Spacehab plans to offer new convertibles in exchange for 8% convertibles

New York, July 21 - Spacehab, Inc. said it is planning an exchange in which it will offer new 5.5% senior convertible notes due 2010 for its $63.25 million of 8% convertible subordinated notes due 2007.

The new notes rank higher in the capital structure, pay a lower coupon, mature later and have a lower conversion price than the existing notes.

Spacehab is making the exchange in order to increase its liquidity since it does not expect to be able to pay the principal due in 2007 on the existing notes, according to an S-4 filing with the Securities and Exchange Commission.

The exchange will reduce interest expense and extend the maturity of the notes. Other terms, including the conversion price, will be modified "so that they more closely resemble current market terms for convertible notes."

The new notes will mature on Oct. 15, 2010 and will have a conversion price starting at $2.12, rising to $2.19 on April 15, 2006, $2.25 on Oct. 15, 2006, $2.32 on April 15, 2007, $2.38 on Oct. 15, 2007, $2.44 on April 15, 2008 and $2.50 from Oct. 15, 2008 onwards.

If Spacehab's stock trades above $3.25 for 20 consecutive days, the notes will automatically convert. Spacehab's stock closed at $1.63 on Wednesday.

The old notes are convertible at $13.625.

The new notes will be callable with a make-whole premium before 2008 and at par plus accrued interest after that.

The notes will be exchanged on a one-for-one basis, according to the S-4 filing.

Spacehab is also soliciting consents to amend the indenture of the old convertibles. Holders who tender before the consent deadline will be obliged to agree to the amendments, and consents cannot be given without tendering.

The exchange is subject to conditions including the tender of at least $60.0875 million of the old convertibles.

SMH Capital Advisors Inc., the adviser to holders of $40.259 million of the outstanding convertibles, has said it will tender the securities, Spacehab said.

No expiration date has so far been set for the exchange.

Jefferies & Co., Inc. and Sanders Morris Harris Inc. are dealer managers and solicitation agents.

Spacehab is a Webster, Texas, provider of space services.

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