<Page>
Exhibit 10.1
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of September
2001 (the "Effective Date") by and between Avaya Inc., a Delaware corporation,
and Donald K. Peterson (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive currently serves as a key employee of
the Company (as defined in Section 1) and the Executive's services and knowledge
are valuable to the Company in connection with the management of one or more of
the Company's principal operating facilities, divisions, departments or
subsidiaries; and
WHEREAS, the Board (as defined in Section 1) has determined
that it is in the best interests of the Company and its stockholders to secure
the Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, without concern as
to whether the Executive might be hindered or distracted by personal
uncertainties and risks created by any such possible Change in Control, and to
encourage the Executive's full attention and dedication to the Company, the
Board has authorized the Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements herein contained, the Company and the
Executive hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means:
(1) a material breach by the Executive of those
duties and responsibilities of the Executive which do not
differ in any material respect from the duties and
responsibilities of the Executive during the 90-day period
immediately prior to a Change in Control (other than as a
result of incapacity due to physical or mental illness) which
is demonstrably willful and deliberate on the Executive's
part, which is committed in bad faith or without reasonable
belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period of
time after receipt of written notice from the Company
specifying such breach;
(2) the commission by the Executive of a felony
involving moral turpitude;
-1-
<Page>
(3) the commission by the Executive of theft, fraud,
breach of trust or any act of dishonesty involving the Company
or its subsidiaries; or
(4) the significant violation by the Executive of the
Company's code of conduct or any statutory or common law duty
of loyalty to the Company or its subsidiaries.
(c) "Change in Control" means:
(1) an acquisition by any individual, entity or group
(within the meaning of Section 13 (d)(3) or 14 (d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (an "Entity") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (A) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the
following: (1) any acquisition directly from the Company,
other than an acquisition by virtue of the exercise of a
conversion privilege unless the security so being converted
was itself acquired directly from the Company, (2) any
acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company, or (4) any acquisition by any corporation pursuant to
a transaction which complies with clauses (A), (B) and (C) of
subsection (3) of this Section 1(c); or
(2) a change in the composition of the Board such
that the individuals who, as of the Effective Date, constitute
the Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Board; PROVIDED, HOWEVER, that for purposes
of this definition, that any individual who becomes a member
of the Board subsequent to the Effective Date, whose election,
or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; and PROVIDED, FURTHER HOWEVER,
that any such individual whose initial assumption of office
occurs as a result of or in connection with either an actual
or threatened solicitation by an Entity other than the Board
for the purpose of opposing a solicitation by any other Entity
with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or
on behalf of an Entity other than the Board shall not be so
considered as a member of the Incumbent Board; or
(3) the approval by the stockholders of the Company
of a merger, reorganization or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company (each, a "Corporate Transaction") or, if consummation
of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding however,
such a Corporate
-2-
<Page>
Transaction pursuant to which (A) all or substantially all of
the individuals and entities who are beneficial owners,
respectively, of the Outstanding Company Stock and Outstanding
Company Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly,
more than 60% of, respectively, the outstanding shares of
common stock, and the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction
(including, without limitation, a corporation or other
individual, partnership, association, joint-stock company,
trust, unincorporated organization, limited liability company,
other entity or government or political subdivision which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries (a "Parent Company")) in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Entity (other
than the Company, any employee benefit plan (or related trust)
of the Company, such corporation resulting from such Corporate
Transaction or, if reference was made to equity ownership of
any Parent Company for purposes of determining whether clause
(A) above is satisfied in connection with the applicable
Corporate Transaction, such Parent Company) will beneficially
own, directly or indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such
corporation entitled to vote generally in the election of the
directors unless such ownership resulted solely from ownership
of securities of the Company prior to the Corporate
Transaction, and (C) individuals who were members of the
Incumbent Board will immediately after the consummation of the
Corporate Transaction constitute at least a majority of the
members of the board of directors of the corporation resulting
from such Corporate Transaction (or, if reference was made to
equity ownership of any Parent Company for purposes of
determining whether clause (A) above is satisfied in
connection with the applicable Corporate Transaction, of the
Parent Company); or
(4) the approval by the stockholders of the Company
of a complete liquidation or dissolution of the Company.
(d) "Company" means Avaya Inc., a Delaware corporation.
(e) "Date of Termination" means:
(1) the effective date on which the Executive's
employment by the Company terminates as specified in a prior
written notice by the Company or the Executive, as the case
may be, to the other, delivered pursuant to Section 11 or
(2) if the Executive's employment by the Company
terminates by reason of death, the date of death of the
Executive.
(f) "Entity" has the meaning set forth in Section 1(c)(1).
