Charles F. Willis, IV
Chairman of the Board
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
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WILLIS LEASE FINANCE CORPORATION
NOTICE OF 20032004 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 28, 2003
26, 2004
To our Stockholders:
You are cordially invited to attend the 20032004 Annual Meeting of Stockholders of WILLIS LEASE FINANCE CORPORATION ("Willis Lease Finance" or the "Company"), which will be held at Willis Lease Finance's executive offices, 2320 Marinship Way, Suite 300, Sausalito, California at 2:00 p.m. local time on May 28, 2003,26, 2004, for the following purposes:
These matters are more fully described in the Proxy Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 31, 20032004 as the record date for determining those stockholders who will be entitled to notice of and to vote at the meeting. The stock transfer books will not be closed between the record date and the date of the meeting.
A quorum comprising the holders of the majority of the outstanding shares of common stock of Willis Lease Finance on the record date must be present or represented for the transaction of business at the 20032004 Annual Meeting of Stockholders. Accordingly, it is important that your shares be represented at the meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE, to ensure that your shares will be voted at the 20032004 Annual Meeting of Stockholders. You may revoke your proxy at any time prior to the time it is voted.
The Proxy material is being delivered to you on or about April 28, 2003.May 1, 2004. Please read the proxy material carefully. Your vote is important and Willis Lease Finance appreciates your cooperation in considering and acting on the matters presented.
| By Order of the Board of Directors, | ||
| ||
Charles F. Willis, IV Chairman of the Board | ||
May 1, 2004
WILLIS LEASE FINANCE CORPORATION
PROXY STATEMENT
TABLE OF CONTENTS
| | Page | |
|---|---|---|
| SOLICITATION AND VOTING OF PROXIES | 1 | |
INFORMATION ABOUT THE BOARD OF DIRECTORS AND THE COMMITTEES OF THE BOARD | 2 | |
PROPOSAL 1 ELECTION OF CLASS | 7 | |
PROPOSAL 2 AMENDMENT | 7 | |
EXECUTIVE OFFICERS OF WILLIS LEASE FINANCE CORPORATION | 10 | |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 12 | |
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 | 13 | |
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION | 13 | |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION | 16 | |
REPORT OF THE AUDIT COMMITTEE | 16 | |
INDEPENDENT PUBLIC ACCOUNTANTS | 17 | |
EXECUTIVE COMPENSATION AND RELATED INFORMATION | 18 | |
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS | 20 | |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 22 | |
STOCK PERFORMANCE GRAPH | 23 | |
STOCKHOLDER PROPOSALS | 23 | |
OTHER MATTERS | 24 | |
INCORPORATION BY REFERENCE | 24 | |
Exhibit A: Willis Lease Finance Corporation | ||
Exhibit B: Willis Lease Finance Corporation Charter of the Audit Committee of the Board of Directors | B-1 |
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Stockholders should read the entire proxy
statement carefully prior to returning their proxies
PROXY STATEMENT
FOR20032004 ANNUAL MEETING OF STOCKHOLDERS
OF
WILLIS LEASE FINANCE CORPORATION
To Be Held on May 28, 200326, 2004
SOLICITATION AND VOTING OF PROXIES
General
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors also(also referred to as the Board,Board) of WILLIS LEASE FINANCE CORPORATION ("Willis Lease Finance" or the "Company") of proxies to be voted at the 20032004 Annual Meeting of Stockholders, which will be held at 2:00 p.m. local time on May 28, 200326, 2004 at Willis Lease Finance's executive offices, located at 2320 Marinship Way, Suite 300, Sausalito, California 94965, or at any adjournments or postponements thereof, for the purposes set forth in the accompanying Notice of 20032004 Annual Meeting of Stockholders.
This Proxy Statement is being mailed to stockholders on or about April 28, 2003.May 1, 2004. Willis Lease Finance's 20022003 Annual Report is being mailed to stockholders concurrently with this Proxy Statement. The 20022003 Annual Report is not to be regarded as proxy soliciting material or as a communication by means of which any solicitation of proxies is to be made.
Voting
The close of business on March 31, 20032004 is the record date for stockholders entitled to notice of and to vote at the 20032004 Annual Meeting of Stockholders. As of that date, Willis Lease Finance had 8,838,1408,887,160 shares of common stock, $0.01 par value, issued and outstanding. All of the shares of Willis Lease Finance's common stock outstanding on the record date are entitled to vote at the 20032004 Annual Meeting of Stockholders, and stockholders of record entitled to vote at the meeting will have one vote for each share of common stock so held with regard to each matter to be voted upon.
The required quorum for the meeting is a majority of the outstanding shares of common stock eligible to be voted on the matters to be considered at the meeting. In the election for directorsdirector (Proposal 1), the two nomineesnominee for the Class II DirectorsIII Director receiving the highest number of affirmative votes will be elected. The affirmative vote of a majority of the outstanding voting shares present or represented and entitled to vote at the 20032004 Annual Meeting of Stockholders is required for the approval of the amendment to the Company's 1996Employee Stock Option/Stock IssuancePurchase Plan (the "1996 Plan""ESPP") (Proposal 2).
Shares of Willis Lease Finance's common stock represented by proxies on the accompanying proxy card, which are properly executed and returned to Willis Lease Finance, will be voted at the 20032004 Annual Meeting of Stockholders in accordance with the stockholder's instructions contained therein. If no instructions are marked on the proxy card, the shares represented thereby will be voted (i) for the election of the Board's nomineesnominee as Class II DirectorsIII Director (Proposal 1) and (ii) for the amendment to the ESPP (Proposal 2).
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1996 Plan (Proposal 2). If a properly signed proxy or ballot indicates that a stockholder, broker or other nominee abstains from voting or that the shares are not to be voted on a particular proposal, the shares will not be counted as having been voted on that proposal, although such shares will be counted as being in attendance at the meeting for purposes of determining the presence of a quorum. Broker non-votes (i.e. shares held by brokers or nominees as to which instructions have not been received from beneficial owners or persons entitled to vote that the broker or nominee does not have discretionary power to vote on a particular matter) are counted towards a quorum, but are not counted for any purpose in determining whether a matter has been approved by a majority of the shares represented in person or by proxy and entitled to vote.
Management does not know of any matters to be presented at the 20032004 Annual Meeting of Stockholders other than those set forth in this Proxy Statement and in the Notice accompanying this Proxy Statement. If other matters should properly come before the meeting, the proxy holders will vote on such matters in accordance with their best judgment.
Revocability of Proxies
Any stockholder giving a proxy in the form accompanying this Proxy Statement has the right to revoke it at any time before it is voted at the meeting. It may be revoked by filing with the Corporate Secretary of Willis Lease Finance an instrument of revocation or by the presentation at or prior to the meeting of a duly executed proxy bearing a later date. It may also be revoked by attendance at the meeting and election to vote in person.
Solicitation
This solicitation is made by the Board of Willis Lease Finance. The entire cost of preparing, assembling and mailing the Notice of 20032004 Annual Meeting of Stockholders, this Proxy Statement and the enclosed proxy card, and of soliciting proxies, will be paid by Willis Lease Finance. Proxies will be solicited principally through the use of the mails, but, if deemed desirable, may be solicited personally or by telephone, electronic mail or special letter by officers and regular Company employees for no additional compensation. The Company has retained American Stock Transfer & Trust and ADP to aid in the solicitation at an estimated cost to the Company of approximately $5,000 plus out-of-pocket expenses.
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INFORMATION ABOUT THE BOARD OF DIRECTORS
AND THE COMMITTEES OF THE BOARD
Board of Directors
The Bylaws of Willis Lease Finance provide that the authorized number of Directors of the Company is five (5).five. At the present time, the Board consists of five (5) Directors who are divided into three (3) classes: Class I (two Directors), Class II (two Directors) and Class III (one Director). One class is elected each year for a three-year term. Glenn L. Hickerson, Gérard Laviec and William M. LeRoy are independent directors, as defined in the Nasdaq listing standard.
The business, property and affairs of Willis Lease Finance are managed under the direction of the Board. Directors are kept informed of Willis Lease Finance's business through discussions with the President and Chief Executive Officer and other officers of Willis Lease Finance, by reviewing materials provided to them and by participating in meetings of the Board and its committees. The Board held a total of four (4)six meetings during the fiscal year ended December 31, 2002,2003, referred to as the 20022003 fiscal year. Each incumbent director attended at least 75% of the aggregate ofof: (i) the total number of meetings of the BoardBoard; and (ii) the total number of meetings held by all Committees of the Board on which he served. One director attended the 2003 annual stockholder's meeting.
Communications with the Board
Stockholders may communicate with the Board of Directors by sending a letter to Board of Directors, Willis Lease Finance Corporation, c/o Office of the Corporate Secretary, 2320 Marinship Way, Suite 300, Sausalito, California 94965. The Office of the Corporate Secretary will receive the correspondence and forward it to the Board of Directors or to any individual director or directors to whom the communication is directed, unless the communication is unduly hostile, threatening, illegal, does not reasonably relate to Willis Lease Finance or its business, or is similarly inappropriate. The Office of the Corporate Secretary has the authority to discard or disregard any inappropriate communications or to take other appropriate actions with respect to any such inappropriate communications.
Committees of the Board
The Board of Directors has an Audit Committee and a Compensation Committee, both comprised solely of independent directors. There is no nominating committee or committee performing the functions of such a committee.
The Audit Committee oversees Willis Lease Finance's accounting function, internal controls and financial reporting process on behalf of the Board of Directors. The Audit Committee meets with Willis Lease Finance's financial management and its independent auditors to review Willis Lease Finance's financial statements and filings, the audit and matters arising therefrom, and Willis Lease Finance's financial reporting procedures including any significant judgments made in preparation of the financial statements. From January 1, 2002 through February 20, 2002, this Committee consisted of Directors William M. LeRoy (Chairman), Glenn L. Hickerson and Willard H. Smith, Jr. Effective February 20, 2002, the Board authorized a change in theThe Audit Committee composition, which currently consists of Directors William M. LeRoy (Chairman), Glenn L. Hickerson and Gérard Laviec. This Committee held six (6) meetings during the 20022003 fiscal year. On June 13, 2000, the Audit Committee adopted an Audit Committee Charter that meets the requirements of the Securities and Exchange Commission and National Association of Securities Dealers.
The Compensation Committee reviews and approves Willis Lease Finance's compensation arrangements for executive officers and administers the 1996 Plan and the Deferred Compensation Plan. From January 1, 2002 through February 20, 2002, this Committee consisted of Glenn L. Hickerson (Chairman), William M. LeRoy and Willard H. Smith, Jr. Effective as of February 20, 2002, the Board authorized a change in theThe Compensation Committee composition, which currently consists of Directors Glenn L. Hickerson (Chairman), William M. LeRoy and Gérard Laviec. This Committee held three (3) meetings during the 20022003 fiscal year.
The Board of Directors has determined that the function of a nominating committee is adequately fulfilled by the independent directors and, therefore, has not established such a committee.
Director Compensation
InEffective July 1, 2003 the 2002 fiscal year,cash compensation for the independent members of the Board were eachwas increased. Under the new schedule directors are paid an annual feeretainer of $12,500.$20,000 plus $1,000 for each Board meeting attended in person and $500 for each Board meeting attended by conference telephone. Independent directors serving on the Committees are paid $500 for each Committee meeting attended either in person or by telephone. Finally, the Chairman of the Audit Committee is paid $7,500; while the chairman of the Compensation Committee receives $5,000. Each independent member of the Board was also reimbursed for all reasonable out-of-pocket costsexpenses incurred to attend Board or Committee meetings. In addition, each independent member of the Board receives $1,000 for each Board meeting and $500 for each Committee meeting which he attends in person, and $500 and $250, respectively, for each Board and Committee meeting attended by telephone. Pursuant to the "Automatic Option Grant Program" under the Willis Lease Finance Corporation 1996 Stock Option/Stock Issuance Plan (the "1996 Plan", each individual
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who first becomes a non-employee Board member is eligible to receive an option grant for 5,000 shares of common stock. In addition, on the date of each annual stockholders meeting, each individual who is to continue to serve as an independent Board member, whether or not such individual is standing for re-election at that particular annual meeting, will be granted an option to purchase a specified number of shares of common stock, provided such individual has served as an independent Board member for at least six months. The number of shares of common stock subject to each annual automatic option
grant shall not be more than 10,000 shares per year, and the number of shares will be determined by dividing $20,000 by the Black-Scholes formula value of the option. Each grant under the Automatic Option Grant Program will have an exercise price per share equal to the fair market value per share of Willis Lease Finance's common stock on the grant date and will have a maximum term of 10 years, measured from the grant date, subject to earlier termination should the optionee cease to serve as a member of the Board.
Each 5,000-share initial option grant vests in a series of four successive equal annual installments over the optionee's period of continued service as a Board member measured from the option grant date. Each $20,000 value annual option grant vests in one installment uponon the optionee's completion of one year of Board service measured from the grant date.
Independent Directors are also eligible to participate in the Director Fee Option Grant Program in effect under the 1996 Plan, pursuant to which they may elect to apply a portion or all of their annual compensation towards the acquisition of special below-market option grants. Options granted to independent Directors under the Director Fee Option Grant Program have a maximum term of 10 years, measured from the grant date, subject to earlier termination should the optionee cease to serve as a member of the Board.
Pursuant to the Stockholder's Agreement by and among Willis Lease Finance, Charles F. Willis, IV, CFW Partners, L.P., Austin Chandler Willis 1995 Irrevocable Trust, and FlightTechnics, LLC dated as of November 7, 2000, Mr. Hans Jörg Hunziker and Mr. Hunziker's successor, Mr. William Coon (or any successor to Mr. HunzikerCoon nominated by FlightTechnics, LLC to the Board) is not considered an independent director of Willis Lease Finance. Accordingly, Mr. Hunziker did not and Mr. Coon does not participate in the above-described compensation arrangements for independent members of the Board.
On March 28, 2002,31, 2003, Directors LeRoy, Hickerson and Laviec, in connection with their elections to apply $5,125$5,625, $5,625 and $969$1,281 respectively of their compensation for the first quarter of the 20022003 fiscal year to the acquisition of a special grant under the Director Fee Option Grant Program, were granted options for 1,6421,488, 1,488 and 310338 shares of common stock under that program, respectively. These options have an exercise price of $1.56$1.89 per share, one-third of the fair market value per share of the common stock on the grant date. The spread on the option shares at the time of grant (the fair market value of the option shares less the aggregate exercise price) was equal to $5,125$5,625, $5,625 and $969$1,281 of their cash retainer fees which Directors LeRoy and Laviec, respectively, elected to apply to their grants. These options became fully exercisable on March 28, 2002.31, 2003.
On June 28, 2002,30, 2003, Directors LeRoy, Hickerson and Laviec, in connection with their elections to apply $5,125$5,625, $5,625 and $906,$1,406, respectively of their compensation for the second quarter of the 20022003 fiscal year to the acquisition of a special grant under the Director Fee Option Grant Program, were granted options for 1,5911,820, 1,820 and 281455 shares of common stock under that program, respectively. These options have an exercise price of $1.61$1.54 per share, one-third of the fair market value per share of the common stock on the grant date. The spread on the option shares at the time of grant (the fair market value of the option shares less the aggregate exercise price) was equal to $5,125$5,625, $5,625 and $906$1,406 of their cash retainer fees which Directors LeRoy, Hickerson and Laviec, respectively, elected to apply to their grants. These options became fully exercisable on June 28, 2002.30, 2003.
