Item 1.01 Entry Into a Material Definitive Agreement.
On October 26, 2017, AeroCentury Corp., a Delaware corporation (
"
AeroCentury
"
or the
"
Company
"
), Falcon Landing, Inc., a California corporation and a wholly owned subsidiary of AeroCentury (
"
Merger Sub
"
), JetFleet Holding Corp., a California corporation (
"
JHC
"
), and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the Shareholder Representative, entered into an Agreement and Plan of Merger (the
"
Merger Agreement
"
), pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into JHC (the "
Merger
"), with JHC surviving the Merger as a wholly owned subsidiary of the Company. Capitalized terms used herein but not otherwise defined have the meaning set forth in the Merger Agreement.
JHC is the parent company of JetFleet Management Corp. ("
JMC
"), which has provided management services to the Company since 1997, and which is a party to a Second Amended and Restated Management Agreement, dated as of August 17, 2015, with the Company, under which the Company incurred a total of $6,613,200 for management, acquisition and remarketing fees in the year ended December 31, 2016. Following the completion of the Merger, JMC will be an indirect, wholly owned subsidiary of the Company. Toni M. Perazzo, an officer and director of the Company and beneficial owner of approximately 25.9% of the Company's outstanding shares of common stock, beneficially owns approximately 56% of JHC's outstanding shares of common stock.
The aggregate Merger Consideration to be paid by the Company consists of $3.5 million in cash plus 129,286 shares of Company common stock, subject to certain adjustments as provided in the Merger Agreement. At the Effective Time of the Merger, and subject to the terms and conditions of the Merger Agreement, each share of JHC's issued and outstanding common stock (other than shares owned by JHC as treasury stock, shares owned by any direct or indirect subsidiaries of JHC, and shares owned directly or indirectly by the Company or Merger Sub, and any Dissenting Shares), will be automatically converted into the right to receive a per share amount of Merger Consideration (the "
Per Share Merger Consideration
"). Ten percent (10%) of the Merger Consideration will be deposited into an escrow account and held as security for potential indemnification claims that may be made by the Company or certain related parties. Subject to any pending claims, the remaining Merger Consideration in the escrow account will be released on or shortly after December 15, 2018.
Each of the Company and JHC has made customary representations and warranties in the Merger Agreement, and JHC has agreed to customary covenants regarding the operation of the business of JHC and its subsidiaries prior to the Effective Time of the Merger. The parties have also agreed to use commercially reasonable efforts to consummate the Merger.
Consummation of the Merger is subject to certain closing conditions, including, among other things, (i) approval by holders of at least a majority of the outstanding shares of JHC common stock and holders of at least a majority of the outstanding shares of JHC common stock owned by Persons other than Toni M. Perazzo, the officers and directors of JHC or any affiliate of the foregoing Persons, (ii) no Key Employees (as defined in the Merger Agreement) having terminated employment or indicated his or her intention to terminate employment with JHC or JMC, (iii) not more than 10% of the employees of JHC (other than the Key Employees) having terminated employment or indicated their intention to terminate employment with JHC or JMC, and (iv) receipt of a permit from the Commissioner of Business Oversight of the State of California (the "
Commissioner
") after completion of the Hearing (as defined below). The Merger Agreement contains specified termination rights for both the Company and JHC.
The preceding summary does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.
The Merger was unanimously approved by the Company's board of directors, including of all of the directors other than Toni M. Perazzo, who abstained from voting.
The Company common stock issued as part of the Merger Consideration (the "
Merger Securities
") will be issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the "
Securities Act
"). In this regard, the Company and JHC have agreed to pursue approval of the terms of the Merger through a California fairness hearing pursuant to California Corporations Code, including Sections 25121 and 25142 thereof (the "
Hearing
") before the Commissioner. The purpose of the Hearing is to enable the Commissioner to determine the fairness of the terms and conditions of the Merger Agreement and whether the issuance of a permit to offer and sell securities is fair, just and equitable to all JHC security holders affected pursuant to applicable sections of the California Corporations Code. If the Commissioner determines that the terms and conditions are fair, just and equitable and issues a permit to the Company, then the issuance of the Merger Securities to the holders of JHC securities will not be registered under the Securities Act, in reliance upon the exemption from registration provided in Section 3(a)(10) of the Securities Act.