-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UNiAMjXjtpmPpXzH0pKhvQGJFylr6u77Ge7i6mPl7A7zH1d7kPB18xhrKtY+iDat hVNSWuwm7wdoluB2xSmMHQ== /in/edgar/work/20001103/0000912057-00-047122/0000912057-00-047122.txt : 20001106 0000912057-00-047122.hdr.sgml : 20001106 ACCESSION NUMBER: 0000912057-00-047122 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILLIS LEASE FINANCE CORP CENTRAL INDEX KEY: 0001018164 STANDARD INDUSTRIAL CLASSIFICATION: [7359 ] IRS NUMBER: 680070656 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15369 FILM NUMBER: 752757 BUSINESS ADDRESS: STREET 1: 2320 MARINSHIP WAY STREET 2: STE 300 CITY: SAUSALITO STATE: CA ZIP: 94965 BUSINESS PHONE: 4153315281 MAIL ADDRESS: STREET 1: 2320 MARINSHIP WAY STREET 2: SUITE 300 CITY: SAUSALITO STATE: CA ZIP: 94965 10-Q 1 a2029241z10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-28774 ------------------------------- WILLIS LEASE FINANCE CORPORATION (Exact name of registrant as specified in its charter) Delaware 68-0070656 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2320 Marinship Way, Suite 300 94965 Sausalito, CA (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (415) 331-5281 ------------------- 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 /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
TITLE OF EACH CLASS OUTSTANDING AT OCTOBER 31, 2000 ------------------- ------------------------------- Common Stock, $0.01 Par Value 7,404,638
1 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES INDEX
PART I FINANCIAL INFORMATION PAGE NO. -------- Item 1. Consolidated Financial Statements Consolidated Balance Sheets As of September 30, 2000 and December 31, 1999 3 Consolidated Statements of Income Three and nine months ended September 30, 2000 and 1999 4 Consolidated Statements of Shareholders' Equity Year ended December 31, 1999 and nine months ended September 30, 2000 5 Consolidated Statements of Cash Flows Nine months ended September 30, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 24
2 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 2000 1999 -------------- -------------- ASSETS Cash and cash equivalents including restricted cash of $14,051 at September 30, 2000 and $15,992 at December 31, 1999 $24,303 $25,468 Equipment held for operating lease, less accumulated depreciation of $25,982 at September 30, 2000 and $21,592 at December 31, 1999 327,697 338,788 Net investment in direct finance lease 8,112 8,666 Spare parts inventory 27,344 22,237 Operating lease related receivable 3,889 3,236 Trade receivables, net 6,833 1,904 Investment in unconsolidated affiliates 5,724 5,082 Other assets 7,600 6,934 -------------- -------------- Total assets $411,502 $412,315 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $7,570 $6,138 Deferred income taxes 16,400 12,815 Notes payable 282,736 289,678 Capital lease obligation -- 2,489 Residual share payable 2,500 3,465 Maintenance reserves 18,491 18,555 Security deposits 4,199 5,522 Unearned lease revenue 4,422 4,115 -------------- -------------- Total liabilities 336,318 342,777 -------------- -------------- Shareholders' equity: Preferred stock ($0.01 par value, 5,000,000 shares authorized; none outstanding) -- -- Common stock, ($0.01 par value, 20,000,000 shares authorized; 7,404,638 and 7,397,877 shares issued and outstanding as of September 30, 2000 and December 31,1999, respectively) 74 74 Paid-in capital in excess of par 42,485 42,446 Retained earnings 32,625 27,018 -------------- -------------- Total shareholders' equity 75,184 69,538 -------------- -------------- Total liabilities and shareholders' equity $411,502 $412,315 ============== ==============
See accompanying notes to the consolidated financial statements 3 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- --------------------- 2000 1999 2000 1999 --------- ---------- ---------- --------- REVENUE Lease revenue $12,553 $12,779 $38,233 $34,426 Gain on sale of leased equipment 3,225 2,202 8,129 9,462 Spare part sales 6,022 6,065 21,331 21,254 Sale of equipment acquired for resale -- -- 2,500 9,775 --------- ---------- ---------- --------- Total revenue 21,800 21,046 70,193 74,917 --------- ---------- ---------- --------- EXPENSES Depreciation expense 3,644 3,501 10,639 9,485 Cost of spare part sales 4,283 13,989 16,270 25,248 Cost of equipment acquired for resale -- -- 2,150 8,354 General and administrative 3,648 4,545 11,476 13,633 --------- ---------- ---------- --------- Total expenses 11,575 22,035 40,535 56,720 --------- ---------- ---------- --------- Earnings (loss) from operations 10,225 (989) 29,658 18,197 Interest expense 6,601 6,048 19,568 16,054 Interest and other income (264) (334) (726) (911) Residual share 168 212 508 635 --------- ---------- ---------- --------- Net interest and finance cost 6,505 5,926 19,350 15,778 --------- ---------- ---------- --------- Loss from unconsolidated affiliate (325) (395) (1,116) (435) --------- ---------- ---------- --------- Earnings (loss) before income taxes 3,395 (7,310) 9,192 1,984 Income taxes (1,324) 2,926 (3,585) (794) --------- ---------- ---------- --------- Net earnings (loss) $2,071 $(4,384) $5,607 $1,190 ========= ========== ========== ========= Basic earnings per common share: --------- ---------- ---------- --------- Net earnings $0.28 ($0.59) $0.76 $0.16 ========= ========== ========== ========= Diluted earnings per common share: --------- ---------- ---------- --------- Net earnings $0.28 ($0.59) $0.75 $0.16 ========= ========== ========== ========= Average common shares outstanding 7,403 7,394 7,401 7,377 Diluted average common shares outstanding 7,496 7,448 7,489 7,447
See accompanying notes to the consolidated financial statements 4 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS)
Issued and outstanding Paid-in Total shares of Common capital in Retained shareholders' common stock stock excess of par earnings equity ------------ ------- ------------- -------- ------ Balance at December 31, 1998 7,361 $74 $42,033 $23,735 $65,842 Shares issued 37 -- 339 -- 339 Tax benefit from disqualified dispositions of qualified shares -- -- 74 -- 74 Net income -- -- -- 3,283 3,283 ------------ ------- ------------- -------- ------- Balances at December 31, 1999 7,398 74 42,446 27,018 69,538 Shares issued 7 -- 39 -- 39 Tax benefit from disqualified dispositions of qualified shares -- -- -- -- -- Net income -- -- -- 5,607 5,607 ------------ ------- ------------- -------- ------- Balances at September 30, 2000 (unaudited) 7,405 $74 $42,485 $32,625 $75,184 ============ ======= ============= ======== =======
See accompanying notes to the consolidated financial statements 5 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Ended September 30, --------------------------------- 2000 1999 -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $5,607 $1,190 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 10,639 9,485 Gain on sale of leased equipment (8,129) (9,462) (Decrease) increase in residual share payable (965) 635 Loss from unconsolidated affiliate 1,116 435 Changes in assets and liabilities: Spare parts inventory 5,525 11,758 Receivables (5,582) 2,557 Other assets (327) (2,327) Accounts payable and accrued expenses 1,432 (5,085) Deferred income taxes 3,585 410 Unearned lease revenue 307 243 Maintenance reserves (64) 4,343 Security deposits (1,323) 874 -------------- --------------- Net cash provided by operating activities 11,821 15,056 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of equipment held for operating lease (net of selling expenses) 47,024 45,730 Purchase of equipment held for operating lease (48,855) (107,946) Purchase of property, equipment and furnishings (558) (1,516) Investment in unconsolidated affiliates (1,758) (87) Principal payments received on direct finance lease 554 303 -------------- --------------- Net cash used in investing activities (3,593) (63,516) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable 66,777 113,781 Proceeds from issuance of common stock 39 339 Principal payments on notes payable (73,720) (59,470) Principal payments on capital lease obligation (2,489) (121) -------------- --------------- Net cash (used in) provided by financing activities (9,393) 54,529 (Decrease) increase in cash and cash equivalents (1,165) 6,069 Cash and cash equivalents at beginning of period including restricted cash of $15,992 and $13,738 at December 31, 1999 and 1998, respectively 25,468 24,043 -------------- --------------- Cash and cash equivalents at end of period including restricted cash of $14,051 and $15,420 at September 30, 2000 and 1999, respectively 24,303 30,112 ============== ============== Supplemental information: Net cash paid for: Interest $20,416 $15,251 -------------- --------------- Income Taxes $0 $674 -------------- --------------- Non-cash investing activity: Transfer of assets to unconsolidated affiliate (net) $0 $5,630 -------------- --------------- Non-cash financing activity: Installment loan related to sale of equipment held for operating lease $0 $852 -------------- ---------------