On September 30, 2002,2003, Directors LeRoy, Hickerson and Laviec, in connection with their election to apply $5,375$11,875, $11,250 and $1,219,$2,250, respectively of their compensation for the third quarter of the 20022003 fiscal year to
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the acquisition of a special grant under the Director Fee Option Grant Program, were granted options of 2,0673,244, 3,073 and 468614 shares of common stock under that program, respectively. These options have an exercise price of $1.30$1.83 per share, one-third of the fair market value per share of the common stock on the grant date. The spread on the option shares at the time of grant (the fair market value of the option shares less the aggregate exercise price) was equal to $5,375$11,875, $11,250 and $1,219,
$2,250, respectively, of the quarterly cash retainer fees which Directors LeRoy, Hickerson and Laviec, respectively, elected to apply to their grants. These options became fully exercisable on September 30, 2002.2003.
On December 31, 2002,2003, Directors LeRoy, Hickerson and Laviec, in connection with their election to apply $5,125$8,375, $7,750 and $1,031$1,375, respectively of their compensation for the fourth quarter of the 20022003 fiscal year to the acquisition of a special grant under the Director Fee Option Grant Program, were granted options for 1,5201,709, 1,581 and 306280 shares of common stock under that program, respectively. These options have an exercise price of $1.68$2.45 per share, one-third of the fair market value per share of the common stock on the grant date. The spread on the option shares at the time of grant (the fair market value of the option shares less the aggregate exercise price) was equal to $5,125$8,375, $7,750 and $1,031,$1,375, respectively, of their quarterly cash retainer fees which Directors LeRoy, Hickerson and Laviec, respectively, elected to apply to their grants. These options became fully exercisable on December 31, 2002.2003.
Biographical Information
| | Director Since | Age* | Director Since | Age* | ||||
|---|---|---|---|---|---|---|---|---|
| Class II Directors Whose Terms Expire at the 2003 Annual Meeting: | ||||||||
| Glenn L. Hickerson | 2001 | 65 | ||||||
| Gérard Laviec | 2002 | 63 | ||||||
Class III Director Whose Term Expires at the 2004 Annual Meeting: | ||||||||
| Charles F. Willis, IV | 1985 | 54 | 1985 | 55 | ||||
Class I Directors Whose Terms Expire at the 2005 Annual Meeting: | ||||||||
| William M. LeRoy | 1996 | 60 | 1996 | 61 | ||||
| Hans Jörg Hunziker | 2000 | 53 | ||||||
| W. William Coon Jr. | 2003 | 64 | ||||||
Class II Directors Whose Terms Expire at the 2006 Annual Meeting: | ||||||||
| Glenn L. Hickerson | 2001 | 66 | ||||||
| Gérard Laviec | 2002 | 64 | ||||||
*
Principal Occupations of Nominees and Continuing Directors
Charles F. Willis, IV is the founder of Willis Lease Finance, has served as Chief Executive Officer, President and a Director since its incorporation in 1985, and has served as Chairman of the Board of Directors since 1996. Mr. Willis has 3435 years of experience in the aviation industry. From 1975 to 1985, Mr. Willis served as president of Willis Lease Finance's predecessor, Charles F. Willis Company, which purchased, financed and/or sold a variety of large commercial transport aircraft and provided consulting services to the aviation industry. During 1974, Mr. Willis operated a small business not involved in the aviation industry. From 1972 through 1973, Mr. Willis was Assistant Vice President of Sales at Seaboard World Airlines, a freight carrier. From 1965 through 1972, he held various positions at Alaska Airlines, including positions in the departments of flight operations, sales and marketing.
Glenn L. Hickerson joined the Board of Directors of Willis Lease Finance in July 2001. Since November 1997, Mr. Hickerson has been President of Hickerson Associates, a California corporation providing marketing and management services to GATX, IBM, Bank One, and other clients. Mr. Hickerson joined GATX Air Group, specializing in commercial aircraft leasing, finance and portfolio management, as an Executive Vice President in 1990 and was made President of the Air Group in 1995. Following his retirement from active service with GATX Air Group, he was named
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Chairman of the GATX Air Advisory Board in November 1997, a position he still holds. Prior to joining GATX Air Group he was President of GPA Asia Pacific. From 1983 to 1989, Mr. Hickerson was Vice President Commercial Marketing and Sales, Douglas Aircraft Company. At Lockheed California Company from 1976 to 1983, he was Vice President Marketing and Sales International and earlier
Director Marketing and Sales—The Americas. From 1972 to 1976, Mr. Hickerson was a Vice President at Marriott Corporation responsible for Marriott's travel and cruise ship interests. From 1967 to 1972, Mr. Hickerson was at Universal Airlines as President from 1970 to 1972 and earlier as Vice President and Treasurer. From 1962 to 1967 he was at Douglas Aircraft Company starting as a Credit Analyst later becoming Secretary Treasurer of the Douglas Finance Corporation. Mr. Hickerson is also President and a Director of Quality Aerospace, a GATX subsidiary involved in aircraft parts manufacture. Mr. Hickerson received a B.S. from Claremont McKenna College and an M.B.A. from New York University's Graduate School of Business (now Stern School).
Hans Jörg Hunziker has served as a Director of Willis Lease Finance since November 2000. Mr. Hunziker started his own consultancy company, Hunziker Lease and Finance in August, 2002 which is presently engaged by the Company. Previously he was President and Chief Executive Officer of Flightlease AG Ltd., active in aircraft leasing and a subsidiary of SAirGroup, a public company with headquarters in Zurich, Switzerland. He held this position from 1998 to June 30, 2002. Until December 20, 2002, he was Chairman of the Board of SRTechnics Switzerland. He was also Chairman of the Board of SRTechnics Group until January 27, 2003. From 1998 to 2001, he was co-CEO of GATX Flightlease Management GmbH, an asset management and commercial aircraft leasing company. From 1996 to 1998 he was the Chief Financial Officer of SAirServices Ltd., a group of companies including aircraft maintenance and overhaul, ground handling services, information technology and real estate, and Managing Director of SAirServices Invest Ltd. From 1991 to 1996, he was Chief Financial Officer of Swissair Associated Companies Ltd., a group of 150 companies, primarily in the hotel, catering (Gate Gourmet) and trading business. Mr. Hunziker holds a Masters degree in economics and business administration from the University of Zurich. He also holds the equivalent of a doctoral degree from the University of Zurich, after successful completion of his thesis on Strategic Planning in the Airline Industry. In addition to serving as a director of Willis Lease Finance, he is a Member of the Board of Directors of Swissport Brazil Ltd., and Gotland Shipping AG.
Gérard Laviec joined the Board of Directors of Willis Lease Finance in February 2002. In 2001, Mr. Laviec retired from his position as President and Chief Executive Officer of CFM International, a partnership between General Electric Company and SNECMA and a supplier of engines for commercial jets. Mr. Laviec joined CFM International in 1976 in its incipient phase. From 1983 to 1995, he served as general manager in product support engineering, business operations, sales and marketing, and was named President and Chief Executive Officer of CFM International in 1995. Mr. Laviec has also served as the Chairman of the Board of Shannon Engine Support in Ireland, a wholly-owned CFM International subsidiary since 1995. He resigned from his position at SES in February 2002. Mr. Laviec is a graduate of INSA Lyon, France with a degree in Mechanical Engineering. He served in the French Air Force as a Flight Officer in Search and Rescue teams prior to joining SNECMA, and is a Knight for the French National Order of Merit.
William M. LeRoy has served as a Director of Willis Lease Finance since 1996. In 1993, Mr. LeRoy established the LeRoy Accountancy Corporation, an audit firm specializing in the audits of employee benefit plans and in July, 1998 merged this firm into BDO Seidman, LLP where Mr. LeRoy is now a partner. From 1965 to 1993, Mr. LeRoy served in various positions at Ernst & Young LLP, an independent accounting firm, in the Chicago, San Jose and San Francisco offices, including an assignment as audit partner responsible for the financial institution and leasing company practice in northern California. Mr. LeRoy received an M.B.A. from Golden Gate University and a B.S. in Accounting from Northern Illinois University.
6 W. William Coon, Jr. currently serves as President, CEO and Director of T Group America, as well as Director of several of its subsidiaries. Previously, he spent 34 years at GE Aircraft Engines (GEAE), a division of General Electric Company (NYSE:GE), where he served in numerous management positions. Prior to retiring from GEAE in 2000, Mr. Coon was General Manager for Small Commercial Aircraft Services. From 1984 to 1998 he served as Director of Product Support, where he was responsible for supplying global services to the company's regional airline customers. Mr. Coon holds a Bachelor of Science degree in Aeronautical Engineering from the University of Michigan and a Masters in Business Administration from Xavier University.
PROPOSAL 1
ELECTION OF CLASS II DIRECTORSIII DIRECTOR
The Board is divided into three (3) classes, each class having a three-year termsterm that expireexpires in successive years. At the 20032004 Annual Meeting of Stockholders, two DirectorsONE Director will be elected in Class II, eachIII, to serve a three-year term expiring at the 20062007 Annual Meeting of Stockholders or until succeeded by another qualified director who has been duly elected.
The nomineesnominee for Director in Class II are GLENN L. HICKERSON and GÉRARD LAVIEC.III is Charles F. Willis, IV.
The proxy holders intend to vote all proxies received by them for the foregoing nominees,nominee, unless instructions to the contrary are marked on the proxy. In the event that any nominee is unable or declines to serve as a Director at the time of the 20032004 Annual Meeting of Stockholders, the proxies will be voted for any nominee who shall be designated by the present Board to fill the vacancy. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unable or will decline to serve as a director.
WILLIS LEASE FINANCE'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE TWO NOMINEESNOMINEE AS CLASS II DIRECTORS.III DIRECTOR.
PROPOSAL 2
AMENDMENT TOAND RESTATEMENT OF THE 1996EMPLOYEE STOCK OPTION/STOCK ISSUANCEPURCHASE PLAN
The Company's stockholders are being asked to approve an amendment and restatement to the 1996 PlanESPP that will increase the maximum number of shares of common stock authorized for issuance over the term of the 1996 PlanESPP from 2,525,00075,000 to 3,025,000.175,000.
The ESPP is intended to provide employees of the Company with additional incentives by permitting them to acquire a proprietary interest in the Company through the purchase of the Company's common stock. The ESPP was initially adopted by the Company's Board of Directors on June 20, 1996 and subsequently approved by the Company's shareholders. It was amended and restated as of August 1, 1998.
Of the 75,000 shares currently authorized under the ESPP 69,331 shares have been issued. If approved, the proposed authorized share increase will assure that a sufficient reserve of common stock is available under the 1996 PlanESPP to attract and retain the services of key individuals essential to the Company's long-term growth and success.
The amendment and restatement to the 1996 PlanESPP was adopted by the Board as of March 1, 2003.April 15, 2004. The following is a summary of the principal features of the 1996 Plan,ESPP, as most recently amended. However, the summary does not purport to be a complete description of all the provisions of the 1996 Plan.ESPP. A copy of the actual plan document is attached to this Proxy Statement as Exhibit A.
Equity Incentive ProgramsAdministration
The 1996 Plan contains five (5) separate equity incentive programs: (i) a Discretionary Option Grant Program, (ii) a Salary Investment Option Grant Program, (iii) a Stock Issuance Program, (iv) an Automatic Option Grant Program, and (v) a Director Fee Option Grant Program. The principal featuresAdministration of these programs are described below. The 1996 Plan (other than the Automatic Option Grant Program)ESPP is administeredoverseen by the Compensation Committee of the Board.Board of Directors. The Compensation Committee acting in such administrative capacity (the "Plan Administrator")committee has complete discretion (subjectfull power to interpret the provisions of the 1996 Plan) to authorize option grantsESPP and, direct stock issuances under the 1996 Plan. Pursuant to provisions in the 1996 Plan, the Board may appoint a secondary committee of one or more Board members, including employee directors, to authorize option grants and direct stock issuances to eligible persons other than executive officers and Board members subject to the short-swing liability provisionsexpress terms of the federal securities laws.ESPP, to establish the terms of offerings under the ESPP. The Compensation Committee shall havedecisions of the exclusive authority to determine which officerscommittee are final and Directorsbinding on all participants.
Eligibility
All Employees of the Company that are subject to(including officers and directors), who work more than twenty hours per week and more than five months in any calendar year (unless otherwise required by local law), and who commenced employment with the short-swing profit liabilities of Section 16Company on or before the first day of the Securities and Exchange Act of 1934 and other highly compensated individualsapplicable Offering Period (as defined below), will be eligible to participate in the Salary Investment Option Grant Program for one or more calendar years, but no administrative discretion will be exercised by the Compensation Committee with respect to the grants made under the Automatic Option Grant, Salary Investment Option GrantESPP. However, and Director Fee Option Grant Programs. All grants under the Automaticemployee
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Option Grant Program, Salary Investment Option Grant and Director Fee Option Grant Programs will be made in strict compliance with the express provisions of each program.
Share Reserve
A total of 2,525,000 shares of common stock has been reserved for issuance over the term of the 1996 Plan. In no event may any one participant in the 1996 Plan be granted stock options and direct stock issuances for more than 500,000 shares in the aggregate per calendar year under the 1996 Plan. Stockholder approval of this Proposal 2 shall reserve 500,000 additional shares of common stock for issuance over the term of the 1996 Plan, for a total of 3,025,000 shares.
In the event any change is made to the outstanding shares of common stock by reason of any recapitalization, stock dividend, stock split, combination of shares, exchange of shares or other change in corporate structure effected without the Company's receipt of consideration, appropriate adjustments will be made to (i) the maximum number and class of securities issuable under the 1996 Plan, (ii) the maximum number and class of securities for which any one participant may be granted stock options, separately exercisable stock appreciation rights, and direct stock issuances under the 1996 Plan per calendar year, (iii) the number and class of securities for which option grants will subsequently be made under the Automatic Option Grant Program to each newly-elected or continuing non-employee Board member, and (iv) the number and class of securities and the exercise price per share in effect under each outstanding option.
Should an option expire or terminate for any reason prior to exercise in full or be canceled in accordance with the provisions of the 1996 Plan, the shares subject to the portion of the option not so exercised or canceled will be available for subsequent issuance under the 1996 Plan. Unvested shares issued under the 1996 Plan and subsequently repurchased by the Company at the original option exercise or direct issue price paid per share will also be added back to the share reserve and will accordingly be available for subsequent issuance under the 1996 Plan. Shares subject to any option surrendered in accordance with the stock appreciation right provisions of the 1996 Plan will not be available for subsequent issuance.
Eligibility
Employeeseligible to participate if, as a result of participating, that employee would hold five percent or more of the total combined voting power or value of all classes of stock of the Company or of any parent or subsidiary, non-employee memberssubsidiary. Further, no employee's right to purchase common stock under the ESPP may accrue at a rate which exceeds $25,000 per year of the Boardfair market value of stock, or the board of directors of any parent or subsidiary corporation, and consultants and other independent advisors in the service$6,250 for each Offering Period of the Company or its parent or subsidiary corporations are eligible to participate in the Discretionary Option Grant and Stock Issuance Programs. Onlyfair market value of stock. Approximately 42 employees who are officers and Directors of the Company that are subject to the short-swing profit liabilities of Section 16 of the Securities and Exchange Act of 1934 or other highly compensated individuals willcurrently would be eligible to participate in the Salary Investment Option Grant Program. Non-employee membersESPP.
Offerings Under the ESPP
Eligible employees of the Board are also eligibleCompany may elect to participate in the Automatic Option GrantESPP by giving notice to the Company and Director Fee Option Grant Programs.
On March 31, 2003,instructing the Company to withhold a specified percentage of the employee's salary during successive month periods. Generally, the periods run for up to twenty four (4) executive officers, three (3) non-employee Board membersmonths and thirty-eight (38) other employees wereeach period is referred to as an "Offering Period." Each Offering Period is broken down into four Purchase Intervals of six months running from August 1 to February 1, and February 1 to July 1. An eligible employee may authorize a salary deduction of any whole percentage, up to participate in the Discretionary Option Grant and Stock Issuance Programs, and the three (3) non-employee Board members were also eligibleten percent, of his base, straight-time, gross earnings. An employee's salary deductions may be reduced to participate in the Automatic Option Grant Program and the Director Fee Option Grant Program.
