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Exhibit 10.36  

 
 

SEVERANCE AGREEMENT    
    

        THIS AGREEMENT is entered into as of the 1st day of September 2003 (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; 

        (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 50% or more of either (A) the then outstanding
shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined 

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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 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, 50% 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 

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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). 

        (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). 

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        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, 

        (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. 

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        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: 

        (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 Control) (or if a different short-term incentive compensation opportunity is then in effect, an amount equal to the
product of three (3) times the annual target short-term incentive compensation afforded by such different short-term incentive compensation opportunity, but not less
than three (3) 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 

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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: 

        (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 

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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 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 

7

 

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 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. 

8

   
        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. 

        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), 

9

 

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 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 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 

10

 

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 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. 

11

 

        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

12

 

        Note:
The Company has also entered into Severance Agreements, each dated as of September 1, 2003, with each of the following executive officers: 

	Garry K. McGuire, Sr.	 	Chief Financial Officer and Senior Vice President, Corporate Development
	

Louis J. D'Ambrosio	
 	

Group Vice President, Avaya Global Services
	

David P. Johnson	
 	

Group Vice President, Small and Medium Business Solutions
	

Michael Thurk	
 	

Group Vice President, Enterprise Communications Group

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. 

13

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Exhibit 10.37  

AVAYA INC.  

 2000 LONG TERM INCENTIVE PLAN  

Amended as of November 1, 2003  

 
  
 

    Article 1—Background and Purpose    
    

        The purpose of the Avaya Inc. 2000 Long Term Incentive Plan is to enhance shareholder value by reinforcing the Company's efforts to motivate Employees to
contribute to the Company's growth and performance, and enabling the Company to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and
profitability of the Company depend. 

 
 

Article 2—Definitions    
    

        For the purposes of this Plan, the following words shall have the meanings ascribed to them below: 

(a)   Award  

        Any Option, Stock Appreciation Right, Restricted Stock Award, Performance Award, Dividend Equivalent, Other Stock Unit Award, Substitute Award or any other right,
interest, or option relating to Shares or other securities of the Company granted pursuant to the provisions of the Plan. 

(b)   Award Agreement  

        The written agreement, contract, or other instrument or document provided by the Company to evidence an Award and signed by both the Company and the Participant. 

(c)   Board  

        The Board of Directors of the Company. 

(d)   Change in Control  

        The happening of any of the following events: 

        (i)    An
acquisition by any individual, entity or group (within the meaning of Section 13 (d)(3) or 14 (d)(2) of the Exchange Act) (an "Entity") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% 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 (iii) of this Article 2(d); or 

        (ii)   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, 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 election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) 

2

 

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 

        (iii)  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 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 Person 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, 50% 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 

        (iv)  The
approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 

(e)   Code  

        The Internal Revenue Code of 1986, as amended. 

(f)    Committee  

        The Corporate Governance and Compensation Committee (or any successor committee) of the Board. 

(g)   Company  

        Avaya Inc., a Delaware corporation. 

(h)   Company Action  

        A Company or Subsidiary declared or initiated (i) termination from service under a force management program, (ii) sale of a unit or portion of a
unit, (iii) transfer of a Participant to a 

3

 

corporation,
partnership, limited liability company or other business entity in which the Company has a direct or indirect equity interest and which does not constitute a Subsidiary or
(iv) placement of the job function of a Participant with an outsourcing contractor unless the successor employer has made appropriate provision for the assumption and continuation of Awards of
Employees who are employed by the successor employer after an event described in (ii), (iii) or (iv). 

(i)    Covered Employee  

        A "covered employee" within the meaning of Section 162(m)(3) of the Code. 

(j)    Delegate  

        The person or committee authorized by the Committee or the Board to exercise specified authority under this Plan. 

(k)   Dividend Equivalent  

        Has the meaning assigned in Article 6(b). 

(l)    Disability or Disabled  

        Termination of employment under circumstances where the Participant qualifies for benefits under a long-term disability pay plan as provided in the
Participant's Award Agreement. 

