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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.

 

1)

 

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):

 

     

 

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Proposed maximum aggregate value of transaction:

 

     

 

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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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Date Filed:

 

     

 

 

 


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AVAYA Experiences That Matter Proxy Statement 2022


Table of Contents

 

 

 

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2605 Meridian Parkway, Suite 200

Durham, North Carolina 27713

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MARCH 2, 2022

 

 

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/AVYA2022 on Wednesday, March 2, 2022, at 10:30 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 eight directors, each to serve until the next Annual Meeting or until his or her successor is duly elected and qualified;

 

2.

To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2022;

 

3.

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

 

4.

To approve an amendment to the Avaya Holdings Corp. 2019 Equity Incentive Plan; and

 

5.

To transact any other business as may properly come before the 2022 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 3, 2022 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

and Chief Administrative

Officer

January 18, 2022


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Important Notice Regarding the Availability of Proxy Materials for the

Stockholder Meeting to be Held on March 2, 2022

The Notice of Annual Meeting, Proxy Statement and Form of Proxy are first being distributed and made available on or about January 18, 2022 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 2021 Annual Report are available on the Internet at http://materials.proxyvote.com/05351X, as well as on the Annual Meeting website at www.virtualshareholdermeeting.com/AVYA2022.

Virtual Meeting Admission

 

Stockholders of record as of January 3, 2022 will be able to participate in the Annual Meeting by visiting our Annual Meeting website at www.virtualshareholdermeeting.com/AVYA2022. 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 10:30 a.m. Eastern time on Wednesday, March 2, 2022. Online check-in will begin at 10:15 a.m. Eastern time as 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 on 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 by participating virtually in the meeting. 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. 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/AVYA2022.

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.


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LOGO                                                                                                                                  

    LOGO

Letter to our Stockholders

To Our Fellow Stockholders,

 

 

Avaya continues to demonstrate exceptional resilience and strength in response to the many global challenges we face, achieving annual revenue growth in fiscal 2021 for the first time in over a decade. This resilience and strength is a testament to our employees, customers, partners and suppliers, and to the Avaya leadership team’s commitment to win in the market by supporting our customers every day and building an enterprise cloud leader grounded in our cultural principles: Simplicity, Accountability, Teamwork, Trust, Empowerment and Inclusion.

Digital transformation continues to rapidly accelerate as organizations adapt to new ways of working while meeting the changing needs of a diverse global economy. Our Avaya OneCloud platform of workstream collaboration, communications and remote agent solutions empowers our customers to create experiences that matter. We are transforming our customers and partners into Avaya Experience Builders, capable of composing personalized, AI-powered solutions that are more flexible, agile and impactful. That is why more organizations globally are turning to Avaya to help them meet the needs of today’s Experience Economy.

Our efforts this year achieved outstanding results, including our first full year of revenue growth. We are forecasting increased growth in fiscal 2023 and fiscal 2024. Our cloud and SaaS transformation continues to make significant progress, and Cloud, Alliance Partner and Subscription (“CAPS”) revenue and Avaya OneCloud Annual Recurring Revenue (“ARR”) both reached record levels, with CAPS reaching 40% of Fiscal 2021 revenue and OneCloud ARR growing 177% to $530 million.

This past year, we’ve also focused on key environmental, social and governance initiatives, including climate change, diversity, and cybersecurity and data privacy. We have doubled down on the Company’s commitment to driving value for our stakeholders while at the same time reducing our impact on the environment, offering a safe and inclusive workplace for all employees and giving back to the global communities where the more than 8,000 Avayans live and work.

We are pleased that Avaya was named one of 2021’s Most Responsible Companies by Newsweek and for the second consecutive year was recognized by Forbes as one of the World’s Best Employers. Reinforcing our commitment to diversity, equity, inclusion and belonging (“DEI&B”), Avaya enhanced its Global DEI&B Policy, expanded employee resource groups and launched a Global DEI&B Council to foster a workplace where individuality is celebrated and harnessed, creating a culture of engagement, innovation and inclusivity. Demonstrating our commitment to combat climate change, Avaya exceeded its target for reducing emissions. And our extensive experience in safeguarding personal data and helping our customers comply with their privacy and security requirements has earned the trust of those who must meet the highest standards of security such as governments, public authorities and organizations and financial institutions. All of this has been accomplished while enabling our customers and partners to successfully address the challenges of the pandemic with our Avaya OneCloud platform, including providing our global employees with a safe and flexible working environment.

Looking ahead, we see significant opportunity for Avaya’s continued growth as a result of our successful transformation to an enterprise cloud leader. We would like to take this opportunity to invite you to attend our 2022 Annual Meeting of Stockholders, held virtually on March 2, 2022 at 10:30 am Eastern time. Whether or not you plan to attend this meeting, we encourage you to read these proxy materials and to vote. You can find additional information about our business performance for the year in our Annual Report on Form 10-K, which accompanies this proxy statement.

Thank you for your support,

 

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William D. (Bill) Watkins

Chair of the Board

  

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James M. Chirico, Jr.

President, CEO and Director


Table of Contents

TABLE OF CONTENTS

 

Table of Contents

 

    Page  

PROXY SUMMARY

    1  

CORPORATE GOVERNANCE

    10  

Overview

    10  

Code of Conduct

    10  

Corporate Responsibility

    11  

Cybersecurity and Data Protection

    14  

Stockholder Engagement

    14  

Prohibition on Hedging or Pledging of Company Stock

    15  

Leadership Structure of the Board

    15  

Board Independence

    15  

Board Composition and Director Qualifications

    15  

Board Evaluation Process

    16  

Board and Committee Meetings

    16  

Standing Board Committees

    17  
Compensation Committee Interlocks and Insider Participation     19  

Selection of Board Nominees

    19  

RingCentral Board Nominee

    19  

Board Oversight of Risk Management

    20  

Communications with the Board

    20  

Certain Relationships and Related Transactions

    20  

Strategic Partnership with RingCentral,
Inc.

    20  

2017 Registration Rights Agreement

    21  

Arrangements Involving the Company’s Current Directors and Officers

    21  

Arrangements Involving Other Stockholders which Beneficially Own More Than 5% of Any Class  of Stock

    22  

Related Party Transaction Policy

    22  

PROPOSAL 1

 

ELECTION OF DIRECTORS

    23  

PROPOSAL 2

 
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     29  

Pre-Approval Policies and Procedures

    29  

Principal Accountant Fees and Services

    29  

AUDIT COMMITTEE REPORT

    31  

PROPOSAL 3

 
ADVISORY APPROVAL OF THE COMPANY’S NAMED EXECUTIVE OFFICERS’ COMPENSATION (“SAY-ON-PAY”)     32  
    Page  

PROPOSAL 4

 
APPROVAL OF AN AMENDMENT NO. 1 TO THE AVAYA HOLDINGS CORP. 2019 EQUITY INCENTIVE PLAN     33  
COMPENSATION DISCUSSION AND ANALYSIS     44  
STOCK OWNERSHIP     64  
Security Ownership of Certain Beneficial Owners and Management     64  

DIRECTOR COMPENSATION

    67  

EXECUTIVE OFFICERS

    69  

PROXY AND VOTING INFORMATION

    70  
PROCESS FOR DIRECTOR NOMINATIONS AND STOCKHOLDER PROPOSALS     75  
Director Nominations     75  
Stockholder Proposals For Inclusion in Our Proxy Materials     76  
Other Matters to be Brought Before the 2023 Annual Meeting of Stockholders     76  
EQUITY COMPENSATION PLAN INFORMATION     77  

ANNUAL REPORT

    78  

ADDITIONAL FILINGS

    78  

OTHER BUSINESS

    78  

ANNEX A

RECONCILIATION OF GAAP TO NON-GAAP (ADJUSTED) FINANCIAL MEASURES

    A-1  

ANNEX B

2019 AVAYA HOLDINGS CORP. EQUITY PLAN AND AMENDMENT NO. 1

    B-1  
 

 

 

 

     

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    2022 Proxy Statement      


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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, 2021 (“Fiscal 2021”), please review the Company’s Annual Report on Form 10-K for the year ended September 30, 2021 (the “Form 10-K”) that accompanied this Proxy Statement.

2022 Annual Meeting Overview

 

 

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Date and Time

 

March 2, 2022 at

10:30 a.m., Eastern time

 

LOGO

 

Place — Virtually via webcast

 

Participate in the Annual Meeting by

visiting our Annual Meeting website at

www.virtualshareholdermeeting.com/AVYA2022

There is no physical meeting location for the 2022 Annual Meeting.

 

Record Date

January 3, 2022

 

 

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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 at the 2022 Annual Meeting. 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.

 

 

LOGO

 

 

Virtual Stockholder Meeting

 

Our 2022 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 the record date 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, as well as our independent registered public accounting firm, 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.

Roadmap of Voting Matters

 

Stockholders are being asked to vote on the following matters at the 2022 Annual Meeting:

 

Proposal

 

Board
Recommendation

 

Further Information

 

  1     Election of Directors

 

FOR each Nominee

 

  Page 23
 

  2     Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s    independent registered public accounting firm for the fiscal year ending September 30,   2022

 

FOR

 

 

Page 29

 

 

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

 

FOR

  Page 32
 

  4     Approval of Amendment No. 1 to the Avaya Holdings Corp. 2019 Equity Incentive Plan

 

FOR

  Page 33

 

 

     

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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 10 describes our governance framework, which includes the following highlights:

 

   

 

 Board Practices 

   
       
 

 

  Non-Executive Chair

 

  7 of 8 Directors Are Independent

 

  Fully Independent Standing Board Committees

 

  Regular Executive Sessions of Independent Directors

 

  Annual Election of All Directors

 

  Annual Board and Committee Self-Evaluations

 

  Structured Process for Board’s Risk Oversight

 

   

 

 Stockholder Matters 

   
       
 

 

 Recommended Annual “Say-on-Pay” Advisory Vote

 

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

 

 

   

 

 Other Best Practices 

   
       
 

 

 

 Robust Share Ownership Guidelines

 

 Prohibition on Executives Hedging and Pledging Stock

 

 Executive Compensation Clawback Policy

 

 Board and Committee Oversight of Environmental, Social & Governance Matters

 

 

 

 

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Director Nominees     ›       PROXY SUMMARY  

 

 

Director Nominees

 

           

Other
Public
Company
Boards

 

          Standing Committees1

Name

  Age   Director
Since
  Position   Board      Audit   Compensation   Nominating
and Corporate
Governance

 

James M. Chirico, Jr.

 

 

64

 

 

2017

 

 

none

 

 

President and Chief Executive Officer of the Company

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Stephan Scholl

 

 

51

 

 

2017

 

 

1

 

 

Chief Executive Officer of Alight Solutions

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Susan L. Spradley

 

 

60

 

 

2017

 

 

2

 

 

Chief Executive Officer of Motion Intelligence, Inc.

 

 

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Stanley J. Sutula, III

 

 

56

 

 

2017

 

 

none

 

 

Chief Financial Officer of Colgate-Palmolive Company

 

 

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Robert Theis

 

 

60

 

 

2020

 

 

1

 

 

General Partner of World Innovation Lab

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Scott D. Vogel

 

 

46

 

 

2017

  2

 

 

 

Managing Member of Vogel Partners LLC

 

 

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William D. Watkins

 

 

69

 

 

2017

 

 

2

 

 

Former Chair and Chief Executive Officer of Imergy Power Systems

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LOGO

 

Jacqueline E. Yeaney

 

 

53

 

 

2019

 

 

1

 

 

Executive Vice President, Marketing of Tableau Software

 

  LOGO         

 

LOGO

   

 

1 

In Fiscal 2021, the Board of Directors established a Strategy Committee which is discussed in more detail under the “Standing Board Committees” section in this Proxy Statement.

Diversity

 

 

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*   One Director self identifies as a Pacific Islander.

 

 

     

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PROXY SUMMARY     ›     Experience/Skills of Director Nominees

 

 

Experience/Skills of Director Nominees

 

 

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Corporate Responsibility Highlights     ›       PROXY SUMMARY  

 

 

Corporate Responsibility Highlights

 

 

At Avaya, we recognize that we have social, environmental and economic responsibilities to our stakeholders, which include our employees, customers, partners, stockholders, investors and the larger community. We are committed to reducing our impact on the planet, offering a safe and inclusive workplace for all employees, and giving back where we live and work. The following are some of our accomplishments in this area during 2021:

 

 

We reinforced our commitment to diversity, equity, inclusion and belonging (DEI&B) by establishing a Global DEI&B Council, chaired by our CEO, and a Global DEI&B Committee, chaired by our Chief Human Resources Officer, and expanded the scope and breadth of our Employee Resource Groups (“ERGs”).

 

 

We remain steadfast in our commitment to combat climate change, evidenced by our reduction of Scope 1 & Scope 2 emissions by 65% and Scope 3 emissions from business travel by 49%, both from 2014 levels, exceeding our 2020 targets.

 

We hosted our 7th annual Month of Giving Campaign in October 2021, during which we raised more than $130,000 to support our long-time partner, Save the Children.

 

 

We foster a culture of ethics and integrity, conduct mandatory training on key ethical topics and design and implement systems that promote such behavior.

