutions (formerly JDSU), a publicly-traded provider of strategic network solutions. She was Executive Vice President and General Manager of Product Line Management and Design from 2015 to January 2017, and before that she was Senior Vice President and General Manager of the Communications Test & Measurement Business Unit from 2013 to 2015. From April 2011 to December 2012, Ms. Spradley was the CEO/Executive Director of US Ignite, a White House and National Science Foundation initiative focused on applications for smart city implementation. Prior to serving at US Ignite, Ms. Spradley was President of the North America region at Nokia Siemens Networks and an Executive Board Member. She served in a variety of roles at Nortel before her work at Nokia Siemens Networks, most recently as President of Global Services. Ms. Spradley currently sits on two public company boards: Qorvo, a global provider of RF systems and semiconductor technologies, a position she has held since January 2017, and NetScout Systems, Inc., a leading provider of service assurance, security and business analytics, a position she has held since April 2018. Additionally, from 2012 through January 2020, Ms. Spradley served as Chairman of the board of directors of US Ignite, a non-profit organization. From October 2011 until November 2012, she served on the board of directors of EXFO Inc.

 

Experience, Qualifications, Attributes and Skills

Ms. Spradley’s experience in the wireless telecommunications industry, including broad operating experience in sales, product portfolio management, and research and development for multiple global communications-related companies and her extensive public company executive leadership experience, as well as her independence from the Company, led to the conclusion that she should serve as a director of our Company.

 

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Proposal 1 Election of Directors

 

   

  Stanley J. Sutula, III

  Director since 2017

  Age 54

 

  Committees:

 Audit (Chair)

 

Mr. Sutula joined our Board on December 15, 2017. Mr. Sutula is currently an Executive Vice President and the Chief Financial Officer of Pitney Bowes Inc., a global technology company that provides commerce solutions in the areas of ecommerce, shipping, mailing and data, and has served in this capacity since February 2017. From January 2015 to January 2017, he was Vice President and Controller of International Business Machines Corporation (IBM), a global company that creates value for clients through integrated solutions and products that leverage data, information technology, deep expertise in industries and business processes, and a broad ecosystem of partners and alliances. From January 2014 to January 2015, he served as Vice President and Treasurer of IBM and from May 2008 to January 2014 he served as Vice President – Finance and Planning (Chief Financial Officer) of IBM’s Global Technology Services business. From 1988 to 2008, he held a number of positions at IBM including several leadership positions in the US and Europe.

 

Experience, Qualifications, Attributes and Skills

Mr. Sutula’s experience in senior finance positions, including as Chief Financial Officer and Controller, and his experience with software and global management, as well as his independence from the Company, led to the conclusion that he should serve as a director of our Company.

 

   

  Scott D. Vogel

  Director since 2017

  Age 44

 

  Committees:

 Audit

 Compensation
(Chair)

 

Mr. Vogel joined our Board on December 15, 2017. Mr. Vogel is currently a Managing Member of Vogel Partners LLC, a private investment firm and has served in that capacity since July 2016. From 2002 through July 2016, he was a Managing Director at Davidson Kempner Capital Management, L.L.C., investing in distressed debt securities. From 1999 to 2001, he worked at MFP Investors, L.L.C. investing in special situations and turnaround opportunities. Prior to MFP Investors, he was an investment banker at Chase Securities. Mr. Vogel has served on numerous boards during his career, including the boards of Arch Coal, Inc. from October 2016 until May 2019 and Key Energy Services, Inc. from December 2016 until April 2019. Currently, he is on the Board of Directors of the following public companies: Contura Energy, Inc. since December 2019, Seadrill Ltd. since July 2018 and Bonanza Creek Energy, Inc. since April 2017. Mr. Vogel is a member of the Olin Alumni Board of Washington University and a member of the Advisory Board of Grameen America.

 

Experience, Qualifications, Attributes and Skills

Mr. Vogel’s mix of experience with executive management oversight, finance and capital markets, human resources and compensation and strategic planning, as well as his independence from the Company, led to the conclusion that he should serve as a director of our Company.

 

 

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Table of Contents

Proposal 1 Election of Directors

 

   

  William D. Watkins

  Chair of the Board of

  Directors

  Director since 2017

  Age 67

 

  Committees:

 Nominating &
Corporate
Governance

 

Mr. Watkins joined our Board and became Chair of the Board on December 15, 2017. Mr. Watkins was most recently Chairman and Chief Executive Officer of Imergy Power Systems, a privately held energy storage solutions company, from January 2015 and September 2013, respectively, until August 2016. Previously, he served as Chairman of the Board at Bridgelux, Inc., from February 2013 to December 2013 and as its Chief Executive Officer from 2010 to February 2013. Prior to that, he served as Chief Executive Officer and Board Member at Seagate Technology, a publicly traded provider of electronic data storage technologies and systems, from 2004 until 2009, and before that he was Seagate’s President and Chief Operating Officer. He joined Seagate in 1996 with the company’s acquisition of Conner Peripherals. Mr. Watkins currently sits on two public company boards: FLEX LTD., an electronics design manufacturer, since April 2009; and Maxim Integrated Products, Inc., a manufacturer of linear and mixed-signal integrated circuits, since August 2008. In January 2019, Mr. Watkins joined the Board of Directors as Chairman at Bright Machines, Inc., a privately held software design manufacturing company. Mr. Watkins previously served as a Board Member at Seagate Technology from 2000 until 2009. He was a Non-Executive Director at MEMC Electronic Materials, Inc. from 2002 until 2004.

 

Experience, Qualifications, Attributes and Skills

Mr. Watkins’ experience in the technology industry, his operational and management experience, his experience as an executive officer of companies including as Chief Executive Officer, President and Chief Operating Officer, his expertise and familiarity with financial statements, as well as his independence from the Company, led to the conclusion that he should serve as a director of our Company.

 

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Proposal 1 Election of Directors

 

   

  Jacqueline E. Yeaney

  Director since 2019

  Age 51

 

  Committees:

 Compensation

  

Ms. Yeaney joined our Board on March 18, 2019. Ms. Yeaney is Executive Vice President, Marketing of Tableau Software, a privately held self-service analytics platform, a position she has held since July 30, 2019. Prior to that Ms. Yeaney was the Senior Vice President and Chief Marketing Officer of Ellucian, a privately held provider of software and services for higher education management, from January 2017 until April 1, 2019. She served as the Executive Vice President, Strategy and Marketing of Red Hat, Inc., a publicly traded provider of open source software solutions, from 2011 to 2016 after serving as a consultant to Red Hat in 2008. Prior to that she served as the chief marketing officer at Premiere Global Services, Inc., EarthLink, Inc. and HomeBanc Mortgage Corporation. Ms. Yeaney was also a Captain in the US Air Force where she held the highest level security clearance. Previously Ms. Yeaney served as a Non-Executive Director at Promethean World Limited from 2014 to 2015.

 

Experience, Qualifications, Attributes and Skills

Ms. Yeaney’s experience with global public company technology companies, including experience with strategy, marketing and transformation in the cloud and software industries, and her executive leadership experience, as well as her independence from the Company, led to the conclusion that she should serve as a director of our Company.

 

 

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Table of Contents

Stock Ownership

 

STOCK OWNERSHIP

Security Ownership of Certain Beneficial Owners and Management

The following table presents information as to the beneficial ownership of our Common Stock as of January 6, 2020 for:

 

   

each stockholder known by us to be the beneficial owner of more than 5% of our Common Stock;

 

   

each of our directors and director nominees;

 

   

each named executive officer as set forth in the summary compensation table in this Proxy Statement; and

 

   

all current executive officers, directors and director nominees as a group.

Percentage ownership of our Common Stock in the table is based on 99,517,295 shares of Common Stock outstanding as of January 6, 2020. Shares of Common Stock that may be acquired within 60 days of January 6, 2020 pursuant to the exercise of options or warrants, and restricted stock units (“RSUs”) that vest, or conversion of Series A Stock are deemed to be outstanding for the purpose of computing the percentage ownership of such holder but are not deemed to be outstanding for computing the percentage ownership of any other person shown in the table. For instance, as of January 6, 2020, RingCentral owns 125,000 shares of our Series A Stock, which could be converted into 7,852,311 shares of our outstanding Common Stock as of such date. In calculating the “Percent of Class Owned” in the table below, we have assumed the conversion of the Series A Stock to Common Stock for RingCentral but have not assumed such conversion with regards to the other beneficial owners.

Beneficial ownership of shares is determined under the SEC rules and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as noted by footnote, and subject to community property laws where applicable, we believe based on the information provided to us that the persons and entities named in the table below have sole voting and investment power with respect to all shares of our Common Stock shown as beneficially owned by them. Unless otherwise noted below, the address of each of the individuals and entities named below is c/o Avaya Holdings Corp., 4655 Great America Parkway, Santa Clara, California 95054.

 

Name and Address of Beneficial Owner

  Title of Class     Amount and
Nature of
Beneficial
Ownership
    Percent of Class
Owned
 

 

 

5% Stockholder:

     

 

Davidson Kempner Capital Management LP and
other Reporting Persons

    Common Stock       10,871,113(1)       10.9%  

c/o Davidson Kempner Capital Management LP

     

520 Madison Avenue, 30th Floor New York, NY 10022

 

     

 

The Vanguard Group

 

 

 

 

Common Stock

 

 

 

 

 

 

9,985,183(2)

 

 

 

 

 

 

10.0%

 

 

100 Vanguard Blvd.

 

Malvern, Pennsylvania 19355

     

 

JPMorgan Chase & Co.

 

 

 

 

Common Stock

 

 

 

 

 

 

9,421,223(3)

 

 

 

 

 

 

9.5%

 

 

383 Madison Avenue

New York, NY 10179

 

     

 

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Stock Ownership     Security Ownership of Certain Beneficial Owners and Management

 

Name and Address of Beneficial Owner

  Title of Class     Amount and
Nature of
Beneficial
Ownership
    Percent of Class
Owned

 

BlackRock, Inc.

 

 

 

 

Common Stock

 

 

 

 

 

 

7,469,484

 

(4) 

 

 

7.5%

55 East 52nd Street

New York, New York 10055

     

RingCentral, Inc.

    Common Stock (5)      7,852,311     7.3%

20 Davis Drive

Belmont, CA 94002

     

Directors:

     

James M. Chirico, Jr.

 

 

Common Stock

 

 

 

862,036

(6) 

 

*

Stephan Scholl

 

 

Common Stock

 

 

 

33,733

(7) 

 

*

Susan L. Spradley

 

 

Common Stock

 

 

 

33,733

(7) 

 

*

Stanley J. Sutula, III

 

 

Common Stock

 

 

 

33,733

(7) 

 

*

Scott D. Vogel

 

 

Common Stock

 

 

 

33,733

(7) 

 

*

William D. Watkins

 

 

Common Stock

 

 

 

33,733

(7) 

 

*

Jacqueline E. Yeaney

 

 

 

 

Common Stock

 

 

 

 

 

 

19,731

 

(8) 

 

 

*

 

Named Executive Officers (other than James M. Chirico, Jr.):

 

   

Shefali Shah

 

 

Common Stock

 

 

 

89,698

(9) 

 

*

Kieran J. McGrath

 

 

Common Stock

 

 

 

85,927

(10) 

 

*

Edward Nalbandian

 

 

Common Stock

 

 

 

(11) 

 

*

Patrick J. O’Malley, III

 

 

Common Stock

 

 

 

(12) 

 

*

Gaurav Passi

 

 

 

 

Common Stock

 

 

 

 

 

 

 

(13) 

 

 

*

 

All Current Directors and Executive Officers as a
Group (11 persons)
(6), (7), (8), (9), (10), (14)

 

 

Common Stock

 

 

 

1,231,427

 

 

1.2%

 

*

Represents beneficial ownership of less than one percent of the outstanding shares of Common Stock.

 

(1)

The information was based upon a Schedule 13G/A filed with the SEC on February 11, 2019 by (i) M. H. Davidson & Co. (“CO”); (ii) Davidson Kempner Partners (“DKP”); (iii) Davidson Kempner Institutional Partners, L.P. (“DKIP”); (iv) Davidson Kempner International, Ltd. (“DKIL”); (v) Davidson Kempner Distressed Opportunities Fund LP (“DKDOF”); (vi) Davidson Kempner Distressed Opportunities International Ltd. (“DKDOI”); (vii) DKSOF IV Trading Subsidiary LP (“DKSOF”); (viii) Davidson Kempner Capital Management LP (“DKCM”); and (ix) Messrs. Thomas L. Kempner, Jr. and Anthony A. Yoseloff, and confirmed to the Company on October 24, 2018. CO has shared voting and dispositive power with respect to 206,733 of these shares. DKP has shared voting and dispositive power with respect to 1,213,419 of these shares. DKIP has shared voting and dispositive power with respect to 2,693,630 of these shares. DKIL has shared voting and dispositive power with respect to 2,953,527 of these shares. DKDOF has shared voting and dispositive power with respect to 784,694 of these shares. DKDOI has shared voting and dispositive power with respect to 1,396,916 of these shares. DKSOF has shared voting and

 

 

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Table of Contents

Stock Ownership    Security Ownership of Certain Beneficial Owners and Management

 

 

dispositive power with respect to 1,622,194 of these shares. DKCM, Messrs. Kempner and Yoseloff have shared voting and dispositive power with respect to all of these shares.

 

(2)

The information was based upon a Schedule 13G filed with the SEC on February 11, 2019 by The Vanguard Group. The Vanguard Group has sole voting power with respect to 103,295 of these shares, shared voting power with respect to 13,672 of these shares, sole dispositive power with respect to 9,879,988 of these shares and shared dispositive power with respect to 105,195 of these shares. The Vanguard Group’s Schedule 13G indicates that (i) 91,523 of these shares are beneficially owned by Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, as a result of its serving as investment manager of collective trust accounts and (ii) 25,444 of these shares are beneficially owned by Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, as a result of its serving as investment manager of Australian investment offerings.

 

(3)

The information was based upon a Schedule 13G filed with the SEC on January 8, 2020 by JPMorgan Chase & Co. JPMorgan Chase & Co. has sole voting power with respect to 3,193,072 of these shares and sole dispositive power with respect to 9,403,355 of these shares. JPMorgan Chase & Co.’s Schedule 13G indicates that the shares beneficially owned are held by its subsidiaries J.P. Morgan Investment Management Inc., JPMorgan Chase Bank, National Association, JPMorgan Asset Management (UK) Limited and J.P. Morgan Trust Company of Delaware.

 

(4)

The information was based upon a Schedule 13G filed with the SEC on February 11, 2019 by BlackRock, Inc. BlackRock, Inc. has sole voting power with respect to 7,212,224 of these shares and sole dispositive power with respect to 7,469,484 of these shares. BlackRock, Inc.’s Schedule 13G indicates that each of the following subsidiaries owns at 5% or greater of the shares reported on this Schedule 13G: BlackRock Advisors, LLC; BlackRock Investment Management (UK) Limited; BlackRock Asset Management Canada Limited; BlackRock Investment Management (Australia) Limited; BlackRock (Netherlands) B.V.; BlackRock Fund Advisors; BlackRock Asset Management Ireland Limited; BlackRock Institutional Trust Company, National Association; BlackRock Financial Management, Inc.; BlackRock Asset Management Schweiz AG; and BlackRock Investment Management, LLC.

 

(5)

The information was based upon a Schedule 13D filed with the SEC on November 12, 2019 by RingCentral, Inc. RingCentral, Inc. has sole voting and dispositive power with respect to 125,000 shares of Series A Stock, currently convertible into 7,852,311 shares of Common Stock.

 

(6)

Includes (i) 324,653 shares of Common Stock issuable upon the exercise of outstanding stock options that are exercisable or will become exercisable within 60 days of January 6, 2020.

 

(7)

Includes (i) 12,847 shares of Common Stock issuable in respect of RSUs that have vested but have had their settlement deferred until the earliest to occur of: (x) December 15, 2020, (y) the recipient’s separation of service from the registrant and (z) a “change in control” of the registrant, as defined in the Avaya Holdings Corp. 2017 Equity Incentive Plan; (ii) 4,040 shares of Common Stock issuable in respect of RSUs that have vested but have had their settlement deferred until the earliest to occur of: (x) February 12, 2022, (y) the recipient’s separation of service from the registrant and (z) a “change in control” of the registrant, as defined in the Avaya Holdings Corp. 2017 Equity Incentive Plan; and (iii) 16,846 shares of Common Stock issuable in respect of RSUs that have vested but have had their settlement deferred until the earliest to occur of: (x) May 15, 2022, (y) the recipient’s separation of service from the registrant and (z) a “change in control” of the registrant, as defined in the Avaya Holdings Corp. 2017 Equity Incentive Plan. All of the RSUs can only be settled with Common Stock.

 

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Stock Ownership    Security Ownership of Certain Beneficial Owners and Management

 

(8)

Includes (i) 2,885 shares of Common Stock issuable in respect of RSUs that have vested but have had their settlement deferred until the earliest to occur of: (x) March 18, 2022, (y) the recipient’s separation of service from the registrant and (z) a “change in control” of the registrant, as defined in the Avaya Holdings Corp. 2017 Equity Incentive Plan; and (ii) 16,846 shares of Common Stock issuable in respect of RSUs that have vested but have had their settlement deferred until the earliest to occur of: (x) May 15, 2022, (y) the recipient’s separation of service from the registrant and (z) a “change in control” of the registrant, as defined in the Avaya Holdings Corp. 2017 Equity Incentive Plan. These RSUs can only be settled with Common Stock.

 

(9)

Includes (i) 27,054 shares of Common Stock issuable upon the exercise of outstanding stock options that are exercisable or will become exercisable within 60 days of January 6, 2020 and (ii) 13,426 shares of Common Stock issuable upon the vesting of RSUs within 60 days of January 6, 2020.

 

(10)

Includes 85,927 shares of Common Stock issuable upon the vesting of RSUs within 60 days of January 6, 2020.

 

(11)

We are unable to provide a current address or confirm Mr. Nalbandian’s beneficial ownership because Mr. Nalbandian’s service as our Senior Vice President and President, Services ended effective October 1, 2019.

 

(12)

We are unable to provide a current address or confirm Mr. O’Malley’s beneficial ownership because Mr. O’Malley’s service as our Senior Vice President, Growth Initiatives ended effective October 7, 2019.

 

(13)

We are unable to provide a current address or confirm Mr. Passi’s beneficial ownership because Mr. Passi’s service as our Senior Vice President and President, Cloud ended effective November 19, 2019.

 

(14)

All current directors and executive officers includes: the seven directors listed above, Anthony F. Bartolo, Kieran J. McGrath, Shefali Shah and Kevin Speed.

 

 

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Table of Contents

Director Compensation

 

DIRECTOR COMPENSATION

Members of the Board who are Company employees do not receive any additional compensation for their service as directors.

Fiscal 2019 Non-Employee Director Compensation Program

In August 2018, upon the recommendation of the Compensation Committee with input from the Committee’s independent consultant, the Board reduced the annual cash retainer for non-employee directors from $100,000 to $75,000 in order to better align with our Compensation Peer Group, and established additional retainers for the Non-Executive Chair and each committee chair. Effective for Fiscal 2019 and thereafter, the program consists of the following:

 

   

Annual Cash Retainer

  $75,000
   

Additional Cash Retainers for Leadership Positions

 

Non-Executive Chair: $75,000

Audit Committee Chair: $25,000

Compensation Committee Chair: $15,000

Nominating & Corporate Governance Committee Chair: $10,000

   

Meetings fees

  $2,000 per Board or committee meeting in excess of 20 aggregate meetings during the fiscal year
   

Annual Equity Grant

  $250,000 in RSUs, which will be granted after each Annual Meeting to those who are elected to the Board at the Annual Meeting
   

Initial Equity Grant for Any Non-Employee Director Joining the Board of Directors Before the next Annual General Meeting

  $250,000 in RSUs, pro-rated to reflect service as a non-employee director for the portion of the fiscal year served until the next Annual Meeting

The annual cash retainer was paid in arrears to the non-employee directors as four quarterly payments of $18,750, beginning March 2019. The additional cash fees for serving as committee chairs were similarly paid in arrears in four quarterly installments, beginning in March 2019. The meeting fees were paid in arrears at the end of the 2019 fiscal year. RSUs granted to non-employee directors in Fiscal 2019 were vested in full on the grant date, while the delivery of the underlying shares is deferred until the earliest to occur of: (i) the third anniversary of the grant date; (ii) the recipient’s separation from the Company; or (iii) a change in control of the Company, as defined in the 2017 Equity Incentive Plan.

