Alion Science and Technology extends exchange offer for 10¼% notes

By Angela McDaniels

Tacoma, Wash., May 30 - Alion Science and Technology Corp. extended the exchange offer and consent solicitation for its 10¼% senior notes due Feb. 1, 2015 to 9 a.m. ET on June 13 from 9 a.m. ET on June 12 and the early tender date to 5 p.m. ET on June 4 from 5 p.m. ET on May 28, according to a company news release.

The transactions began May 13 and are part of the company's previously announced plan to refinance its existing debt.

The company is offering to exchange all of the notes and the related guarantees for, at the election of the noteholders, either the new securities option; subject to proration, the cash option; or, for holders wishing to participate in a units offering, the new securities plus unit offering option.

The company will apply the proceeds generated from the units offering to finance the purchase of a portion of the notes accepted for exchange under the cash option.

As of 5 p.m. ET on May 28, holders had tendered $208,359,000 principal amount, or 88.66%, of the notes. That includes $203,505,000 of notes tendered under the new securities option, $3,477,000 tendered under the cash option and $1,377,000 tendered under the new securities plus unit offering option.

The company has received enough consents to approve some proposed amendments to the indenture governing the notes that will eliminate substantially all of the affirmative and negative covenants and eliminate some events of default.

Accordingly, the company has entered into a supplemental indenture containing the proposed amendments. These amendments will not become operative until the tendered notes have been accepted for exchange, which is expected to occur June 18.

The withdrawal deadline was 5 p.m. ET on May 28.

New securities option

Under the new securities option, holders may elect to receive the following for each $1,000 principal amount of notes accepted for exchange:

• $1,000 principal amount of the company's third-lien senior secured notes due 5.5 years after the settlement date and the related guarantees.

The cash interest rate for the new third-lien notes will be 8% for the first 30 months following the closing and will step up to 10% for months 31 through 36 and to 12% for the remaining term of the notes.

The payment-in-kind interest rate on the third-lien notes will be 5.5% in year one, 6.5% in year two, 7.5% in months 25 through 30, 5.5% in months 31 through 36, 4.5% in months 37 through 48, 5.5% in months 49 through 60 and 6.5% in months 61 through 66;

• One immediately exercisable warrant to purchase no less than 5.9701768 shares of the company's common stock at an exercise price of $0.01 per share (the "penny warrant"); and

• Three warrants, each to purchase no less than 2.3880707 shares of the company's common stock (the "cash warrants").

The cash warrants are exercisable and have exercise prices as follows:

• One of the cash warrants will be exercisable on the date on which its exercise price is set at an exercise price equal to the lesser of (a) $8.10 per share, (b) to the extent a valuation is delivered by the employee ownership, savings and investment plan trustee to the company prior to the settlement date or that relates to the period ended March 31, the value per share of the common stock as set forth in that valuation and (c) the value per share of the common stock as set forth in a valuation to be conducted within two months of the closing date;

• One of the cash warrants will be exercisable at any time following the first anniversary of the settlement date at an exercise price equal to the then-current per-share valuation for the purpose of valuing the common stock in connection with the employee ownership, savings and investment plan; and

• One of the cash warrants will be exercisable at any time following the second anniversary of the settlement date at an exercise price equal to the then-current per-share valuation for the purpose of valuing the common stock in connection with the employee ownership, savings and investment plan.

Cash option

Under the cash option, holders will receive $600 for each $1,000 principal amount of notes accepted for exchange.

If the cash required to purchase all notes tendered under the cash option (excluding accrued interest and the early tender payment) exceeds $20,000,400, each holder who elected the cash option will have the amount of notes accepted for exchange into the cash option prorated, and the balance of the notes will be exchanged into new securities as if that holder had elected the new securities option.

Securities plus units option

Under the new securities plus unit offering option, holders may elect to receive the same securities offered in the new securities option plus purchase units in the unit offering.

Depending on the principal amount of notes held, noteholders may be able to purchase units in the unit offering at a purchase price equal to $600 per unit.

Each unit consists of the same package of new securities being offered under to the new securities option in the exchange offer per $1,000 principal amount of notes tendered.

In order to purchase a unit, a noteholder must

• Validly tender all notes held under the new securities plus unit offering option by the early tender date;

• Irrevocably agree to purchase the maximum number of units as to which the holder is entitled to purchase (which assumes that the cash required to purchase all notes accepted for exchange under the cash option is at least $10,000,200); and

• Make a cash payment at the time of tender in an amount equal to $600 times the maximum number of units that the holder is entitled to purchase.

In the case of all three options, for each $1,000 principal amount of notes accepted for exchange in the exchange offer that are tendered by the early tender date, holders will receive an additional $15.00 in cash.

In order to participate in the exchange offer, holders must tender all of their notes.

The unit offering will expire at 5 p.m. ET on June 4, extended from 5 p.m. ET on May 28.

As of 5p.m. ET on May 28, noteholders have elected to purchase about 89 units in the unit offering for an aggregate purchase price of about $53,400. The election to purchase units in the unit offering cannot be revoked, except as required by law.

The completion of the transactions is subject to the receipt of tenders for at least 95% of the notes.

Goldman Sachs & Co. is the dealer manager and solicitation agent. The information and exchange agent is Global Bondholder Services (866 470-3900).

Alion, a research and development company whose primary customer is the U.S. government, is based in McLean, Va.

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