Shareholders' Equity and Share Based Payment

12 Months Ended

Dec. 31, 2019

Shareholders’ Equity and Share Based Payment [Abstract]

Shareholders’ Equity and Share Based Payment

Shareholders’ Equity and Share-Based Payment

On March 21, 2017, the Board of Directors adopted the Aircastle Limited Amended and Restated 2014 Omnibus Incentive Plan (the “Amended and Restated 2014 Plan”). The Amended and Restated 2014 Plan was approved by shareholders at the Company’s 2017 Annual General Meeting of Shareholders on May 19, 2017.

The maximum number of Common Shares reserved for issuance under the Amended and Restated 2014 Plan is 6,750,000 Common Shares. Restricted common shares outstanding under prior plans in the amount of 333,974 shares will continue to vest subject to the terms and conditions of the prior plans and the applicable awards agreements which are included in the below table.

The purpose of the Amended and Restated 2014 Plan is to provide an incentive to selected officers, employees, non-employee directors, independent contractors, and consultants of the Company or its affiliates whose contributions are essential to the growth and success of the business of the Company and its affiliates, to strengthen the commitment of such persons to the Company and its affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company and its affiliates. To accomplish such purposes, the Company may grant options, share appreciation rights, restricted shares, restricted share units, share bonuses, other share-based awards, cash awards or any combination of the foregoing. The Amended and Restated 2014 Plan provides that grantees of restricted common shares will have all of the rights of shareholders, including the right to receive dividends, other than the right to sell, transfer, assign or otherwise dispose of the shares until the lapse of the restricted period. Generally, the restricted common shares vest over three to five-year periods based on continued service and are being expensed on a straight-line basis over the requisite service period of the awards. The terms of the grants provide for accelerated vesting under certain circumstances, including termination without cause following a change of control.

A summary of the fair value of non-vested restricted common shares for the years ended December 31, 2019, 2018 and 2017 is as follows:



Non-vested Shares	Shares (in thousands)		Weighted Average Grant Date Fair Value ($)
Non-vested at December 31, 2016	676.7		$	17.84
Granted	315.5		22.41
Canceled	(4.2	)	20.36
Vested	(469.6	)	18.60
Non-vested at December 31, 2017	518.4		$	19.92
Granted	291.9		21.88
Canceled	(16.8	)	21.27
Vested	(306.3	)	19.52
Non-vested at December 31, 2018	487.2		$	21.30
Granted	303.3		19.46
Canceled	(16.7	)	21.21
Vested	(344.9	)	20.85
Vesting-accelerated⁽¹⁾	(94.9	)	32.01

Non-vested at December 31, 2019	334.0		$	20.31

_______________

(1) See “Share-based Compensation Related to Proposed Merger” below.

The fair value of the restricted common shares granted in 2019, 2018 and 2017 were determined based upon the market price of the shares at the grant date.

Performance Share Units

During 2019, the Company issued performance share units (“PSUs”) to certain employees. These awards were made under the Amended and Restated 2014 Plan. The PSUs are denominated in share units without dividend rights, each of which is equivalent to one common share, and are subject to market and performance conditions and time vesting.

The PSUs granted in 2019 vest at the end of a three-year performance period which ends on December 31, 2021. Half of the PSUs vest on achieving relative total stockholder return goals (the “TSR PSUs”) while the other half vest on attaining annual Adjusted Return on Equity goals (the “AROE PSUs”). The table below shows the PSU awards issued during 2019, including the number of common shares underlying the awards at the time of issuance:



	Minimum	Target	Maximum
TSR PSUs	—	168,784	337,568
AROE PSUs	—	168,780	337,560
Total	—	337,564	675,128

The fair value of the time-based TSR PSUs was determined at the grant date using a Monte Carlo simulation model. Included in the Monte Carlo simulation model were certain assumptions regarding a number of highly complex and subjective variables, such as expected volatility, risk-free interest rate and dividend yield. To appropriately value the award, the risk-free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities were estimated based on a historical time frame equal to the time from the valuation date until the end date of the performance period. The number of TSR PSUs that will ultimately vest is based on the percentile ranking of the Company’s TSR among the S&P Midcap 400 Index. The number of shares that will ultimately vest will range from 0% to 200% of the target TSR PSUs.

The following table summarizes the assumption ranges used in calculating the fair value of TSR PSUs during the following periods:



	Year Ended December 31,
	2019	2018	2017
Volatility	24.8% to 32.6%	24.8% to 32.6%	29.4% to 32.6%
Dividend yield	4.3% to 5.5%	4.3% to 4.9%	4.3%
Risk-free interest rate	1.4% to 2.6%	0.8% to 2.6%	0.8% to 1.5%

The number of shares vesting from the AROE PSUs at the end of the three-year performance period will depend on the Company’s Adjusted Return on Equity as measured against the targets set by the Compensation Committee annually during the performance period, consistent with the business plan approved by the Board. The fair value of the 2019 AROE PSUs was determined based on the closing market price of the Company’s common shares on the date of grant reduced by the present value of expected dividends to be paid. The number of shares that will ultimately vest will range from 0% to 200% of the target AROE PSUs.