 

 

We reinforced our commitment to work/life balance by launching a new Flexible Work Arrangement program, which establishes clear, flexible work options and gives employees the opportunity to request a work arrangement that meets their needs while continuing to effectively serve the business.

We also monitor our standing on a number of environmental, social and governance (“ESG”) ratings and rankings to gain perspective and insights into our impacts, to understand the competitive ESG landscape in both our industry and beyond and to identify ways to improve our ESG performance.

 

 

Business Overview and Fiscal 2021 Performance at a Glance

 

 

As a global leader in digital communications products, solutions and services for businesses of all sizes, Avaya is reimagining digital communications with innovation that defines the future of work and the customer experience. Our global team of experienced professionals delivers award-winning services from initial planning and design, to seamless implementation and integration, to ongoing managed operations, optimization, training and support.

 

Avaya’s Fiscal 2021 results demonstrate our purposeful and deliberate journey of transformation to be an enterprise cloud leader. The Company delivered year over year growth, reversing over a decade of annual revenue declines. Our success was achieved despite the headwinds from the global pandemic and continued to gain traction during the year, setting the stage for continued success.

 

Strong operational performance drove Avaya’s solid financial performance in Fiscal 2021. Highlights include:

 

Revenue      CAPS % of Revenue      OneCloud ARR      Software % of Revenue

$2,973m

    

40%

    

$530m

    

64%

 

 

Annual revenue was $2,973 million, representing a return to annual revenue growth, closing Fiscal 2021 up approximately $100 million.

 

 

Fiscal 2021 net loss was $13 million and we maintained strong profitability with Adjusted EBITDA* of $719 million.

 

 

Gross margin was 55.5% and non-GAAP gross margin* was 61.4%, with Adjusted EBITDA margin* of 24.2%.

 

The Company generated cash flow from operations of $30 million and ended Fiscal 2021 with $498 million in cash and cash equivalents.

 

 

Recurring revenues grew to 66% of total revenues from 63% in the prior fiscal year and 64% of revenues came from software last year.

 

 

Cloud, Alliance Partner and Subscription (“CAPS”) revenue, as a key performance indicator of our highest high-value revenue, grew to 40% of

 

 

 

     

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PROXY SUMMARY     ›     Business Overview and Fiscal 2021 Performance at a Glance

 

 

 

revenues, for Fiscal 2021, up 14 points from the fiscal year which ended on September 30, 2020 (“Fiscal 2020”).

 

 

CAPS highlights the value of Avaya’s innovative solutions, including Avaya OneCloudTM Subscription. This offering is activating our global base by bundling high-value innovations like Avaya SpacesTM, video, contact center, AI and other cloud solutions, as customers move to an on-demand consumption model.

 

 

A year ago, we introduced Avaya OneCloud Annual Recurring Revenue (“ARR”) as the leading indicator of our cloud transition and the software solutions driving our growth. We finished Fiscal 2021 with $530 million of ARR, up 25% sequentially and 177% year over year, reflecting the progress of our transition to the cloud and the relevance of our market leading solutions.

 

 

Over 20% of ARR was from customers paying $5 million+ annually, over 60% of ARR was from customers paying $1 million+ annually and over 90% of ARR was from customers paying $100 thousand+ annually.

 

The Company signed 445 deals with a total contract value (“TCV”) over $1 million, 67 deals with a TCV over $5 million, 23 deals with a TCV over $10 million and 4 deals with a TCV over $25 million – an increase in every category as compared to the prior fiscal year.**

In addition, in Fiscal 2021 we prepaid, replaced and refinanced our credit facility’s first lien term loans due December 2024 with cash and new first lien term loans due December 2027. This $100 million of debt reduction improved our capital structure to enhance our financial flexibility, strengthen our balance sheet and reduce refinancing risk.

As we position for the future, Avaya shifted its entire comprehensive software portfolio to Avaya OneCloudTM, a multi-cloud application ecosystem which offers significant capabilities across contact center (OneCloud CCaaS), unified communications and collaboration (OneCloud UCaaS) and communications platform as a service (OneCloud CPaaS). Our open, composable platform enables us to address customers’ needs and help clients deliver tangible business results.

 

 

*

Adjusted EBITDA, non-GAAP gross margin 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.

 

**

We define TCV as the value of all active ratable contracts that have not been recognized as revenue, including both billed and unbilled backlog.

 

 

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Executive Compensation Highlights     ›       PROXY SUMMARY  

 

 

Executive Compensation Highlights

 

Our executive compensation program is designed with the objective of strongly linking pay with performance as evidenced by the graphs below. We consider compensation to be “variable” if vesting or payout is subject to achievement of performance targets or the value received is dependent on our stock price.

 

 

 

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Say-on-Pay

 

 

Avaya’s executive compensation program for 2020 received substantial stockholder support and was approved, on an advisory basis, by approximately

93%

 

of stockholders voting on the proposal at the 2021 Annual
Meeting of Stockholders.

 

 

     

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    2022 Proxy Statement       7


Table of Contents
PROXY SUMMARY     ›     Executive Compensation Highlights

 

 

The table below highlights the key characteristics of our compensation program for Fiscal 2021, many of which we believe drive performance and are aligned with compensation and governance best practices. The table also highlights certain practices we have not implemented because we do not believe they would serve our stockholders’ interests.

Executive Compensation Practices

 

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What

We Do

   

 

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

 

 

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We Do use more than one performance metric for our annual incentive program which is linked to our financial and strategic objectives

 

 

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The Compensation Committee Does use an independent compensation consultant

 

 

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

 

 

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We Do have a clawback policy

 

 

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We Do have policies prohibiting hedging/pledging of the Company’s stock

 

 

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We Do have robust stock ownership guidelines for our NEOs

 

 

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We Do conduct a say-on-pay stockholder vote on an annual basis

     

 

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What

  We Don’t  

Do

   

 

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

 

 

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

 

 

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

 

 

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

 

 

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We Don’t allow for uncapped incentive compensation payouts

 

 

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We Don’t offer excessive perquisites

 

 

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We Don’t provide tax gross-ups for any excise taxes triggered in connection with a CIC

 

 

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We Don’t offer supplemental executive pension benefits

     

 

 

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Recent Recognition     ›       PROXY SUMMARY  

 

 

Recent Recognition

 

We are committed to our employees and improving the communities where we live and work, with sustainable, responsible and conscientious business practices. It means a lot to be recognized as a leader when it comes to customer experience management, unified communications, collaboration, ESG, corporate citizenship and governance. We are proud to receive the awards we do – because it means we have played an important role in helping our customers to provide their own employees and customers experiences that truly matter. Below are some of the awards that Avaya has received:

 

 

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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 standing 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 New York Stock Exchange (“NYSE”) and the Securities and Exchange Commission (“SEC”). In addition, the Company has a Strategy Committee that was created in Fiscal 2021 when the RingCentral Inc. (“RingCentral”) director designee joined the Board to evaluate developments and opportunities that may create a potential conflict of interest between the Company and RingCentral. The Board and each committee may from time to time form other committees or sub-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 provide 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 (“CFO”), 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 2021, 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.

 

 

 

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Corporate Responsibility

At Avaya, we are thoughtful and intentional about the social and environmental impacts of our business. We recognize that we have opportunities to bring about positive social, environmental and economic change and socially responsible business practices are a hallmark of our brand. We are committed to ensuring the health and well-being of our employees, creating a supportive, inclusive, ethical and equitable culture of belonging, investing in our communities, creating products that are inherently sustainable, keeping our customers’ solutions and data secure and reducing our environmental impact.

At Avaya, we champion an open, fair and supportive environment where our employees can thrive both professionally and personally. We work hard, give back to our communities, take care of our customers, and promote high levels of employee engagement and well-being. ESG matters are woven into the everyday fabric of Avaya’s culture and are actively supported by our executive leadership.

 

 

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Health, Safety &

Wellness

 

The health, safety and well-being of our global workforce is a top priority for us.

 

  Through our programs and practices, we seek to maintain a culture in which employees and contractors keep each other safe on the job. In accordance with best practices, Avaya maintains an Environmental, Health and Safety Management System to manage the risks associated with our activities.

 

  The COVID-19 pandemic continues to have widespread and unpredictable impacts on global communities, economies, and business practices, that, taken together, continue to impact our global employees, partners and customers.

 

  Avaya successfully and swiftly instituted protocols and policies focused on prioritizing the health and safety of our employees, while maintaining business continuity and minimizing disruption to customer support and service delivery at the onset of the global pandemic.

 

  We took immediate steps to modify employee travel policies and implemented policies allowing non-essential employees to work remotely.

 

  Our COVID response teams continue to regularly review and analyze our policies, allowing us to adapt them to evolving research and guidance to minimize health and safety risk for our employees, while ensuring compliance with evolving federal, state and local requirements.

 

  This year truly demonstrated the importance of not only protecting our employees’ physical safety but caring for their mental health.

 

  We monitored our employees’ well-being and implemented programs to ensure that employees felt fully supported. All Avaya employees have access to a complete wellness platform with resources and tools to track activity, get wellness advice, find healthy recipes, and access support to help them achieve their health goals.

 

  We provided many programs to support our employees, including but not limited to regular updates through leadership communications, virtual all-employee broadcasts, employee roundtables to keep Avayans informed and connected, a designated “Employee Appreciation Month” to celebrate employee achievements through recognition, and a “Wellness Month” to highlight resources focused on supporting our employees’ personal and professional well-being

 

  We are monitoring Federal, state and local COVID-related regulations and guidance, and have implemented processes to ensure compliance with federal and customer-mandated vaccination requirements and a phased re-opening of our offices, based on local circumstances and guided by safety. We have introduced new flexible work arrangements to combine the benefits of in-person collaboration with increased flexibility to drive both innovation and productivity as we return to our offices.

 

 

     

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Environmental

Sustainability

 

Avaya is committed to environmental sustainability.

 

  Remaining steadfast in our commitment to combat climate change, Avaya exceeded its 2020 emissions reduction target by reducing Scope 1 & Scope 2 emissions by 65% and Scope 3 emissions from business travel by 49% from 2014 levels.

 

  We plan to build on our achievements and continue the momentum as we develop new carbon emission reduction targets in support of the global transition to a low carbon economy.

 

  As part of our commitment to responsible product design, Avaya’s ISO 14001 certified Design for Environment (DfE) program focuses on opportunities to reduce the environmental impact of our products, solutions and services. We continue to improve the energy efficiency of our products and identify opportunities to reduce single-use plastic packaging in our supply chain. Our commitments are set forth in our R&D Environmental Policy.

 

  We are doing our part to minimize our environmental footprint. In fiscal 2020, we reduced our energy consumption by over 20,000 MWh and diverted 209,000 metric tons of E-Waste from landfills by ensuring that it was recycled.

 

  We are helping our customers reduce their environmental footprint and achieve their environmental goals by improving the energy efficiency of our products, offering video and teleconferencing solutions and a cloud model to deliver the products and services, reducing the need for business travel and in turn their Scope 3 emissions. In addition, we partner with recycling organizations, join forces with collection schemes, and work with our supply chain partners to facilitate the return and end-of-life management process of devices, batteries and packaging.

 

 

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Human Rights
and
Supply Chain Responsibility

 

Avaya is building and maintaining a responsible supply chain.

 

  At Avaya, we hold ourselves to a high standard of integrity and professional conduct. This allows us to establish trust with our employees, customers and partners, as well as build an ethical culture throughout our value chain. We expect the same level of commitment and conduct of our suppliers that we expect from our employees. As a member of the Responsible Business Alliance, Avaya ensures safe and humane labor standards, environmentally responsible business practices, and high ethical standards in our supply chain.

 

  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, Supplier Code of Conduct, Human Rights Statement and UK Modern Slavery Transparency Act Statement.

 

  Our supplier diversity program is designed to achieve our objective of increasing diverse strategic supplier alliances that reflect the diversity of our associates and our customers.

 

  Avaya’s products, like most electronics, contain tantalum, tin, tungsten, and gold (3TG) sometimes known as “conflict minerals” because of concerns about their mining and sale contributing to armed conflict and human rights abuses in the Democratic Republic of the Congo (DRC). We are committed to upholding and respecting human rights for all people, including those who work in the earliest parts of our supply chain, and we work collaboratively with suppliers to source minerals consistent with our values around human rights, business ethics, labor, health and safety practices and environmental responsibility.

 

  We collaborate with our suppliers to conduct due diligence for responsible mineral sourcing. Our commitment is captured in our Conflicts Minerals Policy. Our annual Conflict Minerals Report describes how our due diligence activities align to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.

 

 

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Diversity, Equity,
Inclusion &

Belonging (DEI&B)

 

We drive and promote a strategy to build a workplace that mirrors the society in which we do business – a workplace where individuality is celebrated and harnessed to create a culture of engagement, innovation, inclusivity and belonging.

 

  To successfully execute on our strategy, we have established a Global DEI&B Council, chaired by our CEO, to ensure alignment between our DEI&B strategy and our overall business strategy, and a Global DEI&B Committee, chaired by our Chief Human Resources Officer, to ensure global calibration and oversee the execution of various DEI&B initiatives.

 

  Avaya has partnered with a leading provider of microlearning to provide training on relevant DEI&B topics to our employees to guide them on a path of awareness and action towards creating an inclusive culture.