(m)  Employee  

        Any employee of the Company or any Subsidiary, excluding leased employees within the meaning of Section 414(n) of the Code. 

(n)   Exchange Act  

        The Securities Exchange Act of 1934, as amended. 

(o)   Expiration Date  

        The date specified in the Award Agreement after which rights under the Award expire. 

(p)   Fair Market Value  

        The average of the high and low sales prices of a Share as reported on the New York Stock Exchange on the Grant Date, or if no sales of Shares were reported on
such date, the average of the high and low prices of a Share on the next preceding day on which sales were reported. 

(q)   Grant Date  

        The Grant Date shall be the date an Award is granted as set forth in the Award Agreement. 

(r)   Incentive Option  

        An Option granted under Article 7 that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. 

(s)   Nonstatutory Option  

        An Option granted under Article 7 that is not intended to be an Incentive Option. 

4

 

(t)    Option  

        An Award described in Article 7. 

(u)   Other Stock Unit Award  

        An Award described in Article 11. 

(v)   Participant  

        An Employee who is selected by the Committee to receive an Award under the Plan. 

(w)  Performance Award  

        An Award described in Article 10. 

(x)   Performance Period  

        That period, established by the Committee at or after the time any Performance Award is granted, during which any performance goals specified by the Committee
with respect to such Award are to be measured. 

(y)   Person  

        Any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, limited liability company, other entity or
government or political subdivision. 

(aa) Plan  

        The Avaya Inc. 2000 Long Term Incentive Plan. 

(bb) Restricted Stock  

        An Award described in Article 9. 

(cc) Retirement  

        Termination of the employment of a Participant with the Company or any Subsidiary under circumstances where the Participant qualifies for benefits under a
retirement plan as provided in the Participant's Award Agreement. 

(dd) Share  

        A share of the common stock of the Company, par value $.01 per share. 

(ee) Stock Appreciation Right  

        An Award described in Article 8. 

(ff)  Stock Award Committee  

        A committee of one or more directors appointed by the Committee pursuant to Article 4. 

5

 

(gg) Subsidiary  

        A "subsidiary corporation" of the Company as defined in Section 424(f) of the Code, an entity in which the Company directly or indirectly owns 50% or more
of the voting interests or an entity in which the Company has a significant equity interest, as determined by the Committee. 

(hh) Substitute Award  

        An Award granted in lieu of an Option or Stock Appreciation Right pursuant to Article 17. 

(ii)   Term  

        The period beginning on October 1, 2000, and ending on October 1, 2005. 

 
 

Article 3—Shares Available for Option; Adjustments    
    

	(a)
	Subject
to adjustment as provided in Article 3(b), the aggregate number of Shares which may be made subject to Awards granted under this Plan shall not exceed 25 million
(25,000,000); provided, that if any Shares are subject to an Award that is forfeited, settled in cash, expires, or is otherwise terminated without
issuance of Shares, such Shares shall again be available for Awards under the Plan if no Participant shall have received any benefits of ownership in respect thereof; and  provided, further, that no more
than two million (2,000,000) Shares shall be available for the grant of Incentive Options under the Plan during the
Term; and provided, further, that no Participant may be granted Awards with respect to more than 5,000,000 Shares in the aggregate during the Term. In
addition, the number of Shares available for grants under the Plan or to a Participant in any fiscal year shall not be reduced by Awards granted or Shares issued by the Company through the assumption
of, or in substitution or exchange for awards or the right or obligation to make future grants of awards in connection with the acquisition of another corporation or business entity or in connection
with the assumption of any Award granted by Lucent Technologies Inc. ("Lucent") to an Employee who becomes an Avaya Individual as defined in the Employee Benefits agreement dated as of
October 1, 2000 between the Company and Lucent. Any Shares issued under the Plan may consist, in whole or in part, of authorized and unissued Shares, Shares purchased in the open market or
otherwise, treasury Shares, or any combination of the foregoing, as the Board or the Committee may from time to time determine.