-3-
<Page>
(g) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change in
Control:
(1) any of (i) the assignment to the Executive of any
duties inconsistent in any material respect with the
Executive's duties or responsibilities with the Company
immediately prior to such Change in Control, (ii) any material
reduction in the Executive's duties or responsibilities with
the Company immediately prior to such Change in Control; (iii)
a change in the Executive's titles or offices with the Company
as in effect immediately prior to such Change in Control which
is adverse to the Executive or (iv) any removal or involuntary
termination of the Executive from the Company otherwise than
as expressly permitted by this Agreement;
(2) a reduction by the Company in the Executive's
rate of annual base salary or Target Percentage as in effect
immediately prior to such Change in Control (or if a different
short-term incentive compensation opportunity is then in
effect, a reduction in the amount of such different short-term
incentive compensation opportunity below the short-term
incentive compensation opportunity which had been afforded by
the Target Percentage as in effect immediately prior to such
Change in Control) or as the same may be increased from time
to time thereafter;
(3) any requirement of the Company that the Executive
be based more than 30 miles from the facility where the
Executive is located at the time of the Change in Control;
(4) the failure of the Company to continue in effect
any incentive compensation plan or supplemental retirement
plan, including the Supplemental Pension Plan, in which the
Executive is participating immediately prior to such Change in
Control, unless the Executive is permitted to participate in
other plans providing the Executive with substantially
comparable compensation opportunity and benefits, or the
taking of any action by the Company which would adversely
affect the Executive's participation in or materially reduce
the Executive's compensation opportunity and benefits under
any such plan; or
(5) the failure of the Company to obtain the
assumption agreement from any successor as contemplated in
Section 10(b).
For purposes of this Agreement, any good faith determination
of Good Reason made by the Executive shall be conclusive; PROVIDED, HOWEVER,
that an isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by the Company promptly after receipt of written notice
thereof given by the Executive shall not constitute Good Reason.
(h) "Nonqualifying Termination" means a termination of the
Executive's employment:
(1) by the Company for Cause,
(2) by the Executive for any reason other than Good
Reason,
-4-
<Page>
(3) by the Executive for Good Reason more than six
(6) months after the event constituting Good Reason,
(4) as a result of the Executive's death or
(5) by the Company under circumstances where the
Executive qualifies for benefits under a long-term disability
pay plan.
(i) "Potential Change in Control," for purposes of this Plan,
shall mean the happening of any of the following events:
(1) the commencement of a tender or exchange offer by
any third person which, if consummated, would result in a
Change in Control;
(2) the execution of an agreement by the Company, the
consummation of which would result in the occurrence of a
Change in Control;
(3) the public announcement by any person (including
the Company) of an intention to take or to consider taking
actions which if consummated would constitute a Change in
Control other than through a contested election for directors
of the Company; or
(4) the adoption by the Board, as a result of other
circumstances, including, without limitation, circumstances
similar or related to the foregoing, of a resolution to the
effect that a Potential Change in Control has occurred.
A Potential Change in Control shall be deemed to be pending until the earliest
of (i) the first anniversary thereof, (ii) the occurrence of a Change in Control
and (iii) the occurrence of a subsequent Potential Change in Control.
(j) "Supplemental Pension Plan" means the Avaya Inc.
Supplemental Pension Plan or any successor plan.
(k) "Target Percentage" means the annualized percentage
applied to an Executive's annual base salary in order to calculate the target
award for such Executive under the Company's short-term incentive compensation
program, prior to the application of Company or individual performance factors.
(l) "Termination Period" means the period of time beginning
with a Change in Control and ending on the earlier to occur of:
(1) two years following such Change in Control and
(2) the Executive's death.
2. OBLIGATIONS OF THE EXECUTIVE. The Executive agrees that in
the event of a Potential Change in Control, he shall not voluntarily leave the
employ of the Company without Good Reason prior to the termination of such
Potential Change in Control as follows:
-5-
<Page>
(a) if the Potential Change in Control terminates by reason
other than the occurrence of a Change in Control, until the earlier of (1) the
first anniversary of such Potential Change in Control and (2) the occurrence of
a subsequent Potential Change in Control; and
(b) if the Potential Change in Control terminates by reason of
the occurrence of a Change in Control, until 90 days following such Change in
Control.
