Aeroflex: Parent company wants to stop discussions with Veritas Capital

By Lisa Kerner

Charlotte, N.C., May 15 - Aeroflex Inc.'s parent company, AF Holdings, Inc., believes Aeroflex is in breach of its merger agreement with Veritas Capital Fund III, LP and its co-investors.

Specifically, AF Holdings cites section 6.09(b) of the merger agreement, which requires Aeroflex to cooperate with the parent company in securing its debt financing of the proposed transaction. In addition, AF Holdings said that Aeroflex is required to terminate discussions with Veritas, according to a form 8-K filing with the Securities and Exchange Commission.

Aeroflex denied the claims in writing on May 11 and asked AF Holdings what else it could do to secure the needed financing.

The 8-K also cited the May 10 filing of a consolidated amended class action complaint by company shareholders. The court set a hearing date of May 24 for a prospective motion to enjoin the special meeting of stockholders of the company to be held on May 30.

Aeroflex announced a non-binding proposal from Veritas Capital on April 19 for a leveraged recapitalization of Aeroflex giving the company's stockholders a cash dividend of $14 per share.

In addition, stockholders would keep a total of 21.2% of the fully diluted common equity in a significantly leveraged Aeroflex, a company news release stated.

The proposal calls for Veritas Capital and co-investors to acquire convertible preferred stock of Aeroflex representing 78.8% of Aeroflex's common stock. Proceeds would be used, along with additional proposed debt and equity financing, to fund the cash divided.

Aeroflex's stockholders were originally scheduled to vote on the $1 billion transaction at a special meeting of stockholders on May 20, the release stated.

The company's board determined that the proposed leveraged recapitalization is a bona fide acquisition proposal that could reasonably be expected to lead to a "superior proposal" than the merger agreement still in effect with affiliates of General Atlantic and Francisco Partners.

Aeroflex is required to pay a break-up fee of between $22.5 million and $37.5 million plus expenses if it terminates the merger agreement with General Atlantic and Francisco Partners in order to enter into a transaction agreement with Veritas Capital.

On March 30, Aeroflex announced details of the proposed $780 million senior secured credit facility that will be used to help fund its buyout by General Atlantic and Francisco Partners. The facility consists of a $60 million revolver, a $475 million first-lien term loan and a $245 million second-lien term loan.

Aeroflex is a Plainview, N.Y., provider of high technology services to the aerospace, defense, cellular and broadband communications markets.

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