	(b)
	In
the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, spin off or similar transaction or other change in
corporate structure affecting the Shares, such adjustments and other substitutions shall be made to the Plan, and to Awards as the Committee in its sole discretion deems equitable or appropriate,
including: such adjustments in the aggregate number, class and kind of Shares or other consideration which may be delivered under the Plan, in the aggregate or to any one Participant; in the number,
class, kind and option or exercise price of Shares subject to outstanding Awards granted under the Plan; and in the number, class and kind of Shares subject to Awards granted under the Plan
(including, if the Committee deems appropriate, the substitution of similar options to purchase the shares of, or other awards denominated in the shares of, another company)  provided, however, that the number of Shares or other securities subject to any Award shall always be a
whole number.

	(c)
	Except
as provided in Article 21, the Committee shall be authorized to make adjustments in Performance Award criteria or in the terms and conditions of other Awards in
recognition of unusual or nonrecurring events affecting the Company or its financial statements, or changes in applicable laws, regulations or accounting principles. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable. In the event the Company shall assume outstanding employee
benefit awards or the right or obligation to make future such awards in connection with the 

6

 

acquisition
of another corporation or business entity, the Committee may, in its discretion, make such adjustments in the terms of Awards under the Plan as it shall deem appropriate. 

 
 

Article 4—Administration    
    

        The Plan shall be administered by the Committee. The Committee shall be responsible to the Board for the operation of the Plan. The Committee may appoint one or
more Directors to serve as the Stock Award Committee to make grants of Options, administer the Plan, discharge the duties of the Committee under Articles 5, 6, 7, 8, 9 and 14 with respect to Employees
other than officers and directors of the Company, and adopt rules and regulations under the Plan and make interpretations of the Plan with respect to such Employees. If the Committee does not appoint
a Stock Award Committee, the Plan shall be administered by the Committee. The Committee or the Stock Award Committee may appoint a Delegate to administer and interpret the provisions of the Plan,
promulgate rules and regulations under the Plan, discharge the duties of the Committee under Articles 9 and 14, designate employees to perform ministerial functions under this Plan and execute
documents on behalf of the Company; provided, however, that any Delegate appointed pursuant to this
Article 4 who is a Participant in the Plan shall not participate in making any decision that would benefit such Delegate, except to the extent such decision would only incidentally benefit the
Delegate and would also generally benefit a larger class of Employees. 

        The
interpretations and construction of any provision of the Plan by the Committee, the Stock Award Committee, or the Delegate, as the case may be, as well as any factual determinations,
shall be final, unless otherwise determined by the Board. No member of the Board, the Committee, the Stock Award Committee or any Delegate shall be liable for any action or determination made by him
or her in good faith. 

 
 

Article 5—Eligibility    
    

        (a)   The
Committee, in its sole discretion, may grant an Award to any Employee who is actively employed by the Company or a Subsidiary. The adoption of this Plan shall not be
deemed to give any Employee any right to be granted an Award, except and to the extent and upon such terms and conditions as may be determined by the Committee. 

        (b)   Neither
this Plan nor any Award shall be construed as giving any person the right to be retained in the employ of the Company or any Subsidiary. No Employee or
Participant shall have any claim to be granted any Award under the Plan, and there is no obligation of uniformity of treatment of Employees or Participants under the Plan. This Plan creates no ongoing
obligation of the Company to provide any future benefit of similar value. The provisions of any Award need not be the same with respect to each recipient of an Award of the same type. 

