Willis Lease Finance Corp 10-Q for FY2022 Q1
Willis Lease Finance Corp (WLFC)
10-Q
2022-05-10
For: 2022-03-31
View Original
Added on
April 04, 2026
About this 10-Q
Willis Lease Finance Corp filed this 10-Q on May 10, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $68.82M
- up 12.6% from $61.13M a year earlier
- Net loss
- $21.2M
- compared with a net loss of $1.33M a year earlier
- Diluted EPS
- -$3.70
- compared with -$0.36 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number: 001-15369
______________________________________________________________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
Registrant’s telephone number, including area code (561 ) 349-9989
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of exchange on which registered | ||||||||||||
______________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | ☒ | |||||||||
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | |||||||||
| Emerging Growth Company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant's Common Stock outstanding as of May 9, 2022 was 6,144,837 .
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
INDEX
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements, including, without limitation, statements concerning the conditions in our industry, our operations, our economic performance and financial condition, including, in particular, statements relating to our business, operations, growth strategy and service development efforts and potential impact of the COVID-19 pandemic on the Company's business, operating results and financial condition. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. When used in this Quarterly Report on Form 10-Q, the words “may,” “might,” “should,” “estimate,” “project,” “plan,” “anticipate,” “expect,” “intend,” “outlook,” “believe” and other similar expressions are intended to identify forward-looking statements and information. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 14, 2022, this quarterly report on Form 10-Q for the three months ended March 31, 2022, and our other reports filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Reference is also made to such risks and uncertainties detailed from time to time in our other filings with the SEC.
3
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
| March 31, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
Equipment held for operating lease, less accumulated depreciation of $ | |||||||||||
| Maintenance rights | |||||||||||
| Equipment held for sale | |||||||||||
Receivables, net of allowances of $ | |||||||||||
| Spare parts inventory | |||||||||||
| Investments | |||||||||||
Property, equipment & furnishings, less accumulated depreciation of $ | |||||||||||
| Intangible assets, net | |||||||||||
| Notes receivable | |||||||||||
| Other assets | |||||||||||
| Total assets (1) | $ | $ | |||||||||
| LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Deferred income taxes | |||||||||||
| Debt obligations | |||||||||||
| Maintenance reserves | |||||||||||
| Security deposits | |||||||||||
| Unearned revenue | |||||||||||
| Total liabilities (2) | |||||||||||
Redeemable preferred stock ($ | |||||||||||
| Shareholders’ equity: | |||||||||||
Common stock ($ | |||||||||||
| Paid-in capital in excess of par | |||||||||||
| Retained earnings | |||||||||||
Accumulated other comprehensive income, net of income tax expense of $ | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities, redeemable preferred stock and shareholders’ equity | $ | $ | |||||||||
_____________________________
(1)Total assets at March 31, 2022 and December 31, 2021, respectively, include the following assets of variable interest entities (“VIEs”) that can only be used to settle the liabilities of the VIEs: Restricted cash $68,875 and $81,312 ; Equipment $1,197,953 and $1,226,395 ; Maintenance Rights $5,433 and $5,433 ; Inventory $— and $4,367 ; Notes receivable $90,145 and $90,868 ; and Other assets $5,248 and $4,775 , respectively.
(2)Total liabilities at March 31, 2022 and December 31, 2021, respectively, include the following liabilities of VIEs for which the VIEs’ creditors do not have recourse to Willis Lease Finance Corporation: Debt obligations $1,176,975 and $1,197,922 , respectively.
See accompanying notes to the unaudited condensed consolidated financial statements.
4
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||
| Lease rent revenue | $ | $ | |||||||||||||||||||||
| Maintenance reserve revenue | |||||||||||||||||||||||
| Spare parts and equipment sales | |||||||||||||||||||||||
| Gain on sale of leased equipment | |||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| EXPENSES | |||||||||||||||||||||||
| Depreciation and amortization expense | |||||||||||||||||||||||
| Cost of spare parts and equipment sales | |||||||||||||||||||||||
| Write-down of equipment | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Technical expense | |||||||||||||||||||||||
| Net finance costs: | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Total net finance costs | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | |||||||||||||||||||||
| Loss from joint ventures | ( | ( | |||||||||||||||||||||
| Loss before income taxes | ( | ( | |||||||||||||||||||||
| Income tax benefit | ( | ( | |||||||||||||||||||||
| Net loss | ( | ( | |||||||||||||||||||||
| Preferred stock dividends | |||||||||||||||||||||||
| Accretion of preferred stock issuance costs | |||||||||||||||||||||||
| Net loss attributable to common shareholders | $ | ( | $ | ( | |||||||||||||||||||
| Basic weighted average loss per common share | $ | ( | $ | ( | |||||||||||||||||||
| Diluted weighted average loss per common share | $ | ( | $ | ( | |||||||||||||||||||
| Basic weighted average common shares outstanding | |||||||||||||||||||||||
| Diluted weighted average common shares outstanding | |||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
5
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Currency translation adjustment | |||||||||||||||||||||||
| Unrealized gain on derivative instruments | |||||||||||||||||||||||
| Unrealized gain on derivative instruments at joint venture | |||||||||||||||||||||||
| Net gain recognized in other comprehensive income | |||||||||||||||||||||||
| Tax expense related to items of other comprehensive income | |||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
| Total comprehensive (loss) income | $ | ( | $ | ||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
6
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity
Three months ended March 31, 2022 and 2021
(In thousands)
(Unaudited)
| Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in Capital in | Retained | Comprehensive | Total Shareholders' | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Excess of par | Earnings | Income | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Net unrealized gain from currency translation adjustment, net of tax expense of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net unrealized gain from derivative instruments, net of tax expense of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares repurchased | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued under stock compensation plans | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense, net of forfeitures | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Accretion of preferred shares issuance costs | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends ($ | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable | Accumulated Other | |||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in Capital in | Retained | Comprehensive | Total Shareholders' | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Excess of par | Earnings | (Loss) Income | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Net unrealized gain from currency translation adjustment, net of tax expense of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net unrealized gain from derivative instruments, net of tax expense of $ | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued under stock compensation plans | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of restricted stock in satisfaction of withholding tax | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense, net of forfeitures | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Accretion of preferred shares issuance costs | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends ($ | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
7
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Write-down of equipment | |||||||||||
| Stock-based compensation expenses | |||||||||||
| Amortization of deferred costs | |||||||||||
| Allowances and provisions | ( | ||||||||||
| Gain on sale of leased equipment | ( | ||||||||||
| Loss from joint ventures | |||||||||||
| Loss on disposal of property, equipment and furnishings | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables | ( | ( | |||||||||
| Inventory | |||||||||||
| Other assets | ( | ( | |||||||||
| Accounts payable and accrued expenses | ( | ||||||||||
| Maintenance reserves | |||||||||||
| Security deposits | ( | ||||||||||
| Unearned revenue | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sale of equipment (net of selling expenses) | |||||||||||
| Issuance of notes receivable | ( | ||||||||||
| Payments received on notes receivable | |||||||||||
| Purchase of equipment held for operating lease | ( | ( | |||||||||
| Purchase of property, equipment and furnishings | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from debt obligations | |||||||||||
| Principal payments on debt obligations | ( | ( | |||||||||
| Proceeds from shares issued under stock compensation plans | |||||||||||
| Cancellation of restricted stock units in satisfaction of withholding tax | ( | ||||||||||
| Repurchase of common stock | ( | ||||||||||
| Preferred stock dividends | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Net cash paid for: | |||||||||||
| Interest | $ | $ | |||||||||
| Income Taxes | $ | $ | |||||||||
| Supplemental disclosures of non-cash activities: | |||||||||||
| Transfers from Equipment held for operating lease to Spare parts inventory | $ | $ | |||||||||
| Transfers from Equipment held for operating lease to Equipment held for sale | $ | $ | |||||||||
| Transfers from Spare parts inventory to Equipment held for operating lease | $ | $ | |||||||||
| Accrued preferred stock dividends | $ | $ | |||||||||
| Accrued share repurchases | $ | $ | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
8
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2022
(Unaudited)
Unless the context requires otherwise, references to the “Company”, “WLFC”, “we”, “us” or “our” in this Quarterly Report on Form 10-Q refer to Willis Lease Finance Corporation and its subsidiaries.
1. Summary of Significant Accounting Policies
The significant accounting policies of the Company were described in Note 1 to the audited consolidated financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”). There have been no significant changes in the Company’s significant accounting policies for the three months ended March 31, 2022.
(a) Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial Statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), consistent in all material respects with those applied in the 2021 Form 10-K, for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Therefore, they do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the 2021 Form 10-K. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of income, statements of comprehensive income, statements of redeemable preferred stock and shareholders’ equity and statements of cash flows for such interim periods presented. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year.
In accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. These estimates and judgments are based on historical experience and other assumptions that management believes are reasonable and the inputs into management's estimates and judgment consider the economic implications of the COVID-19 pandemic on the Company’s critical and significant accounting estimates. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. The significant estimates made in the accompanying Unaudited Condensed Consolidated Financial Statements include certain assumptions related to intangible assets, long-lived assets, equipment held for sale, allowance for doubtful accounts, inventory and estimated income taxes. Actual results may differ materially from these estimates under different assumptions or conditions. Given the uncertainty in the rapidly changing market and economic conditions related to the COVID-19 pandemic, the Company will continue to evaluate the nature and extent of the impact to its business, results of operations and financial condition.
(b) Principles of Consolidation
(c) Risks and Uncertainties
As a result of the COVID-19 pandemic, the Company had temporarily closed its headquarters and other offices, required its employees and contractors to predominately work remotely, and implemented travel restrictions, all of which represented a significant disruption in how the Company operates its business. In January 2022, the Company lifted travel restrictions and has also subsequently opened its corporate headquarters and other offices for employees and contractors to work from offices at their discretion. The Company has also taken various proactive actions in an attempt to mitigate the financial impact of the COVID-19
9
pandemic. The operations of the Company’s partners and customers have likewise been disrupted. The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity. While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, the ongoing COVID-19 pandemic has caused significant disruptions to the airline industry and has resulted in a dramatic reduction in demand for air travel domestically and abroad, which is likely to continue for the foreseeable future. Lower demand for air travel in turn presents significant risks to the Company, resulting in impacts which have adversely affected the Company’s business, results of operation, and financial condition. Lower demand for spare parts and engine and airframe leasing has negatively impacted collections of accounts receivable, caused the Company’s lessee customers to not enter into new leases, resulted in reduced spending by new and existing customers for leases or spare parts or equipment, resulted in lower usage fees, caused some of the Company’s customers to go out of business, and limited the ability of the Company’s personnel to travel to customers and potential customers. The Company is not able to evaluate or foresee the full extent of these impacts at the current time.
Other than what has been reflected in the Unaudited Condensed Consolidated Financial Statements, the Company is not aware of any specific event or circumstance related to the COVID-19 pandemic that would require it to update its estimates or judgments or adjust the carrying value of its assets or liabilities. Actual results could differ from those estimates and any such differences may be material to the Unaudited Condensed Consolidated Financial Statements.
In February 2022, Russia commenced a military action with Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against Russia. Further, the full impact of this action and related sanctions on the world economy is not determinable as of the date of these financial statements, and the specific impact on the Company’s financial condition, results of operations and cash flows is also not determinable as of the date of these financial statements.
(d) Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted by the Company
In July 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-05, “Lease (Topic 842): Lessors – Certain Leases with Variable Lease Payments” related to accounting for sales-type leases or direct financing leases with variable lease payments. This ASU is effective for interim and annual years beginning after December 15, 2021, with early adoption permitted. The Company adopted this guidance effective January 1, 2022 and the adoption had no impact to the Company’s consolidated financial statements and related disclosures.
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” related to disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This ASU is effective for annual periods beginning after December 15, 2021, with early application permitted. The Company adopted this guidance effective January 1, 2022 and the adoption had no impact to the Company's consolidated financial statements and related disclosures.
Recent Accounting Pronouncements To Be Adopted by the Company
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. ASU 2016-13 affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This ASU clarifies receivables from operating leases are accounted for using the lease guidance and not as financial instruments. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” This ASU clarifies various scoping and other issues arising from ASU 2016-13. In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU improves the Codification and amends the interaction of Topic 842 and Topic 326. In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)” which eliminated the accounting guidance for Troubled Debt Restructurings by creditors and enhances disclosure requirements for certain loan refinancing and restructurings. The amendment also requires an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. The amendments in this ASU are effective for the Company on January 1, 2023, with early adoption permitted. The Company expects to adopt this accounting standard update effective January 1, 2023. The Company is evaluating the potential effects on the consolidated financial statements.
10
2. Revenue from Contracts with Customers
The following tables disaggregate revenue by major source for the three months ended March 31, 2022 and 2021 (in thousands):
| Three months ended March 31, 2022 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Gain on sale of leased equipment | ||||||||||||||||||||||||||
| Managed services | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Three Months Ended March 31, 2021 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ( | |||||||||||||||||||||||||
| Managed services | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | $ | $ | $ | ( | $ | |||||||||||||||||||||
3. Equipment Held for Operating Lease and Notes Receivable
As of March 31, 2022, the Company had $1,951.4 million equipment held for operating lease portfolio and $114.3 million notes receivable which represented 298 engines, twelve aircraft, one marine vessel and other leased parts and equipment. As of December 31, 2021, the Company had $1,991.4 million equipment held for operating lease portfolio and $115.5 million notes receivable which represented 304 engines, twelve aircraft, one marine vessel and other leased parts and equipment.
The following table disaggregates equipment held for operating lease by asset class (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Value | Accumulated Depreciation | Net Book Value | Gross Value | Accumulated Depreciation | Net Book Value | ||||||||||||||||||||||||||||||||||||||||||||||||
| Engines and related equipment | $ | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Aircraft and airframes | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Marine vessel | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Notes Receivable
During the three months ended March 31, 2022 and 2021, the Company recorded interest income related to the notes receivable of $2.1 million and $2.9 million, respectively, and is presented within Other revenue. The effective interest rates on our notes receivable ranged from 6.3 % to 12.2 % as of March 31, 2022 and 6.3 % to 13.7 % as of March 31, 2021.
4. Investments
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In 2014, the Company entered into an agreement with China Aviation Supplies Import & Export Corporation (“CASC”) to participate in a joint venture named CASC Willis Engine Lease Company Limited (“CASC Willis”), a joint venture based in Shanghai, China. Each partner holds a fifty percent interest in the joint venture and the Company uses the equity method in recording investment activity. CASC Willis acquires and leases jet engines to Chinese airlines and concentrates on the demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China. As of March 31, 2022, CASC Willis owned a lease portfolio of four engines with a net book value of $48.5 million.
| As of March 31, 2022 | WMES | CASC Willis | Total | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Investment in joint ventures as of December 31, 2021 | $ | $ | $ | |||||||||||||||||
| (Loss) earnings from joint ventures | ( | ( | ||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||
| Other comprehensive gain from joint ventures | ||||||||||||||||||||
| Investment in joint ventures as of March 31, 2022 | $ | $ | $ | |||||||||||||||||
“Other revenue” on the Condensed Consolidated Statements of Income includes $0.5 million and $0.3 million of management fees earned during the three months ended March 31, 2022 and 2021, respectively, related to the servicing of engines for the WMES lease portfolio.
There were no
Unaudited summarized financial information for 100% of WMES is presented in the following tables:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | $ | $ | |||||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| WMES net loss | $ | ( | $ | ( | |||||||||||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| (in thousands) | |||||||||||
| Total assets | $ | $ | |||||||||
| Total liabilities | |||||||||||
| Total WMES net equity | $ | $ | |||||||||
The difference between the Company’s investment in WMES and 50 % of total WMES net equity is primarily attributable to the recognition of deferred gains, prior to the adoption of ASU 2017-05, related to engines sold by the Company to WMES.
