Connecting AVAYA HOLDINGS CORP. to TPG
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10-K/A 1 avaya9-30x201810xka.htm 10-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
Amendment No. 1
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
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For The Fiscal Year Ended September 30, 2018
or
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission File Number 001-38289
AVAYA HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
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Delaware
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26-1119726
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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4655 Great America Parkway
Santa Clara, California
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95054
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(Address of Principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
(908) 953-6000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, Par Value $.01
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes ¨ No ý
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such
files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter)
is not contained herein, and will not be contained, to the best of
the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. ý
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer x
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Smaller Reporting Company ¨
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Emerging growth company ¨
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No ý
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a
court. Yes ý No ¨
The aggregate market value of the registrant's Common Stock held by
non-affiliates on March 29, 2018, the last business day of the registrant's most recently completed
second quarter, was $2,459 million.
As of November 30, 2018, 110,151,240 shares of Common Stock, $.01
par value, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Explanatory Note
Avaya Holdings Corp. (the “Company”) is filing this Amendment No. 1
(this “Amendment”) to its Annual Report on Form 10-K for the fiscal
year ended September 30, 2018 (as amended, the “Fiscal 2018 Form
10-K”), as filed with the Securities and Exchange Commission (the
“SEC”) on December 21, 2018 (the “Original Filing”), solely to
provide the remaining information required by Items 10-14 of Part
III of Form 10-K, as we will not be filing our definitive proxy
statement within 120 days of such fiscal year end. Except as it
relates to the provision of such information, this Amendment does
not reflect subsequent events occurring after the date of the
Original Filing or modify or update in any way disclosures made in
the Fiscal 2018 Form 10-K.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), this Amendment also contains new
certifications of the Company’s principal executive officer and
principal financial officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. Because no financial statements are
included in this Amendment and this Amendment does not contain or
amend any disclosure with respect to Items 307 or 308 of Regulation
S-K promulgated by the SEC under the Exchange Act, paragraphs 3, 4
and 5 of the Section 302 certifications have been omitted. In
addition, because no financial statements are included in this
Amendment, new certifications of the Company’s principal executive
officer and principal financial officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 are not required to be included with
this Amendment.
Except as described above, no other changes have been made to the
Original Filing. The Original Filing continues to speak as of the
date of the Original Filing, and we have not updated the disclosures
contained therein to reflect any events which occurred at a date
subsequent to the filing of the Original Filing other than as
expressly indicated in this Amendment. Among other things,
forward-looking statements made in the Original Filing have not been
revised to reflect events that occurred or facts that became known
to us after the filing of the Original Filing, and such
forward-looking statements should be read in their historical
context. Accordingly, this Amendment should be read in conjunction
with the Original Filing and our other filings made with the SEC on
or subsequent to December 21, 2018. When we use the terms “we,”
“us,” “our,” “Avaya” or the “Company” in this Amendment, we mean
Avaya Holdings Corp., a Delaware corporation, and its consolidated
subsidiaries taken as a whole, unless the context otherwise
indicates. Other defined terms used in this Amendment but not
defined herein shall have the meaning specified for such terms in
the Original Filing.
TABLE OF CONTENTS
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Item
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Description
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Page
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PART III
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10.
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11.
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12.
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13.
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14.
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PART IV
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15.
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PART III
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Item 10.
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Directors, Executive Officers and Corporate
Governance
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The following table identifies our current directors and our
current senior officers who are, as determined from time to time by
our Board of Directors (the “Board”), subject to the provisions of
Section 16 of the Exchange Act (the “Senior Executives” or “Section
16 Officers”), and their ages, in each case as of January 15,
2019.
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Name
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Age
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Position(s)
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William D. Watkins (1)
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66
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Chairman of the Board
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Stephan Scholl (1), (2)
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48
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Director
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Susan L. Spradley (1), (3)
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57
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Director
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Stanley J. Sutula, III (3)
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53
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Director
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Scott D. Vogel (2), (3)
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43
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Director
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James M. Chirico, Jr.
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61
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President, Chief Executive Officer ("CEO") and
Director
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Dino Di Palma
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51
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Senior Vice President, Americas Sales, Strategic
Partners and Global Accounts
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Edward Nalbandian
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58
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Senior Vice President, Services
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Patrick J. O’Malley, III
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56
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Senior Vice President and Chief Financial Officer
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Gaurav Passi
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45
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Senior Vice President, Cloud
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Shefali Shah
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Senior Vice President, Chief Administrative Officer and
General Counsel
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(1)
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Member of the Company's Nominating and Corporate Governance
Committee.
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(2)
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Member of the Company's Compensation Committee.
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(3)
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Member of the Company's Audit Committee.
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Set forth below is biographical information with respect to each of
the aforementioned individuals.
Mr. Watkins joined and became Chair of the Board when the Company
emerged from Bankruptcy on December 15, 2017 (the "Emergence Date").
Mr. Watkins was most recently Chairman and Chief Executive Officer
of Imergy Power Systems, a privately-held energy storage solutions
company, from January 2015 and September 2013, respectively, until
August 2016. Previously, he served as Chairman of the Board at
Bridgelux, Inc., from February 2013 to December 2013 and as its
Chief Executive Officer from 2010 to February 2013. Prior to that,
he served as Chief Executive Officer and a Board Member at Seagate
Technology, a publicly-traded provider of electronic data storage
technologies and systems, from 2004 until 2009, and before that he
was Seagate’s President and Chief Operating Officer. He joined
Seagate in 1996 with the company’s acquisition of Conner
Peripherals. Mr. Watkins currently sits on two public company
boards: FLEX LTD., an electronics design manufacturer, since April
2009; and Maxim Integrated Products, Inc., a manufacturer of linear
and mixed-signal integrated circuits, since August 2008. Mr. Watkins
previously served as a Board Member at Seagate Technology from 2000
until 2009. He was a Non-Executive Director at MEMC Electronic
Materials, Inc. from 2002 until 2004.
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.
Mr. Scholl joined our Board on the Emergence Date. Mr. Scholl is
currently Advisor to the Office of the Chief Executive Officer at
Infor, Inc., a privately-held provider of enterprise software
products and services, a position he has held since July 11, 2018.
Prior to that, from April 2012 until July 11, 2018, he served as
President of Infor, Inc. Previously, from 2011 until 2012, he served
as President and Chief Executive Officer of Lawson Software, Inc. He
helped merge Lawson into Infor in 2012. He joined Infor in 2010 as
Executive Vice President of Global Sales and Consulting. Earlier,
Mr. Scholl held various leadership roles at Oracle Corporation,
including Senior Vice President and General Manager of the Tax and
Utilities Business and before that as Senior Vice President of the
North America Consulting business. He joined Oracle in 2005 with the
company’s acquisition of PeopleSoft.
Mr. Scholl’s experience in the software and services industry,
including with cloud businesses, 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.
1
Ms. Spradley joined our Board on the Emergence Date. Ms. Spradley
is Chief Executive Officer of Motion Intelligence, Inc., a SaaS
company specializing in mobile device location and identification
services, a position she has held since December 2017. She is
also a partner in the Tap Growth Group, a senior executive
consulting firm focused on helping new ventures and Fortune 500
companies drive growth, a position she has held since August 2017.
In addition, Ms. Spradley is the principal of Spradley Consulting
LLC, a consulting firm that she founded in February 2017 that offers
management consulting and leadership and talent coaching.
Previously, she served in senior executive roles at Viavi Solutions
(formerly JDSU), a publicly-traded provider of strategic network
solutions. She was Executive Vice President and General Manager of
Product Line Management and Design from 2015 to January 2017, and
before that she was Senior Vice President and General Manager of the
Communications Test & Measurement Business Unit from 2013 to
2015. From April 2011 to December 2012, Ms. Spradley was the
CEO/Executive Director of US Ignite, a White House and National
Science Foundation initiative focused on applications for smart city
implementation. Prior to serving at US Ignite, Ms. Spradley was
President of the North America region at Nokia Siemens Networks and
an Executive Board Member. She served in a variety of roles at
Nortel before her work at Nokia Siemens Networks, most recently as
President of Global Services. Ms. Spradley currently sits on two
public company boards: Qorvo, a global provider of RF systems and
semiconductor technologies, a position she has held since January
2017, and NetScout Systems, Inc., a leading provider of service
assurance, security and business analytics, a position she has held
since April 2018. Additionally, since 2012 Ms. Spradley has served
as Chairman of the board of directors of US Ignite, a non-profit
organization. From October 2011 until November 2012, she served on
the board of directors of EXFO Inc.
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.
Mr. Sutula joined our Board on the Emergence Date. Mr. Sutula is
currently an Executive Vice President and Chief Financial Officer of
Pitney Bowes Inc., a global technology company offering innovative
products and solutions that helps its clients navigate the complex
world of commerce, and has served in this capacity since February
2017. From January 2015 to January 2017, he was Vice President and
Controller of International Business Machines Corporation (IBM), a
global company that creates value for clients through integrated
solutions and products that leverage data, information technology,
deep expertise in industries and business processes, and a broad
ecosystem of partners and alliances. From January 2014 to January
2015, he served as Vice President and Treasurer of IBM and from May
2008 to January 2014 he served as Vice President - Finance and
Planning (Chief Financial Officer) of IBM’s Global Technology
Services business. From 1988 to 2008, he held a number of positions
at IBM including several leadership positions in the United States
and Europe.
Mr. Sutula’s experience in senior finance positions, including in
roles 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.
Mr. Vogel joined our Board on the Emergence Date. Mr. Vogel is
currently serving as 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 and is currently on the Board of Directors of the following
public companies: Seadrill Ltd. since July 2018, Bonanza Creek
Energy, Inc. since April 2017, Key Energy Services, Inc. since
December 2016 and Arch Coal, Inc. since October 2016. Mr. Vogel is a
member of the Olin Alumni Board of Washington University and a
member of the Advisory Board of Grameen America.
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.
Mr. Chirico has been our President and CEO since October 1, 2017
and a member of our Board since the Emergence Date. Prior to that,
from September 1, 2016 through September 30, 2017, he served as our
Executive Vice President and Chief Operating Officer and was also
named Head of Global Sales in November 2016. Previously he served as
our Executive Vice President, Business Operations and Chief
Restructuring Officer from June 14, 2010 through August 31,
2016. He served as President, Operations from January 2008 until
June 14, 2010 and was appointed Chief Restructuring Officer on
February 3, 2009. Prior to joining Avaya, from February 1998 to
November 2007, Mr. Chirico held various senior management
positions at Seagate Technology, a designer, manufacturer and
marketer of hard disc drives, including Executive Vice President,
Global Disc Storage Operations, from February 2006 until November
2007, and Senior Vice President and General Manager, Asia
Operations, from September 2000 to February 2006. In addition, Mr.
Chirico served on the Board of Directors of Caraustar Industries,
Inc., an integrated manufacturer of 100% recycled paperboard and
converted paperboard products, from 2009 until 2013.
2
Mr. Chirico’s role as CEO, the management perspective he brings to
Board deliberations and his extensive management experience at
Avaya, as well as other companies, led to the conclusion that he
should serve as a director of our Company.
Mr. Di Palma has been our Senior Vice President, Americas Sales,
Strategic Partners & Global Accounts since May 29, 2018.
Previously he served as Chief Revenue Officer of Broadsoft, Inc.,
where he led their global sales operations, from January 2017 until
April 2018. From September 2014 to December 2016, Mr. Di Palma
was the Chief Executive Officer of Benu Networks, Inc., a private
software company. Prior to joining Benu, Mr. Di Palma was the
Chief Operating Officer of Acme Packet, Inc. from 2010 to 2013, and
he also served as Acme Packet’s Senior Vice President of Worldwide
Sales and Business Development from 2001 to 2010. Since January 2012
he also serves as a member of G20 Ventures, which provides early
traction capital for East Coast enterprise technology
startups.
Mr. Nalbandian has been our Senior Vice President, Services since
March 1, 2018. Previously he served as Chief Executive Officer of
Strategic Products and Services (SPS) from September 2016 until
September 2017 and President of Enabling Managed Services, LLC from
September 2014 until September 2016. Prior to that he served as
Avaya’s Vice President of Managed Services from 2008 until 2014.
Early in his career, he ran managed services at IBM and
AT&T.
Mr. O'Malley has been our Senior Vice President and Chief
Financial Officer since October 24, 2017. Previously, from October
2015 to October 2017, he served as Senior Vice President for Seagate Technology PLC with responsibility for overseeing strategic
and operational initiatives. From August 2008 to October 2015, he
served as Seagate’s Executive Vice President and Chief Financial
Officer. From October 2005 to August 2008, he served as Senior Vice
President Finance and Treasurer, responsible for Corporate
Accounting, Reporting, Treasury, Credit and Collections and Risk
Management along with Corporate Financial Planning and Analysis and
support for Seagate’s Business Unit General Managers, Sales and
other functions. From 2004 to 2005, he was Seagate’s Senior Vice
President, Consumer Electronics Business Development. Mr. O'Malley
joined Seagate in 1988 and has held various management roles within
the Finance organization including Manager of Consolidation and Cost
Accounting, Director of Finance - Corporate Financial Planning and
Analysis, Senior Director of Finance for Oklahoma City Operations,
Sr. Director of Finance for Desktop Design, VP of Finance for
Recording Media Operations and Senior Vice President of Finance for
Manufacturing Operations.
Mr. Passi has been our Senior Vice President, Cloud since November
5, 2018. Previously he served as Executive Vice President of
Products and Technology of Five9 Inc., a provider of cloud software
for contact centers, from January 2017 until September 2018. Prior
to that Mr. Passi served as Five9’s Executive Vice President,
Product Management and Application Development from November 2015 to
January 2017, Executive Vice President of Product Management from
January 2015 to November 2015 and Senior Vice President of Product
Management from August 2013 to December 2014. From October 2012 to
August 2013, Mr. Passi served as the Head of Product &
Technology at Deutsche Telekom Hosted Business Services, a provider
of cloud-based business communications solutions. Prior to
that, Mr. Passi worked in several management positions at Amdocs
Inc., Ciena and Rainmaker Systems.
Ms. Shah has been our Senior Vice President, Chief Administrative
Officer and General Counsel since December 18, 2017. Previously
she served as Senior Vice President, General Counsel and Corporate
Secretary of Era Group Inc. from March 2014 until December 2017.