 
 

Article 6—Awards—General    
    

        (a)   Awards
may be granted to Participants either alone or in addition to any other type of Award granted under the Plan. Awards may be granted for no consideration, for such
minimum consideration as is required by applicable law or for such other consideration as the Committee may determine. Any Award granted under the Plan shall be evidenced by an Award Agreement in such
form as the Committee may from time to time approve. The prospective recipient of any Award shall not, with respect to such Award, be deemed to have become a Participant, or to have any rights with
respect to such Award, until and unless such recipient shall have executed and delivered to the Company an Award Agreement evidencing the Award, and otherwise complied with the then applicable terms
and conditions. The term of each Award shall be for such period of months or years from the date of its grant as may be determined by the Committee; provided that in no event shall the term of any
Incentive Option or any Stock Appreciation Right related to any Incentive Option exceed a period of ten (10) years from its Grant Date. The Committee may impose such conditions on the exercise
or vesting of any Award as it shall deem appropriate. 

7

   
        (b)   Subject to the provisions of this Plan and any Award Agreement, the recipient of an Award (including, without limitation, any deferred Award) may, if so determined by
the Committee, be entitled to receive, currently or on a deferred basis, interest or dividends, or interest or dividend equivalents (collectively, "Dividend Equivalents"), with respect to the number
of Shares covered by the Award, as determined by the Committee, in its sole discretion, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional
Shares or otherwise reinvested. 

Article 7—Options  

        An Option is a right to purchase Shares subject to the following terms and conditions and to such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem desirable: 

        (a)    Option Price.    The exercise price per Share under an Option shall be determined by the Committee in its sole
discretion; provided that except in the case of an Option pursuant to a Substitute Award, such exercise price shall not be less than the Fair Market Value of a Share on the date of the grant of the
Option. 

        (b)    Exercisability.    Options shall be exercisable at such time or times as determined by the Committee at or
subsequent to grant. Unless otherwise determined by the Committee at or subsequent to grant, no Incentive Option shall be exercisable during the year ending on the day before the first anniversary
date of the granting of the Incentive Option. 

        (c)    Method Of Exercise.    Subject to the other provisions of the Plan and any applicable Award Agreement, any
Option may be exercised by the Participant in whole or in part at such time or times, and the Participant may make payment of the option price in such form or forms, including, without limitation,
payment by delivery of cash, Shares or other consideration (including, where permitted by law and the Committee, Awards) having a fair market value on the exercise date equal to the total option
price, or by any combination of cash, Shares and other consideration as the Committee may specify in the applicable Award Agreement. 

        (d)    Incentive Options.    In accordance with rules and procedures established by the Committee, the aggregate Fair
Market Value (determined as of the time of grant) of the Shares with respect to which
Incentive Options held by any Participant which are exercisable for the first time by such Participant during any calendar year under the Plan (and under any other benefit plans of the Company or of
any parent or Subsidiary of the Company) shall not exceed $100,000 or, if different, the maximum limitation in effect at the time of grant under Section 422 of the Code, or any successor
provision, and any regulations promulgated thereunder. The terms of any Incentive Option shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision,
and any regulations promulgated thereunder. 

        (e)    Form Of Settlement.    In its sole discretion, the Committee may provide, at the time of grant, that the Shares
to be issued upon an Option's exercise shall be in the form of Restricted Stock or other similar securities, or may reserve the right so to provide after the time of grant. 

Article 8—Stock Appreciation Rights  

        A Stock Appreciation Right is a right to receive in cash the difference between the Fair Market Value of a Share on the exercise date and the Grant Date. A Stock
Appreciation Right shall otherwise have the same terms and conditions as an Option. Any Stock Appreciation Right related to a Nonstatutory Option may be granted at the same time such Option is granted
or at any time thereafter before exercise or expiration of such Option. Any Stock Appreciation Right related to an Incentive Option must be granted at the same time such Option is granted. In the case
of any Stock 

8

 

Appreciation
Right related to any Option, the Stock Appreciation Right or applicable portion thereof shall terminate and no longer be exercisable upon the termination or exercise of the related
Option, except that a Stock Appreciation Right granted with respect to less than the full number of Shares covered by a related Option shall not be reduced until the exercise or termination of the
related Option exceeds the number of Shares not covered by the Stock Appreciation Right. Any Option related to any Stock Appreciation Right shall no longer be exercisable to the extent the related
Stock Appreciation Right has been exercised. 