See accompanying notes to the consolidated financial statements 6 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements of Willis Lease Finance Corporation and its subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The accompanying unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. In addition, certain amounts in the prior period's financial statements have been reclassified to conform to the current period's presentation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal and recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2000 (unaudited), and December 31, 1999, and the unaudited results of its operations for the three and nine month periods ended September 30, 2000 and 1999 and its cash flows for the nine month periods ended September 30, 2000 and 1999. The results of operations and cash flows for the periods ended September 30, 2000 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2000. Effective January 1, 2000, the Company revised its inventory cost allocation methodology for whole engine and aircraft purchases. Under the revised method, the Company estimates a period of time over which the Company expects to liquidate its investment in such purchases. Periodically, the Company compares its remaining investment in such purchases to its expected remaining investment in such purchases and, to the extent necessary, recognizes an additional amount of cost and spare parts sales to bring the remaining investment in such purchases in line with the expected level of investment. 2. MANAGEMENT ESTIMATES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 7 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. COMMITMENTS The Company has two leases for its office and warehouse space. The annual lease rental commitments, as applicable, are $364,000 and $309,000 and the leases expire on November 30, 2005 and May 31, 2003, respectively. The Company has committed to purchase, during the remainder of 2000, one additional used engine for its operations, for not more than $4.5 million. Under the terms of the Sichuan Snecma joint venture (see note 4 below), the Company is committed to fund up to an additional $2.2 million to the joint venture over the next three years. During the nine month period ended September 30, 2000, $0.8 million has been contributed. Under the terms of the Pacific Gas Turbine Center, LLC ("PGTC LLC") joint venture (see note 4 below), to the extent that PGTC LLC requires additional working capital and the Company and its partner in PGTC LLC agree to provide such capital, each partner is required to contribute to such capital requirement, equally. During the nine month period ended September 30, 2000, the Company contributed $1.0 million of additional capital to PGTC LLC. In addition, the Company loaned PGTC LLC $1.5 million during the three months ended September 30, 2000 at a rate of 9.5% p.a. repayable within 120 days. In January 2000, a suit was filed against the Company in connection with the sale by the Company of an aircraft engine for cash consideration. The buyer of the engine alleges that the sale was not validly consummated and amongst other things requests that the purchase price of the engine, $3.2 million, be returned to the buyer. The Company is vigorously contesting the suit and has filed a cross-complaint in connection with the suit. The Company believes that the loss, if any, resulting from the suit will not have a material impact on the Company's financial position. 4. INVESTMENT IN UNCONSOLIDATED AFFILIATES In May 1999, the Company entered into an agreement with the Chromalloy Gas Turbine Corporation, a subsidiary of Sequa Corporation, to operate a joint venture to perform maintenance, repair and overhaul of commercial jet engines. Under the terms of the joint venture agreement, the Company and Chromalloy formed a new company, PGTC LLC. The Company contributed the operations and assets of its wholly owned subsidiary Pacific Gas Turbine Center, Incorporated ("PGTC Inc.") (with a book value of $5.7 million) and Chromalloy contributed working capital to the joint venture. Both the Company and Chromalloy have a 50% interest in the joint venture. Under the equity method, the original contribution was recorded at cost and is adjusted periodically to recognize the Company's share of the earnings or losses of PGTC LLC after the date of formation. The contribution is shown in the Company's Consolidated Balance Sheet as a single amount and earnings or losses are shown in the Consolidated Statement of Income as a single amount. All intercompany profits or losses are eliminated. In July 1999, the Company entered into an agreement to participate in a joint venture - Sichuan Snecma Aero-engine Maintenance Co. Ltd. Sichuan Snecma will focus on providing maintenance services for CFM56 series engines. Other participants in the joint venture are China Southwest Airlines, Snecma Services and Beijing Kailan Aviation Technology Development and Services Corporation. The Company's investment in Sichuan Snecma at September 30, 2000 is $0.8 million. This investment represents approximately a 7% interest in the joint venture. This joint venture is in its start-up phase of activity. 8 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. OPERATING SEGMENTS The Company operates in two business segments: (i) Leasing and Related Operations which involves acquiring and leasing, primarily pursuant to operating leases, commercial aircraft, aircraft spare engines and other aircraft equipment and (ii) Spare Parts Sales which involves the purchase and resale of after market engine and airframe parts. In July 1998, the Company formed PGTC Inc. to engage in engine disassembly and maintenance, repair and overhaul services. At the end of May 1999, the Company's investment in and the operations of PGTC Inc. were contributed to a joint venture, PGTC LLC (see note 4 above). During the five months ended May 31, 1999, while PGTC Inc. was a wholly owned subsidiary of the Company, the majority of PGTC Inc.'s revenue was derived from services provided to Willis Aeronautical Services, Inc. (WASI), the Company's spare parts subsidiary. Revenue from third parties during this period was not material. Accordingly, for the five months ended May 31, 1999 the operations of PGTC Inc. are included in the Spare Parts Sales segment. Subsequent to the formation of PGTC LLC, because PGTC LLC is an unconsolidated affiliate accounted for using the equity method of accounting, PGTC LLC is not included in the operating segment analysis for the three and nine months ended September 30, 2000. The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses and inter-company allocation of interest expense. While the Company believes there are synergies between the two business segments, the segments are managed separately because each requires different business strategies. In September 1999, the Company recognized an inventory write down due to a revaluation of inventory of WASI. The write-down, which totaled $7.4 million, was taken as an expense for the quarter ended September 30, 1999. 9 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table presents a summary of the operating segments (in thousands):
For the three months ended September 30, 2000 For the three months ended September 30, 1999 --------------------------------------------- --------------------------------------------- Spare Spare Parts Parts Leasing Sales Total Leasing Sales Total --------------------------------------------- --------------------------------------------- Revenue Lease revenue $11,770 $783 $12,553 $11,229 $1,550 $12,779 Gain on sale of leased equipment 3,225 3,225 2,202 2,202 Spare parts sales 6,022 6,022 6,065 6,065 --------------------------------------------- --------------------------------------------- Total revenue 14,995 6,805 21,800 13,431 7,615 21,046 Expenses Depreciation expense 2,854 790 3,644 2,696 805 3,501 Cost of spare parts 4,283 4,283 13,989 13,989 General and administrative 2,521 1,127 3,648 3,499 1,046 4,545 --------------------------------------------- --------------------------------------------- Total expenses 5,375 6,200 11,575 6,195 15,840 22,035 --------------------------------------------- --------------------------------------------- Earnings (loss) from operations 9,620 605 10,225 7,236 (8,225) (989) Interest expense 5,690 911 6,601 5,031 1,017 6,048 Interest and other income (258) (6) (264) (252) (82) (334) Residual share 168 168 212 212 --------------------------------------------- --------------------------------------------- Net interest and finance cost 5,600 905 6,505 4,991 935 5,926 --------------------------------------------- --------------------------------------------- Earnings (loss) before taxes* $4,020 ($300) $3,720 $2,245 ($9,160) ($6,915) ============================================= ============================================= Total assets as of September 30, 2000 and 1999* $358,242 $47,536 $405,778 $367,671 $43,356 $411,027 ============================================= =============================================