Prior to that Ms. Shah served as Era Group Inc.’s Acting General
Counsel and Corporate Secretary from February 2013 through February
2014. From June 2006 to February 2013, Ms. Shah held several
positions with Comverse Technology, Inc., including Senior Vice
President, General Counsel and Corporate Secretary. Ms. Shah served
on the Board of Directors of Verint Systems Inc. from August 2007
until February 2013. Ms. Shah was an associate at Weil Gotshal &
Manges LLP from September 2002 to May 2006 and Hutchins, Wheeler
& Dittmar, P.C. from September 1996 to September 2002.
Section 16(a) Beneficial Ownership Reporting Compliance
Our officers and directors and persons beneficially holding more
than 10% of the Company’s common stock (“Common Stock”) are required
under the Exchange Act to file reports of ownership and changes in
ownership of our Common Stock and other equity securities with the
SEC. We file these reports of ownership and changes in ownership on
behalf of our officers and directors.
We believe that during the 2018 fiscal year, our directors and
Section 16 Officers complied with all Section 16(a) filing
requirements. In making the above statement, we have relied solely
upon our review of the written representations of our directors and
Section 16 Officers and/or our review of the reports filed for the
2018 fiscal year.
Code of Ethics and Business Conduct
We have a Code of Ethics and Business Conduct that was approved and
adopted by our Board (“Code of Conduct”), representing our
commitment to the highest standards of ethics and integrity in the
conduct of our business. Our Code of Conduct is designed to help
directors and employees worldwide to resolve ethical issues in an
increasingly complex global business environment. The Code of
Conduct applies to all directors and employees, including, without
limitation, the CEO, the Chief Financial 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
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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 policies governed by and
changes to the Code of Conduct. The Code of Conduct is available at
our Investor Relations website located 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 Fiscal 2018 Form 10-K.
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 that website within four business days. During fiscal
2018, 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.
Board Committees
To effectively support its responsibilities, the Board has three
committees: an Audit Committee, a Compensation Committee and a
Nominating and Corporate Governance Committee. Each of these Board
committees is currently comprised 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 SEC. The committee charters may be found 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 Fiscal 2018 Form 10-K. Additional
information about these committees and other corporate governance
matters will be provided in our proxy statement for our 2019
annual meeting of stockholders.
Audit Committee
The Board has a standing Audit Committee, which is currently
comprised of Stanley J. Sutula, III (Committee Chair), Susan L.
Spradley and Scott D. Vogel. Immediately prior to the Emergence
Date, the Audit Committee was comprised of Kiran Patel (Committee
Chair), Mary Henry, Greg Mondre and Ronald A. Rittenmeyer. The Board
has determined that each of Messrs. Sutula and Vogel and Ms.
Spradley is financially literate, able to read and understand
fundamental financial statements, and meets the independence rules
of the NYSE and Rule 10A-3 of the Exchange Act. The Board has also
affirmatively determined that each of Messrs. Sutula and Vogel
qualifies as an audit committee financial expert under the
applicable requirements of the rules and regulations of the
SEC.
Process for Director Nominations
The Nominating and Corporate Governance Committee is responsible
for identifying, evaluating and recommending qualified candidates
for election to the Board. The Nominating and Corporate Governance
Committee will consider director candidates submitted by
stockholders. Any stockholder wishing to submit a candidate for
consideration should send the Corporate Secretary, at 4655 Great
America Parkway, Santa Clara, California 95054, the information
detailed in section 3.2 of our bylaws, which includes, among other
things, the following:
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Stockholder’s name, address, number of Common Shares
(including any derivative interest related to Company shares
and/or any short position in the Company’s securities) owned
by the stockholder and any person controlling, or acting in
concert with, that stockholder, any proxy, contract or other
arrangement pursuant to which such stockholder or any person
controlling, or acting in concert with, that stockholder,
has a right to vote any Common Shares;
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Candidate’s name, age, business address, residence address
and number of Common Shares (including any derivative
interest related to Company shares and/or any short position
in the Company’s securities) owned by the candidate;
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A detailed resume describing, among other things, the
candidate’s educational background, occupation, employment
history and material outside commitments (e.g., memberships
on other boards and committees, charitable foundations,
etc.);
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A supporting statement which describes the candidate’s
reasons for seeking election to the Board, and documents the
candidate’s ability to satisfy the director qualifications
criteria; and
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A description of any arrangements or understandings between
or among the stockholder, the candidate and/or any person
controlling, or acting in concert with, that
stockholder.
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The Corporate Secretary will promptly forward such materials to the
Chair of the Nominating and Corporate Governance Committee and the
Chairman of the Board. The Corporate Secretary also will keep copies
of such materials for future reference by the Nominating and
Corporate Governance Committee when filling Board positions.
Under its charter, the Nominating and Corporate Governance
Committee must review with the Board, at least annually, the
requisite qualifications, independence, skills and characteristics
of Board candidates, members and the Board as a whole. When
assessing potential new directors, the Nominating and Corporate
Governance Committee considers individuals from various and diverse
backgrounds.
4
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Item 11.
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Executive Compensation
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COMPENSATION DISCUSSION AND ANALYSIS
Overview
Fiscal 2018 was a year of transition for our Company. On January
19, 2017, we filed voluntary petitions for relief under Chapter 11
of the United States Bankruptcy Code (“Chapter 11”), and,
on December 15, 2017 (the "Emergence Date"), we
successfully emerged from Chapter 11 as a restructured
company.
During the Chapter 11 proceedings, the compensation committee of
our Board (the “Predecessor Compensation Committee”), comprised of
John W. Marren (Committee Chair), Charles H. Giancarlo and Gary B.
Smith, oversaw our executive compensation programs. During this
time, the Predecessor Compensation Committee implemented executive
compensation decisions with our major creditors and, where required,
with the approval of the Chapter 11 bankruptcy court (the
“Bankruptcy Court”).
The Company emerged from Chapter 11 with a newly established Board
determined to lead our Company to a successful future and profitable
growth. Following the Emergence Date, a new compensation committee
of the Board was formed (the “Compensation Committee”), comprised of
Scott D. Vogel (Committee Chair), Stephan Scholl and Ronald A.
Rittenmeyer (who served through his resignation from the Board,
effective April 30, 2018).
As we stabilized our business following the Emergence Date and
built the momentum and foundation to grow the business in fiscal
2019, the Compensation Committee also transitioned our executive
compensation program. As described below, the Compensation Committee
made changes to the program following the Emergence Date that
reflect our industry fundamentals, operating environment and
results, enhance the incentive and retentive elements of the
program, and create greater alignment with best practices and
stockholders’ interests.
Fiscal 2018 Business Highlights
Fiscal 2018 marked a year of both considerable change and
significant accomplishments for Avaya. Avaya emerged from
Chapter 11 on the Emergence Date and listed on the New York Stock
Exchange on January 17, 2018. Annual revenue was $3,057 million
and we maintained our industry-leading business model, with record
gross margin of 62.3% and Adjusted EBITDA* margin of 24.4%. In
addition, the Company achieved each of its following strategic
priorities:
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1.
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We continued our transformation into a software and services company, with over 57%
of our revenues being recurring and deriving over 82% of our
revenues from software and services, an annual
record. In addition, we achieved traction in our
transformation to a cloud company with 11% of our revenues
derived from cloud solutions and services and achieving 300%
public seat cloud growth during fiscal 2018.
|
|
2.
|
We built momentum by stabilizing quarterly revenues, reversing a
ten-year trend of high single digit declines and ended
fiscal 2018 with over $2.4 billion in total contract value,
the highest level in two years.
|
|
3.
|
We played offense by adding over 7,000 new logos, signing over 440
deals valued over $1 million, 55 deals valued over $5
million and 15 deals valued over $10 million, and launching
120 new products that account for over 33% of our fiscal
2018 product revenue.
|
|
4.
|
We invested in technology and people through a number of initiatives, including acquiring
Intellisist, Inc. (d/b/a Spoken Communications),
establishing an innovation incubator and recruiting to
strengthen our management team. Gartner recognized our
commitment to innovation and ability to execute by returning
us to a leadership position in Gartner’s Magic Quadrants for
Contact Center and Unified Communications.
|
|
5.
|
We enhanced our financial flexibility by reducing our annual interest obligations with the
repricing of our outstanding indebtedness, strengthening our
balance sheet and enhancing our liquidity with our
convertible note offering and maintaining our
industry-leading business model. We ended fiscal 2018
with over $700 million of cash on our balance sheet.
We further leveraged our financial flexibility by making
strategic investments to further strengthen our foundation
for growth.
|
*Adjusted EBITDA is a financial performance metric that is 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" at the end of Item 11 of this Fiscal 2018 Form 10-K for
additional discussion of non-GAAP financial measures and a
reconciliation to the most directly comparable GAAP measure. In
addition, for purposes of the EAIP metrics, Adjusted EBITDA is
measured pre-funding of the AIP.
5
Fiscal 2018 Named Executive Officers
This Compensation Discussion and Analysis (the “CD&A”) explains
the key elements of the compensation of our Company’s named
executive officers (“NEOs”) and describes the objectives and
principles underlying our Company’s executive compensation program
for fiscal 2018. For fiscal 2018, our NEOs were:
|
Name
|
|
Title as of September 30, 2018
|
|
James M. Chirico, Jr.
|
President and Chief Executive Officer ("CEO")
|
|
|
Patrick J. O’Malley, III
|
|
Senior Vice President and Chief Financial Officer
|
|
Shefali Shah
|
Senior Vice President, General Counsel and Chief
Administrative Officer
|
|
|
Edward Nalbandian
|
|
Senior Vice President, Services
|
|
Dino Di Palma
|
|
Senior Vice President, Americas Sales, Strategic
Partners and Global Accounts
|
|
William Mercer Rowe (1)
|
Former Senior Vice President, Cloud
|
|
|
Jaroslaw Glembocki (2)
|
Former Senior Vice President, Operations
|
|
|
David Vellequette (3)
|
|
Former Senior Vice President and Chief Financial
Officer
|
|
(1)
|
Mr. Rowe’s employment with the Company terminated
effective September 12, 2018.
|
|
(2)
|
Mr. Glembocki’s employment with the Company terminated
effective June 30, 2018
|
|
(3)
|
Mr. Vellequette’s employment with the Company terminated
effective January 4, 2018. On October 1, 2012, Mr.
Vellequette served as our Senior Vice President, Chief
Financial Officer, and continued in that role until October
23, 2017, at which time he ceased being an executive
officer. From October 24, 2017 to his termination date, he
served as our Senior Vice President of Finance.
|
Compensation Decisions
It is important to understand the distinction between the
compensation decisions made by a combination of our Predecessor
Compensation Committee, our major creditors and, in certain
circumstances, the Bankruptcy Court during our Chapter 11 proceeding
and the enhancements approved by the Compensation Committee
following the Emergence Date. The chart below summarizes the major
fiscal 2018 executive compensation elements designed or implemented
during the tenure of each of the Predecessor Compensation Committee
and the Compensation Committee:
|
Predecessor Compensation Committee Tenure
|
Compensation Committee Tenure
|
|
|
Base Salaries
|
For each NEO employed or offered employment prior to
the Emergence Date (the “Emergence NEOs”)(1)
|
For each NEO other than the Emergence NEOs(2)
|
|
Bonuses
|
Sign-on bonuses, target bonus levels and fiscal 2018
target bonus guarantees for each newly-hired or promoted
Emergence NEO
|
One-time cash bonus awards to certain NEOs for their
extraordinary efforts in connection with our emergence
from Chapter 11
Target bonus levels and guaranteed fiscal 2018 bonuses
for NEOs other than Emergence NEOs
Fiscal 2018 Executive Annual Incentive Plan (“EAIP”)
establishing financial performance objectives for
payments thereunder
Fiscal 2018 bonuses paid to each NEO under the
EAIP
|
|
Incentive Equity
|
Cancelled equity awards granted prior to the Chapter 11
proceedings without consideration
Avaya Holdings Corp. 2017 Equity Incentive Plan (“2017
Equity Incentive Plan”), the pool available for the
Emergence Equity Awards and the terms and conditions of
the equity awards upon emergence from Chapter 11
Emergence Equity Award commitments for the Emergence
NEOs
|
Emergence Equity Awards to the Emergence NEOs
consistent with the commitments included as part of
their employment terms and to other employees
recommended by management
Inducement incentive equity awards for new hires,
including NEOs other than the Emergence NEOs
Revised the terms and conditions of the equity award
agreements to eliminate accelerated vesting upon
termination without cause in May 2018 for future
grants
|
6
|
(cont'd)
|
Predecessor Compensation Committee Tenure
|
Compensation Committee Tenure
|
|
Employment Agreement
|
Employment agreement with President and CEO (“Executive
Employment Agreement”)
|
None
|
|
Severance Terms
|
All previous severance plans and change in control
agreements applicable to NEOs terminated through
bankruptcy proceedings
|
Involuntary Separation Plan for Senior Executives
(“Separation Plan”) and the Change in Control Severance
Plan (“CIC Plan”)
|
|
(1)
|
Includes Messrs. Chirico, O’Malley, Glembocki and Rowe and
Ms. Shah
|
|
(2)
|
Includes Messrs. Nalbandian and Di Palma
|
Key Elements of Our Executive Compensation Programs
Base Salaries
Fiscal 2018 base salaries for the Emergence NEOs were established
during the tenure of the Prior Compensation Committee prior to the
Emergence Date. With respect to continuing NEOs, there was an
increase to Mr. Chirico’s base salary to $1,250,000 from $750,000
effective with his being named our President and CEO, an increase to
Mr. Glembocki’s base salary to $500,000 from $425,000 to better
align with market positioning and enhance internal equitability, and
no change to Mr. Vellequette’s base salary.
Following the Emergence Date, the fiscal 2018 base salaries for
each of Messrs. Nalbandian and Di Palma were established as part of
their employment offers upon joining the Company and Mr. Di Palma's
base salary was subsequently adjusted to $500,000 from $400,000 to
recognize his assumption of increased responsibilities after joining
the Company.