Article 9—Restricted Stock  

        Restricted Stock is an Award in the form of Shares issued with the restriction that the Participant may not sell, transfer, pledge or assign the Shares and with
any other restrictions that the Committee may impose (including restrictions on the right to vote or receive cash dividends on the Shares) which restrictions may lapse separately or in combination at
such time or times, in installments or otherwise, as the Committee shall determine. A Restricted Stock Award may be evidenced in such manner as the Committee in its sole discretion shall deem
appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of a
Restricted Stock Award, such certificate shall be registered in
the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award. 

Article 10—Performance Awards  

        A Performance Award is an Award of Performance Units or Performance Shares which vests and becomes non-forfeitable based on performance criteria
determined by the Committee to be achieved over a prescribed Performance Period. An Award of Performance Shares is a number of units valued by reference to a designated number of Shares, and an Award
of Performance Units is a number of units valued by reference to a designated amount of property other than Shares. The performance criteria to be achieved during any Performance Period and the length
of the Performance Period shall be determined by the Committee upon the grant of each Performance Award or at any time thereafter. Except as provided in Articles 12 and 14, Performance Awards
will be distributed only after the end of the relevant Performance Period. 

        Performance
Awards may be paid in cash, Shares, other property or any combination of the foregoing, in the sole discretion of the Committee upon the grant of the Performance Award. The
performance levels which have been achieved for each Performance Period and the amount of the Award to be distributed shall be conclusively determined by the Committee. Performance Awards may be paid
in a lump sum or in installments following the close of the Performance Period. 

Article 11—Other Stock Unit Awards  

        Other Awards of Shares and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares ("Other Stock Unit Awards") may be
paid in Shares, other securities of the Company, cash or any other form of property as the Committee shall determine upon the grant of the Other Stock Unit Award. Other Stock Unit Awards may be issued
with such restrictions that the Committee may impose which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee shall determine.
Shares purchased pursuant to other Stock Unit Awards shall be purchased for such consideration as the Committee shall in its sole discretion determine, which shall not be less than the Fair Market
Value of such Shares as of the date such Award is granted. 

9

 

Article 12—Termination of Employment  

        Except as shall otherwise be provided in an Award Agreement, the provisions of this Article 12 shall govern rights of Participants to exercise Options
following termination of employment. If a Participant terminates employment for any reason other than Retirement, Disability or death (i) any portion of the Participant's Options which are
exercisable on the date employment terminates may be exercised until the earlier of ninety days following termination of employment or the original Expiration Date of the Option, and (ii) any
portion of an Option that is not exercisable on the date employment terminates shall be forfeited and canceled, except that if the reason for the termination of employment is a Company Action, then
the Option shall become immediately exercisable for the period specified in clause (i) with respect to the number of Shares determined by the following formula, and shall be forfeited and
canceled with respect to the remaining Shares: 

	Shares	 	Original Shares	 	

X	 	Number of Completed Months Prior to

Termination of Employment Since

Granted
	 	 	 	 	 	 	

	Exercisable =	 	Granted	 	 	 	Number of Months from Grant Date to

Full Exercisability of Option
	

 	
 	

 	
 	

Minus: Number of Shares Exercisable or

Exercised Prior to Termination of Employment

        Upon
termination of employment by reason of Retirement or Disability, any portion of a Participant's Option that is then outstanding shall, to the extent not then exercisable, be
immediately, forfeited and canceled in its entirety. To the extent that an Option is exercisable on the date of a Participant's Retirement or Disability, the Option will remain exercisable until the
original Expiration Date of the Option. Notwithstanding the foregoing, if a Participant terminates employment pursuant to a Company
Action under circumstances that also constitute Retirement for such Participant, then any portion of any Option of the Participant which becomes exercisable by reason of this Article 12 along
with any portion of any Option of the Participant which is exercisable on the date of termination of employment shall be exercisable, until the original Expiration Date of the relevant Option. Upon
the death of a Participant, the outstanding portion of such Participant's Option shall, to the extent not then exercisable, become immediately exercisable in full and the Option shall remain
exercisable until the original Expiration Date of the Option. The Committee or its Delegate may, in its sole discretion, waive or modify the application of this Article 12 in the case of any
individual Participant. This Article 12 applies only to Options; however the Committee may provide for similar treatment of other forms of Awards at the time that the Award is granted. 