* Earnings (loss) before taxes and total assets for the periods ended September 30, 2000 and 1999 do not include results from or investment in unconsolidated affiliates. 10 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table presents a summary of the operating segments (in thousands):
For the nine months ended September 30, 2000 For the nine months ended September 30, 1999 --------------------------------------------- --------------------------------------------- Spare Spare Parts Parts Leasing Sales Total Leasing Sales Total --------------------------------------------- --------------------------------------------- Revenue Lease revenue $35,208 $3,025 $38,233 $31,854 $2,572 $34,426 Gain on sale of leased equipment 8,129 8,129 9,462 9,462 Spare parts sales 21,331 21,331 21,254 21,254 Sale of equipment acquired for resale 2,500 2,500 9,775 9,775 --------------------------------------------- --------------------------------------------- Total revenue 43,337 26,856 70,193 51,091 23,826 74,917 Expenses Depreciation Expense 8,339 2,300 10,639 8,118 1,367 9,485 Cost of spare parts 16,270 16,270 25,248 25,248 Cost of equipment acquired for resale 2,150 2,150 8,354 8,354 General and administrative 8,362 3,114 11,476 8,935 4,698 13,633 --------------------------------------------- --------------------------------------------- Total expenses 16,701 23,834 40,535 25,407 31,313 56,720 --------------------------------------------- --------------------------------------------- Earnings (loss) from operations 26,636 3,022 29,658 25,684 (7,487) 18,197 Interest expense 16,728 2,840 19,568 13,588 2,466 16,054 Interest and other income (743) 17 (726) (714) (197) (911) Residual share 508 508 635 635 --------------------------------------------- --------------------------------------------- Net interest and finance cost 16,493 2,857 19,350 13,509 2,269 15,778 --------------------------------------------- --------------------------------------------- Earnings (loss) before taxes* $10,143 $165 $10,308 $12,175 ($9,756)(1) $2,419 ============================================= ============================================= Total assets as of September 30, 2000 and 1999* $358,242 $47,536 $405,778 $367,671 $43,356 $411,027 ============================================= =============================================
* Earnings (loss) before taxes and total assets for the periods ended September 30, 2000 and 1999 do not include results from or investment in unconsolidated affiliates. (1) The Company estimates that loss from operations would have been $8.7 million if the effect of PGTC Inc.'s operations, after intercompany eliminations, were eliminated from the results of the spare parts segment. 11 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. NOTES PAYABLE At September 30, 2000 notes payable consists of bank loans totaling $282.7 million payable over periods of 2 to 6 years with current interest rates varying between approximately 6.95% and 11.8%. Included in notes payable is a $150.0 million revolving credit facility. As of September 30, 2000 $25.8 million was available under this facility subject to the Company providing sufficient collateral. The facility has a two-year revolving period which ended September 2000 but has been extended to December 15, 2000 followed by a term-out period ending September 2004. It is renewable annually with an interest rate currently of LIBOR plus 2.0%. At September 30, 2000 the Company also had a $125.0 million debt warehouse facility available to a wholly owned, consolidated special purpose finance subsidiary, WLFC Funding Corporation. The facility is renewable annually and has an eight-year term with a revolving period to February 2001 followed by a seven-year amortization period. Currently the interest rate is commercial paper plus 1.55%. As of September 30, 2000, $28.4 million was available under this facility subject to the Company providing sufficient collateral. At September 30, 2000, the Company had a $29.2 million term loan facility available to a wholly owned, consolidated special purpose subsidiary of the Company, WLFC AC1 Corporation, for the financing of jet aircraft engines transferred by the Company to such subsidiary. The facility is a five year term loan with a final maturity of June 30, 2005. The interest rate on this facility is currently LIBOR plus 2.05%. This facility is fully drawn. The following is a summary of the aggregate maturities of notes payable at September 30, 2000 (dollars in thousands):
Year ending December 31, 2000 $6,540 2001 37,082 2002 37,397 2003 34,273 2004 68,522 2005 and thereafter 98,922 --------- $282,736 =========
12 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's core business is acquiring and leasing, primarily pursuant to operating leases, commercial aircraft spare engines and related aircraft equipment. In addition, the Company engages in the selective purchase, sale and resale of commercial aircraft engines. The Company, through Willis Aeronautical Services, Inc. ("WASI"), also specializes in the purchase and resale of aftermarket airframe and engine parts, engines, modules and rotable components. The Company, through its joint venture PGTC LLC (see footnote 4) provides engine disassembly and maintenance, repair and overhaul services to the Company and third parties from its San Diego location. Revenue consists primarily of lease revenue, income from the sale of spare parts and components and income from the sale of engines and equipment. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999: LEASING RELATED ACTIVITIES. Lease related revenue for the quarter ended September 20, 2000, decreased 2% to $12.6 million from $12.8 million for the comparable period in 1999. This decrease reflects lease related revenues from fewer engines. The aggregate of net book value of leased equipment and net investment in direct finance lease at September 30, 2000 and 1999 was $335.8 million and $345.2 million, respectively. During the quarter ended September 30, 2000, two engines were added to the Company's lease portfolio at a total cost of $2.7 million. Seven engines from the lease portfolio were sold or transferred to inventory for sale. The engines sold from the lease portfolio had a total net book value of $20.6 million and were sold for a gain of $3.2 million. During the quarter ended September 30, 1999, 12 engines and one aircraft were added to the Company's lease portfolio at a cost of $27.6 million. The Company sold or transferred five engines from the lease portfolio. The engines sold from the lease portfolio had a net book value of $7.1 million and were sold for a gain of $2.2 million. SPARE PARTS SALES. During the quarter ended September 30, 2000, revenue from spare parts sales totaled $6.0 million. The level of revenue during the third quarter was 1% lower than the $6.1 million in the comparable period in 1999. Gross margin increased to 29% from negative margins in the corresponding period in 1999. The negative gross margin in the comparable period was due to an inventory write-down of $7.4 million. DEPRECIATION EXPENSE. Depreciation expense increased 4% to $3.6 million for the quarter ended September 30, 2000 from the comparable period in 1999. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased 20% to $3.6 million for the quarter ended September 30, 2000, from the comparable period in 1999. The decrease reflects reductions in general and administrative expenses associated with the leasing and spare parts business segments. INTEREST EXPENSE AND FINANCE COSTS. Interest expense related to all activities increased 9% to $6.6 million for the quarter ended September 30, 2000 from the comparable period in 1999, due to an increase in interest rates. Residual sharing expense related to debt decreased 21% to $168,000 for the quarter ended September 30, 2000 from $212,000 for the comparable period in 1999. Residual sharing arrangements apply to two of the Company's engines as of September 30, 2000 and are a function of the difference between the debt associated with the residual sharing arrangement and estimated residual 13 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES proceeds. The Company accrues for its residual sharing obligations using net book value as an estimate for residual proceeds. Interest and other income for each of the quarters ended September 30, 2000 and 1999, was $0.3 million. Interest is earned on cash, deposits held and notes receivable. INCOME TAXES. Income tax expense for the quarter ended September 30, 2000 was $1.3 million compared to an income tax benefit of $2.9 million for the comparable period in 1999. The effective tax rate for the quarters ended September 30, 2000 and 1999 were 39% and 40%, respectively. LOSS FROM UNCONSOLIDATED AFFILIATE. In May 1999, the Company entered into a joint venture to perform maintenance, repair and overhaul of commercial jet aircraft engines (see footnote 4 above). The Company accounts for its 50% interest in the joint venture using the equity method. During the three months ended September 30, 2000 and 1999, the Company's share of net losses from the joint