The fiscal 2018 base salaries for the NEOs are set forth
below:
|
Named Executive Officer
|
Fiscal 2018 Hire Dates
|
Fiscal 2018 Base Salary ($)
|
|||
|
James M. Chirico, Jr.
|
1,250,000
|
|
|||
|
Patrick J. O’Malley, III
|
|
October 23, 2017
|
650,000
|
|
|
|
Shefali Shah
|
December 18, 2017
|
600,000
|
|
||
|
Edward Nalbandian
|
|
March 1, 2018
|
500,000
|
|
|
|
Dino Di Palma (1)
|
|
May 29, 2018
|
500,000
|
|
|
|
William Mercer Rowe
|
December 18, 2017
|
600,000
|
|
||
|
Jaroslaw Glembocki
|
500,000
|
|
|||
|
David Vellequette
|
|
650,000
|
|
||
|
(1)
|
Mr. Di Palma’s base salary was increased from $400,000 to
$500,000 in August 2018 in connection with his assumption of
increased responsibilities.
|
Short-Term Incentives & Other Bonuses
Sign-On Bonuses
Under the terms of his Executive Employment Agreement that was
negotiated among certain Company creditors, the Company and Mr.
Chirico and approved by the Bankruptcy Court, Mr. Chirico was
entitled to a sign-on bonus in connection with his promotion to
President and CEO. Each newly-hired NEO also was entitled to a
sign-on bonus as described in greater detail in the footnotes to the
Summary Compensation Table.
All sign-on bonuses were paid in fiscal 2018. Other than with
respect to the CEO, the sign-on bonuses were made subject to
clawback upon voluntary termination or termination for cause within
one year following the executive’s hire date. Under the CEO’s
Executive Employment Agreement, the sign-on bonus clawback lapses on
October 1, 2019.
One-Time Emergence Bonus Awards
As noted above, the Company successfully emerged from Chapter 11
proceedings within a single calendar year. The Company’s size,
global operations and numerous stakeholders resulted in a relatively
complex restructuring in Chapter 11. The Company’s timely emergence
from Chapter 11 was primarily driven by the extraordinary efforts of
our employees. Following the Emergence Date, the Compensation
Committee approved one-time cash bonus awards to the following NEOs
as recognition for their extraordinary contributions to this
success: $250,000 to Mr. Chirico, $25,000 to Mr. O’Malley and
$20,000 to Mr. Glembocki.
7
Annual Incentive Plan
The Company’s updated fiscal 2018 financial plans were approved by
the Board in March 2018 and served as the basis for the EAIP, our
annual cash incentive plan, as approved by the Compensation
Committee. The EAIP was designed to reward our NEOs for stabilizing
revenue while maintaining profitability with performance measured
against equally weighted goals for revenue and Adjusted EBITDA, as
described in the Reconciliation of GAAP to non-GAAP (Adjusted)
Financial Measures at the end of Item 11 of this Fiscal 2018 Form
10-K.
Pursuant to the terms of the CEO’s Executive Employment Agreement,
Mr. Chirico's fiscal 2018 target bonus opportunity under EAIP was
200% of base salary, and his maximum opportunity was 125% of target,
or 250% of base salary. The fiscal 2018 target bonus opportunities
for the other NEOs were 100% of base salary and maximum
opportunities were 200% of target, or 200% of salary.
The CEO’s Executive Employment Agreement and the employment terms
for the other NEOs (other than Mr. Vellequette) included guaranteed
payment of 100% of target weighted for each financial metric to
encourage retention and provide a level of certainty during what was
expected to be a year of transition following emergence from Chapter
11. There are no guarantees with respect to bonuses to continuing
NEOs for fiscal 2019. The Company does not intend to provide
guaranteed bonuses in the future, except in extraordinary
circumstances.
The Company’s fiscal 2018 revenue performance supported payments at
the maximum level for that metric under the EAIP. Primarily as a
result of the strategic investments made in fiscal 2018 noted above
that are expected to further enhance the Company’s future growth and
success, the Company’s Adjusted EBITDA level did not achieve the
threshold for payout against that metric. All awards are pro-rated
based on number of days each NEO was employed by the Company.
Summarized in the table below are the weightings and actual results
for each performance metric:
|
Performance Metric
|
Weighting
|
Threshold ($M)
|
Target ($M)
|
Maximum ($M)
|
Fiscal 2018 Results ($M)
|
Achievement
(% of Weighted Target) |
||||||
|
Pre-AIP Adjusted EBITDA
|
50.0
|
%
|
814
|
|
814
|
|
867
|
|
779
|
|
0
|
%
|
|
Revenue
|
50.0
|
%
|
2,950
|
|
2,950
|
|
3,050
|
|
3,049.5
|
|
200
|
%
|
Each NEO received payment of 50% of such NEO’s fiscal 2018
guaranteed bonus amount in May 2018 and the remaining 50% of the
fiscal guaranteed bonus amount and the additional amounts payable
with respect to revenue overachievement as set forth below will be
paid in January 2019. For fiscal 2019, NEO bonuses will be
determined based on an EAIP described in greater detail below and
will be paid annually.
|
Named Executive Officer
|
Annual
Base ($) |
Target Incentive
(%) |
Annual Target Incentive ($)
|
FY18 Guaranteed Incentive Award ($)
|
Additional Payment: Revenue Metric ($)
|
Total
FY18 EAIP Award ($) |
||||||
|
James M. Chirico, Jr
|
1,250,000
|
|
200%
|
2,500,000
|
|
2,500,000
|
|
312,500
|
|
2,812,500
|
|
|
|
Patrick J. O'Malley III
|
650,000
|
|
100%
|
650,000
|
|
650,000
|
|
304,521
|
|
954,521
|
|
|
|
Shefali Shah
|
600,000
|
|
100%
|
600,000
|
|
600,000
|
|
235,068
|
|
835,068
|
|
|
|
Edward Nalbandian
|
500,000
|
|
100%
|
500,000
|
|
291,667
|
|
85,103
|
|
376,770
|
|
|
|
Dino Di Palma
|
500,000
|
|
100%
|
500,000
|
|
158,333
|
|
26,895
|
|
185,228
|
|
|
Equity Awards
Cancellation of pre-Emergence Equity Awards
All outstanding equity awards held by our NEOs that were granted
prior to January 15, 2017 were cancelled without payment effective
upon the Emergence Date.
Incentive Equity Awards
Emergence Equity Awards, consisting of restricted stock units
(“RSUs”) and non-qualified options, were made under the 2017 Equity
Incentive Plan to selected employees including the Emergence NEOs.
In addition, RSUs and options were granted to other NEOs who joined
the Company following the Emergence Date. Each of these equity
awards generally vest as to one-third of the underlying shares on
the first anniversary of the grant date and then in equal, quarterly
increments over the next two years, subject to continued
employment.
These awards were inducements to retain existing executives and to
recruit new hires during our first year of transition following
emergence from Chapter 11. The structure, terms and grant date value
of the awards made to the NEOs in fiscal 2018 are not indicative of
the expected structure, terms and grant date value of such awards to
be made as part of our ongoing annual
8
compensation program. In May 2018, the Compensation Committee
revised the terms and conditions of the form of equity award
agreements to be utilized for future awards to eliminate any
accelerated vesting of such awards upon a termination of employment
that does not occur in connection with a Change in Control (“CIC”)
transaction. As described below, the fiscal 2019 awards are expected
to consist of a mix of time-based and performance-based RSUs for
NEOs. The grant date value of future awards is generally expected to
be in line with annual equity award values made by our Compensation
Peer Group.
Fiscal 2019 Compensation Actions
The Compensation Committee approved the fiscal 2019 executive
compensation structure for the NEOs in the first quarter of fiscal
2019. There were no changes made to the fiscal 2019 base salaries or
target bonus opportunities for the NEOs.
Consistent with the Company’s key objective of achieving revenue
growth in fiscal 2019, the Compensation Committee approved a fiscal
2019 EAIP with funding determined by fiscal 2019 revenue against
established threshold, target and maximum levels; and further
subject to achievement of a minimum level of Adjusted EBITDA. The
CEO’s award under the fiscal 2019 EAIP will be based solely on
financial performance. Awards will be allocated to the other NEOs
based 80% on financial performance results and 20% on achievement of
individual performance objectives (MBOs), as determined by the
Compensation Committee.
The Compensation Committee is still in the process of finalizing
the first regular annual post-emergence equity grants for fiscal
2019. At this time, no formal decisions have been made with respect
to such RSU grants, other than that at least half of each NEO’s
regular annual grant value will consist of performance-based
awards.
Determination of NEO Compensation
Our executive compensation principles reflect the following core
beliefs:
|
•
|
Pay-for-performance
|
|
•
|
Annual incentives tied to the successful achievement
of challenging pre-established financial and
non-financial operating goals that support our annual
business plans
|
|
•
|
Long-term incentives that provide opportunities for
executives to earn equity compensation for multi-year
employment retention and achieving challenging financial and
strategic goals that drive our longer-term stockholder
value, while aligning the interests of senior executives
with stockholders through Company ownership.
|
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. After the Emergence Date, the
Compensation Committee responsibilities are set forth in its
charter, including:
|
•
|
Developing our executive compensation philosophy
|
|
•
|
Approving base salaries, short and long-term programs and
opportunities for senior executives
|
|
•
|
Assessing performance and approving earned incentives for
senior executives
|
|
•
|
Approving long-term incentive grants, including performance
goals and award terms
|
|
•
|
Approving severance programs for senior executives and
executive participation
|
|
•
|
Approving policies and practices that mitigate
compensation-related risks to the Company.
|
Management
The 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. The CEO does not provide
input regarding his own compensation. Our human resources team also
supports the Compensation Committee in the design, implementation
and administration of our compensation program.
Independent Compensation Consultants
Pursuant to its charter, the Compensation Committee may, in its
sole discretion, retain or obtain the advice of a compensation
consultant, legal counsel or other advisor and is directly
responsible for the appointment, compensation arrangements and
oversight of the work of any such person. Any such engagement may
only be made after taking into consideration of all factors relevant
to that person’s independence from management and the Company. For
fiscal 2018, the Compensation Committee engaged an independent
compensation consultant, Frederic W. Cook & Co., Inc. (“FW
Cook”), after assessing its independence in accordance with
applicable NYSE rules. FW Cook does not provide any other services
to us and its work in support of the
9
Compensation Committee did not raise any conflicts of interest or
independence concerns. FW Cook provides the Compensation Committee
with competitive market data, assistance on evaluation of the peer
group composition, input to incentive program design and information
on relevant market trends.
Competitive Market Information
Talent for senior-level management positions and key roles in the
organization can be acquired across a spectrum of high-tech and
software companies. As such, we utilize competitive compensation
information from both high-tech and software company compensation
surveys, as well as from a group of companies of similar size and/or
complexity (the “Compensation Peer Group”), in the following
ways:
|
•
|
As an input in developing base-salary ranges, short- and
long-term equity award ranges
|
|
•
|
To evaluate share utilization by reviewing overhang levels
and annual run rates
|
|
•
|
To evaluate the form and mix of equity awarded to
NEOs
|
|
•
|
To evaluate share ownership guidelines
|
|
•
|
To assess the competitiveness of total direct compensation
awarded to NEOs
|
|
•
|
As an input in designing compensation plans, benefits and
perquisites.
|
In addition to the Compensation Peer Group, the Compensation
Committee also reviews pay data from the Radford Global Compensation
Survey, with a focus on technology companies of a comparable revenue
size to our Company. The survey data provides a significant sample
size, includes information for management positions below senior
executives, and is used to supplement the pay data from the
Compensation Peer Group. While the Compensation Committee examines
executive compensation data from surveys and the Compensation Peer
Group, competitive compensation information is not the sole factor
in its decision-making process.
Compensation Peer Group
The Compensation Peer Group for the first half of fiscal 2018 was
approved by the Predecessor Compensation Committee in August 2017
and used during Chapter 11 in conjunction with employment offers
made to incoming NEOs. In May 2018, the Compensation Committee
conducted an assessment of our Compensation Peer Group with guidance
from FW Cook. For fiscal 2019, due to size, Adobe, Intuit and VMware
were removed and BlackBerry, LogMeln, NCR and Verint Systems were
added. The revised Peer Group of 16 companies was used in the second
half of fiscal 2018 and will be used in fiscal 2019.
The following table shows the chronology of these peer group
changes:
|
First half fiscal 2018
Compensation Peer
Group (n=15)(1)
|
Peers Removed
in May 2018 (n=3)
|
Fiscal 2019 Compensation Peer
Group (n=16)
|
||||||
|
Adobe Systems
|
|
Adobe Systems
|
|
Akamai Technologies, Inc.
|
||||
|
Akamai Technologies
|
Intuit
|
Autodesk, Inc.
|
||||||
|
Autodesk, Inc.
|
VMware
|
BlackBerry
|
||||||
|
CA, Inc.
|
CA, Inc.
|
|||||||
|
Citrix Systems, Inc.
|
Citrix Systems, Inc.
|
|||||||
|
Intuit
|
Peers Added in May 2018 (n=4)
|
Juniper Networks, Inc.
|
||||||
|
Juniper Networks, Inc.
|
LogMeIn
|
|||||||
|
NetApp, Inc.
|
NCR
|
|||||||
|
Nuance Communications
|
BlackBerry
|
NetApp, Inc.
|
||||||
|
Open Text Corp.
|
LogMeln
|
Nuance Communications
|
||||||
|
Red Hat, Inc.
|
NCR
|
Open Text Corp.
|
||||||
|
Symantec Corp.
|
Verint Systems
|
Red Hat, Inc.
|
||||||
|
Synopsys, Inc.
|
Symantec Corp.
|
|||||||
|
Teradata Corp.
|
Synopsys, Inc.
|
|||||||
|
VMware
|
Teradata Corp.
|
|||||||
|
VMware
|
||||||||
(1) The fiscal 2018 peer group was approved by the Predecessor
Committee in August 2017 and used until May 2018
10
Fiscal 2018 Executive Compensation Policies and Practices
The executive compensation program is governed by the Compensation
Committee with the support of Company management and the independent
compensation consultant. The following are characteristics of the
program that demonstrate strong governance of the program:
|
Executive Compensation Practices
|
||||||
|
What We Do
|
What We Don’t Do
|
|||||
|
+
|
We Do have a pay-for-performance philosophy,
which ties compensation to the creation of stockholder
value
|
-
|
We Don’t allow discounting, reloading or repricing of
stock options without stockholder approval
|
|||
|
+
|
We Do use multiple performance metrics for annual
compensation programs
|
-
|
We Don’t have “single trigger” vesting of outstanding
equity-based awards based solely on a CIC
|
|||
|
+
|
We Do use an independent compensation consultant
|
-
|
We Don’t maintain compensation policies or practices that
encourage unreasonable risk taking
|
|||
|
+
|
We Do have reasonable severance and CIC protections
that require involuntary termination
|
-
|
We Don’t have employment agreements with our NEOs other
than the CEO
|
|||
|
+
|
We Do have a clawback policy and policies prohibiting
hedging/pledging of the Company’s stock
|
-
|
We Don’t have excessive perquisites
|
|||
|
+
|
We Do have robust stock ownership guidelines for our
NEOs
|
|||||
Other Benefits
Our NEOs are eligible to participate in benefit plans of the
Company that are made available to the Company’s employees
generally, including a 401(k) plan. Under the 401(k) plan for 2018,
beginning with the second quarter of fiscal 2018, the Company
matched 50% of employee contributions up to 5% of eligible pay. In
2017, including the first quarter of fiscal 2018, the previous match
metrics for the 401(k) plan were not met, and no match funding was
contributed.
