Alion Science and Technology again updates, extends 10¼% notes offer

By Toni Weeks

San Luis Obispo, Calif., Aug. 12 – Alion Science & Technology Corp. reported that investors had tendered for exchange $211,070,000, or 89.82%, of its 10¼% senior notes due Feb. 1, 2015 as of 5 p.m. ET on Aug. 12, slightly down from the $213,241,000 amount reported as of 5 p.m. ET on July 29, according to a press release on Tuesday.

The company also extended the deadline for the exchange offer, consent solicitation and unit offering by one day to 9 a.m. ET on Aug. 14 from 9 a.m. ET on Aug. 13. This is the ninth extension of the expiration date.

Alion also extended the early tender date and expiration date of the unit offering to 5 p.m. ET on Aug. 13 from 5 p.m. ET on Aug.12.

The deadline extensions were necessary because the registration statement related to the company’s offers was declared effective by the Securities and Exchange Commission on Aug. 11. Since the company had previously filed an amendment to the registration statement that included certain updated financial information, the deadlines were extended by one day each.

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

According to Tuesday’s press release, as of Aug. 12, holders of $206,833,000, or 88.02%, of the tendered amount had opted for the new securities option, holders of $2,793,000, or 1.19%, of the tendered bonds had opted for cash, and holders of $1,444,000, or 0.61%, of the amount had tendered opted for the new securities plus unit offering.

In comparison, as of July 29, holders of $207,791,000, or 88.42%, of the tendered amount had opted for the new securities option, holders of $4,006,000, or 1.71%, of the tendered bonds had opted for cash, and holders of $1,444,000, or 0.61%, of the amount had tendered opted for the new securities plus unit offering, according to a previous press release.

As of 5 p.m. ET on July 9, the breakdown was as follows: Holders of $207,714,000, or 88.39%, of the tendered amount opted for the new securities option; holders of $3,989,000, or 1.7%, of the tendered bonds opted for cash; and holders of $1,444,000, or 0.61%, of the amount tendered opted for the new securities plus unit offering.

As of 5 p.m. ET on July 23, holders had elected to purchase about 93 units in the unit offering for an aggregate purchase price of about $55,800, which is unchanged since July 23.

As previously announced, the transactions are part of the company’s previously announced plan to refinance its existing debt.

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.

The total exchange value for each $1,000 principal amount of notes accepted for exchange by the early deadline will include an additional $15.00 in cash.

More offer background

As already noted, the company 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 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 was expected to occur June 18.

The withdrawal deadline was 5 p.m. ET on May 28. Since the second supplemental indenture has been entered into, holders may not revoke the related consents.

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 5½ 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 5½% in year one, 6½% in year two, 7½% in months 25 through 30, 5½% in months 31 through 36, 4½% in months 37 through 48, 5½% in months 49 through 60 and 6½% 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 completion of the transactions and the company’s first-lien financing is now subject to the receipt of tenders for at least 90% of the notes. That figure was initially 95% when the offering was announced.

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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