 

  In Fiscal 2021, we benefitted from significant growth in Avaya ERGs, employee-led groups that bring employees together to foster a sense of belonging. Following a revamp of the ERG process and design construct in 2020, we now have six active ERGs: Avaya Blacks Leading Empowerment (ABLE), Abilities Employee Resource Group (AERG), Asociacion Latinos Mundiales Avaya (ALMA), Asian Pacific Islanders @ Avaya (API@A), PRIDE, Veterans @ Avaya (VETA), and Women Inspired Network@Avaya (WIN@A). Representatives from each ERG serve on the Global DEI&B Committee to discuss insights, recommendations and initiatives with leadership.

 

  We focus on ensuring our hiring pipeline is accessible, dynamic and drawn from a diverse pool of talent. To further these objectives, we utilize tools to support blind sourcing, conduct on going training of our talent acquisition teams around topics such as unconscious bias, microaggressions and inequities, and provide hiring managers toolkits to engage and attract diverse talent networks.

 

 

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Community

 

Communities – local and global – represent one of our core stakeholders, and we make concerted efforts to give back to the communities where we operate and where we have the greatest impact.

 

  We support charitable organizations around the world and recognize that giving back comes in many forms, including volunteer time, product donations and financial support.

 

  We start each fiscal year with our annual Month of Giving which has a remarkable way of bringing out the best in our employees. We have partnered with Save the Children, a leading international humanitarian aid organization dedicated to giving children a healthy start in life, the opportunity to learn and protection from harm. Through this partnership, Avaya has supported children’s education in some of the most desperately needed parts of the world since 2015. We have sponsored the construction of classrooms, bathrooms and associated infrastructure in Uganda and Afghanistan providing safer, more resilient spaces in which to learn, and have established literacy programs with book banks and reading camps in Mozambique, giving children in the sponsorship communities access to resources they would not otherwise have. The funds raised from our October 2021 Month of Giving funded a school project in Vietnam, continuing and building upon the success we have had supporting educational initiatives in the past.

 

  Our corporate social responsibility (CSR) efforts in India are focused on community development through various initiatives in the best interests of the poor, deprived and marginalized populations to build a better tomorrow for society. We pursue programs primarily in areas that fall within the economic vicinity of the Company’s operations to allow for employee engagement, close supervision and maximum development impact. Since 2015, our India CSR activities have focused on enhancing the quality of education, utilizing technology to improve access to healthcare and education, skills building and employability and disaster relief.

 

  We donate money and products to organizations that focus on healthcare and education.

 

 

     

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Additional information about our environmental, social and governance initiatives, including with respect to diversity, equity, inclusion and belonging, employee learning and development, climate change and charitable giving, is included in our Corporate Responsibility Report and on our website at

https://www.avaya.com/en/about-avaya/corporate-responsibility.1

 

 

Cybersecurity and Data Protection

Cybersecurity risk mitigation is an area of focus at Avaya overseen by the Chief Compliance Officer within our legal organization. The structural independence of our security systems is maintained by our Global Security team by establishing enterprise-wide information security strategy, policy, standards, architecture, and processes working across all of the organizations within the Company to protect our brand and clients against cybersecurity risks. To effectively address cyber risks, we maintain a global set of security policies and standards modeled after ISO 270001. Additionally, certain customer facing offerings are certified under ISO27001, HIPAA and PCI-DSS.

Our Global Security Organization leads a cross-functional data breach response team and through our business continuity program makes sure business group and IT disaster recovery objectives are aligned. Our data breach response team receives annual training in the form of table-top exercises and planned review drills. In addition, all employees receive annual cybersecurity training and quarterly phishing training. Our Global Security team consults with industry peers and engages third parties as needed to assess areas of risk as well as the overall maturity of our security program. In addition, our Global Security team works closely with our risk management group to ensure cyber security insurance coverage aligns with business objectives and customer expectations.

We foster a culture that values privacy rights and protections for those with whom we interact and this commitment is executed through programs overseen by our Data Privacy Officer, who reports into our legal organization. We have extensive experience in safeguarding personal data and helping our customers comply with their obligations when it comes to privacy and security, including those who must meet the highest standards of security such as governments, public authorities and organizations and financial institutions. We are committed to building on our experience through leading edge technology and cloud solutions that enhance privacy and security.

Our privacy compliance program is based on our controller and processor binding corporate rules which have been approved by the European Union (“EU”) regulatory authorities. Through the application of these rules, we endeavor to apply uniform data handling practices, based on the EU’s General Data Protection Regulation (“GDPR”) standards, on a global basis through all Avaya entities which process personal data. We have dedicated significant time, capital and other resources to obtain binding corporate rules and to meet GDPR requirements, as well as other legal requirements such as the Brazil Data Protection Law and the California Consumer Privacy Act. We expect that as privacy laws continue to evolve and become more prevalent throughout the world, we will be required to dedicate additional resources to ensure compliance.

The Audit Committee of our Board of Directors, which is comprised of three independent Directors, is responsible for monitoring, assessing and managing cybersecurity risks and our data privacy programs. Our Chief Compliance Officer and Data Privacy Officer provide updates to the Audit Committee as needed and no less frequently than quarterly for cybersecurity risks and annually for data privacy.

Stockholder Engagement

We maintain an ongoing, proactive outreach effort with our stockholders. Throughout the year, members of our Investor Relations team and our management team engage with our stockholders to seek their input, to remain well-informed regarding their perspectives and to help increase their understanding of our business. In particular, these engagements allow us to consider topics of interest to our shareholders that may not have otherwise been addressed without direct engagement. The feedback received from our stockholder outreach efforts is communicated to and considered by the Board, and our engagement activities have produced valuable feedback that helps inform our decisions and our strategy. We typically meet with over 300 investors each year as part of our investor relations program and with our largest 25 stockholders each quarter. During Fiscal 2021, our investor relations team participated in

 

 

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The contents of our website, our Corporate Responsibility Report and CDP Climate Change Questionnaire are referenced for general information only and are not incorporated into this Proxy Statement.

 

 

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over 30 investor conference events and responded to numerous inbound requests for information and input.

In addition, this year, we developed a Corporate Governance outreach program, where we reached out to our 25 largest stockholders, which represent approximately 74.9% of our outstanding common stock, to provide additional information about our ESG initiatives and practices.

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, Global Vice Presidents, Vice Presidents and Senior Directors, individuals involved in the preparation of internal and external financial and SEC reports, individuals in sales operations and finance and individuals supporting Avaya’s Cloud Offering). 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 chair 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 because separating these positions allows the CEO to focus on the full-time job of running the Company’s business, while allowing the Non-Executive Chair to lead the Board in its fundamental role of providing advice to, and independent oversight of, management. 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 enhanced audit and compensation committee independence requirements of the SEC and the NYSE.

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, Theis, Vogel and Watkins and Mses. Spradley and Yeaney, representing seven of Avaya’s eight 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

 

 

 

     

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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 Evaluation Process

 

We recognize the critical role that Board and committee evaluations play in ensuring the effective functioning of our Board. Our Board annually evaluates the performance of the Board and its committees. In Fiscal 2021, we hired a third party to conduct confidential assessments with each of our directors. The process included a confidential written survey completed by each director, followed by individual interviews with an outside facilitator. The survey and subsequent one-on-one discussions were designed to form an accurate impression of the performance of the full Board and each committee.

The assessment considered the practical aspects of how the Board functions, reviewed the effectiveness of Board communications and interactions, and assessed how the Board’s culture and operating practices impacted overall performance. The third-party consultant reported the findings to the Nominating and Corporate Governance Committee, as well as to the full Board. The Nominating and Corporate Governance Committee was responsible for reviewing the results of the Board evaluation process and will make recommendations to continue to enhance the Board’s performance.

 

 

 

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Board and Committee Meetings

 

 

 

Our Board met 11 times during Fiscal 2021. During Fiscal 2021, 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. Due to the COVID-19 pandemic, all Fiscal 2021 Board and committee meetings were held

virtually. Our Board chair 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. Seven of our then current Board members attended our 2021 Annual Meeting of Stockholders.

 

 

 

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Standing Board Committees

 

 

 

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Each of the Board’s three standing committees, Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, is currently comprised solely 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 standing 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.

 

 

 

     

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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 2021:  9

  

  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 prior to the filing of our annual report on Form 10-K, 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.

Audit Committee Report, Page 31

    

 

Compensation

 

Scott D. Vogel, Chair

Stephan Scholl

Jacqueline E. Yeaney

 

Meetings in Fiscal 2021:  5

  

  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;

 

  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;

 

  Monitor progress of the Company’s human capital management, including, among other things, management depth and strength assessment, leadership development, talent assessment, diversity and inclusion and the results of the Company’s employee surveys; and

 

  Administer the Company’s clawback policy.

Compensation Committee Report, Page 54

    

 

Nominating and Corporate

Governance

 

Susan L. Spradley, Chair

Stephan Scholl

William D. Watkins

 

Meetings in Fiscal 2021: 2

  

  Evaluate the performance, size and composition of the Board to determine the qualifications and areas of expertise, including a diversity of experience and backgrounds, 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;

 

  Periodically review the Company’s corporate governance practices and leadership structure;

 

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

 

  Monitor progress of the Company’s ESG initiatives and performance.

 

 

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In addition to the three standing committees noted above, a Strategy Committee was created in Fiscal 2021 to review and evaluate developments and potential business opportunities that may create a potential conflict of interest between the Company and RingCentral or which may be deemed competitively sensitive. The Strategy Committee,

which is currently comprised solely of independent directors, was formed when the RingCentral director designee, Robert Theis, joined the Board in November 2020. The Strategy Committee members are: William D. Watkins (Chair), Stephen Scholl and Jacqueline E. Yeaney. The Strategy Committee held 9 meetings in Fiscal 2021.

 

 

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 2021: (i) was an officer or employee of the Company or any of its subsidiaries during Fiscal

2021; (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.

 

 

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.

RingCentral Board Nominee

In connection with our strategic partnership with 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 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 our Board committee meetings. Accordingly, effective November 6, 2020, Robert Theis was elected to the Board and is invited to attend meetings of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. For further information on our relationship with RingCentral, please see the “Certain Relationships and Related Transactions” section in this Proxy Statement.

 

 

 

     

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CORPORATE GOVERNANCE     ›     Standing Board Committees

 

 

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 Chair 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

2605 Meridian Parkway, Suite 200

Durham, North Carolina 27713

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.

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). Further, RingCentral paid Avaya an advance of $375 million, predominantly for future commissions, as well as for certain licensing rights (the “Consideration Advance”) in accordance with the Framework Agreement. The

 

 

 

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Standing Board Committees     ›       CORPORATE GOVERNANCE  

 

 

Consideration Advance was paid primarily in RingCentral stock. The $375 million payment consisted of $361 million in RingCentral shares and $14 million in cash. During the nine months ended June 30, 2020, the Company sold all of its RingCentral shares. If we do not earn the full Consideration Advance in accordance with the Framework Agreement, at certain points in time RingCentral will have the right to convert still outstanding amounts into shares of our Series A Stock or shares of 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 collaborate to develop ACO as a new branded service. The Development Agreement permits Avaya and RingCentral to enter into product description documents which 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 (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 to the Board. Currently, Mr. Theis serves in this capacity. For more information, please see the “RingCentral Nominee” section in the Proxy Statement. In addition, for so long as the Investor Ownership Threshold is met, RingCentral is required to 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.

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 and Officers

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 compensation in Fiscal 2021 was approximately $169,000.

Stephan Scholl is a director and he is the Chief Executive Officer of Alight Solutions, a leading provider of integrated benefits, payroll and cloud solutions. During Fiscal 2021, sales of the Company’s products and services to Alight Solutions were approximately $2,800 and the Company purchased approximately $3,558,000 in services from Alight Solutions.

Scott Vogel is a director and was a director of Neiman Marcus Group, a chain of luxury department stores, from April 2020 to December 2020. During Fiscal 2021, sales of the Company’s products and services to Neiman Marcus were approximately $317,700.

Shefali Shah is the Executive Vice President and Chief Administrative Officer of our Company. During Fiscal 2021, the Company purchased approximately $203,900 of services from Tufin Technologies, a provider of security policy management and automation, which employs Ms. Shah’s brother-in-law.

 

 

 

     

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CORPORATE GOVERNANCE     ›     Standing Board Committees

 

 

Arrangements Involving Other Stockholders which Beneficially Own More than 5% of Any Class of Stock

We have entered into arrangements on ordinary business terms and at an arm’s length basis with certain of our stockholders or their affiliates. Arrangements involving stockholders or their affiliates that beneficially own more than 5% of any class of our stock and in which total payments for all of these

arrangements exceeded $120,000 in Fiscal 2021 are described below.

 

 

In Fiscal 2021, the Company received approximately $5,368,000 from J.P. Morgan Investment Management, Inc. from ordinary course sales of the Company’s products and services.

 

 

In Fiscal 2021 the Company received approximately $1,295,000 from The Vanguard Group from ordinary course sales of the Company’s products and services.

 

 

Related Party Transaction Policy

 

In December 2017, our Board adopted written procedures for the review and approval of all transactions between the Company and certain “related persons,” such as our executive officers, directors and owners of more than 5% of our voting securities, that are required to be disclosed under applicable SEC rules. The Board most recently reviewed this policy in November 2021 and adopted only immaterial changes and changes necessary to ensure compliance with NYSE requirements.