Total compensation provided to our non-employee directors for service during Fiscal 2019 was elevated due to (1) the impact of the combination of meeting fees and the extraordinary number of Board meetings required to facilitate the Company’s review of strategic alternatives during the year, and (2) a one-time 25% increase in the equity award value to compensate for the transition from granting equity at the beginning of our fiscal year to the date of the annual meeting and the associated four month delay in grant timing in Fiscal 2019. Total compensation for Fiscal 2020 is expected to be lower than for Fiscal 2019, because the strategic review process concluded in the first quarter of Fiscal 2020 and the transition equity awards were not repeated.

 

 

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Director Compensation

 

Non-Employee Director Compensation Paid in Fiscal 2019

The following table details the total compensation paid to our non-employee directors for Fiscal 2019:

 

Name

   Fees Earned or
Paid in Cash ($)(1)
     Stock Awards
($)(2)
   Total ($)  
Stephan Scholl      121,250      312,500      433,750  
Susan L. Spradley      150,750      312,500      463,250  
Stanley J. Sutula, III      164,000      312,500      476,500  
Scott D. Vogel      174,500      312,500      487,000  
William D. Watkins      177,500      312,500      490,000  
Jacqueline E. Yeaney      39,500      312,500      352,000  

 

(1)

Cash compensation for each of Ms. Spradley and Messrs. Scholl, Sutula, Vogel and Watkins consist of one quarterly $25,000 installment of the $100,000 annual cash retainer in effect during Fiscal 2018, plus three quarterly installments of the $75,000 annual cash retainer in effect beginning March 2019. Ms. Yeaney received two quarterly installments of the $75,000 annual cash retainer following her joining the Board in February 2019. Additional cash retainers for leadership positions were paid in three quarterly installments of the annual leadership retainer listed above, with $7,500 to Ms. Spradley for her leadership of the Nominating and Corporate Governance Committee, $18,750 to Mr. Sutula for his leadership of the Audit Committee, $11,250 to Mr. Vogel for his leadership of the Compensation Committee, and $56,250 to Mr. Watkins for his leadership as Non-Executive Chair. The table above also includes meeting fees paid for Fiscal 2019 consisting of $40,000 for Messrs. Watkins and Scholl, $62,000 for Ms. Spradley, $64,000 for Mr. Sutula, $82,000 for Mr. Vogel, and $2,000 for Ms. Yeaney.

 

(2) 

The stock awards listed show the fair market value of two awards to each non-employee director in Fiscal 2019. RSU awards for each of Ms. Spradley and Messrs. Scholl, Sutula, Vogel and Watkins consisting of an annual grant award of $250,000, awarded on May 15, 2019 following their election at the 2019 Annual General Meeting, and a special award of $62,500, awarded on February 12, 2019, intended to cover the period between the initial awards on January 23, 2018 and the awards on May 15, 2019. Ms. Yeaney received two RSU awards as well, an annual grant award of $250,000, awarded on May 15, 2019 following the 2019 Annual General Meeting, and an initial award of $62,500, awarded on February 12, 2019, upon her election to the Board. Amounts shown represent the grant date fair value of each award as calculated in accordance with ASC 718. See Note 17 of the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for an explanation of the assumptions used in the valuation of these awards.

Fiscal 2020 Non-Employee Director Compensation Program Changes

On November 13, 2019, the Board adopted the 2019 Plan, subject to the approval of our stockholders. The 2019 Plan includes a provision which limits the amount of compensation we can pay non-employee members of our Board in a single fiscal year, without additional stockholder approval. If the 2019 Plan is approved at the Annual Meeting, the maximum total compensation (including awards under the 2019 Plan, determined based on the fair market value of such awards as of the grant date, plus annual retainer fees)) that may be paid to any non-employee director in respect of a single fiscal year would be limited to $750,000. For more information about this change, see “PROPOSAL 3 –APPROVAL OF THE AVAYA HOLDINGS CORP. 2019 EQUITY INCENTIVE PLAN” in this Proxy Statement.

 

 

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Director Compensation

 

Non-Employee Director Share Ownership Guideline

Non-employee directors are expected to own shares equivalent to six times the value of the annual cash retainer for Board service (not the additional cash retainers for leadership positions). Until the guideline is achieved, the director must hold at least 50% of net shares received upon vesting of an award. As of the end of fiscal year 2019, all non-employee directors were in compliance with these ownership guidelines.

 

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Compensation Discussion and Analysis

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Quick Reference Guide

 

 

 

Compensation “Best Practices”

The Compensation Committee has utilized the following key compensation design and governance practices to support alignment between pay and performance:

 

   

Multiple performance metrics – Short-term bonuses for Fiscal 2019 were based on achievement of Non-GAAP revenue and subject to an Adjusted EBITDA threshold and long-term incentive performance-based equity awards are tied to stock price for the Chief Executive Officer (“CEO”) and based on Adjusted EBITDA and relative total shareholder return (“TSR”) for the other Named Executive Officers (“NEOs”).

 

   

Balanced approach to long-term incentives – Long-term incentive awards in Fiscal 2019 for (1) our CEO were 100% performance-based and required stock appreciation of more than 50% for the awards to vest and (2) our other continuing NEOs were comprised of a combination of 50% time-based restricted stock units (“RSUs”) and 50% performance-based restricted stock units (“PRSUs”) requiring attainment of annual Adjusted EBITDA levels and subject to a relative TSR modifier that caps award vesting when the absolute TSR is negative, linking executive compensation with increased stockholder value over time.

 

   

Thresholds, staged goals, and maximum payouts – Annual bonuses and performance equity awards are subject to a minimum threshold level of performance below which no payout is earned and are limited to a specified maximum payout, with staged goals in between.

 

   

Use of formulaic compensation design with payouts tied to pre-established performance targets.

 

   

Exercise limited or no discretion to adjust formulaic payouts.

 

   

Clawback provisions in our compensation plans and agreements.

 

   

Stock ownership guidelines for executive officers and directors.

 

   

Limited perquisites.

 

   

No “Golden Parachute” Tax Reimbursements to provide any tax reimbursement payments (including “gross-ups”) on any tax liability that our NEOs might owe as a result of the application of Sections 280G or 4999 of the Internal Revenue Code (“Code”).

 

 

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Compensation Discussion and Analysis    Stockholder Engagement & Results of Say on Pay Vote

 

   

A policy prohibiting all hedging and pledging in our securities by “Covered Individuals”, as described later in this section.

Stockholder Engagement & Results of Say on Pay Vote

At our 2019 Annual Meeting, we held a “Say-on-Pay” advisory vote on the executive compensation program of the named executive officers for Fiscal 2018. We were disappointed that only approximately 50% of stockholder votes cast were in favor of our executive compensation program for Fiscal 2018. However, based on dialogue with stockholders, we believe that this outcome is largely a result of the fact that our compensation program for Fiscal 2018 was transitionary due to our balance sheet restructuring and reflected decisions made by the pre-emergence Compensation Committee.

Our Board of Directors and senior management have developed and maintain a robust stockholder engagement program. Throughout the year, we engage with a significant and diverse portion of stockholders on any topics our stockholders wish to raise with us, including our business results and initiatives, matters of strategy, capital allocation, corporate governance and executive compensation. We believe this program of regular stockholder engagement has been productive and provides for an open exchange of ideas and perspectives for both management and our stockholders.

Our Board of Directors and senior management are committed to addressing the stockholder concerns regarding our executive compensation program reflected by the results of the Say-on-Pay advisory vote held at the 2019 Annual Meeting. In response, we implemented an enhanced stockholder engagement program to proactively solicit feedback on executive compensation. We reached out to 25 of our largest stockholders representing more than 70% of our outstanding shares to invite them to discuss their feedback on the compensation program and to provide them with an update on our transformation progress. During the fall of 2019, we had discussions with 9 stockholders representing approximately 30% of our outstanding shares. The Chair of our Compensation Committee and members of senior management participated in these telephonic discussions, which resulted in highly constructive dialogue with our stockholders. Feedback received from our stockholders throughout the year is regularly shared with the Board of Directors and the Compensation Committee when related to our compensation programs and practices.

Stockholders generally supported the overall structure of the program and acknowledged the challenges related to executive rewards, retention and Board and management continuity when emerging from Chapter 11. Meanwhile, there was a clear and consistent message that appropriate action was expected to align the compensation levels of our CEO and other executive officers with market practice for a reasonably defined peer group, and to align real pay delivery with financial and strategic performance that drives future stockholder value creation. As we value the feedback provided by these stockholders, the Compensation Committee took action to specifically address their concerns while still maintaining a compensation program focused on retaining and motivating our valued executives.

 

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The Compensation Committee believes that the compensation changes described in the table below reflect our Board’s ongoing commitment to stockholder engagement and responsiveness.

 

 

Stockholder Feedback

 

 

 

Compensation Committee Response

 

   

 

Concern regarding alignment of NEO compensation structure with Company performance and stockholder value creation, in particular use of guaranteed bonuses and time-based vesting incentive equity awards in Fiscal 2018

 

 

The short-and long-term incentive programs for our NEOs in Fiscal 2019 are substantially performance-based:

 

•   No annual cash bonus awards were guaranteed and awards based upon attainment of Fiscal 2019 revenue and subject to a minimum level of Adjusted EBITDA – no bonuses were awarded in Fiscal 2019 as Company performance was below the threshold level

 

•   100% of the incentive equity award to our CEO was subject to performance-based vesting requiring stock appreciation of more than 50% for the award to vest and 50% of the incentive equity awards to the other NEOs were subject to performance-based vesting tied to attainment of annual Adjusted EBITDA over three-year performance period against levels set at the time grant and subject to further adjustment based on total shareholder return over the three-year performance period

 

   

 

Concern regarding size of Fiscal 2018 CEO incentive equity awards

 

 

In recognition of the size of the Fiscal 2018 incentive equity awards made to our CEO, the value of the Fiscal 2019 incentive equity award was approximately 90% lower than the value of the Fiscal 2018 incentive equity awards and the Fiscal 2019 award was 100% performance-based as noted above

 

   

 

Concern regarding the excise tax gross-up provision in the CEO’s employment agreement, established in connection with our emergence from Chapter 11

 

 

 

On January 3, 2020, at the CEO’s request, we and the CEO amended the CEO’s employment agreement to eliminate the excise tax gross-up provision and we do not intend to provide for any similar provisions in the future

 

The Compensation Committee believes these changes have enhanced our executive compensation practices and help align executive compensation with our Company’s business and strategic objectives, as well as support long-term stockholder value creation. The Compensation Committee continues to evaluate its approach to executive compensation, specifically for our CEO. The Compensation Committee will continue to consider the outcome of our say-on-pay votes when making future compensation decisions for the named executive officers. We welcome input from our stockholders on our compensation policies and compensation program at any time.

 

 

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Table of Contents

Compensation Discussion and Analysis    Fiscal 2019 Named Executive Officers

 

Fiscal 2019 Named Executive Officers

This Compensation Discussion and Analysis (the “CD&A”) explains the key elements of the compensation of our NEOs and describes the objectives and principles underlying our Company’s executive compensation program for Fiscal 2019. For Fiscal 2019, our NEOs were:

 

Name

  

Title

 

James M. Chirico, Jr.

 

  

 

President and CEO

 

 

Kieran McGrath

  

 

Senior Vice President and Chief Financial Officer

 

Shefali Shah

 

  

 

Senior Vice President, General Counsel and Chief Administrative Officer

 

 

Edward Nalbandian (1)

 

  

 

Former Senior Vice President and President, Services

 

 

Patrick J. O’Malley, III (2)

 

  

 

Former Senior Vice President, Growth Initiatives,

 

and former Senior Vice President and Chief Financial Officer

 

Gaurav Passi (3)

 

  

 

Former Senior Vice President and President, Cloud

 

 

(1)

Mr. Nalbandian retired from the Company, effective October 1, 2019

 

(2)

Mr. O’Malley resigned from the Company, effective October 7, 2019

 

(3)

Mr. Passi separated from the Company, effective November 19, 2019

Key Elements of Our Executive Compensation Program

Base Salaries

There were no changes to the base salaries from Fiscal 2018 for the continuing NEOs. Base salaries for executives hired in Fiscal 2019 were set as a part of the arm’s length negotiation of the applicable employment arrangements, taking into consideration our executive compensation principles and competitive market practices. The Fiscal 2019 base salaries for the NEOs are set forth below:

 

Named Executive Officer

   Fiscal 2019 Base Salary ($)

James M. Chirico, Jr.

  

1,250,000

Kieran McGrath (1)

  

650,000

Shefali Shah

  

600,000

Edward Nalbandian

  

500,000

Patrick J. O’Malley III

  

650,000

Gaurav Passi (2)

  

500,000

 

(1)

Mr. McGrath was hired in Fiscal 2019 on January 31, 2019.

 

(2)

Mr. Passi was hired in Fiscal 2019 on November 5, 2018.

Short-Term Incentives

Annual cash bonus opportunities for each NEO in respect of Fiscal 2019 were 100% based on achievement of performance goals. The Company’s Board-approved Fiscal 2019 financial plan served as the basis for the Executive Annual Incentive Plan (“AIP”), our annual cash incentive plan, as approved by the Compensation Committee. The AIP was designed to drive the Company’s objective of revenue growth in Fiscal 2019. The funding for the AIP was determined based on Fiscal 2019

 

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non-GAAP revenue as measured against pre-established threshold, target and maximum levels, and further subject to achievement of a minimum of $750 million in Fiscal 2019 Adjusted EBITDA,* representing an increase to the Fiscal 2018 Adjusted EBITDA of $746 million. The funding metrics for the Fiscal 2019 AIP are shown in the tables below:

 

Non-GAAP Revenue Corporate Financial Goals

Threshold        $3,000 million
Target        $3,125 million
Max        $3,200 million
Actual:        $2,908 million

 

Minimum Level of Fiscal 2019

          Adjusted EBITDA          

Actual
$750 million $706 million

*Non-GAAP revenue and Adjusted EBITDA are financial performance metrics that are not calculated and presented in accordance with GAAP. See the “Reconciliation of GAAP to non-GAAP (Adjusted) Financial Measures” in Annex A at the end of this Proxy Statement for additional discussion of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measure.

Our CEO’s bonus payout opportunity under the AIP was based 100% on the corporate financial goals, and the bonus payout opportunities to other NEOs were based 80% on the corporate financial goals and 20% on achievement of pre-established, individual performance objectives (MBOs), based on the CEO’s recommendations to the Compensation Committee. For Fiscal 2019, two of the MBOs were common among all senior vice presidents of the Company and were based upon achievement of certain operational-based goals during Fiscal 2019. The other two MBOs for the senior vice presidents who were NEOs, other than the Gaurav Passi, Senior Vice President, Cloud (whose specific objectives were the same as the common objectives and established when he joined the company in Fiscal 2019) were based on specific objectives critical to the executive’s individual role, including enhancing internal controls over financial reporting, enhancing efficiencies in the corporate support structure, overseeing the launch of new strategic projects, and operationalizing identified revenue growth drivers.

Our CEO’s target bonus opportunity under the AIP was 200% of base salary and maximum bonus opportunity was 250% of base salary pursuant to the terms of his Executive Employment Agreement (each as in effect prior to the amendment thereto effective on January 3, 2020 and described later in this CD&A) and the target and maximum bonus opportunities for Messrs. McGrath, Nalbandian and Passi and Ms. Shah were 100% of base salary, prorated as applicable for time in service in that position, and 200% of that bonus target, respectively. The target and maximum bonus opportunity for Mr. O’Malley were 100% and 200% of base salary, respectively until February 15, 2019, when he was appointed as Senior Vice President, Growth Initiatives, at which time his target and maximum bonus opportunity were revised to 80% and 160% of base salary, respectively.

As shown in the table above, Company did not achieve threshold Non-GAAP revenue or the minimum Adjusted EBITDA level under the AIP in Fiscal 2019. As a result, no payouts were made under the AIP in respect of Fiscal 2019.

New Hire Sign-on Bonuses

In connection with their hire, each of Messrs. McGrath and Passi received a one-time sign-on bonus of $650,000 and $250,000, respectively.

 

 

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Compensation Discussion and Analysis    Key Elements of Our Executive Compensation Program

 

Equity Awards

For Fiscal 2019, the Compensation Committee designed and implemented a performance-based equity award program pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan (the “2017 Equity Incentive Plan”). In Fiscal 2019, 100% of Mr. Chirico’s equity award was performance-based and the equity awards to the other NEOs continuing from Fiscal 2018 (i.e., other than Messrs. McGrath and Passi) were 50% performance-based and 50% time-based in the form of RSUs. In connection with their hire in Fiscal 2019, Messrs. McGrath and Passi each received only time-based RSUs. The time-based RSUs vest one-third on the first anniversary of the grant date and then in equal, quarterly installments over the next two years, subject to continued employment.

In Fiscal 2019, the NEOs received RSU and PRSU equity awards in respect of the underlying shares of the Company’s common stock with grant date fair values detailed below that have been approximated and therefore differ slightly from those set forth in the Summary Compensation Table. It is important to note that the values shown below represent target opportunities, meaning that these amounts represent the “target” levels of compensation that may be earned in the future based on the value of the underlying shares, and are not actual earned amounts. The amounts actually earned (if any) will be determined on the date(s) on which the awards actually vest, based on continued employment and performance against the performance goals (if applicable) as described below. For more information on grants to the NEOs during Fiscal 2019, see “Executive Compensation—Grants of Plan-Based Awards in Fiscal 2019.”

 

Named
Executive
Officer

   RSU Award
Opportunity
as of Grant
Date ($)
     Common
Stock
Underlying
RSU
Award (#)
     PRSU
Award
Opportunity
as of Grant
Date ($)
     Common
Stock
Underlying
PRSU
Award (#)
     Total Equity
Award
Opportunity
as of Grant
Date ($)
     Common
Stock
Underlying
Total Equity
Award (#)
 
James M. Chirico, Jr.      —          —          3,000,000        274,223        3,000,000        274,223  
Kieran McGrath      4,000,000        257,731        —          —          4,000,000        257,731  
Shefali Shah      625,000        40,270        625,000        40,270        1,250,000        80,540  
Edward Nalbandian      375,000        24,162        375,000        24,162        750,000        48,324  
Patrick O’Malley, III      375,000        24,162        375,000        24,162        750,000        48,324  
Gaurav Passi      2,000,000        126,262        —          —          2,000,000        126,262  

The Fiscal 2019 PRSU award to our CEO will be earned if the average closing price of the Company’s common stock equals or exceeds $23.50 for 60 consecutive days within three years of the grant date (representing appreciation in the stock price of more than 50% from the date of grant), subject to Mr. Chirico’s continued employment.