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5. Debt Obligations
Debt obligations consisted of the following:
| March 31, 2022 | December 31, 2021 | ||||||||||
| (in thousands) | |||||||||||
Credit facility at a floating rate of interest of one-month LIBOR plus | $ | $ | |||||||||
WEST VI Series A 2021 term notes payable at a fixed rate of interest of | |||||||||||
WEST VI Series B 2021 term notes payable at a fixed rate of interest of | |||||||||||
WEST VI Series C 2021 term notes payable at a fixed rate of interest of | |||||||||||
WEST V Series A 2020 term notes payable at a fixed rate of interest of | |||||||||||
WEST V Series B 2020 term notes payable at a fixed rate of interest of | |||||||||||
WEST V Series C 2020 term notes payable at a fixed rate of interest of | |||||||||||
WEST IV Series A 2018 term notes payable at a fixed rate of interest of | |||||||||||
WEST IV Series B 2018 term notes payable at a fixed rate of interest of | |||||||||||
WEST III Series A 2017 term notes payable at a fixed rate of interest of | |||||||||||
WEST III Series B 2017 term notes payable at a fixed rate of interest of | |||||||||||
Note payable at a fixed rate of interest of | |||||||||||
| Less: unamortized debt issuance costs | ( | ( | |||||||||
| Total debt obligations | $ | $ | |||||||||
One-month LIBOR was 0.45% and 0.10% as of March 31, 2022 and December 31, 2021, respectively.
Principal outstanding at March 31, 2022, is expected to be repayable as follows:
| Year | (in thousands) | |||||||
| 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
Virtually all of the above debt requires ongoing compliance with certain financial covenants, including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. The Company also has certain negative financial covenants such as liens, advances, change in business, sales of assets, dividends and stock repurchases. These covenants are tested either monthly, quarterly or annually and the Company was in full compliance with all financial covenant requirements at March 31, 2022.
6. Derivative Instruments
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The Company periodically holds interest rate derivative instruments to mitigate exposure to changes in interest rates, predominantly one-month LIBOR, with $580.0 million and $590.0 million of variable rate borrowings at March 31, 2022 and December 31, 2021, respectively. As a matter of policy, management does not use derivatives for speculative purposes. As of March 31, 2022, the Company had five interest rate swap agreements. During the first quarter of 2021, the Company entered into four fixed-rate interest swap agreements, each having notional amounts of $100.0 million, two with remaining terms of 22 months and two with remaining terms of 46 months as of March 31, 2022. One interest rate swap agreement was entered into during 2019 which has a notional outstanding amount of $100.0 million with a remaining term of 27 months as of March 31, 2022. One interest rate swap agreement which the Company entered into in 2016 expired in April 2021. The derivative instruments were each designated as cash flow hedges at inception and recorded at fair value.
The Company evaluated the effectiveness of the swap agreements to hedge the interest rate risk associated with its variable rate debt and concluded at the swap inception dates that each swap was highly effective in hedging that risk. The Company evaluates the effectiveness of the hedging relationships on an ongoing basis and concluded there was no ineffectiveness in the hedges for the period ended March 31, 2022.
The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data when evaluating the Company’s and counterparty’s risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. The Company applies hedge accounting and accounts for the change in fair value of its cash flow hedges through other comprehensive income for all derivative instruments.
The net fair value of the interest rate swaps as of March 31, 2022 was $24.4 million, representing an asset and is reflected within other assets on the condensed consolidated balance sheet. The net fair value of the interest rate swaps as of December 31, 2021 was $7.3 million, representing an asset of $8.0 million and a liability of $0.7 million, reflected within other assets and accounts payable and accrued expenses on the condensed consolidated balance sheet, respectively. The Company recorded interest expense of $0.3 million and $0.9 million during the three months ended March 31, 2022 and 2021, respectively, from derivative instruments.
Effect of Derivative Instruments on Earnings in the Statements of Income and on Comprehensive Income
The following tables provide additional information about the financial statement effects related to the cash flow hedges for the three months ended March 31, 2022 and 2021:
| Derivatives in Cash Flow Hedging Relationships | Amount of Gain Recognized in OCI on Derivatives (Effective Portion) | |||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Interest rate contracts | $ | $ | ||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||
The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings or it is probable that the forecasted transaction will not occur. The ineffective portion of the hedges, if any, is recorded in earnings in the current period.
Counterparty Credit Risk
The Company evaluates the creditworthiness of the counterparties under its hedging agreements. The counterparties for the interest rate swaps are large financial institutions that possessed investment grade credit ratings. Based on these ratings, the Company believes that the counterparties were credit-worthy and that their continuing performance under the hedging agreements was probable and did not require the counterparties to provide collateral or other security to the Company.
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7. Income Taxes
Income tax benefit for the three months ended March 31, 2022 and March 31, 2021 was $6.5 million and $0.4 million, respectively. The effective tax rate for the three months ended March 31, 2022 and March 31, 2021, was 23.5 %. and 21.2 %, respectively. The Company's effective tax rates differed from the U.S. federal statutory rate of 21% largely due to executive compensation as defined in IRS code Section 162(m) and a discrete item recorded in the first quarter of 2022.
The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur. The Company’s tax rate is subject to change based on changes in the mix of assets leased to domestic and foreign lessees, state taxes, the amount of executive compensation exceeding $1.0 million as defined in IRS code Section 162(m) and numerous other factors, including changes in tax law.
The Company qualified for the Employment Retention Credit (“ERC”) and recognized a credit of $0.7 million for the three months ended March 31, 2021 as a reduction to payroll tax.
8. Fair Value Measurements
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties in contrast to a forced sale or liquidation. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
•Cash and cash equivalents, restricted cash, receivables, and accounts payable: The amounts reported in the accompanying Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature.
•Notes receivable: The carrying amount of the Company’s outstanding balance on its Notes receivable as of March 31, 2022 and December 31, 2021 was estimated to have a fair value of approximately $116.9 million and $117.7 million, respectively, based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each period end (Level 2 inputs).
•Debt obligations: The carrying amount of the Company’s outstanding balance on its Debt obligations as of March 31, 2022 and December 31, 2021 was estimated to have a fair value of approximately $1,706.5 million and $1,827.4 million respectively, based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each period end (Level 2 inputs).
15
Assets Measured and Recorded at Fair Value on a Recurring Basis
As of March 31, 2022 and December 31, 2021, the Company measured the fair value of its interest rate swap agreements based on Level 2 inputs, due to the usage of inputs that can be corroborated by observable market data. The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparties’ risk of non-performance. The net fair value of the interest rate swaps as of March 31, 2022 was $24.4 million, representing an asset. The net fair value of the interest rate swaps as of December 31, 2021 was $7.3 million, representing an asset of $8.0 million and a liability of $0.7 million. The Company recorded interest expense of $0.3 million and $0.9 million during the three months ended March 31, 2022 and 2021, respectively, from derivative instruments.
Assets Measured and Recorded at Fair Value on a Nonrecurring Basis
The Company determines fair value of long-lived assets held and used, such as Equipment held for operating lease and Equipment held for sale, by reference to independent appraisals, quoted market prices (e.g. an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. The Company uses Level 2 inputs to measure write-downs of equipment held for lease and equipment held for sale.
| Total Losses | |||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Equipment held for lease | $ | $ | |||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
Write-downs of equipment to their estimated fair values totaled $21.1 million for the three months ended March 31, 2022, reflecting an adjustment of the carrying value of three impaired engines. Of this write-down, $20.4 million reflects the impairment of two engines located in Russia due to the Russia and Ukraine conflict and were expected to be unrecoverable as of March 31, 2022. The remaining $0.7 million write-down was in the ordinary course of business. As of March 31, 2022, included within equipment held for lease and equipment held for sale was $36.6 million in remaining book values of 24 assets which were previously written down.
A write-down of $1.9 million was recorded during the three months ended March 31, 2021 reflecting an adjustment of the carrying value of one impaired airframe.
9. Earnings Per Share
Basic earnings per common share is computed by dividing net income, less preferred stock dividends and accretion of preferred stock issuance costs, by the weighted average number of common shares outstanding for the period. Treasury stock is excluded from the weighted average number of shares of common stock outstanding. Diluted earnings per share attributable to common stockholders is computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Dilutive securities are common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the vesting of restricted stock using the treasury stock method. Common stock equivalents are not included in diluted earnings per share when their inclusion is antidilutive. Additionally, redeemable preferred stock is not convertible and does not affect dilutive shares.
There were 0.3
16
The following table presents the calculation of basic and diluted EPS (in thousands, except per share data):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net loss attributable to common shareholders | $ | ( | $ | ( | |||||||||||||||||||
| Basic weighted average common shares outstanding | |||||||||||||||||||||||
| Potentially dilutive common shares | |||||||||||||||||||||||
| Diluted weighted average common shares outstanding | |||||||||||||||||||||||
| Basic weighted average loss per common share | $ | ( | $ | ( | |||||||||||||||||||
| Diluted weighted average loss per common share | $ | ( | $ | ( | |||||||||||||||||||
10. Equity
Common Stock Repurchase
Effective December 31, 2018, the Board of Directors approved the renewal of the existing common stock repurchase plan extending the plan through December 31, 2020 and amending the plan to allow for repurchases of up to $60.0 million of the Company's common stock until such date. Effective December 31, 2020, the Board of Directors approved the renewal of the existing common stock repurchase plan extending the plan through December 31, 2022. Repurchased shares are immediately retired. During the three months ended March 31, 2022, the Company repurchased a total of 52,780 shares of common stock for approximately $1.8 million at a weighted average price of $34.86 per share. No shares were purchased during the three months ended March 31, 2021. At March 31, 2022, approximately $43.0 million is available to purchase shares under the plan.
Redeemable Preferred Stock
Dividends: The Company’s Series A-1 Preferred Stock and Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5 % per share. During the three months ended March 31, 2022 and 2021, the Company paid total dividends of $0.8
11. Stock-Based Compensation Plans
The components of stock-based compensation expense were as follows:
| Three months ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| 2007 Stock Incentive Plan | $ | $ | |||||||||||||||||||||
| 2021 Stock Incentive Plan | |||||||||||||||||||||||
| Employee Stock Purchase Plan | |||||||||||||||||||||||
| Total Stock Compensation Expense | $ | $ | |||||||||||||||||||||
The significant stock compensation plans are described below.
The 2007 Stock Incentive Plan (the “2007 Plan”) was adopted in May 2007. Under the 2007 Plan, a total of 2,800,000 shares were authorized for stock-based compensation available in the form of either restricted stock awards (“RSAs”) or stock options. The RSAs are subject to service-based vesting, typically between and four years , where a specific period of continued employment must pass before an award vests. The expense associated with these awards is recognized on a straight-line basis over the respective vesting period, with forfeitures accounted for as they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is equal to the portion of the grant date fair value of the award tranche that is actually vested at that date. As of March 31, 2022, there were no stock options outstanding under the 2007 Plan.
The 2018 Stock Incentive Plan (the “2018 Plan”) was adopted in May 2018. Under the 2018 Plan, a total of 800,000 shares are authorized for stock-based compensation, plus the number of shares remaining under the 2007 Plan and any future forfeited awards
17
under the 2007 Plan, in the form of RSAs. In November 2021, the 2018 Plan was amended and restated as the 2021 Stock Incentive Plan (the “2021 Plan”) to increase the number of shares reserved for issuance under the 2021 Plan by 1,000,000 shares. The RSAs are subject to service and performance-based vesting, typically between and four years , where a specific period of continued employment or service must pass before an award vests. The expense associated with these awards is recognized on a straight-line basis over the respective vesting period, with forfeitures accounted for as they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is equal to the portion of the grant‑date fair value of the award tranche that is actually vested at that date.
As of March 31, 2022, the Company had granted 926,300 RSAs under the 2021 Plan and had 968,296 RSAs available for future issuance. The fair value of the restricted stock awards equaled the stock price at the grant date.
The following table summarizes restricted stock activity during the three months ended March 31, 2022:
| Shares | |||||
| Balance of unvested shares as of December 31, 2021 | |||||
| Shares granted | |||||
| Shares forfeited | |||||
| Shares vested | |||||
| Balance of unvested shares as of March 31, 2022 | |||||
Under the Employee Stock Purchase Plan (“ESPP”), as amended and restated effective November 10, 2021, 425,000 shares of common stock have been reserved for issuance. Eligible employees may designate no more than 10 % of their base cash compensation to be deducted each pay period for the purchase of common stock under the ESPP. Participants may purchase no more than 1,000 shares or $25,000 of common stock in any one calendar year. Each January 31 and July 31 shares of common stock are purchased with the employees’ payroll deductions from the immediately preceding six months at a price per share of 85 % of the lesser of the market price of the common stock on the purchase date or the market price of the common stock on the date of entry into an offering period. In the three months ended March 31, 2022 and 2021, 9,919 and 8,307 shares of common stock, respectively, were issued under the ESPP. The Company issues new shares through its transfer agent upon an employee stock purchase.
12. Reportable Segments
The Company has two reportable segments: (i) Leasing and Related Operations which involves acquiring and leasing, primarily pursuant to operating leases, commercial aircraft, aircraft engines and other aircraft equipment and the selective purchase and resale of commercial aircraft engines and other aircraft equipment and other related businesses and (ii) Spare Parts Sales which involves the purchase and resale of after-market engine parts, whole engines, engine modules and portable aircraft components.
The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses. While the Company believes there are synergies between the two business segments, the segments are managed separately because each requires different business strategies.
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The following tables present a summary of the reportable segments (in thousands):
| Three Months Ended March 31, 2022 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ||||||||||||||||||||||||||
| Gain on sale of leased equipment | ||||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | ( | |||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||||||||
| Cost of spare parts and equipment sales | ||||||||||||||||||||||||||
| Write-down of equipment | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Technical expense | ||||||||||||||||||||||||||
| Net finance costs: | ||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Total finance costs | ||||||||||||||||||||||||||
| Total expenses | ||||||||||||||||||||||||||
| (Loss) earnings from operations | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Three Months Ended March 31, 2021 | Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Lease rent revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Maintenance reserve revenue | ||||||||||||||||||||||||||
| Spare parts and equipment sales | ( | |||||||||||||||||||||||||
| Other revenue | ( | |||||||||||||||||||||||||
| Total revenue | ( | |||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||||||||
| Cost of spare parts and equipment sales | ( | |||||||||||||||||||||||||
| Write-down of equipment | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Technical expense | ||||||||||||||||||||||||||
| Net finance costs: | ||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Total finance costs | ||||||||||||||||||||||||||
| Total expenses | ||||||||||||||||||||||||||
| (Loss) earnings loss from operations | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Leasing and Related Operations | Spare Parts Sales | Eliminations | Total | |||||||||||||||||||||||
| Total assets as of March 31, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
| Total assets as of December 31, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||
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13. Related Party Transactions
Joint Ventures
“Other revenue” on the Condensed Consolidated Statements of Income includes management fees earned of $0.5 million and $0.3 million during the three months ended March 31, 2022 and 2021, respectively, related to the servicing of engines for the WMES lease portfolio.
Other
During 2020, the Board’s independent directors approved the Company’s agreement to a lease with our former Chief Executive Officer (“CEO”) in support of the Company’s marine vessel leasing business. That lease provided for a payment to our former CEO of $750 per day for the use of his tender in support of our vessel lease to a third-party lessee. The Company paid a total of $12,000 during the three months ended March 31, 2021 for usage of the tender.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, including potential impacts of the COVID-19 pandemic on our business, results of operations and financial condition. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See “Special Note Regarding Forward-Looking Statements” included earlier in this report.
Overview
Our core business is acquiring and leasing commercial aircraft and aircraft engines and related aircraft equipment pursuant to operating leases, all of which we sometimes collectively refer to as “equipment.” As of March 31, 2022, all of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable under the guidance provided by Accounting Standards Codification (“ASC”) 842. As of March 31, 2022, we had 75 lessees in 39 countries and four of our lessees were located in Russia. Our portfolio is continually changing due to equipment acquisitions and sales. As of March 31, 2022, $1,951.4 million of equipment held in our operating lease portfolio and $114.3 million of notes receivable represented 298 engines, twelve aircraft, one marine vessel and other leased parts and equipment. As of March 31, 2022, we also managed 349 engines, aircraft and related equipment on behalf of other parties.