venture, after inter-company eliminations, was $325,000 and $395,000 respectively. NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999: LEASING RELATED ACTIVITIES. Leasing related revenue for the nine months ended September 30, 2000, increased 11% to $38.2 million from $34.4 million for the comparable period in 1999. This increase reflects lease related revenues from a higher average level of leased assets held during that period. During the nine months ended September 30, 2000, 15 engines were added to the Company's lease portfolio at a total cost of $48.9 million. Nineteen engines from the lease portfolio were sold or transferred to inventory for sale. The engines sold from the lease portfolio had a total net book value of $38.9 million and were sold for a gain of $8.1 million. During the nine months ended September 30, 1999, 42 engines and one aircraft were added to the Company's lease portfolio at a total cost of $107.9 million. Nineteen engines and three spare parts packages were sold or transferred from the lease portfolio. The engines sold had a net book value of $36.2 million and were sold for a gain of $9.5 million. SPARE PARTS SALES. During the nine months ended September 30, 2000, revenue from spare parts sales totaled $21.3 million of which $3.5 million was associated with the sale of whole engines. Gross margins increased to 24% from negative margins in the corresponding period in 1999. The negative margin in 1999 was due to an inventory write-down of $7.4 million. DEPRECIATION EXPENSE. Depreciation expense increased 12% to $10.6 million for the nine months ended September 30, 2000 from the comparable period in 1999, due primarily to a higher average level of lease portfolio assets held during the period. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased 16% to $11.5 million for the nine months ended September 30, 2000, from the comparable period in 1999. This change was primarily due to the five months of expenses related to PGTC Inc. included in the period ended September 30, 1999 whereas, under the equity method of accounting, no expenses from PGTC LLC's operations are included in the period ended September 30, 2000. Additionally, the decrease reflects reductions in general and administrative expenses associated with the leasing and spare parts business segments. INTEREST EXPENSE AND FINANCE COSTS. Interest expense related to all activities increased 22% to $19.6 million for the nine months ended September 30, 2000 from the comparable period in 1999, due to an increase in interest rates and average debt outstanding. This increase in debt was primarily related to debt associated with the higher average level of lease portfolio assets held 14 during the period. Residual sharing expense related to debt decreased 20% to $508,000 for the nine months ended September 30, 2000 from $635,000 for the comparable period in 1999. Residual sharing arrangements apply to two of the Company's engines as of September 30, 2000 and are a function of the difference between the debt associated with the residual sharing arrangement and estimated residual proceeds. The Company accrues for its residual sharing obligations using net book value as an estimate for residual proceeds. Interest and other income for each of the nine months ended September 30, 2000 and 1999 were $0.7 million and $0.9 million, respectively. Interest is earned on cash, deposits held and notes receivable. INCOME TAXES. Income tax expense for the nine months ended September 30, 2000 was $3.6 million compared to income tax expense of $0.8 million for the comparable period in 1999. This increase reflects an increase in the Company's pre-tax earnings partially due to the inventory write-down in September, 1999. The effective tax rate for the nine months ended September 30, 2000 and 1999 were 39% and 40%, respectively. LOSS FROM UNCONSOLIDATED AFFILIATE. In May 1999, the Company entered into a joint venture to perform maintenance, repair and overhaul of commercial jet aircraft engines (see footnote 4 above). The Company accounts for its 50% interest in the joint venture using the equity method. During the nine months ended September 30, 2000 and 1999, the Company's share of net losses from the joint venture, after inter-company eliminations, was $1.1 million and $435,000 (representing 4 months trading from May 1999), respectively. ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. SFAS No. 137, "Accounting for Derivatives, Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133," issued in June 1999, defers the effective date of SFAS No. 133. SFAS No. 133, as amended, is now effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. As of September 30, 2000, the Company is reviewing the effect SFAS No. 133 will have on the Company's consolidated financial statements. 15 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES In September 2000 FASB issued SFAS No. 140, "Accounting for transfers and servicing of financial assets and extinguishment of liabilities, an amendment of FASB Statement No. 125." Statement 140 provides guidance on the following topics: securitization transactions involving financial assets, sales of financial assets such as receivables, loans and securities, collateralized borrowing arrangements, repurchase agreements, and extinguishments of liabilities. The provisions of Statement 140 will become effective for transactions entered into after March 31, 2001. The Company is currently evaluating the impact of SFAS 140 on the Company's consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its growth through borrowings secured by its equipment lease portfolio, operating cash flow and unrestricted cash balances. Cash of approximately $66.8 million and $113.8 million, in the nine month period ended September 30, 2000 and 1999, respectively, was derived from borrowings. Cash flow from operating activities provided $11.8 million and $15.1 million in the nine month periods ended September 30, 2000 and 1999, respectively. In these same time periods, $73.7 million and $59.5 million, respectively, of cash was used to repay debt. The Company's primary use of funds is for the purchase of equipment for lease. Approximately $48.9 million and $107.9 million of funds were used for this purpose in the nine month period ended September 30, 2000 and 1999, respectively. At September 30, 2000, the Company had a $150.0 million revolving credit facility to finance the acquisition of aircraft engines, aircraft and spare parts for sale or lease as well as for general working capital purposes. As of September 30, 2000, $25.8 million was available under this facility, subject to the Company providing sufficient collateral. At September 30, 2000, the Company had a $125.0 million debt warehouse facility. The facility is available to a wholly owned special purpose finance subsidiary of the Company, WLFC Funding Corporation, for the financing of jet aircraft engines transferred by the Company to such finance subsidiary or acquired by it. The subsidiary is consolidated for financial statement presentation purposes. The Company has guaranteed the obligations under the facility on a limited basis, up to an amount equal to the greater of: (i) the lesser of $5 million and 20% of the outstanding obligations or (ii) 10% of the outstanding obligations. As of September 30, 2000, $28.4 million was available under this facility assuming compliance with the facility's terms including sufficiency of collateral. Approximately $6.5 million of the Company's debt is repayable during the remainder of 2000. Such repayments consist of scheduled installments due under term loans. The Company believes that its current equity base, internally generated funds and existing debt facilities are sufficient to maintain the Company's current level of operations. A decline in the level of internally generated funds or the availability under the Company's existing debt facilities would impair the Company's ability to sustain its current level of operations. The Company is currently discussing additions to its debt and equity capital bases with its commercial and investment banks. If the Company is not able to access additional debt and equity capital, its ability to continue to grow its asset base consistent with historical trends will be impaired and its future growth limited to that which can be funded from internally generated capital. Certain of the Company's engines have been financed under floating rate facilities. Accordingly, the Company is subject to interest rate risk, since the underlying lease revenue is fixed. See "Management of Interest Rate Exposure" below. 