Perquisites
The Company does not grant perquisites to the NEOs that are
different from the perquisites available to all Company employees
generally, other than a $15,000 stipend paid to each NEO annually
($20,000 paid to the CEO) to offset financial counseling fees
incurred by such NEO. We believe the benefits we receive from
providing this perquisite significantly outweighs its cost.
Commencing with the January 2019 calendar year, NEOs will be
entitled to participate in an executive physical program to ensure
management team continuity and planning.
Share Ownership Guidelines
Following the Emergence Date, the Compensation Committee approved
share ownership guidelines for our NEOs, which are designed to align
their long-term financial interests with those of our stockholders.
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
|
|
11
If a NEO does not meet his or her ownership guideline, such NEO
must retain at least 50% of the net shares received as the result of
the exercise, vesting or payment of any equity award after any
selling or withholding of stock to pay taxes associated with vesting
until the ownership guideline is met. As of the date of this filing,
all currently employed NEOs comply with these ownership guidelines.
The Compensation Committee is responsible for the administration of
the Stock 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 our directors, executive
officers, including our NEOs, and certain non-executives designated
by our General Counsel, from entering into hedging transactions
involving our stock, and from holding our stock in a margin account
as collateral for a margin loan or otherwise pledging our stock as
collateral for a loan.
Clawback Policy
The Board has adopted a compensation recoupment policy that
provides the Board discretion to recover incentive compensation paid
to current and former executives in the event of an accounting
restatement triggered by our material noncompliance with any
financial reporting requirement under the securities laws.
Executive Severance Plans
Each of the CIC Plan and the Separation Plan, approved by the
Compensation Committee in fiscal 2018, are intended to provide
transitional assistance to certain senior executives whose
employment is involuntarily terminated by us (as described in more
detail in the applicable plan). All currently employed NEOs other
than our CEO are participants in the CIC Plan and the Separation
Plan. The CEO’s Executive Employment Agreement contains change in
control provisions described later in this CD&A.
The following table highlights the key plan provisions (certain
terms used in the following table are defined in the respective
plan):
|
Element
|
CEO Employment Agreement (CIC Related)
|
CEO Employment Agreement (Non-CIC Related)
|
CIC Plan Provisions
|
Separation Plan Provisions
|
|
Cash Severance
(multiple of sum of base salary and target bonus
opportunity)
|
3.0x
|
2.0x
|
1.5x
|
1.0x
|
|
In-cycle bonus
|
Pro-rata target bonus
|
None
|
Pro-rata target bonus
|
None
|
|
Benefits Continuation
|
18 months
|
18 months
|
18 months
|
12 months
|
|
Equity acceleration
|
Full vesting upon qualifying termination in connection
with a CIC (double trigger)
|
Acceleration pursuant to the applicable award
agreement(s), as described below
|
Full vesting upon qualifying termination
in connection with a CIC (double trigger)
|
Acceleration pursuant to the applicable award
agreement(s)
as described below
New award agreements have been approved that eliminate
acceleration provisions
|
The CIC benefits provided in the Executive Employment Agreement
provide for a potential gross-up payment in connection with any
excise taxes that are imposed under Section 280G/Section 4999 of the
Code (referred to as the “Section 280G gross-up”). The Section
280G/Section 4999 excise tax may be assessed by the Internal Revenue
Service in connection with certain “excess parachute payments” that
become payable in connection with a CIC. Given the variability of
the calculations involved, the amount of any tax imposed will vary
depending on factors such tenure with the Company and
vesting/exercise of equity awards.
The Section 280G gross-up was negotiated between Mr. Chirico and
our major creditors in connection with the Chapter 11 proceedings
and reflects the unique circumstances of the Company’s retention
concerns during that time. The Company has not
12
provided for Section 280G gross-up payments for any other NEOs and
does not intend to provide for any similar provisions in the
future.
Treatment of Equity Awards upon Certain Terminations of
Employment
Mr. Chirico
The award agreements applicable to Mr. Chirico’s emergence award
RSUs and stock options, which were negotiated among certain Company
creditors, the Company and Mr. Chirico and approved by the
Bankruptcy Court, provide for the accelerated vesting of 75% of the
outstanding and unvested awards as of the date of his termination of
employment, in the event he is terminated without “cause”, upon
death or disability, or if he resigns for “good reason” (an “Equity
Award Qualifying Termination”), in each case, on or prior to
December 15, 2018. If any such termination occurs following December
15, 2018, Mr. Chirico will vest in either: (i) an additional portion
of the awards such that 75% of the total number of awards granted
under the applicable award agreement become vested, or (ii) a
pro-rata portion of the then-current vesting tranche of the awards
(as provided for under the original vesting schedule), based on the
number of days of his employment from the most recent vesting date
prior to the date of his termination until the next vesting date
following the date of such termination, plus the awards that would
have vested pursuant to the original vesting schedule in the first
twelve (12) months immediately following the date of such
termination, whichever of (i) or (ii) results in greater total
vesting.
As described in the chart above, if Mr. Chirico is terminated in
one of the foregoing circumstances in connection with a change in
control, all of his outstanding equity awards will vest.
Other NEOs
Pursuant to the award agreements applicable to their emergence
award RSUs and stock options, upon an Equity Award Qualifying
Termination, the emergence awards held by Mr. O’Malley and Ms. Shah
will vest as to the number of awards that would have otherwise
vested in the 12 months following the termination date had he or she
not been terminated.
Pursuant to the award agreements applicable to his RSUs and stock
options, upon an Equity Award Qualifying Termination, the emergence
awards held by Mr. Nalbandian will vest only to the extent the CEO
determines to vest the balance of the outstanding and unvested
awards held as of the termination date, which determination may be
made following the NEO’s termination of employment and in
consultation with the Board.
With respect to outstanding equity awards that were not granted as
part of the NEOs’ emergence awards, such as those for Mr. Di Palma,
upon any termination of employment (other than certain terminations
of employment in connection with a CIC as described elsewhere in
this CD&A), all unvested equity awards held by the NEO as of the
applicable termination date will be forfeited.
Deductibility of Compensation Expenses
Under Section 162(m) of the Internal Revenue Code (“Code”),
certain compensation paid to a publicly-held company’s “covered
employees” (as defined in Section 162(m) of the Code) that exceeds
$1 million is generally not tax deductible. Historically,
compensation that qualified as “performance-based compensation”
under Section 162(m) of the Code could be excluded from this
$1 million deduction limit, but this exception was repealed
pursuant to the Tax Cuts and Jobs Act, effective for taxable years
beginning after December 31, 2017 (although transition relief
may be available for certain non-binding contracts in place as of
November 2, 2017).
In the past, both the Predecessor Compensation Committee and the
Compensation Committee considered the impact of Section 162(m)
of the Code when designing and implementing incentive compensation
plans. However, the Predecessor Compensation Committee believed, and
the Compensation Committee believes, that the deductibility of
compensation should not govern the design features of our executive
compensation arrangements. As a result, certain compensation that is
paid to our “covered employees” (as defined under Section 162(m))
exceeding $1 million is not expected to be deductible for federal
income tax purposes.
RISK ASSESSMENT IN COMPENSATION PROGRAMS
The Compensation Committee periodically reviews our compensation
programs for features that might encourage inappropriate
risk-taking. The programs are designed with features that mitigate
risk without diminishing the incentive nature of the compensation.
We believe our compensation programs encourage and reward prudent
business judgment without encouraging undue risk.
In August 2018, management conducted, and the Compensation
Committee reviewed, a comprehensive global risk assessment of our
compensation policies and practices. The risk assessment included a
global inventory of incentive plans and programs and considered
factors such as the plan metrics, number of participants, maximum
payments and risk mitigation factors. Based on the review, the
Compensation Committee believes our compensation policies and
practices do not create risks that are reasonably likely to have a
material adverse effect on the Company.
13
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the CD&A
above with management. Based on such review and discussion, the
Compensation Committee has recommended to the Board that the
CD&A be included in this Annual Report on Form 10-K/A for
the fiscal year ended September 30, 2018.
MEMBERS OF THE COMPENSATION COMMITTEE:
Scott Vogel, Chair
Stephan Scholl
14
EXECUTIVE COMPENSATION TABLES
Fiscal 2018 Summary Compensation Table
|
Name
|
Year
|
Salary
($)(1)
|
Bonus
($)(2)
|
Stock Awards
($)(3)
|
Option Awards
($)(3)
|
Non-Equity Incent. Plan Comp.
($)(4)
|
All Other Comp.
($)(5)
|
Total
($)
|
|||||||
|
James M. Chirico, Jr. President and Chief Executive
Officer
|
2018
|
1,250,000
|
|
5,250,000
|
|
22,147,896
|
|
3,866,629
|
|
312,500
|
|
44,875
|
|
32,871,900
|
|
|
2017
|
750,000
|
|
1,651,363
|
|
33,383
|
|
2,434,746
|
|
|||||||
|
2016
|
708,654
|
|
2,500,000
|
|
1,945,314
|
|
23,817
|
|
5,177,785
|
|
|||||
|
Patrick J. O'Malley III SVP and Chief Financial
Officer
|
2018
|
611,632
|
|
975,000
|
|
3,691,324
|
|
644,442
|
|
304,521
|
|
32,280
|
|
6,259,199
|
|
|
Shefali Shah SVP, General Counsel and CAO
|
2018
|
473,810
|
|
1,100,000
|
|
1,845,654
|
|
322,221
|
|
235,068
|
|
25,080
|
|
4,001,833
|
|
|
Edward Nalbandian SVP Services
|
2018
|
291,667
|
|
591,667
|
|
1,823,250
|
|
298,200
|
|
85,103
|
|
12,178
|
|
3,102,065
|
|
|
Dino Di Palma SVP Americas Sales, Strategic Partners
and Global Accounts
|
2018
|
162,500
|
|
358,333
|
|
1,925,905
|
|
230,790
|
|
26,895
|
|
5,945
|
|
2,710,368
|
|
|
William Mercer Rowe Former SVP Cloud
|
2018
|
445,015
|
|
1,100,000
|
|
1,845,654
|
|
322,221
|
|
—
|
|
1,225,955
|
|
4,938,845
|
|
|
Jaroslaw Glembocki Former SVP Operations
|
2018
|
375,000
|
|
270,000
|
|
1,661,096
|
|
290,001
|
|
—
|
|
1,281,160
|
|
3,877,257
|
|
|
David Vellequette Former SVP and Chief Financial
Officer
|
2018
|
169,901
|
|
216,450
|
|
672,945
|
|
1,059,296
|
|
||||||
|
2017
|
650,000
|
|
1,478,211
|
|
38,016
|
|
2,166,227
|
|
|||||||
|
2016
|
640,865
|
|
1,550,000
|
|
1,807,814
|
|
26,056
|
|
4,024,735
|
|
|||||
|
(1)
|
Amounts shown for fiscal 2016 for Messrs. Chirico and
Vellequette reflect the impact of participation in the
Company’s mandatory two-week furlough program in the fourth
quarter of fiscal 2016, and for Mr. Vellequette, reflects
the impact of a change in payroll from weekly to
semi-monthly.
|
|
(2)
|
For Mr. Chirico, includes sign-on bonus ($2,500,000),
one-time emergence bonus ($250,000) and guaranteed EAIP
award ($2,500,000); for Mr. O'Malley, includes sign-on bonus
($300,000), one-time emergence bonus ($25,000) and
guaranteed EAIP award ($650,000); for Ms. Shah, includes
sign-on bonus ($500,000) and guaranteed EAIP award
($600,000), for Mr. Nalbandian, includes sign-on bonus
($300,000) and guaranteed EAIP award ($291,667), for Mr. Di
Palma, includes sign-on bonus ($200,000) and guaranteed EAIP
award ($158,333), for Mr. Rowe, includes sign-on bonus
($800,000) and guaranteed EAIP award ($300,000), for Mr.