Our wholly owned subsidiary Willis Asset Management Limited (“Willis Asset Management”) is focused on the engine management and consulting business. Willis Aeronautical Services, Inc. (“Willis Aero”) is a wholly owned subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft and engines.
We actively manage our portfolio and structure our leases to maximize the residual values of our leased assets. Our leasing business focuses on popular Stage IV commercial jet engines manufactured by CFMI, General Electric, Pratt & Whitney, Rolls Royce and International Aero Engines. These engines are the most widely used engines in the world, powering Airbus, Boeing, Bombardier and Embraer aircraft.
Risks and Uncertainties
As a result of the COVID-19 pandemic, the Company had temporarily closed its headquarters and other offices, required its employees and contractors to predominately work remotely, and implemented travel restrictions, all of which represented a significant disruption in how the Company operates its business. In January 2022, the Company lifted travel restrictions and has also subsequently opened its corporate headquarters and other offices for employees and contractors to work from offices at their discretion. The Company has also taken various proactive actions in an attempt to mitigate the financial impact of the COVID-19 pandemic. The operations of the Company’s partners and customers have likewise been disrupted. The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity. While the duration and extent of the COVID-19 pandemic
20
depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, the ongoing COVID-19 pandemic has caused significant disruptions to the airline industry and has resulted in a dramatic reduction in demand for air travel domestically and abroad, which is likely to continue for the foreseeable future. Lower demand for air travel in turn presents significant risks to the Company, resulting in impacts which have adversely affected the Company’s business, results of operation, and financial condition. Lower demand for spare parts and engine and airframe leasing has negatively impacted collections of accounts receivable, caused the Company’s lessee customers to not enter into new leases, resulted in reduced spending by new and existing customers for leases or spare parts or equipment, resulted in lower usage fees, caused some of the Company’s customers to go out of business, and limited the ability of the Company’s personnel to travel to customers and potential customers. The Company is not able to evaluate or foresee the full extent of these impacts at the current time.
The scope and nature of the impact of COVID-19 on the airline industry, and in turn our business, continue to evolve and the outcomes are uncertain. Given the uncertainty in the rapidly changing market and economic conditions related to COVID-19, we will continue to evaluate the nature and extent of the impact to our business and financial position. The ultimate extent of the effects of the COVID-19 pandemic on our Company will depend on future developments, and such effects could exist for an extended period of time.
In February 2022, Russia commenced a military action with Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against Russia. Further, the full impact of this action and related sanctions on the world economy is not determinable as of the date of these financial statements, and the specific impact on the Company’s financial condition, results of operations and cash flows is also not determinable as of the date of these financial statements.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Form 10-K.
Results of Operations
Three months ended March 31, 2022 compared to the three months ended March 31, 2021
Revenue is summarized as follows:
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| Lease rent revenue | $ | 38,125 | $ | 31,520 | 21.0 | % | |||||||||||
| Maintenance reserve revenue | 14,834 | 19,812 | (25.1) | % | |||||||||||||
| Spare parts and equipment sales | 6,630 | 4,566 | 45.2 | % | |||||||||||||
| Gain on sale of leased equipment | 2,298 | — | N/A | ||||||||||||||
| Other revenue | 6,930 | 5,227 | 32.6 | % | |||||||||||||
| Total revenue | $ | 68,817 | $ | 61,125 | 12.6 | % | |||||||||||
Lease Rent Revenue. Lease rent revenue consists of rental income from long-term and short-term engine leases, aircraft leases, and other leased parts and equipment. Lease rent revenue increased by $6.6 million, or 21.0%, to $38.1 million in the three months ended March 31, 2022 from $31.5 million for the three months ended March 31, 2021. The increase is due to an increase in the number of engines placed on lease as supported by an increase in utilization compared to the prior year period. These increases were partially offset by a lower lease rent factor due to leases on newer technology engines which tend to have longer term leases and lower rent rates. During the three months ended March 31, 2022, we purchased equipment (including capitalized costs) totaling $24.2 million, which consisted of one engine and other parts and equipment purchased for our lease portfolio. During the three months ended March 31, 2021, we purchased equipment (including capitalized costs) totaling $26.5 million, which consisted of two engines and other parts and equipment purchased for our lease portfolio.
One customer accounted for more than 10% of total lease rent revenue during the three months ended March 31, 2022 and 2021, respectively.
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The aggregate net book value of equipment held for lease at March 31, 2022 and 2021 consisted of $1,951.4 million and $114.3 million notes receivable and $1,887.9 million and $197.6 million notes receivable, respectively. Average utilization (based on net book value) was approximately 84% and 80% for the three months ended March 31, 2022 and 2021, respectively.
Maintenance Reserve Revenue. Maintenance reserve revenue decreased $5.0 million, or 25.1%, to $14.8 million for the three months ended March 31, 2022 from $19.8 million for the three months ended March 31, 2021. Long-term maintenance revenue is influenced by end of lease compensation and the realization of long-term maintenance reserves associated with engines coming off lease. Long-term maintenance revenue was $8.2 million for the three months ended March 31, 2022 compared to $17.2 million in the comparable prior period. “Non-reimbursable” maintenance reserve revenue is directly influenced by on lease engine flight hours and cycles. Engines out on lease with “non-reimbursable” usage fees generated $6.6 million of short-term maintenance revenues compared to $2.7 million in the comparable prior period.
Spare Parts and Equipment Sales. Spare parts sales increased by $2.1 million, or 45.2%, to $6.6 million for the three months ended March 31, 2022 compared to $4.6 million for the three months ended March 31, 2021. The increase in spare parts sales for the first quarter of 2022 was driven by an industry-wide increase in engine and aircraft utilization and the demand for parts associated with such increase compared to the prior year period. There were no equipment sales for the three months ended March 31, 2022 or 2021, respectively.
Gain on Sale of Leased Equipment. During the three months ended March 31, 2022, we sold five engines and other parts and equipment from the lease portfolio for a net gain of $2.3 million. There was no gain on sale of leased equipment during the three months ended March 31, 2021.
Other Revenue. Other revenue increased by $1.7 million, to $6.9 million in the three months ended March 31, 2022 from $5.2 million in the three months ended March 31, 2021. Other revenue consists primarily of management fee income, lease administration fees, third party consignment commissions earned, service fee revenue, interest income on notes receivable related to failed sale-leasebacks where the Company was the buyer-lessor, and other discrete revenue items. The increase in the first quarter of 2022 compared to the prior year period primarily reflects increased service revenue.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased by $2.3 million, or 9.7%, to $21.8 million for the three months ended March 31, 2022 compared to $24.1 million for the three months ended March 31, 2021. The decrease primarily reflects assets reaching their residual value in the prior year.
Cost of Spare Parts and Equipment Sales. Cost of spare parts sales increased by $1.1 million, or 27.6%, to $4.9 million for the three months ended March 31, 2022 compared to $3.8 million for the three months ended March 31, 2021. There was no equipment or cost of equipment sales for the three months ended March 31, 2022 and 2021.
Write-down of Equipment. Write-down of equipment was $21.1 million for the three months ended March 31, 2022, reflecting the write-down of three engines. Of this write-down, $20.4 million reflects the impairment of two engines located in Russia due to the Russia and Ukraine conflict and were expected to be unrecoverable as of March 31, 2022. The remaining $0.7 million write-down was in the ordinary course of business. Write-down of equipment was $1.9 million for the three months ended March 31, 2021, reflecting the write-down of one airframe.
General and Administrative Expenses. General and administrative expenses increased by $7.5 million, or 46.2%, to $23.6 million for the three months ended March 31, 2022 compared to $16.2 million for the three months ended March 31, 2021. The increase primarily reflects a $2.5 million increase in personnel costs, inclusive of a $1.0 million bonus to our Executive Chairman for his 25 years of prior service to the Company, a $0.7 million of incremental wage expense due to annual increases and new employee hiring, as well as a $0.7 million reduction to the prior year period personnel costs resulting from the Coronavirus Aid, Relief, and Economic Security Act employee retention credit. Stock based compensation reflected an additional $1.9 million of expense which was driven by an increase in stock price prior to the 2021 RSA grant. General and Administrative expenses were also negatively impacted by $1.6 million in accrued legal expenses. Additionally, with the lifting of travel bans and the opening of various markets, travel and related costs increased by $1.1 million as our sales force reengaged with customers globally.
Technical Expense. Technical expense consists of the non-capitalized cost of engine repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs. Technical expense increased by $4.3 million to $5.6 million for the three months ended March 31, 2022 compared to $1.3 million for the three months ended March 31, 2021. The increase is primarily due to an increase in engine maintenance and hub repairs resulting from an FAA airworthiness directive, as well as the industry-wide increase in engine and aircraft utilization, as compared to the prior year period.
Net Finance Costs. Net finance costs increased $1.9 million, or 12.4%, to $16.9 million for the three months ended March 31, 2022 compared to $15.0 million for the three months ended March 31, 2021. The increase is due to higher LIBOR rates and pricing on
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the revolving credit facility, as compared to the prior year period. Debt obligations outstanding, net of unamortized debt issuance costs, as of March 31, 2022 and 2021, were $1,759.1 million and $1,724.1 million, respectively. After adjustment for interest rate derivative instruments, $80.0 million and $217.0 million as of March 31, 2022 and 2021, respectively, were tied to one-month LIBOR. As of March 31, 2022 and 2021, we held $500 million and $600 million, respectively, of interest rate derivative instruments on this debt and one-month LIBOR was 0.45% and 0.11% respectively.
Income Tax Benefit. Income tax benefit was $6.5 million for the three months ended March 31, 2022 compared to $0.4 million for the three months ended March 31, 2021. The effective tax rate for the first quarter of 2022 was 23.5% compared to 21.2% in the prior year period. The Company's effective tax rates differed from the U.S. federal statutory rate of 21% largely due to executive compensation as defined in IRS code Section 162(m) and a discrete item recorded in the first quarter of 2022.
Financial Position, Liquidity and Capital Resources
Liquidity
At March 31, 2022, the Company had $14.1 million of cash and cash equivalents and $68.9 million of restricted cash. We fund our operations primarily from cash provided by our leasing activities. We finance our growth through borrowings secured primarily by our equipment lease portfolio. Cash of approximately $21.0 million and $54.0 million for the three months ended March 31, 2022 and 2021, respectively, was derived from our borrowing activities. In these same time periods, $53.3 million and $24.6 million, respectively, was used to pay down related debt.
The impact of the COVID-19 pandemic on the global business environment has caused and could result in additional customer bankruptcies, early lease returns, payment defaults, and rental concessions which could reduce rent or result in deferred customer payments, negatively impacting our financial results.
For any interest rate swaps that we enter into, we will be exposed to risk in the event of non-performance of the interest rate hedge counter-parties. We anticipate that we may hedge additional amounts of our floating rate debt in the future.
Cash Flows Discussion
Cash flows provided by operating activities was $28.3 million and $22.6 million for the three months ended March 31, 2022 and 2021, respectively.
Cash flows from operations are driven significantly by payments made under our lease agreements, which comprise lease revenue, security deposits and maintenance reserves, and are offset by interest expense and general and administrative costs. Cash received as maintenance reserve payments for some of our engines on lease are partially restricted by our debt arrangements. The lease revenue stream, in the short-term, is at fixed rates while a portion of our debt is at variable rates. If interest rates increase, it is unlikely we could increase lease rates in the short term and this would cause a reduction in our earnings and operating cash flows. Revenue and maintenance reserves are also affected by the amount of equipment off lease. Approximately 82%, by book value, of our assets were on-lease as of March 31, 2022 and December 31, 2021, respectively. The average utilization rate (based on net book value) for the three months ended March 31, 2022 and 2021 was approximately 84% and 80%, respectively. If there is an increase in off-lease rates or deterioration in lease rates that are not offset by reductions in interest rates, there will be a negative impact on earnings and cash flows from operations.
Cash flows used in investing activities was $6.3 million for the three months ended March 31, 2022 and primarily reflected $24.2 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period), partly offset by $17.3 million of proceeds from the sale of equipment. Cash flows used in investing activities was $65.5 million in the three months ended March 31, 2021, and primarily reflected $39.8 million related to leases entered into during the first quarter of 2021 which were classified as notes receivable under ASC 842 and $26.5 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period).
Cash flows used in financing activities was $34.7 million for the three months ended March 31, 2022 and primarily reflected $53.3 million in principal payments and $1.8 million of share repurchases, partially offset by $21.0 million in proceeds from debt obligations. Cash flows provided by financing activities was $28.7 million for the three months ended March 31, 2021 and primarily reflected $54.0 million in proceeds from debt obligations, partially offset by $24.6 million in principal payments.
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Preferred Stock Dividends
The Company’s Series A-1 Preferred Stock and Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5% per share. During the three months ended March 31, 2022 and 2021, the Company paid total dividends of $0.8 million, respectively, on the Series A-1 and Series A-2 Preferred Stock.
Debt Obligations and Covenant Compliance
At March 31, 2022, debt obligations consisted of loans totaling $1,759.1 million, net of unamortized issuance costs, payable with interest rates varying between approximately 1.8% and 7.4%. Substantially all of our assets are pledged to secure our obligations to creditors. For further information on our debt instruments, see Note 5 “Debt Obligations” in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Virtually all of our debt requires our ongoing compliance with certain financial covenants including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. Under our revolving credit facility, we can borrow no more than 85% of an engine’s net book value and 65% of an airframe’s, spare parts inventory’s or other assets net book value. Therefore, we must have other available funds for the balance of the purchase price of any new equipment to be purchased. Our revolving credit facility, certain indentures and other debt related agreements also contain cross-default provisions. If we do not comply with the covenants or eligibility requirements, we may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, much of the debt is secured by engines and aircraft, and to the extent that engines or aircraft are sold, repayment of that portion of the debt could be required.
At March 31, 2022, we were in compliance with the covenants specified in our revolving credit facility, including the Interest Coverage Ratio requirement of at least 2.25 to 1.00, and the Total Leverage Ratio requirement to remain below 4.50 to 1.00. The Interest Coverage Ratio, as defined in the credit facility, is the ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) and other one-time charges to consolidated interest expense. The Total Leverage Ratio, as defined in the credit facility, is the ratio of total indebtedness to tangible net worth. At March 31, 2022, we were in compliance with the covenants specified in the WEST III, WEST IV, WEST V and WEST VI indentures and servicing and other debt related agreements.
Off-Balance Sheet Arrangements
As of March 31, 2022, we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Contractual Obligations and Commitments
Repayments of our gross debt obligations primarily consist of scheduled installments due under term loans and are funded by the use of unrestricted cash reserves and from cash flows from ongoing operations. The table below summarizes our contractual commitments at March 31, 2022:
| Payment due by period (in thousands) | |||||||||||||||||||||||||||||
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||||||||||||
| Debt obligations | $ | 1,777,363 | $ | 72,266 | $ | 704,794 | $ | 338,490 | $ | 661,813 | |||||||||||||||||||
| Interest payments under debt obligations | 267,928 | 61,165 | 104,326 | 71,884 | 30,553 | ||||||||||||||||||||||||
| Operating lease obligations | 5,482 | 981 | 1,635 | 1,538 | 1,328 | ||||||||||||||||||||||||
| Purchase obligations | 439,917 | 127,697 | 241,220 | 71,000 | — | ||||||||||||||||||||||||
| Total | $ | 2,490,690 | $ | 262,109 | $ | 1,051,975 | $ | 482,912 | $ | 693,694 | |||||||||||||||||||
From time to time we enter into contractual commitments to purchase engines directly from original equipment manufacturers. As of the date of this report we have purchased three new LEAP-1B engines and are currently committed to purchasing 12 additional new LEAP-1B engines for $170.6 million and 19 additional new LEAP-1A engines for $269.3 million by 2025. Our purchase agreements generally contain terms that allow the Company to defer or cancel purchase commitments in certain situations. These deferrals or conversions would not result in penalties or increased costs other than any potential increase due to the normal year-over-year change in engine list prices, which is akin to ordinary inflation. The Company continues to expect demand for LEAP-1B engines to increase
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as the 737 Max continues to be re-certified globally and aircraft (and their installed engines) that have been parked and in storage for more than one year begin the technical process of returning to service.