Valuation
The fair market value per share of common stock on any relevant date under the 1996 Plan is the closing selling price per share on that date on the Nasdaq National Market. On March 31, 2003, the closing selling price per share was $5.67.
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Discretionary Option Grant Program
Options granted under the Discretionary Option Grant Program will have an exercise price per share not less than the fair market value per share of common stock on the option grant date. No granted option will have a term in excess of ten (10) years. The options generally become exercisable in a series of installments over the optionee's period of service with the Company.
Upon cessation of service, the optionee has a limited period of time in which to exercisezero, without his or her outstanding options for any shares in which the option is exercisable at the time of optionee's termination of service. The Plan Administrator has complete discretion to extend the period following the optionee's cessation of service during which his or her outstanding options may be exercised and/or to accelerate the exercisability or vesting of such options in whole or in part. Such discretion may be exercisedconsent, at any time while the options remain outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorizedduring an Offering Period, to issue two types of stock appreciation rights in connection with option grants made under the Discretionary Option Grant Program: tandem stock appreciation rights and limited stock appreciation rights.
Tandem stock appreciation rights provide the holderscomply with the right to surrender their options for an appreciation distribution fromlimitations contained in the Company equal in amount to the excess of (a) the fair market valueESPP or under Section 423 of the vested sharesInternal Revenue Code of common stock subject to1986, as amended (the "Code").
Purchase Price and Shares Purchased
On the surrendered option over (b) the aggregate exercise price payable for those shares. Such appreciation distribution may, at the discretion of the Plan Administrator, be made in cash or in shares of common stock.
Limited stock appreciation rights may be provided to one or more non-employee Board members or officers of the Company as part of their option grants. Any option with such a limited stock appreciation right may be surrendered to the Company upon the successful completionlast business day of a hostile tender offer for more than fifty percent (50%) ofPurchase Interval, the Company's outstanding voting stock. In return for the surrendered option, the optioneewithheld salary will be entitledused to a cash distribution from the Company in an amount per surrendered option share equal to the excess of (a) the highest price paid per share of common stock in connection with the tender offer over (b) the exercise price payable for such share.
The shares of common stock acquired upon the exercise of one or more options may be unvested and subject to repurchase by the Company, at the original exercise price paid per share, if the optionee ceases service with the Company prior to vesting in those shares. The Plan Administrator has complete discretion to establish the vesting schedule to be in effect for any such unvested shares and, in certain circumstances, may cancel the Company's outstanding repurchase rights with respect to those shares and thereby accelerate the vesting of those shares.
The Plan Administrator also has the authority to effect the cancellation of outstanding options under the Discretionary Option Grant Program and to issue replacement options with an exercise price based on the fair market price ofpurchase common stock at the time of the new grant.
Salary Investment Option Grant Program
In the event the Plan Administrator elects to activate the Salary Investment Option Grant Program for one or more calendar years, each executive officer and other highly compensated employee of the Company selected for participation may elect, prior to the start of the calendar year, to reduce his or her base salary for that calendar year by a specified dollar amount not less than $10,000 nor more than $50,000. If such election is approved by the Plan Administrator, the individual will automatically be granted, on the first trading day in January of the calendar year for which that salary reduction is to be in effect (or the first trading day of the month following the adoption and implementation of this program if it is implemented within calendar year 2003), a non-statutory option to purchase that number of shares of common stock determined by dividing the salary reduction amount by two-thirds
9
of the fair market value per share of common stock on the grant date. The option will be exercisable at a price per share equal to one-third85% of the fair market value of the option sharescommon stock on either the grant date. As a result,first day or the total spread onlast day of the option shares at the time of grantOffering Period, whichever price is less (the "Purchase Price"). For this purpose, fair market value ofis the option sharesclosing sales price reported on the grant date less the aggregate exercise price payable for those shares) will be equal to the amount of salary invested in that option. The option will vest and become exercisable in a series of twelve (12) equal monthly installments over the calendar year for which the salary reduction is to be in effect and will be subject to full and immediate vesting upon certain changesNASDAQ or, in the ownership or controlabsence of reported sales on the Company.
The shares subject to each option underrelevant date, the Salary Investment Option Program willclosing sales price on the immediately vest upon (i) an acquisition ofpreceding date on which sales were reported. If, on the Company by merger or asset sale or (ii) the successful completionlast day of a tender offer for more than 50% ofPurchase Interval, the Company's outstanding voting stock or a change in the majority of the Board effected through one or more contested elections for Board membership.
Limited stock appreciation rights will automatically be included as part of each grant made under the Salary Investment Option Grant Program. Options with such a limited stock appreciation right may be surrendered to the Company upon the successful completion of a hostile tender offer for more than 50% of the Company's outstanding voting stock. In return for the surrendered option, the optionee will be entitled to a cash distribution from the Company in an amount per surrendered option share equal to the excess of (i) the highest price per share of common stock paid in connection with the tender offer over (ii) the exercise price payable for such share.
Automatic Option Grant Program
Under the Automatic Option Grant Program, each individual who was serving as a non-employee Board member on September 18, 1996 was granted at that time a non-statutory option to purchase 5,000 shares of common stock, provided such individual had not previously been in the Company's employ and had not otherwise received a stock option grant from the Company. Each individual who first becomes a non-employee Board member after September 18, 1996, whether through election by the stockholders or appointment by the Board, will automatically be granted, at the time of such initial election or appointment, a non-statutory option to purchase 5,000 shares of common stock, provided such individual has not previously been in the employ of the Company or any parent or subsidiary corporation. In addition, on the date of each Annual Meeting, each individual who continues to serve as a non-employee Board member, whether or not that individual is standing for re-election to the Board at that particular Annual Meeting, will automatically be granted a non-statutory option to purchase a specified number of shares of the Company's common stock, provided such individual has served as a non-employee Board member for at least six (6) months. The number of shares of common stock subject to each such annual automatic option grant will be determinedpurchased by dividing $20,000 by the Black-Scholes formula value of the option, as determined by the Company's independent financial advisors. However, in no event may such option grant exceed 10,000 shares of common stock. There will be no limit on the number of such annual option grants that any one non-employee Board member may receive over his or her period of Board service.
Each initial 5,000-share or annual $20,000-value option granted under the Automatic Option Grant Program will have an exercise price per share equal to one hundred percent (100%) of the fair market value per share of common stock on the option grant date and a maximum term of ten (10) years measured from the grant date, subject to earlier termination at the end of the twelve (12)-month period measured from the date of the optionee's cessation of Board service. Each initial 5,000-share or annual $20,000-value option is immediately exercisable for all the option shares. However, any shares purchased under the option will be subject to repurchase by the Company, at the option exercise price paid per share, upon the optionee's cessation of Board service prior to vesting in those shares. The shares subject to each initial 5,000-share automatic option grant vest in a series of four (4) successive equal annual installments upon the optionee's completion of each year of Board service over the four
10
(4)-year period measured from the grant date. The shares subject to each annual $20,000-value grant vest upon the optionee's completion of one (1) year of Board service measured from the grant date. Should the optionee cease to serve as a Board member, the optionee will generally have until the earlier of (i) the twelve (12) month period following such cessation of service or (ii) the expiration date of the option term in which to exercise the option forparticipants exceeds the number of shares that are vested atavailable for purchase during the time of such individual's cessation of Board service.
The shares subject to each automatic option grantPurchase Interval, the Company will immediately vest in full upon (i) the optionee's death or permanent disability whilemake a Board member, (ii) an acquisitionpro rata allocation of the Company by merger or asset sale, (iii)shares remaining available for purchase.
Withdrawal/Termination of Participation
Shares will be purchased automatically on the successful completion of a tender offer for more than fifty percent (50%)last day of the Company's outstanding voting stock or (iv)Purchase Interval for a change in the majorityparticipating employee who remains an eligible participant. Participation ends automatically upon an employee's termination of the Board effected through one or more proxy contests for Board membership. In addition, upon the successful completion of a hostile tender offer for more than fifty percent (50%) of the Company's outstanding voting stock, each automatic option grant may be surrendered toemployment with the Company for any reason, including retirement or death. During any Purchase Interval, an employee may withdraw from participation in the ESPP at any time prior to five business days before the end of any Purchase Interval, or may during the Offering Period decrease the rate of salary deductions. Upon a cash distribution per surrendered option shareparticipant's termination or withdrawal from the ESPP, all accumulated payroll deductions for the participant made prior to termination, are returned, without interest, and no shares are purchased for that employee's account.
Shares Subject to the ESPP
The maximum number of shares of common stock which may be purchased by employees under the ESPP, if approved, will be 175,000 shares (of which 69,331 have already been issued pursuant to the ESPP), subject to adjustments for stock splits, stock dividends and similar transactions. The shares may be authorized but unissued shares of common stock, issued shares held in or acquired for the Company's treasury, or shares reacquired by the Company upon purchase in the open market.
Amendment and Termination of the ESPP
The ESPP may be amended or terminated by the Board of Directors in any respect, except that no amendment shall be effective without stockholder approval if the amendment would increase the aggregate number of shares of common stock which may be issued under the ESPP, and no termination, modification or amendment of the ESPP may, with respect to the Offering Period in which the termination, modification or amendment occurs, adversely affect the rights of an employee then participating in the ESPP without the employee's consent.
Federal Income Tax Consequences
The following general summary describes the typical U.S. federal income tax consequences of the ESPP based upon provisions of the Code as in effect on the date hereof, current regulations promulgated and proposed thereunder, and existing public and private administrative rulings of the Internal Revenue Service, all of which are subject to change (possibly with retroactive effect). This summary is not intended to be a complete analysis and discussion of the federal income tax treatment of the ESPP, and does not discuss gift or estate taxes or the income tax laws of any municipality, state, or foreign country.
The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code. An employee will not recognize income upon electing to participate in the ESPP or upon purchasing shares under the ESPP. If the employee does not dispose of shares for at lease two years from the beginning of the Offering Period in which the shares were purchased, or in the event of his or her death (whenever occurring), the employee will realize ordinary income upon the disposition (including by sale, gift or death) in an amount equal to the excess of (a)lesser of: (i) the highest price per share of common stock paid in connection with such tender offer over (b) the exercise price payable for such share. Stockholder approval of this Proposal will also constitute pre-approval of each option granted on or after the date of the Annual Meeting with such a surrender right and the subsequent surrender of that option in accordance with foregoing provisions.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price per share not less than the fair market value on the issuance date, payable in cash or through a promissory note payable to the Company. Shares may also be issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject to a vesting schedule tied to the performance of service or the attainment of performance goals. The Plan Administrator, however, has the discretionary authority at any time to accelerate the vesting of any and all unvested shares outstanding under the 1996 Plan.
Director Fee Option Grant Program
Under the Director Fee Option Grant Program each non-employee Board member will have the opportunity to elect to apply all or a portion of any annual retainer fee and attendance fees otherwise payable in cash to the acquisition of a below-market option grant. Such election must be made prior to the start of the calendar year to which the election applies. The option grant will automatically be made at the end of each fiscal quarter in the year for which the retainer fee and attendance fees would otherwise be payable in cash. The option will have an exercise price per share equal to one-thirdexcess of the fair market value of the option shares onat the grant date, andtime of disposition over their Purchase Price; or (ii) the number of shares subject to the option will be determined by dividing the applicable quarterly amount of the retainer fee plus the applicable amount of any attendance fees earned during the quarter applied to the program by two-thirdsexcess of the fair market value per share of common stockthe shares on the grant date. As a result,first day of the total spread onOffering Period over their Purchase Price. Any additional gain will be taxed as long-term capital gain. If the option (the fair market value of the option shares on the grant date less the aggregate exercise price payable for those shares) will be equal to the portion of the retainer fee plus the attendance fees invested in that option. The option will be fully vested at the time of grant.
Limited stock appreciation rightstheir disposition is below the Purchase Price, the employee will automatically be included as part of each grant made under the Director Fee Option Grant Program. Options with such a limited stock appreciation right may be surrendered to the Company upon the successful completion of a hostile tender offer for more than 50% of the Company's outstanding voting stock. In return for the surrendered option, the optioneenot recognize any ordinary income, and any loss will be entitled to a cash distribution from thelong-term capital loss. The Company in an amount per surrendered option share equal
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to the excesswill not have a deductible expense as a result of (i) the highest price per share of common stock paid in connection with the tender offer over (ii) the exercise price payable for such share.
General Provisions
Acceleration
In the event that the Company is acquired by merger or asset sale, each outstanding option under the Discretionary Option Grant Program which is not to be assumed by the successor corporation will automatically accelerate in full, and all unvested shares under the Discretionary Option Grant and Stock Issuance Programs will immediately vest, except to the extent the Company's repurchase rights with respect to those shares are to be assigned to the successor corporation. Any options assumed in connection with such acquisition may, in the Plan Administrator's discretion, be subject to immediate acceleration, and any unvested shares which do not vest at the time of such acquisition may be subject to full and immediate vesting, in the event the individual's service with the successor entity is subsequently terminated within a twelve (12) months following the acquisition. In connection with a change in control of the Company (whether by successful tender offer for more than fifty percent (50%) of the outstanding voting stock or a change in the majority of the Board by one or more contested elections for Board membership), the Plan Administrator will have the discretionary authority to provide for automatic acceleration of outstanding options under the Discretionary Option Grant Program and the automatic vesting of all unvested shares outstanding under the Discretionary Option Grant and Stock Issuance Programs, with such acceleration or vesting to occur either at the time of such change in control or upon the subsequent termination of the individual's service. Each option outstanding under the Automatic Option Grant, Director Fee Option Grant and Salary Investment Option Grant Programs will automatically accelerate in full upon an acquisition or change in control of the Company.
The acceleration of vesting upon a change in the ownership or control of the Company may be seen as an anti-takeover provision and may have the effect of discouraging a merger proposal, a takeover attempt or other efforts to gain control of the Company.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more participants in financing the exercise of outstanding options or the purchase of sharesstock under the Discretionary Option Grant and Stock Issuance Programs. The Plan Administrator has complete discretion to determineESPP, unless there is a "disqualifying" disposition, as described in the terms of any such financial assistance. However, any such financing will be full-recourse and interest bearing. In addition,next paragraph.
If shares purchased under the maximum amount of financing provided any individual may not exceedESPP are sold by an employee within two years after the cash consideration payable for the issued shares plus all applicable taxes.
Stock Awards
The table below shows, as to eachbeginning of the Company's executive officers named in the Summary Compensation Table and the various indicated individuals and groups, the number of shares of common stock subject to options granted under the 1996 Plan between January 1, 2002 and March 31, 2003, together with the weighted average exercise price payable per share.
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| | Options Granted (Number of Shares) | Weighted Average Exercise Price | |||
|---|---|---|---|---|---|
| Charles F. Willis, IV | 231,000 | $ | 5.03 | ||
| Donald A. Nunemaker | 126,650 | $ | 4.81 | ||
| Monica J. Burke | 35,000 | $ | 4.88 | ||
| Thomas E. MacAleavey | 25,000 | $ | 5.01 | ||
| Nicholas J. Novasic | — | — | |||
| All current executive officers as a group (4 persons) | 417,650 | $ | 4.95 | ||
| All current non-employee directors as a group (3 persons) | 44,246 | $ | 3.74 | ||
| All current employees, including current officers who are not executive officers, as a group (38 persons) | 186,274 | $ | 4.94 | ||
As of March 31, 2003, options covering 1,872,426 shares of common stock were outstanding under the 1996 Plan, 348,601 shares remained available for future option grants, and 303,973 shares have been issued under the 1996 Plan in connection with option exercises.
Amendment and Termination. The Board may amend or modify the 1996 Plan in any or all respects whatsoever, subject to any stockholder approval required under applicable law or regulation. The Board may terminate the 1996 Plan at any time, and the 1996 Plan will in all events terminate on June 19, 2006.