Glembocki, includes one-time emergence bonus ($20,000) and
guaranteed EAIP award ($250,000).
|
|
(3)
|
Amounts shown represent the grant date fair value of each
award as calculated in accordance with ASC 718. See Note 2
of the Consolidated Financial Statements contained in our
Annual Report on Form 10-K for the fiscal year ended
September 30, 2018 for an explanation of the assumptions
used in the valuation of these awards. For Messrs. Chirico,
O'Malley, Rowe and Glembocki and Ms. Shah, the restricted
stock unit and option awards were granted on December 15,
2017 as part of the emergence grants; Mr. Nalbandian's
awards were part of his employment offer, and Mr. Di Palma
received two awards, one made as part of his employment
offer and one made in connection with his promotion to
SVP.
|
|
(4)
|
Non-equity incentive compensation reflects amounts earned
for the applicable year under each of the following
programs:
|
15
|
Name
|
Year
|
Short-Term Cash Awards
($)(a)
|
Cash Long-Term Incentive
($)(b)
|
Key Employee Incentive Plan
($)(c)
|
Total
($)
|
||||
|
James M. Chirico, Jr.
|
2018
|
312,500
|
|
312,500
|
|
||||
|
2017
|
460,938
|
|
1,190,425
|
|
1,651,363
|
|
|||
|
2016
|
281,250
|
|
976,564
|
|
687,500
|
|
1,945,314
|
|
|
|
Patrick J. O'Malley III
|
2018
|
304,521
|
|
304,521
|
|
||||
|
Shefali Shah
|
2018
|
235,068
|
|
235,068
|
|
||||
|
Edward Nalbandian
|
2018
|
85,103
|
|
85,103
|
|
||||
|
Dino Di Palma
|
2018
|
26,895
|
|
26,895
|
|
||||
|
William Mercer Rowe
|
2018
|
—
|
|
—
|
|
||||
|
Jaroslaw Glembocki
|
2018
|
—
|
|
—
|
|
||||
|
David Vellequette
|
2018
|
216,450
|
|
216,450
|
|
||||
|
2017
|
460,938
|
|
1,017,273
|
|
1,478,211
|
|
|||
|
2016
|
243,750
|
|
976,564
|
|
587,500
|
|
1,807,814
|
|
|
|
(a)
|
For Messrs. Chirico, O'Malley, Nalbandian and Di Palma, and
Ms. Shah, amounts represent awards under the fiscal 2018
EAIP in excess of the guaranteed bonus amounts calculated
for time in position.
|
|
(b)
|
For Mr. Vellequette, amount represents Cash LTI accelerated
and paid upon termination.
|
|
(c)
|
For Messrs. Chirico and Vellequette, the amounts shown
under fiscal 2016 and fiscal 2017 represent KEIP awards
approved by the Predecessor Compensation Committee and the
Bankruptcy Court.
|
|
(5)
|
The following table separately quantifies “all other
compensation” amounts for fiscal year 2018:
|
|
Name
|
Financial Counseling ($)
|
Life Insurance Premiums ($)
|
Life Insurance Imputed Income ($)
|
HSA Contribution ($)
|
401(k) Company Match ($)
|
Severance ($)
|
Total ($)
|
|||||||
|
James M. Chirico, Jr
|
20,000
|
|
3,540
|
|
14,460
|
|
6,875
|
|
44,875
|
|
||||
|
Patrick J. O'Malley III
|
15,000
|
|
3,540
|
|
9,030
|
|
200
|
|
4,510
|
|
32,280
|
|
||
|
Shefali Shah
|
15,000
|
|
2,380
|
|
2,700
|
|
5,000
|
|
25,080
|
|
||||
|
Edward Nalbandian
|
1,800
|
|
4,128
|
|
6,250
|
|
12,178
|
|
||||||
|
Dino Di Palma
|
1,440
|
|
1,380
|
|
3,125
|
|
5,945
|
|
||||||
|
William Mercer Rowe
|
15,000
|
|
2,380
|
|
1,700
|
|
6,875
|
|
1,200,000
|
|
1,225,955
|
|
||
|
Jaroslaw Glembocki
|
15,000
|
|
2,634
|
|
8,839
|
|
4,687
|
|
1,250,000
|
|
1,281,160
|
|
||
|
David Vellequette
|
15,000
|
|
3,140
|
|
4,620
|
|
185
|
|
650,000
|
|
672,945
|
|
||
16
Fiscal 2018 Grants of Plan-Based Awards
|
Estimated Future Payouts under Non-Equity
Incentive Plan Awards
|
All Other Stock Awards: Number of Shares of Stock or
Units(2)
|
All Other Option Awards: Number of Securities
Underlying Options(3)
|
Exercise or Base Price of Option Awards ($)(4)
|
Grant Date Fair Value of Stock and Option Awards
($)(5)
|
||||||||||||
|
Name
|
Grant Date
|
Threshold ($)
|
Target ($)
|
Maximum ($)
|
||||||||||||
|
James M. Chirico, Jr.
|
10/1/2018
|
(1)
|
2,500,000
|
|
2,500,000
|
|
3,125,000
|
|
||||||||
|
12/15/2017
|
1,460,943
|
|
22,147,896
|
|
||||||||||||
|
12/15/2017
|
486,981
|
|
19.46
|
|
3,866,629
|
|
||||||||||
|
Patrick J. O'Malley III
|
10/23/2017
|
(1)
|
650,000
|
|
650,000
|
|
1,300,000
|
|
||||||||
|
12/15/2017
|
243,491
|
|
3,691,324
|
|
||||||||||||
|
12/15/2017
|
81,164
|
|
19.46
|
|
644,442
|
|
||||||||||
|
Shefali Shah
|
12/18/2017
|
(1)
|
600,000
|
|
600,000
|
|
1,200,000
|
|
||||||||
|
12/15/2017
|
121,745
|
|
1,845,654
|
|
||||||||||||
|
12/15/2017
|
40,582
|
|
19.46
|
|
322,221
|
|
||||||||||
|
Edward Nalbandian
|
3/1/2018
|
(1)
|
500,000
|
|
500,000
|
|
1,000,000
|
|
||||||||
|
3/7/2018
|
85,000
|
|
1,823,250
|
|
||||||||||||
|
3/7/2018
|
28,000
|
|
21.45
|
|
298,200
|
|
||||||||||
|
Dino Di Palma
|
5/29/2018
|
(1)
|
500,000
|
|
500,000
|
|
1,000,000
|
|
||||||||
|
8/22/2018
|
64,000
|
|
1,425,920
|
|
||||||||||||
|
8/22/2018
|
22,441
|
|
499,985
|
|
||||||||||||
|
8/22/2018
|
21,000
|
|
22.28
|
|
230,790
|
|
||||||||||
|
William Mercer Rowe
|
12/18/2017
|
(1)
|
600,000
|
|
600,000
|
|
1,200,000
|
|
||||||||
|
12/15/2017
|
121,745
|
|
1,845,654
|
|
||||||||||||
|
12/15/2017
|
40,582
|
|
19.46
|
|
322,221
|
|
||||||||||
|
Jaroslaw Glembocki
|
10/1/2018
|
(1)
|
500,000
|
|
500,000
|
|
1,000,000
|
|
||||||||
|
12/15/2017
|
109,571
|
|
1,661,096
|
|
||||||||||||
|
12/15/2017
|
36,524
|
|
19.46
|
|
290,001
|
|
||||||||||
|
David Vellequette
|
—
|
|
—
|
|
||||||||||||
|
(1)
|
Represents the fiscal 2018 threshold, target and maximum
amounts payable under the EAIP, which is discussed above
under Post-Emergence Compensation. For fiscal 2018, each NEO
had a guaranteed payment of 100% of target, with no lower
threshold amount. Payments of these guaranteed payments are
shown in the “bonus” column of the Summary Compensation
Table.
|
|
(2)
|
For Messrs. Chirico, O’Malley, Nalbandian, Di Palma, and
Ms. Shah, these RSU awards vest 33.33% on the first
anniversary of the grant date, and quarterly
thereafter.
|
|
(3)
|
For Messrs. Chirico, O’Malley, Nalbandian, Di Palma, and
Ms. Shah, these non-qualified stock option awards vest
33.33% on the first anniversary of the grant date, and
quarterly thereafter.
|
|
(4)
|
Amounts shown reflect the exercise price of each stock
option, which was equal to the closing market price of the
underlying share of Company common stock on the date of
grant. For Messrs. Chirico and O’Malley and Ms. Shah, the
exercise price applicable to the nonqualified stock options
granted at emergence was established pursuant to financial
valuations as described in the Plan of Reorganization
approved by the Bankruptcy Court.
|
|
(5)
|
Amounts shown represent the grant date fair value of each
award as calculated in accordance with ASC 718. See Note 2
of the Consolidated Financial Statements contained in our
Annual Report on Form 10-K for the fiscal year ended
September 30, 2018 for an explanation of the assumptions
used in the valuation of these awards.
|
17
Outstanding Equity Awards at year-end fiscal 2018
|
Option Awards
|
Stock Awards
|
|||||||||||||||||
|
Name
|
Number of Securities Underlying Unexercised Options
Exercisable (#)(1)
|
Number of Securities Underlying Unexercised Options
Unexercisable (#)(2)(3)
|
Option Exercise Price ($)
|
Option Expiration Date
|
Number of Shares or Units of Stock that have not Vested
(#)(4)
|
Market Value of Shares or Units of Stock that have not
vested ($)(5)
|
Equity Incentive Plan Awards: Number of Unearned
Shares, Units, or Other Rights that have not vested
(#)
|
Equity Incentive Plan Awards: Market or Payout Value of
Unearned Shares, Units, or Other Rights that have not
vested ($)
|
||||||||||
|
James M. Chirico, Jr.
|
—
|
|
486,981
|
|
19.46
|
|
12/15/2027
|
|
||||||||||
|
1,460,943
|
|
32,345,278
|
|
—
|
|
—
|
|
|||||||||||
|
Patrick J. O'Malley III
|
—
|
|
81,164
|
|
19.46
|
|
12/15/2027
|
|
||||||||||
|
243,491
|
|
5,390,891
|
|
—
|
|
—
|
|
|||||||||||
|
Shefali Shah
|
—
|
|
40,582
|
|
19.46
|
|
12/15/2027
|
|
||||||||||
|
121,745
|
|
2,695,434
|
|
—
|
|
—
|
|
|||||||||||
|
Edward Nalbandian
|
4,666
|
|
23,334
|
|
21.45
|
|
3/7/2028
|
|
||||||||||
|
70,834
|
|
1,568,265
|
|
—
|
|
—
|
|
|||||||||||
|
Dino Di Palma
|
—
|
|
21,000
|
|
22.28
|
|
8/22/2028
|
|
||||||||||
|
86,441
|
|
1,913,804
|
|
—
|
|
—
|
|
|||||||||||
|
William Mercer Rowe
|
20,290
|
|
—
|
|
19.46
|
|
9/12/2019
|
|
||||||||||
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Jaroslaw Glembocki
|
18,260
|
|
—
|
|
19.46
|
|
6/30/2019
|
|
||||||||||
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
David Vellequette
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
(1)
|
Represents the exercisable portion of stock options granted
and outstanding.
|
|
(2)
|
Represents the unvested and un-exercisable portion of stock
options granted and outstanding
|
|
(3)
|
The stock option awards are scheduled to vest as
follows:
|
|
Name
|
Number of Securities Underlying Options
|
Grant Date
|
Vesting Description
|
|
James M. Chirico, Jr.
|
486,981
|
12/15/2017
|
33.33% on 1st anniversary; 8.33% last day of each
quarter thereafter
|
|
Patrick J. O'Malley III
|
81,164
|
12/15/2017
|
33.33% on 1st anniversary; 8.33% last day of each
quarter thereafter
|
|
Shefali Shah
|
40,582
|
12/15/2017
|
33.33% on 1st anniversary; 8.33% last day of each
quarter thereafter
|
|
Edward Nalbandian
|
28,000
|
3/7/2018
|
16.67% on 6 month anniversary; 16.67% on 1st
anniversary; 8.33% last day of each quarter
thereafter
|
|
Dino Di Palma
|
21,000
|
8/22/2018
|
33.34% on August 15, 2019; 8.33% on November 15,
February 15, May 15 and August 15 quarterly
thereafter
|
18
|
(4)
|
The RSU awards are scheduled to vest as follows:
|
|
Name
|
RSU Award
|
Grant Date
|
RSUs Vested
|
RSUs Cancelled
|
RSUs Unvested
|
Vesting Description
|
|
|
James M. Chirico, Jr.
|
1,460,943
|
12/15/2017
|
0
|
0
|
1,460,943
|
33.33% on 1st anniversary; 8.33% last day of each
quarter thereafter
|
|
|
Patrick J. O'Malley III
|
243,491
|
12/15/2017
|
0
|
0
|
243,491
|
33.33% on 1st anniversary; 8.33% last day of each
quarter thereafter
|
|
|
Shefali Shah
|
121,745
|
12/15/2017
|
0
|
0
|
121,745
|
33.33% on 1st anniversary; 8.33% last day of each
quarter thereafter
|
|
|
Edward Nalbandian
|
85,000
|
3/7/2018
|
14,166
|
0
|
70,834
|
16.67% on 6 month anniversary; 16.67% on 1st
anniversary; 8.33% last day of each quarter
thereafter
|
|
|
Dino Di Palma
|
64,000
|
8/22/2018
|
0
|
0
|
64,000
|
33.34% on August 15, 2019; 8.33% on November 15,
February 15, May 15 and August 15 quarterly
thereafter
|
|
|
22,441
|
8/22/2018
|
0
|
0
|
22,441
|
33.34% on August 15, 2019; 8.33% on November 15,
February 15, May 15 and August 15 quarterly
thereafter
|
||
|
(5)
|
Determined using the fair market value of a share of the
Company's common stock on September 30, 2018, which was
$22.14 per share.
|
Stock Vested
The following table sets forth information regarding stock award
vestings for our NEOs during fiscal 2018.
|
Option Awards
|
Stock Awards
|
|||||||||
|
Name
|
Number of Shares Acquired on Exercise (#)
|
Value realized on Exercise ($)
|
Number of Shares Acquired on Vesting (#)
|
Value realized on Vesting ($) (1)
|
||||||
|
Edward Nalbandian
|
—
|
|
—
|
|
14,166
|
|
312,502
|
|
||
|
William Mercer Rowe
|
—
|
|
—
|
|
60,871
|
|
1,342,814
|
|
||
|
Jaroslaw Glembocki
|
—
|
|
—
|
|
54,785
|
|
1,100,083
|
|
||
|
(1)
|
The amounts included in the table have been determined
using the Company's closing market price on the date
immediately preceding the applicable vesting date.
|
Potential Payments upon Termination or CIC
Separation Plan
The Separation Plan was adopted to provide transitional assistance
to certain senior executives whose employment is terminated by the
Company for any reason other for “cause” (as defined under the
Separation Plan). In the event that a participant becomes eligible
to receive benefits under the Separation Plan, he or she will be
entitled to receive a payment equal to 100% of the sum of his or her
(i) then current annual base salary and (ii) annual target cash
bonus under the EAIP or any successor plan, along with certain
subsidized medical benefits for 12 months. The participant must
execute and not revoke an effective release of claims in order to
receive his or her severance benefits.
CIC Plan
The CIC Plan was designed to facilitate certain executives’
continued dedication to the Company notwithstanding the potential
occurrence of a CIC of the Company and to encourage such executives’
full attention and dedication to the Company in the event of a
CIC.
The CIC Plan provides that if a participant’s employment is
terminated by the Company without “cause” (other than due to the
Participant’s death or disability) or by the Participant for “good
reason,” (each of “cause” and “good reason” as defined in the CIC
Plan) in each case either (i) during a “Potential CIC Period” (as
defined in the CIC Plan, but generally a period following the entry
into an agreement, the consummation of which would result in a CIC
(as defined in the CIC Plan) or following a time when the Committee
determines that a Potential CIC has occurred) or (ii) within one
year following a CIC of the Company, the participant will be
entitled to receive certain payments and benefits.