In May 2021, we entered into a commitment for future maintenance services which are anticipated to cost $24.0 million by 2024.
In December 2020, we entered into definitive agreements for the purchase of 25 modern technology aircraft engines. As part of the purchase, we have committed to certain future overhaul and maintenance services which are anticipated to range between $73.8 million and $112.0 million by 2030.
We have estimated the interest payments due under debt obligations by applying the interest rates applicable at March 31, 2022 to the remaining debt, adjusted for the estimated debt repayments identified in the table above. Actual interest payments will vary due to changes in the rates for one-month LIBOR.
We believe our equity base, internally generated funds and existing debt facilities are sufficient to maintain our level of operations for the next twelve months. A decline in the level of internally generated funds could result if the amount of equipment off-lease increases, there is a decrease in availability under our existing debt facilities, or there is a significant step-up in borrowing costs. Such decline would impair our ability to sustain our level of operations. We continue to discuss additions to our capital base with our commercial and investment banks. If we are not able to access additional capital, our ability to continue to grow our asset base consistent with historical trends will be impaired and our future growth limited to that which can be funded from internally generated capital.
Recent Accounting Pronouncements
The most recent adopted accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 1 to our Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our primary market risk exposure is that of interest rate risk. A change in LIBOR rates would affect our cost of borrowing. Increases in interest rates, which may cause us to raise the implicit rates charged to our customers, could result in a reduction in demand for our leases. Alternatively, we may price our leases based on market rates so as to keep the fleet on-lease and suffer a decrease in our operating margin due to interest costs that we are unable to pass on to our customers. As of March 31, 2022, $580.0 million of our outstanding debt is variable rate debt. We estimate that for every one percent increase or decrease in interest rates on our variable rate debt, net of our interest rate swaps, our annual interest expense would increase or decrease by $0.8 million.
We hedge a portion of our borrowings from time to time, effectively fixing the rate of these borrowings. This hedging activity helps protect us against reduced margins on longer term fixed rate leases. Such hedging activities may limit our ability to participate in the benefits of any decrease in interest rates but may also protect us from increases in interest rates. Furthermore, since lease rates tend to vary with interest rate levels, it is possible that we can adjust lease rates for the effect of changes in interest rates at the termination of leases. Other financial assets and liabilities are at fixed rates.
We are also exposed to currency devaluation risk. Substantially all of our leases require payment in U.S. dollars. During the three months ended March 31, 2022 and 2021, 57% and 55%, respectively, of our lease rent revenues came from non-United States domiciled lessees. If these lessees’ currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making their lease payments.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness and design of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that as of March 31, 2022, as a result of the material weakness described below, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
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(b) Management’s Report on Internal Control Over Financial Reporting. Management, including the CEO and CFO, is responsible for establishing and maintaining adequate “internal control over financial reporting,” as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control structure is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of its financial statements prepared for external purposes in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. In addition, any evaluation of the effectiveness of internal controls over financial reporting in future periods is subject to risk that those internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including the CEO and CFO, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and identified a material weakness in the Company’s internal control over financial reporting, which is described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
During the review process related to the three months ended March 31, 2022, Management, together with the Company’s independent registered public accounting firm, identified a material weakness in one of the Company’s internal controls related to the review of the quarterly income tax provision. Specifically, the Company’s evaluation of the quarterly income tax provision did not include a review process sufficiently precise to evaluate the accuracy of the income tax expense (benefit) calculation during the quarter ended March 31, 2022. Additionally, the review was not sufficiently detailed to identify a material misstatement in the calculation of the income tax expense (benefit).
Based on the results of its evaluation and the material weakness described above, Management concluded that the Company’s internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP as of March 31, 2022.
(c) Changes in internal controls over financial reporting. There has been no change in our internal control over financial reporting during our fiscal quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Management has commenced the process of designing a remediation plan.
PART II — OTHER INFORMATION
Item 1A. Risk Factors
Investors should carefully consider the risks in the “Risk Factors” in Part 1: Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 14, 2022 and our other filings with the SEC. These risks are not the only ones facing the Company. Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations. Any of these risks could adversely affect our business, cash flows, financial condition and results of operations. The trading price of our common stock could fluctuate due to any of these risks, and investors may lose all or part of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q. There have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2021.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c) Issuer Purchases of Equity Securities. Effective December 31, 2018, the Board of Directors approved the renewal of the existing common stock repurchase plan extending the plan through December 31, 2020 and amending the plan to allow for repurchases of up to $60.0 million of the Company’s common stock until such date. Effective December 31, 2020, the Board of Directors approved the renewal of the existing common stock repurchase plan extending the plan through December 31, 2022.
Common stock repurchases, under our authorized plan, in the three months ended March 31, 2022 were as follows:
| Period | Total Number of Shares Purchased | Average Price per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans | ||||||||||
| January 2022 | 18,431 | $ | 35.93 | 18,431 | $ | 44,178 | ||||||||
| February 2022 | 16,573 | $ | 35.32 | 16,573 | $ | 43,593 | ||||||||
| March 2022 | 17,776 | $ | 33.47 | 17,776 | $ | 42,997 | ||||||||
| Total | 52,780 | $ | 34.86 | 52,780 | $ | 42,997 | ||||||||
Item 5. Other Information
On March 3, 2022, the Board appointed Austin C. Willis, a member of the Board and the Company’s Senior Vice President, Corporate Development, as the Company’s Chief Executive Officer, effective April 1, 2022.
In connection with the appointment of Austin C. Willis, Charles F. Willis, IV, the Chairman and Chief Executive Officer of the Company, notified the Board of his decision to step down as Chief Executive Officer, effective April 1, 2022. Charles F. Willis, IV continues to serve as the Chairman of the Board and assumed the role of Executive Chairman on April 1, 2022.
On March 3, 2022, the Company entered into an employment agreement with Charles F. Willis IV in connection with his assumption of the role of Executive Chairman of the Board, effective as of April 1, 2022. The agreement provides that Charles F. Willis IV is entitled to an initial annual base salary of $1,097,000 and establishes his target annual bonus opportunity at 100% of his annual base salary. In addition, the agreement provides for a $1,000,000 signing bonus.
Also, on March 3, 2022, the Company entered into an employment agreement with Austin C. Willis in connection with his appointment as Chief Executive Officer of the Company, effective as of April 1, 2022. The agreement provides that Austin C. Willis is entitled to an initial annual base salary of $640,000 and establishes his target annual bonus opportunity at 90% of his annual base salary.
The foregoing descriptions of the employment agreements are qualified in their entirety by reference to the employment agreements, copies of which are filed as Exhibit 10.1 and 10.2, respectively, to this Quarterly Report on Form 10-Q and are incorporated herein by reference.
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Item 6.
EXHIBITS
| Exhibit Number | Description | |||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32 | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101 | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 10, 2022
| Willis Lease Finance Corporation | ||||||||
| By: | /s/ Scott B. Flaherty | |||||||
| Scott B. Flaherty | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered on March 3, 2022 to be effective as of the 1st day of April, 2022, by and between Willis Lease Finance Corporation, a Delaware corporation (“Employer”), and Austin Willis (“Employee”).
RECITALS
WHEREAS, pursuant to an employment agreement made and entered into with Employee as of the 9th day of February 2016, Employer has employed Employee as Senior Vice President, Corporate Development;
WHEREAS, Charles F. Willis IV, Chief Executive Officer and Chairman, has advised Employer’s Compensation Committee of the Board that in preparing for the future, it is time for him to step into a more strategic role;
WHEREAS, effective as of the 1st day of April 2022, Charles F. Willis IV will become Employer’s Executive Chairman;
WHEREAS, Employer desires to employ Employee in the position of Chief Executive Officer effective as of the 1st day of April 2022, and with the position, compensation, amenities and other benefits set forth herein;
WHEREAS, Employee desires to be employed by Employer in the position of CEO, upon the terms and conditions set forth herein; and
WHEREAS, Employee acknowledges that he has had an opportunity to consider this Agreement and consult with independent advisors of his choosing with regard to the terms of this Agreement, and enters this Agreement voluntarily and with a full understanding of its terms.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises of the parties and the mutual benefits they will gain by the performance thereof, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1.Definitions. The following terms in the Agreement shall have the meanings as set forth below:
(a)“Affiliate” means a person that, directly or indirectly, through one or more intermediaries controls, is controlled by or is under common control with the first mentioned person.
(b)“Board” means the Board of Directors of the Employer.
(c)“Cause” means any of the following: following thirty (30) days advance written notice to the Employee setting forth in reasonable detail the nature of the Cause of:
i.Employee’s conviction of or plea of nolo contendere to any felony or gross misdemeanor charges brought in any court of competent jurisdiction;
ii.any fraud, misrepresentation or gross misconduct by Employee against Employer;
iii.Employee’s willful refusal or willful failure to perform his duties as Chief Executive Officer; or
iv.Employee’s material, willful breach of this Agreement.
No such act or event described in clauses (iii) and (iv) of this paragraph 1(c) shall constitute Cause hereunder if the Employee has fully cured such act or event during the applicable thirty (30) day notice period.
(d)“Change in Control” means the occurrence of any of the following events:
i.any “person” (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than Charles F. Willis IV or an Affiliate (as defined in Section 13) of Charles F. Willis IV, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of Employer representing at least fifty percent (50%) of the total voting power represented by Employer’s then outstanding voting securities; or
ii.the stockholders of Employer approve a merger or consolidation of Employer with any other corporation, other than a merger or consolidation which would result in the voting securities of Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty (50%) of the total voting power represented by the voting securities of Employer or such surviving entity outstanding immediately after such a merger or consolidation, or the stockholders of Employer approve a plan of complete liquidation or dissolution of Employer or an agreement for the sale or disposition by Employer of all or substantially all of Employer’s assets, provided, however, that if such merger, consolidation, liquidation, dissolution, sale or disposition does not subsequently close, a Change in Control shall not be deemed to have occurred; or
iii.individuals who are directors of Employer as of the effective date hereof cease for any reason to constitute a majority of the Board unless such change(s) is approved by a majority of the directors of Employer as of the date thereof.
(e)“Code” means the Internal Revenue Code of 1986, as amended.
(f)“Confidential and Proprietary Information” means information not generally known to the public and which is proprietary to Employer and relates to Employer’s existing or reasonably foreseeable business or operations, including but not limited to trade secrets, business plans, advertising or public relations strategies, financial information, budgets, personnel information, customer information and lists, and information pertaining to research, development, manufacturing, engineering, processing, product designs (whether or not patented or patentable), purchasing and licensing, and which may be embodied in reports or other writings or in blue prints or in other tangible forms such as equipment and models.
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(g)“Good Reason” means any of the following: following thirty (30) days advance written notice to the Employer setting forth in reasonable detail the nature of the Good Reason, provided such notice is delivered within sixty (60) days of knowledge of the occurrence of the applicable event that would trigger Good Reason:
i.a material reduction in compensation (other than under a program approved by the Compensation Committee that affects all executive officers of Employer);
ii.a material reduction in benefits;
iii.a material reduction in Employee’s position, title or duties;
iv.a change in the Employee’s reporting obligations so that Employee must report to someone other than the Board;
v.any action or inaction that constitutes a material breach by Employer of its obligations under this Agreement; or
vi.as permitted during the first two years of this Agreement, action by the Executive Chairman of the Board terminating the Employee’s employment or demoting the Employee in the Executive Chairman’s sole discretion without the consent of the Board.
No such act or event described in clauses (i) through (vi) of this paragraph 1(g) shall constitute Good Reason hereunder if the Employer has fully cured such act or event during the applicable thirty (30) day notice period.
No such act or event described in clauses (i) through (v) of this paragraph 1(g) shall constitute Good Reason hereunder if Employee provides written consent to any such occurrence.
(h)“Start Date” means April 1, 2022.
(i)“Termination Date” means the date on which Employee’s employment by Employer ceases under this Agreement, as provided under Sections 8 or 9 below, as applicable.
2.Employment. Employer hereby employs Employee and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth, as Chief Executive Officer. Employee shall work from Employer’s Corporate Headquarters located in Coconut Creek, FL, or another office location of Employer, or another location to be mutually agreed by Employee and Employer and which agreement to work at another location shall not be unreasonably withheld.
3.Term. Executive’s employment hereunder shall continue under this Agreement for an indefinite period of time beginning on the Start Date and continuing until termination in accordance with Section 8 or 9 of this Agreement, as applicable.
4.Duties.
(a)Employee shall in good faith perform those duties and functions as are required by his position (and as are outlined on Exhibit “A” hereto). Notwithstanding the foregoing or any
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other provision in this Agreement, Employer shall have the right to modify from time to time the title and duties assigned to Employee so long as such title and duties are consistent with the usual and customary expectations of the type of position and function of Employee as Chief Executive Officer.
(b)Employee agrees to serve Employer faithfully and to the best of his ability; to devote his full time and attention, with undivided loyalty, during normal business hours to the business and affairs of Employer, except during reasonable vacation periods and periods of illness and incapacity, and to perform such duties as the Board may assign him that are consistent with his title. Employee shall not engage in any other business or job activity during the Employment Term without Employer’s prior written consent. Notwithstanding the foregoing, Employee may engage in civic and not-for- profit activities so long as such activities do not materially interfere with Employee’s performance of his duties hereunder.
5.Compensation. Employer agrees to provide as compensation to Employee the following salary, incentive, and benefits in exchange for the services described in Section 4 of this Agreement:
(a)Base Salary. Employer agrees to pay to Employee during the Employment Term an annual base salary in the amount of Six Hundred Forty Thousand US Dollars ($640,000) less payroll deductions and all required withholdings, or such higher amount as the Compensation Committee of the Board shall from time to time determine. Employee’s base salary shall be paid not less frequently than semi-monthly in accordance with Employer’s usual payroll practices. In August of 2022 and 2023, the Compensation Committee of the Board will review Employee’s base salary. Provided that Employee has performed the essential functions of his employment, the Compensation Committee would target an annual base salary in the amount of Seven Hundred Seven Thousand US Dollars ($707,000) effective September 1, 2022 and target an annual base salary in the amount of Seven Hundred Seventy-Five Thousand US Dollars ($775,000) effective September 1, 2023. Thereafter the Compensation Committee of the Board will review Employee’s base salary no less than once annually, and shall have sole discretion to increase or decrease (in connection with a salary reduction program approved by the Compensation Committee of the Board, which affects all executive officers of Employer) Employee’s base salary.
(b)Incentive Compensation. In addition to Employee’s base salary, Employee shall participate in and, to the extent earned or otherwise payable thereunder, receive periodic incentive cash bonuses pursuant to any incentive plans currently maintained or hereafter established by Employer and applicable to an employee of Employee’s position. Employee’s entitlement to incentive compensation is discretionary and shall be determined by the Compensation Committee of the Board in good faith based upon the extent to which Employee’s individual performance objectives and Employer’s performance objectives were achieved during the applicable bonus period. For 2022, Employee is eligible to receive a target bonus of 90% of Employee’s base salary. Effective January 1, 2023, the target bonus shall increase automatically to 100% of Employee’s base salary.
6.Benefits and Perquisites.
(a)Benefits. Employer shall provide Employee such employment benefits, equipment and support as are generally available to executive officers of Employer, including without limitation reimbursement of reasonable expenses incurred in performing his duties under this Agreement (including, but not limited to, expenses for entertainment, long distance telephone calls, lodging, meals, transportation and travel), coverage under medical, dental, long-term disability and group life insurance plans, and rights and benefits for which Employee is eligible under Employer’s 401(k) and employee stock purchase plans. Employer will also endeavor to
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provide Employee with a long-term disability plan. Procurement of such disability coverage, however, will be subject to evidence of insurability and underwriting approval.
(b)Vacation and Sick Pay. Employee shall be eligible for vacation and sick leave in accordance with the policies of Employer in effect from time to time during the Employment Term. Employee shall be entitled to a period of annual vacation time equal to four (4) weeks during each Employment Year, to accrue pro rata during the course of the Employment Term. All accrued vacation shall be paid to Employee in a lump sum payment on the date of a Change in Control or termination of employment with Employer.