The PRSU awards to the other NEOs (other than Messrs. McGrath and Passi) will be earned if Adjusted EBITDA is achieved against pre-established threshold, target, and maximum levels established for each of the three separate fiscal years included in the total performance period (i.e., fiscal years 2019, 2020 and 2021). The applicable threshold, target and maximum levels for each fiscal year were established at the beginning of the total three-year performance period. With respect to each

 

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Compensation Discussion and Analysis    Key Elements of Our Executive Compensation Program

 

fiscal year within the total three-year performance period, PRSUs are eligible to be earned in respect of performance achieved as follows: 0% below threshold, 75% at threshold, 100% at target, and 150% at maximum level, with points in between being linearly interpolated; provided, that the Compensation Committee has the discretion to equitably adjust Adjusted EBITDA for any performance year to reflect the impact of special or non-recurring events not known as of the grant date in order to prevent the enlargement or dilution of benefits under the award. At the end of the total three-year performance period, the percentage of PRSUs eligible to vest may be adjusted up or down by 25% based on a relative TSR modifier using the Russell 2000 Index in effect on the date of grant for achievement in the top or bottom quartile, respectively, and no change for achievement in the second or third quartile. If at the end of the total three-year performance period the Company’s absolute TSR is negative, then no more than the target number of PRSUs granted will be eligible to vest. Earned PRSUs, both for our CEO and the other NEOs, will not be settled until the end of the applicable three-year performance period, subject to satisfaction of service-based vesting requirements set forth in the applicable award agreement.

At the end of Fiscal 2019, our CEO PRSU stock price goal had not yet been achieved. Fiscal 2019 Adjusted EBITDA was $706 million, which was below the “threshold” level of Adjusted EBITDA established for the other PRSU awards in respect of Fiscal 2019, which was $712 million (with a target level of $750 million (representing an increase from the Fiscal 2018 Adjusted EBITDA of $746 million) and maximum level of $791 million). As such, no PRSUs granted in Fiscal 2019 vested during Fiscal 2019.

Fiscal 2020 Compensation Actions

The Compensation Committee approved the Fiscal 2020 executive compensation structure for certain of the NEOs in the first quarter of Fiscal 2020. For Fiscal 2020, there were no changes made to base salaries or target bonus opportunities for the NEOs, other than with respect to the CEO, whose target bonus opportunity was adjusted from 200% of base salary to 150% of base salary and whose maximum bonus opportunity was adjusted from 250% of base salary to 300% of base salary upon effectiveness of the amendment to the Executive Employment Agreement on January 3, 2020. These changes were made to more closely align our CEO’s target bonus opportunity with those of our peer group.

Consistent with the Company’s continuing objective of achieving profitable revenue growth, the Compensation Committee approved a short-term incentive plan for Fiscal 2020 with funding determined 70% by Fiscal 2020 Non-GAAP revenue against established threshold, target and maximum levels and 30% by Fiscal 2020 Adjusted EBITDA against established threshold, target and maximum levels (the “Fiscal 2020 AIP”). The CEO’s Fiscal 2020 award will be based 50% on corporate financial goals under the Fiscal 2020 AIP and 50% upon attainment of the Company’s Fiscal 2020 Cloud and Alliance Partners Revenue against established threshold, target and maximum levels. The Fiscal 2020 awards for the other NEOs will be based 100% on achievement of corporate financial performance goals.

 

 

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Compensation Discussion and Analysis    Key Elements of Our Executive Compensation Program

 

Annual equity grants were also approved, which consist of a mix of time-based and performance-based RSUs with a grant date value that was in line with annual equity awards by our Compensation Peer Group. The following NEOs received equity awards with approximate grant date fair values as detailed below.

 

Named Executive Officer (1)

   Fiscal 2020
RSU Award ($)
     Fiscal 2020
PRSU Award ($)
     Total Fiscal
2020

Equity Award ($)
 

James M. Chirico, Jr

     3,250,000        3,250,000        6,500,000  

Kieran McGrath

     875,000        875,000        1,750,000  

Shefali Shah

     625,000        625,000        1,250,000  

 

(1) 

The other NEOs did not receive equity grants in the first quarter of Fiscal 2020.

Messrs. Chirico and McGrath and Ms. Shah received equity grants consisting of 50% time-based RSUs and 50% PRSUs, which awards have substantially the same design as the Fiscal 2019 awards.

Determination of NEO Compensation

Our executive compensation principles reflect the following core beliefs:

 

   

Pay-for-performance

 

   

Annual incentives tied to the successful achievement of challenging pre-established financial and non-financial operating goals that support our annual business plans

 

   

Long-term incentives that provide opportunities for executives to earn equity compensation for multi-year employment retention and achieving challenging financial and strategic goals that drive our longer-term stockholder value, while aligning the interests of senior executives with stockholders through Company ownership

The Company’s executive compensation program is governed by the Compensation Committee with the support of management and the Compensation Committee’s independent compensation consultant. The chart below sets forth the key characteristics of the program for Fiscal 2019, many of which represent “best practices” from a compensation and governance perspective.

 

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Executive Compensation Practices
   

What We Do

    

What We Don’t Do

+

  

 

We Do have a pay-for-performance philosophy, which ties compensation to pre-established performance goals

    

-  

  

 

We Don’t allow discounting, reloading or repricing of stock options without stockholder approval

+

  

 

We Do use multiple performance metrics for annual incentive programs

    

-  

  

 

We Don’t have “single trigger” vesting of outstanding equity-based awards based solely on a CIC

+

  

 

We Do use an independent compensation consultant

 

    

-  

  

 

We Don’t maintain compensation policies or practices that encourage unreasonable risk taking

+

  

 

We Do have reasonable severance and change in control (“CIC”) protections that require involuntary termination (i.e., are “double trigger” protections)

    

-  

  

 

We Don’t have employment agreements with our NEOs other than our CEO

+

  

 

We Do have a clawback policy and policies prohibiting hedging/pledging of the Company’s stock

    

-  

  

 

We Don’t guarantee portions of annual incentive bonuses

+

  

 

We Do have robust stock ownership guidelines for our NEOs

    

-  

  

 

We Don’t offer excessive perquisites

Summarized below are roles and responsibilities of the parties that participate in development of the Company’s executive compensation program.

Compensation Committee

The Compensation Committee is responsible for overseeing our executive compensation program with responsibilities set forth in its charter, including:

 

   

Developing our executive compensation philosophy;

 

   

Approving base salaries, short and long-term programs and opportunities for senior executives;

 

   

Assessing performance and approving earned incentives for senior executives;

 

   

Approving long-term incentive grants, including performance goals and award terms;

 

   

Approving severance programs for senior executives and executive participation;

 

   

Approving policies and practices that mitigate compensation-related risks to the Company; and

 

   

Producing a compensation committee report to be included in the Company’s annual proxy statement or annual report on Form 10-K.

 

 

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Compensation Discussion and Analysis    Determination of NEO Compensation

 

Management

Our CEO reviews the performance of the other NEOs and makes recommendations to the Compensation Committee on their base salary and short- and long-term opportunities. Our CEO does not provide input regarding his own compensation. Our human resources team also supports the Compensation Committee in the design, implementation and administration of our compensation program.

Independent Compensation Consultants

Pursuant to its charter, the Compensation Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other advisor and is directly responsible for the appointment, compensation arrangements and oversight of the work of any such person. Any such engagement may only be made after taking into consideration of all factors relevant to that person’s independence from management and the Company, as outlined the applicable NYSE rules. For Fiscal 2019, the Compensation Committee engaged an independent compensation consultant, Frederic W. Cook & Co., Inc. (“FW Cook”), after assessing its independence in accordance with applicable NYSE rules. FW Cook does not provide any other services to us and its work in support of the Compensation Committee did not raise any conflicts of interest or independence concerns. FW Cook provides the Compensation Committee with competitive market data, assistance on evaluation of the peer group composition, input to incentive program design and information on relevant market trends.

Competitive Market Information

Talent for senior-level management positions and key roles in the organization can be acquired across a spectrum of high-tech and software companies. As such, we utilize competitive compensation information from both high-tech and software company compensation surveys, as well as from a group of companies of similar size and/or complexity (the “Compensation Peer Group”), in the following ways:

 

   

As an input in developing base-salary ranges, short- and long-term equity award ranges

 

   

To evaluate share utilization by reviewing overhang levels and annual run rates

 

   

To evaluate the form and mix of equity awarded to NEOs

 

   

To evaluate share ownership guidelines

 

   

To assess the competitiveness of total direct compensation awarded to NEOs

 

   

As an input in designing compensation plans, benefits and perquisites

In addition to the Compensation Peer Group, the Compensation Committee also reviews pay data from the Radford Global Compensation Survey, with a focus on technology companies of a comparable revenue size to our Company. The survey data provides a significant sample size, includes information for management positions below senior executives, and is used to supplement the pay data from the Compensation Peer Group. While the Compensation Committee examines executive compensation data from surveys and the Compensation Peer Group, competitive compensation information is not the sole factor in its decision-making process.

Compensation Peer Group

The Compensation Peer Group for Fiscal 2019 was approved by the Compensation Committee in May 2018. In May 2019, the Compensation Committee conducted an assessment of our Compensation Peer Group with guidance from FW Cook. For Fiscal 2020, three companies were removed and two were added. The peer group changes were made to address peer group M&A activity (removal of CA, Inc. and Red Hat, Inc.), refining industry criteria (removal of Juniper Networks, a

 

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hardware-focused company) and maintaining a balanced sample (addition of RingCentral and Twilio). The revised Compensation Peer Group of fifteen companies has been used for Fiscal 2020 planning.

The following table shows the chronology of these peer group changes:

 

     

Fiscal 2019

Compensation Peer Group (16)

  Peers Removed in May 2019 (3)  

Fiscal 2020

Compensation Peer Group (15)

     

Akamai Technologies, Inc.

 

CA, Inc.

 

Akamai Technologies, Inc.

     

Autodesk, Inc.

 

Juniper Networks

 

Autodesk, Inc.

     

BlackBerry

 

Red Hat, Inc.

 

BlackBerry

     

CA, Inc.

   

 

 

Citrix Systems, Inc.

     

Citrix Systems, Inc.

   

 

 

LogMein

     

Juniper Networks, Inc.

   

 

 

NCR

   

LogMeIn

 

 

 

NetApp, Inc.

     

NCR

  Peers Added in May 2019 (2)  

Nuance Communications

     

NetApp, Inc.

 

RingCentral

 

Open Text Corp.

     

Nuance Communications

 

Twilio

 

RingCentral

     

Open Text Corp.

   

 

 

Symantec Corp.

     

Red Hat, Inc.

   

 

 

Synopsys, Inc.

     

Symantec Corp.

   

 

 

Teradata Corp.

     

Synopsys, Inc.

   

 

 

Twilio

     

Teradata Corp.

   

 

 

Verint Systems

     

Verint Systems

   

 

   

 

Other Benefits

Our NEOs are eligible to participate in benefit plans of the Company that are made available to the Company’s employees generally, including a 401(k) plan. Under the 401(k) plan, the Company matched 50% of employee contributions up to 5% of eligible pay.

Perquisites

Other than the limited perquisites noted below, the Company generally does not grant perquisites to the NEOs that are different from the perquisites available to all Company employees. NEOs are entitled to the following three perquisites:

 

   

An annual stipend ($20,000 paid to our CEO and $15,000 to the other NEOs) to offset financial counseling fees incurred by such NEO.

 

   

Starting January 2019, an executive physical program was implemented for NEOs, to ensure management team continuity and planning.

 

   

Mr. McGrath receives a housing allowance to help defray the costs associated with regular travel from his office location to his residence.

 

 

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Compensation Discussion and Analysis    Determination of NEO Compensation

 

The Committee reviews executive benefits and perquisites on an annual basis.

Share Ownership Guidelines

In Fiscal 2018, the Compensation Committee approved share ownership guidelines for our NEOs, which are designed to align their long-term financial interests with those of our stockholders by increasing stock ownership levels. The NEO share ownership guidelines are as follows:

 

   

 

Role

  

 

Value of Common Stock to be Owned

  CEO

   6 times base salary

  Other NEOs

   2 times base salary

If an NEO is not in compliance with his or her ownership guideline, such NEO must retain at least 50% of the net shares received as the result of the exercise, vesting or payment of any equity award after any selling or withholding of stock to pay taxes associated with vesting until the ownership guideline is met. As of the end of Fiscal 2019, all NEOs were in compliance with their applicable ownership guideline. The Compensation Committee is responsible for the administration of the share ownership guidelines, including granting any exceptions and addressing any failure to meet or show sustained progress to meet the ownership guidelines.

Prohibition on Hedging or Pledging of Company Stock

Our Insider Trading Policy prohibits Covered Individuals (and such individuals’ immediate family and household members) from entering into hedging transactions involving our securities. “Covered Individuals” means our (i) directors, (ii) officers who are designated as being subject to Section 16 of the Securities Exchange Act of 1934, as amended, and (iii) certain other officers and key employees of the Company designated by our General Counsel (which currently includes Senior Vice Presidents, Vice Presidents and Senior Directors, and individuals involved in the preparation of internal and external financial reports and SEC reports). Covered Individuals (and such individuals’ immediate family and household members) are also prohibited from holding our stock in a margin account as collateral for a margin loan or otherwise pledging our stock as collateral for a loan.

Clawback Policy

The Board has adopted a compensation recoupment policy that provides the Board discretion to recover incentive compensation paid to current and former executives in the event of an accounting restatement triggered by our material noncompliance with any financial reporting requirement under the securities laws.

Executive Severance Plans

Each of the Involuntary Separation Plan for Senior Executives (“Separation Plan”) and the Change in Control Severance Plan (“CIC Plan”), which are described later in this CD&A and were approved by the Compensation Committee in Fiscal 2018, are intended to provide transitional assistance to certain senior executives whose employment is involuntarily terminated by us. All currently employed NEOs other than our CEO are participants in the CIC Plan and the Separation Plan. Our CEO’s Executive Employment Agreement contains change in control provisions described later in this CD&A.

 

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Compensation Discussion and Analysis    Determination of NEO Compensation

 

The following table highlights the key plan provisions (certain terms used in the following table are defined in the respective plan):

 

Element

 

CEO Employment
Agreement
(CIC Related)

 

CEO Employment
Agreement

(Non-CIC Related)

 

CIC Plan Provisions

 

Separation Plan
Provisions

 

Cash Severance (multiple of sum of base salary and target bonus opportunity)

 

 

 

3.0x

 

 

2.0x

 

 

1.5x

 

 

1.0x

 

In-cycle bonus

 

 

 

Pro-rata target bonus

 

 

 

None

 

 

 

Pro-rata target bonus

 

 

 

None

 

Benefits

Continuation

 

 

18 months

 

 

18 months

 

 

18 months

 

 

12 months

 

 

Equity acceleration

 

 

Emergence Awards (as defined herein) will fully vest upon qualifying termination in connection with a CIC (double trigger).

 

With respect to Fiscal 2019 PRSUs, pursuant to the applicable award agreement, if a CIC occurs prior to the end of the performance period and either (i) the stock price goal has been achieved or (ii) the value of the consideration received by the Company’s stockholders (on a per share basis) equals or exceeds the stock price goal, then the PRSUs will be treated in accordance with the change in control provisions under the 2017 Equity Incentive Plan (e.g., may be assumed, substituted or accelerated in connection with the change in control, in the discretion of the Compensation Committee). Otherwise, the PRSUs will be cancelled in connection with a CIC.

 

 

 

With respect to Emergence Awards, acceleration pursuant to the applicable award agreement(s), as described below.

 

With respect to Fiscal 2019 PRSUs, pursuant to the applicable award agreement, if a termination occurs prior to the end of the performance period by the Company without “cause” or resignation for “good reason” then, to the extent the applicable stock price goal has been achieved prior to the termination date, PRSUs will vest on a pro-rated basis.

 

 

Full vesting upon qualifying termination in connection with a CIC (double trigger), with any applicable performance goals being deemed achieved at “target” level.

 

Treatment of performance-based awards granted after February 11th will instead be governed by the terms of the applicable award agreement.

 

 

Acceleration pursuant to the applicable award agreement(s) as described below

 

All award agreements beginning May 2018 do not contain acceleration provisions, outside of any “double trigger” vesting provisions.

 

 

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Table of Contents

Compensation Discussion and Analysis    Determination of NEO Compensation

 

Treatment of Equity Awards upon Certain Terminations of Employment

Mr. Chirico

Time-Based Awards

The award agreements applicable to Mr. Chirico’s RSUs and stock options granted when the Company emerged from Chapter 11 restructuring (“Emergence Awards”), which were negotiated among certain Company creditors, the Company and Mr. Chirico and approved by the Chapter 11 bankruptcy court, provide for the following accelerated vesting provisions in the event he is terminated without “cause”, upon death or disability, or if he resigns for “good reason” (an “Equity Award Qualifying Termination”) following December 15, 2018: either: (i) an additional portion of the awards will vest such that 75% of the total number of the Emergence Awards granted under the applicable award agreement become vested, or (ii) a pro-rata portion of the then-current vesting tranche of the Emergence Awards (as provided for under the original vesting schedule), will vest, based on the number of days of his employment from the most recent vesting date prior to the date of his termination until the next vesting date following the date of such termination, plus the Emergence Awards that would have vested pursuant to the original vesting schedule in the first twelve (12) months immediately following the date of such termination, whichever of (i) or (ii) results in greater total vesting.

As described in the chart above, if Mr. Chirico is terminated in connection with a CIC, all of his outstanding Emergence Awards will vest.

Fiscal 2019 Performance-Based Award

The award agreement applicable to Mr. Chirico’s PRSU award provides that he must be employed through the end of the Total Performance Period to vest in any PRSUs that have been earned based on achievement of the applicable stock price goal. However, if he is terminated prior to the end of the Total Performance Period by the Company without “cause” or resigns for “good reason” then, to the extent the applicable stock price goal has been achieved prior to the termination date, Mr. Chirico will vest in a pro-rated portion of the PRSUs. If a change of control occurs prior to the end of the Total Performance Period and either (i) the stock price goal has been achieved or (ii) the value of the consideration received by the Company’s stockholders (on a per share basis) equals or exceeds the stock price goal, then the PRSUs will be treated in accordance with the change in control provisions under the 2017 Equity Incentive Plan (e.g., may be assumed, substituted or accelerated in connection with the change in control, in the discretion of the Compensation Committee). Otherwise, the PRSUs will be cancelled in connection with a change of control.

Other NEOs

Pursuant to the award agreements applicable to their Emergence Awards, upon an Equity Award Qualifying Termination, the Emergence Awards held by Mr. O’Malley and Ms. Shah will vest as to the number of awards that would have otherwise vested in the 12 months following the termination date had he or she not been terminated.

Pursuant to the award agreements applicable to his RSUs and stock options granted to by Mr. Nalbandian upon his hire in Fiscal 2018, upon an Equity Award Qualifying Termination, Mr. Nalbandian vests only to the extent our CEO determines to vest the balance of the outstanding and unvested awards held as of the termination date, which determination will be made following Mr. Nalbandian’s termination of employment and in consultation with the Board. The vesting of Mr. Nalbandian’s unvested awards was not accelerated when he retired from the Company in October 2019.

 

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Compensation Discussion and Analysis    Determination of NEO Compensation

 

Award agreements applicable to RSUs granted to Messrs. McGrath and Passi, as well as those granted in Fiscal 2019 to other NEOs, do not provide for acceleration of awards in connection with a termination of employment outside of a change of control context.

Upon the occurrence of a change of control, outstanding awards will be treated in accordance with the 2017 Equity Incentive Plan.

Deductibility of Compensation Expenses

Under Section 162(m) of the Code, compensation paid to a publicly held company’s “covered employees” (as defined in Section 162(m) of the Code) that exceeds $1 million is generally not tax deductible. Historically, compensation that qualified as “performance-based compensation” under Section 162(m) of the Code could be excluded from this $1 million deduction limit, but this exception was repealed pursuant to the Tax Cuts and Jobs Act, effective for taxable years beginning after December 31, 2017 (although transition relief may be available for certain non-binding contracts in place as of November 2, 2017).