The CIC Plan provides that upon any such termination the
participants will receive (i) an amount equal to the participant’s
applicable multiple (the “Multiple”) multiplied by the sum of his or
her annual base salary and target annual bonus, (ii) a pro-rata
amount of the participant’s target annual bonus, calculated based on
the number of days during the applicable performance period the
participant was employed by the Company during the performance
period in which the Participant’s employment
19
was terminated, and (iii) full vesting of any outstanding
time-based Company equity awards. Additionally, the CIC Plan
provides that participants who are covered under the Avaya Inc.
Medical Expense Plan for Salaried Employees on the date their
employment terminates will receive, for a specified number of months
(the “COBRA Multiple”) or until comparable coverage is available
from a successor employer, an amount equal to the Company’s portion
of the participant’s COBRA premiums. The Compensation Committee
determined that the Multiple and COBRA Multiple for each Participant
is 1.5 and 18 months, respectively. The participant must execute and
not revoke an effective release of claims in order to receive his or
her severance benefits.
Executive Employment Agreement
Other than Mr. Chirico, none of our NEOs are party to employment
agreements with us.
On October 1, 2017, Mr. Chirico was appointed President and
Chief Executive Officer of the Company and he became a member of the
board of directors on the Emergence Date. Pursuant to the Executive
Employment Agreement entered into on November 13, 2017 and
negotiated among certain Company creditors, the Company and Mr.
Chirico and approved by the Bankruptcy Court in conjunction with
Company’s emergence from Chapter 11, Mr. Chirico’s initial base
salary is $1,250,000, to be annually reviewed for increase (but not
decrease) by the Compensation Committee. Mr. Chirico’s target
bonus will be equal to 200% of his base salary (the “Target Bonus”),
based on meeting reasonably attainable quantitative performance
goals to be established by the Compensation Committee in good faith
after discussion with Mr. Chirico. Mr. Chirico’s actual
bonus payout may range up to (but cannot exceed) 250% of his base
salary, provided that Mr. Chirico’s actual bonus for fiscal
2018 would be no less than the Target Bonus. Mr. Chirico was
also entitled to receive, and did receive, a one-time cash payment
of $2,500,000 (the “Sign-On Bonus”) within ten days after the
Emergence Date, which he will be required to repay (on an after-tax
basis) in the event he is terminated by the Company for “cause” or
resigns without “good reason” (each as defined below) as follows:
(x) 100% of the Sign-On Bonus if his employment ends on or prior to
October 1, 2018 or (y) 50% of the Sign-On Bonus if his employment
ends after October 1, 2018 but on or prior to October 1, 2019.
Additionally, upon the Emergence Date, Mr. Chirico was entitled
to receive an incentive equity award consisting of RSUs (75% of the
award) and stock options (25% of the award), with a fair market
value of approximately $30 million as of the Emergence Date (33.3%
of the Emergence Date award pool), pursuant to the 2017 Equity
Incentive Plan, which plan was approved by the Bankruptcy Court in
conjunction with the Company’s emergence from Chapter
11. One-third of this award vested on the first anniversary of
the Emergence Date and the remainder will vest 8.33% at the end of
each quarter thereafter, so that the award will be fully vested on
December 31, 2020.
Upon a termination of Mr. Chirico’s employment other than for
“cause” (not due to death or disability) or due to his resignation
for “good reason” (each as defined below) (each, a “Qualifying
Termination”), subject to his timely execution and non-revocation of
a release of claims, Mr. Chirico is entitled to receive
(i) a lump sum amount equal to two (the “Multiplier”) times the
sum of his base salary and Target Bonus, (ii) any earned but
unpaid bonus for the completed performance period preceding the
Qualifying Termination, and (iii) up to 18 months’ of
Company-paid COBRA benefits. If the Qualifying Termination (or a
termination for death or disability) occurs within the six-month
period preceding or the 24-month period following a CIC of the
Company, the Multiplier is increased to three, and Mr. Chirico
is also entitled to full vesting of all of his outstanding long-term
incentive awards, whether cash-based or equity-based, with any
exercisable awards to remain outstanding until the expiration of
their term. The Executive Employment Agreement contains a Code
Section 280G “gross-up” provision, which will provide
Mr. Chirico with an additional payment to the extent he
receives any payments and/or benefits that are subject to excise tax
imposed under Code Section 4999.
Pursuant to the Executive Employment Agreement, “cause” means any
of Mr. Chirico’s: (i) material breach of his duties and
responsibilities as a senior officer of the Company (other than as a
result of incapacity due to physical or mental illness) which is
demonstrably willful and deliberate, and which is committed in bad
faith or without reasonable belief that such breach is in the best
interests of the Company or its affiliated companies and
subsidiaries; (ii) conviction of (including a plea of guilty
or nolo contendere to) a felony; (iii) commission of fraud involving the
Company or its subsidiaries; (iv) material violation of a
material provision of the Company’s Code of Conduct or any statutory
or common law duty of loyalty to the Company or its subsidiaries; or
(v) material violation of the Executive Employment Agreement.
Pursuant to the Executive Employment Agreement, “good reason” means
the occurrence, without Mr. Chirico’s express written consent
(which may be withheld for any reason or no reason), of any of the
following events or conditions: (i) a material reduction by the
Company in Mr. Chirico’s base salary; (ii) a material
breach of the Executive Employment Agreement which shall include a
material reduction or material negative change by the Company in the
type or level of compensation and benefits (other than base salary)
to which Mr. Chirico is entitled under the Executive Employment
Agreement, other than any such reduction or change that is part of
and consistent with a general reduction or change applicable to all
senior officers of the Company; (iii) a material failure by the
Company to pay or provide to Mr. Chirico any compensation or
benefits to which he is entitled; (iv) a change in
Mr. Chirico’s status, positions, titles, offices or
responsibilities that constitutes a material and adverse change or
the assignment to Mr. Chirico of any duties or responsibilities
that are materially and adversely inconsistent with his status,
positions, titles, offices or responsibilities as in effect
immediately before such assignment; (v) the Company
changing
20
the location of Mr. Chirico’s principal working location to a
location more than 50 miles from such location as in effect
immediately prior to the Emergence Date; or (vi) any material
breach by the Company of the Executive Employment Agreement or any
other agreement between the Company and Mr. Chirico
incorporated by reference in the Executive Employment Agreement. In
order to terminate for Good Reason, (A) Mr. Chirico must provide
notice to the Company within 60 days of the initial occurrence of
the alleged event or condition; (B) the Company must fail to cure
such alleged event or condition within 30 days of such notice; and
(C) Mr. Chirico must resign within 6 months of the initial
occurrence of the alleged event or condition.
The Company shall pay directly or reimburse Mr. Chirico for
his reasonable legal fees and expenses incurred in connection with
the negotiation and implementation of the foregoing employment
arrangements and any related documents (including without limitation
any documentation relating to the incentive equity grants he will
receive).
Pursuant to the Executive Employment Agreement, Mr. Chirico is
subject to the following restrictive covenants: (i) non-competition
and non-solicitation of customers, employees, independent
contractors and others during the employment term and for one-year
post-employment, (ii) assignment of inventions to the Company, (iii)
perpetual non-disparagement, and (iv) perpetual
confidentiality.
Potential Payments upon Involuntary Termination without CIC
The tables set forth below reflect the amount of compensation that
would have been payable to the NEOs in the event of termination of
employment, including certain benefits upon an involuntary
termination related to a CIC. The amounts shown assume a termination
effective as of September 30, 2018. The actual amounts that would be
payable can be determined only at the time of the NEO’s
termination.
|
Name
|
Annual Base Salary ($)
|
Annual Target Bonus ($)
|
Total Severance Pay ($) (1)
|
Benefits ($)(2)
|
Outplacement Services ($)(3)
|
Accelerated Equity ($)(4)
|
Total ($)
|
|||||||
|
James M. Chirico, Jr.
|
1,250,000
|
|
2,500,000
|
|
7,500,000
|
|
29,754
|
|
7,000
|
|
19,629,350
|
|
27,166,104
|
|
|
Patrick J. O'Malley III
|
650,000
|
|
650,000
|
|
1,300,000
|
|
19,836
|
|
7,000
|
|
3,271,559
|
|
4,598,395
|
|
|
Shefali Shah
|
600,000
|
|
600,000
|
|
1,200,000
|
|
19,836
|
|
7,000
|
|
1,635,735
|
|
2,862,571
|
|
|
Edward Nalbandian
|
500,000
|
|
500,000
|
|
1,000,000
|
|
19,836
|
|
7,000
|
|
—
|
|
1,026,836
|
|
|
Dino Di Palma
|
500,000
|
|
500,000
|
|
1,000,000
|
|
19,836
|
|
7,000
|
|
—
|
|
1,026,836
|
|
|
(1)
|
For Mr. Chirico, amount shown under “Total Severance Pay”
represents two times the sum of his base salary and target
annual bonus for the year of termination, payable in a lump
sum. For all other NEOs, represents the sum of the NEO’s
base salary plus target annual bonus for the year of
termination.
|
|
(2)
|
For Mr. Chirico, represents the estimated value of
providing certain COBRA continuation payments for a period
of 18 months following his termination date; for all other
NEOs, represents continuation payments for a period of 12
months following the NEO’s termination date.
|
|
(3)
|
For all NEOs, “Outplacement Services” represents the value
of outplacement services that would be made available to the
executive for a certain period of time following termination
of employment.
|
|
(4)
|
For all NEOs, represents the acceleration value
attributable to the accelerated vesting of outstanding
equity awards, based on the fair market value of a share of
the Company’s common stock on September 30, 2018. For
Messrs. Chirico, O’Malley, and Ms. Shah, the value is
pursuant to their applicable award agreements. For Mr.
Nalbandian, the value shown is $0, based on the assumption
that the CEO would not have exercised his discretion to
accelerate Mr. Nalbandian’s awards upon termination of
employment. If we assumed the CEO did exercise his
discretion to accelerate Mr. Nalbandian’s awards, the value
of the accelerated equity would be $790,527, including RSUs
of $784,088, and options of $6,439. Mr. Di Palma has no
acceleration provision in his award agreements. New award
agreements have been approved that eliminate acceleration
provisions upon termination of employment.
|
21
Potential Payments upon Involuntary Termination with CIC
|
Name
|
Annual Base Salary ($)
|
Annual Target Bonus ($)
|
Total Severance
Pay ($)(1)
|
Benefits
(18 months) ($)(2)
|
Excise Tax Gross-Up ($)
|
Accelerated Equity ($)(3)
|
Total ($)
|
|||||||
|
James M. Chirico, Jr.
|
1,250,000
|
|
2,500,000
|
|
11,250,000
|
|
29,758
|
|
8,643,856
|
|
33,650,387
|
|
53,574,001
|
|
|
Patrick J. O'Malley III
|
650,000
|
|
650,000
|
|
1,950,000
|
|
29,758
|
|
—
|
|
5,608,410
|
|
7,588,168
|
|
|
Shefali Shah
|
600,000
|
|
600,000
|
|
1,800,000
|
|
29,758
|
|
—
|
|
2,804,194
|
|
4,633,952
|
|
|
Edward Nalbandian
|
500,000
|
|
500,000
|
|
1,500,000
|
|
29,758
|
|
—
|
|
1,584,365
|
|
3,114,123
|
|
|
Dino Di Palma
|
500,000
|
|
500,000
|
|
1,500,000
|
|
29,758
|
|
—
|
|
1,913,804
|
|
3,443,562
|
|
|
(1)
|
For Mr. Chirico, amount shown under “Total Severance Pay”
represents three times the sum of his base salary plus
target annual bonus for the year of termination, payable in
a lump sum. For all other NEOs, represents 1.5 times the sum
of the NEO’s base salary plus target annual bonus for the
year of termination, payable in a lump sum.
|
|
(2)
|
For all NEOs, represents the estimated value of providing
certain COBRA continuation payments for a period of 18
months following the NEO’s termination date.
|
|
(3)
|
For all NEOs, represents the acceleration value
attributable to the accelerated vesting of outstanding
equity awards, based on the fair market value of a share of
the Company’s common stock on September 30, 2018.
|
The amounts shown in the chart above do not take into account any
reductions in payment that may be applied in order to avoid any
excise taxes under Section 280G and Section 4999 of the Code.
During fiscal 2018, Messrs. Vellequette, Glembocki and Rowe
terminated from the company and were provided severance and benefits
per the separation plan in place at the time of termination. Each
received severance equal to 100% of annual base salary, and for
Messrs. Glembocki and Rowe, the severance also included 100% of
annual annual incentive target. The three executives were also
provided with benefits continuance for up to twelve months.
PAY RATIO DISCLOSURE
The pay ratio information is provided pursuant to the SEC’s
guidance under Item 402(u) of Regulation S-K. Due to our
permitted use of reasonable estimates and assumptions in preparing
this pay ratio disclosure, the disclosure may involve a degree of
imprecision, and thus this pay ratio disclosure is a reasonable
estimate calculated in a manner consistent with Item 402(u) of
Regulation S-K using the data and assumptions described
below. The pay ratio was not used to make management decisions and
the Board does not use this pay ratio to determine executive
compensation adjustments.
Methodology to Determine Median Employee
To determine the median employee, we evaluated our 8,475 employees
(other than our CEO and student employees) as of September 30, 2018
(the “Determination Date”). These 8,475 employees consist of all our
full-time, part-time employees (other than our CEO and student
employees) as of the Determination Date, of which 2,821 are US
employees and 5,654 are non-US employees. The median employee was
selected using the total cash compensation approach, consisting of
base salary and target short-term incentive levels for fiscal
2018.
Median Employee to CEO Pay Ratio
After identifying the median employee, we calculated annual total
compensation for that employee using the same methodology we used to
calculate our NEOs “total” compensation as described in the fiscal
2018 Summary Compensation Table. Based on this methodology, the
median employee’s annual total compensation was $87,725. Mr.
Chirico’s annual total compensation was $32,871,900 (the same amount
as reported for Mr. Chirico for fiscal 2018 under the fiscal 2018
Summary Compensation Table above). Based on this information, for
fiscal 2018, the ratio of the annual total compensation of Mr.
Chirico to the median annual total compensation of all other
employees was estimated to be 375:1. Compensation for non-US
employees was converted to U.S. dollar equivalents using exchange
rates as of the Determination Date
As permitted by the applicable SEC pay ratio rules, we are
providing supplemental information regarding our CEO pay ratio in
order to provide additional context as to how our CEO compensation
relates to the compensation of our employees generally. As discussed
in the CD&A, as part of his fiscal 2018 compensation, Mr.