During 2019, the Company granted a target of 225,044 PSUs of which, 168,784 are TSR PSUs and 56,260 are AROE PSUs. As of December 31, 2019, the remaining target AROE PSUs will be considered granted upon the Compensation Committee’s setting the target AROE for the respective periods:



	Remaining AROE Target PSUs
	2020	2021
2018 PSUs	5,652	—
2019 PSUs	40,652	54,092

The following table summarizes the activities for our unvested PSUs for the years ended December 31, 2019, 2018 and 2017:



	Unvested Performance Stock Units
	Number of Units of TSR PSUs		Number of Units of AROE PSUs		TSR PSUs Weighted Fair Value on Date of Grant ($)		AROE PSUs Weighted Fair Value on Date of Grant ($)
Unvested at December 31, 2016	143,414		47,802		$	25.07	$	19.18
Granted⁽¹⁾	107,426		116,721		25.00		20.37
Vested	(50,899	)	(57,637	)	24.83		20.02
Canceled/Forfeited⁽²⁾	—		(1,697	)	—		20.55
Unvested at December 31, 2017	199,941		105,189		$	25.09	$	20.02
Granted⁽¹⁾	169,631		266,244		22.15		19.65
Vested	—		(129,522	)	—		20.14
Canceled/Forfeited⁽²⁾	(92,515	)	(26,006	)	25.20		19.99
Unvested as of December 31, 2018	277,057		215,905		$	23.16	$	19.47
Granted⁽¹⁾	362,681		392,667		25.22		30.32
Vested	(235,120	)	(188,740	)	23.25		19.67
Canceled/Forfeited⁽²⁾	(17,624	)	(14,363	)	24.12		18.95
Vesting-accelerated⁽³⁾	(164,810	)	(382,502	)	32.01		32.01
Unvested as of December 31, 2019	222,184		22,967		$	23.12	$	20.14
Expected to vest after December 31, 2019	222,184		22,967		$	23.12	$	20.14

______________


(1)	Also includes shares above target.


(2)	Represents performance share units that were below target and as a result were forfeited.


(3)	See “Share-based Compensation Related to Proposed Merger” below.

During 2019, the Company incurred share-based compensation expense of $6,602 related to restricted common shares and $9,228 related to PSUs.

As of December 31, 2019, the Company has unrecognized compensation cost, adjusted for actual forfeitures, of $2,965 related to non-vested restricted common shares and $3,367 related to PSUs, which is expected to be recognized over a weighted average period of 1.96 years. In addition, there is $15,149 of unrecognized expense due to the acceleration of RSAs and PSUs related to the Merger Agreement, which will be amortized through the estimated closing date.

Share-based Compensation Related to Proposed Merger

In connection with the Merger, the Company reserved the right to take certain actions, following reasonable consultation with Parent, to reduce the amount of any potential “parachute payments” subject to the excise tax imposed under Section 4999 of the Internal Revenue Code (including amounts payable to the Company’s executive officers), including accelerating the vesting and payment of certain equity and restricted cash awards and the payment of certain incentive compensation payments into 2019.

Effective as of December 24, 2019, the Company accelerated the vesting and payment of certain PSUs and the vesting of certain restricted share awards held by the Company’s executive officers provided that, as set forth in the employment agreement amendments, if the executive officer is terminated for cause or resigns without “good reason” (as defined in the executive officer’s employment agreement) prior to the earlier of the consummation of the Merger or the termination of the Merger Agreement, the executive officer must repay to the Company the gross amount of the accelerated awards. In addition, the Merger Agreement contains additional repayment provisions as such if the Merger Agreement terminates.

Cash bonuses were accelerated and paid based on the target level of performance. Any difference between the amounts accelerated for PSUs or bonuses paid in 2019 and the amounts earned based on actual performance for 2019 will be trued-up and paid to the executive officer (or repaid by the executive officer, if applicable) on the normal payment dates for such compensation in 2020.

On May 17, 2019, our Board of Directors increased the authorization to repurchase the Company’s common shares to $100,000 from the $76,019 that was remaining under the previous authorization. During 2019, we repurchased 973,528 common shares at an aggregate cost of $18,382, including commissions. At December 31, 2019, the remaining dollar value of common shares that may be purchased under the repurchase program is $90,351. We also repurchased 640,452 shares totaling $18,357 from our employees and directors to settle tax obligations related to share vesting.