Federal Income Tax Consequences
Option Grants granted under the 1996 Plan may be either incentive stock options which satisfy the requirements of Section 422 of the Internal Revenue Code or non-statutory options which are not intended to meet such requirements. The Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the time of the option grant, and no taxable income is generally recognized at the time the option is exercised. The optionee will, however, recognize taxable income in the yearOffering Period in which the shares were purchased, shares are sold or otherwise madethen that sale constitutes a "disqualifying" disposition in which the subject of a taxable disposition. For Federal tax purposes, dispositions are divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying disposition occurs if the sale or other disposition is made after the optionee has held the shares for more than two (2) years after the option grant date and more than oneemployee will realize (1) year after the exercise date. If either of these two (2) holding periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital gainordinary income in an amount equal to the excess of (i) the amount realized upon the sale or other disposition of the purchased shares over (ii) the exercise price paid for the shares. If there is a disqualifying disposition of the shares, then the lesser of (i) the difference between the fair market value of those shares on the exercise date over purchase price paid per shares or (ii) the amount realized over the purchase price paid will be taxable as ordinary income to the optionee.
If the optionee makes a disqualifying disposition of the purchased shares, then the Company will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal to the lesser of (i) the difference between the fair market value of those shares on the exercise date over purchase price paid per shares or (ii) the amount realized over the purchase price paid. In no other
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instance will the Company be allowed a deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon the grant of a non-statutory option. The optionee will in general recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of the purchased shares on the exercise date over the exercise price paid for the shares, and the optionee will be required to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are unvested and subject to repurchase by the Company in the event of the optionee's termination of service prior to vesting in those shares, then the optionee will not recognize any taxable income at the time of exercise but will have to report as ordinary income, as and when the Company's repurchase right lapses, an amount equal to the excess of (i) the fair market value of the shares on the date of purchase (i.e.,the repurchase right lapses over (ii) the exercise price paid for the shares. The optionee may, however, elect under Section 83(b)last day of the Internal Revenue Code to include as ordinary income inOffering Period) over the year of exercise of the option an amountPurchase Price, and (2) a capital gain or loss equal to the excess ofdifference between: (i) the fair market valueamount received for the shares; and (ii) the sum of the purchased shares onPurchase Price and the exercise date over (ii) the exercise price paid for such shares.amount of ordinary income recognized. If the Section 83(b) election is made,disqualifying disposition occurs more than one year after the optioneedate of purchase, any capital gain or loss will not recognize any additionalbe long-term; otherwise it will be short-term. If an employee recognizes ordinary income as and whena result of a disqualifying disposition, the repurchase right lapses.
The Company will be entitled to ana corresponding deduction. To the extent required under the Code and Internal Revenue Service guidance, the Company will withhold income tax deduction equal to the amount of ordinary income recognized by the optioneeand employment taxes with respect to the exercised non-statutory option. The deduction will in general be allowed for the taxable yearpurchases and dispositions of the Company in which such ordinary income is recognized by the optionee.
Stock Appreciation Rights. An optionee who is granted a stock appreciation right will recognize ordinary income in the year of exercise equal to the amount of the appreciation distribution. The Company will be entitled to an income tax deduction equal to such distribution for the taxable year in which the ordinary income is recognized by the optionee.
Direct Stock Issuance. The tax principles applicable to direct stock issuancesshares under the 1996 Plan will be substantially the same as those summarized above for the exercise of non-statutory option grants.
Deductibility of Executive Compensation. The Company anticipates that any compensation deemed paid by it in connection with disqualifying dispositions of incentive stock option shares or exercises of non-statutory options will qualify as performance-based compensation for purposes of Internal Revenue Code Section 162(m) and will not have to be taken into account for purposes of the $1 million limitation per covered individual on the deductibility of the compensation paid to certain executive officers of the Company. Accordingly, all compensation deemed paid with respect to those options will remain deductible by the Company without limitation under Internal Revenue Code Section 162(m).
Accounting Treatment
Option grants or stock issuances with exercise or issue prices less than the fair market value of the shares on the grant or issue date will result in a direct compensation expense to the Company's earnings equal to the difference between the exercise or issue price and the fair market value of the shares on the grant or issue date. Such expense will be accruable by the Company over the period that the option shares or issued shares are to vest. Option grants or stock issuances with exercise or issue prices equal to the fair market value of the shares at the time of issuance or grant will not result in any charge to the Company's earnings, but the Company must disclose in the notes to the Company's financial statements the fair value of options granted under the 1996 Plan and the pro forma impact on the Company's annual net income and earnings per share as though the computed fair value of such
14
options had been treated as compensation expense. In addition, the number of outstanding options may be a factor in determining the Company's earnings per share on a fully-diluted basis. Should one or more optionees be granted stock appreciation rights which have no conditions upon exercisability other than a service or employment requirement, then such rights will result in a compensation expense to the Company's earnings.
In March 2000, the Financial Accounting Standards Board issued interpretation number 44, "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion 25." Under this interpretation, option grants made to independent consultants (but not non-employee Board members) will result in a direct charge to the Company's reported earnings based upon the fair value of the option measured initially as of the grant date of that option and then subsequently on the vesting date of each installment of the underlying option shares. Such charge will accordingly include the appreciation in the value of the option shares over the period between the grant date of the option and the vesting date of each installment of the option shares. In addition, after the implementation date, any options which are repriced will also trigger a direct charge to the Company's reported earnings measured by the appreciation in value of the underlying shares between the grant date of the option and the date the option is exercised for those shares.
New Plan Benefits
As of March 31, 2003, no options have been granted, and no direct stock issuances have been made on the basis of the 500,000 share increase of common stock to be authorized for issuance under this Proposal.
Stockholder ApprovalESPP.
The affirmative vote of a majority of the outstanding voting shares of the Company presentvoted in person or represented and entitled to voteby proxy at the 20032004 Annual Meeting of Stockholders is required for approvaladoption of the amendment to the 1996 Plan. Should such stockholder approval not be obtained, then any options granted on the basis of the 500,000 share increase of common stock to be authorized for issuance under this Proposal will terminate without becoming exercisable and no further options will be granted on the basis of such share increase. The 1996 Plan will continue to remain in effect, and option grants and direct stock issuances may continue to be made pursuant to the provisions of the 1996 Plan in effect prior to the new amendment, until the available reserve of common stock as last approved by the stockholders has been issued pursuant to option grants made under the 1996 Plan.No. 2.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT TOAND RESTATEMENT OF THE 1996 PLAN.ESPP.
Equity Compensation Plan Information
The following table outlines the Company's Equity Compensation Plan Information as of December 31, 2002.
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||
|---|---|---|---|---|---|---|---|---|
| Equity compensation plans approved by security holders | 1,537,412 | $ | 7.13 | 683,615 | ||||
Equity compensation plans not approved by security holders | n/a | n/a | n/a | |||||
Total | 1,537,412 | $ | 7.13 | 683,615 | ||||
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EXECUTIVE OFFICERS OF WILLIS LEASE FINANCE CORPORATION
The executive officers of Willis Lease Finance are as follows:
| Name | Age* | Positions and Offices | ||
|---|---|---|---|---|
| Charles F. Willis, IV** | 54 | Chief Executive Officer and President | ||
| Donald A. Nunemaker | 55 | Executive Vice President and Chief Operating Officer | ||
| Monica J. Burke | 51 | Executive Vice President and Chief Financial Officer | ||
| Thomas E. MacAleavey | 50 | Senior Vice President, Sales and Marketing | ||
| Thomas C. Nord | 63 | Senior Vice President, General Counsel and Secretary |
Donald A. Nunemaker has been with Willis Lease Finance since July 1997 and currently serves as Willis Lease Finance's Executive Vice President and Chief Operating Officer. Prior to his appointment as COO, he served as Chief Administrative Officer until March 2001. Mr. Nunemaker also served on the Willis Lease Finance Board of Directors from June to November 2000. Mr. Nunemaker is responsible for managing the day-to-day operation of Willis Lease Finance and has been extensively involved in the equipment leasing industry since 1973. From 1995 to 1996, Mr. Nunemaker was President and CEO of LeasePartners, Inc., a leasing company based in Burlingame, California, which was acquired in 1996 by Newcourt Credit Group. From 1990 to 1994, Mr. Nunemaker was Executive Vice President of Concord Asset Management, Inc., an aircraft and computer leasing subsidiary of Concord Leasing, Inc., which was owned by the HSBC Group. Before joining Concord in 1990, Mr. Nunemaker was President and CEO of Banc One Leasing Corporation of New Jersey. Prior to that he spent thirteen years with Chase Manhattan Leasing Company in a variety of senior line and staff positions. Mr. Nunemaker has an M.B.A. degree from Indiana University.
Monica J. Burke has served as the Company's Executive Vice President and Chief Financial Officer since July 2002. Ms. Burke is responsible for the capital markets, finance, treasury, accounting, risk management, tax compliance, and systems functions of the Company. She was previously the CFO of two publicly-traded companies for a total of thirteen years, and from 1999 until 2002 she was the COO of Rosewood Stone Group, a private venture capital firm in Mill Valley, California. From 1988 to 1999, Ms. Burke was CFO of Valley Forge Corporation, a publicly traded conglomerate headquartered in San Rafael, California that manufactured products for the electronics, industrial and marine industries. From 1984 to 1986, Ms. Burke was the CFO for Western Micro Technology Corporation, a publicly-traded distributor of electronic components and systems located in Cupertino, California. Ms. Burke was with Price Waterhouse and Coopers and Lybrand from 1976 to 1984, initially as an auditor and ending as a tax manager. She graduated with honors in Business Administration from the University of Oregon.
Thomas E. MacAleavey joined Willis Lease Finance Corporation in 1998 as Vice President of Marketing. Effective as of February 20, 2002, Mr. MacAleavey was designated Senior Vice President, Sales and Marketing. From 1996 to 1998, Mr. MacAleavey was Managing Director of MacAleavey Aviation Inc., advising airlines and financial institutions on the acquisition and sale of aviation related portfolios. From 1990 to 1996, he was Vice President, Aircraft Marketing at Concord Asset Management, Inc., an aircraft and computer leasing subsidiary of Concord Leasing, Inc., which was owned by the HSBC Group. Prior to 1990, he held director of marketing positions at Guinness Peat Aviation, GATX Leasing, and Intercredit Corporation. From 1975 to 1977, Mr. MacAleavey was with the Ministry of Commerce in Ireland as part of the Foreign Trade Delegation working in South
America and Eastern Europe. He started his career at The Economist Intelligence Unit in London. He is a graduate in Economics of Trinity College, Dublin.
16 Thomas C. Nord has served as the Company's Senior Vice President and General Counsel since July 2003. Mr. Nord is responsible for managing the Company's legal affairs. From May 1977 to March 2003, he was an attorney with GATX Financial Corporation, San Francisco, California, a specialized finance and leasing company ("GATX"). During most of his career at GATX, from January 1981 until March 2003, he was Managing Director, General Counsel and Secretary of GATX. From February 1974 until May 1997, Mr. Nord was Counsel to Irving Trust Company, New York, New York. From June 1969 to February 1974 Mr. Nord was associated with the New York City law firm of Seward & Kissel. Mr. Nord holds a JD degree from the University of North Carolina.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of Willis Lease Finance's common stock as of March 31, 2003 by2004 by: (i) each person who is known to Willis Lease Finance to own beneficially more than five percent of the outstanding shares of Willis Lease Finance's common stock; (ii) each Director; (iii) each officer listed in the Summary Compensation Table; and (iv) all Directors and Executive Officers as a group. Unless specified below, the mailing address for each individual, officer or director is c/o Willis Lease Finance Corporation, 2320 Marinship Way, Suite 300, Sausalito, CA 94965.
| | Common stock(1) | Common stock(1) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Name and Address of Beneficial Owner | Number of Shares | Percentage of Class | Number of Shares | Percentage of Class | ||||||
| Charles F. Willis, IV | 3,365,807 | (2) | 36.88 | % | 3,460,085 | (2) | 37.33 | % | ||
| Donald A. Nunemaker | 244,234 | (3) | 2.69 | % | 314,397 | (3) | 3.42 | % | ||
| Thomas E. MacAleavey | 30,500 | (4) | * | 52,500 | (4) | * | ||||
| Monica Burke | — | * | 9,250 | * | ||||||
| Nicholas J. Novasic(5) | 6,965 | * | ||||||||
| Thomas C. Nord | — | * | ||||||||
| W. William Coon Jr.(6) | — | * | ||||||||
| Hans Jörg Hunziker(6) | — | * | — | * | ||||||
| William M. LeRoy | 46,953 | (7) | * | 63,071 | (7) | * | ||||
| Willard H. Smith, Jr. | 17,475 | (8) | * | |||||||
| Gérard Laviec | 12,202 | (9) | * | 25,369 | (8) | * | ||||
| Glenn L. Hickerson | 23,987 | (10) | * | 43,451 | (9) | * | ||||
| All Directors and Executive Officers as a group (10 persons) | 3,748,123 | 39.52 | % | |||||||
| FlightTechnics, LLC(11) | 1,300,000 | 14.71 | % | |||||||
| Benson Associates, LLC(12) | 1,212,900 | 13.72 | % | |||||||
| Endicott Partners, L.P.(13) | 644,800 | 7.30 | % | |||||||
| Dimensional Fund Advisors Inc.(14) | 497,500 | 5.63 | % | |||||||
| All Directors and Executive Officers as a group (9 persons) | 3,968,123 | 40.66 | % | |||||||
| FlightTechnics, LLC(10) | 1,300,000 | 14.63 | % | |||||||
| Endicott Group(11) | 644,480 | 7.25 | % | |||||||
| Wells Fargo & Company(12) | 1,305,650 | 14.69 | % | |||||||
| Dimensional Fund Advisors Inc.(13) | 491,200 | 5.53 | % | |||||||
17
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Willis Lease Finance's Directors and executive officers, and persons who own more than ten percent of a registered class of Willis Lease Finance's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Willis Lease Finance. Directors, executive officers and holders of more than ten percent of Willis Lease Finance's common stock are required by Securities and Exchange Commission regulation to furnish Willis Lease Finance with copies of all Section 16(a) reports they file.
18
Based solely upon review of the copies of such reports furnished to Willis Lease Finance and written representations from its officers and Directors, Willis Lease Finance believes that during the fiscal year ended December 31, 2002,2003, its Directors, executive officers and holders of more than ten percent of Willis Lease Finance's common stock complied with all applicable Section 16(a) filing requirements.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
At the end of the 20022003 fiscal year, the Compensation Committee of the Board was composed of three independent Directors: Glenn L. Hickerson (Chairman), William M. LeRoy and Gérard Laviec.
The Compensation Committee administers Willis Lease Finance's compensation policies and programs and has primary responsibility for executive compensation matters, including the establishment of the base salaries of Willis Lease Finance's executive officers, the approval of individual bonuses and bonus programs for executive officers and the administration of certain employee benefit programs. In addition, the Compensation Committee has exclusive responsibility for administering the 1996 Plan, under which stock option grants and direct stock issuances may be made to executive officers and other employees.
For the 2002 fiscal year, the Compensation Committee chose to freeze the salaries of executive officers at 2001 levels, based upon general industry conditions. This freeze continued in 2003. In previous years, the Compensation Committee made its decisions primarily on the basis of its understanding of the compensation practices of similarly sized companies serving similar industry segments, referred to as Peer Companies, and fixed the compensation package of each executive officer at a level which was competitive with those practices. The positions of Willis Lease Finance's President and CEO and executive officers were compared with those of their counterparts at the Peer Companies, and the market compensation levels for comparable positions were examined to determine base salary and total cash compensation. Willis Lease Finance's intent is to position its executive compensation levels around the 75th percentile at Peer Companies. In addition, the practices of the Peer Companies concerning stock option grants were reviewed and compared. The Compensation Committee also considers geographic location and companies that may compete with Willis Lease Finance in recruiting executive talent.