In the past, the Compensation Committee considered the impact of Section 162(m) of the Code when designing and implementing incentive compensation plans, however, the Compensation Committee believes that the deductibility of compensation should not govern the design features of our executive compensation arrangements. As a result, compensation that is paid to our “covered employees” (as defined under Section 162(m)) exceeding $1 million is not expected to be deductible for federal income tax purposes.

RISK ASSESSMENT IN COMPENSATION PROGRAMS

The Compensation Committee periodically reviews our compensation programs for features that might encourage inappropriate risk-taking. The programs are designed with features that mitigate risk without diminishing the incentive nature of the compensation. We believe our compensation programs encourage and reward prudent business judgment without encouraging undue risk.

In October 2019, the Compensation Committee reviewed the comprehensive global risk assessment of our compensation policies and practices conducted by management in Fiscal 2019. The risk assessment included a global inventory of incentive plans and programs and considered factors such as the plan metrics, number of participants, maximum payments and risk mitigation factors. Based on the review, the Compensation Committee believes our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the CD&A above with management. Based on such review and discussion, the Compensation Committee has recommended to the Board that the CD&A be included in this Proxy Statement.

MEMBERS OF THE COMPENSATION COMMITTEE:

Scott Vogel, Chair

Stephan Scholl

Jacqueline E. Yeaney

 

 

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Table of Contents

Compensation Discussion and Analysis    Executive Compensation Tables

 

EXECUTIVE COMPENSATION TABLES

Fiscal 2019 Summary Compensation Table

 

Name

  Year   Salary
($)
  Bonus
($)(1)
  Stock
Awards
($)(2)
  Option
Awards
($)(2)
  Non-Equity
Incent.
Plan
Comp.
($)(3)
  All
Other
Comp.
($)(4)
  Total
($)

James M. Chirico, Jr.

      2019     $ 1,250,000           $ 3,065,813                 $ 46,240     $ 4,362,053

President and

      2018     $ 1,250,000     $ 5,250,000     $ 22,147,896     $ 3,866,629     $ 312,500     $ 44,875     $ 32,871,900

Chief Executive Officer

      2017     $ 750,000                 $ 1,651,363     $ 33,383     $ 2,434,746

Kieran McGrath

      2019     $ 435,689     $ 650,000     $ 3,999,985                 $ 41,169     $ 5,126,843
SVP and Chief Financial
Officer
                               

Shefali Shah

      2019     $ 600,000         $ 1,193,200                 $ 30,375     $ 1,823,575
SVP, General Counsel and CAO       2018     $ 473,810     $ 1,100,000     $ 1,845,654     $ 322,221     $ 235,068     $ 25,080     $ 4,001,833

Edward Nalbandian

      2019     $ 473,085         $ 715,920                 $ 28,845     $ 1,217,850
Former SVP and President, Services       2018     $ 291,667     $ 591,667     $ 1,823,250     $ 298,200     $ 85,103     $ 12,178     $ 3,102,065

Patrick J. O’Malley III

      2019     $ 650,000         $ 715,920                 $ 38,085     $ 1,404,005
Former SVP Growth Initiatives and Former Chief Financial Officer       2018     $ 611,632     $ 975,000     $ 3,691,324     $ 644,442     $ 304,521     $ 32,280     $ 6,259,199

Gaurav Passi

      2019     $ 454,545     $ 250,000     $ 1,999,990                 $ 24,230     $ 2,728,765
Former SVP and President,
Cloud
                               

 

(1) 

For Fiscal 2019, amounts shown include sign-on bonus for Mr. McGrath ($650,000) and Mr. Passi ($250,000). For Fiscal 2018, for Mr. Chirico, includes sign-on bonus ($2,500,000), one-time emergence bonus ($250,000) and guaranteed AIP award ($2,500,000); for Mr. O’Malley, includes sign-on bonus ($300,000), one-time emergence bonus ($25,000) and guaranteed AIP award ($650,000); for Ms. Shah, includes sign-on bonus ($500,000) and guaranteed AIP award ($600,000).

 

(2) 

For Fiscal 2019, amounts represent equity grants of RSUs and PRSUs. For Mr. Chirico, the grant consists solely of PRSUs. For Messrs. McGrath and Passi, the grants consist solely of RSUs. For Messrs. Nalbandian and O’Malley and Ms. Shah, the grants consist of 50% RSUs and 50% PRSUs. For Fiscal 2019, the stock awards were granted on February 11, 2019 for Messrs. Chirico, McGrath, Nalbandian, and O’Malley and Ms. Shah, and on November 13, 2018 for Mr. Passi. Amounts shown represent the aggregate grant date fair value of each award as calculated in accordance with ASC 718. The aggregate grant date value for awards subject to performance conditions are shown based on the probable outcome of the applicable performance criteria as of the grant date, which was “target” level achievement. Assuming maximum level of achievement, the grant date fair value of the PRSUs for each of Messrs. Nalbandian and O’Malley and Ms. Shah would have been approximately $511,839, $511,839 and $852,315, respectively. See Note 17 of the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for an explanation of the assumptions used in the valuation of stock awards. For Messrs. Chirico and O’Malley, and Ms. Shah, the stock and option awards in Fiscal 2018 were granted on December 15, 2017 as part of the emergence grants. For Fiscal 2018, Mr. Nalbandian’s awards were part of his employment offer.

 

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Compensation Discussion and Analysis    Executive Compensation Tables

 

(3) 

Non-equity incentive compensation reflects amounts earned for the applicable year under each of the following programs:

 

 Name

  Year     Short-Term
Cash Awards(a)
    Cash Long-
Term Incentive(b)
    Key Employee
Incentive
Plan(c)
    Total($)  

James M. Chirico, Jr.

    2019           $ 0  
    2018     $ 312,500         $ 312,500  
    2017       $ 460,938     $ 1,190,425     $ 1,651,363  

Kieran McGrath

    2019           $ 0  

Shefali Shah

    2019           $ 0  
    2018     $ 235,068         $ 235,068  

Edward Nalbandian

    2019           $ 0  
    2018     $ 85,103         $ 85,103  

Patrick J. O’Malley III

    2019           $ 0  
    2018     $ 304,521         $ 304,521  

Gaurav Passi

    2019           $ 0  

 

  (a) 

Fiscal 2019 AIP metrics were not met and, as a result, no awards were earned in respect of Fiscal 2019 performance. For Messrs. Chirico, Nalbandian and O’Malley, and Ms. Shah, amounts shown under Fiscal 2018 represent awards under the Fiscal 2018 EAIP in excess of the guaranteed bonus amounts calculated for time in position.

 

  (b) 

For Mr. Chirico, the amount shown under fiscal 2017 represents vesting of cash long term incentive awards granted in fiscal 2014 and fiscal 2015.

 

  (c) 

For Mr. Chirico, the amount shown under fiscal 2017 represents Key Employee Incentive Plan (“KEIP”) awards approved by the pre-emergence compensation committee and the Chapter 11 bankruptcy court.

 

(4)

The following table separately quantifies “all other compensation” amounts for Fiscal 2019 and excludes $267,752 (less withholdings) distributed in accordance with the general unsecured claims procedure in the Company’s Plan of Reorganization to Mr. Chirico in October 2018 in respect of a pre-petition claim relating to prior periods of service and funded from the general unsecured creditor claim pool established upon the Company’s emergence from bankruptcy in December 2017. This disbursement was made in respect of outstanding amounts owed Mr. Chirico as of the Company’s filing of its bankruptcy petition on January 19, 2017 for service in respect of prior periods.

 

Name

   Financial
Counseling
     Life
Insurance
Premiums
     Life
Insurance
Imputed
Income
     HSA
Earned
     401(k)
Company
Match
     Housing
Allowance
     Total  
James M. Chirico, Jr    $ 20,000      $ 2,400      $ 15,840      $ 1,000      $ 7,000         $ 46,240  
Kieran McGrath       $ 1,800      $ 9,240      $ 750      $ 5,379      $ 24,000      $ 41,169  
Shefali Shah    $ 15,000      $ 2,400      $ 3,600      $ 500      $ 8,875         $ 30,375  
Edward Nalbandian    $ 15,000      $ 2,400      $ 10,320      $ 1,125            $ 28,845  
Patrick J. O’Malley III    $ 15,000      $ 2,400      $ 10,320      $ 1,000      $ 9,365         $ 38,085  
Gaurav Passi    $ 15,000      $ 2,200      $ 3,000      $ 1,000      $ 3,030         $ 24,230  

 

 

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Table of Contents

Compensation Discussion and Analysis    Fiscal 2019 Grants of Plan-Based Awards

 

Fiscal 2019 Grants of Plan-Based Awards

Fiscal 2019 Summary Compensation Table Fiscal 2019 Summary Compensation Table

               

 

Estimated Future Payouts under

Non-Equity Incentive Plan
Awards

    All
Other
Stock
Awards:
Number
of
Shares
of
Stock
or
Units(2)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
    Estimated Future Payouts
under

Equity Incentive Plan Awards(3)
    Exercise
or Base
Price of
Option
Awards
($)
    Grant
Date Fair
Value of
Stock and
Option
Awards
($)(4)
 

Name

  Grant
Date
          Threshold
($)
    Target ($)     Maximum
($)
    Threshold
($)
    Target
($)
    Maximum
($)
 

James M. Chirico, Jr.

    10/1/2018       (1)      $ 1,075,000     $ 2,500,000     $ 3,125,000                
    2/11/2019                   3,065,813       3,065,813       3,065,813       $ 3,065,813  

Kieran McGrath

    1/31/2019       (1)      $ 149,067     $ 433,333     $ 866,667                
    2/11/2019               257,731                           $ 3,999,985  

Shefali Shah

    10/1/2018       (1)      $ 206,400     $ 600,000     $ 1,200,000                
    2/11/2019               40,270               $ 624,990  
    2/11/2019                   426,157       568,210       852,315       $ 568,210  

Edward Nalbandian

    10/1/2018       (1)      $ 172,000     $ 500,000     $ 1,000,000                
    2/11/2019               24,162               $ 374,994  
    2/11/2019                   255,694       340,926       511,389       $ 340,926  

Patrick J. O’Malley III

    10/1/2018       (1)      $ 195,650     $ 568,750     $ 1,137,500                
    2/11/2019               24,162               $ 374,994  
    2/11/2019                   255,694       340,926       511,389       $ 340,926  

Gaurav Passi

    11/5/2018       (1)      $ 155,036     $ 450,685     $ 901,370                
    11/13/2018               126,262                           $ 1,999,990  

 

  (1)

Represents the Fiscal 2019 threshold, target and maximum amounts payable under the AIP, which is discussed above under Key Elements of our Executive Compensation Program. Actual awards are dependent on actual results against non-GAAP revenue for the CEO and on actual results against non-GAAP revenue and pre-established MBOs for the other NEOs. Amounts in the Threshold column for the CEO reflect a potential award for threshold level achievement of non-GAAP revenue, which is 43% of the award opportunity at target. Amounts in the Threshold column for the other NEOs reflect potential awards for threshold level achievement of non-GAAP revenue and no achievement of MBOs.

 

  (2)

For Messrs. McGrath, Passi, Nalbandian and O’Malley, and Ms. Shah, these RSU awards vest 33.33% on the first anniversary of the grant date, and quarterly thereafter.

 

  (3)

Amounts shown represent grant date fair value of each performance-based award based on threshold, target and maximum achievement, respectively, during the applicable three-year performance period.

 

  (4)

Amounts shown represent the aggregate grant date fair value of each award as calculated in accordance with ASC 718. The aggregate grant date value for awards subject to performance conditions are shown based on the probable outcome of the applicable performance criteria as of the grant date, which was “target” level achievement. Assuming maximum level of achievement, the grant date fair value of the PRSUs for each of Messrs. Nalbandian and O’Malley and Ms. Shah would have been approximately $511,839, $511,839 and $852,315,

 

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Compensation Discussion and Analysis    Fiscal 2019 Grants of Plan-Based Awards

 

 

respectively. See Note 17 of the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for an explanation of the assumptions used in the valuation of stock awards.

Outstanding Equity Awards at year-end Fiscal 2019

 

    Option Awards   Stock Awards    

Name

  Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)(1)
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(2)(3)
  Option
Exercise
Price
  Option
Expiration
Date
  Number of
Shares or
Units of
Stock that
have not
Vested(4)
  Market
Value of
Shares or
Units of
Stock that
have not
vested
($)(5)
  Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units, or
Other
Rights
that have
not vested
(#)(6)
  Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units, or
Other
Rights
that have
not vested
($)(7)
   

James M. Chirico, Jr.

      284,071       202,910     $ 19.46       12/15/2027                  
                      608,728     $ 6,227,287           $  
                              274,223     $ 2,805,301  

Kieran McGrath

                                         
                      257,731     $ 2,636,588           $  

Shefali Shah

      23,672       16,910     $ 19.46       12/15/2027                  
                      50,729     $ 518,958           $  
                      40,270     $ 411,962          
                              40,270     $ 411,962  

Edward Nalbandian(8)

      13,998       14,002     $ 21.45       3/7/2028                  
                      42,502     $ 434,795           $  
                      24,162     $ 247,177          
                              24,162     $ 247,177  

Patrick J. O’Malley III(8)

      47,344       33,820     $ 19.46       12/15/2027                  
                      101,455     $ 1,037,885           $  
                      24,162     $ 247,177          
                              24,162     $ 247,177  

Gaurav Passi(8)

                                         
                      126,262     $ 1,291,660           $  

 

  (1)

Represents the exercisable portion of stock options granted and outstanding.

 

  (2)

Represents the unvested and un-exercisable portion of stock options granted and outstanding

 

  (3)

The stock option awards are scheduled to vest as follows:

 

Name

   Number of
Securities
Underlying
Options
   Grant Date   

Vesting Description

James M. Chirico, Jr.

    

 

486,981

    

 

12/15/2017

  

33.33% on 1st anniversary; 8.33% last day of each quarter thereafter

Kieran McGrath

            

Shefali Shah

    

 

40,582

    

 

12/15/2017

  

33.33% on 1st anniversary; 8.33% last day of each quarter thereafter

Edward Nalbandian

    

 

28,000

    

 

3/7/2018

  

16.67% on 6 month anniversary; 16.67% on 1st anniversary; 8.33% last day of each quarter thereafter

Patrick J. O’Malley III

    

 

81,164

    

 

12/15/2017

  

33.33% on 1st anniversary; 8.33% last day of each quarter thereafter

Gaurav Passi

            

 

 

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Compensation Discussion and Analysis    Outstanding Equity Awards at year-end Fiscal 2019

 

  (4)

The RSU awards are scheduled to vest as follows:

 

Name

  RSU
Award
    Grant
Date
    RSUs
Vested
    RSUs
Cancelled
    RSUs
Unvested
   

Vesting Description

James M. Chirico, Jr.

 

 

1,460,943

 

 

 

12/15/2017

 

 

 

852,215

 

   

 

608,728

 

 

33.33% on 1st anniversary; 8.33% last day of each quarter thereafter

Kieran McGrath

 

 

257,731

 

 

 

2/11/2019

 

     

 

257,731

 

 

33.34% 1st anniversary then 8.33% quarterly; full vesting 3 years after grant

Shefali Shah

 

 

121,745

 

 

 

12/15/2017

 

 

 

71,016

 

   

 

50,729

 

 

33.33% on 1st anniversary; 8.33% last day of each quarter thereafter

Shefali Shah

 

 

40,270

 

 

 

2/11/2019

 

     

 

40,270

 

 

33.34% 1st anniversary then 8.33% quarterly; full vesting 3 years after grant

Edward Nalbandian

 

 

85,000

 

 

 

3/7/2018

 

 

 

42,498

 

   

 

42,502

 

 

16.67% on 6 month anniversary; 16.67% on 1st anniversary; 8.33% last day of each quarter thereafter

Edward Nalbandian

 

 

24,162

 

 

 

2/11/2019

 

     

 

24,162

 

 

33.34% 1st anniversary then 8.33% quarterly; full vesting 3 years after grant

Patrick J. O’Malley III

 

 

243,491

 

 

 

12/15/2017

 

 

 

142,036

 

   

 

101,455

 

 

33.33% on 1st anniversary; 8.33% last day of each quarter thereafter

Patrick J. O’Malley III

 

 

24,162

 

 

 

2/11/2019

 

     

 

24,162

 

 

33.34% 1st anniversary then 8.33% quarterly; full vesting 3 years after grant

Gaurav Passi

 

 

126,262

 

 

 

11/13/2018

 

     

 

126,262

 

 

33.34% 1st anniversary then 8.33% quarterly; full vesting 3 years after grant

 

  (5)

Determined using the closing price of a share of the Company’s common stock on September 30, 2019, the last day of the fiscal year, which was $10.23 per share.

 

  (6)

The PRSU awards are scheduled to vest as follows:

 

Name

  PRSU
Award
  Grant
Date
  PRSUs
Vested
  PRSUs
Cancelled
  PRSUs
Unvested
 

Vesting Description

James M. Chirico, Jr.

   

 

274,223

   

 

2/11/2019

   

 

0

   

 

0

   

 

274,223

  Vesting, if any, is eligible to occur February 11, 2022 or earlier, subject to achievement of the applicable performance conditions

Kieran McGrath

   

 

0

               

 

 

Shefali Shah

   

 

40,270

   

 

2/11/2019

   

 

0

   

 

0

   

 

40,270

  All eligible units for the award, if any, will vest on February 15, 2022,
subject to achievement of the applicable performance conditions

Edward Nalbandian

   

 

24,162

   

 

2/11/2019

   

 

0

   

 

0

   

 

24,162

  All eligible units for the award, if any, will vest on February 15, 2022,
subject to achievement of the applicable performance conditions

Patrick J. O’Malley III

   

 

24,162

   

 

2/11/2019

   

 

0

   

 

0

   

 

24,162

  All eligible units for the award, if any, will vest on February 15, 2022,
subject to achievement of the applicable performance conditions

Gaurav Passi

   

 

0

                 

 

  (7)

Determined using the closing price of a share of the Company’s common stock on September 30, 2019, the last day of the fiscal year, which was $10.23 per share.

 

  (8)

When the Company’s employment of each of Messrs. Nalbandian and O’Malley terminated in October 2019, all of their unexercisable or unvested awards shown in this table were forfeited. 42,095 shares of Mr. Passi’s unexercised or unvested awards shown in this table vested on November 15, 2019; the remainder of Mr. Passi’s unexercised or unvested awards shown in this table were forfeited upon the termination of his employment on November 19, 2019.

 

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Compensation Discussion and Analysis    Stock Vested

 

Stock Vested

The following table sets forth information regarding stock award vestings for our NEOs during Fiscal 2019:

 

     Stock Awards

 Name

   Number of Shares
Acquired on
Vesting (#)
   Value realized on
Vesting ($)(1)

 James M. Chirico, Jr.

    

 

852,215

    

$

       13,314,033

 Kieran McGrath

    

 

    

 

 Shefali Shah

    

 

71,016

    

$

1,109,475

 Edward Nalbandian

    

 

42,498

    

$

364,987

 Patrick J. O’Malley III

    

 

142,036

    

$

2,219,006

 Gaurav Passi

    

 

    

 

 

  (1)

The amounts included in the table have been determined using the Company’s closing market price on the date immediately preceding the applicable vesting date.

Potential Payments upon Termination or CIC

Separation Plan

The Separation Plan was adopted to provide transitional assistance to certain senior executives whose employment is terminated by the Company for any reason other than for “cause” (as defined under the Separation Plan) (a “Qualifying Separation”). If a participant experiences a Qualifying Separation, the participant will be entitled to receive a payment equal to 100% of the sum of his or her (i) then current annual base salary plus (ii) annual target cash bonus under the AIP or any successor plan, along with certain subsidized medical benefits for 12 months. The participant must execute and not revoke an effective release of claims in order to receive his or her severance benefits.

