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EXHIBIT 14
THE ACQUISITION OF THE ADDITIONAL AIRCRAFT
AerFi will make customary representations and warranties in the share
purchase agreement for the acquisition of the additional aircraft including
representations relating to solvency, undisclosed contingent liabilities and
insurance. The AerFi Group will indemnify us for breaches of their
representations and warranties relating to the aircraft owning companies and
aircraft which they will sell to us. Assuming all 30 additional aircraft are
ultimately acquired by us directly or indirectly, the representations and
warranties with respect to an aircraft owning company and its related aircraft
will survive for 3 years from the date of delivery of that aircraft owning
company. Our potential recovery under them is limited to approximately $175.0
million regardless of how many additional aircraft and the related aircraft
owning companies are ultimately acquired by us.
Because of the timing uncertainties of obtaining lessee consents that a
direct transfer of aircraft from the AerFi Group to AerCo presents, AerFi has
structured the acquisition of aircraft and associated leases as the sale of the
capital stock of wholly-owned, recently incorporated subsidiaries. This sale is
expected to occur in a series of transactions on or following the closing of the
offering. Prior to each acquisition, AerFi will have pre-positioned the aircraft
in the appropriate aircraft owning companies. Each aircraft owning company will
finance its acquisition of the applicable aircraft with debt payable to the
AerFi Group or third-party creditors. We expect that AerCo will purchase all of
the outstanding capital stock of the appropriate aircraft owning companies from
the AerFi Group and refinance indebtedness of those companies to the AerFi Group
or third party creditors for an aggregate amount equal to approximately $706.4
million, calculated as follows:
(1) the aggregate appraised value at April 30, 2000 of the 30 aircraft to
be transferred ($724.1 million);
less the sum of:
(2) the amount of cash security deposits held in respect of those aircraft
(approximately $7.4 million for all 30 additional aircraft as of June
30, 2000); and
(3) the amount of the transaction expenses of $10.3 million inclusive of
subscription discounts and commissions.
The cumulative aggregate net purchase price of the capital stock is to be
paid in installments and the related indebtedness will be simultaneously repaid
as the shares of each aircraft owning company are delivered. All of the
transaction expenses will be paid on the closing date.
AerCo will loan each aircraft owning company a portion of the net proceeds
of the offering to repay its indebtedness to the AerFi Group or third party
creditors. All letters of credit, guarantees or similar arrangements securing
obligations of any lessee of the AerFi Group aircraft are to be transferred to,
renewed, amended or reissued in the name of, the relevant aircraft owning
company.
Not all of the 30 additional aircraft will be delivered to AerCo as of the
closing date because the AerFi Group will need additional time in order to
obtain lessee consents, necessary governmental authorizations, revised insurance
certificates and meet other requirements in order to transfer such aircraft. If
any of these conditions is not met within the specified period or if AerFi
notifies AerCo that it has determined that these conditions will not be met,
then a "non-delivery event" will occur with respect to the relevant aircraft
unless a substitute aircraft can be delivered within the specified period. In
addition, if AerFi defaults on its obligations under the provisions of the
purchase agreement described below, then a non-delivery event will occur with
respect to all of the remaining aircraft. The net proceeds of the offering of
the New Notes allocable to the purchase price for any remaining aircraft will
remain in the aircraft purchase account until such time as the aircraft has been
delivered or a non-delivery event has occurred. In addition, the subclass D-2
notes and the subclass E-2 notes allocable to the purchase price of any
remaining aircraft will not be issued to AerFi until such time as the aircraft
are delivered to AerCo. The amount of cash payable out of the aircraft purchase
account to AerFi for each delivered aircraft shall, in the case of the first 15
deliveries, be subject to a discount
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of up to 10%, reducing to 1% for the fifteenth delivery, and, in the case of all
subsequent deliveries, shall be increased by an amount designed to reimburse
AerFi for the preceding discounts.
In consideration of AerCo agreeing to purchase the aircraft owning
companies and raising funds in anticipation of delivery of all the remaining
aircraft, AerFi will pay to AerCo, for each remaining aircraft, an amount equal
to gross lease rentals on the remaining aircraft received by AerFi from the
closing date. AerCo will pay to AerFi an amount equal to (a) any interest earned
on the funds in the aircraft purchase account allocable to the remaining
aircraft, which funds would have been transferred to AerFi had the remaining
aircraft been delivered to AerCo on the closing date, and (b) an amount equal to
interest which would have been payable to AerFi on the relevant principal amount
of the subclass D-2 notes and the subclass E-2 notes according to the priority
of payments had AerFi been issued such notes on the closing date. Amounts
payable by AerFi to AerCo will be paid each month and will be deposited into the
collection account in time for it to be paid to the note holders on each payment
date, together with other cash amounts received under leases of aircraft already
owned by AerCo Group.
When AerFi has met the necessary conditions to the transfer of each
remaining aircraft, such aircraft will be transferred to AerCo. Until a
remaining aircraft has been delivered to AerCo, AerFi will pay, and AerCo will
accrue, net expenses relating to the ownership of the relevant aircraft and the
related leases which would have been paid by AerCo had the aircraft been
delivered on the closing date. These expenses are those relating to the
management of the leases (not including payments under the servicing agreement)
from the closing date and maintenance expenses not paid under the servicing
agreement as of the closing date by the lessees directly or from supplemental
rent paid by the lessees for maintenance costs. Upon delivery of each remaining
aircraft, AerCo will pay to AerFi an adjusted purchase price which will consist
of the purchase price described above allocable to the aircraft, as adjusted for
the related lease management and aircraft maintenance expenses incurred by AerFi
since the closing date, net of any related aircraft maintenance income received
by AerFi since the closing date. In addition, at that time, AerCo will issue to
AerFi the subclass D-2 notes and the subclass E-2 notes allocable to the
purchase price of the aircraft.
If a non-delivery event occurs, funds held in the aircraft purchase account
allocable to the relevant aircraft will then be transferred to the collection
account and will be used to make payments on the notes on the next payment date
in accordance with a specified order of priorities.
Note that the provisions of the purchase agreement described above will not
provide AerCo with the same legal and economic benefits of ownership of the
remaining aircraft that AerCo would have had if the remaining aircraft had in
fact been delivered on the closing date.
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