While the Compensation Committee decided in 20022003 to freeze the salaries of executive officers at 2001 levels, the following is a summary of policies that the Compensation Committee applied in the 2001 fiscal year in setting the compensation levels for Willis Lease Finance's executive officers.
General Compensation Policy. The objectives of Willis Lease Finance's executive compensation program are to motivate and retain current executives and to attract future ones. Willis Lease Finance's executive compensation program is designed to: (1) provide a direct and substantial link between Company performance and executive pay, (2) consider individual performance and accomplishments and compensate accordingly, and (3) determine Willis Lease Finance's position in the aviation services and leasing markets and be competitive in that labor market.
Factors. The principal factors that are considered by the Compensation Committee in establishing the components of each executive officer's compensation package are summarized below. The Compensation Committee may, however, in its discretion apply entirely different factors in setting executive compensation for future fiscal years.
Base Salary. The base salary for each executive officer is set on the basis of personal performance, the Compensation Committee's assessment of salary levels in effect for comparable positions with Willis Lease Finance's Peer Companies, and internal comparability considerations. The weight given to each of these factors may vary from individual to individual. Base salaries are reviewed on an annual basis, and adjustments are made in accordance with the factors indicated above.
19
Incentive Compensation. The Compensation Committee has established an incentive compensation program pursuant to which each executive officer is eligible to earn a bonus on the basis of the achievement of certain Company and individual goals. The bonuses earned by each of the executive officers are set forth in the Summary Compensation Table which appears later in this Proxy Statement.
Long-Term Incentive Compensation. Long-term incentives are provided through stock option grants. The grants are designed to align the interests of the executive officers with those of the stockholders, and to provide executive officers with a significant incentive to manage Willis Lease Finance from the perspective of an owner with an equity stake in the business. The stock option plan encourages long-term retention and provides rewards to executives and other eligible employees commensurate with growth in stockholder value. It is the Committee's practice to grant options to purchase shares at the market price of the underlying shares of common stock on the date of grant with a term of up to ten years. All of the options granted to Willis Lease Finance's executive officers during the 20022003 fiscal year will vest in four equal annual installments. Accordingly, the options will provide a return to the executive officer only if he remains in Willis Lease Finance's employ and the market price of the underlying shares of common stock appreciates.
The number of shares subject to each option grant is set at a level intended to create a meaningful opportunity for stock ownership based on the executive officer's current position with Willis Lease
Finance, the base salary associated with that position, the size of comparable awards made to individuals in similar positions within the industry, the individual's potential for increased responsibility and promotion over the option term, and the individual's personal performance in recent periods. The Committee also takes into account the number of unvested options held by the executive officer in order to maintain an appropriate level of equity incentive for that individual. However, the Committee does not adhere to any specific guidelines as to the relative option holdings of Willis Lease Finance's executive officers.
Deferred Compensation. Willis Lease Finance maintains the Deferred Compensation Plan for its executives, which permits participating executives to defer payment of up to 80% of their base salary and/or part or all of their bonus. Through the Deferred Compensation Plan, the Willis Lease Finance Corporation Deferred Compensation Plan Trust invests all deferred amounts in investment funds and horizon portfolios (compatible with the investment options under Section 401(k) of the Internal Revenue Code of 1986, as amended) pursuant to the election of each participant. The Compensation Committee determines the participant's "Annual Company Matching Amount" for any plan year to be added to the amount the participant elects to contribute from his/her salary and/or bonus. Such amounts are vested in accordance with a vesting schedule set forth in the Deferred Compensation Plan. In 20022003 fiscal year the Compensation Committee determined that Willis Lease Finance woulddid not contribute any "Annual Company Matching Amount".Amount."
Mr. Willis was the only executive who elected to participate in the Deferred Compensation Plan in the 2002 fiscal year. Mr. Willis deferred $37,500 of his salary payable in 2002 fiscal year for aPlan. His total accumulated deferral of $170,833. During 2002is $174,145 and during 2003 fiscal year, the investments from Mr. Willis' previously deferred salary resulted in ordinary dividends in the amount of $2,484.$3,312.
CEO Compensation. The compensation payable to Mr. Willis, Willis Lease Finance's Chief Executive Officer during the 20022003 fiscal year, was determined by the Compensation Committee. In 2002, the Compensation Committee chose to freeze Mr. Willis' annual salary at the 2001 level of $500,000. This freeze continued in 2003. In previous years, his base salary was set at a level which the Compensation Committee felt would be competitive with the base salary levels in effect for CEOs at similarly-sized companies within the industry. For the 20022003 fiscal year, Mr. Willis received a bonusbonuses of $312,500. Mr. Willis' bonus was determined$577,745. The bonuses were based, in accordance with the Willis Lease Finance Corporation 2002 Bonus Program. The bonus was based uponpart, on company performance relative to performance targets established byand, in part, in the discretion of the Compensation Committee. Mr. Willis also participated in the Deferred Compensation Plan described above.
20
Compliance with Internal Revenue Code Section 162. Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly-held companies for compensation paid to certain executive officers, to the extent that compensation that is not performance based (within the meaning of Section 162(m)) exceeds $1 million per officer in any year. In prior years (with the exception of 2000 fiscal year),2001 and 2002, the compensation paid to Willis Lease Finance's executive officers did not exceed the $1 million limit per officer. However, for the 20002003 fiscal year, the compensation paid to the CEO exceeded the $1 million limit by a smallmodest amount. The compensation paid to Willis Lease Finance's CEO for the 2002 and 2001 fiscal years did not exceed that limit. In the coming years, in order to permit the future deductibility of cash bonus awards for certain executive officers, Willis Lease Finance may adopt an executive incentive plan, subject to approval by stockholders, that will qualify as performance based compensation for purposes of Section 162(m). The 1996 Plan, however, is structured so that any compensation deemed paid to an executive officer in connection with the exercise of his or her outstanding options under the 1996 Plan will qualify as performance-based compensation which will not be subject to the $1 million limitation.
21Glenn L. Hickerson, Compensation
Committee Chairman
Gérard Laviec
William M. LeRoy
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of the following three independent directors: Glenn L. Hickerson, Chairman, Gérard Laviec, and William M. LeRoy. None of the executive officers of Willis Lease Finance currently serves on the compensation committee of Willis Lease Finance. No executive officer of Willis Lease Finance is, or was during 2002,2003, serving as a director of or member of the compensation committee of another entity, one of whose executive officers serves, or served, as a director of or on the compensation committee of Willis Lease Finance.
The Audit Committee oversees Willis Lease Finance's accounting function, internal controls and financial reporting process on behalf of the Board of Directors. The Audit Committee currently consists of the following three independent directors: William M. LeRoy, Chairman, Glenn L. Hickerson and Gérard Laviec. The Board has designated Mr. LeRoy as "audit committee financial expert" as that term is composed of three directors, each of whom is independent as defined byin the National Association of Securities Dealers' listing standards.SEC rules adopted pursuant to the Sarbanes-Oxley Act. The Committee operates pursuant to the Audit Committee Charter, incorporated by referencewhich is attached to Willis Lease Finance'sthis Proxy Statement filed with the Securities and Exchange Commission on April 27, 2001.as Exhibit B.
Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The independent auditors are responsible for performing an independent audit of Willis Lease Finance's financial statements in accordance with generally accepted auditing standards and to issue a report thereon. In fulfilling its oversight responsibilities, the Committee reviewed the audited financial statements in the Annual Report on Form 10-K with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted accounting principles,in the United States of America, their judgments as to the quality, not just the acceptability, of Willis Lease Finance's accounting principles and such other matters as are required to be discussed with the Committee under generally accepted auditing standards, including the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committee). In addition the Committee has received the written disclosures and the letter from the independent auditors required by Independent Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Committee has discussed with the independent auditors their independence from Willis Lease Finance and its management, including the matters in those written disclosures.
The Committee discussed with Willis Lease Finance and its independent auditors the overall scope and plans for their respective audits. The Committee met with Willis Lease Finance's independent auditors, with and without management present, to discuss the results of their audit, their evaluations of Willis Lease Finance's internal controls, and the overall quality of Willis Lease Finance's financial reporting.
In reliance on the reviews and discussions with management and the independent auditors referred to above, the Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 20022003 for filing with the Securities and Exchange Commission.
22William M. LeRoy, Audit Committee Chairman
Glenn L. Hickerson
Gérard Laviec
INDEPENDENT PUBLIC ACCOUNTANTS
The auditors of Willis Lease Finance are KPMG LLP, and they were responsible for the audit of the Willis Lease Finance financial statements as of and for the 20022003 fiscal year.
Fees Billed to Willis Lease Finance by KPMG LLP
For the 20022003 and 20012002 fiscal years, fees for services provided by KPMG LLP were as follows:
| | | 2002 | 2001 | |||||
|---|---|---|---|---|---|---|---|---|
| A. | Audit Fees* | $ | 312,100 | $ | 325,000 | |||
| B. | Audit Related Fees | $ | 4,400 | $ | — | |||
| C. | Tax Fees | $ | 100,140 | $ | 223,265 | |||
| D. | All Other Fees | $ | — | $ | — | |||
| | 2003 | 2002 | ||||
|---|---|---|---|---|---|---|
| A. Audit Fees* | $ | 370,440 | $ | 312,100 | ||
| B. Audit Related Fees | $ | 9,500 | $ | 4,400 | ||
| C. Tax Fees | $ | 40,700 | $ | 100,140 | ||
| D. All Other Fees | $ | — | $ | — | ||
Audit related fees for 2003 consist of accounting advice relating to Sarbanes-Oxley Act compliance and for 2002, consist of accounting advice relating to derivatives.
All fees described as above, were approved by the Audit Committee.
Tax fees in 2003 and 2002 were comprised of fees for tax compliance, tax advice and tax planning.
The Audit Committee believes that the provision of non-audit services provided by the auditors that led to the fees described in the "Tax Fees" and "All Other Fees" rows of the above table are compatible with the maintenance of independence by the auditors.
A representative of KPMG LLP will be present at the 2003 Annual Meeting of Stockholders to respond to appropriate questions and make a statement if such representative desires.
The Audit Committee has given pre-approval forrequires that any services to be provided by the CompanyCompany's auditors must be approved in advance by the Audit Committee. If approval is required before the Committee can act, a single member of the Committee can approve an engagement, subject to obtain, should it require such services, non-audit related servicesratification by the Committee at its next meeting.
Equity Compensation Plan Information
The following table outlines the Company's Equity Compensation Plan Information as of up to $25,000 per annum from any public accounting firm.December 31, 2003.
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||
|---|---|---|---|---|---|---|---|---|
| Equity compensation plans approved by security holders | 1,912,650 | $ | 6.52 | 804,627 | ||||
| Equity compensation plans not approved by security holders | n/a | n/a | n/a | |||||
| Total | 1,912,650 | $ | 6.52 | 804,627 | ||||
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the compensation earned byby: (i) Willis Lease Finance's Chief Executive OfficerOfficer; and (ii) each of the other three most highly compensated executive officers of Willis Lease Finance serving as such as of the end of the 20022003 fiscal year whose total annual salary and bonus exceeds $100,000 and (iii) one executive officer whose total annual salary and bonus would have placed such officer within the four most highly compensated officers of Willis Lease Finance, but for the fact that such officer resigned effective February 28, 2002.$100,000. Such individuals will be referred to herein as the "Named Executive Officers."
23
Summary Compensation Table
| | Annual Compensation | Long-term Compensation Awards | Annual Compensation | Long-term Compensation Awards | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Name and Principal Position | Fiscal Year | Salary | Bonus | Other Annual Compensation(1) | Securities Underlying Options | Fiscal Year | Salary | Bonus | Other Annual Compensation(1) | Securities Underlying Options | ||||||||||||||||
| Charles F. Willis, IV Chief Executive Officer | 2002 2001 2000 | $ | 500,000 500,000 500,000 | (2) (2) | $ | 312,500 250,000 500,000 | $ | 6,000 5,250 5,100 | 81,000 290,000 100,000 | 2003 2002 2001 | $ | 500,000 500,000 500,000 | (2) (2) | $ | 577,745 312,500 250,000 | $ | 7,000 6,000 5,250 | 150,000 81,000 290,000 | ||||||||
Donald A. Nunemaker Executive Vice President, COO | 2002 2001 2000 | $ | 235,000 235,000 235,000 | $ | 124,844 99,875 198,787 | $ | 6,000 5,250 5,100 | 76,650 106,000 50,000 | 2003 2002 2001 | $ | 235,000 235,000 235,000 | $ | 143,898 124,844 99,875 | $ | 7,000 6,000 5,250 | 50,000 76,650 106,000 | ||||||||||
Monica J. Burke(3) Executive Vice President, CFO | 2002 | $ | 103,990 | $ | 33,797 | $ | 4,136 | 35,000 | 2003 2002 | $ | 225,000 103,990 | $ | 81,044 33,797 | $ | 7,000 4,136 | — 35,000 | ||||||||||
Nicholas J. Novasic Executive Vice President, CFO | 2002 2001 2000 | $ | 39,805 235,000 128,196 | $ | — 69,913 76,276 | $ | 311,009 5,250 34,889 | (4) (5) | — — 40,000 | |||||||||||||||||
Thomas E. MacAleavey Senior V.P., Sales & Marketing | 2002 2001 2000 | $ | 175,000 175,000 175,000 | $ | 170,694 245,982 275,681 | (6) (6) (6) | — | — | ||||||||||||||||||
Thomas E. MacAleavey(4) Senior V.P., Sales & Marketing | 2003 2002 2001 | $ | 200,000 175,000 175,000 | $ | 227,491 170,694 245,982 | (4) (4) (4) | — | 25,000 | ||||||||||||||||||
Thomas C. Nord(5) Senior V.P., General Counsel, Secretary | 2003 | $ | 101,904 | $ | 36,705 | $ | 4,066 | 30,000 | ||||||||||||||||||
24
Stock Options
The following table sets forth information concerning the stock options granted by Willis Lease Finance during the 2002 fiscal year to the Named Executive Officers. No stock appreciation rights were granted during the 2002 fiscal year to the Named Executive Officers.