The procedures give our Audit Committee the power to approve or disapprove related party transactions involving our directors and our Section 16 Officers. Upon becoming aware of a transaction that would fall within the scope of the policy, the Audit Committee is required to conduct a full inquiry into the facts and circumstances concerning that transaction and to determine the appropriate actions, if any, for the Company to take. In reviewing a transaction, the Audit

Committee considers relevant facts and circumstances, including, but not limited to, whether the transaction is in the best interests of the Company and its stockholders, whether the terms are consistent with a transaction available on an arms-length basis and whether the transaction is in the Company’s ordinary course of business. At the discretion of the Audit Committee, consideration of a related party transaction may be submitted to the Board. A director who is the subject of a potential related party transaction is not permitted to vote in the decision-making process of the Audit Committee or Board, as applicable, relating to what actions, if any, shall be taken by us in light of that transaction.

All related party transactions identified above that occurred during Fiscal 2021 or that are currently proposed which required approval and/or ratification through the procedures described above were subject to such review procedures.

 

 

 

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              PROPOSAL 1 Election of Directors  

 

 

PROPOSAL 1 – ELECTION OF DIRECTORS

 

 

Under our bylaws, our Board is required to consist of at least seven directors and not more than nine directors all of whom are in the same class. Currently our Board has eight members. At each annual meeting of stockholders, directors are 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, Robert Theis, 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.

 

 

 

     

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PROPOSAL 1 Election of Directors    

 

 

Experience/Skills

 

LOGO  

Senior Leadership

    

LOGO

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

*   One director self-identifies as a Pacific Islander.

 

 

8

LOGO  

 

Finance, Accounting or Financial Reporting

 

 

8

 

LOGO  

 

Corporate Governance

 

 

8

 

LOGO  

 

Talent Management and Executive Compensation and Benefits

 

 

8

 

LOGO  

 

International Experience

 

 

8

 

LOGO  

 

Other Public Company Board Experience

 

 

7

 

  
LOGO  

 

Risk Management

 

 

5

 

        
LOGO  

 

Strategic Planning, Business Development, Business Operations

 

 

8

 

LOGO  

 

Unified Communications and Collaborations/ Contract Center

 

 

6

 

     
LOGO  

 

Enterprise Cloud & Managed Services

 

 

7

 

  
LOGO  

 

Social Responsibility/ESG

 

 

7

 

  
LOGO    

 

Diversity, Equity and Inclusion

 

 

7

 

  
                      

 

 

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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 eight 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.

Director Nominees

 

  James M. Chirico, Jr.

 

 

LOGO

 

 

Director since: 2017

 

Age: 64

 

President and Chief

Executive Officer of

Avaya Holdings Corp.     

 

 

Personal Highlights

Mr. Chirico has been our President and Chief Executive Officer 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.

 

 

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 at other companies, led to the conclusion that he should serve as a director of our Company.

 

 

Standing Committees:

  None

 

 

Other Public Company Boards:                   

  None

 

  Stephan Scholl

 

 

LOGO

 

 

Director since: 2017

 

Age: 51

 

Chief Executive Officer     

of Alight Solutions

 

 

Personal Highlights

Mr. Scholl joined our Board on December 15, 2017. Mr. Scholl is currently Chief Executive Officer of Alight Solutions, a leading provider of integrated benefits, payroll and cloud solutions, a position he has held since April 13, 2020. Prior to that, he served as President of Infor, Inc. (“Infor”), a privately held provider of enterprise software products and services, from April 2012 to July 2018 and as President and Chief Executive Officer of Lawson Software, Inc. from 2011 until 2012. He helped merge Lawson into Infor in 2012. Earlier, Mr. Scholl held various leadership roles at Oracle Corporation (“Oracle”), 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. Mr. Scholl currently sits on the boards of Alight, Inc., EG Software and 1010 Data and in the past, he has served as an advisor to several private equity firms.

 

 

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.

 

 

Standing Committees:

  Compensation

  Nominating & Corporate Governance

 

 

Other Public Company Boards:                   

  Alight, Inc. (April 2020 – Present)

 

 

     

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PROPOSAL 1 Election of Directors    

 

 

  Susan L. Spradley

 

 

LOGO

 

 

Director since: 2017

 

Age: 60

 

Chief Executive

Officer of Motion

Intelligence, Inc.

 

 

Personal Highlights

Ms. Spradley joined our Board on December 15, 2017. Ms. Spradley is Chief Executive Officer of Motion Intelligence, Inc., a SaaS company specializing in preventing mobile device distraction while driving in addition to location and identification services, a position she has held since December 2017. 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. Additionally, from 2012 through January 2020, Ms. Spradley served as Chair 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.

 

 

Standing Committees:

  Audit

  Nominating & Corporate Governance (Chair)

 

 

Other Public Company Boards:

  NetScout Systems Inc. (April 2018 – Present)

  Qorvo (January 2017 – Present)

 

  Stanley J. Sutula, III

 

 

LOGO

 

 

Director since: 2017

 

Age: 56

 

Chief Financial

Officer of Colgate-

Palmolive Company

 

 

Personal Highlights

Mr. Sutula joined our Board on December 15, 2017. Mr. Sutula has served as the Chief Financial Officer of Colgate-Palmolive Company since November 2020. He previously served as the 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 served in this capacity from February 2017 to November 2020. 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.

 

 

Standing Committees:

  Audit (Chair)

 

 

Other Public Company Boards:

  None

 

 

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      PROPOSAL 1 Election of Directors  

 

 

  Robert Theis

 

 

LOGO

 

 

Director since: 2020

 

Age: 60

 

General Partner of

World Innovation Lab    

 

 

Personal Highlights

Mr. Theis joined our Board on November 6, 2020. Mr. Theis has served as a General Partner of World Innovation Lab, a venture capital firm since September 2016. He served as a managing director at Scale Venture Partners (“Scale Ventures”), a venture capital firm, from May 2008 to October 2014. Prior to joining Scale Ventures, from July 2000 to April 2008, Mr. Theis served as a general partner with Doll Capital Management, a venture capital firm. From July 1996 to June 2000, Mr. Theis served as Executive Vice President and served on the board of directors of New Era of Networks, Inc., a supplier of Internet infrastructure software and services. From April 1986 to June 1996, Mr. Theis served as a Managing Director at Sun Microsystems, Inc., a provider of computers and computer components acquired by Oracle Corporation, and from January 1984 to March 1986, as Marketing Manager at Silicon Graphics, Inc., a provider of high-performance computing solutions. Mr. Theis serves on the board of directors at the Computer History Museum, a museum that provides stories and artifacts of the information age and computing revolution. Mr. Theis is RingCentral’s nominee to our Board.

 

 

Experience, Qualifications, Attributes and Skills

Mr. Theis’s substantial experience as a venture capitalist investment professional and as a director of technology infrastructure and applications companies, as well as his independence from the Company, led to the conclusion that he should serve as a director of our Company.

   

 

Standing Committees:

  None

 

 

Other Public Company Boards:                 

  RingCentral, Inc. (August  2011 – Present)

 

  Scott D. Vogel

 

 

LOGO

 

 

Director since: 2017

 

Age: 46

 

Managing Member of    

Vogel Partners LLC

 

 

Personal Highlights

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 board of CBL & Associates Properties, Inc. from October 2020 until November 2021, Seadrill Ltd. from July 2018 until February 2020, Arch Coal, Inc. from October 2016 until May 2019 and Key Energy Services, Inc. from December 2016 until April 2019. 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.

 

 

Standing Committees:

  Audit

  Compensation (Chair)

 

 

Other Public Company Boards:                 

  Faraday Future Intelligent Electric Inc. (July 2021 – Present)

  Alpha Metallurgical Resources, Inc. (December 2019 – Present)

 

 

     

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PROPOSAL 1 Election of Directors    

 

 

  William D. Watkins

 

 

LOGO

 

 

Director since: 2017

 

Age: 69

 

Independent Chair of
the Board of
Directors

Former Chair and
Chief Executive
Officer of Imergy
Power Systems

 

 

Personal Highlights

Mr. Watkins joined our Board and became Chair of the Board on December 15, 2017. Mr. Watkins was most recently Chair 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 Chair 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. Previously, Mr. Watkins served on the board of directors at Bright Machines, Inc., a privately held software design manufacturing company from 2019 to 2020.

 

 

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.

 

 

Standing Committees:

  Nominating & Corporate Governance

 

 

Other Public Company Boards:

  Flex Ltd. (April 2009 – Present)

  Maxim Integrated Products, Inc. (August 2008 – Present)

 

  Jacqueline “Jackie” E. Yeaney

 

 

LOGO

 

 

Director since: 2019

 

Age: 53

 

Executive Vice
President, Marketing
of Tableau Software

 

 

Personal Highlights

Ms. Yeaney joined our Board on March 18, 2019. Ms. Yeaney is Executive Vice President, Marketing of Tableau Software, a self-service analytics platform owned by Salesforce.com, Inc., a position she has held since August 22, 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. (“Red Hat”), a provider of open source software solutions now owned by IBM, from 2011 to 2016 after serving as a consultant to Red Hat from 2010 to 2011. 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 U.S. 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.

 

 

Standing Committees:

  Compensation

 

 

Other Public Company Boards:

  Talkspace, Inc. (June 2021 – Present)

 

   
       LOGO     

The Board unanimously recommends that you vote “FOR” each of the director nominees named in this proposal.

 

 

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      PROPOSAL 2 Ratification of Appointment of Independent Registered Public Accounting Firm  

 

 

PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Our Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for Fiscal 2022 and is seeking ratification of such selection by our stockholders at the Annual Meeting. PwC has audited our financial statements since 2000. The Audit Committee and PwC do not believe that PwC’s tenure as the Company’s auditor has diminished its independence, candor, or objectivity. The Audit Committee further believes PwC’s familiarity with the Company’s business and operations allows it to conduct better, more efficient, and more effective audits. At the same time, the Audit Committee remains mindful of the risks of PwC’s long tenure and carefully monitors PwC’s performance, fee structure and any issues bearing on the independence of the firm. Representatives of PwC are expected to virtually attend the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Neither our bylaws nor other governing documents or law require stockholder ratification of the selection of

PwC as our independent registered public accounting firm. However, our Audit Committee is submitting the selection of PwC to our stockholders for ratification as a matter of good corporate governance practice. If our stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain PwC. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders.

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 ratification of the selection of PwC as our independent registered public accounting firm. Abstentions will have the same effect as an “Against” vote for purposes of determining whether this matter has been approved. Since this proposal is considered “routine” under the NYSE rules, no broker non-votes are expected on this proposal.

 

Pre-Approval Policies and Procedures

 

 

Our Audit Committee pre-approves all audit and non-audit services provided by our independent registered public accounting firm. Our Audit Committee may delegate authority to one or more members of the Audit Committee to provide such pre-approvals, provided that such approvals are presented to the Audit Committee at a subsequent

meeting. This policy is set forth in the charter of the Audit Committee and available under “Corporate Governance” in the Investor Relations section of our website at https://investors.avaya.com/corporate-governance/governance-policies. The referenced information on the Investor Relations section of our website is not a part of this Proxy Statement.

 

Principal Accountant Fees and Services

 

The following table provides information regarding the fees for the audit and other services provided by PricewaterhouseCoopers LLP for the fiscal years ended September 30, 2021 and 2020:

 

                             Fiscal Years Ended September 30,  

(In thousands)

                                

            2021           

           

            2020             

 

Audit Fees

              

$

9,454

 

    

$

11,171

 

Audit-Related Fees

              

 

100

 

    

 

434

 

Tax Fees

              

 

958

 

    

 

1,475

 

All Other Fees

              

 

                       620

 

    

 

                       787

 

Total Fees

              

$

11,132

 

    

$

13,867

 

              

 

 

     

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PROPOSAL 2 Ratification of Appointment of Independent Registered Public Accounting Firm    

 

 

Audit Fees

Audit fees consist of fees for professional services rendered for the audit of our annual consolidated financial statements and the review of our quarterly consolidated financial statements. Audit fees also include services that are typically provided by the independent registered public accounting firm in connection with statutory audit and regulatory filings.

Audit-Related Fees

Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees under this category

include due diligence services and consultation and review in connection with the adoption of new accounting policies.

Tax Fees

Tax fees consist of fees for services to support the compliance with and filing of direct and indirect tax returns for our international subsidiaries and certain due diligence and consulting services.

All Other Fees

All other fees consist of fees for other permitted services including, but not limited to, advisory services.

 

 

   
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The Board unanimously recommends a vote “FOR” the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2022.

 

 

 

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      AUDIT COMMITTEE REPORT  

 

 

Audit Committee Report

In connection with the Company’s consolidated financial statements for the year ended September 30, 2021, the Audit Committee has:

 

 

reviewed and discussed the audited financial statements with management;

 

 

discussed with the Company’s independent registered public accounting firm, PwC, the matters required to be discussed by Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1301, Communications with Audit Committees; and

 

 

received the written disclosures and the letter from PwC as required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, and the Audit Committee discussed with PwC that firm’s independence.

Based on the review and discussions with the Company’s management and the independent registered public accounting firm, as set forth above, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s 2021 Annual Report, for filing with the SEC.