For purposes of clause (a) of the preceding sentence, Good
Reason shall be determined as if a Change in Control had occurred when such
Potential Change in Control became known to the Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period the employment of the
Executive shall terminate, other than by reason of a Nonqualifying Termination,
then the Company shall pay to the Executive, within 30 days following the Date
of Termination, as compensation for services rendered to the Company:
(1) a cash amount equal to the sum of (i) the
Executive's full annual base salary from the Company and its
affiliated companies through the Date of Termination and any
short-term incentive compensation earned by the Executive for
any performance period ending prior to the Date of
Termination, in each case to the extent not theretofore paid,
(ii) an amount equal to the Executive's annual base salary
multiplied by the Executive's Target Percentage applicable
immediately prior to the Date of Termination (or, if greater,
immediately prior to the Change in Control), multiplied by
50%, multiplied by a fraction, the numerator of which is the
number of days elapsed in the applicable six-month performance
period in which the Date of Termination occurs through the
Date of Termination and the denominator of which is 180 (or if
a different short-term incentive compensation opportunity is
then in effect, an amount equal to the target short-term
incentive compensation afforded by such different short-term
incentive compensation opportunity for the applicable
performance period in which the Date of Termination occurs
(but not less than the amount that would have been afforded by
the Target Percentage as in effect immediately prior to such
Change in Control), multiplied by a fraction, the numerator of
which is the number of days elapsed in the applicable
performance period in which the Date of Termination occurs
through the Date of Termination and the denominator of which
is the total number of days in such applicable performance
period) and (iii) any compensation previously deferred by the
Executive (together with any interest and earnings thereon)
and any accrued vacation pay, in each case to the extent not
theretofore paid; plus
(2) a lump-sum cash amount (subject to any applicable
payroll or other taxes required to be withheld pursuant to
Section 5) in an amount equal to (i) three (3) times the
Executive's highest annual base salary from the Company and
its affiliated companies in effect during the 12-month period
prior to the Date of Termination, plus (ii) an amount equal to
the product of three (3) times such annual base salary
multiplied by the Executive's Target Percentage as applicable
immediately prior to the Date of Termination (or, if greater,
immediately prior to the Change in
-6-
<Page>
Control) (or if a different short-term incentive compensation
opportunity is then in effect, an amount equal to the product
of [ ] ( )] times the annual target short-term incentive
compensation afforded by such different short-term incentive
compensation opportunity, but not less than [ ] ( )] times the
amount that would have been afforded by the Target Percentage
as in effect immediately prior to such Change in Control);
PROVIDED, HOWEVER, that any amount paid pursuant to this
Section 3(a)(2) shall be paid in lieu of any other amount of
severance relating to salary, short-term incentive
compensation or other bonus continuation to be received by the
Executive upon termination of employment of the Executive
under any severance plan, policy or arrangement of the
Company. Notwithstanding the foregoing, if the Company is
obligated by law or contract to pay severance pay, notice pay
or other similar benefits, or if the Company is obligated by
law or by contract to provide advance notice of separation
("Notice Period"), then the payments made pursuant to this
Section 3(a)(2) shall be reduced by the amount of any such
severance, notice pay or other similar benefits, as
applicable, and by the amount of any severance pay, notice pay
or other similar benefits received during any Notice Period.
(b) In addition to the payments to be made pursuant to Section
3(a), the Company shall pay to the Executive at the time the payments pursuant
to Section 3(a) shall be made, a lump-sum cash amount equal to the actuarial
equivalent of the excess of (i) the Executive's accrued benefits under any
qualified defined benefit pension plan and any nonqualified supplemental defined
benefit pension plan of the Company in which the Executive is a participant,
calculated by increasing the Executive's age and service credit under such plans
as of the Date of Termination by three (3) year(s) over (ii) the Executive's
accrued benefits under such plans as of the Date of Termination. Such lump sum
cash amount shall be computed using the same actuarial methods and assumptions
then in use for purposes of computing benefits under such plans, provided that
the interest rate used in making such computation shall not be greater than the
interest rate permitted under Section 417(e) of the Internal Revenue Code of
1986, as amended (the "Code"), on the Date of Termination.
(c) For a period of three (3) years commencing on the Date of
Termination, the Company shall continue to keep in full force and effect all
policies of medical and life insurance with respect to the Executive and his
dependents with the same level of coverage, upon the same terms and otherwise to
the same extent as such policies shall have been in effect immediately prior to
the Date of Termination or as provided generally with respect to other peer
executives of the Company and its affiliated companies, and the Company and the
Executive shall share the costs of the continuation of such insurance coverage
in the same proportion as such costs were shared immediately prior to the Date
of Termination; PROVIDED, HOWEVER, that the medical and life insurance coverage
provided pursuant to this Section 3(c) shall be in lieu of any other medical and
life insurance coverage to which the Executive is entitled under any plan,
policy or arrangement of the Company or any law obligating the Company to
provide such insurance coverage upon termination of employment of the Executive.