CIC Plan

The CIC Plan was designed to facilitate certain executives’ continued dedication to the Company notwithstanding the potential occurrence of a CIC of the Company and to encourage such executives’ full attention and dedication to the Company in the event of a CIC.

The CIC Plan provides that if a participant’s employment is terminated by the Company without “cause” (other than due to the Participant’s death or disability) or by the Participant for “good reason,” (each of “cause” and “good reason” as defined in the CIC Plan) in each case either (i) during a “Potential CIC Period” (as defined in the CIC Plan, but generally a period following the entry into an agreement, the consummation of which would result in a CIC (as defined in the CIC Plan) or following a time when the Committee determines that a Potential CIC has occurred) or (ii) within one year following a CIC of the Company, the participant will be entitled to receive certain payments and benefits.

The CIC Plan provides that upon any such termination each participant will receive (i) an amount equal to the participant’s applicable multiple (the “Multiple”) multiplied by the sum of his or her annual base salary and target annual bonus; (ii) a pro-rata amount of the participant’s target annual bonus, calculated based on the number of days during the applicable performance period the participant was

 

 

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Compensation Discussion and Analysis    Potential Payments upon Termination or CIC

 

employed by the Company during the performance period in which the Participant’s employment was terminated; and (iii) full vesting of any outstanding time-based Company equity awards. Additionally, the CIC Plan provides that participants who are covered under the Avaya Inc. Medical Expense Plan for Salaried Employees on the date their employment terminates will receive, for a specified number of months (the “COBRA Multiple”) or until comparable coverage is available from a successor employer, an amount equal to the Company’s portion of the participant’s COBRA premiums. The Compensation Committee determined that the Multiple and COBRA Multiple for each Participant is 1.5 and 18 months, respectively. The participant must execute and not revoke an effective release of claims in order to receive his or her severance benefits.

Executive Employment Agreement

Other than Mr. Chirico, none of our NEOs are party to employment agreements with us.

On October 1, 2017, Mr. Chirico was appointed President and Chief Executive Officer of the Company and he became a member of our Board on December 15, 2017. Pursuant to the Executive Employment Agreement entered into on November 13, 2017 and amended on January 3, 2020, Mr. Chirico’s base salary is $1,250,000, to be annually reviewed for increase (but not decrease) by the Compensation Committee. Mr. Chirico’s target bonus will be equal to 150% of his base salary (the “Target Bonus”), based on meeting reasonably attainable quantitative performance goals to be established by the Compensation Committee in good faith after discussion with Mr. Chirico. Mr. Chirico’s actual bonus payout may range up to (but cannot exceed) 300% of his base salary. Pursuant to the Executive Employment Agreement. Mr. Chirico received a one-time cash payment of $2,500,000 (the “Sign-On Bonus”) within ten days after December 15, 2017, which was the date the Company successfully emerged from Chapter 11 (the “Emergence Date”), 50% of which he would have been required to repay (on an after-tax basis) in the event he was terminated by the Company for “cause” or resigns without “good reason” (each as defined below) after October 1, 2018 and prior to October 1, 2019. Additionally, upon the Emergence Date, Mr. Chirico was entitled to receive an incentive equity award consisting of RSUs (75% of the award) and stock options (25% of the award), with a fair market value of approximately $30 million as of the Emergence Date (33.3% of the Emergence Date award pool), pursuant to the 2017 Equity Incentive Plan, which plan was approved by the Bankruptcy Court in conjunction with the Company’s emergence from Chapter 11. One-third of this award vested on the first anniversary of the Emergence Date and the remainder will vest 8.33% at the end of each quarter thereafter, so that the award will be fully vested on December 31, 2020.

Upon a termination of Mr. Chirico’s employment other than for “cause” (not due to death or disability) or due to his resignation for “good reason” (each as defined below) (each, a “Qualifying Termination”), subject to his timely execution and non-revocation of a release of claims, Mr. Chirico is entitled to receive (i) a lump sum amount equal to two (the “Multiplier”) times the sum of his base salary and Target Bonus; (ii) any earned but unpaid bonus for the completed performance period preceding the Qualifying Termination; and (iii) up to 18 months’ of Company-paid COBRA benefits. If the Qualifying Termination (or a termination for death or disability) occurs within the six-month period preceding or the 24-month period following a CIC of the Company, the Multiplier is increased to three, and Mr. Chirico is also entitled to full vesting of all of his outstanding long-term incentive awards, whether cash-based or equity-based, with any exercisable awards to remain outstanding until the expiration of their term. Upon request of Mr. Chirico, the Company and Mr. Chirico amended the Executive Employment Agreement to eliminate a Code Section 280G “gross-up” provision, and add a provision to provide that in the event any of the amounts provided for under the Executive Employment Agreement to Mr. Chirico would constitute “parachute payments” within the meaning of Code Section 280G and could be subject to the related excise tax, Mr. Chirico would be entitled to receive either full payment of benefits under the Executive Employment Agreement or such lesser amount which would result in no portion of the benefits being subject to the excise tax, whichever results in the greater amount of

 

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Compensation Discussion and Analysis    Potential Payments upon Termination or CIC

 

after-tax benefits to Mr. Chirico. The Executive Employment Agreement, as amended, does not require us to provide any tax gross-up payments.

Pursuant to the Executive Employment Agreement, “cause” means any of Mr. Chirico’s: (i) material breach of his duties and responsibilities as a senior officer of the Company (other than as a result of incapacity due to physical or mental illness) which is demonstrably willful and deliberate, and which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company or its affiliated companies and subsidiaries; (ii) conviction of (including a plea of guilty or nolo contendere to) a felony; (iii) commission of fraud involving the Company or its subsidiaries; (iv) material violation of a material provision of the Company’s Code of Conduct or any statutory or common law duty of loyalty to the Company or its subsidiaries; or (v) material violation of the Executive Employment Agreement.

Pursuant to the Executive Employment Agreement, “good reason” means the occurrence, without Mr. Chirico’s express written consent (which may be withheld for any reason or no reason), of any of the following events or conditions: (i) a material reduction by the Company in Mr. Chirico’s base salary; (ii) a material breach of the Executive Employment Agreement which shall include a material reduction or material negative change by the Company in the type or level of compensation and benefits (other than base salary) to which Mr. Chirico is entitled under the Executive Employment Agreement, other than any such reduction or change that is part of and consistent with a general reduction or change applicable to all senior officers of the Company; (iii) a material failure by the Company to pay or provide to Mr. Chirico any compensation or benefits to which he is entitled; (iv) a change in Mr. Chirico’s status, positions, titles, offices or responsibilities that constitutes a material and adverse change or the assignment to Mr. Chirico of any duties or responsibilities that are materially and adversely inconsistent with his status, positions, titles, offices or responsibilities as in effect immediately before such assignment; (v) the Company changing the location of Mr. Chirico’s principal working location to a location more than 50 miles from such location as in effect immediately prior to the Emergence Date; or (vi) any material breach by the Company of the Executive Employment Agreement or any other agreement between the Company and Mr. Chirico incorporated by reference in the Executive Employment Agreement. In order to terminate for Good Reason, (A) Mr. Chirico must provide notice to the Company within 60 days of the initial occurrence of the alleged event or condition; (B) the Company must fail to cure such alleged event or condition within 30 days of such notice; and (C) Mr. Chirico must resign within 6 months of the initial occurrence of the alleged event or condition.

The Company shall pay directly or reimburse Mr. Chirico for his reasonable legal fees and expenses incurred in connection with the negotiation and implementation of the foregoing employment arrangements and any related documents (including without limitation any documentation relating to the incentive equity grants he will receive).

Pursuant to the Executive Employment Agreement, Mr. Chirico is subject to the following restrictive covenants: (i) non-competition and non-solicitation of customers, employees, independent contractors and others during the employment term and for one-year post-employment; (ii) assignment of inventions to the Company; (iii) perpetual non-disparagement; and (iv) perpetual confidentiality.

Potential Payments upon Involuntary Termination without CIC

The table set forth below reflects the amount of compensation that would have been payable to the NEOs in the event of termination of employment, including certain benefits upon an involuntary termination that does not occur in connection with a CIC. The amounts shown assume a termination effective as of September 30, 2019 2019 and, with respect to the CEO, reflect the terms of the Executive Employment Agreement without taking into account the Amendment No. 1 to the

 

 

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Compensation Discussion and Analysis    Potential Payments upon Involuntary Termination without CIC

 

Employment Agreement dated as of January 3, 2020. The actual amounts that would be payable can be determined only at the time of the NEO’s termination.

 

Name

  Annual
Base
Salary
  Annual
Target
Bonus
  Total
Severance
Pay(1)
  Benefits(2)   Outplacement
Services(3)
  Accelerated
Equity(4)
  Total

James M. Chirico, Jr.

   

$

  1,250,000

   

$

  2,500,000

   

$

  7,500,000

   

$

  31,665

   

$

           7,000

   

$

  4,981,826

   

$

  12,520,491

Kieran McGrath

   

$

650,000

   

$

650,000

   

$

1,300,000

   

$

21,108

   

$

7,000

       

$

1,328,108

Shefali Shah

   

$

600,000

   

$

600,000

   

$

1,200,000

   

$

21,108

   

$

7,000

   

$

415,164

   

$

1,643,272

Edward Nalbandian

   

$

500,000

   

$

500,000

   

$

1,000,000

   

$

21,108

   

$

7,000

       

$

1,028,108

Patrick J. O’Malley III

   

$

650,000

   

$

520,000

   

$

1,170,000

   

$

21,108

   

$

7,000

   

$

830,308

   

$

2,028,416

Gaurav Passi

   

$

500,000

   

$

500,000

   

$

1,000,000

   

$

21,108

   

$

7,000

       

$

1,028,108

 

(1)

For Mr. Chirico, amount shown under “Total Severance Pay” represents two times the sum of his base salary and target annual bonus for the year of termination, payable in a lump sum. For all other NEOs, represents the sum of the NEO’s base salary plus target annual bonus for the year of termination.

 

(2)

For Mr. Chirico, represents the estimated value of providing certain COBRA continuation payments for a period of 18 months following his termination date; for all other NEOs, represents continuation payments for a period of 12 months following the NEO’s termination date.

 

(3)

For all NEOs, “Outplacement Services” represents the value of outplacement services that would be made available to the executive for a certain period of time following termination of employment.

 

(4)

For all NEOs, represents the value attributable to the vesting of outstanding equity awards that would be accelerated upon an involuntary termination of employment without “cause” (assuming that any performance-based awards were deemed to have been achieved at “target” level), based on the fair market value of a share of the Company’s common stock on September 30, 2019 and their applicable award agreements. For Mr. Nalbandian’s awards granted in Fiscal 2018, the value shown is $0, because our CEO did not exercise his discretion to accelerate Mr. Nalbandian’s awards upon his termination of employment.

Potential Payments upon Involuntary Termination with CIC

The table set forth below reflects the amount of compensation that would have been payable to the NEOs in the event of termination of employment, including certain benefits upon an involuntary termination related to a CIC. The amounts shown assume a termination effective as of September 30, 2019 and, with respect to the CEO, reflect the terms of the Executive Employment Agreement without taking into account the Amendment No. 1 to the Employment Agreement dated as of January 3, 2020. The actual amounts that would be payable can be determined only at the time of the NEO’s termination.

 

Name

  Annual
Base
Salary
  Annual
Target
Bonus
  Total
Severance
Pay(1)
  Benefits(2)   Accelerated
Equity(3)
  Total

James M. Chirico, Jr.

   

$

  1,250,000

   

$

  2,500,000

   

$

  11,250,000

   

$

  31,665

   

$

  6,227,287

   

$

  17,508,952

Kieran McGrath

   

$

650,000

   

$

650,000

   

$

2,383,333

   

$

31,665

   

$

2,636,588

   

$

5,051,586

Shefali Shah

   

$

600,000

   

$

600,000

   

$

2,400,000

   

$

31,665

   

$

1,342,882

   

$

3,774,547

Edward Nalbandian

   

$

500,000

   

$

500,000

   

$

2,000,000

   

$

31,665

   

$

929,149

   

$

2,960,814

Patrick J. O’Malley III

   

$

650,000

   

$

520,000

   

$

2,323,750

   

$

31,665

   

$

1,532,239

   

$

3,887,654

Gaurav Passi

   

$

500,000

   

$

500,000

   

$

1,950,685

   

$

31,665

   

$

1,291,660

   

$

3,274,010

 

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Compensation Discussion and Analysis    Potential Payments upon Involuntary Termination with CIC

 

(1)

For Mr. Chirico, amount shown under “Total Severance Pay” represents the sum of three times the sum of his base salary plus target annual bonus for the year of termination, plus the pro-rated target bonus for the year of termination, payable in a lump sum. For all other NEOs, represents the sum of 1.5 times the sum of the NEO’s base salary plus target annual bonus for the year of termination, plus the pro-rated target bonus for the year of termination, payable in a lump sum.

 

(2)

For all NEOs, represents the estimated value of providing certain COBRA continuation payments for a period of 18 months following the NEO’s termination date.

 

(3)

For all NEOs, represents the acceleration value attributable to the accelerated vesting of outstanding equity awards (assuming that any performance-based awards granted to the NEOs other than the CEO were deemed to have been achieved at “target” level), based on the fair market value of a share of the Company’s common stock on September 30, 2019.

The amounts shown in the chart above do not take into account any reductions in payment that may be applied in order to avoid any excise taxes under Section 280G and Section 4999 of the Code.

PAY RATIO DISCLOSURE

The pay ratio information is provided pursuant to the SEC’s guidance under Item 402(u) of Regulation S-K. Due to our permitted use of reasonable estimates and assumptions in preparing this pay ratio disclosure, the disclosure may involve a degree of imprecision, and thus this pay ratio disclosure is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K using the data and assumptions described below. The pay ratio was not used to make management decisions and the Board does not use this pay ratio to determine executive compensation adjustments.

Methodology to Determine Median Employee

Based on a review of our internal records, we do not believe that there have been any changes in our employee population or employee compensation arrangements that we reasonably believe would result in a significant change to our pay ratio calculation this year as compared to last year. As permitted under the applicable SEC rules, we used the same median employee identified for Fiscal 2018 to calculate this year’s pay ratio.

Last year, to determine the median employee, we evaluated our 8,475 employees (other than our CEO and student employees) as of September 30, 2018 (the “Determination Date”). These 8,475 employees consisted of all our full-time, part-time employees (other than our CEO and student employees) as of the Determination Date, of which 2,821 were US employees and 5,654 were non-US employees. The median employee was selected using the total cash compensation approach, consisting of base salary and target short-term incentive levels for Fiscal 2018.

Median Employee to CEO Pay Ratio

To calculate the CEO pay ratio for Fiscal 2019, we calculated annual total compensation for the median employee using the same methodology we used to calculate our NEOs “total” compensation as described in the Fiscal 2019 Summary Compensation Table. Based on this methodology, the median employee’s annual total compensation was $88,065. As reported for Mr. Chirico for Fiscal 2019 under the Fiscal 2019 Summary Compensation Table above, Mr. Chirico’s annual total compensation was $4,296,240. Based on this information, for Fiscal 2019, the ratio of the annual total compensation of Mr. Chirico to the median annual total compensation of all other employees was estimated to be 49:1.

 

 

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Proposal 2 Advisory Approval of the Company’s Named Executive Officers’ Compensation (“say-on-pay”)

 

PROPOSAL 2 – ADVISORY APPROVAL OF THE COMPANY’S NAMED EXECUTIVE OFFICERS’ COMPENSATION (“SAY-ON-PAY”)

As required by Section 14A of the Exchange Act and pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, we are providing our stockholders with an advisory vote on executive compensation. This advisory vote, commonly known as a “say-on-pay” vote, is a non-binding, advisory vote on the compensation paid to our NEOs as disclosed pursuant to Item 402 of Regulation S-K, in the “Compensation Discussion and Analysis” in this Proxy Statement. This say-on-pay vote is not intended to address any specific item of compensation, but rather the overall compensation of the NEOs and the policies and procedures described in this Proxy Statement.

We are committed to utilizing a mix of incentive compensation programs that will reward success in achieving the Company’s financial objectives and growing value for stockholders, and continuing to refine these incentives to maximize Company performance. The Compensation Committee has overseen the development of a compensation program designed to achieve pay-for-performance and alignment with stockholder interests, as described more fully in the “Compensation Discussion and Analysis” section above. The compensation program was designed in a manner that we believe is reasonable, competitive and appropriately balances the goals of attracting, motivating, rewarding and retaining our executives.

At our 2019 Annual Meeting, our stockholders approved, on an advisory basis, (i) our executive compensation paid to named executive officers in in Fiscal 2018 and (ii) holding future say-on-pay votes every year. Based on such vote results, the Board determined to hold a say-on-pay vote every year until the next required advisory vote on the frequency of holding future say-on-pay votes. In addition, as described in the “Compensation Discussion and Analysis – Stockholder Engagement & Results of Say on Pay Vote” section of this Proxy Statement, we engaged with stockholders representing approximately 30% of our outstanding shares and responded to certain compensation-related concerns raised by these stockholders.

The Board invites you to review carefully the “Compensation Discussion and Analysis” and the tabular and other disclosures on executive compensation in this Proxy Statement. Based upon that review, the Board recommends that the stockholders approve, on an advisory basis, the compensation of the NEOs, as discussed and disclosed in the “Compensation Discussion and Analysis,” the compensation tables, and any related narrative disclosure contained in this Proxy Statement. The Board recommends that stockholders vote, on an advisory basis, in favor of the following “Say-on-Pay” resolution:

“RESOLVED, that the stockholders of Avaya Holdings Corp. approve, on an advisory basis, the compensation paid to the Company’s NEOs as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and the narrative discussion included in this Proxy Statement.”

Because your vote is advisory, it will not be binding upon the Company, the Board or the Compensation Committee. However, we value the views of our stockholders and the Compensation Committee expects to carefully review and take into account the outcome of the vote when designing and considering future executive compensation arrangements.

The proxy holders named on the accompanying proxy card will vote in favor of the advisory “say-on-pay” vote unless a stockholder directs otherwise.

The affirmative vote of a majority of the votes cast (virtually or by proxy) at the Annual Meeting is required to approve, on a non-binding and advisory basis, the compensation paid by the Company to

 

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Proposal 2 Advisory Approval of the Company’s Named Executive Officers’ Compensation (“say-on-pay”)

 

the NEOs as described in this Proxy Statement. Abstentions will have the same effect as an “Against” vote for purposes of determining whether this proposal has been approved. Broker non-votes will not be counted for any purpose in determining whether this proposal has been approved.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL

OF THE COMPENSATION PAID TO THE COMPANY’S NEOS, AS DISCLOSED IN THIS PROXY

STATEMENT PURSUANT TO ITEM 402 OF REGULATION S-K.

 

 

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Proposal 3 Approval of the Avaya Holdings Corp. 2019 Equity Incentive Plan

 

PROPOSAL 3 – APPROVAL OF THE AVAYA HOLDINGS CORP. 2019 EQUITY INCENTIVE PLAN

We are seeking stockholder approval of the Avaya Holdings Corp. 2019 Equity Incentive Plan (the “2019 Plan”). On November 13, 2019, the Board adopted the 2019 Plan, subject to the approval of our stockholders.

We currently have one active equity compensation plan available for general use in compensating employees, consultants and non-employee directors: the Avaya Holdings 2017 Equity Incentive Plan (the “2017 Plan”). On November 13, 2019, the Board adopted the 2019 Omnibus Inducement Equity Plan (the “Inducement Plan”), which reserved up to 1,700,000 shares of our Common Stock for awards to be made to certain prospective employees pursuant to the “inducement grant” exemption under the NYSE Listing Rules.