MEMBERS OF THE AUDIT COMMITTEE:

Stanley J. Sutula, III, Chair

Susan L. Spradley

Scott Vogel

The foregoing report shall not be deemed incorporated by reference by any general statement or reference to this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under those Acts.

 

 

     

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PROPOSAL 3 Advisory Approval of the Company’s Named Executive Officers’  Compensation (“say-on-pay”)    

 

 

PROPOSAL 3 – 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 named executive officers (“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 arrangements 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 align with stockholder interests, as described more fully in the “Compensation Discussion and Analysis” section. 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.

Previously, 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. At our 2021 Annual Meeting, our stockholders approved, on an advisory basis, our executive compensation paid to named executive officers in Fiscal 2020.

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 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.

 

 

   

 

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The Board 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 4 Approval of Amendment No. 1 to the Avaya Holdings Corp. 2019 Equity Incentive Plan  

 

 

PROPOSAL 4 – APPROVAL OF AMENDMENT No. 1 TO THE AVAYA HOLDINGS CORP. 2019 EQUITY INCENTIVE PLAN

 

We currently have one equity incentive plan with shares available for issuance to our employees, directors and consultants, the Avaya Holdings Corp. 2019 Equity Incentive Plan (as amended, the “2019 Plan”). In December 2021, our Compensation Committee recommended, and our Board of Directors approved, an amendment to the 2019 Plan (“Amendment No. 1”), subject to the approval of our stockholders, in order to increase the number of shares available under the 2019 Plan, adjust the existing fungible share ratio, and extend the expiration date of the 2019 Plan to ten years from the date on which Amendment No. 1 is approved by our stockholders. In the event that our stockholders do not approve Amendment No. 1, the 2019 Plan will remain in effect, but there will not be sufficient share capacity available under the 2019 Plan to meet the Company’s compensatory needs in the immediate future.

Why We Believe You Should Vote for this Item

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. By maintaining a long-term incentive plan such as the 2019 Plan, the Compensation Committee is 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 Amendment No. 1 is not approved, we expect that we would exhaust the remaining available shares under the 2019 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.

Equity Compensation Information

At our 2020 Annual Meeting, our stockholders approved the 2019 Plan. Stockholders had previously approved the Avaya Holdings 2017 Equity Incentive Plan (the “2017 Plan”) and 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.

Once the 2019 Plan was approved, no future equity awards were available for issuance under the 2017 Plan or the Inducement Plan and any shares remaining available for issuance under the Inducement Plan became available for issuance under the 2019 Plan. Although no new awards may be granted under the 2017 Plan or under the Inducement Plan, all previously granted awards under the 2017 Plan and the Inducement Plan continue to be governed by the terms of the applicable plan.

If Amendment No. 1 is approved, 6,500,000 new shares, plus any shares remaining available under the 2019 Plan as of the date of stockholder approval of Amendment No. 1 (collectively, the “Share Reserve”), will be available for grant under the 2019 Plan. Shares that again become available for awards under the 2019 Plan pursuant to the terms of the 2019 Plan will again be available for future awards under the 2019 Plan. Any shares that were previously granted under the 2017 Plan and the Inducement Plan that again become available for awards pursuant to the terms of

 

 

 

     

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PROPOSAL 4 Approval of Amendment No. 1 to the Avaya Holdings Corp. 2019 Equity Incentive Plan       

 

 

those plans will be made available for awards under the 2019 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 on or following the date of stockholder approval of Amendment No. 1 would count as 1.5 shares against the 2019 Plan’s capacity. Full-value shares awarded prior to the date of stockholder approval of Amendment No. 1 count as 1.7 shares against the 2019 Plan’s capacity. Stock options and stock appreciation rights, regardless of when granted, count as one share against the 2019 Plan.

Based on the closing price for our Common Stock on January 3, 2022 of $20.66 per share, the aggregate market value of the 6,500,000 new shares proposed to be issued under Amendment No. 1 was $134,290,000.

Key Equity Plan Data

As of December 8, 2021:

 

 

There was a total of 4,838,572 shares of our Common Stock available for future awards under the 2019 Plan.

 

 

There were no shares of our Common Stock available for future awards under the 2017 Plan and no shares of our Common Stock available for future awards under the Inducement Plan.

 

There were 85,029,179 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.)

 

 

There was a total of 431,000 stock options outstanding under the 2019 Plan, with a weighted average exercise price of $17.95 and a weighted average remaining term of 4.8 years.

There was a total of 4,644,785 time-based restricted stock units outstanding and 1,303,000 performance stock units outstanding under the 2019 Plan. 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 three fiscal years, our burn rate was 2.07%, 3.20% and 2.96%, respectively (for the fiscal years ended September 30, 2019, September 30, 2020, and September 30, 2021, respectively).

 

 

 

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         PROPOSAL 4 Approval of Amendment No. 1 to the Avaya Holdings Corp. 2019 Equity Incentive Plan  

 

 

Burn Rate (000’s)

 

 

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Fiscal Year

  

Options
Granted

(A)

  

Full Value

Awards Granted

(B)

  

Total Shares
Granted

(C)

  

Weighted Average
Common Shares
Outstanding

(D)

   Burn Rate
(Unadjusted)

2019

       0        2,289,000        2,289,000        110,800,000        2.07 %

2020

       164,000        2,790,000        2,790,000        92,200,000        3.20 %

2021

       0        2,499,000        2,499,000        84,500,000        2.96 %

 

Over the past three fiscal years, our average annual dilution was 1.40%, 2.25% and 2.26%, respectively (for the fiscal years ended September 30, 2019, September 30, 2020, and September 30, 2021, respectively). Dilution is generally defined as the total equity awards granted less cancellations, divided by total common shares outstanding at the end of the fiscal year.

Over the past three fiscal years, our “overhang rate” was 4.51%, 20.21% and 17.90%, respectively (for the fiscal years ended September 30, 2019, September 30, 2020, and September 30, 2021, respectively).

Our overhang rate measures the total number of shares under all outstanding plan awards, 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 Amendment No. 1 is approved by our stockholders, our overhang rate

would be 20.84%, based on the Common Stock outstanding as of December 8, 2021.

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 the exercise or vesting of any outstanding equity-based awards.

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 4.

Independent Plan Administrator. The Compensation Committee, which is comprised of independent directors, administers the 2019 Plan, and retains full discretion to determine the number and value of awards to be granted under the 2019 Plan.

 

 

 

     

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PROPOSAL 4 Approval of Amendment No. 1 to the Avaya Holdings Corp. 2019 Equity Incentive Plan         

 

 

Reasonable Plan Limits. Subject to adjustment as described in the 2019 Plan, if Amendment No. 1 is approved by our stockholders at the Annual Meeting, the number of shares reserved for issuance under the 2019 Plan will be 6,500,000 shares of our Common Stock, plus any shares remaining available for issuance under the 2019 Plan as of the date of stockholder approval of Amendment No. 1, plus any shares that again become available for issuance under the 2017 Plan or the Inducement Plan in accordance with the terms of the applicable plans. Shares under the 2019 Plan 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 granted on or following the date of stockholder approval of Amendment No. 1 would be deemed to reduce the authorized Share Reserve under the 2019 Plan by 1.5 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 or materially increasing the number of shares available under the 2019 Plan.

Prohibition on Repricing. The 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: (i) shares tendered in payment of the exercise price; (ii) shares withheld by the Company to satisfy the tax withholding obligation; and (iii) 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.

Clawback. Awards under the 2019 Plan are subject to the Company’s clawback policy.

Summary of the 2019 Plan

Set forth below is a summary of the principal features of the 2019 Plan. Other than with respect to the increase in the number of shares, the adjustment to the existing fungible share ratio, and the extension of the expiration date to the tenth anniversary of the date on which Amendment No. 1 is approved by our stockholders, the material terms of the 2019 Plan will otherwise remain in effect. This summary is qualified in its entirety by reference to the terms of the 2019 Plan and Amendment No 1, copies of which are included in this Proxy Statement as Appendix 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.

 

 

 

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           PROPOSAL 4 Approval of Amendment No. 1 to the Avaya Holdings Corp. 2019 Equity Incentive Plan  

 

 

The 2019 Plan authorizes our Board to provide equity-based compensation or other incentive-based compensation in the form of (i) 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”); (ii) restricted stock and restricted stock units; (iii) performance awards; (iv) other stock-based awards (“Other Stock-Based Awards”); and (v) 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

Subject to adjustment as described in the 2019 Plan, if Amendment No. 1 is approved by our stockholders at the Annual Meeting, the number of shares reserved for issuance under the 2019 Plan will be 6,500,000 shares of our Common Stock, plus any shares remaining available for issuance under the 2019 Plan as of the date of stockholder approval of Amendment No. 1, plus any shares that again become available for issuance under the 2017 Plan or the Inducement Plan in accordance with the terms of the applicable plans.

Under the current 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 1.5 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”. If Amendment No. 1 is approved by stockholders, each full value share granted on or following the date of stockholder approval of Amendment No. 1 will count as 1.5 shares against the 2019 Plan’s capacity, but stock options and stock appreciation rights will still count as 1 share against the 2019 Plan’s capacity. 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.

In the event our stockholders do not approve Amendment No. 1, Amendment No. 1 will not become effective (and the new shares available under Amendment No. 1 will not become available for issuance under the 2019 Plan), but the 2019 Plan will otherwise continue in effect. If Amendment No. 1 is approved, the 2019 Plan will expire in 2032.

Subject to adjustment set forth in the 2019 Plan, no more than 5,000,000 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. Each share of Common Stock subject to a full-value award granted under the 2019 Plan or any prior plan, in each case, prior to the date of stockholder approval of Amendment No. 1 that again becomes available for awards under the 2019 Plan will be returned to the 2019 share capacity as 1.7 shares of Common Stock, and each share of Common Stock subject to a full-value award granted on or after the date of stockholder approval of Amendment No. 1 that again becomes available for awards under the 2019 Plan will be returned to the 2019 Plan’s capacity as 1.5 shares of Common Stock. Notwithstanding the foregoing, the following shares will not be added back to the aggregate plan limit: (i) shares tendered in payment of the exercise price; (ii) shares withheld by the Company to satisfy the tax withholding obligation; and (iii) 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

 

 

 

     

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PROPOSAL 4 Approval of Amendment No. 1 to the Avaya Holdings Corp. 2019 Equity Incentive Plan         

 

 

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 the Company 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 SEC under 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 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 chosen by the Compensation Committee for participation. Prospective employees and consultants who have accepted offers of employment or consultancy from the Company or any of its subsidiaries, 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 8,000 employees (including our 4 executive officers), our seven non-employee directors and zero consultants, are eligible to participate in the 2019 Plan.

No Repricing Without Stockholder Approval

The 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 (i) in cash or in check; (ii) 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; (iii) 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 the Company 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.

 

 

 

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         PROPOSAL 4 Approval of Amendment No. 1 to the Avaya Holdings Corp. 2019 Equity Incentive Plan  

 

 

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 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, and including stock appreciation rights that only entitle the participant to receive the excess of the fair market value of the award upon exercise above a “base” price). 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 2019 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 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,

 

 

 

     

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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 2019 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 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 2019 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 Compensation Committee will adjust any Award and make such other equitable

 

 

 

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or proportional adjustments to the 2019 Plan to prevent dilution or enlargement of the rights granted to, or available for, Participants under the 2019 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 Compensation 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 Compensation 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 Compensation 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 the Company or a subsidiary is terminated without cause or a participant terminates his or her employment or service with the Company 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.

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 Amendment No. 1 is approved by our stockholders, but all grants made under the 2019 Plan on or prior to such date will

 

 

 

     

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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 December 31, 2021. 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.

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 the Company or Our Subsidiaries

To the extent that a participant recognizes ordinary income in the circumstances described above, we or

 

 

 

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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, and will file a post-effective amendment on Form S-8 to register the new shares of our Common Stock reserved for issuance under Amendment No. 1.

New Plan Benefits

Awards under the 2019 Plan are determined in the discretion of the Committee; therefore, the number and type of awards to be made under the 2019 Plan following the Annual Meeting cannot be determined at this time.

 

 

   

 

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The Board unanimously recommends a vote “FOR” the approval of Amendment No. 1 to the Avaya Holdings Corp. 2019 Equity Incentive Plan.

 

 

     

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COMPENSATION DISCUSSION AND ANALYSIS    

 

 

Compensation Discussion and Analysis

Quick Reference Guide

 

 

 

Overview

 

 

Performance Highlights: Digital transformation continues to rapidly accelerate as organizations adapt to new ways of working while meeting the changing needs of a diverse global economy. Our Avaya OneCloud platform of workstream collaboration, communications and remote agent solutions empowers our customers to create experiences that matter. We are transforming our customers and partners into Avaya Experience Builders, capable of composing personalized, AI-powered solutions that are more flexible, agile and impactful. That is why more organizations globally are turning to Avaya to help them meet the needs of today’s Experience Economy.

During Fiscal 2021, we delivered outstanding results, including our first full year of revenue growth in over a decade, continued progression of our cloud and SaaS transformation as CAPS revenue and ARR grew to record levels and continued leadership in the enterprise market. Our CAPS revenue made up 40% of our Fiscal 2021 revenue, increasing from 26% in Fiscal 2020, and ARR grew 177% to $530 million at the end of Fiscal 2021. We achieved $2.973 billion of revenue in Fiscal

2021 and maintained our highly profitable business model generating $719 million of Adjusted EBITDA*, or 24.2% of revenue.