Article 13—Nonassignability  

        No award granted under the Plan shall be assigned or transferred by the Participant otherwise than by will or by the laws of descent and distribution, and such
Award shall be exercisable, during the Participant's lifetime, only by the Participant. 

Article 14—Change in Control Provisions  

        Notwithstanding any other provision of the plan to the contrary, unless the Committee shall determine otherwise at the time of grant with respect to a particular
Award, in the event of a Change in Control any Options and Stock Appreciation Rights outstanding as of the date such Change in Control is determined to have occurred, and which are not then
exercisable and vested, shall become fully exercisable and vested to the full extent of the original grant and any Restricted Stock or Other 

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Stock
Unit Awards which are not then vested shall become vested and non-forfeitable to the full extent of the Original Grant. If a Change in Control occurs or is to occur during a
Performance Period, the Committee shall determine the extent to which Performance Awards shall vest or shall be adjusted in accordance with Article 3(c) in the event of a Change in Control.
This determination shall be made by individuals who are members of the Incumbent Board as defined in the definition of a Change in Control in Article 1(d). 

Article 15—Reservation of Shares  

        The Company, during the term of this Plan, will at all times reserve and keep available, and will seek or obtain from any regulatory body having jurisdiction any
requisite authority necessary to issue and to sell, the number of Shares that shall be sufficient to satisfy the requirements of this Plan. The inability of the Company to obtain from any regulatory
body having jurisdiction the authority deemed necessary
by counsel for the Company for the lawful issuance and sale of Shares shall relieve the Company of any liability in respect of the failure to issue or sell Shares as to which the requisite authority
has not been obtained. 

Article 16—Taxes  

        The Company and any Subsidiary shall have the right to condition the grant or exercise of any Award on a Participant's payment of any applicable amounts required
by a governmental agency to be withheld from payment to the Participant or paid or deducted by the Company or a Subsidiary in connection with an Award ("withholding tax"). The Company and any
Subsidiary shall also have the right to deduct any withholding tax from a Participant's other compensation or to make any other arrangements to satisfy withholding tax obligations, including
arrangements with one or more brokerage firms pursuant to cashless exercise procedures. The Company and any Subsidiary shall further have the right to deduct from any payment under an Award under the
Plan or from a Participant's other compensation any tax or social insurance payment imposed on the Company or Subsidiary in connection with such Award. 

Article 17—Employees Based Outside of the United States  

        Notwithstanding any provision of the Plan to the contrary, in order to foster and promote achievement of the purposes of the Plan or to comply with the provisions
of laws in other countries in which the Company and its Subsidiaries operate or have Employees, the Committee or its Delegate, in its sole discretion, shall have the power and authority to
(1) determine which Employees that are subject to the tax laws of nations other than the United States are eligible to participate in the Plan, (2) modify the terms and conditions of any
Awards granted to such Employees (including the grant of Stock Appreciation Rights or some other comparable form of award ("Substitute Award") in lieu of Options, and (3) establish subplans,
modified Option exercise procedures and other terms and procedures to the extent such actions may be necessary or advisable; provided,  however, that the
Committee may not grant such Awards that do not comply with the limitations of Article 3. Any subplans established under this
Article 17 by the Committee shall be attached to this Plan as appendices. The terms of this Plan applicable to Options shall apply with like effect to Stock Appreciation Rights, Restricted
Stock Awards, Performance Awards, Other Stock Unit Awards and Substitute Awards to the extent legally permissible. 

