Avaya filed with the U.S. Bankruptcy Court a motion seeking entry of an order approving the Debtors’ 3Q-4Q 2017 Key Employee Incentive Program (KEIP).
The motion explains, “The Debtors request entry of an order approving the Debtors’ 3Q-4Q 2017 Key Employee Incentive Program for up to 14 key employees for the Debtors’ third and fourth fiscal quarters ending June 30 and September 30, 2017, respectively, and providing for payment an aggregate award pool of between $2.1 million and $3.2 million per quarter, subject to achievement of Threshold Adjusted EBITDA and the Emergence Milestones.”
In addition, “The 3Q-4Q KEIP is designed to incentivize key members of management and maximize value for the estate. For example, the proposed 3Q-4Q KEIP incorporates an ‘Emergence Milestone’ component, under which 10% of an individual KEIP Participant’s total award opportunity is tied to the date by which the Debtors emerge from chapter 11, thereby further incentivizing the speedy resolution of these chapter 11 cases. Additionally, the Adjusted EBITDA threshold proposed by the Debtors’ proposed 3Q and 4Q KEIP of $178 million and $209 million, respectively, will require the Debtors to have exceeded their business plan for each of those periods by $9 million and $10 million, respectively – thereby requiring further outperformance by the KEIP participants for such goals to be achieved….Additionally, the proposed KEIP program is also reasonable on a market basis in absolute terms: a maximum quarterly award pool of approximately $3.2 and $2.8 million (for 3Q and 4Q, 2017 respectively) is less than 1.5% of the total Adjusted EBITDA required to earn the Target award.”
The motion continues, “The 3Q-4Q KEIP will cost a total of approximately $4.6 million at threshold opportunity levels and $6.0 million at maximum opportunity levels – in each case assuming targeted performance and emergence goals are actually achieved; by comparison, the Debtors’ prepetition balance sheet includes more than $6.0 billion of funded debt. At the maximum opportunity level, the 3Q KEIP’s $3.2 million award level total reflects approximately 1.5% of the requisite Adjusted EBITDA performance of $219 million, and the 4Q KEIP’s $2.8 million award level total reflects approximately 1.1% of the requisite Adjusted EBITDA performance of $252 million; and in each case the KEIP remains self-funding given that performance is measured net of the cost of the KEIP.”
The Court scheduled a July 13, 2017 hearing to consider the KEIP motion, with objections due by July 6, 2017. http://bankruptcompanynews.com/avaya-keip-6-23-17/