16 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES The Company has committed to purchase, during the remainder of 2000, one additional used engine for its operations for not more than $4.5 million. MANAGEMENT OF INTEREST RATE EXPOSURE At September 30, 2000, $250.1 million of the Company's borrowings were on a variable rate basis at various interest rates tied to LIBOR, the commercial paper rate, or the prime rate. The Company's equipment leases are generally structured at fixed rental rates for specified terms. Increases in interest rates could narrow or eliminate the spread, or result in a negative spread, between the rental revenue the Company realizes under its leases and the interest rate that the Company pays under its borrowings. In September 1996, the Company purchased an amortizing interest rate cap, maturing in October, 2000, in order to limit its exposure to increases in interest rates on a portion of its variable rate borrowings. Pursuant to this cap, the counter party will make payments to the Company, based on the notional amount of the cap, if the three-month LIBOR rate is in excess of 7.66%. As of September 30, 2000, the notional principal amount of the cap was $26.0 million. The cost of the cap is being amortized as an expense over its remaining term. To further mitigate exposure to interest rate changes, the Company has entered into interest rate swap agreements which have notional outstanding amounts of $60.0 million, a weighted average remaining term of 15 months and a weighted average fixed rate of 5.90%. Under its borrowing agreement, WLFC Funding Corporation is required to hedge a certain portion of its $125 million warehouse facility against changes in interest rates. WLFC Funding Corporation has entered into interest rate swap agreements in order to meet such hedging requirements and to manage the variable interest rate risk related to its debt. As of September 30, 2000, such swap agreements had notional outstanding amounts totaling $65.0 million, a weighted average remaining term of 29 months and a weighted average fixed rate of 6.02%. Interest expense for the three and nine month periods ended September 30, 2000 was affected by the Company's interest rate hedges by approximately $206,000 and $331,000, respectively. The Company will be exposed to risk in the event of non-performance of the interest rate hedge counter parties. The Company anticipates that it will hedge additional amounts of its floating rate debt during the next several months. FACTORS THAT MAY AFFECT FUTURE RESULTS Except for historical information contained herein, the discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below as well as those discussed elsewhere herein and in the Company's report on Form 10-K for the year ended December 31, 1999. The cautionary statements made in this report should be read as being applicable to all related forward-looking statements wherever they appear in this report or in other written or oral statements by the company. The businesses in which the Company is engaged are capital intensive businesses. Accordingly, the Company's ability to successfully execute its business strategy and to sustain its operations is dependent, in large part, on the availability of debt and equity capital. There can be no assurance that the necessary amount of such capital will continue to be available to the Company on favorable terms or at all. If the Company is not successful in obtaining sufficient capital, the Company's ability to: (i) add new aircraft engines, aircraft and spare parts packages to its portfolio, (ii) add inventory to support its spare parts sales, (iii) fund its working capital needs, (iv) develop the business of PGTC LLC, and (v) finance possible future acquisitions, would be impaired. The Company's inability to obtain sufficient capital would have a material adverse effect on the Company's business, financial condition and/or results of operations. The Company retains title to the aircraft engines, aircraft and parts packages that it leases to third parties. Upon termination of a lease, the Company will seek to re-lease or sell the aircraft equipment or will dismantle the equipment and will sell the parts. The Company also engages in the selective purchase and resale of commercial aircraft engines and engine 17 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES components. On occasion, the Company purchases engines or components without having a firm commitment for their sale. Numerous factors, many of which are beyond the Company's control, may have an impact on the Company's ability to re-lease or sell aircraft equipment on a timely basis, including the following: (i) general market conditions, (ii) the condition of the aircraft equipment upon termination of the lease, (iii) the maintenance services performed during the lease term and, as applicable, the number of hours remaining until the next major maintenance is required, (iv) regulatory changes (particularly those imposing environmental, maintenance and other requirements on the operation of aircraft engines), (v) changes in the supply or cost of aircraft engines, and (vi) technological developments. There is no assurance that the Company will be able to re-lease or sell aircraft equipment on a timely basis or on favorable terms. The failure to re-lease or sell aircraft equipment on a timely basis or on favorable terms could have a material adverse effect on the Company's business, financial condition and/or results of operations. The Company experiences fluctuations in its operating results. Such fluctuations may be due to a number of factors, including: (i) general economic conditions, (ii) the timing of sales of engines and spare parts, (iii) financial difficulties experienced by airlines, (iv) interest rates, (v) fuel costs, (vi) downturns in the air transportation industry, (vii) increased fare competition, (viii) decreases in growth of air traffic, (ix) unanticipated early lease termination or a default by a lessee, (v) the timing of engine acquisitions, (xi) engine marketing activities, (xii) fluctuations in market prices for the Company's assets. The Company anticipates that fluctuations from period to period will continue in the future. As a result, the Company believes that comparisons to results of operations for preceding periods are not necessarily meaningful and that results of prior periods should not be relied upon as an indication of future performance. A lessee may default in performance of its lease obligations and the Company may be unable to enforce its remedies under a lease. The Company's inability to collect receivables due under a lease or to repossess aircraft equipment in the event of a default by a lessee could have a material adverse effect on the Company's business, financial condition and/or results of operations. Various airlines have experienced financial difficulties in the past, certain airlines have filed for bankruptcy and a number of such airlines have ceased operations. In most cases where a debtor seeks protection under Chapter 11 of Title 11 of the United States Code, creditors are automatically stayed from enforcing their rights. In the case of United States certified airlines, Section 1110 of the Bankruptcy Code provides certain relief to lessors of aircraft equipment. The scope of Section 1110 has been the subject of significant litigation and there is no assurance that the provisions of Section 1110 will protect the Company's investment in an aircraft, aircraft engines or parts in the event of a lessee's bankruptcy. In addition, Section 1110 does not apply to lessees located outside of the United States and applicable foreign laws may not provide comparable protection. Leases of spare parts may involve additional risks. For example, it is likely to be more difficult to recover parts in the event of a lessee default and the residual value of parts may be less ascertainable than the engine. The Company's leases are generally structured at fixed rental rates for specified terms while many of the Company's borrowings are at a floating rate. Increases in interest rates could narrow or eliminate the spread, or result in a negative spread, between the rental revenue the Company realizes under its leases and the interest rate the Company pays under its borrowings, and have a material adverse effect on the Company's business, financial condition and/or results of operations. During the nine month period ended September 30, 2000, 74% of the Company's lease revenue was generated by leases to foreign customers. Such international leases may present greater risks to the Company because certain foreign laws, regulations and judicial procedures may not be as protective of lessor rights as those which apply in the United States. The Company is subject to the timing and access to courts and the remedies local laws impose in order to collect its lease payments and recover its assets. In addition, political instability abroad and changes in international policy also present risk of expropriation of the Company's leased engines. Furthermore, many foreign countries have currency and exchange laws regulating the international transfer of currencies. The Company has experienced significant growth in lease revenues during the last twelve months. The Company's growth has placed, and is expected to continue to place, a significant strain on the Company's managerial, operational 18 and financial resources. There is no assurance that the Company will be able to effectively manage the expansion of its operations, or that the Company's systems, procedures or controls will be adequate to support the Company's operations, in which event the Company's business, financial condition and/or results of operations could be adversely affected. The Company may also acquire businesses that would complement or expand the Company's existing businesses. Any acquisition or expansion made by the Company may result in one or more of the following events: (i) the incurrence of additional debt, (ii) future changes to earnings related to the amortization of goodwill and other intangible assets, (iii) difficulties in the assimilation of operations, services, products and personnel, (iv) an inability to sustain or improve historical revenue levels, (v) diversion of management's attention from ongoing business operations, and (iv) potential loss of key employees. Any of the foregoing factors could have a material adverse effect on the Company's business, financial condition and/or results of operations. 