(c)Perquisites. During the Employment Term, Employer shall also provide the following perquisites to Employee:
i.Use of an Employer provided car comparable to that presently used by the Employee;
ii.Payment for Employee’s monthly fees and expenses at one social club, capped at $30,000 per year;
iii.Financial, tax and estate planning services with a value of a maximum of $45,000 per year, to be reimbursed or paid after receipt of a reasonable invoice, reviewed and approved by the Compensation Committee of the Board;
iv.Personal use of the Employer plane (including family and friends) with a limit of $30,000 benefit in any calendar year based upon Standard Industry Fare Level (SIFL) rates, and any unused amounts shall carry into the following year; and
v.Reimbursement of reasonable expenses incurred in performing his duties under this Agreement (including, but not limited to, expenses for entertainment, long-distance telephone calls, lodging, meals and travel including first class air fare).
7.Grants of Restricted Stock.
(a)Employee will be eligible to participate in any Employer’s incentive stock plan (For Restricted Stock Bonus Awards) (the “Plan”) on the same terms as are generally available to executive officers of Employer and on terms which are in accordance with comparative market practices. The parties agree that any additional grant of restricted stock under the Plan or any similar plan is subject to the discretion of the Board, or the Compensation Committee of the Board, based upon the duties of Employee’s position, the extent to which Employee’s individual performance objectives and Employer’s profitability objectives and other financial and non-financial objectives were achieved during the applicable period, and comparative market practices.
(b)In addition to any rights Employee may have under the Plan or specific restricted stock under the Plan, all restricted stock bonus awards granted to Employee which would have otherwise vested during the period following the occurrence of a Change in Control shall immediately vest and become exercisable in the event of a Change in Control.
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8.Termination by Employer. The employment of Employee may be terminated by Employer or Employer for any reason or no reason, with or without cause or justification, subject to the following:
(a)Termination For Cause. If (i) Employee’s employment is terminated by Employer for Cause, then (A) Employer’s total liability to Employee or his heirs shall be limited to payment of any unpaid base salary, any annual incentive compensation and any vested but undistributed stock to which Employee is entitled as of the Termination Date, and accrued vacation and sick pay, and Employee shall not be entitled to any further compensation or benefits provided under this Agreement, including, without limitation, any severance payments and (B) Employee will forfeit that portion of any grant of restricted stock that has not vested as of the Termination Date.
(b)Termination Without Cause. If (i) Employee’s employment is terminated by Employer without Cause, Employer will (A) in the case of termination, provide not less than six (6) months’ notice of termination or an amount equal to twelve (12) months of Employee’s base salary in lieu of notice. In addition, in each of the foregoing scenarios, Employee will be paid the severance which is described in Section 10 below.
9.Termination by Employee. The employment of Employee may be terminated by Employee for any reason or no reason, with or without cause or justification, subject to the following:
(a)Voluntary Resignation. If (i) Employee’s employment terminates by reason of Employee’s voluntary resignation (and is not a resignation for Good Reason), then (A) Employer’s total liability to Employee shall be limited to payment of any unpaid base salary, any annual incentive compensation and vested but undistributed grants of stock to which Employee is entitled as of the Termination Date, and accrued vacation and sick pay, and Employee shall not be entitled to any further compensation or benefits provided under this Agreement, including, without limitation, any severance payments and (B) Employee will forfeit that portion of any grant of restricted stock that has not vested as of the Termination Date.
(b)Resignation for Good Reason. If (i) Employee’s employment terminates by reason of Employee’s voluntary resignation for Good Reason, Employee will be paid the severance which is described in Section 10 below.
10.Severance Payment. In the event that Employee’s termination of employment falls under either Section 8(b) or 9(b), then Employee shall be entitled to the following severance in exchange for signing a release of claims that has been equitably negotiated by and between the parties.
(a)Amount. In the event severance is payable hereunder, such severance shall be in an amount equal to
i.two (2) times Employee’s annual base salary at the time of termination, it being acknowledged and agreed that if Employee is terminating employment due to a material reduction in base salary, then the part of the severance payable to Employee pursuant to this subsection 10(a)(i) shall be based upon Employee’s base salary before such material reduction, plus
ii.any unpaid base salary and any annual incentive compensation to which Employee is entitled as of the Termination Date, and accrued vacation and sick pay, plus
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iii.an amount equal to two (2) years of the average annual Incentive Bonus paid to Employee attributable to the two (2) years prior to the year of termination (or the greater of (A) one (1) year or (B) the target bonus for such year, “doubled” in the case of a termination triggering severance that occurs prior to two (2) annual incentive bonuses being paid to Employee), it being acknowledged and agreed that if Employee is terminating employment due to a material reduction in incentive compensation, then the part of the severance payable to Employee pursuant to this subsection 10(a)(iii) shall be based upon Employee’s incentive compensation before any such material reduction, plus
iv.distribution of unpaid deferred compensation in accordance with the terms of the applicable deferred compensation plan and any elections made thereunder, plus
v.accelerated vesting of the restricted stock scheduled to vest during the two (2) years following the Termination Date, plus
vi.continued coverage under all group benefit plans (e.g., medical, dental and vision) for a period of twenty-four months following the Termination Date, in each case at the same cost to Employee as prior to the Termination Date, it being acknowledged and agreed that if Employer is unable to provide such continuation coverage under any such group benefit plan, Employer shall pay for or reimburse Employee for the cost of such coverage.
(b)Payment. Subject to Section 24 hereof, all cash components of the above-described severance payments shall be paid in a lump sum within thirty (30) days of the Termination Date; provided that, only to the extent required by Section 409A of the Code, such payments shall be made in a lump sum six months after the Termination Date.
(c)Limitation on Payments. If any payment or benefit Employee would receive from Employer or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the “Code”, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Employee’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall be made in a manner consistent with the requirements of Code Section 409A and occur in the following order: cancellation of accelerated vesting of stock awards; reduction of employee benefits; and reduction of cash payments. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of Employee’s stock awards unless Employee elects in writing a different order for cancellation.
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The accounting firm engaged by Employer for general audit purposes as of the day prior to the effective date of the event that triggers the Payment shall perform the foregoing calculations. If the accounting firm so engaged by Employer is serving as accountant or auditor for the individual, entity or group effecting the “change in ownership” as described in Section 280G(b)(2)(A)(i) of the Code, Employer shall appoint a nationally recognized accounting firm to make the determinations required hereunder. Employer shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.
The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to Employer and Employee within fifteen (15) calendar days after the date on which Employee’s right to a Payment is triggered (if requested at that time by Employer or Employee) or such other time as requested by Employer or Employee. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish Employer and Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon Employer and Employee.
11.Benefits Upon Termination. Except as otherwise expressly provided by this Agreement pursuant to Section 10(a)(vi) and without limiting any rights granted to Employee hereunder, all insurance benefits provided under Section 6 of this Agreement shall be extended, at Employee’s election and cost, to the extent permitted by Employer’s insurance policies and benefit plans, for one year after Employee’s Termination Date, except (a) as required by law (e.g., COBRA health insurance continuation election) or (b) in the event of a termination described in Section 8 or 9.
12.Death/Disability.
(a)In the event (during the Employment Term) of Employee’s death, (i) this Agreement shall terminate, (ii) Employer shall pay to Employee’s estate or heirs any unpaid base salary and any annual incentive compensation to which Employee may be entitled as of the Termination Date, accrued but unpaid vacation pay, and (iii) Employee’s estate and heirs shall not be entitled to any severance payments hereunder. In addition, all stock options and restricted stock granted to Employee shall immediately vest and become exercisable, if applicable, upon Employee’s death. Employee’s estate shall have the right to receive or exercise such grants or options for the shorter of (i) two (2) years from the date of death, and (ii) the term of the grant or option.
(b)In the event (during the Employment Term) of Employee’s long term disability (as defined in Employee’s Group Disability Plan) and the passing of the Elimination Period (as defined in Employee’s Group Disability Plan), (i) this Agreement shall terminate, (ii) Employer shall pay to Employee any unpaid base salary and any annual incentive compensation to which Employee is entitled as of the Termination Date, and (iii) Employee shall not be entitled to any severance payments hereunder. In addition, the restricted stock or stock options scheduled to vest during the two (2) years after the date of Employee’s disability shall receive accelerated vesting and shall become exercisable upon the termination of this Agreement due to Employee’s disability. Employee shall have the right to receive or exercise such grants or options for the shorter of (i) two (2) years from the date of disability, and (ii) the term of the grant or option.
13.Maintenance of Confidentiality and Duty of Loyalty.
(a)General. Employee acknowledges that, pursuant to his employment with Employer, he will necessarily have access to trade secrets and information that is confidential and proprietary to Employer in connection with the performance of his duties. In consideration for the disclosure to Employee of, and the grant to Employee of access to such valuable and
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confidential information and in consideration of his employment, Employee shall comply in all respects with the provisions of this Section 13.
(b)Nondisclosure. During the Term and for a period of ten (10) years thereafter, Confidential and Proprietary Information of Employer of which Employee gains knowledge during the Employment Term shall be used by Employee only for the benefit of Employer in connection with Employee’s performance of his employment duties, and Employee shall not, and shall not allow any other person that gains access to such information in any manner to, without the prior written consent of Employer, disclose, communicate, divulge or otherwise make available, or use, any such information, other than for the immediate benefit of Employer. For purposes of this Agreement, the term Employee will refrain from any acts or omissions that would jeopardize the confidentiality or reduce the value of any Employer Confidential and Proprietary Information.
(c)Covenant of Loyalty. During the Term, Employee shall not, on his own account or as an employee, agent, promoter, consultant, partner, officer, director, or as a more than 1% shareholder of any other person, firm, entity, partnership or corporation, own, operate, lease, franchise, conduct, engage in, be connected with, have any interest in, or assist any person or entity engaged in any business in the continental United States that is in any way competitive with or similar to the business that is conducted by Employer or is in the same general field or industry as Employer. Without limiting the generality of the foregoing, Employee does hereby covenant that he will not, during the Employment Term:
i.solicit, accept or receive any compensation from any customer of Employer or any business competitive to that of Employer; or
ii.contact, solicit or call upon any customer or supplier of Employer on behalf of any person or entity other than Employer for the purpose of selling, providing or performing any services of the type normally provided or performed by Employer; or
iii.induce or attempt to induce any person or entity to curtail or cancel any business or contracts which such person or entity has with Employer; or
iv.induce or attempt to induce any person or entity to terminate, cancel or breach any contract which such person or entity has with Employer, or receive or accept any benefits from such termination, cancellation or breach.
(d)No Solicitation. During the Term and for a period of three (3) years thereafter, Employee agrees not to interfere with the business of Employer or any Affiliate of Employer by directly or indirectly soliciting, attempting to solicit, inducing or otherwise causing any employee of Employer or any Affiliate of Employer to terminate his or her employment with Employer in order to become an employee, consultant or independent contractor to or for any other person or entity.
(e)Injunctive Relief. Employee expressly agrees that the covenants set forth in this Section 13 are reasonable and necessary to protect Employer and its legitimate business interests, and to prevent the unauthorized dissemination of Confidential and Proprietary Information to competitors of Employer. Employee also agrees that Employer will be irreparably harmed and that damages alone cannot adequately compensate Employer if there is a violation of this Section 13 by Employee, and that injunctive relief against Employee is essential for the protection of Employer. Therefore, in the event of any such breach, it is agreed that, in addition to any other
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remedies available, Employer shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction, plus reasonable attorneys’ fees actually incurred in seeking such relief to the extent that Employer is successful on its claims against Employee. Furthermore, Employee agrees that Employer shall not be required to post a bond or other collateral security with the court if Employer seeks injunctive relief. To the extent any provision of this Section 13 is deemed unenforceable by virtue of its scope or limitation, Employee and Employer agree that the scope and limitation provisions shall nevertheless be enforceable to the fullest extent permissible under the laws and public policies applied in such jurisdiction where enforcement is sought.
14.Notices. Any notice which either party may wish or be required to give to the other party pursuant to this Agreement shall be in writing and shall be either personally served or deposited in the United States mail, registered or certified, and with proper postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address which Employee most recently communicated to Employer in writing. In the case of Employer, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of the General Counsel. Notice given by personal service shall be deemed effective upon service. Notice given by registered or certified mail shall be deemed effective three (3) days after deposit in the mail.
15.Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective legal representatives, and their successors and assigns. As used in this Agreement, the term “successor” shall include any person, firm, corporation or other business entity which at any time, whether by merger, purchase, consolidation, or otherwise, acquired all or substantially all of the assets or business of Employer. This Agreement shall be deemed to be willfully breached by Employer if any such successor does not absolutely and unconditionally assume all of Employer’s obligations under this Agreement and agree expressly to perform the obligations in the same manner and to the same extent as Employer would be required to perform such obligations in the absence of the succession; it being understood that no such breach shall occur where such assumption or agreement occurs by operation of law. Employee may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of Employer, which shall not be unreasonably withheld.
16.Entire Agreement. This Agreement contains the entire agreement of the parties and, as of the Start Date, supersedes and replaces all prior agreements and understandings between the parties relating to the subject matter hereof.
17.Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws (without reference to choice or conflict of laws) of the State of Florida.
18.Arbitration. Employer and Employee agree that, to the extent permitted by law and to the extent that the enforceability of this Agreement is not thereby impaired, any and all disputes, controversies or claims between Employee and Employer, except disputes concerning the use or disclosure of trade secrets, proprietary and/or confidential information, or otherwise arising under Section 13 hereof, shall be determined exclusively by final and binding arbitration in Broward or Palm Beach County, Florida in accordance with the employment rules of the American Arbitration Association then in effect. The controversy or claim shall be submitted to three arbitrators, one of whom shall be chosen by Employer, one of whom shall be chosen by Employee, and the third of whom shall be chosen by the two arbitrators so selected. The party desiring arbitration shall give written notice to the other party of its desire to arbitrate the particular matter in question, naming the arbitrator selected by it. If the other party shall fail within a period of 15 days after such notice shall have been given to reply in writing naming the arbitrator selected by it, then the party not in default may apply to the American Arbitration Association for the appointment of the second arbitrator. If the two arbitrators chosen as above shall fail within 15 days after their selection to agree upon a third arbitrator, then either party
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may apply to the American Arbitration Association for the appointment of an arbitrator to fill the place so remaining vacant. Employer shall pay the fees of the arbitrators so selected. The decision of any two of the arbitrators shall be final and binding upon the parties hereto and shall be delivered in writing signed in triplicate by the concurring arbitrators to each of the parties hereto. The parties agree that both parties will be allowed to engage in adequate discovery consistent with the nature of the claims in dispute. The arbitrators shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. The arbitrators shall have discretion to award monetary and other damages, or no damages, and to fashion such other relief as the arbitrators deem appropriate. The arbitrators also shall have discretion to award the prevailing party reasonable costs and attorneys’ fees incurred in bringing or defending an action under this Section 18, as permitted by applicable law. Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction.
Nothing in this Section 18 shall limit the Employer’s ability to seek injunctive relief for any violation of Employee’s obligations concerning nondisclosure, loyalty and non-solicitation as set forth in Section 13 hereof. Any such injunctive relief proceeding shall be without prejudice to any rights Employer or Employee may have under this Agreement to obtain relief in arbitration with respect to such matters.
19.Name Change. So long as (a) Employee is the Chief Executive Officer of Employer, and (b) Employee or his Affiliates own 10% or more of the outstanding common stock of Employer, Employer will not change its name without the prior written consent of Employee. This Section 19 shall be automatically rendered void in the event of a Change in Control.
20.Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.
21.Amendments and Waivers. This Agreement may be modified only by a written instrument duly executed by each party hereto. No breach of any covenant, agreement, warranty or representation shall be deemed waived unless expressly waived in writing by the party who might assert such breach. No waiver of any right hereunder shall operate as a waiver of any other right or of the same or a similar right on another occasion.
22.Counterparts. This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.
23.
Section Headings. The headings of each Section, subsection or other subdivision of this Agreement are for reference only and shall not limit or control the meaning thereof.