(d) If during the Termination Period the employment of the
Executive shall terminate by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive, within 30 days following the Date of
Termination, a cash amount equal to the sum of:
-7-
<Page>
(1) the Executive's full annual base salary from the
Company through the Date of Termination, to the extent not
theretofore paid, and
(2) any compensation previously deferred by the
Executive (together with any interest and earnings thereon)
and any accrued vacation pay, in each case to the extent not
theretofore paid.
4. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or its affiliated companies to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, including, without limitation, as a
result of the acceleration of the vesting of stock options, restricted stock
units or other equity awards, but determined without regard to any additional
payments required under this Section 4) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
and employment taxes (and any interest and penalties imposed with respect
thereto) and the Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments; PROVIDED, HOWEVER, that the Executive shall be entitled to receive
a Gross-Up Payment only if the amount of the "parachute payment" (as defined in
Section 280G(b)(2) of the Code) exceeds the sum of (A) $50,000 plus (B) 2.99
times the Executive's "base amount" (as defined in Section 280G(b)(3) of the
Code), and PROVIDED FURTHER, that if the Executive is not entitled to receive a
Gross-Up Payment, the Executive shall be entitled to receive only such amounts
under Sections 3(a)(2), 3(b) and 3(c) of this Agreement that would not include
any "excess parachute payment" (as defined in Section 280G(b)(1) of the Code).
The intent of the parties is that the Company shall be solely responsible for,
and shall pay, any Excise Tax on any Payment and Gross-Up Payment and any income
and employment taxes (including, without limitation, penalties and interest)
imposed on any Gross-Up Payment, as well as bearing any loss of tax deduction
caused by the Gross-Up Payment.
(b) Subject to the provisions of Section 4(c), all
determinations required to be made under this Section 4, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the Company's public accounting firm (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is requested by the Company. All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 4, shall be paid by
the Company to the Executive within five (5) days of the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it shall furnish the Executive with a
written opinion that
-8-
<Page>
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. The Accounting Firm shall make all determinations under the tax
standard of "substantial authority" as such term is used in Section 6662 of the
Code. Any determination by the Accounting Firm shall be binding upon the Company
and the Executive. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 4(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(1) give the Company any information reasonably
requested by the Company relating to such claim,
(2) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(4) permit the Company to participate in any
proceedings relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 4(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or
-9-
<Page>
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; PROVIDED FURTHER, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and PROVIDED FURTHER, that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 4(c), the Executive becomes entitled
to receive, and receives, any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section 4(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 4(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
5. WITHHOLDING TAXES. The Company may withhold from all
payments due to the Executive (or his beneficiary or estate) hereunder all taxes
which, by applicable federal, state, local or other law, the Company is required
to withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or involving the failure or refusal of the Company to perform
fully in accordance with the terms hereof, the Company shall reimburse the
Executive, on a current basis, for all reasonable legal fees and expenses, if
any, incurred by the Executive in connection with such contest or dispute,
together with interest thereon at a rate equal to the prime rate, as published
under "Money Rates" in THE WALL STREET JOURNAL from time to time, but in no
event higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives the Executive's statement
for such fees and expenses through the date of payment thereof; PROVIDED,
HOWEVER, that in the event the resolution of any such contest or dispute
includes a finding denying, in total, the Executive's claims in such contest or
dispute, the Executive shall be required to reimburse the Company, over a period
of 12 months from the date of such resolution, for all sums advanced to the
Executive pursuant to this Section 6.
-10-
<Page>
7. OPERATIVE EVENT. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control at a time when the Executive is employed by the Company.
8. TERMINATION OF AGREEMENT.
(a) This Agreement shall be effective on the Effective Date
and shall expire on the second anniversary of the Effective Date, provided that
the term of this Agreement shall be extended automatically for one additional
year as of each annual anniversary of the Effective Date, commencing with the
second anniversary of the Effective Date (each such date a "Renewal Date")
unless this Agreement is terminated pursuant to Section 8(b) or, if earlier,
upon the earlier to occur of (i) termination of the Executive's employment with
the Company prior to a Change in Control and (ii) the Executive's death.
Notwithstanding the foregoing, any expiration of this Agreement shall not
retroactively impair or otherwise adversely affect the rights of the Executive
which have arisen prior to the date of such expiration.
(b) The Company shall have the right, in its sole
discretion, pursuant to action by the Board, to approve the amendment or
termination of this Agreement, which amendment or termination shall not
become effective until the Renewal Date coincident with or next following the
date of such action, or if later, the date fixed by the Board for such
amendment or termination; provided, that an amendment which is not adverse to
the interests of the Executive shall take effect immediately; and provided
further, that in no event shall this Agreement be amended in a manner adverse
to the interests of the Executive or be terminated during any period that a
Potential Change in Control is pending or in the event of a Change in Control.