Chirico was granted an emergence equity award and a sign-on bonus
that were intended to serve as inducement awards in connection with
the restructuring process. The grant date fair value of the equity
award as required to be reported in the Summary Compensation Table
pursuant to applicable SEC rules was $26,014,525. The grant date
fair value of this award is not indicative of the expected grant
date fair value(s) applicable to future equity-based awards to be
made as part of our ongoing annual compensation program. The sign-on
bonus as reported in the Summary Compensation Table was $2,500,000.
As an additional reference point to the required CEO pay ratio
stated above,
22
without this inducement equity grant and sign-on bonus, Mr.
Chirico’s total annual compensation as reported in the Summary
Compensation Table for fiscal 2018 would have been $4,357,375.
DIRECTOR COMPENSATION
Members of the Board who are Company employees do not receive any
additional compensation for their service as directors.
Fiscal 2018 Non-Employee Director Compensation Program
Prior to the Emergence Date
Immediately prior to the Emergence Date, the Company’s independent
non-employee directors were Mary C. Henry, Kiran Patel and Gary B.
Smith. They received compensation for fiscal 2018 until the end of
their service as of the Emergence Date under the following program
with all cash retainers paid in quarterly installments:
|
Annual Cash Retainer
|
|
$250,000
|
|
|
|
Committee Member Annual Cash Retainer
|
|
$10,000
|
|
|
|
Additional Committee Chair Annual Cash Retainer
|
Audit: $20,000
Compensation: $15,000
Nominating & Governance: $15,000
|
|
||
There also were three non-independent, non-employee directors who
received non-employee director compensation: John W. Marren, Afshin
Mohebbi, and Ronald A. Rittenmeyer. During fiscal 2018, annual
compensation was $300,000 for Messrs. Marren and Rittenmeyer and
$450,000 for Mr. Mohebbi. These amounts were paid in cash in
quarterly installments until the Emergence Date. Messrs. Marren and
Mohebbi resigned from the Board as of the Emergence Date. Mr.
Rittenmeyer remained on the Board following the Emergence Date and
participated in the new compensation program described below during
that time.
As of the Emergence Date
In January 2018, upon the recommendation of the Compensation
Committee, the Board approved a post-emergence compensation program
that was effective as of December 15, 2017. The new program
consisted of the following:
|
Annual Cash Retainer
|
|
$100,000
|
|
|
|
Annual Equity Grant
|
$250,000 in RSUs
|
|
||
The cash retainer was paid in quarterly installments beginning in
March 2018. RSUs vested in four equal installments in March, June,
September and December 2018. However, the delivery of the underlying
shares is deferred until the earliest to occur of: (i) December 15,
2020, (ii) the recipient’s separation from the Company or (iii) a
CIC of the Company, as defined in the 2017 Equity Incentive
Plan.
Non-Employee Director Compensation Paid in Fiscal 2018
The following table details the total compensation paid to of our
non-employee directors for fiscal 2018:
|
Name
|
Fees Earned or Paid in Cash ($)
|
Stock Awards ($)(1)
|
Total ($)
|
|||||
|
Non-Employee Directors After Emergence Date
|
||||||||
|
Ronald A. Rittenmeyer(2)
|
100,000
|
|
249,360
|
|
349,360
|
|||
|
Stephan Scholl(3)
|
75,000
|
|
249,360
|
|
324,360
|
|||
|
Susan L. Spradley(3)
|
75,000
|
|
249,360
|
|
324,360
|
|||
|
Stanley J. Sutula, III(3)
|
75,000
|
|
249,360
|
|
324,360
|
|||
|
Scott D. Vogel(3)
|
75,000
|
|
249,360
|
|
324,360
|
|||
|
William D. Watkins(3)
|
75,000
|
|
249,360
|
|
324,360
|
|||
|
Non-Employee Directors Resigning at Emergence
Date(4)
|
||||||||
|
Mary Henry
|
65,000
|
|
—
|
|
65,000
|
|||
|
John Marren
|
75,000
|
|
—
|
|
75,000
|
|||
|
Afshin Mohebbi
|
125,000
|
|
—
|
|
125,000
|
|||
|
Kiran Patel
|
70,000
|
|
—
|
|
70,000
|
|||
|
Gary Smith
|
67,500
|
|
—
|
|
67,500
|
|||
23
|
(1)
|
Amounts shown represent the grant date fair value of each
award as calculated in accordance with ASC 718. See Note 2
of the Consolidated Financial Statements contained in our
Annual Report on Form 10-K for the fiscal year ended
September 30, 2018 for an explanation of the assumptions
used in the valuation of these awards. To calculate the
number of restricted stock units to be granted to the
non-employee directors in connection with our emergence from
bankruptcy, we divided $250,000 by the fair market value of
a share of our common stock on the Emergence Date, which was
$19.46. The grant date fair value shown in the table above
reflects the $19.41 fair market value of a share of our
common stock on January 23, 2018, the date 12,847 restricted
stock units were granted to each recipient.
|
|
(2)
|
Mr. Rittenmeyer was the only director to serve on the Board
both prior to, and after, the Emergence Date. In December
2017, he received a $75,000 payment representing a portion
of his pre-Emergence Date non-employee director
compensation, and in March 2018, he received a $25,000
quarterly payment. He terminated his service as a director
of the Company effective April 30, 2018. At the time of his
termination of service, he held (i) vested RSUs for an
aggregate of 3,211 shares, which were distributed to him,
and (ii) unvested RSUs for an aggregate of 9,636 shares,
which were forfeited.
|
|
(3)
|
Cash compensation for each of Ms. Spradley and Messrs.
Scholl, Sutula, Vogel and Watkins consists of three
quarterly $25,000 installments of the $100,000 annual cash
retainer in effect during fiscal 2018 after the Emergence
Date. As of September 30, 2018, each director held (i)
vested and deferred RSUs for an aggregate of 9,635 shares
and (ii) unvested RSUs for an aggregate of 3,212 shares
(which vested on December 15, 2018.)
|
|
(4)
|
In fiscal 2018, each of the non-employee directors who
resigned at the Emergence Date received one quarterly
installment of their respective annual cash retainers
described above.
|
Fiscal 2019 Non-Employee Director Compensation Program
Changes
In August 2018, upon the recommendation of the Compensation
Committee with input from the Committee’s independent consultant,
the Board reduced the base value(i.e., the value attributable to the
annual cash retainer and annual equity grant) of the non-employee
director compensation program from $350,000 to $325,000 in order to
better align with our Compensation Peer Group, and established
additional retainers for the Non-Executive Chair and each committee
chair. Effective for fiscal 2019, the program currently consists of
the following:
|
Annual Cash Retainer
|
|
$75,000
|
|
|
|
Additional Cash Retainers for Leadership
Positions
|
Non-Executive Chair: $75,000
Audit Committee Chair: $25,000
Compensation Committee Chair: $15,000
Nominating & Corporate Governance Committee Chair:
$10,000
|
|
||
|
Meetings fees
|
$2,000 per Board or committee meeting in excess of 20
aggregate meetings during the fiscal year
|
|||
|
Annual Equity Grant
|
$250,000 in RSUs, which will be granted after the 2019
Annual Meeting to those who are elected to the Board at
the Annual Meeting
|
|||
|
Initial Equity Grant for Any Non-Employee Director
Joining the Board of Directors Before the 2019 Annual
General Meeting
|
$250,000 in RSUs, pro-rated to reflect service as a
non-employee director for the portion of the fiscal year
served until the 2019 Annual Meeting
|
|||
The annual cash retainer will be paid in arrears to the
non-employee directors as four quarterly payments of $18,750,
beginning March 2019. The additional cash fees for serving as
committee chairs will similarly be paid in arrears in four quarterly
installments, beginning in March 2019. The meeting fees, if any,
will be paid in arrears at the end of the 2019 fiscal year. RSUs
that will be granted after the 2019 Annual Meeting are currently
expected to maintain vesting and deferral provisions similar to the
2018 awards.
Non-Employee Director Share Ownership Guideline
Non-employee directors are expected to own shares equivalent to six
times the value of the annual cash retainer for Board service (not
the additional cash retainers for leadership positions). Until the
guideline is achieved, the director must hold at least 50% of net
shares received upon vesting of an award. As of the date of this
filing, all non-employee directors comply with these ownership
guidelines.
Compensation Committee Interlocks and Insider Participation
The members of the Predecessor Compensation Committee until
December 15, 2017 were Messrs. Marren (Committee Chair), Giancarlo
and Smith. Each of them resigned from the Board and the Predecessor
Compensation Committee in connection with the Company’s emergence
from Chapter 11, at which time Messrs. Vogel (Committee Chair) and
Scholl were appointed to the Compensation Committee. In addition,
Mr. Rittenmeyer was appointed to and served on, the Compensation
Committee from December 15, 2017 until his resignation from the
Board, effective April 30, 2018. Each current member of the
Compensation Committee is an independent director. No individual who
was a member of the Predecessor Compensation Committee or the
24
Compensation Committee during fiscal 2018: (i) was an officer or
employee of the Company or any of its subsidiaries during fiscal
2018; (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
Predecessor Compensation Committee or Compensation Committee or its
Board, with the exception of Mr. Giancarlo, who served as the
Company’s President and Chief Executive Officer from June 30, 2008
until December 22, 2008.
Reconciliation of GAAP to non-GAAP (Adjusted) Financial
Measures
The information furnished in this CD&A includes a non-GAAP
financial measure labeled as “adjusted” that differs from measures
calculated in accordance with generally accepted accounting
principles in the United States of America (“GAAP”).
Although GAAP requires that we report on our results for the
periods October 1, 2017 through December 15, 2017 and December 16,
2017 through September 30, 2018 separately, management reviews the
Company’s operating results for the twelve months ended September
30, 2018 by combining the results of these periods because such
presentation provides the most meaningful comparison of our results.
The Company cannot adequately benchmark the operating results of the
16-day period ended December 31, 2017 against any of the previous
periods reported in its condensed consolidated financial statements
and does not believe that reviewing the results of this period in
isolation would be useful in identifying any trends regarding the
company’s overall performance. Management believes that the key
performance metrics such as revenue, gross margin and operating
income, among others, when combined for the three and nine months
ended December 31, 2017 and September 30, 2018, respectively,
provide meaningful comparisons to other periods and are useful in
identifying current business trends.
EBITDA is defined as net income (loss) before income taxes,
interest expense, interest income and depreciation and amortization.
Adjusted EBITDA is EBITDA further adjusted to exclude certain
charges and other adjustments described in the table below.
We believe that including supplementary information concerning
adjusted EBITDA is appropriate because it serves as a basis for
determining management and employee compensation and it is used as a
basis for calculating covenants in our credit agreements. Adjusted
EBITDA measures our financial performance based on operational
factors that management can impact in the short-term, such as our
pricing strategies, volume, costs and expenses of the organization
and it presents our financial performance in a way that can be more
easily compared to prior quarters or fiscal years.
Adjusted EBITDA has limitations as an analytical tool. Adjusted
EBITDA excludes the impact of earnings or charges resulting from
matters that we consider not to be indicative of our ongoing
operations. In particular, our formulation of adjusted EBITDA allows
adjustment for certain amounts that are included in calculating net
income (loss), however, these are expenses that may recur, may vary
and are difficult to predict.
25
The following table presents Successor, Predecessor and combined
results and reconciles net income to Adjusted EBITDA, a non-GAAP
measure.
Avaya Holdings Corp.
Supplemental Schedule of Non-GAAP Adjusted EBITDA
(Unaudited)
|
Successor
|
Predecessor
|
||||||||||||
|
(In millions)
|
Period from December 16, 2017
through September 30, 2018 |
Period from
October 1, 2017 through December 15, 2017 |
Combined Fiscal 2018
|
||||||||||
|
Net income
|
$
|
287
|
|
$
|
2,977
|
|
$
|
3,264
|
|
||||
|
Interest expense
|
169
|
|
14
|
|
183
|
|
|||||||
|
Interest income
|
(5
|
)
|
(2
|
)
|
(7
|
)
|
|||||||
|
(Benefit from) provision for income taxes
|
(546
|
)
|
459
|
|
(87
|
)
|
|||||||
|
Depreciation and amortization
|
384
|
|
31
|
|
415
|
|
|||||||
|
EBITDA
|
289
|
|
3,479
|
|
3,768
|
|
|||||||
|
Impact of fresh start accounting adjustments
|
196
|
|
—
|
|
196
|
|
|||||||
|
Restructuring charges, net
|
81
|
|
14
|
|
95
|
|
|||||||
|
Advisory fees
|
18
|
|
3
|
|
21
|
|
|||||||
|
Acquisition-related costs
|
15
|
|
—
|
|
15
|
|
|||||||
|
Reorganization items, net
|
—
|
|
(3,416
|
)
|
(3,416
|
)
|
|||||||
|
Non-cash share-based compensation
|
19
|
|
—
|
|
19
|
|
|||||||
|
Loss on sale/disposal of long-lived assets, net
|
4
|
|
1
|
|
5
|
|
|||||||
|
Resolution of certain legal matters
|
—
|
|
37
|
|
37
|
|
|||||||
|
Change in fair value of Emergence Date Warrants
|
17
|
|
—
|
|
17
|
|
|||||||
|
Gain on foreign currency transactions
|
(28
|
)
|
—
|
|
(28
|
)
|
|||||||
|
Pension/OPEB/nonretirement postemployment benefits and
long-term disability costs
|
—
|
|
17
|
|
17
|
|
|||||||
|
Adjusted EBITDA
|
$
|
611
|
|
$
|
135
|
|
$
|
746
|
|
||||
26
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
|
Security Ownership of Certain Beneficial Owners and
Management
The following table presents information as to the beneficial
ownership of our Common Stock as of December 31, 2018 for:
|
•
|
each stockholder known by us to be the beneficial owner of
more than 5% of our Common Stock;
|
|
•
|
each of our directors and director nominees;
|
|
•
|
each named executive officer as set forth in the summary
compensation table in this Amendment; and
|
|
•
|
all executive officers, directors and director nominees as
a group.
|
Percentage ownership of our Common Stock in the table is based
on 110,695,523 shares of Common Stock outstanding as of December 31, 2018.
Shares of Common Stock that may be acquired within 60 days of
December 31, 2018 pursuant to the exercise of options or warrants,
and restricted stock units (“RSUs”) that vest within 60 days of
December 31, 2018 are deemed to be outstanding for the purpose of
computing the percentage ownership of such holder but are not deemed
to be outstanding for computing the percentage ownership of any
other person shown in the table. Beneficial ownership of shares is
determined under rules of the SEC and generally includes any shares
over which a person exercises sole or shared voting or investment
power. Except as noted by footnote, and subject to community
property laws where applicable, we believe based on the information
provided to us that the persons and entities named in the table
below have sole voting and investment power with respect to all
shares of our Common Stock shown as beneficially owned by them.
Unless otherwise noted below, the address of each of the individuals
and entities named below is c/o Avaya Holdings Corp., 4655 Great
America Parkway, Santa Clara, California 95054.
|
Name of Beneficial Owner
|
Amount and Nature of Beneficial Ownership
|
Percent of Total Shares
|
||||
|
5% Stockholder:
|
||||||
|
Davidson Kempner Capital Management LP and other
Reporting Persons
|
10,851,720
|
|
(1)
|
9.8
|
%
|
|
|
c/o Davidson Kempner Capital Management LP 520 Madison
Avenue, 30th Floor New York, NY 10022
|
||||||
|
JPMorgan Chase & Co.
|
9,867,620
|
|
(2)
|
8.9
|
%
|
|
|
270 Park Avenue New York, NY 10017
|
||||||
|
Directors:
|
||||||
|
James M. Chirico, Jr.
|
430,413
|
|
(3)
|
*
|
|
|
|
Stephan Scholl
|
12,847
|
|
(4)
|
*
|
|
|
|
Susan L. Spradley
|
12,847
|
|
(4)
|
*
|
|
|
|
Stanley J. Sutula, III
|
12,847
|
|
(4)
|
*
|
|
|
|
Scott D. Vogel
|
12,847
|
|
(4)
|
*
|
|
|
|
William D. Watkins
|
12,847
|
|
(4)
|
*
|
|
|
|
Named Executive Officers (other than James M. Chirico,
Jr.):
|
||||||
|
Dino Di Palma
|
—
|
|
*
|
|
||
|
Jaroslaw S. Glembocki
|
—
|
|
(5)
|
*
|
|
|
|
Edward Nalbandian
|
14,392
|
|
(6)
|
*
|
|
|
|
Patrick J. O'Malley, III
|
71,815
|
|
(7)
|
*
|
|
|
|
William Mercer Rowe
|
—
|
|
(8)
|
*
|
|
|
|
Shefali Shah
|
38,483
|
|
(9)
|
*
|
|
|
|
David Vellequette
|
—
|
|
(10)
|
*
|
|
|
|
All Current Directors and Executive Officers as a Group
(11 persons)(3), (4), (6), (7), (9)
|
619,338
|
|
0.6
|
%
|
||
27
|
*
|
Represents beneficial ownership of less than one percent of
the outstanding shares of Common Stock.
|
|
(1)
|
The information was based upon a Schedule 13G filed with
the SEC on February 12, 2018 by (i) M. H. Davidson & Co.
(“CO”); (ii) Davidson Kempner Partners ("DKP"); (iii)
Davidson Kempner Institutional Partners, L.P. ("DKIP"); (iv)
Davidson Kempner International, Ltd. ("DKIL"); (v) Davidson
Kempner Distressed Opportunities Fund LP ("DKDOF"); (vi)
Davidson Kempner Distressed Opportunities International Ltd.
("DKDOI"); (vii) DKSOF IV Trading Subsidiary LP ("DKSOF");
(viii) Davidson Kempner Capital Management LP ("DKCM"); and
(ix) Messrs. Thomas L. Kempner, Jr. and Anthony A. Yoseloff,
and confirmed to the Company on October 24, 2018. CO has
shared voting and dispositive power with respect to 206,365
of these shares. DKP has shared voting and dispositive power
with respect to 1,211,254 of these shares. DKIP has shared
voting and dispositive power with respect to 2,688,224 of
these shares. DKIL has shared voting and dispositive power
with respect to 2,948,258 of these shares. DKDOF has shared
voting and dispositive power with respect to 783,295 of
these shares. DKDOI has shared voting and dispositive power
with respect to 1,394,425 of these shares. DKSOF has shared
voting and dispositive power with respect to 1,619,299 of
these shares. DKCM, Messrs. Kempner and Yoseloff have shared
voting and dispositive power with respect to all of these
shares.
|
|
(2)
|
The information was based upon a Schedule 13G filed with
the SEC on January 23, 2019 by JPMorgan Chase & Co.
JPMorgan Chase & Co. has sole voting power with respect
to 3,693,630 of these shares and sole dispositive power with
respect to 9,850,820 of these shares. JPMorgan Chase &
Co.’s Schedule 13G indicates that the shares beneficially
owned are held by its subsidiaries J.P. Morgan Investment
Management Inc., JPMorgan Chase Bank, National Association
and JPMorgan Asset Management (UK) Limited.
|
|
(3)
|
Includes 162,326 shares of Common Stock issuable upon the
exercise of outstanding stock options that are exercisable
or will become exercisable within 60 days of December 31,
2018.
|
|
(4)
|
Includes 12,847 shares of Common Stock issuable in respect
of RSUs that have vested but have had their settlement
deferred until the earliest to occur of: (x) December 15,
2020, (y) the recipient's separation of service from the
registrant and (z) a "change in control" of the registrant,
as defined in the Avaya Holdings Corp. 2017 Equity Incentive
Plan. The RSUs can only be settled with Common Stock.
|
|
(5)
|
We are unable to provide a current address or confirm
Mr. Glembocki’s beneficial ownership because
Mr. Glembocki’s service as our Senior Vice President,
Operations ended effective June 30, 2018.
|
|
(6)
|
Includes 4,666 shares of Common Stock issuable upon the
exercise of outstanding stock options that are exercisable
or will become exercisable within 60 days of December 31,
2018.
|
|
(7)
|
Includes 27,054 shares of Common Stock issuable upon the
exercise of outstanding stock options that are exercisable
or will become exercisable within 60 days of December 31,
2018.
|
|
(8)
|
We are unable to provide a current address or confirm
Mr. Rowe’s beneficial ownership because Mr. Rowe’s
service as our Senior Vice President and General Manager,
Cloud ended effective September 12, 2018.
|
|
(9)
|
Includes 13,527 shares of Common Stock issuable upon the
exercise of outstanding stock options that are exercisable
or will become exercisable within 60 days of December 31,
2018.
|
|
(10)
|
We are unable to provide a current address or confirm
Mr. Vellequette’s beneficial ownership because
Mr. Vellequette’s service as our Senior Vice President
of Finance, which began on October 24, 2017, ended effective
January 4, 2018. Prior to that he served as our Senior Vice
President and Chief Financial Officer from October 1, 2012
through October 23, 2017.
|
Equity Compensation Plan Information
The following table sets forth, as of September 30, 2018, the
number of securities outstanding under each of our equity
compensation plans, the weighted-average exercise price for our
outstanding stock options and the number of securities
28
available for grant under such plans.
|
Number of securities to be issued upon exercise of
outstanding options, warrants and rights
|
Weighted-average exercise price of outstanding options,
warrants and rights
|
Number of securities remaining available for future
issuance under equity compensation plans (excluding
securities reflected in column (a))
|
||||||||
|
Plan Category
|
(a)
|
(b)(1)
|
(c)
|
|||||||
|
Equity compensation plans approved by security
holders:
|
||||||||||
|
Avaya Holdings Corp. 2017 Equity Incentive Plan
|
4,360,529
|
|
$
|
19.64
|
|
2,639,418
|
|
|||
|
Equity compensation plans not approved by security
holders:
|
||||||||||
|
None
|
—
|
|
—
|
|
—
|
|
||||
|
Total
|
4,360,529
|
|
$
|
19.64
|
|
2,639,418
|
|
|||
|
(1)
|
Restricted Stock Units are not included in the calculation
of the weighted-average exercise price of outstanding
options, warrants and rights.
|
|
Item 13.
|
Certain Relationships and Related Transactions, and
Director Independence
|
Certain Relationships and Related Transactions
2017 Registration Rights Agreement
In connection with our emergence from bankruptcy, 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.
Arrangements Involving the Company’s Current Directors
Stanley J. Sutula, III is a director and he is Executive Vice
President and Chief Financial Officer of Pitney Bowes Inc., a
business-to-business provider of equipment, software and services.
During fiscal 2018, sales of the Company’s products and services to
Pitney Bowes Inc. were approximately $160,000 and the Company
purchased de minimis amounts of goods and services from Pitney Bowes
Inc.
Arrangements Involving the Company’s Post-Emergence Former
Directors and Former Executive Officers
Laurent Philonenko is a Senior Vice President of the Company and in
fiscal 2018 he was a Section 16 Officer from December 18, 2017 until
August 23, 2018. Mr. Philonenko served as an Advisor to Koopid,
Inc., a software development company specializing in mobile
communications, from February 2017 until January 2018. In fiscal
2018, the Company purchased goods and services from Koopid, Inc. of
approximately $620,000.
29
Ronald A. Rittenmeyer was a director of the Company before and
following the Emergence Date, until his resignation as a director of
the Company which was effective as of April 30, 2018. While he was a
director of the Company, he served as Executive Chairman on the
board of directors of Tenet Healthcare Corporation (“Tenet
Healthcare”), a healthcare services company. In fiscal 2018, sales
of the Company’s products and services to Tenet Healthcare were
approximately $1.1 million.
Arrangements Involving the Company’s Former Sponsors and/or their
Affiliates
The Company was formed in 2007 by affiliates of two private equity
firms, Silver Lake Partners (“Silver Lake”) and TPG Capital (“TPG”,
together with Silver Lake, the “Sponsors”). Our affiliations with
the Sponsors terminated upon our emergence from bankruptcy.
In connection with the Sponsors’ acquisition of Avaya Inc. through
Avaya Holdings Corp. in a transaction that was completed on October
26, 2007, we entered into certain stockholder agreements and
registration rights agreements with the Sponsors and various
co-investors. Each of these arrangements was terminated in
connection with our emergence from bankruptcy. In addition, we
entered into a management services agreement with affiliates of the
Sponsors, which terminated upon our emergence from bankruptcy. In
fiscal 2018, we paid $200,000 under the management services
agreement, all of which was related to expense reimbursement.
Transactions with Other Sponsor Portfolio Companies
The Sponsors are private equity firms that have investments in
companies that do business with Avaya. From October 1, 2017 through
the Emergence Date on December 15, 2017, the Company recorded $10
million associated with sales of the Company’s products and services
to companies in which one or both of the Sponsors had investments.
From October 1, 2017 through the Emergence Date on December 15,
2017, the Company purchased goods and services of $15 million from
companies in which one or both of the Sponsors had
investments.
Arrangements Involving the Company’s Pre-Emergence Directors
Charles Giancarlo was a director of the Company immediately prior
to the Emergence Date and he served in this capacity as a director
designated by Silver Lake.
John W. Marren was a director of the Company immediately prior to
the Emergence Date and he served in this capacity as a director
designated by TPG.
Afshin Mohebbi was a director of the Company immediately prior to
the Emergence Date and he held the position of Senior Advisor of
TPG.
Greg Mondre was a director of the Company immediately prior to the
Emergence Date and he served in this capacity as a director
designated by Silver Lake. He held the positions of Managing Partner
and Managing Director of Silver Lake. Mr. Mondre was related to
the former Vice Chairman and Co-Chief Executive Officer of
C3/Customer Contact Channels Holdings L.P. (“C3 Holdings”), a
provider of outsourced customer management solutions. In fiscal
2018, sales of the Company’s products and services to C3 Holdings
were $356,000.
Gary B. Smith was a director of the Company immediately prior to
the Emergence Date and he served as President, Chief Executive
Officer and director of Ciena Corporation ("Ciena"), a network
infrastructure company. In fiscal 2018, sales of the Company's
products and services to Ciena were $514,000.
Related Party Transaction Policy
In December 2017, our Board adopted written procedures for the
review, approval and/or ratification 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.
The procedures give our Audit Committee the power to approve or
disapprove existing and potential related party transactions
involving our directors and our Section 16 Officers. Upon becoming
aware of an existing or potential related party transaction, 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 2018 or that are currently proposed which required
approval and/or ratification through the procedures described above
were subject to such review procedures (other than those
30
listed above under the heading “Transactions with Other Sponsor
Portfolio Companies” which were transacted in the ordinary course of
the Company’s business).
Director 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, our Corporate
Governance Guidelines (which may be found under “Corporate
Governance” in the Investor Relations section of our website at
https://investors.avaya.com/corporate-governance/governance-policies)
and the audit committee independence requirements of the SEC. The
referenced information on the Investor Relations section of our
website in not a part of this Fiscal 2018 Form 10-K.
The NYSE rules require listed company boards to have at least a
majority of independent directors. Based on its evaluation, our
Board determined that each of Messrs. Scholl, Sutula, Vogel and
Watkins and Ms. Spradley, representing five of Avaya’s seven
directors, are independent directors as defined under the NYSE
rules. There is currently one vacancy on the Board and Mr. Chirico,
who serves as our President and CEO, is the only current member of
the Board who is not independent.
|
Item 14.
|
Principal Accountant Fees and Services
|
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, 2018 and 2017:
|
|
|
Fiscal Years Ended September 30,
|
||||||
|
(In thousands)
|
|
2018
|
|
2017
|
||||
|
Audit Fees
|
|
$
|
17,709
|
|
|
$
|
17,896
|
|
|
Audit-Related Fees
|
|
1,315
|
|
|
339
|
|
||
|
Tax Fees
|
|
1,102
|
|
|
1,118
|
|
||
|
All Other Fees
|
|
4,588
|
|
|
9,125
|
|
||
|
Total Fees
|
|
$
|
24,714
|
|
|
$
|
28,478
|
|
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.
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 Fiscal 2018 Form 10-K.
31
PART IV
|
Item 15.
|
Exhibits, Financial Statement Schedules
|
|
(a) (3)
|
Exhibits - The following exhibits are filed with this
Amendment:
|
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized on January 25, 2019.
|
AVAYA HOLDINGS CORP.
|
||
|
By:
|
/s/ L. DAVID DELL'OSSO
|
|
|
Name:
|
L. David Dell'Osso
|
|
|
Title:
|
Vice President, Controller & Chief Accounting
Officer
|
|
33
The former CEO of the California Public Employees’ Retirement System (CalPERS) has received a 4.5-year prison sentence. Federico Buenrostro accepted more than $200,000 in bribes and tried to direct investments to an associate, who later committed suicide. [
