Subsequent Events

6 Months Ended

Jun. 30, 2021

Subsequent Events

N0TE 13 - Subsequent Events

13. Subsequent Events

(a) Sale of assets

In August 2021, the Company sold one on-lease regional jet aircraft, three off-lease regional jet aircraft and one off-lease turboprop aircraft to Drake. Pursuant to the Stalking Horse Agreement, the sales resulted in the full satisfaction and cancellation of $40,001,900 of the Drake Indebtedness.

(b) Plan Sponsor Agreements

On August 16, 2021, the Company entered into a Plan Sponsor Agreement with a group of investors led by Mr. Yucheng Hu with respect to the terms of an $11 million equity investment in the Company (“Plan Sponsor Agreement”), which is subject to approval of the Bankruptcy Court. If court approval is received, following a scheduled August 31, 2021 hearing, the Company anticipates closing of the equity investment on a date in mid to late September 2021 (the “Effective Date”). The principal terms of the Plan Sponsor Agreement are below:

· Plan Sponsor Equity Investment. The Plan Sponsor Agreement provides for the issuance by AeroCentury Corp. of 2,857,143 of Common Stock (“New ACY Shares”) at a purchase price equal to $3.85 per share, for an aggregate purchase price of US$11 million. The New ACY Shares issuance would result in post-issuance pro forma ownership percentages of the AeroCentury common stock of (a) 64.89% held by the Plan Sponsor, and (b) 35.11% held by existing shareholders of AeroCentury on the Effective Date (the “Legacy ACY Shareholders”).

· Refundability of the Deposit. In the event the purchase of the New ACY Shares does not close as a result of Plan Sponsor’s failure to comply with the terms of Plan Sponsor Agreement, the Deposit will be forfeited to AeroCentury. In the event the purchase of the New ACY Shares does not close as a result of Debtors’ failure to comply with the terms of the Plan Sponsor Agreement or the failure of the conditions precedent set forth in the Plan Sponsor Agreement, the Deposit will be refunded to Plan Sponsor. If Bankruptcy Court or any regulatory authority having the authority to block the consummation of the purchase of the New ACY Shares do not approve of the purchase of the New ACY Shares, the Deposit will be refunded to Plan Sponsor.

· Breakup Fee. If the Bankruptcy Court accepts and approves an exit financing transaction for AeroCentury with a party other than the Plan Sponsor (an “Alternative Transaction”) then AeroCentury shall pay Plan Sponsor, upon the closing of such Alternative Transaction, in addition to the return of the Deposit, a breakup fee equal to US$1,000,000.

· New Capital Structure for JetFleet Holding Corp. (“JHC”). On the Effective Date, the following transactions relating to JHC equity ownership shall be executed:

■ Cancellation of ACY Equity in JHC. All outstanding stock of JetFleet Holding Corp. (“JHC”) currently held 100% by its parent, AeroCentury, shall be canceled.

■ JHC Common Stock Issuance to Plan Sponsor and JHC Management. Plan Sponsor shall acquire 35,000 shares of common stock of JHC, and certain employees of JHC (“JHC Management”) who will be appointed to continue the legacy aircraft leasing business of AeroCentury through JHC shall acquire 65,000 shares of common stock of JHC. All shares of common stock of JHC will be purchased at a price of $1 per share.

■ JHC Series A Preferred Stock Issuance to AeroCentury Corp. AeroCentury will use $2 million of its proceeds from the Plan Sponsor’s purchase of New ACY Shares to purchase new JHC Series A Preferred Stock from JHC. The JHC Series A Preferred Stock shall carry a dividend rate of 7.5% per annum, shall be non-convertible and non-transferable, shall be redeemable by JHC at any time, but shall only be redeemable by AeroCentury after 7 years. The JHC Series A Preferred Stockholders shall in the aggregate constitute 51% of the voting equity of JHC, voting as a single class together with the outstanding JHC Common Stock.

■ Distribution of Trust Interest in JHC Series B to Legacy ACY Shareholders. A trust (“Legacy Trust”) will be established for the benefit of the Legacy ACY Shareholders, and JHC will issue new JHC Series B Preferred Stock to the Legacy Trust. The JHC Series B Preferred Stock issued to the Legacy Trust will have an aggregate liquidation preference of $1, non-convertible, non-transferable, non-voting, will not pay a dividend, and will contain a mandatory, redeemable provision. The JHC Series B Preferred Stock will be redeemable for an aggregate amount equal to (i) $1,000,000, if the JHC Series B Preferred Stock is redeemed after the first fiscal year for which JHC reports positive EBITDA for the preceding 12-month period, or (ii) $0.001 per share, if the JHC Series B Preferred Stock is redeemed prior the first fiscal year for which JHC reports positive EBITDA for the preceding 12-month period.

· Cash Distribution to Legacy ACY Shareholders. As soon as practicable following the Effective Date, AeroCentury will make a cash dividend distribution to the Legacy ACY Shareholders in the aggregate amount of US$1,000,000, funded from the purchase price paid by Plan Sponsor for the New ACY Shares.

· Board Make-up Following Sponsor Investment. Following the Effective Date, AeroCentury will have a Board of Directors initially consisting of five (5) members, which will consist of (i) three directors designated by Yucheng Hu (the “Lead Investor”) and (ii) two directors to be mutually agreed upon by the Lead Investor and the current incumbent Board of Directors.