Section Headings. The headings of each Section, subsection or other subdivision of this Agreement are for reference only and shall not limit or control the meaning thereof.24.Section 409A Compliance. Notwithstanding anything in this Agreement to the contrary, if any payment or benefit to Employee under this Agreement on account of the Employee’s termination of employment constitutes a deferral of compensation subject to 409A of the Code (“Section 409A”), such payment or benefit shall commence when Employee has incurred a “Separation from Service” as defined under Treasury Regulation Section 1.409A-1(h)(1) without regard to the optional alternative definitions thereunder. If at the time of Employee’s Separation from Service, Employee is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i), Employer shall delay commencement of any such payment or benefit until six
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months after Employee’s after Employee’s Separation from Service (or, if earlier, Employee’s death) to the extent necessary to comply with Section 409A (the “409A Suspension Period”). On the first regular Employer pay date after the end of the 409A Suspension Period, Employer shall pay to the Employee, without interest, any payments and benefits that Employer would otherwise have been required to provide Employee during the 409A Suspension Period under this Agreement but for the imposition thereof. Thereafter, Employee shall receive any remaining payments and benefits due under this Agreement in accordance with the terms of this Agreement (as if there had not been any 409A Suspension Period.
To the extent that reimbursements or in-kind benefits under this Agreement constitute non-exempt “nonqualified deferred compensation” for purposes of Section 409A, (1) all reimbursements hereunder shall be made on or prior to the last day of the calendar year following the calendar year in which the expense was incurred by Employee, (2) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (3) the amount of expenses eligible for reimbursement or in-kind benefits provided in any calendar year shall not in any way affect the expenses eligible for reimbursement or in-kind benefits to be provided, in any other calendar year.
The payments and benefits under this Agreement are intended to be exempt from or comply with the requirements of Section 409A so that none of the payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be exempt or so comply. The Employer and Employee agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions that are necessary, appropriate or desirable to avoid imposition of any additional tax under Section 409A.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
“Employer”
WILLIS LEASE FINANCE CORPORATION
By: /s/ Dean M. Poulakidas
Dean M. Poulakidas, SVP, General
Counsel & Secretary
“Employee”
By: /s/ Austin Willis
Austin Willis
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Exhibit A
Key Responsibilities: As CEO, you are responsible for all executive management matters affecting the Company. All members of the executive management team report, either directly or indirectly, to you. As CEO you report to the Executive Chairman (acting on behalf of the Board) and to the Board directly. Your principal responsibility is running the Company business. You are responsible for promoting and conducting the affairs of the Company with the highest standards of integrity, probity and corporate governance. You are responsible, with the executive team, for implementing the decisions of the Board and its committees.
Additional responsibilities include:
•Serve as a highly visible and trusted leader with employees, customers, financial institutions, vendors and stakeholders.
•Set, communicate and update a vision and mission for the business, to provide all with direction, meaning and culture.
•Ensure the Company maintains high social responsibility wherever it does business.
•Assess risks to the Company and ensure they are monitored and minimized.
•Maintain awareness of the competitive market landscape, expansion opportunities and industry developments.
•Provide input to the Board’s agenda from yourself and other members of the executive team.
•Ensure a dialogue with the Executive Chairman on the important and strategic issues facing the Company, and work with the Executive Chairman to propose Board agenda items to reflect these strategic issues.
•Ensure the executive team provides reports to you and the Board that contain accurate, timely and clear information.
•Ensure the Executive Chairman is alerted to forthcoming complex, contentious or sensitive issues affecting the Company of which he might not otherwise be aware.
•Evaluate the work of other executive leaders within the company.
•Ensure the development needs of the executive team and other senior management reporting to you are identified and met.
•Ensure performance reviews are carried out at least once a year for each of the executive directors and endeavor to ensure all department heads complete the annual performance reviews for all employees.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into on March 3, 2022 to be effective as of the 1st day of April 2022, by and between Willis Lease Finance Corporation, a Delaware corporation (“Employer”), and Charles F. Willis, IV (“Employee”).
RECITALS
WHEREAS, Employee is the Chairman of the Board and Chief Executive Officer of Employer;
WHEREAS, Employee has advised the Compensation Committee of the Board that in preparing for the future, it is time for him to step into a more strategic role;
WHEREAS, Employer desires to employ Employee in the positions of Executive Chairman effective as of the 1st day of April 2022, and with the compensation, amenities and other benefits set forth herein;
WHEREAS, Employee desires to be employed by Employer in the position of Executive Chairman up on the terms and conditions set forth herein; and
WHEREAS, Employee acknowledges that he has had an opportunity to consider this Agreement and consult with independent advisors of his choosing with regard to the terms of this Agreement, and enters this Agreement voluntarily and with a full understanding of its terms.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Employee hereby agree as follows:
1.Employment. Employer hereby employs Employee and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth, as the Executive Chairman of the Board.
2.Term.
a)The term of Employee’s employment under this Agreement shall commence effective as of April 1, 2022 and end on March 31, 2025 (as may be extended hereunder, the “Employment Term”), unless otherwise terminated pursuant to the terms hereof. Each full twelve-month period Employee is employed by Employer shall be referred to herein as an “Employment Year.”
b)After the expiration of the initial Employment Term, Employee’s employment will automatically renew for a period of one year, each year, on the same terms and conditions as are set forth herein, unless either party gives the other written notice of nonrenewal at least sixty (60) days prior to the end of the last applicable Employment Year.
c)Upon the occurrence of a Change in Control this Agreement shall be automatically extended for a two-year period commencing on the date of the Change in Control
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event and ending on the second anniversary of the Change in Control event. “Change in Control” means the occurrence of any of the following events; (i) any “person” (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than Employee or an Affiliate (as defined in Section 13 below) of Employee, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of Employer representing at least fifty percent (50%) of the total voting power represented by Employer’s then outstanding voting securities; or (ii) the stockholders of Employer approve a merger or consolidation of Employer with any other corporation, other than a merger or consolidation which would result in the voting securities of Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty (50%) of the total voting power represented by the voting securities of Employer or such surviving entity outstanding immediately after such a merger or consolidation, or the stockholders of Employer approve a plan of complete liquidation or dissolution of Employer or an agreement for the sale or disposition by Employer of all or substantially all of Employer’s assets, provided, however, that if such merger, consolidation, liquidation, dissolution, sale or disposition does not subsequently close, a Change in Control shall not be deemed to have occurred.
3.Duties.
(a)Employee shall in good faith perform those duties and functions as are required by his position (and as are outlined on Exhibit “B” hereto). Notwithstanding the foregoing or any other provision in this Agreement, Employer shall have the right to modify from time to time the title and duties assigned to Employee so long as such title and duties are consistent with the usual and customary expectations of the type of position and function of Employee as Executive Chairman. As Executive Chairman Employee shall report to the Board.
(b)Employee agrees to serve Employer faithfully and to the best of his ability; to devote his full-time and attention, with undivided loyalty, to the business and affairs of Employer, except during reasonable vacation periods and periods of illness and incapacity; and to perform such other duties as the Board may assign him that are consistent with his title. Employee shall not engage in any other business or job activity during the Employment Term without Employer’s prior written consent. Notwithstanding the foregoing, Employee may engage in civic and not-for-profit activities so long as such activities do not materially interfere with Employee’s performance of his duties hereunder.
4.Compensation. Employer agrees to provide as compensation to Employee the following salary, bonus, and benefits in exchange for the services described in Section 3 of this Agreement:
(a)Base Salary. Employer agrees to pay to Employee during the Employment Term a base salary in the amount of One Million Ninety-Seven Thousand Dollars ($1,097,000) per Employment Year, or such other amount as the Board shall from time to time determine, such salary to be paid in accordance with the usual manner of payment of executive salaries by Employer. The Board will review Employee’s base salary no less than once annually, and shall have sole discretion to increase or decrease (subject to the next sentence hereof) the base salary. Employee’s base salary may only be decreased in connection with a salary reduction program approved by the Board which affects all senior executive officers of Employer.
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(b)Bonus Compensation. In addition to Employee’s base salary, Employee shall have a target annual bonus opportunity during the Employer’s 2022 fiscal year and each year thereafter during the Employment Term equal to 100% of his base salary for that year (“Annual Bonus”). The actual amount of Employee’s Annual Bonus (if any) for each such year, which may be greater or lesser than the target bonus for such year, shall be determined by the Board or the Compensation Committee in its sole discretion, taking into account the performance of the Company and Employee for that particular year and applying considerations that are consistent with those applied for determining annual bonuses for other executive officers of Employer.
5.Benefits and Perquisites.
(a)Benefits. Employer shall provide Employee such employment benefits as are generally available to senior executive officers of Employer, including without limitation coverage under medical, dental, vision, long term disability and life insurance plans, if any. In addition to the foregoing description of benefits, Employer will continue to pay 100% of the cost of an individual medical insurance policy comparable to the policy currently in effect.
(b)Vacation and Sick Pay. Employee shall be eligible for vacation and sick leave in accordance with the policies of Employer in effect from time to time during the Employment Term. Employee shall be entitled to a period of annual vacation time equal to four (4) weeks during each Employment Year, to accrue pro rata during the course of the Employment Year. Subject to Employer’s vacation accrual policies, all accrued and unused vacation pay shall be paid to Employee in a lump sum payment on the date of Employee’s termination of employment with Employer.
(c)Perquisites. During the Employment Term, Employer shall also provide the following perquisites to Employee:
(i)Personal use of two Employer provided cars (United Kingdom and Florida) and related costs;
(ii)Personal use of the Employer plane (including family and friends) with a tax gross up limit of $50,000 benefit in any calendar year based upon Standard Industry Fare Level (SIFL) rates, and any unused amounts shall carry into and be used in the following two years, provided Employee is Executive Chairman for Employer;
(iii)Unlimited spousal travel when on Employer business trips, grossed up for applicable taxes;
(iv)United Kingdom Visa expenses;
(v)Payment of annual dues for Employee’s membership in one country club of his choice;
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(vi)On a space available basis, three weeks charter of Employer’s marine vessel The Fabulous Character with reimbursement after receipt of detailed invoice, not to exceed $500,000 in any calendar year, and any unused amounts shall carry into and be used in the following two years provided Employee is Executive Chairman for Employer;
(vii)Acknowledging Employee’s founding, guiding and dedicating more than 35 years to Employer, $1,000,000 to be paid within 90 days after the effective date of this Agreement; and
(viii)Reimbursement of reasonable expenses incurred in performing his duties under this Agreement (including, but not limited to, expenses for entertainment, long-distance telephone calls, lodging, meals and travel including first class air fare.)
(d)Retirement. Upon Retirement (as defined below), Employee shall have the right to purchase the Employer provided cars referred to in Section 5(c)(i) above at net book value or, if such car or cars are leased, to assume the lease with the consent of the Lessor. In addition, upon Retirement, the Employer will continue to (1) pay the club dues listed in Section 5(c)(v) above, and (2) provide coverage under medical, long-term disability and life insurance plans described in Section 5(a) above (or, to the extent Employer is unable to maintain such coverage under one or more such plans, reimburse Employee’s out-of-pocket costs in obtaining similar coverage within 30 days after Employee furnishes invoices or other documentation reasonably requested by Employer to substantiate such expenses were incurred, but no reimbursements shall be made later than the end of the calendar year such expenses were incurred by Employee) in each case for a period of one year after the date of Employee’s Retirement. For purposes of this Agreement, “Retirement” means Employee’s voluntary termination on a date after which Employee has reached the age of 55 and has provided Employer with at least 10 years of service.
6.Stock Options and Restricted Stock.
(a)Employee shall be eligible for awards under any Employer incentive stock plan (the “Plan”) on the same terms as are generally available to senior executive officers of Employer and on terms which are in accordance with comparative market practices. The parties agree that any grant of stock options or restricted stock under the Plan or any similar plan is subject to the discretion of the Board (or the Compensation Committee) based upon the duties of Employee’s position, the extent to which Employee’s individual performance objectives and Employer’s profitability objectives and other financial and non-financial objectives were achieved during the applicable period and comparative market practices.
(b)All future stock options or restricted stock granted to Employee shall immediately vest and become exercisable, if applicable, in the event of a Change in Control.
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7.Registration Rights. With respect to any and all shares of common stock of the Employer currently beneficially owned or hereafter acquired by the Employee, the Employer shall grant to the Employee registration rights on the terms described in Exhibit A.
8.Employee Right. During the first two years that Austin Willis is CEO, Employee shall have the right to unilaterally terminate, with or without cause, Austin Willis. For the avoidance of doubt, at all times, including the first two years that Austin Willis is CEO, the Company Board of Directors shall retain its right to terminate the CEO, with or without cause.
9. Termination/Nonrenewal by Employer. The employment of Employee may be terminated by Employer or Employer may decide not to renew this Agreement for any reason or no reason, with or without cause or justification, subject to the following:
(a)Termination for Cause. If Employee’s employment is terminated by Employer for Cause (as defined below), Employer’s total liability to Employee or his heirs shall be limited to payment of any due but unpaid base salary and Annual Bonus and accrued vacation, and Employee shall not be entitled to any further compensation or benefits provided under this Agreement, including, without limitation, any severance payments. “Cause” means (A) the Employee’s conviction of, plea of nolo contendere to, or written admission of the commission of, a felony or crime involving fraud, misrepresentation or dishonesty, (B) any act by Employee involving fraud, misrepresentation, dishonesty or willful misconduct in the performance of his duties as an employee or officer of the Company or its affiliates; or (C) Employee’s continuing or repeated failure or refusal to perform his material obligations hereunder causing demonstrably material harm to the business of Employer, after Employee shall have received written notice from the Board stating the nature of such failure or refusal and, if such failure or refusal is curable, then after Employee has been afforded at least 30 days in which to cure such failure or refusal.
(b)Termination Without Cause. If Employee’s employment is terminated by Employer without Cause, then in addition to the amounts set forth in Section 9(a) above, Employer shall either provide to Employee at least one year’s notice of such termination or non-renewal, or in the absence of such notice, subject to Section 11(c) below, provide a lump-sum payment in an amount equal to one year of Employee’s base salary minus the number of months notice provided to the Employee, payable within sixty (60) days following termination of employment. In addition, Employee will be paid the severance which is described in Section 11 below.
10.Termination Nonrenewal by Employee. The employment of Employee may be terminated by, with or without cause or justification, subject to the following:
(a)Voluntary Resignation. If Employee’s employment terminates by reason of Employee’s voluntary resignation (and is not a resignation for Good Reason), Employer’s total liability to Employee shall be limited to payment of any due but unpaid base salary and Annual Bonus and accrued vacation, and Employee shall not be entitled to any further compensation or benefits provided under this Agreement, including, without limitation, any severance payments.
(b)Resignation for Good Reason. If Employee’s employment terminates by reason of Employee’s voluntary resignation for Good Reason, then in addition to the amounts set forth in Section 9(a) above, subject to the Employee signing and not revoking the Release, Employee will be paid the severance which is described in Section 11 below. “Good Reason” means the occurrence of any one or more of the following events, but only if Employee notifies the Board or Compensation Committee in writing of the occurrence of the event alleged to constitute Good Reason no later than 30 days after the first occurrence of the event; the
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Company does not cure such event with 30 days after its receipt of Employee’s notice and Executive terminates his employment no later than 60 days after the expiration of the cure period: (i) a material reduction in Employees base salary, other than such reduction that is in proportion to any salary reduction program approved by the Board and that affects all executive officers of Employer, (ii) a material diminution in Employee’s position, title, duties and status or changing Employee’s reporting obligations so that he no longer reports to the Board, (ii) requiring Employee to work at a location more than 50 miles from the Employer’s current company headquarters, or (iv) any willful and material breach by Employer of its obligations pursuant under this Agreement.
11.Severance Payment.
(a)Amount. In the event severance is payable hereunder, such severance shall be in an amount equal to the aggregate of:
(i)three times Employee’s base salary at the time of termination, plus
(ii)three times the average of the Annual Bonuses paid to Employee during the three years prior to the year of termination;
(iii)prorated Annual Bonus due for the year of termination, to the extent the performance goals under the Plan are achieved;
(iv)immediate vesting of all outstanding stock options and/or restricted stock;
(v)continued coverage under all benefit plans as provided on the effective date hereof (e.g., medical, dental, disability and life insurance) for a period of three years following the termination date (or, to the extent Employer is unable to maintain such coverage under one or more such plans, reimburse Employee’s actual expenses incurred in obtaining comparable coverage within 30 days after Employee furnishes invoices or other documentation reasonably requested by Employer to substantiate such expenses were incurred, but no reimbursements shall be made later than the end of the calendar year such expenses were incurred by Employee), plus
(vi)For a period of three years following Employee’s termination Employer shall pay Employee’s dues for membership in the club listed in Section 5(c)(v) above; and
(vii)Employee shall also have the right to purchase the Employer provided cars referred to in Section 5(c)(i) above at net book value or to assume the lease with the consent of Lessor, if such car or cars are leased.
(b)Payment. Subject to Section 11(c) below, the severance amounts set forth in Sections 11(a)(i) and 11(a)(ii) above shall be paid in a lump sum payment to Employee within sixty (60) days of Employee’s termination of employment. Any amount payable with respect to Section 11(a)(iii) above will be paid at the time of payments to Participants under the applicable
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Plan, but in no event later than May 15 of the year following the year in which Employee’s termination of employment occurs. Amounts payable with respect to Sections 11(a)(v), (vi) and (vii) will be paid annually against appropriate evidence of payment by Employee.
(c)Section 409A Compliance. Notwithstanding anything in this Agreement to the contrary, if any payment or benefit to Employee under this Agreement on account of the Employee’s termination of employment constitutes a deferral of compensation subject to 409A of the Internal Revenue Code of 1986, as amended (the “Code”), such payment or benefit shall commence when Employee has incurred a “Separation from Service” as defined under Treasury Regulation § 1.409A-1(h)(1) without regard to the optional alternative definitions thereunder. If at the time of Employee’s Separation from Service, Employee is a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i), Employer shall delay commencement of any such payment or benefit until six months after Employee’s Separation from Service (the “409A Suspension Period”). Within fourteen calendar days after the end of the 409A Suspension Period, Employer shall pay to the Employee, without interest, any payments and benefits that Employer would otherwise have been required to provide Employee under this Agreement but for the imposition of the 409A Suspension Period. Thereafter, Employee shall receive any remaining payments and benefits due under this Agreement in accordance with the terms of this Agreement (as if there had not been any suspension period beforehand). To the extent that reimbursements or in-kind benefits under this Agreement constitute non-exempt “non qualified deferred compensation” for purposes of Section 409A, (1) all reimbursements hereunder shall be made on or prior to the last day of the calendar year following the calendar year in which the expense was incurred by Employee (or such earlier time specified in this Agreement), (2) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (3) the amount of expenses eligible for reimbursement or in-kind benefits provided in any calendar year shall not in any way affect the expenses eligible for reimbursement or in-kind benefits to be provided, in any other calendar year. The payments and benefits under this Agreement are intended to be exempt from or comply with the requirements of Section 409A so that none of the payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be exempt or so comply. The Employer and Employee agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions that are necessary, appropriate or desirable to avoid imposition of any additional tax under Section 409A. Any tax-gross up payment made to Employee under this Agreement or otherwise shall be made no later than the end of the Employee’s taxable year next following the Employee’s taxable year in which the Employee remits the related taxes.
(d)Limitation on Payments. If any payment or benefit Employee would receive from Employer or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Code Section 280G, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or
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(y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal. state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Employee’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits; and reduction of any amounts that would constitute a deferral of compensation subject to Code Section 409A. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of Employee’s stock awards unless Employee elects in writing a different order for cancellation.
The accounting firm engaged by Employer for general audit purposes as of the day prior to the effective date of the event that triggers the Payment shall perform the foregoing calculations. If the accounting firm so engaged by Employer is serving as accountant or auditor for the individual, entity or group effecting the “change in ownership” as described in Section 280G(b)(2)(A)(i) of the Code. Employer shall appoint a nationally recognized accounting firm to make the determinations required hereunder. Employer shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.
The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to Employer and Employee within fifteen (15) calendar days after the date on which Employee’s right to a Payment is triggered (if requested at that time by Employer or Employee) or such other time as requested by Employer or Employee. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish Employer and Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon Employer and Employee.
12.Death/Disability.
(a)In the event (during the Employment Term) of Employee’s death,
(i)this Agreement shall terminate,
(ii)Employer shall pay to Employee’s estate or his heirs any due but unpaid base salary and Annual Bonus, accrued but unused vacation pay and pro-rated Annual Bonus for the period of active employment during the year in which death occurs, and
(iii)Employee’s estate or his heirs shall not be entitled to any severance payments hereunder. In addition, all stock options and restricted stock granted to Employee shall immediately vest and become exercisable, if applicable, upon
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Employee’s death. Employee’s estate shall have the right to exercise such options for the shorter of (i) two (2) years from the date of death, and (ii) the term of the option.
13.(b) In the event (during the Employment Term) of Employee’s long term disability (as defined in Employee’s Group Disability Plan) and the passing of the Elimination Period (as defined in Employee’s Group Disability Plan), (i) this Agreement shall terminate, (ii) Employer shall pay to Employee any unpaid base salary and prorated Annual Bonus for the period of active employment during the year in which such event occurs, and (iii) Employee shall not be entitled to any severance payments hereunder. In addition, all stock options and restricted stock granted to Employee shall immediately vest. Employee shall have the right to exercise such options for the shorter of (i) two (2) years from the date of disability, and (ii) the term of the option. In addition, Employee shall have the right to purchase the company cars referred to in Section 5(c)(i) at net book value or assume the lease with the Lessor’s consent, if leased. The Employer will pay the membership dues listed in Section 5(c)(v) if Employee’s membership continues, pay three weeks charter of Employer’s marine vessel The Fabulous Character with reimbursement after receipt of detailed invoice, not to exceed $500,000 in any calendar year listed in Section 5(c)(vi) and provide coverage under medical, long-term disability and like insurance plans described in Section 5(a) above, in each case for a period of three (3) years from the date of disability (or, to the extent Employer is unable to maintain such coverage under one or more such plans, reimburse Employee’s actual expenses incurred in obtaining comparable coverage within 30 days after Employee furnishes invoices or other documentation reasonably requested by Employer to substantiate such expenses were incurred, but no reimbursements shall be made later than the end of the calendar year such expenses were incurred by Employee). Maintenance of Confidentiality and Duty of Loyalty.
(a)General. Employee acknowledges that, pursuant to his employment with Employer, he will necessarily have access to trade secrets and information that is confidential and proprietary to Employer in connection with the performance of his duties. In consideration for the disclosure to Employee of, and the grant to Employee of access to such valuable and confidential information and in consideration of his employment, Employee shall comply in all respects with the provisions of this Section 11.
(b)Nondisclosure. During the Employment Term and for a period of ten (10) years thereafter, Confidential and Proprietary Information of Employer of which Employee gains knowledge during the Employment Term shall be used by Employee only for the benefit of Employer, including in connection with Employee’s performance of his employment duties, and Employee shall not, and shall not allow any other person that gains access to such information in any manner to, without the prior written consent of Employer, disclose, communicate, divulge or otherwise make available, or use, any such information, other than for the immediate benefit of Employer. For purposes of this Agreement, the term “Confidential and Proprietary Information” means information not generally known to the public and that is proprietary to Employer and relates to Employer’s existing or reasonably foreseeable business or operations, including but not limited to trade secrets, business plans, advertising or public relations strategies, financial information, budgets, personnel information, customer information and lists, and information pertaining to research, development, manufacturing, engineering, processing, product designs (whether or not patented or patentable), purchasing and licensing, and which may be embodied in reports or other writings or in blue prints or in other tangible forms such as equipment and models. Employee will refrain from any acts or omissions that would jeopardize
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the confidentiality or reduce the value of any Employer Confidential and Proprietary Information.
(c)Covenant of Loyalty. During the Employment Term, Employee shall not, on his own account or as an employee, agent, promoter, consultant, partner, officer, director, or as a more than 1% shareholder of any other person, firm, entity, partnership or corporation, own, operate, lease, franchise, conduct, engage in, be connected with, have any interest in, or assist any person or entity engaged in any business that is in any way competitive with or similar to the business that is conducted by Employer or is in the same general field or industry as Employer. Without limiting the generality of the foregoing, Employee does hereby covenant that he will not, during the Employment Term:
(i)solicit, accept or receive any compensation from any customer of Employer or any business competitive to that of Employer;
(ii)contact, solicit or call upon any customer or supplier of Employer on behalf of any person or entity other than Employer for the purpose of selling, providing or performing any services of the type normally provided or performed by Employer;
(iii)induce or attempt to induce any person or entity to curtail or cancel any business or contracts which such person or entity has with Employer; or
(iv)induce or attempt to induce any person or entity to terminate, cancel or breach any contract which such person or entity has with Employer, or receive or accept any benefits from such termination, cancellation or breach.
(d)No Solicitation. During the Employment Term and for a period of three years thereafter, Employee agrees not to directly or indirectly solicit, induce or attempt to solicit or induce any employee of Employer to terminate his or her employment with Employer in order to become employed by any other person or entity.
(e)Injunctive Relief. Employee expressly agrees that the covenants set forth in this Section 11 are reasonable and necessary to protect Employer and its legitimate business interests, and to prevent the unauthorized dissemination of Confidential and Proprietary Information to competitors of Employer. Employee also agrees that Employer will be irreparably harmed and that damages alone cannot adequately compensate Employer if there is a violation of this Section 11 by Employee, and that injunctive relief against Employee is essential for the protection of Employer. Therefore, in the event of any such breach, it is agreed that, in addition to any other remedies available, Employer shall be entitled as a matter of right to injunctive relief in any court of competent jurisdiction, plus attorneys’ fees actually incurred in seeking such relief. Furthermore, Employee agrees that Employer shall not be required to post a bond or other collateral security with the court if Employer seeks injunctive relief. To the extent any provision of this Section 11 is deemed unenforceable by virtue of its scope or limitation, Employee and
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Employer agree that the scope and limitation provisions shall nevertheless be enforceable to the fullest extent permissible under the laws and public policies applied in such jurisdiction where enforcement is sought.
14.Name Change. So long as (a) Employee is the Executive Chairman of the Board, and (b) Employee or his Affiliates own 10% or more of the outstanding common stock of Employer, Employer will not change its name without the prior written consent of Employee. This Section 14 shall be automatically rendered void in the event of a Change in Control. “Affiliate” means a person that directly or indirectly, through one or more intermediaries’ controls, is controlled by or is under common control with the first mentioned person.
15.Notices. Any notice that either party may wish or be required to give to the other party pursuant to this Agreement shall be in writing and shall be either personally served or deposited in the United States mail, registered or certified, and with proper postage prepaid. Mailed notices to Employee shall be addressed to Employee at the home address from which Employee most recently communicated to Employer in writing. In the case of Employer, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of corporate counsel. Notice given by personal service shall be deemed effective upon service. Notice given by registered or certified mail shall be deemed effective three (3) days after deposit in the mail.
16.Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective legal representatives, and their successors and assigns. As used in this Agreement, the term “successor” shall include any person, firm, corporation or other business entity which at any time, whether by merger, purchase, consolidation, or otherwise, acquired all or substantially all of the assets or business of Employer. This Agreement shall be deemed to be willfully breached by Employer if any such successor does not absolutely and unconditionally assume all of Employer’s obligations under this Agreement and agree expressly to perform the obligations in the same manner and to the same extent as Employer would be required to perform such obligations in the absence of the succession; it being understood that no such breach shall occur where such assumption or agreement occurs by operation of law. Employee may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of Employer, which shall not be unreasonably withheld.
17.Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes and replaces all prior agreements and understandings between the parties relating to the subject matter hereof.
18.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida.
19.Arbitration. Any controversy or claim arising out of or relating to this Agreement, Employee’s employment with Employer or any other relationship between the parties shall be finally settled by binding arbitration in Broward or Palm Beach County, Florida, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. The controversy or claim shall be submitted to three arbitrators, one of whom shall be chosen by Employer, one of whom shall be chosen by Employee. and the third of whom shall be chosen by the two arbitrators so selected. The party desiring arbitration shall give written notice to the other party of its desire to arbitrate the particular matter in question, naming the arbitrator selected by it. If the other party shall fail within a period of 15 days after such notice shall have been given to reply in writing naming the arbitrator selected by it, then the party not in default may apply to the American Arbitration Association for the appointment of the second arbitrator. If the two arbitrators chosen as above shall fail within 15 days after their selection to
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agree upon a third arbitrator, then either party may apply to the American Arbitration Association for the appointment of an arbitrator to fill the place so remaining vacant. The parties will have the right, subject to the discretion of the arbitrators, to conduct discovery necessary to establish their claims and defenses. The decision of any two of the arbitrators shall give reasons for the decision and be final and binding upon the parties hereto and shall be delivered in writing signed in triplicate by the concurring arbitrators to each of the parties hereto. Employer shall pay the fees of the arbitrators so selected. The other expenses incurred in connection with the arbitration shall be paid in accordance with Section 20 below. Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction.
20.Legal Fees and Expenses.
(a)The Employer shall pay the reasonable legal fees incurred by the Employee in connection with the negotiation of this Agreement. Employer shall pay such reimbursements within 30 days after Employee furnishes invoices or other documentation reasonably requested by Employer to substantiate such expenses were incurred, but no reimbursements shall be made later than the end of the calendar year such expenses were incurred by Employee. In the event an action is brought to enforce any provision of this Agreement, Employee’s legal fees and expenses shall be paid by Employer as incurred by Employee, unless Employee brings a claim which is determined by the arbitrator to be frivolous, in which case, Employee shall repay to Employer all amounts advanced by Employer to Employee in connection with such claim within thirty days of such determination.
21.Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.
22.Amendments and Waivers. This Agreement may be modified only by a written instrument duly executed by each party hereto. No breach of any covenant, agreement, warranty or representation shall be deemed waived unless expressly waived in writing by the party who might assert such breach. No waiver of any right hereunder shall operate as a waiver of any other right or of the same or a similar right on another occasion.
23.Counterparts. This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.
24.Section Headings. The headings of each Section, subsection or other subdivision of this Agreement are for reference only and shall not limit or control the meaning thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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“Employer”
WILLIS LEASE FINANCE CORPORATION
By: _/s/ Dean M. Poulakidas__________________
Name: Dean M. Poulakidas
Title: SVP, General Counsel & Secretary
“Employee”
_/s/ Charles F. Willis IV____________________
Charles F. Willis IV
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EXHIBIT A
Registration Rights
(a)Definitions.
(i)Registration. The terms “register”, “registered”, and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act of 1933, as amended (the “Act”) and the declaration or ordering of effectiveness of such registration statement.
(ii)Registrable Securities. The term “Registrable Securities” means: (1) shares of Willis Lease Finance Corporation (the “Company”) common stock par value $0.01 owned by the Employee or any affiliate of Employee, (2) any shares of common stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, any shares of stock described in clause (1) of this subsection (ii) and (3) any other common stock of the Company hereafter acquired by Employee or any affiliate of Employee, and will be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after July 1, 2008.
(iii)Holder. For purposes of this Exhibit, the term “Holder” means Charles F. Willis (“Employee”), so long as Employee is the owner of record of Registrable Securities.
(b)Demand Registration.
(i)Request by Holder. If the Company receives a written request from the Holder that the Company file a registration statement under the Act covering the registration of Registrable Securities pursuant to this Section (b), then the Company will use reasonable commercial efforts to effect, within ninety (90) days of such request, the registration under the Act of all Registrable Securities that Holder requests to be registered, subject only to the limitations of this Exhibit.
(ii)Underwriting. Registrable Securities covered by this demand registration will be distributed only by means of a firm commitment offering underwritten by a managing underwriter or underwriters selected by Holder and reasonably acceptable to the Company, provided that the managing underwriter or underwriters must agree that no shares of Registrable Securities will be sold to any purchaser in the underwriting if after such purchase, such purchaser will own five percent (5%) or more of the issued and outstanding common stock of the Company. The right of Holder to include its Registrable Securities in such registration will be conditioned upon Holder’s participation in such underwriting and the inclusion of Holder’s Registrable Securities in the underwriting to the extent provided herein. Holder will enter into an underwriting agreement in customary form with the managing underwriter or underwriters (including a market stand-off agreement of up to 180 days if required by such underwriters).
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(iii)Maximum Number of Demand Registrations. The Company will be obligated to effect no more than two (2) such registrations pursuant to this Section (b), provided that the Company will be relieved of its obligations to effect any registration if at any time Holder will own less than five percent (5%) of the issued and outstanding capital stock of the Company. A registration request as provided in this Section (b) will not count as one of the demands to which Holder is entitled hereunder unless the registration statement remains continuously effective until the earlier of (i) the completion of any offering and disposition of all Registrable Securities included in the registration statement and (ii) the expiration of ninety (90) days from the date on which the registration statement first became effective under the Act.
(iv)Deferral. Notwithstanding the foregoing, if the Company furnishes the Holder a certificate signed by an authorized officer of the Company stating that in good faith judgment of the board of directors, it would be materially detrimental to the Company and its stockholders for such registration statement to be filed (other than any detriment caused by the sale of Company common stock pursuant to such registration statement), then the Company will have the right to defer such filing for a period of not more than sixty (60) days after the receipt of the request of the Holder.
(v)Expenses. All fees, costs and expenses incurred in connection with any registration pursuant to this Exhibit (other than Section (c)), including all federal and “Blue Sky” registration, filing and qualification fees and expenses, printer’s fees and expenses, accounting fees (including in connection with the delivery of any “comfort letter”), fees and disbursements of counsel for the Company (including and in connection with the delivery of any required legal opinion), and all fees, costs and expenses incurred in connection with the performance of the Company’s obligations contained in this Exhibit (other than Section (c)) will be borne by the Holder and the Holder agrees to pay and reimburse any such fees, costs and expenses incurred by the Company within three days of the presentation of an invoice therefor.
(vi)Qualification. The Company will not be required to effect a registration in any particular jurisdiction in which the Company would be required to qualify to do business where it is not then so qualified or to execute a general consent to service of process in effecting such registration, qualification or compliance in any jurisdiction where it is not then so subject to service of process.
(c)Piggyback Registration.
(i)Piggyback Right. If, at any time, the Company proposes or is required to register any of its common stock under the Act (other than pursuant to registrations on such form or similar form(s) solely for registration of securities in connection with an employee benefit plan or dividend reinvestment plan) on a registration statement on Form S-1 or Form S-3 or an equivalent general registration form then in effect, the Company shall give prompt written notice of its intention to do so to Holder. Upon the written request of Holder, made within fifteen (15) days following the receipt of any such written notice (which request shall specify the maximum number of Registrable Securities intended to be disposed of by Holder and the intended method
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of distribution thereof), the Company, subject to Section (c)(iv), shall use commercially reasonable efforts to cause all such Registrable Securities to be included in the registration statement with the securities that the Company at the time proposes to register to permit the sale or other disposition by the Holder in accordance with the intended method of distribution thereof of the Registrable Securities to be so registered. No registration of Registrable Securities effected under this Section (c) shall relieve the Company of its obligations to effect Demand Registrations under Section (b).
(ii)Right to Terminate or Delay Registration. If, at any time after giving written notice of its intention to register any Company common stock and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such equity securities, the Company will give written notice of such determination to Holder and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such abandoned registration, without prejudice, however, to the rights of Holder under Section (b) and (ii) in the case of a determination to delay such registration of its equity securities, shall be permitted to delay the registration of such Registrable Securities for the same period as the delay in registering such other equity securities.
(iii)Withdrawal. Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section (c) by giving written notice to the Company of its request to withdraw. Such request must be made in writing prior to the earlier of the execution of the underwriting agreement or the execution of the custody agreement with respect to such registration. Such withdrawal shall be irrevocable and, after making such withdrawal, Holder shall no longer have any right to include Registrable Securities in the registration as to which such withdrawal was made.
(iv)Priority. If any registration pursuant to Section (c) involves an underwritten offering that was proposed by the Company and the lead managing underwriter of such offering shall advise the Company that, in its view, the number of securities requested to be included in such registration exceeds the number (the “Section (c) Sale Number”) that can be sold in an orderly manner in such registration within a price range acceptable to the Company, the Company shall include in such registration:
(A)first, all common stock that the Company proposes to register for its own account; and
(B)second, to the extent that the number of securities to be included pursuant to clause (A) of this Section (c)(iv) is less than the Section (c) Sale Number, the remaining shares to be included in such registration shall be allocated to Holder.
(d)Obligations of the Company. Whenever required to effect the registration of Registrable Securities under this Agreement the Company will, as expeditiously as reasonably possible:
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(i)Registration Statement. Prepare and file with the SEC within thirty (30) days a request by Holder under Section (b) a registration statement on the appropriate form for the registration of such Registrable Securities which shall be selected by the Company and shall be reasonably acceptable to Holder and use reasonable commercial efforts to cause such registration statement to become effective within ninety (90) days of a request by Holder under Section (b) and to remain continuously effective until the earlier of (i) the completion of any offering and disposition of Registrable Securities included in the registration statement and (ii) the expiration of ninety (90) days from the date on which the registration statement became effective under the Act; provided, however, that before filing a registration statement or prospectus or any amendment, supplement to either of them or any Issuer Free Writing Prospectus (as defined in Rule 433 of the Act) related thereto, the Company will (A) provide counsel to Holder with an adequate and appropriate opportunity to participate in the preparation of the registration statement and each prospectus included in the registration statement (and each amendment or supplement to it) and each Issuer Free Writing Prospectus related thereto to be filed with the SEC, which documents will be subject to the review of counsel to Holder and (B) notify counsel to Holder and Holder of any stop order issued or threatened by the SEC and to take all commercially reasonable action to prevent the entry of the stop order or to remove it if entered. With respect to any registration under Section (b), the Company will not permit any securities other than the Registrable Securities to be included in the registration statement if such inclusion would cause any of the Registrable Securities to be excluded from registration by the managing underwriter or underwriters.
(ii)Amendments and Supplements. Prepare and file with the SEC such amendments and supplements to such registration statement, the prospectus used in connection with such registration statement, and any Issuer Free Writing Prospectus related thereto as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement.
(iii)Prospectuses. As soon as reasonably commercially practical, furnish to the Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, any Issuer Free Writing Prospectus related thereto and other such documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration.
(iv)Blue Sky. Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or “Blue Sky” laws of such jurisdictions as will be reasonably requested by the Holder, provided that the Company will not be required in connection therewith or as a condition thereto to qualify to do business in any jurisdiction where it is not then so qualified or to file general consent to service of process in any such states or jurisdictions where it is not then so subject to service of process.
(v)Other Approvals. Use its commercially reasonable efforts to obtain all other approvals, consents, exemptions or authorizations from those governmental agencies or
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authorities at Holder’s sole cost and expense as may be necessary to enable Holder to effect the disposition of any Registrable Securities.
(vi)Underwriting. Enter into and perform its obligations under an underwriting agreement in usual and customary form, with the managing underwriter(s) of such offering. Holder will also enter into and perform its obligations under such an agreement.
(vii)Notification. Notify Holder at any time when a prospectus relating to Registrable Securities or any Issuer Free Writing Prospectus related thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and prepare and file with the SEC a supplement or amendment to the registration statement, prospectus or Issuer Free Writing Prospectus related thereto so that, as subsequently delivered to the purchasers of the Registrable Securities, the registration statement, prospectus or Issuer Free Writing Prospectus related thereto will not contain an untrue statement of material fact or omit to state any material fact required to be stated in the registration statement or necessary to make the statements therein not misleading in light of the circumstances under which they were made; provided, that prior to the filing of the supplement or amendment the Company will furnish copies of the supplement or amendment to the Holder, underwriter and counsel to Holder and will not file the supplement or amendment without prior review of counsel to Holder.
(viii)Inspection of Records. Make available for inspection by Holder, any managing underwriter participating in any disposition provided for in the registration statement, counsel to Holder and any attorney, accountant or other appraiser retained by any Holder or any managing underwriter (each, an “Inspector”), all financial records, pertinent corporate documents and properties of the Company and any of its subsidiaries as may be in existence at that time as will be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s and any subsidiaries’ officers, directors and employees, and the independent certified public accountants of the Company, to supply all information reasonably requested by any Inspector in connection with the registration statement.
(ix)Opinion, Comfort Letter and Closing Certificates. Furnish, as the request of Holder, on the date that such Registrable Securities are delivered to the underwriters for sale, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to the Holder, addressed to the underwriters and to the Holder, (ii) a “comfort” letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to the Holder, addressed to the underwriters and to the Holder, and (iii) officers’ certificates and such other customary closing documents.
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(x)Listing on Securities Exchange. Use commercially reasonable efforts to cause all Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed, subject to the satisfaction of the applicable listing requirements of the exchange.
(xi)Cooperation. Reasonably cooperate with Holder and each underwriter participating in the disposition of any Registrable Securities and their respective counsel in connection with any filings required to be made with any securities exchange or automated quotation system.
(e)Restrictions on Public Sale by the Company. The Company agrees not to effect any public sale or distribution of any of its securities for its own account (except pursuant to registrations on Form S-4 or Form S-8 (or any successor form) under the Act) during the ten (10) days prior to, and during the ninety (90) day period (or such shorter period as may be permitted by the managing underwriter or underwriters) beginning on the effective date of any registration statement in which Holder is participating under Section (b).
(f)Furnish Information. It will be a condition precedent to the obligations of the Company to take any action pursuant to Sections (b), (c) or (d) that the Holder will furnish to the Company such information regarding itself, the Registrable Securities, and the intended method of disposition of such securities as will be timely to effect the Registration of its Registrable Securities.
(g)Indemnification. In the event that any Registrable Securities are included in a registration statement under the Agreement:
(i)By the Company. To the extent permitted by law, the Company will indemnify and hold harmless Holder, the partners, members, officer, directors and employees of Holder, any underwriter (as determined in the Act) for Holder and each person, if any, who controls Holder or any such underwriter within the meaning of the Act or the Securities exchange Act of 1934, as amended (the “Exchange Act”), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”):
(A)any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus, final prospectus or Issuer Free Writing Prospectus related thereto, contained therein or any amendments or supplements, thereto;
(B)the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or
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(C)any Violation or alleged Violation by the Company of the Act, the Exchange Act, any state or international securities law or any rule or regulation promulgated under the Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement.
The Company will reimburse each such Holder, partner, officer, director, employee, underwriter or controlling person for any legal expenses reasonably incurred by them, as incurred in connection with investigating any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section (g) will not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, nor will the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of Holder.
(ii)By Holder. In connection with any registration under which Holder intends to make a disposition of Registrable Securities, to the extent permitted by law, Holder will indemnify and hold harmless the Company, each of its directors, each of its officers or employees who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any person who controls the Company or any such underwriter within the meaning of the Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, employee, controlling person, or underwriter may become subject to under the Act, the Exchange Act or federal or state law, insofar as such losses claims damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by Holder expressly for use in connection with such registration; and Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter in connection with investigating or defending any such loss, claim, damage, liability or action: provided, however, that the indemnity agreement contained in this Section (g) will not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder and, provided further, that the liability of Holder in this Section (g) will be limited to the amount of the net proceeds received by Holder in the offering giving rise to such liability.
(iii)Notice. Promptly after receipt by an indemnified party under this Section (g) of the notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section (g), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party will have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying part similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party will have the right to retain its own counsel, with the fees and expenses
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to be paid by the indemnifying party, if the representation of such indemnified party by counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding; provided that there may only be one such counsel retained for all indemnified parties. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action will relieve such indemnifying party of liability to the indemnified party under this Section (g) to the extent the indemnifying party is prejudiced as a result thereof, but the omission to do so to deliver written notice to the Indemnified Party will not relieve it of any liability that it may have to any other Indemnified Party under this Section (g).
(iv)Defect Eliminated in Final Prospectus. The foregoing indemnity agreements of the Company and Holder are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus or Issuer Free Writing Prospectus related thereto but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the “Final Prospectus”), such indemnity agreement will not inure to the benefit of any person if a copy of the Final Prospectus was timely furnished to the indemnified party and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Act.
(v)Contribution. In order to provide for just and equitable contribution to joint liability under the Act in any case in which either (i) Holder exercising rights under this Agreement, or any controlling person of any Holder, makes a claim for indemnification pursuant to this Section (g) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal of the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section (g) provides for indemnification in such case, or (ii) contribution under the Act may be required on the part of Holder or any such controlling person in circumstances for which indemnification is provided under this Section (g); then, and in each such case, the Company and Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of the Company and Holder in connection with the actions, statements or omissions that resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations; so that Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement; provided, however, that, in any such case no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. The relative faults of the Company and Holder will be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, was made by, or relates to
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information supplied by, the Company or Holder, and the Company’s and Holder’s relative intent, knowledge, access to information and opportunity to correct or prevent that action.
(vi)Survival. The obligations of the Company and Holder under this Section (g) will survive until the second anniversary of the completion of any offering of Registrable Securities in a registration statement, regardless of the expiration of any statutes of limitations or extensions of such statutes.
(h)Rule 144; Other Exemptions. For so long as the Company will have a class of securities registered under Section 12(b) or 12(g) of the Exchange Act, the Company covenants that it will file, on a timely basis, any reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the SEC thereunder and keep all such reports and public information current to the extent required by Rule 144 under the Act, and that it will take all further action as Holder may reasonably request (including providing and keeping current any information necessary to comply with Rule 144 under the Act and providing any written of counsel to the Company reasonably requested), all to the extent required from time to time to enable the Holder to sell Registrable Securities without registration under the Act within the limitation of the exemptions provided by (a) Rule 144 under the Act, as the rules may be amended from time to time, or (b) any other rules or regulations now existing or hereafter adopted by the SEC. At such time as the Company will not have a class of securities registered under Section 12(b) or Section 12(g) of the Exchange Act, the Company covenants that it will furnish or otherwise make available any information required for the Holder to sell the Registrable Securities under Rule 144A. The Company will, upon the request of any Holder, deliver to the Holder a written certification of a duly authorized officer as to whether the Company has complied with the requirements.
(i)Termination of the Company’s Obligations. The Company will have no obligations pursuant to this Exhibit with respect to any Registrable Securities proposed to be sold by a Holder in a registration pursuant to this Exhibit: (i) if the Company has already effected two registrations pursuant to this Exhibit or (ii) if, in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by Holder may then be sold under Rule 144 which written opinion will be addressed and delivered to the Company’s transfer agent (and a copy of which will be sent to Holder). Employee may not assign its rights under this Exhibit to any person other than an affiliate of Employee.
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Exhibit B
Key Responsibilities:
As Executive Chairman, you will report to the Board. Your principal responsibility is the effective running of the Board. You are responsible for promoting the highest standards of integrity, probity and corporate governance throughout the company and particularly at the Board level. The Executive Chairman of the Board’s role allows you to devote, in collaboration with the Chief Executive Officer and President, part of your time to the development and implementation of strategic initiatives, including strengthening the Company’s partnerships with existing clients and fostering key relationships that lead to new business, including strategic acquisitions.
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Exhibit 31.1
CERTIFICATIONS
I, Austin C. Willis, certify that:
1. I have reviewed this report on Form 10-Q of Willis Lease Finance Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 10, 2022 | /s/ Austin C. Willis | |||||||||
| Austin C. Willis | |||||||||||
| Chief Executive Officer | |||||||||||
Exhibit 31.2
CERTIFICATIONS
I, Scott B. Flaherty, certify that:
1. I have reviewed this report on Form 10-Q of Willis Lease Finance Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 10, 2022 | /s/ Scott B. Flaherty | |||||||||
| Scott B. Flaherty | |||||||||||
| Chief Financial Officer | |||||||||||
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, in his or her capacity as an officer of Willis Lease Finance Corporation (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his or her knowledge:
•the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2022 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
•the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| Dated: May 10, 2022 | |||||
| /s/ Austin C. Willis | |||||
| Austin C. Willis | |||||
| Chief Executive Officer | |||||
| /s/ Scott B. Flaherty | |||||
| Scott B. Flaherty | |||||
| Chief Financial Officer | |||||