Pay for Performance Outcomes:

 

 

Consistent with our strong performance, our named executive officers (NEOs) earned bonuses under the AIP at 151% of target and the Fiscal 2021 performance period attainment for the Performance Restricted Stock Units (“PRSUs”) granted in Fiscal 2021 was 114%. The PRSUs remain subject to the Fiscal 2022 and Fiscal 2023 performance periods, as well as continued employment.

 

 

For purposes of determining performance under the AIP and for the Fiscal 2021 PRSUs, Fiscal 2021 Adjusted EBITDA and Revenue were adjusted downward upon determination of the Compensation Committee and at the recommendation of management to exclude the impact of certain one-time benefits and therefore more appropriately reflect FY2021 performance. Similar adjustments were made with respect to Fiscal 2021 performance attainment for PRSU grants made in Fiscal 2019 and Fiscal 2020.

 

 

*

Adjusted EBITDA is a financial performance metric that is 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 this non-GAAP financial measure and a reconciliation to the most directly comparable GAAP measure, as well as information on the calculation of constant currency.

 

 

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Fiscal 2021 Named Executive Officers     ›       COMPENSATION DISCUSSION AND ANALYSIS  

 

 

Fiscal 2021 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 2021. For Fiscal 2021, our NEOs were:

 

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James M. Chirico, Jr.

 

President and

CEO

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Kieran McGrath

 

Executive Vice President

and Chief Financial Officer

 

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Shefali Shah

 

Executive Vice President and Chief Administrative Officer

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Stephen Spears

 

Executive Vice President

and Chief Revenue Officer

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Anthony Bartolo(1)

 

Former Executive Vice President and Chief Product Officer

 

(1)

Mr. Bartolo separated from the Company on September 30, 2021. Mr. Bartolo’s separation from the Company constituted a termination by the Company other than for “cause” under the Separation Plan (as defined below).

Key Elements of Compensation

 

 

Element

   Form    Objective

Base Salary

  

Fixed Pay: Cash

  

 Provide a fixed portion of annual income to attract and retain qualified executives

 

Annual Incentives

  

Variable Pay: Cash (a portion which may be paid in shares of common stock upon a voluntary election)

  

 Focus executives’ attention on annual financial, operational, and strategic objectives that support long-term strategy and value creation

 Align executives’ pay with company performance

 

Long-Term Incentives

  

Variable Pay: Equity

  

 Directly align executive pay with long-term stockholder value

 Focus executives on long-term performance goals

 Retain executives

 

Base Salaries

The Fiscal 2021 base salaries for the NEOs remained the same as Fiscal 2020 levels, and are set forth below:

 

Named Executive Officer

   Fiscal
2021 Base Salary ($)

James M. Chirico, Jr.

   1,250,000

Kieran McGrath

      650,000

Shefali Shah

      600,000

Stephen Spears

      600,000

Anthony Bartolo

      650,000

 

At the beginning of Fiscal 2022, the Compensation Committee determined that no changes would be made to the NEOs’ salaries for Fiscal 2022.

Short-Term Incentives

Annual cash bonus opportunities for all the NEOs for Fiscal 2021 were based solely on the achievement of

performance goals (as set forth below) and for each of them, except Mr. Chirico, the target and maximum bonus opportunities were 100% of base salary, and 200% of bonus target, respectively. Mr. Chirico’s target bonus opportunity was 150% of his base salary and his maximum bonus opportunity was 200% of bonus target. As part of the terms of his employment at the

 

 

 

     

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time of his hire, Mr. Spears was guaranteed an annual bonus for Fiscal 2021 of at least 125% of his target.

The Company’s Board-approved Fiscal 2021 financial plan served as the basis for the AIP, our annual cash incentive plan, as approved by the Compensation Committee. The AIP was designed to drive the Company’s objectives of profitable, revenue growth in Fiscal 2021 including increasing ARR, which is a key indicator of the Company’s cloud-focused transformation. The funding for NEO bonuses under the AIP was determined based on Fiscal 2021 annual revenue (measured in constant currency) (42%), ARR (40%) and Adjusted EBITDA (18%), each as measured against pre-established threshold, target, and maximum levels.

The Compensation Committee approved the AIP with an Adjusted EBITDA target that was lower than actual levels of achievement for Fiscal 2020 to permit contemplated investments in go-to-market motions, cloud development and processing capabilities to accelerate the Company’s transition to a cloud and software services company. The Compensation Committee believes growth in the Company’s cloud offerings, including the Company’s Contact Center as a service (CCaaS) solution, will drive sustainable, long-term value creation. However, the Compensation Committee approved a Revenue target under the Fiscal 2021 AIP that was higher than actual levels of achievement for Fiscal 2020, to appropriately incentivize executives’ performance during Fiscal 2021 and achieve the Company’s objective for revenue growth.

The AIP definitions of Adjusted EBITDA and Revenue provided for adjustments to account for, among other things, certain special or non-recurring items and/or certain incremental expenses. For Fiscal 2021, the

Committee approved adjustments to eliminate the impact of several non-recurring events, which had the net effect of reducing executives’ AIP payouts. Specifically, for the calculation of Fiscal 2021 Adjusted EBITDA, the following items were excluded: (i) the non-recuring impact of non-operational COVID-19-related cost savings related to reduced business travel, sales and marketing events, entertainment and delayed return to office of approximately $30 million in savings (“COVID Cost Savings”); (ii) the potential impact of the issuance of shares of common stock under the Stock Bonus Program which is described below of approximately $5 million; and (iii) the impact of any revenue recorded in Fiscal 2021 related to periods prior to Fiscal 2021 of approximately $15.3 million (collectively (i), (ii) and (iii), the “FY21 Adjusted EBITDA Adjustments”). For the calculation of Fiscal 2021 Revenue: the impact of the revenue recorded in Fiscal 2021 but related to periods prior to Fiscal 2021 of approximately $15.3 million (the “FY21 Annual Revenue Adjustment”) was excluded. The Compensation Committee determined that the downward adjustments of Adjusted EBITDA and Fiscal 2021 Revenue were appropriate in order to align the Company’s pay-for-performance philosophy with Fiscal 2021 AIP awards as the associated uplift that would result if such adjustments had not been made, would have resulted in a higher payout level that was not directly related to FY 2021 performance.

Without taking into consideration the impact the incremental bonus payouts would have on the calculation of Fiscal 2021 Adjusted EBITDA, if the Compensation Committee had not determined to exclude each of the FY21 Adjusted EBITDA Adjustments and the FY21 Annual Revenue Adjustment, the payout factor for the NEOs would have been 178% of target, versus the approved payout of 151% of target.

 

 

The table below sets forth the threshold, target, maximum and actual levels of achievement under the Fiscal 2021 AIP:

 

Financial Metric

Weighting Threshold Target Maximum Actual Payout (%)
         

Revenue1

  42 % $ 2,743M $   2,887M $ 3,008M $ 2,936M   133 %
         

Adjusted EBITDA

  18 % $ 637M $ 675M $ 710M $ 674M   85 %
         

ARR

  40 % $ 368M $ 387M $ 406M $ 530M   200 %

 

1

Measured in constant currency using the exchange rate in effect on September 30, 2020.

 

 

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The Compensation Committee approved the total payout percentage of Fiscal 2021 AIP to the NEOs of 151% of target and approved the following total Fiscal AIP payouts:

 

Named Executive Officer

Target Bonus    

( as a % of    

base salary)    

Target Bonus     Bonus Payout    

Bonus Payout    
(as a % of    

base salary)    

     

James Chirico

150%    

$

  1,875,000    

$

  2,834,250    

 

227%    

 

     

Kieran McGrath

100%    

$

650,000    

$

982,540    

 

151%    

 

     

Shefali Shah

100%    

$

600,000    

$

906,960    

 

151%    

 

     

Stephen Spears

100%    

$

600,000    

$

906,960    

 

151%    

 

     

Anthony Bartolo

100%    

$

650,000    

$

982,540    

 

151%    

 

 

To demonstrate their confidence in the company’s continued success in its cloud focused transformation, for Fiscal 2021, the NEOs recommended and, the Compensation Committee approved, a program under which the NEOs and other senior leaders would have the opportunity to elect to take a portion of their Fiscal 2021 AIP earned bonus in the form of fully vested shares of the Company’s common stock (“Stock Bonus Program”). The Compensation Committee determined the Stock Bonus Program was beneficial for the NEOs, for the Company and its stockholders, and approved extending the voluntary participation in the program to certain other leaders of the Company. The Compensation Committee recommended, and the Board approved, a maximum 250,000 shares (“Bonus Shares”) of the Company’s common stock available for issuance under the Stock Bonus Program for Fiscal 2021. The Bonus Shares were valued using the consecutive five-day average of the closing prices of the Company’s common-stock ending on December 3, 2021, or $19.28.

Pursuant to the Stock Bonus Program, Mr. Chirico elected to receive 70% of his earned Fiscal 2021 bonus in the form of Bonus Shares, and each of Messrs. McGrath and Spears and Ms. Shah elected to receive 60% of their earned Fiscal 2021 bonus in the form of Bonus Shares, subject to the over-all Stock Bonus Program share cap. As a result of his termination of employment, Mr. Bartolo was not eligible to receive any portion of his Fiscal 2021 AIP in the form of shares under the Stock Bonus Program.

The portion of the Fiscal 2021 AIP award to be paid to each participant using Bonus Shares was reduced pro rata as a result of the high participation rate to limit the aggregate number of Bonus Shares to the 250,000 share cap set by the Board. The following table sets forth for each of the NEOs the amount of their Fiscal 2021 AIP that was paid in cash and Bonus Shares under the Stock Bonus Program:

 

 

Executive

   FISCAL
2021 AIP
     Stock
Bonus Plan
Election
     Fiscal
2021 AIP
Paid in
Cash ($)
     Fiscal
2021 AIP
Paid in
Shares ($)
     Number of
Bonus
Shares
issued
 
       

James Chirico

  

$

2,834,250

 

  

 

70 % of AIP

 

  

$

987,479

 

  

$

1,846,771

 

  

 

95,767   

 

       

Kieran McGrath

  

$

982,540

 

  

 

60 % of AIP

 

  

$

433,795

 

  

$

548,746

 

  

 

28,456   

 

       

Shefali Shah

  

$

906,960

 

  

 

60 % of AIP

 

  

$

400,427

 

  

$

506,533

 

  

 

26,267   

 

       

Stephen Spears

  

$

906,960

 

  

 

60 % of AIP

 

  

$

400,427

 

  

$

506,533

 

  

 

26,267   

 

At the beginning of Fiscal 2022, at the recommendation of senior management, the Compensation Committee approved a Stock Bonus Program for the Fiscal 2022 AIP.

 

 

     

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Equity Awards

Fiscal 2021 Equity Awards

In Fiscal 2021, the Compensation Committee continued to balance the equity awards to the NEOs between performance-based Restricted Stock Units (PRSUs) and time-based Restricted Stock Units (RSUs). Equity awards made to the CEO and CFO were allocated 60% in PRSUs and 40% in RSUs and for Ms. Shah and Messrs. Spears and Bartolo were 50% in PRSUs and 50% in RSUs. All awards were made under the Avaya Holdings Corp. 2019 Equity Incentive Plan (the “2019 Equity Incentive Plan”) with the following grate date values:

 

Named Executive Officer

   RSU Award
Value
     PRSU Award
Value
     Total Award
Value
 
   

James Chirico

   $ 3,600,000      $ 5,400,000      $ 9,000,000  
   

Kieran McGrath

   $ 1,120,000      $ 1,680,000      $ 2,800,000  
   

Shefali Shah

   $ 750,000      $ 750,000      $ 1,500,000  
   

Stephen Spears

   $ 1,000,000      $ 1,000,000      $ 2,000,000  
   

Anthony Bartolo

   $ 1,000,000      $ 1,000,000      $ 2,000,000  

Fiscal 2021 RSU Awards

Time based RSUs granted to the NEOs in Fiscal 2021 vest 33.34% on the first anniversary of the grant date and 8.33% quarterly thereafter contingent on continued employment with the company. Awards made to the NEOs in Fiscal 2022 will vest one-third per year over three years.

 

Fiscal 2021 PRSU Awards

PRSU awards made to the NEOs in Fiscal 2021 (the “FY2021 PRSUs”) will be earned based on the level of achievement of Adjusted EBITDA and ARR metrics against pre-established threshold, target and maximum levels established for each of the three separate fiscal years included in the total performance period (fiscal years 2021, 2022 and 2023). In Fiscal 2021, the Compensation Committee introduced and ARR metric to PRSU awards which was in addition to the Adjusted EBITDA metric used in prior years. The applicable threshold, target and maximum levels for each fiscal year were established at the beginning of the total three-year performance period based on our current strategic plan. With respect to each fiscal year within the total three-year performance period, FY2021 PRSUs are eligible to be earned as follows: 0% below threshold, 50% 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 FY2021 PRSUs eligible to vest will be subject to adjustment up or down by 25% based on a relative Total Shareholder Return (“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 adjustment 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 FY2021 PRSUs granted will be eligible to vest. Any earned FY2021 PRSUs are scheduled to vest on December 10, 2023 subject to satisfaction of service-based vesting requirements set forth in the applicable award agreement.

