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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: MARCH 10, 2002
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AVAYA INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED ON ITS CHARTER)
DELAWARE 1-15951 22-3713430
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(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER
IDENTIFICATION
NUMBER)
211 MOUNT AIRY ROAD
BASKING RIDGE, NJ 07920
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(908) 953-6000
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(REGISTRANT'S TELEPHONE NUMBER)
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ITEM 5. OTHER EVENTS.
AGREEMENTS WITH WARBURG
On March 10, 2002, Avaya Inc. (the "Company"), Warburg, Pincus
Netherlands Equity Partners I, C.V., Warburg, Pincus Netherlands Equity Partners
II, C.V., Warburg, Pincus Netherlands Equity Partners III, C.V. and Warburg,
Pincus Equity Partners, L.P. (collectively, the "Warburg Entities") entered into
a Stock Purchase Agreement (the "Stock Purchase Agreement") and a Conversion and
Exercise Agreement (the "Conversion Agreement" and, together with the Stock
Purchase Agreement, the "Agreements").
Under the Stock Purchase Agreement, the Warburg Entities agreed to
purchase from the Company an aggregate of 14,383,953 shares of the Company's
common stock, par value $0.01 per share (the "Common Stock"), for $6.26 per
share (which was the reported closing price of the Common Stock on the New York
Stock Exchange on March 8, 2002), for a total purchase price of approximately
$90 million.
Under the Conversion Agreement, (a) the Company agreed to reduce the
conversion price of the 6 1/2% Series B Convertible Participating Preferred
Stock, par value $1.00 per share (the "Preferred Stock"), of the Company owned
by the Warburg Entities from $26.71 per share to $11.31 per share, and (b) the
Warburg Entities agreed to (i) convert all 4 million outstanding shares of
Preferred Stock into a total of 38,329,365 shares of Common Stock and (ii)
purchase an additional 286,682 shares of Common Stock from the Company by
exercising a portion of the warrants that the Warburg Entities own at an
exercise price of $34.73 per share (for gross proceeds to the Company upon such
exercise of approximately $10 million).
If both transactions close, (i) the Warburg Entities will hold
approximately 53 million shares of Common Stock (representing approximately
15.5% of the outstanding shares of Common Stock) and warrants to purchase
approximately 12.1 million additional shares of Common Stock at $34.73 per
share, and (ii) there will be no shares of Preferred Stock outstanding (and,
accordingly, the Preferred Stock will cease accruing dividends).
The Warburg Entities' obligation to close the transactions is subject
to (i) regulatory clearance under the Hart-Scott-Rodino Antitrust Improvements
Act, (ii) the absence of a material adverse effect on the business and
operations of the Company, (iii) the absence of any litigation relating to
Warburg Entities' ownership of the Company's securities or the transactions and
(iv) other customary conditions. Accordingly, there can be no assurance that the
transactions will be consummated. Each Agreement provides that either party may
terminate such Agreement at any time after April 30, 2002 if the closing has not
occurred by that date and such party is not in breach.
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Jeffrey Harris, a Senior Managing Director of an affiliate of the
Warburg Entities, resigned from the Company's board of directors (the "Board")
prior to the Board's approval of the Agreements. Mr. Harris served as the
chairman of the Company's Audit and Finance Committee. The Board has appointed
Mark Leslie, a current member of the Audit and Finance Committee, to succeed Mr.
Harris as chairman of that committee. The Warburg Entities retain the right to
designate for election by the Company's stockholders a director acceptable to
the rest of the Board who is not affiliated with the Warburg Entities.
CERTAIN CHARGES
The Company announced that it will record a one-time retained earnings
charge of approximately $130 million in connection with the conversion of the
Preferred Stock by the Warburg Entities under the Conversion Agreement (which
will impact earnings per share but not net income). The Company also
announced that it will record a restructuring charge of approximately $100
million in connection with workforce reductions, which will contribute to the
Company reporting a net loss in earnings per share for the current fiscal
quarter.
FINANCING PLAN; RATINGS DOWNGRADE; TERMINATION OF RECEIVABLES
SECURITIZATION FACILITY
The Company has retained Bear, Stearns & Co. Inc. to help the Company
raise an additional $100 million of equity financing (plus an over-allotment
option of up to 15%). The Company is also exploring options to repay all or a
portion of its existing bank debt by replacing that debt with a longer-term debt
instrument. The Company announced that it expects its ratings from Standard &
Poors and Moody's to be downgraded. This downgrade, among other factors, could
impair the Company's ability to secure additional financing on attractive terms,
and there can be no assurance that the Company will be successful in raising any
of the new financing on acceptable terms.
On March 11, 2002, the Company notified the financial institution that
is a party to the Company's accounts receivable securitization facility that the
Company has elected to terminate the program effective March 15, 2002. Under the
terms of the program, upon termination, purchases of receivables by the
financial institution will cease, thereby eliminating a source of liquidity for
the Company and, in addition, collections on receivables constituting the
designated pool subject to the facility will be used to pay down the financial
institution's $200 million investment under the facility. There can be no
assurance that the Company will be able to replace this source of liquidity on
acceptable terms.
Attached hereto as Exhibits 10.1 and 10.2 are copies of the Stock
Purchase Agreement and the Conversion Agreement, respectively. Attached hereto
as Exhibit 99.1 is a copy of a press release issued by the Company on March 11,
2002 announcing the execution of the Agreements and reporting on certain
financial results for the current fiscal quarter.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) EXHIBITS.
Exhibit 10.1 -- Stock Purchase Agreement by and among Avaya Inc. and the
Warburg Entities, dated as of March 10, 2002
Exhibit 10.2 -- Conversion and Exercise Agreement by and among Avaya Inc.
and the Warburg Entities, dated as of March 10, 2002
Exhibit 99.1 -- Press Release, dated March 11, 2002
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AVAYA INC.
Date: March 11, 2002 By: /s/ Pamela F. Craven
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Name: Pamela F. Craven
Title: Senior Vice President, General
Counsel and Secretary
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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Exhibit 10.1 -- Stock Purchase Agreement by and among Avaya Inc. and the
Warburg Entities, dated as of March 10, 2002
Exhibit 10.2 -- Conversion and Exercise Agreement by and among Avaya Inc.
and the Warburg Entities, dated as of March 10, 2002
Exhibit 99.1 -- Press Release, dated March 11, 2002
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