The 2019 Plan provides for the issuance of up to 18,800,000 shares of Common Stock (the “Share Reserve”), plus any shares that again become available for awards in accordance with the 2017 Plan. Awards that were made following October 31, 2019 under the 2017 Plan or the Inducement Plan will be counted against the Share Reserve based on the “fungible share ratio” described below. Following October 31, 2019 and prior to the date of this Proxy Statement, the Company granted 251,539 shares under the Inducement Plan (163,666 options and 87,873 time-based restricted stock units) and 1,376,697 shares under the 2017 Plan (all time-based and performance-based restricted stock units). As of January 2, 2020, the available shares for grant under the 2019 Plan would be 16,146,566 if the 2019 Plan is approved by our stockholders. See further information under the section “Key Equity Plan Data.”

Under the 2019 Plan, grants of restricted stock units (or other so-called “full value” awards) count against the 2019 Plan’s share capacity at a higher rate than grants of stock options and stock appreciation rights. Specifically, each full value share awarded counts as 1.7 shares against the 2019 Plan’s capacity, while stock options and stock appreciation rights count as 1 share against the 2019 Plan’s capacity. This is referred to a “fungible share ratio”. Shares that again become available for awards under the 2017 Plan that are awarded under the 2019 Plan in the future will count against the 2019 Plan’s share capacity based on the fungible share ratio.

If the 2019 Plan is approved by our stockholders, no future equity awards will be made pursuant to the 2017 Plan or the Inducement Plan. Although no new awards may be granted under the 2017 Plan or the Inducement Plan if the 2019 Plan is approved, all previously granted awards under the 2017 Plan and Inducement Plan would continue to be governed by the terms of the applicable plan. In the event our shareholders do not approve the 2019 Plan, the 2019 Plan will not become effective and shares will be issuable thereunder. The 2019 Plan, if approved, will expire in 2029.

Because the Company did not have sufficient shares available under the 2017 Plan to make ordinary course annual equity awards to the population of employees who would normally receive equity awards, the Compensation Committee granted certain employees cash-based restricted stock unit awards in November 2019. These awards will be settled in cash unless the Compensation Committee determines otherwise and there is sufficient share capacity available under a stockholder-approved equity plan of the Company at the time of settlement. Only employees at levels below Senior Vice President received these awards.

Key Equity Plan Data

As of January 2, 2020:

 

   

There were 100,260,622 shares of our Common Stock issued and outstanding (not including shares of Common Stock issuable upon conversion of shares of our Series A Stock, convertible notes or exercise or vesting of any outstanding equity-based awards.)

 

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Proposal 3    Key Equity Plan Data

 

   

There were a total of 1,028,766 stock options outstanding, with a weighted average exercise price of $18.26 and a weighted average remaining term of 7.64 years.

 

   

There were a total of 3,946,263 time-based restricted stock units outstanding and 1,327,630 performance stock units outstanding, assuming maximum achievement. This includes 1,082,322 cash-settled time-based restricted stock units previously awarded by the Compensation Committee in December 2019. Pursuant to the terms of the applicable award agreements, the Compensation Committee has the discretion to settle these awards in shares of the Company’s common stock if the Company has sufficient share capacity under a stockholder-approved equity compensation plan of the Company at the time the awards are settled.

 

   

There were a total of 232,787 shares of our Common Stock available for future awards under the 2017 Plan. If the 2019 Plan is approved by our stockholders, then no future awards will be granted from the 2017 Plan.

Based on the equity award activity through January 2, 2020, including grants made from the 2017 Plan and the Inducement Plan, the number of shares available for grant under the 2019 Plan as of January 2, 2020 would be 16,146,566 shares if the 2019 Plan is approved by stockholders.

 

2019 Plan Share Reserve

   Awards
Granted
     Share
Reserve
 

Initial Share Reserve

        18,800,000  

Inducement Plan Awards made after October 31, 2019

     

Stock Options

     163,666        (163,666

Time-based RSUs

     87,873        (149,384

2017 Plan Awards made after October 31, 2019

     

Time-based and Performance-based RSUs

     1,376,697        (2,340,384

Remaining shares available for grant under the 2019 Plan if this proposal is approved (as of January 2, 2020)

        16,146,566

 

*   The number of shares available for grant under the 2019 Plan would further be reduced by 1,839,947 shares if the Compensation Committee exercises its discretion to settle the outstanding cash-settled RSUs in shares of the Company’s common stock.

 

 

We manage our long-term dilution by limiting the number of equity awards that are granted annually, commonly referred to as burn rate. “Burn rate” measures the number of shares under outstanding equity awards granted during a given year (assuming maximum achievement and disregarding cancellations), as a percentage of basic weighted-average Common Stock outstanding for that fiscal year. Burn rate differs from dilution, as it does not account for equity awards that have been cancelled. Over the past two fiscal years, our burn rate was 4.8% and 2.1% (for the fiscal years ended September 30, 2018 and September 30, 2019, respectively).

Burn Rate (000’s)

 

    (A)   (B)   (A) + (B) = (C)   (D)    (C) / (D)

Fiscal
Year

  Options
Granted
  Restricted
Stock Unites
Granted
  Total Shares
Granted
  Weighted Average
Common Shares
Outstanding
   Burn Rate
(Unadjusted)

2019

      0       2,289       2,289       110,800        2.1 %

2018

      1,225       4,048       5,303       109,900        4.8 %

 

 

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Proposal 3    Key Equity Plan Data

 

 

Over the past two fiscal years, our average annual dilution was 4.0% and 3.6% (for the fiscal years ended September 30, 2018 and September 30, 2019, respectively). Dilution is generally defined as the total equity awards granted (assuming maximum achievement) less cancellations, divided by total common shares outstanding at the end of the fiscal year.

 

 

Over the past two fiscal years, our “overhang rate” was 6.4% and 4.5% at fiscal year-end (for the fiscal years September 30, 2018 and September 30, 2019, respectively). Our overhang rate measures the total number of shares under all outstanding plan awards (assuming maximum achievement), plus the number of shares authorized for future plan awards, as a percentage of the common shares outstanding on the date of calculation. It measures the potential dilutive effect of outstanding equity awards and future awards available for grant. If the 2019 Plan is approved by our stockholders, our overhang rate would be 22.7%, based on the Common Stock outstanding as of as of January 2, 2020.

For purposes of the above calculations, the number of common shares outstanding does not include shares of Common Stock issuable upon conversion of shares of our Series A Stock or convertible notes, or exercise or vesting of any outstanding equity-based awards.

Why We Believe You Should Vote for this Proposal

We believe our future success depends on our ability to attract, motivate, and retain high quality employees, directors, and consultants, and that the ability to continue to provide stock-based awards is critical to achieving this success as we compete for talent in an industry in which equity compensation is market practice and is expected by many existing personnel and prospective candidates.

The Board believes that equity-based compensation plans such as the 2019 Plan serve many important purposes, such as (i) allowing the Company to use a vehicle other than cash to compensate its employees and other key personnel and (ii) benefitting the interests of our stockholders by effectively linking employee compensation to the performance of our Common Stock price. By maintaining a long-term incentive plan such as the 2019 Plan, the Compensation Committee will be able to design and implement executive compensation programs that retain our key employees, compensate those employees based on the performance of the Company and other individual performance factors, align the goals and objectives of our employees with the interests of our stockholders and promote a focus on long-term value creation.

We believe we would be at a severe competitive disadvantage if we cannot use stock-based awards to recruit and compensate our personnel. If the 2019 Plan is not approved, we expect that we would exhaust the remaining available shares under the 2017 Plan in less than a year. This would increase our cash compensation expense, utilize cash that could otherwise be used to grow our business, make acquisitions, repay debt, or for other corporate purposes, and reduce the alignment between our employees and our stockholders.

Plan Highlights

Below are select highlights from the 2019 Plan that we feel reflect our commitment to adhering to the best practices set forth by industry standards. We ask that you consider these highlights when casting your vote on Proposal 3.

Independent Plan Administrator. The Compensation Committee, which is composed of independent directors, administers the 2019 Plan, and retains full discretion to determine the number and amount of awards to be granted under the 2019 Plan, subject to the terms of the 2017 Plan.

 

 

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Proposal 3    Plan Highlights

 

Reasonable Plan Limits. Subject to adjustment as described in the 2019 Plan, total awards under the 2019 Plan are limited to 18,800,000 shares of our Common Stock, plus the number of shares that again become available for awards under the terms of the 2017 Plan. These shares may be shares of original issuance or treasury shares or a combination of the foregoing.

The 2019 Plan also provides that, subject to adjustment as described in the 2019 Plan:

 

   

The maximum number of shares with respect to which awards may be granted to any participant in respect of any fiscal year is equal to 5,000,000.

 

   

No non-employee member of our Board will be paid compensation (including awards under the 2019 Plan, determined based on the fair market value of such awards as of the grant date, as well as any retainer fees) totaling more than $750,000 in respect of any single fiscal year (the “Non-Employee Director Compensation Limit”).

Full Value Awards Weighted More Heavily. The settlement of one share pursuant to a full value award is deemed to reduce the authorized share pool under the 2019 Plan by 1.7 shares.

Stockholder Approval of Material Amendments. The 2019 Plan requires us to seek stockholder approval for any material amendments to the 2019 Plan, such as increasing the Non-Employee Director Compensation Limit and materially increasing the number of shares available under the 2019 Plan.

Prohibition on Repricing. 2019 Plan prohibits the repricing of outstanding stock options without stockholder approval (outside of certain corporate transactions or permitted adjustment events described in the 2019 Plan). Further, no outstanding stock option may be canceled in exchange for cash or other property at a time when the per share exercise price of such option exceeds the fair market value of such stock option or canceled in exchange for a grant of a new stock option with an exercise price that is less than the exercise price applicable to the surrendered stock option, in each case, without stockholder approval (outside of certain corporate transactions or permitted adjustment events described in the 2019 Plan).

No Liberal Recycling Provisions. The 2019 Plan provides that the following shares will not be added back to the aggregate plan limit: (1) shares tendered in payment of the exercise price; (2) shares withheld by the Company to satisfy the tax withholding obligation; and (3) shares that are reacquired by the Company with proceeds realized by the Company in connection with the exercise of a stock option.

Minimum Vesting Requirements. Other than with respect to up to 5% of the number of shares reserved for issuance under the 2019 Plan and subject to certain other exceptions set forth in the 2019 Plan, awards granted under the 2019 Plan will be subject to a minimum vesting period of one year from the date of grant.

Prohibition of Dividends or Dividend Equivalents on Unvested Awards. The 2019 Plan prohibits the current payment of dividends or dividend equivalents with respect to shares underlying unvested awards prior to the achievement of the applicable vesting conditions. Any such dividends or dividend equivalents will be deferred until and contingent upon the achievement of the underlying vesting conditions.

 

 

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Proposal 3    Non-Employee Director Compensation Limit

 

Non-Employee Director Compensation Limit

If the 2019 Plan is approved, the maximum total compensation (including awards under the 2019 Plan, determined based on the fair market value of such awards as of the grant date, plus annual retainer fees) that may be paid to any non-employee director in respect of a single fiscal year would be limited to $750,000. This provision, which is part of the 2019 Plan, limits the amount of compensation the Board may pay its non-employee members in respect of a single fiscal year without additional stockholder approval.

In connection with approving the 2019 Plan, stockholders are being asked to ratify the Non-Employee Director Compensation Limit. By voting “FOR” approval of the 2019 Plan, you will be deemed to have also ratified the Non-Employee Director Compensation Limit.

Summary of the 2019 Plan

Set forth below is a summary of the principal features of the 2019 Plan. Except as specifically highlighted in this Proposal 3, the principal features of the 2019 Plan are substantially similar to the principal features of the 2017 Plan. This summary is qualified in its entirety by reference to the terms of the 2019 Plan, a copy of which is included in this Proxy Statement as Annex B.

Purpose

The purpose of the 2019 Plan is to attract and retain employees, directors, and consultants of the Company and its subsidiaries and to motivate such individuals, provide them with incentives and enable them to participate in our growth and success.

The 2019 Plan authorizes our Board to provide equity-based compensation or other incentive-based compensation in the form of (1) stock options, including incentive stock options (“ISOs”) entitling the participant to favorable tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”); (2) restricted stock; (3) performance awards; (4) other stock-based awards (“Other Stock-Based Awards”); and (5) cash-based awards (“Other Cash-Based Awards”). Each type of award is described below under “Types of Awards Under the 2019 Plan.”

All awards under the 2019 Plan will be evidenced by an award agreement setting forth the award’s terms and conditions.

The 2019 Plan is designed to comply with the requirements of applicable federal and state securities laws, and the Code.

Shares Available Under the 2019 Plan

The Board has authorized the issuance of up to 18,800,000 shares of Common Stock (the “Share Reserve”), plus any shares that again become available for awards in accordance with the 2017 Plan. Awards that were made following October 31, 2019 under the 2017 Plan or the Inducement Plan will be counted against the Share Reserve based on the “fungible share ratio” described below. Following October 31, 2019 and prior to the date of this Proxy Statement, the Company granted 251,539 shares under the Inducement Plan and 1,376,697 shares under the 2017 Plan.

Under the 2019 Plan, grants of restricted stock units (or other so-called “full value” awards) count against the 2019 Plan’s share capacity at a higher rate than grants of stock options and stock appreciation rights. Specifically, each full value share awarded counts as 1.7 shares against the 2019 Plan’s capacity, while stock options and stock appreciation rights count as 1 share against the 2019

 

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Proposal 3    Shares Available Under the 2019 Plan

 

Plan’s capacity. This is referred to a “fungible share ratio”. Shares that again become available for awards under the 2017 Plan that are awarded in the future under the 2019 Plan will count against the 2019 Plan’s share capacity based on the fungible share ratio.

If the 2019 Plan is approved by our stockholders, no future equity awards will be made pursuant to the 2017 Plan or the Inducement Plan. Although no new awards may be granted under the 2017 Plan or the Inducement Plan if the 2019 Plan is approved, all previously granted awards under the 2017 Plan and Inducement Plan would continue to be governed by the terms of the applicable plan. In the event our shareholders do not approve the 2019 Plan, the 2019 Plan will not become effective and shares will be issuable thereunder. The 2019 Plan, if approved, will expire in 2029.

Subject to adjustment set forth in the 2019 Plan, no more than 15,300,000 shares under the 2019 Plan may be issued upon the exercise of ISOs. The number of shares with respect to awards (including options and SARs) that may be granted under the 2019 Plan to any individual participant in respect of any fiscal year may not exceed 5,000,000 shares. Further, awards to non-employee directors will be subject to the Non-Employee Director Compensation Limit.

Each of the foregoing limitations is subject to potential adjustment as described in the 2019 Plan.

Awards under the 2019 Plan that are settled in cash will not be counted against the 2019 Plan’s share capacity.

If any shares of Common Stock covered by any awards granted under the 2019 Plan are forfeited, cancelled or exchanged or if an award terminates or expires without a distribution of shares of Common Stock to the participant, those shares will again be available for awards under the 2019 Plan. Notwithstanding the foregoing, the following shares will not be added back to the aggregate plan limit: (1) shares tendered in payment of the exercise price; (2) shares withheld by the Company to satisfy the tax withholding obligation; and (3) shares that are reacquired by the Company with proceeds realized by the Company in connection with the exercise of a stock option.

Shares of our Common Stock issued or delivered under awards granted under the 2019 Plan in substitution for or conversion of, or in connection with an assumption of, stock options, SARs, restricted stock, RSUs or other stock or stock-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with us or any of our subsidiaries will not count against the 2019 Plan’s share capacity. Additionally, shares available under certain plans that we or certain of our affiliates may assume in connection with corporate transactions from another entity may be available for certain awards under the 2019 Plan, under circumstances further described in the 2019 Plan, but will not count against the aggregate share limit.

Plan Administration

The 2019 Plan will be administered by the Compensation Committee, composed of at least two directors, each of whom is required to be a “non-employee director” (within the meaning of Rule 16b-3 as promulgated and interpreted by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and, if determined by the Board to be applicable, an “outside director” (within the meaning of Section 162(m) of the Code). The Compensation Committee is authorized to interpret the 2019 Plan and related agreements and other documents.

The Compensation Committee generally may select eligible individuals to whom awards are granted, determine the types of awards to be granted and the number of shares covered by awards and set the

 

 

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Proposal 3    Plan Administration

 

terms and conditions of awards. The Compensation Committee’s determinations and interpretations under the 2019 Plan will be binding on all interested parties.

Eligibility

Current employees and certain consultants of the Company and certain of its subsidiaries, as well as current non-employee members of the Board, are eligible to participate in the 2019 Plan, to the extent chose by the Compensation Committee for participation. Prospective employees and consultants who have accepted offers of employment or consultancy from a Company Entity, as well as prospective non-employee directors who have accepted an offer to serve on the Board, are eligible to participate in the 2019 Plan; provided, that the grant of such award is conditioned on the individual actually becoming an employee, consultant, or non-employee director, as applicable. Currently, all of our approximately 8,190 employees (including our five Section 16 officers), our six non-employee directors and our consultants, are eligible to participate in the 2019 Plan.

No Repricing Without Stockholder Approval

2019 Plan prohibits the repricing of outstanding stock options without stockholder approval (outside of certain corporate transactions or permitted adjustment events described in the 2019 Plan). Further, no outstanding stock option may be canceled in exchange for cash or other property at a time when the per share exercise price of such option exceeds the fair market value of such stock option or canceled in exchange for a grant of a new stock option with an exercise price that is less than the exercise price applicable to the surrendered stock option, in each case, without stockholder approval (outside of certain corporate transactions or permitted adjustment events described in the 2019 Plan).

Types of Awards Under the 2019 Plan

Stock Options. Stock options may be granted that entitle the participant to purchase shares of our Common Stock at a price not less than fair market value per share at the date of grant. The exercise price is payable (1) in cash or in check; (2) by the transfer to us of shares of Common Stock owned by the participant having a value at the time of exercise equal to the total stock option exercise price; (3) through the Company’s withholding of shares otherwise issuable upon exercise of an option pursuant to a “net exercise” arrangement; or (4) by other methods approved by the Compensation Committee.

No stock option may be exercisable more than 10 years from the date of grant. Each grant will specify the period of continuous service with us or any of our subsidiaries that is necessary before the stock options will become exercisable.

Restricted Stock and Restricted Stock Units. Restricted stock and restricted stock units granted under the 2019 Plan will be subject to such terms and conditions, including the duration of the period during which, and the conditions, if any, under which, the restricted stock and restricted stock units may vest and/or be forfeited to us, as may be determined by the Compensation Committee in its sole discretion. Shares of restricted stock or restricted stock units may not be sold, assigned, transferred, pledged, or otherwise encumbered, nor will dividends be paid on such shares of restricted stock or restricted stock units, during the restriction period set by the Compensation Committee. Under the 2019 Plan, restricted stock units may be granted in the form of Other Stock-Based Awards or Other Cash-Based Awards.

Performance Awards. The Compensation Committee has the authority under the 2019 Plan to grant performance awards. These awards consist of a right which is (i) denominated in cash or shares of our

 

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Proposal 3    Types of Awards Under the 2019 Plan

 

Common Stock; (ii) valued, as determined by the Compensation Committee, in accordance with the achievement of performance goals during performance periods as may be established by the Compensation Committee; and (iii) payable at such time and in such form as determined by the Compensation Committee. Each performance award will be subject to one or more specified performance goals that must be met within a specified period determined by the Compensation Committee (the “performance period”) to earn the performance award. The Compensation Committee will determine the amount of any performance award, the length of any performance period, and the amount and kind of any payment or transfer to be made pursuant to any performance award.

Other Stock-Based Awards. The Compensation Committee may grant to a participant Other Stock-Based Awards, which will consist of rights which are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, our shares of Common Stock (including securities convertible into shares). These awards must comply, to the extent deemed desirable by the Compensation Committee, with Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act, and other applicable laws. The Compensation Committee will determine the terms and conditions of these awards, including the price, if any, at which shares of our Common Stock may be purchased pursuant to any Other Stock-Based Award granted under the 2019 Plan.

Other Cash-Based Awards. The Compensation Committee may grant to a participant Other Cash-Based Awards. The Compensation Committee will determine the terms and conditions of these awards, including the vesting conditions, if any, for such awards.

Performance Goals

The 2019 Plan allows the Compensation Committee to establish measurable “Performance Goals” for purposes of establishing Performance Awards under the 2019 Plan. The Performance Goals established for such awards may be based on any one or more of the following, or based on any other goals, metrics or objects determined by the Compensation Committee in its sole discretion: (i) Non-GAAP performance measures included in any of the Company’s SEC filings; (ii) net interest income, total other income, total costs and expenses, income before taxes, net income, revenue and/or earnings per share; (iii) debt or other similar financial obligations of the Company, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Compensation Committee in its sole discretion; (iv) market share; (v) generation performance, customer churn, ending customer count, customer satisfaction, average days sales outstanding, energizing events issues/success, customer complaints/success, systems availability and downtime, contribution margin, and safety and environmental improvements; (vi) operating margin, return on equity, return on assets, and/or return on invested capital; (vii) total shareholder return, the fair market value of a share of Common Stock, or the growth in value of an investment in the shares of Common Stock assuming the reinvestment of dividends.

The Compensation Committee is authorized, in its sole discretion, to adjust or modify the calculation of a Performance Goal as provided for under the Plan.

Minimum Vesting

Notwithstanding anything in the 2019 Plan to the contrary, awards granted under the 2019 Plan (other than cash-based awards) are not permitted to vest any earlier than the first anniversary of the date on which the award is granted; provided, that the following awards will not be subject to the foregoing minimum vesting requirement: any (i) “Substitute Awards” under the 2019 Plan in connection with awards that are assumed, converted or substituted pursuant to a merger, acquisition or similar

 

 

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Proposal 3    Minimum Vesting

 

transaction entered into by the Company; (ii) shares of Common Stock delivered in lieu of fully vested cash awards; (iii) awards to non-employee directors that vest on the earlier of the one-year anniversary of the date of grant and the next annual meeting of stockholders which is at least 50 weeks after the immediately preceding year’s annual meeting; and (iv) any additional awards the Compensation Committee may grant, up to a maximum of five percent of the Share Reserve (subject to adjustment as permitted under the 2019 Plan); and, provided, further, that the foregoing restriction does not apply to the Compensation Committee’s discretion to provide for accelerated exercisability or vesting of any award, including in cases of retirement, death, disability or a Change in Control, in the terms of the award agreement or otherwise.

Amendments

The Board may, at any time, and from time to time, amend, suspend or terminate the 2019 Plan, and the Compensation Committee may amend the 2019 Plan to the extent such amendment is: (i) ministerial or administrative in nature and does not result in a material change to the cost of the 2019 Plan or (ii) required by law; provided, that (A) no such amendment, suspension or termination will occur without stockholder approval if such approval is necessary to comply with applicable legal or regulatory requirements, or if such amendment would increase the Non-Employee Director Compensation Limit and (B), unless otherwise required by law or specifically provided in the 2019 Plan, the rights of a participant, with respect to awards granted prior to any amendment (whether by the Board or the Compensation Committee), suspension or termination, may not be adversely impaired without the express written consent of such participant. Notwithstanding anything in the 2019 Plan to the contrary, the Board may amend the 2019 Plan or any award agreement at any time without a participant’s consent only to comply with applicable law, including Section 409A of the Code, and the Compensation Committee may amend the terms of any award granted under the 2019 Plan, but, except for adjustments set forth in the 2019 Plan pertaining to certain corporate events and transactions or as otherwise specifically provided in the Plan, no such amendment or other action by the Compensation Committee may impair the rights of any holder without the holder’s express written consent.

Dividend Equivalents

Notwithstanding anything in the 2019 Plan to the contrary, no dividends or dividend equivalents are permitted to be paid on any award prior to vesting. In the sole discretion of the Compensation Committee, an award (other than options or stock appreciation rights) may provide the participant with dividends or dividend equivalents, payable in cash, shares of Common Stock, other securities or other property, on a deferred basis; provided, that such dividends or dividend equivalents will be subject to the same vesting conditions as the Award to which such dividends or dividend equivalents relate.

Adjustments

The existence of the 2019 Plan and the awards granted thereunder do not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger or consolidation of the Company or any affiliate (iii) any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock, (iv) the dissolution or liquidation of the Company or any affiliate, (v) any sale or transfer of all or part of the assets or business of the Company or any affiliate or (vi) any other corporate act or proceeding.

Excepting transactions covered by the foregoing paragraph, if the Company effects any merger, consolidation, statutory exchange, spin-off, reorganization, sale or transfer of all or substantially all the

 

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Proposal 3    Adjustments

 

Company’s assets or business, or other corporate transaction or event in such a manner that the Company’s outstanding shares of Common Stock are converted into the right to receive, either immediately or upon liquidation of the Company, securities or other property of the Company or other entity (each, a “Reorganization”), then, subject to the provisions of the 2019 Plan, (A) the aggregate number or kind of securities that thereafter may be issued under the 2019 Plan and the other limits contained in the 2019 Plan, (B) the number or kind of securities or other property (including cash) to be issued pursuant to awards granted under the 2019 Plan (including as a result of the assumption of the 2019 Plan and the obligations hereunder by a successor entity, as applicable), and/or (C) the purchase price of any award, will be appropriately adjusted by the Compensation Committee to prevent dilution or enlargement of the rights granted to, or available for, Participants under the Plan.

If there should occur any change in the capital structure of the Company other than those covered by the two immediately preceding paragraphs, including by reason of any extraordinary dividend (whether cash or equity), any conversion, any adjustment, any issuance of any class of securities convertible or exercisable into, or exercisable for, any class of equity securities of the Company that affects the shares of Common Stock, then the Committee will adjust any Award and make such other equitable or proportional adjustments to the Plan to prevent dilution or enlargement of the rights granted to, or available for, Participants under the Plan.

Change in Control

The 2019 Plan provides that, in the event of a “change in control” (as defined in the 2019 Plan), and except as otherwise provided by the Compensation Committee in an award agreement or otherwise, a Participant’s outstanding awards may be treated in accordance with one or more of the following methods, as determined by the Committee in its sole discretion: (i) Awards, whether or not then vested, shall be continued, assumed, or have new rights substituted therefor, as determined by the Committee in a manner consistent with the requirements of Section 409A of the Code, and restrictions to which shares of Restricted Stock or any other Award granted prior to the Change in Control are subject shall not lapse upon a Change in Control; (ii) the Committee may accelerate the exercisability of, lapse of restrictions on, Awards or provide for a period of time for exercise prior to the occurrence of such event; (iii) any one or more outstanding awards may be cancelled and the Compensation Committee may cause to be paid to the holders thereof, in cash, shares, other securities or other property, or any combination thereof, the value of such awards, if any, as determined by the Compensation Committee (it being understood that, in such event, any stock option or stock appreciation right having a per share exercise price equal to, or in excess of, the fair market value of a share of Common Stock subject thereto may be canceled and terminated without any payment or consideration therefor); or (iv) the Compensation Committee may terminate all outstanding and unexercised awards that provides for a participant-elected exercise, effective as of the date of the Change in Control, by delivering notice of termination to each participant at least twenty (20) days prior to the date of consummation of the Change in Control, in which case during the period from the date on which such notice of termination is delivered to the consummation of the Change in Control, each such participant shall have the right to exercise in full all of such participant’s awards that are then outstanding (without regard to any limitations on exercisability otherwise contained in the award agreements), but any such exercise will be contingent on the occurrence of the Change in Control.

Award agreements generally provide that to the extent outstanding awards are assumed, converted, or replaced in the event of a change in control, if a participant’s employment or service with us or a subsidiary is terminated without cause or a participant terminates his or her employment or service with us or a subsidiary for good reason during the two year period following a change in control, all outstanding awards held by the participant that may be exercised will become fully exercisable and all restrictions will lapse and the awards will become vested and non-forfeitable.

 

 

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Proposal 3    Withholding Taxes

 

Withholding Taxes

To the extent that we are required to withhold federal, state, local, or foreign taxes in connection with any payment made or benefit realized by a participant or other person under the 2019 Plan, and subject to Section 409A of the Code, we have the right to withhold from any award or from any compensation or other amount owing to a participant the amount (in cash, shares of Common Stock, other securities, other awards under the 2019 Plan or other property) of applicable withholding taxes and to take other action as may be necessary to satisfy all obligations for payment of such taxes. Subject to the foregoing, and contingent upon the Company’s consent, a participant may satisfy the withholding liability by delivering shares of Common Stock owned by the participant with a fair market value equal to the withholding liability or have us withhold from the shares of Common Stock otherwise deliverable pursuant to an award, a number of shares of Common Stock equal to the withholding liability, or by such other methods as may be approved by the Compensation Committee.

Compliance with Section 409A of the Internal Revenue Code

To the extent applicable, it is intended that the 2019 Plan and any grants made thereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the participants. The 2019 Plan and any grants made under the 2019 Plan will be administered in a manner consistent with this intent.

Termination

No grant will be made under the 2019 Plan more than 10 years after the date on which the 2019 Plan is first approved by our stockholders, but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of the 2019 Plan.

Federal Income Tax Consequences Relating to Awards

The following is a brief summary of some of the federal income tax consequences of certain transactions under the 2019 Plan based on federal income tax laws in effect on January 1, 2020. This summary is not intended to be complete and does not describe state, local or foreign tax consequences. It is not intended to be tax guidance to participants in the 2019 Plan.

Tax Consequences to Participants

Non-qualified Stock Options. In general, (i) no income will be recognized by an optionee at the time a non-qualified stock option is granted; (ii) at the time of exercise of a non-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and (iii) at the time of sale of shares acquired pursuant to the exercise of a non-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss), depending on how long the shares have been held.

Incentive Stock Options. No income generally will be recognized by an optionee upon the grant or exercise of an ISO. The exercise of an ISO, however, may result in alternative minimum tax liability. If shares of our Common Stock are issued to the optionee pursuant to the exercise of an ISO, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.

 

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Proposal 3    Federal Income Tax Consequences Relating to Awards

 

If shares of our Common Stock acquired upon the exercise of an ISO are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the option price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss), depending on the holding period.

Stock Appreciation Rights. No income will be recognized by a participant in connection with the grant of a tandem SAR or a free-standing SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and/or the fair market value of any unrestricted shares of our Common Stock received on the exercise.

Restricted Stock. The recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the restricted stock (reduced by any amount paid by the participant for such restricted stock) at such time as the shares are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted stock.

Restricted Stock Units. No income generally will be recognized upon the award of RSUs. The recipient of an RSU award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted shares of our Common Stock on the date that such shares are transferred to the participant in settlement of the award (reduced by any amount paid by the participant for such RSUs, if any), and the capital gains/loss holding period for such shares will also commence on such date.

Performance Awards. No income generally will be recognized upon the grant of performance awards. Upon payment in respect of any performance awards, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and/or the fair market value of any unrestricted shares of our Common Stock received in respect thereof.

Tax Consequences to Us or Our Subsidiaries

To the extent that a participant recognizes ordinary income in the circumstances described above, we or the subsidiary for which the participant performs services will be entitled to a corresponding deduction, provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.

Registration with the SEC

We have filed a Registration Statement on Form S-8 relating to the issuance of shares of our Common Stock under the 2019 Plan with the SEC pursuant to the Securities Act of 1933, as amended; however, no shares of our Common Stock may be issued under the 2019 Plan unless and until approval of the 2019 Plan by our stockholders has been obtained.

 

 

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Proposal 3    New Plan Benefits

 

New Plan Benefits

As discussed earlier in this proposal, the Compensation Committee previously awarded cash-settled time-based restricted stock units to certain key employees of the Company as set forth below. Pursuant to the applicable award agreements, the Compensation Committee will have the discretion to settle these awards in shares of the Company’s common stock if the Company has sufficient share capacity under a stockholder-approved equity compensation plan of the Company at the time of settlement. If the 2019 Plan is approved and there are shares available for issuance under the 2019 Plan at the time these awards (or any portion thereof) are settled, the Compensation Committee may determine to settle the awards (or any portion of the awards) using shares reserved for issuance under the 2019 Plan.

 

 Name & Position

   Dollar Value
($)
     Number of Units
(#)
 

James M. Chirico, Jr., President, Chief Executive Officer and Director

             

Kieran J. McGrath, Executive Vice President and Chief Financial Officer

             

Shefali Shah, Executive Vice President, Chief Administrative Officer and General Counsel

             

Executive Group

     200,000        16,906  

Non-Executive Officer Employee Group

     12,615,000        1,065,416  

Equity Compensation Plan Information

The following table sets forth, as of September 30, 2019, the number of securities outstanding under each of our equity compensation plans, the weighted-average exercise price for our outstanding stock options and the number of securities available for grant under such plans.

 

Shares in thousands   Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
    Weighted-
average exercise
price of
outstanding
options, warrants
and rights
   

Number of securities

remaining available for

future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))

 

Plan Category

  (a)     (b)(1)     (c)  
Equity compensation plans approved by security holders:      

Avaya Holdings Corp. 2017 Equity Incentive Plan

    3,996     $ 19.59       1,002  
Equity compensation plans not approved by security holders:      

None

                 

 

(1)

Restricted Stock Units are not included in the calculation of the weighted-average exercise price of outstanding options, warrants and rights.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE AVAYA HOLDINGS CORP. 2019 EQUITY INCENTIVE PLAN

BY VOTING “FOR” APPROVAL OF THE AVAYA HOLDINGS CORP. 2019 EQUITY INCENTIVE PLAN, YOU WILL BE DEEMED TO HAVE ALSO RATIFIED THE NON-EMPLOYEE DIRECTOR COMPENSATION LIMIT.

 

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Proposal 4 Approval of the Avaya Holdings Corp. 2020 Employee Stock Purchase Plan

 

PROPOSAL 4 – APPROVAL OF THE

AVAYA HOLDINGS CORP. 2020 EMPLOYEE STOCK PURCHASE PLAN

Introduction

On January 8, 2020, on the recommendation of the Compensation Committee, the Board unanimously adopted the Avaya Holdings Corp. 2020 Employee Stock Purchase Plan (the “ESPP”), subject to the approval of the stockholders of the Company. The ESPP is a broad-based plan that provides an opportunity for eligible employees of the Company and its designated subsidiaries and affiliates to purchase shares of the Company’s Common Stock (referred to herein as “shares”) through periodic payroll deductions at a discount from the then-current market price. The ESPP does not provide for discretionary grants. If approved by the Company’s stockholders, a total of 5,500,000 shares will be made available for purchase under the ESPP.

Stockholder Approval Requirement

The affirmative vote of the holders of a majority in voting power of the votes cast by stockholders present or represented by proxy and entitled to vote at the Annual Meeting is required for approval of the ESPP. Stockholders are requested in this Proposal 4 to approve the ESPP in substantially the form attached hereto as Annex C. If stockholders do not approve this Proposal 4, then the ESPP, which became effective when adopted by the Board, will terminate if stockholder approval is not obtained by the first anniversary of the date of such adoption.

Approval of the ESPP by the stockholders will enable the Company to offer a current market-competitive, broad-based stock purchase plan to employees of the Company and its subsidiaries and affiliates on a global basis. The Board believes that the ESPP is in the best interest of the Company and its stockholders because it will help us to attract, retain and reward eligible employees and strengthen the mutuality of interest between such employees and the Company’s stockholders.

Key Features of the ESPP

The principal features of the ESPP are summarized below, but the summary is qualified in its entirety by reference to the full text of the ESPP. A copy of the ESPP is attached to this Proxy Statement as Annex C, and is incorporated herein by reference. For purposes of this Proposal 4, “Committee” means the Compensation Committee of our Board or such other properly delegated committee appointed by the Board or Committee to administer the ESPP, and “Administrator” means the Committee or, subject to applicable law, a subcommittee of the Committee or one or more of the Company’s officers or management team appointed by the Board or Committee to administer the day-to-day operations of the ESPP.

Purpose of the ESPP

The purpose of the ESPP is to provide an opportunity for eligible employees of the Company and any parent, subsidiary or affiliate of the Company that has been designated by the Administrator (each, a “Designated Company”) to purchase shares of the Company at a discount through voluntary contributions from such employees’ eligible pay, thereby attracting, retaining and rewarding such persons and strengthening the mutuality of interest between such employees and the Company’s stockholders.

The rights granted under the ESPP are intended to be treated as either (i) purchase rights granted under an “employee stock purchase plan,” as that term is defined in Section 423 of the Internal

 

 

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Proposal 4    Purpose of the ESPP

 

Revenue Code of the United States (the “Code”) (i.e., rights granted under a “Section 423 Offering”), or (ii) purchase rights granted under an employee stock purchase plan that is not subject to the requirements of Section 423 of the Code (i.e., rights granted under a “Non-423 Offering”). The Administrator has discretion to grant purchase rights under either a Section 423 Offering or a Non-423 Offering.

Shares Subject to ESPP and Adjustments upon Changes in Capitalization

A total of 5,500,000 of the Company’s shares will be initially authorized and reserved for issuance under the ESPP. Such shares may be authorized but unissued shares of Common Stock, treasury shares or shares of Common Stock purchased on the open market.

In the event of any change affecting the number, class, value, or terms of the shares of Common Stock of the Company, resulting from a recapitalization, stock split, reverse stock split, stock dividend, spinoff, split up, combination, reclassification or exchange of shares, merger, consolidation, rights offering, separation, reorganization or liquidation or any other change in the corporate structure or shares, including any extraordinary dividend or extraordinary distribution (but excluding any regular cash dividend), then the Committee, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the ESPP, will, in such manner as it may deem equitable, adjust the number and class of shares that may be delivered under the ESPP (including numerical limits), the purchase price per share and the number of shares covered by each purchase right under the ESPP that has not yet been exercised.

Administration

The ESPP will be administered by the Committee. The Committee will have, among other authority, the authority to interpret, reconcile any inconsistency in, correct any default in and apply the terms of the ESPP, to determine eligibility and adjudicate disputed claims under the ESPP, to determine the terms and conditions of purchase rights under the ESPP, and to make any other determination and take any other action desirable for the administration of the ESPP. For purchase rights granted under a Section 423 Offering, the Committee is authorized to adopt such rules and regulations for administering the ESPP as it may deem necessary to comply with the requirements of Section 423 of the Code. To the extent not prohibited by applicable laws, the Committee may delegate its authority to a subcommittee, the Administrator or other persons or groups of persons, including to assist with the day-to-day administration of the ESPP.

Non-US Sub-Plans

The Administrator will also have the authority to adopt such sub-plans as are necessary or appropriate to permit the participation in the ESPP by employees who are foreign nationals or employed outside of the US. Such sub-plans may vary the terms of the ESPP, other than with respect to the number of shares reserved for issuance under the ESPP, to accommodate the requirements of local laws, customs and procedures for non-US jurisdictions. For this purpose, the Administrator is authorized to adopt sub-plans for non-US jurisdictions that vary the terms of the ESPP regarding, without limitation, eligibility to participate, the definition of eligible pay, the dates and duration of offering periods or other periods, the method of determining the purchase price and the discount at which shares may be purchased, any minimum or maximum amount of contributions a participant may make in an offering period or other specified period under the applicable sub-plan, the handling of payroll deductions and the methods for making contributions by means other than payroll deductions, the treatment of purchase rights upon a change in control or a change in capitalization of the Company, the

 

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Proposal 4    Non-US Sub-Plans

 

establishment of bank, building society or trust accounts to hold contributions, the payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of share issuances.

Eligibility

Generally, any individual in an employee-employer relationship with the Company or a Designated Company for income tax and employment tax withholding and reporting purposes is eligible to participate in the ESPP and may participate by submitting an enrollment form or appropriate online form to the Company under procedures specified by the Administrator. As of January 3, 2020, approximately 8,190 employees, including all executive officers, were eligible to participate in the ESPP.

However, the Administrator, in its discretion, may determine on a uniform basis for an offering that employees will not be eligible to participate if they: (i) have not completed at least two years of service since their last hire date (or such lesser period determined by the Administrator), (ii) customarily work not more than 20 hours per week (or such lesser number of hours determined by the Administrator), (iii) customarily work not more than five months per calendar year (or such lesser number of months determined by the Administrator), (iv) are highly compensated employees within the meaning of Section 414(q) of the Code, or (v) are highly compensated employees within the meaning of Section 414(q) of the Code with compensation above a certain level or who are officers subject to the disclosure requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.

No employee is eligible for the grant of any purchase rights under the ESPP if, immediately after such grant, the employee would own shares possessing 5% or more of the total combined voting power or value of all classes of shares of the Company or of any subsidiary or parent of the Company (including any shares which such employee may purchase under all outstanding purchase rights), nor will any employee be granted purchase rights to buy more than $25,000 worth of shares (determined based on the fair market value of the shares on the date the purchase rights are granted) under the ESPP in any calendar year such purchase rights are outstanding.

Eligible employees who are citizens or residents of a jurisdiction outside the US may be excluded from participation in the ESPP if their participation is prohibited under local laws or if complying with local laws would cause the ESPP or a Section 423 Offering to violate Section 423 of the Code. In the case of a Non-423 Offering, eligible employees may be excluded from participation in the ESPP or an offering if the Administrator has determined that participation of such eligible employees is not advisable or practicable for any reason.

Offering Periods

The ESPP will be implemented by consecutive offering periods with a new offering period commencing on the first trading day of the relevant offering period and terminating on the last trading day of the relevant offering period. Unless and until the Administrator determines otherwise in its discretion, each offering period will consist of one approximately six-month purchase period, which will run simultaneously with the offering period. Unless otherwise determined by the Administrator, offering periods will run from June 1st (or the first trading day thereafter) through November 30th (or the last trading day prior to such date) and from December 1st (or the first trading day thereafter) through May 31st (or the last trading day prior to such date).

The Administrator has the authority to establish additional or alternative sequential or overlapping offering periods, a different number of purchase periods within an offering period, or a different duration

 

 

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Proposal 4    Offering Periods

 

for one or more offering periods or purchase periods or different commencement or ending dates for such offering periods with respect to future offerings without stockholder approval, provided that no offering period may have a duration that exceeds 27 months. Additionally, to the extent that the Administrator establishes overlapping offering periods with more than one purchase period in each offering period, the Administrator will have discretion to structure an offering period so that if the fair market value of a share on the first trading day of the offering period in which a participant is currently enrolled is higher than the fair market value of a share on the first trading day of any subsequent offering period, the Company will automatically enroll the participant in the subsequent offering period and will terminate his or her participation in the original offering period.

Payroll Deductions

Except as otherwise provided by the Administrator, up to a maximum of 10% of a participant’s “eligible pay” (as defined in the ESPP) may be contributed by payroll deductions or other payments that the Administrator may permit a participant to make toward the purchase of shares during each purchase period. Once an eligible employee elects to participate in an offering period, then the participant will automatically participate in subsequent offering periods at the same contribution rate as was in effect in the prior offering period unless the participant elects to increase or decrease the contribution rate or withdraw, or is deemed to withdraw, from this ESPP. A participant who is automatically enrolled in a subsequent offering period is not required to file any additional documentation in order to continue participation; provided, however, that participation in the subsequent offering period will be governed by the terms and conditions of the ESPP in effect at the beginning of such offering period, subject to the participant’s right to withdraw from the ESPP. A participant may elect to increase or decrease the rate of such contributions during any subsequent enrollment period by submitting the appropriate form online through the Company’s designated plan broker or to the Administrator. Any such new rate of contribution will become effective on the first day of the first purchase period following the completion of such form. Unless otherwise determined by the Administrator, during a purchase period, a participant may not increase contributions and may decrease the rate of contributions only one time. However, a participant may reduce the rate of contributions to zero percent at any time during a purchase period. Any change to a participant’s rate of contributions during a purchase period will become effective as soon as possible after completing an amended enrollment form (either through the Company’s online enrollment process or by submitting the appropriate form to the Administrator).

Purchase Price

Unless otherwise determined by the Administrator prior to the commencement of an offering period and subject to adjustment in the event of certain changes in our capitalization, the purchase price per share at which shares are sold in an offering period under the ESPP will be 85% of the lesser of (i) the fair market value of the shares on the first trading day of the offering period, or (ii) the fair market value of the shares on the purchase date (i.e., the last trading day of the purchase period). For this purpose, “fair market value” generally means the closing sales price of a share of the Company’s Common Stock on the trading day immediately prior to the applicable date. The Administrator has authority to establish a different purchase price for any Section 423 Offering or Non-423 Offering, provided that the purchase price applicable to a Section 423 Offering complies with the provisions of Section 423 of the Code. As of January 13, 2020, the closing price of a share of the Company’s Common Stock on the New York Stock Exchange was $12.25.

Purchase of Shares

Each purchase right will be automatically exercised on the applicable purchase date, and shares will be purchased on behalf of each participant by applying the participant’s contributions for the applicable

 

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Proposal 4    Purchase of Shares

 

purchase period to the purchase of shares, which may include fractional shares in the Administrator’s sole discretion, at the purchase price in effect for that purchase date.

The maximum number of shares purchasable per participant during any single offering period may not exceed 12,500 shares (or such other limit as may be imposed by the Administrator), subject to adjustment in the event of certain changes in our capitalization.

To the extent that purchase of fractional shares is not authorized by the Administrator in connection with an offering, any amount remaining in a participant’s account that was not applied to the purchase of shares because it was insufficient to purchase a whole share will be carried forward for the purchase of shares during the following offering period. However, any amounts not applied to the purchase of shares during an offering period for any reason other than as described above will not be carried forward to any subsequent offering periods, and will instead by refunded, without interest, as soon as practicable after the purchase date, except as otherwise determined by the Administrator or required by applicable law.

Transferability

Purchase rights granted under the ESPP are not transferable by a participant other than by will or by the laws of descent and distribution, and are exercisable during the participant’s lifetime only by the participant.

Withdrawals

A participant may withdraw from an offering period and receive a refund of contributions by submitting the appropriate form online through the Company’s designated plan broker or to the Administrator within the time period prescribed by the Administrator. A notice of withdrawal must be received no later than the last day of the month immediately preceding the month of the purchase date or by such other deadline as may be prescribed by the Administrator. Upon receipt of such notice, deductions of contributions on behalf of the participant will be discontinued commencing with the payroll period immediately following the effective date of the notice of withdrawal, and such participant will not be eligible to participate in the ESPP until the next enrollment period. Amounts credited to the account of any participant who withdraws from an offering period, according to the procedures set forth in the ESPP, within the time period prescribed by the Administrator will be refunded, without interest, as soon as practicable, except as otherwise determined by the Administrator or required by applicable law.

Termination of Employment

If a participant ceases to be an eligible employee prior to a purchase date, contributions for the participant will be discontinued and any amounts credited to the participant’s account will be refunded, without interest, as soon as practicable, except as otherwise provided by the Administrator or required by applicable law.

Subject to the discretion of the Administrator, if a participant is granted a paid leave of absence, the participant’s payroll deductions will continue and amounts credited to the participant’s account may be used to purchase shares as provided under the ESPP. If a participant is granted an unpaid leave of absence, the participant’s payroll deductions will be discontinued and no other contributions will be permitted (unless otherwise determined by the Administrator or required by applicable law), but any amounts credited to the participant’s account may be used to purchase shares on the next applicable purchase date. Where the period of leave exceeds three months and the participant’s right to

 

 

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Proposal 4    Termination of Employment

 

reemployment is not guaranteed by statute or by contract, for purposes of the ESPP, the employment relationship will generally be deemed to have terminated three months and one day following the commencement of such leave.

Unless otherwise determined by the Administrator or required by applicable law, a participant whose employment transfers or whose employment terminates with an immediate rehire (with no break in service) by or between the Company and a Designated Company will not be treated as having terminated employment for purposes of participating in the ESPP or an offering. However, if a participant transfers from a Section 423 Offering to a Non-423 Offering, the exercise of the participant’s purchase right will be qualified under the Section 423 Offering only to the extent that such exercise complies with Section 423 of the Code. If a Participant transfers from a Non-423 Offering to a Section 423 Offering, the exercise of the Participant’s purchase right will remain non-qualified under the Non-423 Offering. The Administrator may establish additional or different rules to govern transfers of employment for purposes of participation in the ESPP or an offering, consistent with the applicable requirements of Section 423 of the Code.

Change in Control

In the event of a “Change in Control” (as defined in the ESPP), each outstanding purchase right will be equitably adjusted and assumed or an equivalent purchase right substituted by the successor company or a parent or subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute the purchase right or is not a publicly traded corporation, the offering period then in progress will be shortened by setting a new purchase date before the date of the proposed Change in Control, as of which date the offering period will end.

Amendment and Termination of ESPP

The ESPP became effective upon its adoption by the Board, subject to approval by the stockholders of the Company.

The Board or the Committee may amend the ESPP at any time, provided that if stockholder approval is required pursuant to the Code, securities laws or regulations, or the rules or regulations of the securities exchange on which the Company’s shares are listed or traded, then no such amendment will be effective unless approved by the Company’s stockholders within such time period as may be required. The Board may suspend the ESPP or discontinue the ESPP at any time, including shortening an offering period in connection with a spin-off or similar corporate event. Upon termination of the ESPP, all contributions will cease, all amounts credited to a participant’s account will be equitably applied to the purchase of whole shares then available for sale, and any remaining amounts will be promptly refunded, without interest (unless required by applicable law), to the participants.

US Federal Income Tax Information

The following summary briefly describes the general US federal income tax consequences of purchase rights under the ESPP for participants who are tax resident in the US, current as of January 1, 2020, but is not a detailed or complete description of all US federal tax laws or regulations that may apply, and does not address any local, state or other country laws. Therefore, no one should rely on this summary for individual tax compliance, planning or decisions. Participants in the ESPP should consult their own professional tax advisors regarding the taxation of purchase rights under the ESPP. The discussion below concerning tax deductions that may become available to the Company under US federal tax law is not intended to imply that the Company will necessarily

 

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Proposal 4    US Federal Income Tax Information

 

obtain a tax benefit or asset from those deductions. Taxation of equity-based payments in countries other than the US does not generally correspond to US federal tax laws, and is not covered by the summary below.

US Federal Income Tax Information for Section 423 Offerings

Rights to purchase shares granted under a Section 423 Offering are intended to qualify for favorable federal income tax treatment available to purchase rights granted under an employee stock purchase plan that qualifies under the provisions of Section 423(b) of the Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the ESPP are sold or otherwise disposed of. If the shares are disposed of within two years from the purchase right grant date (i.e., the beginning of the offering period) or within one year from the purchase date of the shares, a transaction referred to as a “disqualifying disposition,” the participant will realize ordinary income in the year of such disposition equal to the difference between the fair market value of the shares on the purchase date and the purchase price. The amount of such ordinary income will be added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be a capital gain or loss. A capital gain or loss will be long-term if the participant holds the shares for more than one year after the purchase date.

If the shares purchased under the ESPP are sold (or otherwise disposed of) more than two years after the purchase right grant date and more than one year after the shares are transferred to the participant, then the lesser of (i) the excess of the sale price of the shares at the time of disposition over the purchase price, and (ii) the excess of the fair market value of the shares as of the purchase right grant date over the purchase price (determined as of the first day of the offering period) will be treated as ordinary income. If the sale price is less than the purchase price, no ordinary income will be reported. The amount of any such ordinary income will be added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be long-term capital gain or loss.

The Company (or applicable Designated Company) generally will be entitled to a deduction in the year of a disqualifying disposition equal to the amount of ordinary income realized by the participant as a result of such disposition, subject to any applicable limitations under the Code. In other cases, no deduction is allowed.

US Federal Income Tax Information for Non-423 Offerings

If the purchase right is granted under a Non-423 Offering, then the amount equal to the difference between the fair market value of the shares on the purchase date and the purchase price will be treated as ordinary income at the time of such purchase. In such instances, the amount of such ordinary income will be added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be a capital gain or loss. A capital gain or loss will be long-term if the participant holds the shares for more than one year after the purchase date.

The Company (or applicable Designated Company) generally will be entitled to a deduction in the year of purchase equal to the amount of ordinary income recognized by the participant as a result of such disposition, subject to any applicable limitations under the Code. For US participants, FICA/FUTA taxes will generally be due in relation to ordinary income earned as a result of participation in a Non-423 Offering.

 

 

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Proposal 4    New Plan Benefits

 

New Plan Benefits

The benefits to be received pursuant to the ESPP by the Company’s officers and employees are not currently determinable as they will depend on the purchase price of our shares in offering periods after the implementation of the ESPP, the market value of our Common Stock on various future dates, the amount of contributions that eligible officers and employees elect to make under the ESPP and similar factors. As of the date of this Proxy Statement, no officer or employee has been granted any purchase rights under the proposed ESPP.

* * * * * * * * *

The proxy holders named on the accompanying proxy card will vote in favor of the approval of the ESPP unless a stockholder directs otherwise.

The affirmative vote of the holders of a majority in voting power of shares entitled to vote (virtually or by proxy) at the Annual Meeting is required to approve the ESPP. Abstentions will have the same effect as an “Against” vote for purposes of determining whether this matter has been approved. Broker non-votes will not be counted for any purpose in determining whether this proposal has been approved.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF

THE AVAYA HOLDINGS CORP. 2020 EMPLOYEE STOCK PURCHASE PLAN.

 

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Certain Relationships and Related Transactions

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Relationships and Related Transactions

Strategic Partnership with RingCentral, Inc.

On October 3, 2019, the Company entered into a strategic partnership with RingCentral, Inc. (“RingCentral”). In connection with the strategic partnership, the Company and RingCentral entered into (i) an Investment Agreement (the “Investment Agreement”), pursuant to which RingCentral purchased $125 million aggregate principal amount of the Company’s Series A Stock and (ii) a Framework Agreement (the “Framework Agreement”), each as described below.

Investment Agreement

The Investment Agreement provided for the sale by the Company to RingCentral, in a private placement under the Securities Act of 1933, as amended, 125,000 shares of Series A Stock, for an aggregate purchase price of $125 million. The Series A Stock issued to RingCentral pursuant to the Investment Agreement is convertible into shares of Common Stock, at an initial conversion price of $16.00 per share. The Company completed the issuance and sale of the Series A Stock (the “Closing”) on October 31, 2019.

Framework Agreement, Super Master Agent Agreement and Development Agreement

The Framework Agreement governs the terms of the commercial arrangement between Avaya Inc. and RingCentral. Pursuant to the Framework Agreement, the parties entered into a Super Master Agent Agreement dated as of October 31, 2019, between Avaya Inc. and RingCentral (the “Super Master Agent Agreement”), pursuant to which Avaya will act as an agent to Avaya’s channel partners with respect to the sale of Avaya Cloud Office by RingCentral (“ACO”) and make direct sales of ACO. RingCentral will pay a commission to Avaya, including for the benefit of Avaya’s channel partners, for each such sale. In addition, for each qualified unit of ACO sold during the term of the Framework Agreement, RingCentral will pay Avaya certain commissions. Among other things, the Framework Agreement requires Avaya to (subject to certain exceptions) market and sell ACO as its exclusive UCaaS solution (as defined by “Subject Functionality” in the Framework Agreement). In addition, under certain circumstances, the Company may be required to issue shares of Series A Stock or shares of Common Stock to RingCentral in satisfaction of its obligations under the Framework Agreement. Further, RingCentral paid Avaya an advance of $375 million, predominantly for future commissions, as well as for certain licensing rights (the “Consideration Advance”). The Consideration Advance was paid primarily in RingCentral stock. On November 12, 2019, Avaya sold 1,750,000 shares of RingCentral stock included in the Consideration Advance for proceeds of approximately $294 million, and as of the date of this Proxy Statement, held less than 1% of RingCentral outstanding common stock. The Framework Agreement has a multiyear term and can be terminated earlier by either party in the event (i) the other party fails to cure a material breach or (ii) the other party undergoes a change in control.

Pursuant to the Framework Agreement, on October 3, 2019, Avaya Management L.P., Avaya Inc. and RingCentral entered into a Development Agreement, pursuant to which Avaya and RingCentral will collaborate to develop ACO as a new branded service. The Development Agreement permits Avaya and RingCentral to enter into product description documents which will specify the development work to be completed by each of Avaya and RingCentral. The Development Agreement will terminate when the Framework Agreement and Super Master Agent Agreement are terminated. Additionally, the Development Agreement may be terminated by Avaya or RingCentral in the event that the other

 

 

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Certain Relationships and Related Transactions    Certain Relationships and Related Transactions

 

(a) fails to cure a material breach or (b) experiences an Insolvency Event (as defined in the Framework Agreement).

Investor Rights Agreement

In connection with the Closing, the Company entered into an Investor Rights Agreement (the “Investor Rights Agreement”) with RingCentral. Pursuant to the terms of the Investor Rights Agreement, among other things, from and after the Closing, until the first date on which RingCentral and its affiliates no longer hold or beneficially own, in the aggregate, a number of shares of Common Stock (calculated assuming conversion of the Series A Stock to Common Stock) that is equal to or greater than 4,759,339 shares (subject to certain adjustments) (the “Investor Ownership Threshold”), RingCentral is entitled to nominate one person (the “RingCentral Nominee”) to the Board. In addition, for so long as the Investor Ownership Threshold is met, RingCentral shall vote all of its shares in favor of each director nominee nominated by the Nominating and Corporate Governance Committee and against the removal of any director nominated by such committee. Furthermore, for as long as the RingCentral Nominee sits on the Board, RingCentral is subject to customary standstill provisions, has a consent right over certain actions taken by the Company, and has customary preemptive rights. The Investor Rights Agreement also provides for customary demand and piggyback registration rights for RingCentral and its transferees beginning six months after the Closing, and contains customary transfer restrictions.

Registration Rights Agreement

In connection with the Closing, the Company entered into a Registration Rights Agreement with RingCentral, pursuant to which RingCentral agreed to file a registration statement providing for the resale, from time to time, by the Company of shares of common stock of RingCentral issued to the Company under the Framework Agreement.

2017 Registration Rights Agreement

In connection with our emergence from Chapter 11, we entered into a registration rights agreement with certain of our creditors and their affiliates who became Company stockholders upon our emergence from bankruptcy, pursuant to which we provide them certain “demand” registration rights and customary “piggyback” registration rights. The registration rights agreement also provides that we will pay certain expenses relating to such registrations and indemnify the registration rights holders against (or make contributions in respect of) certain liabilities which may arise under the Securities Act of 1933, as amended.

Arrangements Involving the Company’s Current Directors

James M. Chirico, Jr. is a director and he is Chief Executive Officer and President of the Company. The Company also employs his daughter, Mackenzie Chirico, whose salary and commissions in Fiscal 2019 were approximately $122,000.

Stanley J. Sutula, III is a director and he is Executive Vice President and Chief Financial Officer of Pitney Bowes Inc., a business-to-business provider of equipment, software and services. During Fiscal 2019, sales of the Company’s products and services to Pitney Bowes Inc. were approximately $242,000 and the Company purchased de minimis amounts of goods and services from Pitney Bowes Inc.

 

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  2020 Proxy Statement


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Certain Relationships and Related Transactions