9. SCOPE OF AGREEMENT. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries and, if the Executive's employment with the Company shall terminate
prior to a Change in Control, then the Executive shall have no further rights
under this Agreement; PROVIDED, HOWEVER, that any termination of the Executive's
employment following a Change in Control shall be subject to all of the
provisions of this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in Section 10(a), it will cause
any successor or transferee unconditionally to assume, by written instrument
delivered to the Executive (or the Executive's beneficiary or estate), all of
the obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall entitle the
Executive to compensation and
-11-
<Page>
other benefits from the Company in the same amount and on the same terms as the
Executive would be entitled hereunder if the Executive's employment were
terminated following a Change in Control other than by reason of a Nonqualifying
Termination during the Termination Period. For purposes of implementing the
foregoing, the date on which any such merger, consolidation or transfer becomes
effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amounts would be payable to the Executive
hereunder had the Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to such person or persons appointed in writing by the Executive to
receive such amounts or, if no person is so appointed, to the Executive's
estate.
11. NOTICES.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five (5) days after deposit in
the United States mail, certified and return receipt requested, postage prepaid,
addressed
(1) if to the Executive, to the home address of the
Executive on the most current Company records, and if to the
Company, to Avaya Inc., attention Vice President, Human
Resources with a copy to the Secretary of the Board, or
(2) to such other address as either party may have
furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective
only upon receipt.
(b) A written notice of the Executive's Date of Termination by
the Company or the Executive, as the case may be, to the other, shall (i)
indicate the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than fifteen (15) days after the giving of
such notice). The failure by the Executive or the Company to set forth in such
notice any fact or circumstance which contributes to a showing of Good Reason or
Cause shall not waive any right of the Executive or the Company hereunder or
preclude the Executive or the Company from asserting such fact or circumstance
in enforcing the Executive's or the Company's rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES.
(a) The Company's obligation to make any payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the
-12-
<Page>
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause, that the
determination by the Executive of the existence of Good Reason was not made in
good faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive and his dependents or other beneficiaries,
as the case may be, under Sections 3(a), 3(b) and 3(c), the Company shall pay
all amounts, and provide all benefits, to the Executive and his dependents or
other beneficiaries, as the case may be, that the Company would be required to
pay or provide pursuant to Sections 3(a), 3(b) and 3(c) as though such
termination were by the Company without Cause or by the Executive with Good
Reason; PROVIDED, HOWEVER, that the Company shall not be required to pay any
disputed amounts pursuant to this Section 12(b) except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.
13. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company
for purposes of this Agreement shall include employment with (i) any "subsidiary
corporation" of the Company, as defined in Section 424(f) of the Code, (ii) an
entity in which the Company directly or indirectly owns 50% or more of the
voting interests or (iii) an entity in which the Company has a significant
equity interest, as determined by the Board or by the Corporate Governance and
Compensation Committee (or any successor committee) of the Board.
14. GOVERNING LAW; VALIDITY. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware without
regard to the principle of conflicts of laws. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which other provisions
shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. Failure by the Executive or the Company to insist upon strict compliance
with any provision of this Agreement or to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement. Except as otherwise expressly set forth in this Agreement, the rights
of, and benefits
-13-
<Page>
payable to, the Executive, his estate or his beneficiaries pursuant to this
Agreement are in addition to any rights of, or benefits payable to, the
Executive, his estate or his beneficiaries under any other employee benefit plan
or compensation program of the Company.
-14-
<Page>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by a duly authorized officer of the Company and the Executive has
executed this Agreement as of the day and year first above written.
AVAYA INC.
By: /s/ Michael J. Harrison
----------------------------
EXECUTIVE
/s/ Donald K. Peterson
------------------------------
Donald K. Peterson
-15-
<Page>
NOTE: The Company has also entered into Severance Agreements, each dated as of
September 1, 2001, with each of the following executive officers:
Garry K. McGuire, Sr. Chief Financial Officer and Senior Vice President,
Operations
Michael A. Dennis Group Vice President, Services
David P. Johnson Senior Vice President, Sales and Marketing
Karyn Mashima Senior Vice President, Strategy and Technology
Such Severance Agreements are substantially identical to Mr. Peterson's in
all material respects, except that the severance benefit for each above
listed executive officer is two times the sum of their respective annual base
salaries and target bonuses. In addition, these executive officers are
entitled to continuation of medical and life insurance and a pension
enhancement payment for a two-year period.