Option Grants in 20022003 Fiscal Year
| | Individual Grants | | | Individual Grants | | | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1) | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1) | ||||||||||||||||||||||||||||
| | | Percent of Total Options Granted to Employees in Fiscal Year 2002 | | | | Percent of Total Options Granted to Employees in Fiscal Year 2003 | | | ||||||||||||||||||||||
| | Number of Securities Underlying Options Granted(2) | | | Number of Securities Underlying Options Granted(2) | | | ||||||||||||||||||||||||
| Name | Percent of Total Options Granted to Employees in Fiscal Year 2002 | Exercise or Base Price Per Share(3) | Expiration Date | Percent of Total Options Granted to Employees in Fiscal Year 2003 | Exercise or Base Price Per Share(3) | Expiration Date | ||||||||||||||||||||||||
| 5% | Percent of Total Options Granted to Employees in Fiscal Year 2002 | 10% | 5% | Percent of Total Options Granted to Employees in Fiscal Year 2003 | 10% | |||||||||||||||||||||||||
| Charles F. Willis, IV | 44,386 36,614 | 19.1 15.8 | 5.15 4.68 | 05/08/07 05/08/12 | $ $ | 132,407 308,231 | 22,046 127,954 | 4.9 28.6 | 5.51 5.01 | 03/03/08 03/03/13 | $ $ | 139,491 1,798,266 | ||||||||||||||||||
| Donald A. Nunemaker | 76,650 | 33.0 | 4.68 | 05/08/12 | $ | 645,270 | 50,000 | 11.2 | 5.01 | 03/03/13 | $ | 702,700 | ||||||||||||||||||
| Monica J. Burke | 35,000 | 15.1 | % | $ | 4.88 | 07/15/12 | $ | 287,644 | — | N/A | N/A | N/A | N/A | |||||||||||||||||
| Nicholas J. Novasic(4) | — | — | — | — | — | — | ||||||||||||||||||||||||
| Thomas E. MacAleavey | — | — | — | — | — | — | 25,000 | 5.6 | % | $ | 5.01 | 03/03/13 | $ | 174,059 | $ | 351,350 | ||||||||||||||
| Thomas C. Nord | 30,000 | 6.7 | % | $ | 5.07 | 08/07/13 | $ | 207,071 | $ | 419,820 | ||||||||||||||||||||
Stock Option Exercise and Holdings
The following table sets forth certain information concerning the exercise of stock options during the 20022003 fiscal year and the value of unexercised stock options at the end of the 20022003 fiscal year for the Named Executive Officers.
| | | | Number of Securities Underlying Unexercised Options at Fiscal Year-End | | | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Number of Securities Underlying Unexercised Options at Fiscal Year-End | Value of Unexercised in-the-Money Options at Fiscal Year-Ended(1) | | | Value of Unexercised in-the-Money Options at Fiscal Year-Ended(1) | |||||||||||||||||||||
| Name | Shares Acquired on Exercise(#) | Value Realized($) | Shares Acquired on Exercise(#) | Value Realized($) | ||||||||||||||||||||||||
| Exercisable | Unexercisable | Exercisable | Unexercisable | Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||||||||||||||
| Charles F. Willis, IV | — | — | 267,500 | 243,500 | — | $ | 13,547 | — | — | 382,028 | 253,000 | $ | 469,967 | $ | 612,487 | |||||||||||||
| Donald A. Nunemaker | — | — | 213,501 | 159,149 | $ | 32,250 | $ | 39,111 | — | — | 309,326 | 113,324 | $ | 407,705 | $ | 261,952 | ||||||||||||
| Monica J. Burke | — | — | — | 35,000 | — | $ | 5,950 | — | — | 8,750 | 26,250 | $ | 21,613 | $ | 64,838 | |||||||||||||
| Nicholas J. Novasic(2) | — | — | 40,000 | — | — | — | ||||||||||||||||||||||
| Thomas E. MacAleavey | — | — | 30,000 | 35,000 | $ | 9,675 | — | — | — | 52,500 | 37,500 | $ | 121,088 | $ | 79,813 | |||||||||||||
| Thomas C. Nord | — | — | — | 30,000 | $ | — | $ | 68,400 | ||||||||||||||||||||
25
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL AGREEMENTS
Willis Lease Finance presently has the following employment contracts in effect with the Named Executive Officers:
Charles F. Willis, IV. Effective November 7, 2000, Mr. Willis signed a two-year employment agreement with Willis Lease Finance. The agreement automatically renews for additional one-year terms, until June 29, 2013, unless either party gives notice of non-renewal six months prior to expiration of the current term. Upon execution of the agreement, Mr. Willis' base salary as Chairman of the Board, President and Chief Executive Officer was $500,000 per year, subject to adjustment by Willis Lease Finance's Compensation Committee. Mr. Willis is entitled to receive bonuses in an annual amount of up to $500,000 or a higher amount determined by the Board of Directors, under the incentive compensation plan in effect from time to time. The bonuses are based upon company performance relative to predetermined performance targets established by the Compensation Committee at the beginning of each year. The agreement also provides for Mr. Willis' participation in Willis Lease Finance's stock option plans on the same terms generally available to Willis Lease Finance's executive officers and in accordance with market practice. Any grant of stock options is subject to the discretion of the Compensation Committee. As of March 31, 2003,2004, Mr. Willis received, over a period of time, options to purchase an aggregate of 511,000661,000 shares of Willis Lease Finance's common stock. Of this amount 25,972 options have expired.
Under the agreement, Willis Lease Finance may terminate Mr. Willis' employment other than for "cause" (failure or inability to perform obligations under the agreement causing material harm to the business) upon 6 months written notice or payment of an amount equal to 6 months base salary in lieu of notice, in addition to payment of any severance payment pursuant to the agreement.
Should a change of control in the ownership of Willis Lease Finance occur, the agreement will be automatically extended for a period of 2 years from the date of the change of control event.
In the event that the severance and other benefits provided to Mr. Willis constitute "parachute payments" subject to federal excise tax, then Mr. Willis' benefits under the change of control provisions of the agreement shall be reduced in accordance with the mechanism set forth in the agreement.
Willis Lease Finance and Mr. Willis have entered into an indemnification agreement effective as of September 17, 1996.
Donald A. Nunemaker. Effective November 21, 2000, Mr. Nunemaker signed a two-year employment agreement with Willis Lease Finance. The agreement automatically renews for additional one-year terms until June 10, 2012, unless either party gives notice of non-renewal six months prior to expiration of the current term. Upon execution of the agreement, Mr. Nunemaker's base salary as an Executive Vice President, Chief Administrative Officer was $235,000 per year, subject to adjustment by Willis Lease Finance's Compensation Committee. On March 2001 Mr. Nunemaker was appointed as Executive Vice President, Chief Operating Officer under the same terms of the November 21, 2000 employment agreement. Mr. Nunemaker is entitled to receive a target bonus of up to 85% of his base salary under the incentive compensation plan in effect from time to time. The bonuses are based upon company performance relative to predetermined performance targets established by the Compensation Committee at the beginning of each year. The agreement also provides for Mr. Nunemaker's participation in Willis Lease Finance's stock option plans on the same terms generally available to Willis Lease Finance's executive officers and in accordance with market practice. Any grant of stock options is subject to the discretion of the Compensation Committee. As of March 31, 2003,2004, Mr. Nunemaker received, over a period of time, options to purchase an aggregate of 372,650422,650 shares of Willis Lease Finance's common stock.
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Under the agreement, Willis Lease Finance may terminate Mr. Nunemaker's employment other than for "cause" (such as Mr. Nunemaker's gross misconduct, fraud, breach of the agreement, or conviction or plea to felony or gross misdemeanor) upon 6 months written notice or payment of an amount equal to 6 months base salary in lieu of notice, in addition to payment of any severance payment pursuant to the agreement.
Should a change of control in the ownership of Willis Lease Finance occur, the agreement will be automatically extended for a period equal to the greater of (i) the remaining employment term and (ii) the 18 month period from the date of the change of control event. If Mr. Nunemaker's employment is terminated during such extension period, he will be entitled to additional severance payment.
In the event that the severance and other benefits provided to Mr. Nunemaker constitute "parachute payments" subject to federal excise tax, then Mr. Nunemaker's benefits under the change of control provisions of the agreement shall be reduced in accordance with the mechanism set forth in the agreement.
Willis Lease Finance and Mr. Nunemaker have entered into an indemnification agreement effective as of July 30, 1997.
Monica J. Burke. Effective June 21, 2002, Ms. Burke signed a two-year employment agreement with Willis Lease Finance. The agreement automatically renews for a period of one year, each year, 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. Upon execution of the agreement, Ms. Burke's salary as Executive Vice President and Chief Financial Officer was $225,000 per year, subject to adjustment by Willis Lease Finance's Compensation Committee. Ms. Burke is entitled to receive a target bonus of up to 50% of her base salary under the incentive compensation plan in effect from time to time. The bonuses are based upon company performance relative to predetermined performance targets established by the Compensation Committee at the beginning of each year. The agreement also provides for Ms. Burke's participation in Willis Lease Finance's stock option plans on the same terms generally available to Willis Lease Finance's executive officers and in accordance with market practice. Any grant of stock options is subject to the discretion of the Compensation Committee. As of March 31, 2003,2004, Ms. Burke received, as of the date of her employment, options to purchase an aggregate of 35,000 shares of Willis Lease Finance's common stock.
Under the agreement, Willis Lease Finance may terminate Ms. Burke's employment other than for "cause" (such as Ms. Burke's gross misconduct, fraud, breach of the agreement, or conviction or plea to felony or gross misdemeanor) upon 6 months written notice or payment of an amount equal to 6 months base salary in lieu of notice, in addition to payment of any severance payment pursuant to the agreement.
Should a change of control in the ownership of Willis Lease Finance occur, the agreement will be automatically extended for a period equal to the greater of (i) the remaining employment term or (ii) the 18 month period from the date of the change of control event. If Ms. Burke's employment is terminated during such extension period, she will be entitled to additional severance payment.
In the event that the severance and other benefits provided to Ms. Burke's constitute "parachute payments" subject to federal excise tax, then Ms. Burke's benefits under the change of control provisions of the agreement shall be reduced in accordance with the mechanism set forth in the agreement.
Willis Lease Finance and Ms. Burke have entered into an indemnification agreement effective as of July 15, 2002.
Nicholas J. Novasic.Thomas C. Nord. On February 28, 2002,In accordance with the letter from Willis Lease Finance entered into a Separation Agreement withto Mr. Novasic. Under this agreement, Mr. Novasic executed a general release of allNord dated June 11, 2003 offering him employment in his current position (the "Offer Letter"), the Company
27
claims arising outagreed to pay him six months salary in the event of a change of control (as defined in the Offer Letter) during his first year of employment, existing or potential, against Willis Lease Finance, and Willis Lease Finance paid Mr. Novasic a total amount of $255,000 as severance. Additionally, all of Mr. Novasic's unvested stock options, which consisted of options to purchase 30,000 shares of common stock of Willis Lease Finance, became fully vested. These options were not exercised at expiration on February 28,began July 7, 2003. His salary is $210,000.
In connection with an acquisition of Willis Lease Finance by merger, asset sale or other change of control event, each outstanding option held by the Chief Executive Officer and the other executive officers under the 1996 Plan will automatically accelerate in full and all unvested shares of common stock held by such individuals subject to direct issuances made under such plans will immediately vest in full, except to the extent such options are to be assumed by, and Willis Lease Finance's repurchase rights with respect to these shares are to be assigned to, the successor corporation. In addition, upon an involuntary termination of the Chief Executive Officer or any of the other executive officers within twelve months following a merger or asset sale or other change in control of Willis Lease Finance, each outstanding option and all unvested shares of common stock held by such individual will automatically vest in full. Furthermore, with regard to future option grants and direct stock issuances, the "Plan Administrator" of the 1996 Plan has the authority to provide for accelerated vesting of any outstanding options awarded to the Chief Executive Officer or any other executive officer or any unvested share issuances actually held by such individual, in connection with certain changes in control of Willis Lease Finance or the subsequent termination of the officer's employment following the change in control event.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as described below, during the 20022003 fiscal year, there were no transactions between Willis Lease Finance and its Directors, executive officers or known holders of greater than five percent of Willis Lease Finance's common stock in which the amount involved exceeded $60,000 and in which any of the foregoing persons had or will have a direct or indirect material interest nor was any Director, executive officer, any members of any Director's or executive officer's immediate families, or any entity or trust controlled by any such Director or executive officer indebted to Willis Lease Finance in an amount in excess of $60,000 at any time during the 20022003 fiscal year.
Effective September 13, 2002, the Company entered into an independent contractor's agreement with Director Hans Jörg Hunziker for one year to provide services including, but not limited to, helping the Company raise debt/equity in Europe, representing the Company at SR Technics, assisting in the identification and solicitation of potential strategic partners, and performing consulting services consisting of assisting in the sale, acquisition, or lease of aircraft and aircraft equipment. Director Hunziker resigned from the Board on July 1, 2003. He was succeeded by W. William Coon, Jr.
In consideration of such services, DirectorMr. Hunziker receivesreceived a monthly retainer equivalent to one twelfth of $235,000, an allowance of $15,000 for automobile expenses and iswas eligible to receive a performance bonus not exceeding $117,500. No payments were made pursuant to the performance bonus. Director Hunziker iswas required to perform such services for 46 out of 52 weeks during the original term. This Agreement was terminated January 31, 2004
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The following performance graph shows the percentage change in cumulative total return to a holder of Willis Lease Finance's common stock, assuming dividend reinvestment, compared with the cumulative total return, assuming dividend reinvestment, of the NASDAQ Stock Market-US Index and the NASDAQ Financial Index, during the period from September 18, 1997 through December 31, 20022003 with measurement point of December 31, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG WILLIS LEASE FINANCE CORPORATION, THE NASDAQ STOCK
MARKET-US INDEX AND THE NASDAQ FINANCIAL INDEX
*
292003.
Stockholder proposals intended to be considered at the 20042005 Annual Meeting of Stockholders must, under Rule 14a-8 of the Securities Exchange Act of 1934, be received by Willis Lease Finance no later than December 28, 2003.2004. The proposal must be mailed to Willis Lease Finance's executive offices, 2320 Marinship Way, Suite 300, Sausalito, California 94965, Attention: Corporate Secretary. Such proposals may be included in next year's Proxy Statement if they comply with certain rules and regulations promulgated by the Securities and Exchange Commission.
Alternatively, under Willis Lease Finance's Bylaws, a proposal or nomination that the stockholder does not seek to include in Willis Lease Finance's Proxy Statement pursuant to Rule 14a-8 may be
submitted in writing to the Corporate Secretary of Willis Lease Finance for the 20042005 Annual Meeting of Stockholders not less than 90 days prior to the first anniversary of the preceding year's annual meeting, unless the date of the 20042005 Annual Meeting of Stockholders is advanced by more than 30 days or delayed (other than as a result of adjournment) by more than 60 days from the anniversary of the 20032004 Annual Meeting. For Willis Lease Finance's 20042005 Annual Meeting of Stockholders, this means that any such proposal or nomination must be submitted no later than February 27, 2004.2005. If the date of the 20042005 Annual Meeting of Stockholders is advanced by more than 30 days or delayed (other than as a result of adjournment) by more than 60 days from the anniversary of the 20032004 Annual Meeting, the stockholder must submit any such proposal or nomination no later than the close of business on the later of the 90th day prior to the 20042005 Annual Meeting of Stockholders or the 10th day following the day on which public announcement of the date of such meeting is first made. The stockholder's submission must include certain specified information concerning the proposal or nominee, as the case may be, and information as to the stockholder's ownership of common stock of Willis Lease Finance.
Management does not know of any matters to be presented at the 20032004 Annual Meeting of Stockholders other than those set forth herein and in the Notice accompanying this Proxy Statement.
The consolidated financial statements of Willis Lease Finance, Management's Discussion and Analysis of Financial Condition and Results of Operations, and the Report of Independent Auditors included in Willis Lease Finance's 20022003 Annual Report on Form 10-K are incorporated herein by this reference. Copies of Willis Lease Finance's 20022003 Annual Report on Form 10-K will be provided by first class mail or other equally prompt means to stockholders without charge, within one business day of receipt of a written or oral request to Monica J. Burke, Chief Financial Officer, Willis Lease Finance Corporation, 2320 Marinship Way, Suite 300, Sausalito, California 94965, (415) 331-5281 and is alternatively available on the Company's website atwww.wlfc.com, under Investor Relations.
| By Order of the Board of Directors, | ||
| ||
Charles F. Willis, IV Chairman of the Board Date: |
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Exhibit A
Willis Lease Finance Corporation 1996Employee Stock Option/Stock IssuancePurchase Plan
31
WILLIS LEASE FINANCE CORPORATION1996EMPLOYEE STOCK OPTION/STOCK ISSUANCEPURCHASE PLAN(As Amended and restated as of MarchRestated Effective August 1, 2003)2004
I. I—PURPOSE OF THE PLAN AND DEFINITIONS
Corporation's common stock through participation in a payroll-deduction based employee stock purchase plan designed to qualify under Section 423 of the Code.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
(i) the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant Program under which eligible employees may elect to have a portion of their base salary invested each year in special option grants,
(iii) the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
(iv) the Automatic Option Grant Program under which eligible non-employee Board members shall automatically receive option grants at periodic intervals to purchase shares of Common Stock, and
(v) the Director Fee Option Grant Program under which non-employee Board members may elect to have all or any portion of their annual retainer fee and attendance fees otherwise payable in cash applied to special option grants.
B. The provisions of Articles One and Seven shall apply to all equity programs under the Plan and shall govern the interests of all persons under the Plan.