19 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES The markets for the Company's products and services are extremely competitive, and the Company faces competition from a number of sources. These include aircraft and aircraft part manufacturers, aircraft and aircraft engine lessors, airline and aircraft service companies and aircraft spare parts redistributors. Certain of the Company's competitors have substantially greater resources than the Company, including greater name recognition, larger inventories, a broader range of material, complementary lines of business and greater financial, marketing and other resources. In addition, equipment manufacturers, aircraft maintenance providers, FAA certified repair facilities and other aviation aftermarket suppliers may vertically integrate into the markets that the Company serves, thereby significantly increasing industry competition. There can be no assurance that competitive pressures will not materially and adversely affect the Company's business, financial condition and/or results of operations. The Company's leasing activities generate significant depreciation allowances that provide the Company with substantial tax benefits on an ongoing basis. In addition, the Company's lessees currently enjoy favorable accounting and tax treatment by entering into operating leases. Any change to current tax laws or accounting principles that make operating lease financing less attractive or affect the Company's recognition of revenue or expense would have a material impact on the Company's business, financial condition and/or results of operations. Before parts may be installed in an aircraft, they must meet certain standards of condition established by the FAA and/or the equivalent regulatory agencies in other countries. Specific regulations vary from country to country, although regulatory requirements in other countries are generally satisfied by compliance with FAA requirements. Parts must also be traceable to sources deemed acceptable by the FAA or such equivalent regulatory agencies. Such standards may change in the future, requiring engine components already contained in the Company's inventory to be scrapped or modified. In all such cases, to the extent the Company has such engine components in its inventory, their value may be reduced and the Company's business, financial condition and/or results of operations could be adversely affected. The Company obtains a substantial portion of its inventories of aircraft, engines and engine parts from airlines, overhaul facilities and other suppliers. There is no organized market for aircraft, engines and engine parts, and the Company must rely on field representatives and personnel, advertisements and its reputation as a buyer of surplus inventory in order to generate opportunities to purchase such equipment. The market for bulk sales of surplus 20 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES aircraft, engines and engine parts is highly competitive, in some instances involving a bidding process. While the Company has been able to purchase surplus inventory in this manner successfully in the past, there is no assurance that surplus aircraft, engines and engine parts of the type required by the Company's customers will be available on acceptable terms when needed in the future or that the Company will continue to compete effectively in the purchase of such surplus equipment. A change in the market for aircraft and engine parts or a reduction in demand for the parts carried by the Company could result in the Company's inventory being overvalued and could require the Company to write down its inventory valuations in order to bring them into line with the revised fair market value. Airline manufacturers may also develop new parts to be used in lieu of parts already contained in the Company's inventory. There is no assurance that a write-down would not adversely affect the Company's business, operating results or financial condition. 21 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is that of interest rate risk. A change in the U.S. prime interest rate, LIBOR rate, or cost of funds based on commercial paper market rates, would affect the rate at which the Company could borrow funds under its various borrowing facilities. Increases in interest rates to the Company, which may cause the Company to raise the implicit rates charged to its customers, could result in a reduction in demand for the Company's leases. Certain of the Company's warehouse credit facilities are variable rate debt. The Company estimates a one percent increase or decrease in the Company's variable rate debt would result in an increase or decrease, respectively, in interest expense of $1.2 million per annum. The Company estimates a two percent increase or decrease in the Company's variable rate debt would result in an increase or decrease, respectively, in interest expense of $2.3 million per annum. The foregoing effect of interest rate changes, net of interest rate hedges, on per annum interest expense is estimated as constant due to the terms of the Company's variable rate borrowings, which generally provide for the maintenance of borrowing levels given adequacy of collateral and compliance with other loan conditions. The Company hedges a portion of its borrowings, effectively fixing the rate of these borrowings. The Company is currently required to hedge a portion of debt of the WLFC Funding Corporation Facility. Such hedging activities may limit the Company's ability to participate in the benefits of any decrease in interest rates, but may also protect the Company from increases in interest rates. A portion of the Company's leases provides that lease payments be adjusted based on changes in interest rates. Furthermore, since lease rates tend to vary with interest rate levels, it is likely that the company can adjust lease rates for the effect of change in interest rates at the termination of leases. Other financial assets and liabilities are at fixed rates. The Company is also exposed to currency devaluation risk. During the nine month period ended September 30, 2000, 74% of the Company's total lease revenues came from non-United States domiciled lessees. All of the leases require payment in United States (U.S.) currency. If these lessees' currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making the U.S. dollar denominated lease payments. 22 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES 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: November 2, 2000 Willis Lease Finance Corporation By: /s/ NICHOLAS J. NOVASIC --------------------------- Nicholas J. Novasic Chief Financial Officer 23 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT DESCRIPTION NUMBER 3.1 Certificate of Incorporation, filed on March 12, 1998 together with Certificate of Amendment of Certificate of Incorporation filed on May 6, 1998. Incorporated by reference to Exhibits 4.01 and 4.02 of the Company's report on Form 8-K filed on June 23, 1998. 3.2 Bylaws. Incorporated by reference to Exhibit 4.03 of the Company's report on Form 8-K filed on June 23, 1998. 4.1 Specimen of Common Stock Certificate incorporated by reference to Exhibit 4.1 of the Company's report on form 10-Q for the quarter ended June 30, 1998. 4.2 Rights Agreement dated September 24, 1999, by and between the Company and American Stock Transfer and Trust Company, as Rights Agent, incorporated by reference to Exhibit 4.1 of the Company's report on Form 8-K filed on October 4, 1999. 10.1 Second Amendment to Amended and Restated Series 1997-1 Supplement, incorporated by reference to Exhibit 10.1 of the Company's report on Form 10-Q for the quarter ended March 31, 2000.* 10.2 Amended and Restated Credit Agreement as of February 10, 2000, incorporated by reference to Exhibit 10.2 of the Company's report on Form 10-Q for the quarter ended March 31, 2000.* 10.3 Employment contract for Nicholas J. Novasic dated June 15, 2000. 11.1 Statement regarding computations of per share earnings. 27.1 Financial Data Schedule.
- ----------------------------------------- * Portions of this exhibit have been omitted pursuant to a request for confidential treatment and the redacted material has been filed separately with the Commission. (b) Reports on Form 8-K On August 18, 2000 the Company filed a report on Form 8-K disclosing under Item 5 that Director Robert Rau resigned from the Board of Directors. 24 EX-10.3 2 a2029241zex-10_3.txt EXHIBIT 10.3 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Exhibit 10.3 Employment Contract for Nicholas J. Novasic, dated June 15, 2000 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as of the 15th day of June, 2000, by and between Willis Lease Finance Corporation, a Delaware corporation ("EMPLOYER"), and Nicholas J. Novasic ("EMPLOYEE"). RECITALS WHEREAS, Employee desires to become employed by Employer as its Executive Vice President, Finance and Chief Financial Officer on the terms and conditions set forth herein, and Employer desires to employ Employee as its Executive Vice President, Finance and Chief Financial Officer on such terms and conditions; WHEREAS, Employee and Employer desire to put into writing the terms of Employee's employment agreement; 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. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts employment, upon the terms and conditions hereinafter set forth, as the Executive Vice President, Finance and Chief Financial Officer of Employer. Employee shall devote his full time and attention, with undivided loyalty, to the business and affairs of Employer during the Employment Term. Employee shall not engage in any other business or job activity during the Employment Term without Employer's prior written consent. 2. TERM. (a) The term of Employee's employment under this Agreement shall be for a two (2) year period commencing on or about June 15, 2000 ("START DATE") and ending on June 14, 2002 (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 and until the Termination Date (as defined below), 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 six (6) months prior to the end of the last applicable Employment Year. Employee shall be entitled to the payments set forth in Section 7 or Section 8 hereof in the event either party gives the other such a notice of nonrenewal. (c) Upon the occurrence of a Change in Control, this Agreement shall be automatically extended for a period equal to the greater of: (I) the remaining Employment Term, and (II) the eighteen month period commencing on the date of the Change in Control event and ending on the eighteen month anniversary of the Change in Control event (the "CHANGE IN CONTROL EXTENSION"). "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 of 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 or all of 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 date hereof cease for any reason to constitute a majority of Employer's Board of Directors (the "BOARD") unless such change(s) is approved by a majority of the directors of Employer as of the date hereof. 3. DUTIES. (a) Employee shall in good faith perform those duties and functions as are required by his position and as are determined and assigned to him from time to time by the Board or its designate(s). Such duties shall include, without limitation, management responsibility for funding, treasury, cash management, accounting, management information systems, investor relations, and financial public relations. 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. (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, such duties to be of a character and dignity appropriate to the Executive Vice President, Finance and Chief Financial Officer. Employee shall not engage in any other business or job activity during the Employment Term without Employer's prior written consent. 2 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, incentive, 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 an annual base salary in the amount of Two Hundred Thirty-Five Thousand Dollars ($235,000) per Employment Year less payroll deductions and all required withholdings, or such higher 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. Employee's base salary shall be paid not less frequently than semi-monthly in accordance with Employer's usual payroll practices. 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 (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. (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, which presently is the 2000 Incentive Compensation Plan For Executive Officers. Employee's entitlement to incentive bonuses is discretionary and shall be determined by the Board or its Compensation Committee in good faith 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 bonus period and comparative market practices. The 2000 Incentive Compensation Plan For Executive Officers provides that in addition to Employee's base salary, Employee shall be paid a cash bonus of up to 85% of Employee's base salary ("Incentive Bonus"). The first 70% of the Incentive Bonus shall be conditioned upon attaining an earnings per share ("EPS") target as set by the Board. The remaining 30% shall be conditioned upon achieving individual milestones and/or objectives established by the Chief Executive Officer for Employee. The Compensation Committee of the Board will annually set the target EPS and approve the incentive compensation plan. (c) SIGNING BONUS. Within ten days after Employee's Start Date, Employee shall be paid a cash bonus equal to $30,000 (the "Signing Bonus"). If Employee voluntarily terminates his employment with Employer within one year from Employee's Start Date, Employee hereby agrees to reimburse Employer an amount of cash equal to $15,000, which is 50% of the Signing Bonus. 5. BENEFITS AND PERQUISITES. 3 (a) BENEFITS. Employer shall provide Employee such employment benefits, equipment, and support as are generally available to senior 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. (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, PROVIDED THAT for the purposes of this Section 5(b), for the fiscal 2000 vacation time will be pro-rated from Employee's Start Date. All accrued vacation and sick pay shall be paid to Employee in a lump sum payment on the date of a Change in Control or Retirement or termination of employment with Employer. For purposes of this Agreement, "RETIREMENT" means Employee's voluntary termination on a date after which Employee has reached the age of 55 and after which Employee has provided Employer with at least 10 years of service. (c) PERQUISITES. Employer shall also provide Employee with a leased automobile having a cost of up to $65,000. In addition, Employer will reimburse Employee for expenses related to such automobile, including repairs and insurance. 6. STOCK OPTIONS. (a) In consideration of the services to be provided by Employee hereunder, within 30 days of Employee's Start Date, Employee will be granted options to purchase 40,000 shares of common stock of Employer at an exercise price equal to the then current market price of Employer's common stock. Such initial option grant will be granted under Employer's Stock Option Plan ("PLAN"). The options will vest over forty-eight (48) months in four equal installments, 25% on the first anniversary of the Employment Year and 25% of the remaining shares subject to the option for each subsequent Employment Year, until fully vested. (b) Employee shall be eligible to participate in 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 under the Plan or any similar plan is subject to the discretion 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. (c) In addition to any rights Employee may have under any Plan or specific option grants under any Plan, all stock options 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. 4 7. TERMINATION/NONRENEWAL BY EMPLOYER. The date on which Employee's employment by Employer ceases, under any of the following circumstances, shall be defined herein as the "TERMINATION DATE." 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 (i) Employee's employment is terminated by Employer for Cause (as defined below), or (ii) Employer gives Employee a notice of nonrenewal pursuant to Section 2(b) hereof for Cause, Employer's total liability to Employee or his heirs shall be limited to payment of any unpaid base salary and prorated annual incentive due for the year of termination 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. "CAUSE" includes, but shall not be limited to: (1) Employee's conviction of or plea of nolo contendere to any felony or gross misdemeanor charges brought in any court of competent jurisdiction; (2) any fraud, misrepresentation or gross misconduct by Employee against Employer; and (3) Employee's breach of this Agreement. (b) TERMINATION WITHOUT CAUSE. If (i) Employee's employment is terminated by Employer without Cause, or (ii) Employer provides Employee with a notice of nonrenewal pursuant to Section 2(b) hereof 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 six (6) months of Employee's base salary in lieu of notice and (B) in the case of nonrenewal, provide notice of nonrenewal at least six (6) months prior to the end of the last applicable Employment Year or an amount equal to six months 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 9 below. (c) FINAL TERMINATION DATE. This Agreement shall terminate without notice on the Final Termination Date. "FINAL TERMINATION DATE" means October 25, 2016, unless extended. 8. TERMINATION/NONRENEWAL BY EMPLOYEE. The employment of Employee may be terminated by Employee or Employee may decide not to renew this Agreement 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), or (ii) Employee gives Employer a notice of nonrenewal pursuant to Section 2(b) hereof (which is not given for Good Reason), Employer's total liability to Employee shall be limited to payment of any unpaid base salary and prorated annual incentive due for the year of termination 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. (b) RESIGNATION FOR GOOD REASON. If (i) Employee's employment terminates by reason of Employee's voluntary resignation for Good Reason, or (ii) Employee provides Employer with a notice of nonrenewal pursuant to Section 2(b) hereof for Good Reason, Employee will be paid the severance which is described in Section 9 below. "GOOD REASON" means: Employee's voluntary 5 termination following (i) a reduction in compensation which is not in proportion to any salary reduction program approved by the Board which affects all executive officers of Employer; (ii) a reduction in material benefits; (iii) not maintaining Employee's positions, title, duties and status or changing Employee's reporting obligations without Employee's written consent; (iv) requiring Employee to work at a location more than 50 miles from the location specified in Section 14; or (v) any willful and material breach by Employer of its obligations pursuant under this Agreement. Employee agrees to give Employer at least ninety (90) days prior written notice of termination of his employment and at least six months prior written notice of nonrenewal of this Agreement. Employer shall have the right in its sole discretion to continue to employ Employee for ninety days or six months, as applicable, or for a shorter period with pay in lieu of notice to Employee in the amount to which Employee would have been entitled if employed for the ninety-day or six month notice period. 9. SEVERANCE PAYMENT. (a) AMOUNT. In the event severance is payable hereunder, such severance shall be in an amount equal to (i) one times Employee's base salary at the time of termination, or if during a Change in Control Extension, one and one half times Employee's base salary at the time of termination, plus (ii) one times the annual incentives paid to Employee during the one year period prior to the year of termination, or if during a Change in Control Extension, one and one half times the annual incentives paid to Employee during the one year period prior to the year of termination, plus (iii) any unpaid base salary and prorated annual incentive due for the year of termination and accrued vacation and sick pay, plus (iv) distribution of unpaid deferred compensation, plus (v) immediate vesting of all stock options which would otherwise have vested during the following one year period, plus (vi) continued coverage under all group benefit plans (e.g., medical, dental and life insurance) for a period of one year following the Termination Date, or if during a Change in Control Extension, continued coverage under all group benefit plans (e.g., medical, dental and life insurance) for a period of eighteen months following the Termination Date. (b) PAYMENT. All cash components of the above-described severance payments shall be paid in a lump sum within 30 days of the date of termination of employment or, at the option of Employee and subject to the approval of Employer, in four equal installments, payable every three months, commencing on the date that is 30 days after the date of termination of employment. (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 Internal Revenue 6 Code of 1986, as amended (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 occur in the following order unless Employee elects in writing a different order (PROVIDED, HOWEVER, that such election shall be subject to Company approval if made on or after the date on which the event that triggers the Payment occurs): reduction of cash payments; cancellation of accelerated vesting of stock awards; and reduction of employee benefits. 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. 10. BENEFITS UPON TERMINATION. Except as otherwise expressly provided by this Agreement and without limiting any rights granted to Employee hereunder, all benefits provided under Section 5 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 7 or 8. 11. DEATH/DISABILITY. 7 (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 prorated annual incentive due for the year in which such event occurs, and (iii) Employee's estate and heirs shall not be entitled to any severance payments hereunder. (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 incentive due for the year in which such event occurs, and (iii) Employee shall not be entitled to any severance payments hereunder. 12. 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 12. (b) NONDISCLOSURE. During the Employment Term and for a period of three (3) 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 "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. 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 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 in the continental United 8 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 Employment Term and for a period of three 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 12 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 12 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 12 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. 9 13. AFFILIATE. "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. 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 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. 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. 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 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 laws of the State of California. 18. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement shall be finally settled by binding arbitration in the County of San Francisco, California, 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 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 decision of any two of the arbitrators shall be final and binding upon the parties hereto and shall 10 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 19. Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction. 19. LEGAL FEES AND EXPENSES. 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. 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. 11 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. "Employer" WILLIS LEASE FINANCE CORPORATION By: ----------------------------------------------- Name: Charles F. Willis, IV Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER "Employee" -------------------------------------------------- Nicholas J. Novasic 12 EX-11.1 3 a2029241zex-11_1.txt EXHIBIT 11.1 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Exhibit 11.1 Computation of Earnings Computation of Earnings Per Share
Three Months Ended September 30 Nine Months Ended September 30 ------------------------------------ ------------------------------------ 2000 1999 2000 1999 ---------------- ------------------ ----------------- ------------------ (in thousands, except per share data) (in thousands, except per share data) Net income/(loss) Basic Earnings: Net income/(loss) $2,071 ($4,384) $5,607 $1,190 ---------------- ------------------ ----------------- ------------------ Shares: Average common shares outstanding 7,403 7,394 7,401 7,377 ---------------- ------------------ ----------------- ------------------ Basic earnings/(loss) per common share $0.28 ($0.59) $0.76 $0.16 ---------------- ------------------ ----------------- ------------------ Assuming Full Dilution Earnings: Net income/(loss) $2,071 ($4,384) $5,607 $1,190 ---------------- ------------------ ----------------- ------------------ Shares: Diluted average common shares outstanding 7,496 7,448 7,489 7,447 ---------------- ------------------ ----------------- ------------------ Earnings/(loss) per common share assuming full dilution $0.28 ($0.59) $0.75 $0.16 ---------------- ------------------ ----------------- ------------------ Supplemental information: Difference between average common shares outstanding to calculate basic and assuming full dilution is due to options outstanding under the 1996 Stock Options/Stock Issuance Plan and warrants issued in conjunction with the initial public offering
EX-27.1 4 a2029241zex-27_1.txt EXHIBIT 27.1
5 3-MOS DEC-31-2000 JUL-01-2000 SEP-30-2000 24,303 0 10,722 0 27,344 0 327,697 25,982 411,502 0 0 0 0 74 75,110 411,502 6,022 21,800 4,283 18,080 3,648 0 6,601 3,395 (1,324) 0 0 0 0 2,071 0.28 0.28
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