Article 18—Rights to Continued Employment  

        Neither this Plan nor any Option shall be construed as giving any person the right to be retained in the employ of the Company or any Subsidiary. No Employee or
Participant shall have any claim to be granted any Option under the Plan or to include any Option or its value in any form of severance or similar pay, or in any benefit plan or program which by its
terms does not specifically include the 

11

 

value
of the Option. There is no obligation of uniformity of treatment of Employees or Participants under the Plan. This Plan is of limited duration and creates no ongoing obligation of the Company to
provide any future benefit of similar nature or value. 

Article 19—Amendment of Plan  

        The Board may amend the Plan at any time and from time to time. The Board may, at any time or from time to time, suspend or terminate this Plan in whole or in
part. 

        No
such amendment, suspension or termination of the Plan may, however, impair any Award granted prior to such amendment, suspension or termination, without the written consent of the
affected Participant. 

Article 20—Term of Plan  

        The Plan shall become effective as of October 1, 2000. 

        The
Plan shall terminate on October 1, 2005 or at such earlier date as may be determined by the Board of Directors. Termination of the Plan, however, shall not affect the rights
of Participants under Awards previously granted to them, and all unexpired Awards shall continue in force and operation after termination of the Plan except as they may lapse or be terminated pursuant
to this Plan. 

Article 21—Code Section 162(m) Provisions  

        (a)   Notwithstanding
any other provision of this Plan, if the Committee determines at the time Restricted Stock, a Performance Award or an Other Stock Unit Award is granted
to a Participant that such Participant is, or may be as of the end of the tax year for which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the
Committee may provide that this Article 21 is applicable to such Award under such terms as the Committee shall determine. 

        (b)   If
an Award is subject to this Article 21, then the lapsing of restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as
applicable, shall be subject to the Company having a level of Net Income for the fiscal year preceding lapse or distribution set by the Committee within the time prescribed by Section 162(m) of
the Code or the regulations thereunder in order for the level to be considered "pre-established". The Committee may, in its discretion, reduce the amount of any Performance Award or Other
Stock Unit Award subject to this Article 24 at any time prior to payment based on such criteria as it shall determine, including but not limited to individual merit and the attainment of
specified levels of one or any combination of the following: net cash provided by operating activities, earnings per Share from continuing operations, operating income, revenues, gross margin, return
on operating assets, return on equity, economic value added, stock price appreciation, total shareowner return (measured in terms of stock price appreciation and dividend growth), or cost control, of
the Company or the Subsidiary or division of the Company for or within which the Participant is primarily employed. 

        (c)   Notwithstanding
any contrary provision of the Plan other than Article 14, the Committee may not adjust upwards the amount payable pursuant to any Award subject to
this Article 21, nor may it waive the achievement of the Net Income requirement contained in Article 21(b), except in the case of the death or disability of a Participant. 

        (d)   Prior
to the payment of any Award subject to this Article 21, the Committee shall certify in writing that the Net Income requirement applicable to such Award was
met. 

        (e)   The
Committee shall have the power to impose such other restrictions on Awards subject to this Article 21 as it may deem necessary or appropriate to ensure that
such Awards satisfy all requirements for "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code, the regulations promulgated thereunder, and any successors
thereto. 

Article 22—Governing Law  

        The Plan, and the validity and construction of any Awards granted hereunder shall be governed by the laws of the State of Delaware. 

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        IN WITNESS WHEREOF, the Company has caused this Plan, as amended, to be executed as of this 1st day of November, 2003. 

	For Avaya Inc.	 
	 	 	 
	 	 	 
	By:	/s/  MARYANNE DIMARZO      	 
	 	
 Maryanne DiMarzo

Senior Vice President—Human Resources	 
	 	 	 
	 	 	 
	Attest:	/s/  PAMELA CRAVEN      	 
	 	
 Pamela Craven

Senior Vice President, General Counsel & Secretary	 

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QuickLinks

Article 1—Background and Purpose

Article 2—Definitions

Article 3—Shares Available for Option; Adjustments

Article 4—Administration

Article 5—Eligibility

Article 6—Awards—General

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