The Compensation Committee approved the FY2021 PRSUs with an Adjusted EBITDA target that was lower than actual levels of achievement for Fiscal 2020 to permit contemplated investments in go-to-market motions, cloud development and processing capabilities to accelerate the Company’s transition to a cloud and software as a services company. The Compensation Committee believes growth in the Company’s cloud offerings, including the Company’s Contact Center as a service (CCaaS) solution, will drive sustainable, long-term value creation.

Fiscal 2021 Performance – Fiscal 2019 PRSUs, Fiscal 2020 PRSUs and Fiscal 2021 PRSUs

In Fiscal 2019, our CEO received a PRSU award (the “CEO FY2019 PRSU”) which was to be earned if the average closing price of the Company’s common stock equaled or exceeded $23.50 for 60 consecutive days within three years of the February 11, 2019

 

 

 

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grant date (representing appreciation in the stock price of more than 50% from the date of grant), subject to Mr. Chirico’s continued employment. In February 2021, the CEO FY2019 PRSU stock price goal was achieved.    The award is scheduled to vest and be distributed to Mr. Chirico on February 11, 2022.

The Compensation Committee determined to deduct the FY21 Adjusted EBITDA Adjustments from the calculation of Adjusted EBITDA for Fiscal 2021 for the purposes of the Fiscal 2021 PRSUs, consistent with the approach taken for the Fiscal 2021 AIP described above. The exclusion of the FY21 Adjusted EBITDA Adjustments result in an Adjusted EBITDA for purposes of the FY2021 PRSU attainment of $674 million, as shown in the table below.

At the recommendation of management, the Compensation Committee also determined it was appropriate to take a similar approach and make the following adjustments to the calculation of Fiscal 2021 Adjusted EBITDA for the FY2019 PRSUs and FY2020 PRSUs to prevent higher levels of achievement resulting from (i) the COVID Cost Savings; (ii) the issuance of shares of common stock under the Stock Bonus Program which is described below of approximately $5 million; and (iii) the impact of any revenue recorded in Fiscal 2021 related to fiscal 2018 of approximately $6.6 million (collectively (i), (ii) and (iii), the “Prior Year PRSU Adjusted EBITDA Adjustments”). The Compensation Committee determined to adjust downward the calculation of the Fiscal 2021 Adjusted EBITDA by excluding the Prior Year PRSU Adjusted EBITDA Adjustments was appropriate to align the Company’s pay-for-performance philosophy because the increase in Adjusted EBITDA achievement that would have resulted from including these amounts would have

resulted in a higher payout level that was not directly related to Fiscal 2021 performance. The Prior Year PRSU Adjusted EBITDA Adjustments do not exclude the impact of revenue recorded in Fiscal 2021 related to Fiscal 2019 and Fiscal 2020, which are performance measurement periods for the FY2019 PRSUs and FY2020 PRSUs, for purposes of calculating Fiscal 2021 Adjusted EBITDA because this revenue was not included at the time it was earned in Fiscal 2019 and Fiscal 2020, respectively. The exclusion of the Prior Year PRSU Adjusted EBITDA Adjustments results in Adjusted EBITDA for purposes of the FY2019 PRSUs and FY2020 PRSUs attainment of $682 million, as shown in the table below.

Fiscal 2021 Adjusted EBITDA and ARR results for the Fiscal 2021 PRSUs and Fiscal 2021 Adjusted EBITDA for the Fiscal 2020 PRSUs and Fiscal 2019 PRSUs can be found in the table below. Without taking into consideration the incremental impact that bonus payouts would have on the calculation of EBITDA for Fiscal 2021, if the Compensation Committee had not exercised its discretion to downward adjust awards via the FY21 Adjusted EBITDA Adjustments and the Prior Year PRSU Adjusted EBITDA Adjustments, as applicable, the payout factor for Fiscal 2021 attainment for the FY2019 PRSUs would still have been 0%, and for the FY2020 PRSUs and FY2021 PRSUs would have been: 90% and 150%, respectively.

The FY2021 PRSUs remain subject to the Fiscal 2022 and Fiscal 2023 performance periods, as well as continued employment; and the FY2020 PRSUs remain subject to the FY2022 performance period, as well as continued employment. Performance attainment for PRSU grants made in Fiscal 2019 and Fiscal 2020 are discussed further below.

 

 

PRSUs

Metric/Weighting

FISCAL 2021 Targets

(in millions)

FISCAL    

2021    
Performance    

Attainment    
Threshold     Target     Max    
         

Fiscal 2019 (year 3)

Adjusted EBITDA (100%) $   779     $   822     $   865     $   682M       0 %    
         

Fiscal 2020 (year 2)

Adjusted EBITDA (100%) $   678     $   729     $   758     $   682M       54 %    
         

Fiscal 2021 (year 1)

Adjusted EBITDA (70%) $   628     $   675     $   702     $   674M       99 %(1)    
         

 

ARR (30%) $   348     $   387     $   406     $   530M       150 %(1)    

 

(1)

Adjusted EBITDA (weighted 70%) at 99% attainment and ARR (weighted 30%) at 150% attainment resulted in an overall attainment factor of 114%.

 

 

     

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2019 PRSUs

 

Ms. Shah was the only NEO that received FY2019 PRSUs. The FY2019 PRSUs were eligible to be earned if Adjusted EBITDA was achieved against pre-established threshold, target and maximum levels established for each of the three separate fiscal years included in the total performance period (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 based on the company’s strategic plan. With respect to each fiscal year within the total three-year performance period, FY2019 PRSUs were eligible to be earned as follows: 0% for below threshold, 75% at threshold, 100% at target and 150% at maximum, with points in between being linearly interpolated; provided, that the Compensation

Committee had 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 to prevent the enlargement or dilution of benefits under the award. At the end of the total three-year performance period, the percentage of FY2019 PRSUs eligible to vest could have been adjusted up or down by 25% based on the relative TSR modifier described above for the FY2021 PRSUs. For each of the fiscal years during the three-year performance period, the FY2019 PRSUs were below threshold and had 0% achievement (see above for a discussion of FY2021 performance attainment for the FY2019 PRSUs). There was no payout under the FY2019 PRSUs and they were cancelled effective November 22, 2021.

 

 

Determination of NEO Compensation

 

 

 

Our executive compensation philosophy is based on the following principals:

 

 

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; and

 

 

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.

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-term 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.

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, which is solely determined by the Compensation Committee. 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

 

 

 

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engagement may only be made after taking into consideration of the factors relevant to that person’s independence from management and the Company, as outlined in the applicable NYSE rules. For Fiscal 2021, the Compensation Committee continued to engage 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 the Company and their 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 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 incentive awards;

 

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; and

 

 

To assess the competitiveness of total direct compensation awarded to NEOs.

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 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. The Committee also considers internal equity, the executive’s responsibilities, past performance and expected contributions.

 

 

Compensation Peer Group

Each year the Committee assesses our Compensation Peer Group with guidance from FW Cook. For Fiscal 2021, we added CDK Global, Inc. to maintain a balanced sample and removed LogMein in anticipation of its buyout by private equity firms. For Fiscal 2021 the Peer Group was comprised of the following companies:

 

Akamai Technologies, Inc.    NCR Corp.    RingCentral, Inc.
Autodesk, Inc.    NetApp, Inc.    Synopsys, Inc.
BlackBerry Limited    Norton LifeLock, Inc.    Teradata Corp.
Citrix Systems, Inc.    Nuance Communications, Inc.    Twillio Inc.
CDK Global, Inc.    Open Text Corp    Verint Systems Inc.

The Committee did not make any changes to the Compensation Peer Group for Fiscal 2022 and will review this information again to determine what changes should be made for Fiscal 2023 compensation planning, including the expected acquisition of Nuance Communications, Inc. by Microsoft.

 

Retirement, Welfare and Personal Benefits

Our NEOs are eligible to participate in benefit plans of the Company that are made available to the Company’s United States employees generally, including comprehensive health and welfare programs

including medical, wellness, dental, vision, disability, and life insurance. In addition, we offer a 401(k) plan and an employee stock purchase plan (the “ESPP”). The Committee periodically reviews executive benefits and other personal benefits given to the NEOs.

 

 

 

     

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Enhanced welfare and other personal benefits provided to our NEOs for Fiscal 2021 which are in addition to the benefits described above were:

 

 

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;

 

 

Company-provided life insurance of up to 2x Total Annual Target Cash Compensation;

 

 

Enhanced Long-Term Disability Coverage of 60% of eligible earnings capped at $1,000,000 per year for the CEO and $750,000 per year for all other; and

 

 

In Fiscal 2021, Mr. Bartolo was given relocation assistance. The Company also provided Mr. Bartolo with an additional payment to cover the taxes on his relocation assistance.

 

Governance and Compensation “Best Practices”

 

The table below highlights the key characteristics of our compensation program for Fiscal 2021, many of which we believe drive performance and are aligned with compensation and governance best practices. The table also highlights certain practices we have not implemented because we do not believe they would serve our stockholders’ interests.

Executive Compensation Practices

 

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What

We Do

   

 

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

 

 

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We Do use more than one performance metric for our annual incentive program which is linked to our financial and strategic objectives

 

 

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The Compensation Committee Does use an independent compensation consultant

 

 

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

 

 

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We Do have a clawback policy

 

 

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We Do have policies prohibiting hedging/pledging of the Company’s stock

 

 

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We Do have robust stock ownership guidelines for our NEOs

 

 

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We Do conduct a say-on-pay stockholder vote on an annual basis

     

 

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What

  We Don’t  

Do

   

 

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

 

 

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

 

 

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

 

 

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

 

 

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We Don’t allow for uncapped incentive compensation payouts

 

 

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We Don’t offer excessive perquisites

 

 

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We Don’t provide tax gross-ups for any excise taxes triggered in connection with a CIC

 

 

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We Don’t offer supplemental executive pension benefits

     

 

 

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Stockholder Engagement & Results of Say-on-Pay Vote

 

At our 2021 Annual Meeting, we held a “Say-on-Pay” advisory vote and were pleased that approximately 93% of stockholder votes cast were in favor of our executive compensation program for Fiscal 2020. We believe this strong result indicates support for continuing our current executive compensation program.

It is Avaya’s practice to engage with our investors on a regular basis to consistently keep open dialogue

about our business and our executive compensation programs. We typically meet with over 300 investors each year as part of our investor relations program and with our top 25 active stockholders each quarter.

The Compensation Committee is available to engage with our stockholders on our compensation policies and compensation programs.

 

Share Ownership Guidelines

Our share ownership guidelines for our NEOs 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

 

Common shares and unvested RSUs count toward the guidelines. Unvested stock options and unearned PRSUs do not count toward the guidelines. Any NEO who is not in compliance with his or her ownership guideline is required to retain at least 50% of the net shares received as the result of the exercise, vesting or payment of any equity award after any shares or sold or withheld to cover taxes. As of the end of Fiscal 2021, all NEOs met 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 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 all 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 Employment Agreement

Other than Mr. Chirico, none of our NEOs are party to employment agreements with us. The Company entered into an employment agreement with Mr. Chirico dated November 13, 2017 and amended January 3, 2020, which provides for his receipt of an annual base salary, target annual bonus opportunity and other compensation. Pursuant to his 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.

Any payments and benefits due to Mr. Chirico, whether or not they are in connection with a change in control are described below in the “Potential Payments Upon Termination or CIC”: beginning on page 60.

 

 

 

     

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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 not tax deductible. The Compensation Committee considers 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.

Accounting for Stock-Based Compensation

Accounting for all stock-based compensation, including grants under the Company’s equity compensation plans is made in accordance with the requirements of FASB ASC Topic 718.

 

 

Risk Assessment in Compensation Programs

 

 

In August 2021, the Compensation Committee reviewed a comprehensive global risk assessment of our compensation policies and practices conducted by management in and based on this review, determined that the Company’s compensation programs encourage and reward prudent business judgment without encouraging undue risk. The risk assessment included a global inventory of incentive plans and

programs and considered factors such as plan eligibility, the variety of plan metrics, threshold and maximum payments, and the mix of short-term and long-term compensation. Based on the review, the Compensation Committee concluded that 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 D. Vogel, Chair

Stephan Scholl

Jacqueline E. Yeaney

 

 

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Executive Compensation Tables

Fiscal 2021 Summary Compensation Table

 

The following table sets forth the annual and long-term compensation awarded to or paid to the NEOs for services rendered to the Company in all capacities during the fiscal years ended September 30, 2021, 2020 and 2019.