III. ARTICLE II—ADMINISTRATION OF THE PLAN
A.
B. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board's discretion, be vested in the Primary Committee or a Secondary Committee, or the Board may retain the power to administer those programs with respect to all such persons. The members of the Secondary Committee may be Board members who are Employees eligible to receive discretionary option grants or direct stock issuances under the Plan or any other stock option, stock appreciation, stock bonus or other stock plan of the Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee.
D. Each Plan Administrator shall within the scopehave full authority to interpret and construe any provision of its administrative functions under the Plan have full power and authority (subject to the provisions of the Plan) to establishadopt such rules and regulations as it may deem appropriate for proper administration ofadministering the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding options or stock issuances thereunderPlan as it may deem necessary or advisable.in order to comply with the requirements of Code Section 423. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who havehaving an interest in the Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or any option or stock issuance thereunder.
E. The Primary Committee shall have the sole and exclusive authority to determine which Section 16 Insiders and other highly compensated employees shall be eligible for participation in the Salary Investment Option Grant Program for one or more calendar years. However, all option grants under the Salary Investment Option Grant Program shall be made in accordance with the express terms of that program, and the Primary Committee shall not exercise any discretionary functions with respect to the option grants made under that program.
F. Service on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan.
G. Administration of the Automatic Option Grant and Director Fee Option Grant Programs shall be self-executing in accordance with the terms of those programs, and no Plan Administrator shall exercise any discretionary functions with respect to any option grants or stock issuances made under those programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly compensated individuals shall be eligible to participate in the Salary Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority to determine, (i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive option grants, the time or times when such option grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times when each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive stock issuances, the time or times when such issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration for such shares.
D. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the Automatic Option Grant Program shall be limited to (i) those individuals serving as non-employee Board members on the Underwriting Date, (ii) those individuals who first become non-employee Board members after the Underwriting Date, whether through appointment by the Board or election by the Corporation's stockholders, and (iii) those individuals who continue to serve as non-employee Board members at one or more Annual Stockholders Meetings held after the Underwriting Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to receive an option grant under the Automatic Option Grant Program at the time he or she first becomes a non-employee Board member, but shall be eligible to receive periodic option grants under the Automatic Option Grant Program while he or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in the Director Fee Option Grant Program.
V. ARTICLE III—STOCK SUBJECT TO THE PLAN
A.
B. No one person participating in the Plan may receive options, separately exercisable stock appreciation rights and direct stock issuances for more than 250,000 shares of Common Stock in the aggregate per calendar year, beginning with the 1996 calendar year and for more than 500,000 shares of Common Stock in the aggregate per calendar year, beginning with the 2001 calendar year.
C. Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent those options expire or terminate for any reason prior to exercise in full. Unvested shares issued under the Plan and subsequently cancelled or repurchased by the Corporation, at the original issue price paid per share, pursuant to the Corporation's repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan. However, should the exercise price of an option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the stock issuance, and not by the net number of shares of Common Stock issued to the holder of such option or stock issuance.
D.
number and /or class of securities and the exercise price per share in effect under each outstanding optionpurchase right in order to prevent the dilution or enlargement of benefits thereunder.
ARTICLE IV—OFFERING PERIODS
ARTICLE TWODISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced bycomprised of a series of one or more documentssuccessive Purchase Intervals. Purchase Intervals shall run from the first business day in the form approved by the Plan Administrator;provided, however, thatFebruary each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subjectyear to the provisionslast business day in July of the Plan applicablesame year and from the first business day in August each year to such options.
A. Exercise Price.
1. The exercise pricethe last business day in January of the following year.
2.Offering Period, then that Offering Period shall automatically terminate immediately after the purchase of shares of Common Stock on such Purchase Date. A new Offering Period shall commence on the next business day following such Purchase Date. The exercise pricenew Offering Period shall have a duration of twenty four months, unless a shorter duration is established by the Plan Administrator within ten business days following the start date of that Offering Period.
ARTICLE V—ELIGIBILITY
ARTICLE VI—PAYROLL DEDUCTIONS
ARTICLE VII—PURCHASE RIGHTS
(i) cashtotal combined voting power or check made payable tovalue of all classes of stock of the Corporation
(ii) or any Corporate Affiliate.
(iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions to (a) a Corporation-designated brokerage firm to effect the immediate salepurchase of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the CorporationCommon Stock by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be madelimitation on the Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for suchmaximum number of shares aspurchasable by the Participant on the Purchase Date shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date.
promptly refunded.
1. The following provisions shall govern the exercisetermination of outstanding purchase rights:
(i) Any option outstandingeach Participant for the Purchase Interval in which such Corporate Transaction occurs to the purchase of whole shares of Common Stock at the timea purchase price per share not less than eighty-five percent of the Optionee's cessationlower of Service for any reason shall remain exercisable for(i) the Fair Market Value per share of Common Stock on the Participant's Entry Date into the Offering Period in which such periodCorporate Transaction occurs or (ii) the Fair Market Value per share of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee at the time of death may be subsequently exercised by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuantCommon Stock immediately prior to the Optionee's will or in accordance with the lawseffective date of descent and distribution.
(iii) Should the Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding.
(iv) During thesuch Corporate Transaction. The applicable post-Service exercise period, the option may not be exercised in the aggregate for more thanlimitation on the number of vested shares for whichof Common Stock purchasable per Participant shall continue to apply to any such purchase.
2. The Plan, Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to:
(i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expirationmake a pro-rata allocation of the option term, and/or
(ii) permitavailable shares on a uniform and nondiscriminatory basis, and the option to be exercised, during the applicable post-Service exercise period, not only with respectpayroll deductions of each Participant, to the numberextent in excess of vested shares ofthe aggregate purchase price payable for the Common Stock for whichpro-rated to such option isindividual, shall be refunded.
D. Stockholder Rights. The holder of an optionParticipant.
ARTICLE VIII—ACCRUAL LIMITATIONS
E. Repurchase Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase rightexercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.
with (i) rights to F. Limited Transferability of Options. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. However, a Non-Statutory Option may, in connection with the Optionee's estate plan, be assigned in whole or in part during the Optionee's lifetimeentitled to one or more members of the Optionee's immediate family oraccrue rights to a trust established exclusively for one or more such family members. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the optionCommon Stock pursuant to the assignment. The terms applicableany purchase right outstanding under this Plan if and to the assigned portion shall be the same as those in effect for the option immediately priorextent such accrual, when aggregatedsuch assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shallnot be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Dollar Limitation. The aggregate Fair Market Value of the shares ofpurchase Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employeeaccrued under the Plan (or any other option planpurchase right granted under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Code Section 423) of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One HundredCorporate Affiliate, would otherwise permit such Participant to purchase more than Twenty-Five Thousand Dollars ($100,000). To25,000) worth of stock of the extent the Employee holds two (2)Corporation or more such options which become exercisable for the first time in the same calendar year, the foregoing limitationany Corporate Affiliate (determined on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share on the date or dates such rights are granted) for each calendar year such rights are at any time outstanding.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall not so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation (or parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof), (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to (i) the exercise price payable per share under each outstanding option,providedpurchase right shall accrue in a series of installments on each successive Purchase Date during the aggregate exercise price payable forOffering Period on which such securities shall remain the same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan and (iii) the maximum number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances under the Plan per calendar year.
E. The Plan Administrator shall have full power and authorityright remains outstanding.
Service subsequently terminates by reason of an Involuntary Termination within twelve (12) months following the effective date of any Corporate Transaction in which those options are assumed or replaced and do not otherwise accelerate. Any options so accelerated shall remain exercisable for fully-vested shares until theearlier of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. In addition, the Plan Administrator may provide that one or more of the Corporation's outstanding repurchase rights with respect to shares held by the Optionee at the time of such Involuntary Termination shall immediately terminate, and the shares subject to those terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to (i) provide for the automatic acceleration of one or more outstanding options (and the automatic termination of one or more outstanding repurchase rights with the immediate vesting of the shares ofacquire Common Stock subject to those rights) upon the occurrence of a Change in Control or (ii) condition any such option acceleration (and the termination ofunder any outstanding repurchase rights) upon the subsequent Involuntary Termination of the Optionee's Service within a specified period following the effective date of such Change in Control. Any options accelerated in connection with a Change in Controlpurchase right shall remain fully exercisable until the expiration or sooner termination of the option term.
G. The portion of any Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option onlyaccrue to the extent the applicable One Hundred Thousand Dollar limitation is not exceeded. ToParticipant has already accrued in the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws.
H. The outstanding options shall in no way affectsame calendar year the right of the Corporation to adjust, reclassify, reorganizeacquire Common Stock under one or otherwise change its capital or business structure ormore other purchase rights at a rate equal to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program and to grant in substitution new options covering the same or different number of sharesTwenty-Five Thousand Dollars ($25,000) worth of Common Stock but with an exercise price per share based(determined on the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to selected Optionees tandem stock appreciation rights and/or limited stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable upon such terms as the Plan Administrator may establish, to elect between the exercise of the underlying option for shares of Common Stock and the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (a) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (b) the aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which the Optionee shall be entitled may be made in shares of Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to thelaterof (a) five (5) business days after the receipt of the rejection notice or (b) the last day on which the option is otherwise exercisable in accordance with the terms of the documents evidencing such option, but in no event may such rights be exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual holding one or more options with such a limited stock appreciation right shall have the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender each such option to the Corporation, to the extent the option is at the time exercisable for vested shares of Common Stock. In return for the surrendered option, the Optionee shall receive a cash distribution from the Corporation in an amount equal to the excess of (A) the Take-Over Price of the shares of Common Stock which are at the time vested under each surrendered option (or surrendered portion thereof) over (B) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the option surrender date.
(iii) The Plan Administrator shall pre-approve, at the time the limited stock appreciation right is granted, the subsequent exercise of that right in accordance with the terms of the grant and the provisions of this Section V.C. No additional approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full force and effect in accordance with the documents evidencing such option.
ARTICLE THREESALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years (if any) for which the Salary Investment Option Grant Program is to be in effect and to select the Section 16 Insiders and other highly compensated Employees eligible to participate in the Salary Investment Option Grant Program for those calendar year or years. Each selected individual who elects to participate in the Salary Investment Option Grant Program must, prior to the start of each calendar year of participation, file with the Plan Administrator (or its designate) an irrevocable authorization directing the Corporation to reduce his or her base salary for that calendar year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00) (or the appropriate amount with respect to elections made by newly eligible individuals during a calendar year). The Primary Committee shall have complete discretion to determine whether to approve the filed authorization in whole or in part. To the extent the Primary Committee approves the authorization, the individual who filed that authorization shall automatically be granted an option under the Salary Investment Grant Program on the first trading day in January of the calendar year for which the salary reduction is to be in effect, or, if the Program is first implemented during a calendar year, the option shall be granted on the first trading day of the month following the month in which the Program is implemented.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more documents in the form approved by the Plan Administrator;provided, however, that each such document shall comply with the terms specified below.
A. Exercise Price.
(i) The exercise price per share shall be thirty-three and one-third percent (331/3%)basis of the Fair Market Value per share of Common Stock on the option grant date.
(ii) The exercise price shall become immediately due upon exercisedate or dates of the option and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise pricegrant) for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject to the option shall be determined pursuant to the following formula (rounded down to the nearest whole number):
X = A / (B * 662/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the Optionee's base salary for theeach calendar year and
B issuch rights were at any time outstanding.
C. Exercise and Term of Options. The option shall become exercisable in a series of twelve (12) successive equal monthly installments upon the Optionee's completion of each calendar month of Service in the calendar year forpayroll deductions which the salary reduction is in effect. Each option shall have a maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease Service for any reason while holding one or more options under this Article Three, then each such option shall remain exercisable, for any or all of the shares for which the option is exercisable at the time of such cessation of Service, until theearlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Service. Should the Optionee die while holding one or more options under this Article Three, then each such option may be exercised, for any or all of the shares for which the option is exercisable at the time of the Optionee's cessation of Service (less any shares subsequently purchased by Optionee prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Such right of exercise shall lapse, and the option shall terminate, upon theearlier of (i) the expiration of the ten (10)-year option term or (ii) the three (3)-year period measured from the date of the Optionee's cessation of Service. However, the option shall, immediately upon the Optionee's cessation of Service for any reason, terminate and cease to remain outstandingParticipant made during that Purchase Interval with respect to any and all shares of Common Stock for which the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program, to the extent not already vested, shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Each such outstanding option shall terminate immediately following the Corporate Transaction, except to the extent assumed by the successor corporation (or parent thereof) in such Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until theearlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall immediately become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. The option shall remain so exercisable until theearlier of (i) the expiration of the ten (10)-year option term, (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Service or (iii) the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each outstanding option granted him or her under the Salary Investment Option Grant Program. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distributionpurchase right shall be paid within five (5) days following the surrender of the option to the Corporation. The Primary Committee shall, at the time the option with such limited stock appreciation rightpromptly refunded.
D. The grant of options under the Salary Investment Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.
ARTICLE FOURSTOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Five, shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the performance objectives to be attained,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapseconflict between installments, and
(iv) the effect which death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule, shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement.
2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the cessation of the Participant's Service or the non-attainment of the performance objectives applicable to those shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent (i) those repurchase/cancellation rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation's repurchase/cancellation rights remain outstanding under the Stock Issuance Program, to provide that those rights shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event the Participant's Service should subsequently terminate by reason of an Involuntary Termination within twelve (12) months following the effective date of any Corporate Transaction in which those repurchase/cancellation rights are assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretion, exercisable either at the time the unvested shares are issued or at any time while the Corporation's repurchase rights remain outstanding, to (i) provide for the automatic termination of one or more outstanding repurchase/cancellation rights and the immediate vesting of the shares of Common Stock subject to those rights upon the occurrence of a Change in Control or (ii) condition any such accelerated vesting upon the subsequent Involuntary Termination of the Participant's Service within a specified period following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.
ARTICLE FIVEAUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified below:
1. Each individual who is first elected or appointed as a non-employee Board member shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase 5,000 shares of Common Stock, provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting, each individual who is to continue to serve as an Eligible Director, whether or not that individual is standing for re-election to the Board at that particular Annual Meeting, shall automatically be granted a Non-Statutory Option to purchase a specified number of shares of Common Stock, provided such individual has served as a non-employee Board member for at least six (6) months. The number of shares of Common Stock subject to each such annual automatic option grant will be determined by dividing $20,000 by the Black-Scholes formula value of the option, as determined by the Company's independent financial advisors. However, in no event may such option grant exceed 10,000 shares of Common Stock. There shall be no limit on the number of such $20,000-value option grants any one Eligible Director may receive over his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or any Parent or Subsidiary) or who have otherwise received a stock option grant from the Corporation shall be eligible to receive one or more such annual option grants over their period of continued Board service.
Stockholder approval of this 1999 Restatement at the 1999 Annual Meeting shall constitute pre-approval of each option granted under this Article Five on or after the date of that Annual Meeting and the subsequent exercise of that option in accordance with the provisions of this Article Five.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall be payable inand one or more provisions of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately exercisable for any or all of the option shares. However, any shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board service prior to vesting in those shares. Each initial 5,000-share grant shall vest, and the Corporation's repurchase right shall lapse, in a series of four (4) successive equal annual installments over the Optionee's period of continued service as a Board member, with the first such installment to vest upon the Optionee's completion of one (1) year of Board service measured from the option grant date. Each annual $20,000 value grant shall vest, and the Corporation's repurchase right shall lapse, upon the Optionee's completion of one (1) year of Board service measured from the option grant date.
