Telecommunications provider Avaya Holdings Inc. asked a New York bankruptcy court on Wednesday for permission to pay up to $3.7 million in this year’s fiscal second quarter to 11 “key” executives as part of an incentive program to help it outperform earnings targets.
Avaya, which filed for Chapter 11 protection in January, said that maintaining its practice of doling out quarterly incentive bonuses to the members of its executive committee dovetails with its overriding goal of swiftly completing its reorganization while preserving company value and improving recoveries.
The company’s “key employee incentive program” envisions a maximum award pool of about $3.7 million in the aggregate if the debtors achieve an adjusted EBITDA target — referring to earnings before interest, tax, depreciation and amortization — of $205 million during the second fiscal quarter, ending March 31, which Avaya said is historically its most challenging quarter in a given year. Its current target is the same benchmark the company set for the same quarter last year, it said.
According to Avaya, achieving its performance goals requires a “substantial stretch” by the executive committee “to fend off the efforts of well-capitalized competitors” and keep business functioning at a high level over the course of bankruptcy proceedings.
“This need is of heightened importance here, as competitors have seized on the debtors’ reorganization efforts as part of a public campaign to poach customers and undermine market confidence in the debtors’ restructuring efforts,” the motion states.
The award pool proposed under the incentive program reflects a voluntary 35 percent reduction to award levels used by Avaya prior to its bankruptcy petition, and requires the debtors to outperform the budgeted adjusted EBITDA of $166 million developed in connection with their post-petition financing agreement, the company said.
Those who would receive bonuses under the plan include the CEO and 10 other executives who have seen their workloads increase since Avaya filed for Chapter 11 protection, the company said.
Avaya’s counsel said they remain in ongoing discussions with the company’s creditors regarding the incentive program ahead of a court hearing on the motion later this month.
Telecom giant Avaya and its U.S. subsidiaries filed for Chapter 11 bankruptcy protection in January, the same day it revealed its rejection of a $3.9 billion bid for its call-center software business. CEO Kevin Kennedy cited the move as a “critical step” in its shift in focus from hardware to software and related services.
Avaya, which listed its debts as being between $1 billion and $10 billion, has secured a $725 million debtor-in-possession financing package provided by Citibank NA, which will allow the company to continue operations throughout the bankruptcy, it said.
Its top three unsecured creditors are the American affiliate of Wistron Corp. with an $8.8 million claim, Avnet Inc. with an $8.8 million claim and Hewlett Packard Enterprise Co. with a $5.2 million claim.
Earlier this week, the company sought a court order that would wipe out a 10-year agreement signed in 2012 to lease an executive suite in Levi’s Stadium for San Francisco 49ers home games, saying the $350,000 annual payments are an unnecessary burden.
Avaya is represented by Jonathan S. Henes, Patrick Nash and Ryan Preston Dahl of Kirkland & Ellis LLP.
The case is In re: Avaya Inc., case number 1:17-bk-10088, in the U.S. Bankruptcy Court for the Southern District of New York.
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