 

Name

  Year     Salary     Bonus     Stock
Awards(1)
    Option
Awards
    Non-Equity
Incentive
Plan
Comp(2)
    All
Other
Comp(3)
    Total  
             

James M. Chirico, Jr.(4)

President and CEO

 

 

2021

 

 

 

1,250,000

 

   

 

9,732,097

 

   

 

2,834,250 

 

 

 

35,345

 

 

 

13,851,692

 

 

 

2020

 

 

 

1,250,000

 

   

 

6,879,978

 

   

 

2,982,281 

 

 

 

46,365

 

 

 

11,158,624

 

 

 

2019

 

 

 

1,250,000

 

         

 

3,065,813

 

                 

 

46,240

 

 

 

4,362,053

 

             

Kieran McGrath

Executive Vice President and Chief Financial Officer

 

 

2021

 

 

 

650,000

 

   

 

3,027,735

 

   

 

982,540 

 

 

 

28,690

 

 

 

4,688,965

 

 

 

2020

 

 

 

650,000

 

   

 

1,857,976

 

   

 

767,715 

 

 

 

58,078

 

 

 

3,333,769

 

 

 

2019

 

 

 

435,689

 

 

 

650,000

 

 

 

3,999,985

 

                 

 

41,169

 

 

 

5,126,843

 

             

Shefali Shah

Executive Vice President and Chief Administrative Officer

 

 

2021

 

 

 

600,000

 

   

 

1,601,669

 

   

 

906,960 

 

 

 

26,375

 

 

 

3,135,004

 

 

 

2020

 

 

 

600,000

 

   

 

1,327,127

 

   

 

708,660 

 

 

 

22,113

 

 

 

2,657,900

 

 

 

2019

 

 

 

600,000

 

         

 

1,193,200

 

                 

 

30,375

 

 

 

1,823,575

 

             

Stephen Spears

Executive Vice President and Chief Revenue Officer

 

 

2021

 

 

 

600,000

 

 

 

750,000

(5) 

 

 

2,135,559

 

   

 

156,960 

 

 

 

28,715

 

 

 

3,671,234

 

 

 

2020

 

 

 

27,273

 

 

 

750,000

 

 

 

2,799,997

 

       

 

3,577,270

 

 

 

2019

 

                                                       
             

Anthony Bartolo(6)

Former Executive Vice President and Chief Product Officer

 

 

2021

 

 

 

650,000

 

   

 

2,135,559

 

   

 

982,540 

 

 

1,551,998

 

 

 

5,320,097

 

 

 

2020

 

 

 

529,356

 

 

 

650,000

 

 

 

3,114,219

 

 

 

1,000,000

 

 

 

767,715 

 

 

 

123,163

 

 

 

6,184,453

 

 

 

2019

 

                                                       

 

(1) 

This column represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for all stock awards granted in Fiscal 2021, which includes PRSUs and RSUs. The grant date fair value of the PRSU awards were calculated based on the expected value of the possible outcomes of the performance conditions related to these awards in accordance with FASB ASC Topic 718 (excluding the effects of estimated forfeitures) and determined as of the date of grant. For Fiscal 2021 amounts include: (i) PRSUs ($6,132,102) and RSUs ($3,599,995) for Mr. Chirico; (ii) PRSUs ($1,907,747) and RSUs ($1,119,988) for Mr. McGrath; (iii) PRSUs ($851,675) and RSUs ($749,994) for Ms. Shah; (iv) PRSUs ($1,135,567) and RSUs ($999,992) for Mr. Spears; and (v) PRSUs ($1,135,567) and RSUs ($999,992) for Mr. Bartolo. The number of PRSUs ultimately earned will be determined based 70% on Adjusted EBITDA and 30% on ARR as measured over three fiscal years from 2021 through 2023. For PRSUs, the grant date fair value of the award assuming a 150% payout, which is the maximum level of achievement, would be $9,198,153 for Mr. Chirico; $2,861,621 for Mr. McGrath, $1,277,513 for Ms. Shah; $1,703,351 for Mr. Spears; and $1,703,351 for Mr. Bartolo. See Note 16 of the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 for an explanation of the assumptions used in the valuation of stock awards.

 

(2)

Amounts shown for Fiscal 2021 represent the NEOs Fiscal 2021 AIP payouts. As described earlier on page 47 of the Compensation Discussion and Analysis, pursuant to the Stock Bonus Program, Mr. Chirico’s elected to receive 70% of his earned FY 2021 AIP amount in shares of common stock and Messrs. McGrath and Spears and Ms. Shah each elected to receive 60% of their earned Fiscal 2021 AIP amount in shares of common stock. Accordingly, on December 7, 2021, Messrs. Chirico, McGrath and Spears and Ms. Shah each received 95,767, 28,456, 26,267 and 26,267 shares of common stock, respectively, in lieu of the applicable elected portion of his or her Fiscal 2021 AIP payout. These shares of common stock were fully vested as of the date of grant. Given his departure from the Company in September 2021, Mr. Bartolo received his Fiscal 2021 AIP payout in cash. Under the Stock Bonus Program, the number of Bonus Shares received was based on the fair market value of the Company’s common stock at or around the time Fiscal 2021 AIP bonuses were to be paid, without any “discount” feature. Bonus Shares were deemed to be purchased by the participants at fair market value using earned bonus dollars. As a result, these Bonus Shares are not considered incentive shares and their value is reflected within the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation table, rather than within the “Stock Awards” column of the Summary Compensation table.

 

 

     

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    2022 Proxy Statement       55


Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS     ›     Executive Compensation Tables

 

 

(3)

The following table separately quantifies “all other compensation” amounts for Fiscal 2021.

 

Name

  Financial
  Counseling  
  Enhanced
Life
Insurance &
LTD
Premiums
  Matching
401(k)
Contributions
  Relocation     Tax
Benefits
    Severance     Total  

James M. Chirico, Jr.

 

20,000   

 

8,220

 

7,125

       

 

35,345    

 

Kieran McGrath

 

15,000   

 

6,565

 

7,125

       

 

28,690    

 

Shefali Shah

 

15,000   

 

4,250

 

7,125

       

 

26,375    

 

Stephen Spears

 

15,000   

 

6,590

 

7,125

       

 

28,715    

 

Anthony Bartolo

 

30,000(a)

 

6,365

 

7,125

 

 

145,220

(b) 

 

 

63,288

(c) 

 

 

1,300,000

(d) 

 

 

1,551,998    

 

 

  (a) 

Upon his departure from the Company, the Company agreed to pay Mr. Bartolo his Fiscal 2022 financial counseling allowance. Accordingly, this amount represents Mr. Bartolo’s Fiscal 2021 and Fiscal 2022 financial counseling allowance of $15,000 per year.

 

  (b) 

Represents relocation assistance provided to Mr. Bartolo. This relocation assistance included expense reimbursements in connection with moving and housing expenses associated with Mr. Bartolo’s relocation from Singapore to North Carolina.

 

  (c) 

Represents the reimbursement related to taxes on the imputed income from Mr. Bartolo’s relocation assistance.

 

  (d) 

Upon his departure from the Company, Mr. Bartolo received a lump sum cash severance payment of $1,300,000, which was equal to the sum of his annual base salary and target annual incentive.

 

(4) 

Mr. Chirico is a member of the Board of Directors. He does not receive any additional compensation of any kind for his services as a Board member.

 

(5) 

Mr. Spears was guaranteed an annual bonus for Fiscal 2021 of at least 125% of his target.

 

(6) 

Mr. Bartolo’s employment with the Company was terminated September 30, 2021.

Fiscal 2021 Grants of Plan-Based Awards

 

The following table provides information on the grants of plan-based awards to the NEOs during the year ended September 30, 2021.

 

                     

 

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(1)

       

 

Estimated Future Payouts Under
Equity Incentive Plan Awards(2)

   

All Other
Stock
Awards:
Number
of
Shares of
Stock or
Units

(#)(3)

    All Other
Stock
Awards:
Number of
Securities
Underlying
Options
(#)
    Exercise
or Base
Price of
Option
Awards
($/Share)
    Grant
Date Fair
Value of
Stock and
Option
Awards
($)(4)
 

Name

  Award
Type
    Committee
Action Date
   

Grant

Date

   

Threshold

($)

   

Target

($)

   

Maximum

($)

        

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

 

James M. Chirico, Jr.

 

 

AIP

 

 

 

11/17/2020

 

 

 

11/17/2020

 

 

 

468,750

 

 

 

1,875,000

 

 

 

3,750,000

 

               
 

 

RSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

               

 

183,486

 

     

 

3,599,995

 

   

 

PRSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

                             

 

137,615

 

 

 

275,229

 

 

 

412,844

 

                         

 

6,132,102

 

Kieran McGrath

 

 

AIP

 

 

 

11/17/2020

 

 

 

11/17/2020

 

 

 

162,500

 

 

 

650,000

 

 

 

1,300,000

 

               
 

 

RSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

               

 

57,084

 

     

 

1,119,988

 

   

 

PRSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

                             

 

42,813

 

 

 

85,626

 

 

 

128,439

 

                         

 

1,907,747

 

Shefali Shah

 

 

AIP

 

 

 

11/17/2020

 

 

 

11/17/2020

 

 

 

150,000

 

 

 

600,000

 

 

 

1,200,000

 

               
 

 

RSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

               

 

38,226

 

     

 

749,994

 

   

 

PRSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

                             

 

19,113

 

 

 

38,226

 

 

 

57,339

 

                         

 

851,675

 

Stephen Spears

 

 

AIP

 

 

 

11/17/2020

 

 

 

11/17/2020

 

 

 

150,000

 

 

 

600,000

 

 

 

1,200,000

 

               
 

 

RSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

               

 

50,968

 

     

 

999,992

 

   

 

PRSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

                             

 

25,484

 

 

 

50,968

 

 

 

76,452

 

                         

 

1,135,567

 

Anthony Bartolo

 

 

AIP

 

 

 

11/17/2020

 

 

 

11/17/2020

 

 

 

162,500

 

 

 

650,000

 

 

 

1,300,000

 

               
 

 

RSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

               

 

50,968

 

     

 

999,992

 

   

 

PRSU

 

 

 

11/17/2020

 

 

 

12/3/2020

 

                             

 

25,484

 

 

 

50,968

 

 

 

76,452

 

                         

 

1,135,567

 

 

 

56  

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    2022 Proxy Statement      


Table of Contents
Fiscal 2021 Grants of Plan-Based Awards     ›       COMPENSATION DISCUSSION AND ANALYSIS  

 

 

(1)

Amounts shown represent the Fiscal 2021 threshold, target, and maximum amounts payable under the Fiscal AIP, which is discussed above under Key Elements of our Executive Compensation Program. The actual amount paid for Fiscal 2021 can be found in the Summary Compensation Table on page 55 under the column titled “Non-Equity Incentive Plan Compensation.” Mr. Chirico elected to receive 70% of his earned Fiscal 2021 AIP amount in shares of common stock and Messrs. McGrath and Spears and Ms. Shah each elected to receive 60% of their earned FY 2021 AIP amount in shares of common stock. Accordingly, on December 7, 2021, Messrs. Chirico, McGrath and Spears and Ms. Shah each received 95,767, 28,456, 26,267 and 26,267 shares of common stock, respectively, in lieu of the applicable elected portion of his or her Fiscal 2021 AIP payout. These shares of common stock were fully vested as of the date of grant. Given his departure from the Company in September 2021, Mr. Bartolo received his Fiscal 2021 AIP payout in cash.

 

(2)

Amounts shown represent the threshold, target and maximum number of units that can be earned under the Fiscal 2021 PRSU awards based on performance against Adjusted EBITDA and ARR metrics over the applicable three-year period, subject to a TSR modifier, as further described beginning on page 48. The actual number of units earned, if any, can be between 0% and 150% of the target number of units.

 

(3) 

Amounts shown represent the RSU awards that will vest 33.34% on the first anniversary of the grant date and 8.33% quarterly thereafter.

 

(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. See Note 16 of the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 for an explanation of the assumptions used in the valuation of these awards.

 

(5) 

Mr. Spears was guaranteed an annual bonus for Fiscal 2021 of at least 125% of his target.

Outstanding Equity Awards at Year-End Fiscal 2021

 

The following table provides information on the holdings of Stock Options and Stock Awards by the NEOs as of September 30, 2021. This table includes stock options award and unvested RSUs and PSUs. Each equity grant is shown separately for each NEO. The market value of the stock award is based on the closing price of our Common Stock on September 30, 2021, which was $19.79.

 

<
          Option Awards     Stock Awards  

Name

  Grant
Date
    Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Options
Exercise
Price ($)
    Option
Expiration
Date
    Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
(#)
    Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested ($)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
 

James M. Chirico, Jr.

 

 

12/15/2017

 

 

 

182,512    

 

     

 

19.46    

 

 

 

12/15/2027  

 

               
 

 

2/11/2019

 

                 

 

274,223

(2) 

 

 

5,426,873

 

       
 

 

12/23/2019

 

                 

 

126,798

(3) 

 

 

2,509,332

 

       
 

 

12/23/2019

 

                 

 

172,442

(6) 

 

 

3,412,627

 

       
 

 

12/23/2019

 

                         

 

84,531

(7)   

 

 

1,672,868  

 

 

 

12/3/2020

 

                 

 

183,486

(4) 

 

 

3,631,188

 

       
 

 

12/3/2020

 

                 

 

104,587

(8) 

 

 

2,069,777

 

       
   

 

12/3/2020

 

                                                 

 

183,486

(9)   

 

 

3,631,188  

 

Kieran McGrath

 

 

2/11/2019

 

         

 

42,990

 

 

 

850,772

 

   
 

 

12/6/2019

 

         

 

36,983

(3) 

 

 

731,894

 

   
 

 

12/6/2019