E. Termination of Board Service. The following provisions shall govern the exercise of any options held by the Optionee at the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the personal representative of the Optionee's estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution) shall have a twelve (12)-month period following the date of such cessation of Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may not be exercised in the aggregate for more than the number of vested shares of Common Stock for which the option is exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation of Board service, be exercised for allPlan or any portion of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve (12)-month exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Board service for any reason other than death or Permanent Disability, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Immediately following the consummation of the Corporate Transaction, each automatic option grant shall terminate
and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of those shares as fully-vested shares of Common Stock. Each such option shall remain exercisable for such fully-vested option shares until the expiration or sooner termination of the option term or the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each automatic option held by him or her. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. Stockholder approval of this 1999 Restatement at the 1999 Annual Meeting shall constitute pre-approval of each option granted with such a surrender provision on or after the date of that Annual Meeting and the subsequent surrender of that option in accordance withinstrument issued thereunder, the provisions of this Section II.C. No additional approval of the Plan Administrator or the BoardArticle shall be required at the time of the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option,provided the aggregate exercise price payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.
ARTICLE SIXDIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any portion of the annual retainer and attendance fees otherwise payable in cash for his or her service on the Board to the acquisition of special option grants under this Director Fee Option Grant Program. Such election must be filed with the Corporation's Chief Financial Officer prior to first day of the calendar year for which the annual retainer fee and attendance fees which are the subject of that election are otherwise payable, or, with respect to newly eligible non-employee Board members, prior to the first day of the fiscal quarter beginning after they became eligible. Each non-employee Board member who files such a timely election shall automatically be granted an option under this Director Fee Option Grant Program at the end of each fiscal quarter in the calendar year for which the annual retainer and attendance fees which are the subject of that election would otherwise be payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and conditions specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third percent (331/3%) of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject to the option shall be determined pursuant to the following formula (rounded down to the nearest whole number):
X = A / (B * 662/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee plus the portion of any attendance fees earned during the quarter subject to the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock on the option grant date.
C. Exercise and Term of Options. The option shall be fully vested at the time of grant. Each option shall have a maximum term of ten (10) years measured from the option grant date.
D. Termination of Board Service. Should the Optionee cease Board service for any reason (other than death or Permanent Disability) while holding one or more options under this Director Fee Option Grant Program, then each such option shall remain exercisable, for any or all of the shares for which the option is exercisable at the time of such cessation of Board service, until theearlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Board service.
E. Death or Permanent Disability. Should the Optionee's service as a Board member cease by reason of death or Permanent Disability, then each option held by such Optionee under this Director Fee Option Grant Program may be exercised for any or all of those shares as fully-vested shares until theearlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but while holding one or more options under this Director Fee Option Grant Program, then each such option may be exercised, for any or all of the shares for which the option is exercisable at the time of the Optionee's cessation of Board service (less any shares subsequently purchased by Optionee prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Such right of exercise shall lapse, and the option shall terminate, upon theearlier of (i) the expiration of the ten (10)-year option term or (ii) the three (3)-year period measured from the date of the Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee remains a Board member, each outstanding option held by such Optionee under this Director Fee Option Grant Program, to the extent the option is not already vested, shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Each such outstanding option shall terminate
immediately following the Corporate Transaction, except to the extent assumed by the successor corporation (or parent thereof) in such Corporate Transaction. Any option so assumed and shall remain exercisable for the fully-vested shares until theearlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in Service, each outstanding option held by such Optionee under this Director Fee Option Grant Program shall remain exercisable until theearlier or (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each outstanding option granted him or her under the Director Fee Option Grant Program. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to each surrendered option over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. No approval or consent of the Board or any Plan Administrator shall be required in connection with such option surrender and cash distribution.
D. The grant of options under the Director Fee Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price of shares issued under the Stock Issuance Program by delivering a full-recourse, interest bearing promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. In no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon the exercise of options or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements.
III. IX—EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective with respect to the Discretionary Option Grant and the Stock Issuance Programs immediately upon the Plan Effective Date. The Automatic Option Grant Program became effective on the Underwriting Date. The Director Fee Option Grant Program shall become
effective upon shareholder approval of the proposal to incorporate the program into the Plan at the 1999 Annual Meeting.
B.
C. The Plan shall terminate uponon theearliest of (i) June 19, 2006,the last business day in July 2014, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested sharessold pursuant to purchase rights exercised under the Plan or (iii) the termination ofdate on which all outstanding optionspurchase rights are exercised in connection with a Corporate Transaction. UponNo further purchase rights shall be granted or exercised, and no further payroll deductions shall be collected, under the Plan following such plan termination, all outstanding option grants and unvested stock issuances shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants or issuances.
IV. ARTICLE X—AMENDMENT OF THE PLAN
A.
rights and obligations with respectrevisions to stock options or unvested stock issuances at the time outstanding under the Plan unlesswithout the Optionee orapproval of the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess ofCorporation's stockholders: (i) materially increase the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any granted option or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan and all applicable listing requirementsor the maximum number of shares purchasable
per Participant on any stock exchange (orone Purchase Date, except for permissible adjustments pursuant to Section 3.2.; (ii) alter the Nasdaq National Market, if applicable) on whichpurchase price formula so as to reduce the purchase price payable for the shares of Common Stock is then listedpurchasable under the Plan or (iii) materially increase the benefits accruing to Participants under the Plan or materially modify the requirements for trading.eligibility to participate in the Plan.
VII. NO EMPLOYMENT/SERVICE RIGHTSARTICLE XI—GENERAL PROVISIONS
Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of August 1, 2004
Willis Lease Finance Corporation
The following definitions shall be in effect under the Plan:
A.Automatic Option Grant ProgramBase Salary shall mean the automatic option grant program(i) regular base salary paid to a Participant by one or more Participating Companies during such individual's period of participation in effectone or more Offering Periods under the Plan.Plan plus (ii) any pre-tax contributions made by the Participant to any Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit program now or hereafter established by the Corporation or any Corporate Affiliate. The following items of compensation shallnot be included in Base Salary: (i) all overtime payments, bonuses, commissions (other than those functioning as base salary equivalents), profit-sharing distributions and other incentive-type payments and (ii) any and all contributions (other than Code Section 401(k) or Code Section 125 contributions) made on the Participant's behalf by the Corporation or any Corporate Affiliate under any employee benefit or welfare plan now or hereafter established.
B.Board shall mean the Corporation's Board of Directors.
C.Change in Control shall mean a change in ownership or control of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. D.Common Stock shall mean the Corporation's common stock.
F. E.Corporate Affiliate shall mean any parent or subsidiary corporation of the Corporation (as determined in accordance with Code Section 424), whether now existing or subsequently established.
F.Corporate Transaction shall mean either of the following stockholder-approved transactions to which the Corporation is a party:
G.Corporation shall mean Willis Lease Finance Corporation, a DelawareCalifornia corporation, and any corporate successor to all or substantially all of the assets or voting stock of Willis Lease Finance Corporation which shall by appropriate action adopt the Plan.
H.Discretionary Option Grant ProgramEffective Time shall mean the discretionary option grant programtime at which the Board adopts the Plan in effect under the Plan.accordance with applicable law. Any Corporate Affiliate which becomes a Participating Corporation after such Effective Time shall designate a subsequent Effective Time with respect to its Participants.
I.Director Fee Option Grant Program shall mean the special stock option grant program in effect for non-employee Board members under Article Six of the Plan.
J. Domestic Relations OrderEligible Employee shall mean any judgment, decreeperson who is employed by a Participating Corporation on a basis under which he or order (including approvalshe is regularly expected to render more than twenty hours of a property settlement agreement) which provides or otherwise conveys, pursuant to applicable State domestic relations laws (including community property laws), marital property rights to any spouse or former spouse of the Optionee.service per week for more than five months per calendar year for earnings considered wages under Code Section 3401(a).
K. J.Eligible Director shall mean a non-employee Board member eligible to participate in the Automatic Option Grant Program in accordance with the eligibility provisions of Article One.
L. Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
M. ExerciseEntry Date shall mean the date on whichan Eligible Employee first commences participation in the CorporationOffering Period in effect under the Plan. The earliest Entry Date under the Plan shall have received written notice ofbe the option exercise.Effective Time.
N. K.Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the Underwriting Date, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is to be sold in the initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the Underwriting Date, the Fair Market Value shall be determined by the Plan Administrator, after taking into account such factors as it deems appropriate.
O. L.Hostile Take-OverParticipant shall mean any Eligible Employee of a changeParticipating Corporation who is actively participating in ownership of the Corporation effected through the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept.Plan.
P. M.Incentive Option shall mean an option which satisfies the requirements of Code Section 422.
Q. Involuntary TerminationParticipating Corporation shall mean the terminationCorporation and such Corporate Affiliate or Affiliates as may be authorized from time to time by the Board to extend the benefits of the Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge byPlan to their Eligible Employees. The Participating Corporations in the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and participation in any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent.
R. Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secretsPlan as of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary)Effective Time are listed in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary).attached Schedule A.
S. N.Act shall mean the Securities Exchange Act of 1934, as amended.
T. Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422.
U. Optionee shall mean any person to whom an option is granted under the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option Grant or Director Fee Option Grant Program.
V. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than
the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
W. Participant shall mean any person who is issued shares of Common Stock under the Stock Issuance Program.
X. Permanent Disability or Permanently Disabled shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. However, solely for purposes of the Automatic Option Grant Program, Permanent Disability or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more.
Y. Plan shall mean the Corporation's 1996Employee Stock Option/Stock IssuancePurchase Plan, as set forth in this document.document and as amended or restated from time to time.
Z. O.Plan Administrator shall mean the particular entity, whetherCompensation Committee of the Primary Committee, theCorporation's Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons under its jurisdiction.Directors.
AA. P. Plan EffectivePurchase Date shall mean June 21, 1996, the date on which the Plan was adopted by the Board.
AB. Primary Committee shall mean the committeelast business day of two (2) or more non-employee Board members appointed byeach Purchase Interval. The initial Purchase Date of this Amended and Restated Plan shall be the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders.last business day of July 2004.
AC. Q.Purchase Interval Qualified Domestic Relations Ordershall mean each successive six month period within the Offering Period at the end of which there shall be purchased shares of Common Stock on behalf of each Participant.
R.Offering Period shall mean a Domestic Relations Order which substantially complies withtwenty-four month period, unless the requirements of Code Section 414(p). The Plan Administrator shall have the sole discretion to determine whetherestablish a Domestic Relations Order is a Qualified Domestic Relations Order.shorter term, consisting of successive Purchase Intervals. An Offering Period may be terminated early as provided in this Plan.
AD. Salary Investment Option Grant Program shall mean the salary investment option grant program in effect under the Plan.Exhibit B
AE. Secondary Committee shall mean a committee of two (2) or more Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders.
AF. Section 16 Insider shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
AG. Service shall mean the performance of services for the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance.
AH. Stock Exchange shall mean either the American Stock Exchange or the New York Stock Exchange.
AI. Stock Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program.
AJ. Stock Issuance Program shall mean the stock issuance program in effect under the Plan.
AK. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
AL. Take-Over Price shall mean thegreater of (i) the Fair Market Value per share of Common Stock on the date the option is surrendered to the Corporation in connection with a Hostile Take-Over or (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the clause (i) price per share.
AM. Taxes shall mean the Federal, state and local income and employment tax liabilities incurred by the holder of Non-Statutory Options or unvested shares of Common Stock in connection with the exercise of those options or the vesting of those shares.
AN. 10% Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).
AO. Underwriting Agreement shall mean the agreement between the Corporation and the underwriter or underwriters who managed the initial public offering of the Common Stock.
AP. Underwriting Date shall mean September 18, 1996, the date on which the Underwriting Agreement was executed and priced in connection with the initial public offering of the Common Stock.
WILLIS LEASE FINANCE CORPORATION2002CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
(Last Amended: June 13, 2000)
I. PURPOSE
The Audit Committee's primary duties and responsibilities are to:
The Audit Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be directors free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Committee. Without limiting the foregoing, each member of the Audit Committee shall be an "independent director" as such term is defined by Rule 4200(a)(15) of the National Association of Securities Dealers, Inc.'s ("NASD") Rules. All members of the Committee shall be able to read and understand fundamental financial statements, including a company's balance sheet, income statement, and cash flow statement and at least one member of the Committee shall have accounting or related financial management or executive oversight of financial management experience which meets the employment experience requirements contained in the NASD Rules. The members of the Committee shall be elected by the Board or until their successors shall be duly elected and qualified. Unless a Chair is elected by the full Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership.
III. MEETINGS
The Committee shall meet as frequently as circumstances dictate but no less than four times per annum, either in person or telephonically. As part of its job to foster open communication, the Committee should meet with the independent accountants, the CFO and the members of management as deemed appropriate by the Committee or by individual members of management. The Committee will meet in separate executive sessions to discuss any matters that the Committee or any of these groups believe should be discussed privately. The majority of the members of the Audit Committee shall constitute a quorum.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
WILLIS LEASE FINANCE CORPORATION
2003 Annual Meeting of Stockholders
May 28, 2003
26, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles F. Willis, IV, Donald A. Nunemaker and Monica J. Burke, and each of them, as Proxies of the undersigned, with full power of substitution, and hereby authorizes them to represent and to vote, as designated on the reverse, all of the shares of Common Stock of WILLIS LEASE FINANCE CORPORATION held of record by the undersigned on March 31, 2003,2004, at the 20032004 Annual Meeting of Stockholders of the Company to be held on May 28, 200326, 2004 or at any adjournment thereof.
The Board of Directors recommends a vote FOR ALL NOMINEESTHE NOMINEE listed in Proposal #1 on the other side, and FOR THE AMENDMENT AND RESTATEMENT OF THE ESPP listed in Proposal #2 on the other side. This proxy will be voted in accordance with the choices specified by the undersigned on the other side of this proxy. IF NO INSTRUCTIONS TO THE CONTRARY ARE INDICATED HEREIN, THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE ELECTION OF THE NOMINEESNOMINEE FOR CLASS IIIII OF THE BOARD OF DIRECTORS NAMED ON THE OTHER SIDE HEREOF, FOR THE AMENDMENT AND RESTATEMENT OF THE ESPP, AND ON ANY OTHER MATTERS TO BE VOTED WHICH ARE PROPERLY BROUGHT BEFORE THE ANNUAL MEETING. PLEASE COMPLETE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
WILLIS LEASE FINANCE CORPORATION
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTOR AND "FOR" PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ý
| 1. | Election of one Class III Director | 2. | Proposal to amend and restate the Employee Stock Purchase Plan to increase the number of shares of commonstock authorized for issuance under the terms of the Plan from 75,000 to 175,000. | FOR o | AGAINST o | ABSTAIN o | ||||||||
NOMINEE | ||||||||||||||
| o | FOR NOMINEE | ( ) Charles F. Willis IV | ||||||||||||
| o | WITHHOLD AUTHORITY FOR NOMINEE | 3. | In their discretion, the Proxies are authorized to vote upon such other matters as may properly come before the meeting or any adjournment thereof. | |||||||||||
| To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | o | |||||||||||||
1. | ELECTION OF TWO CLASS II DIRECTORS | 2. | Proposal to amend the 1996 Stock Option/Stock Issuance Plan to increase the number of shares of common stock authorized for issuance under the terms of the Plan from 2,525,000 to 3,025,000. | FOR o | AGAINST o | ABSTAIN o | ||||
| NOMINEES | ||||||||||
| o | FOR ALL NOMINEES | ( ) Glenn L. Hickerson ( ) Gerard Laviec | ||||||||
| o | WITHHOLD AUTHORITY FOR ALL NOMINEES | 3. | In their discretion, the Proxies are authorized to vote upon such other matters as may properly come before the meeting or any adjournment thereof. | |||||||
| o | FOR ALL EXCEPT (See instructions below) | |||||||||
INSTRUCTION: | To withhold authority to vote for any individual nominee(s), mark"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to withhold, as shown here: (•) | |||||||||
| To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | o | |||||||||
Signature of Stockholder | Date: | Signature of Stockholder | Date: | |||||||||||||||||
| Note: | This proxy must be signed exactly as the name appears hereon. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |