Exhibit 10.1

 

EXECUTION

 

ALION SCIENCE AND TECHNOLOGY CORPORATION

PROPOSED REFINANCING

SUMMARY OF PRINCIPAL AMENDED TERMS

 

July 22, 2014

 

This term sheet (the “Term Sheet”) sets forth certain principal terms and
conditions upon which ASOF II Investments, LLC (“ASOF”) and Phoenix Investment
Adviser LLC (“Phoenix”, and together with ASOF, the “Supporting Noteholders”)
will extend their commitment to support the proposed refinancing (the
“Refinancing”) of the outstanding indebtedness of Alion Science and Technology
Corporation (together with its affiliates and subsidiaries (where applicable),
the “Company”).  All capitalized terms used herein but not otherwise defined
shall have the meaning ascribed to them in that certain Amended and Restated
Refinancing Support Agreement (the “RSA”), dated May 2, 2014, by and between the
Company and the Supporting Noteholders.  All other terms of the RSA and the
Registration Statement shall remain in place except as modified herein.  This
Term Sheet is an agreement among the parties for the modification and amendment
of the RSA and the Registration Statement.  Upon and following execution of this
Term Sheet by the Company and the Supporting Noteholders, should there by any
inconsistency between this Term Sheet and the terms of the RSA, this Term Sheet
shall govern, and any such inconsistency shall be construed in the light most
favorable to the Supporting Noteholders.

 

New First Lien Term Loan

 

The New First Lien Term Loan shall be on terms that are consistent with the
terms set forth on Exhibit A, unless otherwise agreed to by the Supporting
Noteholders and the Company, and in form and substance satisfactory to the
Supporting Noteholders and the Company. The maximum All-In Yield requirement
shall be stricken from the RSA.

 

 

 

New Revolving Facility

 

The Company’s borrowings under the New Revolving Facility on the Closing Date
shall be subject to the Permitted Revolver Draw limitation as provided in the
RSA. Subject to receipt by the Supporting Noteholders of an updated cash
forecast and other backup from the Company, the Supporting Noteholders are
willing to consider and will confirm in writing removal of the Permitted
Revolver Draw limitation.

 

 

 

Tender/Exchange Offer

 

The Company shall file a new registration statement under the Securities Act of
1933 as soon as possible with the objective to file no later than July 25, 2014.
The prospectus in respect of the new registration statement will be used in
accordance with Rule 429 of the rules promulgated pursuant to the Securities Act
of 1933 (the “Rules”) as the amended and restated prospectus in respect of the
existing effective Registration Statement.

 

The Refinancing shall be completed using the existing Tender/Exchange Offer
currently set to expire on July 24, 2014 in lieu of commencing a new offer. The
Company shall pre-commence the

 

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Refinancing in accordance with Rule 162. The amended and restated Registration
Statement will provide that tendering holders will have the right to withdraw
their tenders.

 

The Company must include the Supporting Noteholders or their counsel in all
communications with the staff of the SEC with respect to the registration
statements and the combined prospectus (including any amendment or supplement
thereto). In addition, the Company must provide the Supporting Noteholders (and
their counsel) with reasonable opportunity to review and comment on any proposed
written communications (including by e-mail) with the staff of the SEC regarding
the registration statements and the combined prospectus (including any amendment
or supplement thereto) or any comments of the staff of the SEC to the
registration statement and the combined prospectus (including any amendment or
supplement thereto).

 

 

 

Minimum Tender Condition

 

The Minimum Condition for the Tender/Exchange Offer shall be 90%, or such lesser
percentage as determined by the Supporting Noteholders.

 

 

 

Outside Date

 

The Outside Date for the closing of the Refinancing shall be September 30, 2014.

 

 

 

Second Lien Term Loan, New Penny Warrants to Purchase 12.5% of the Outstanding
Common Stock of the Company, New Series A Preferred Stock of the Company

 

The initial principal amount of the New Second Lien Term Loan shall be increased
from $50,000,000 to $70,000,000. Of the aggregate $70,000,000 principal amount
of the New Second Lien Term Loan, $55,000,000 shall be funded by ASOF and
$15,000,000 shall be funded by Phoenix. The New Second Lien Term Loan shall
accrue interest at a rate of 14.25% per annum, which shall be capitalized and
added to the principal at the end of each quarter.

 

In consideration for the New Second Lien Term Loan in the amount of $70,000,000:

 

(x) ASOF shall receive (i) additional Penny Warrants to purchase 9.82% of the
outstanding Common Stock of the Company, (ii) 55 shares of Series A Preferred
Stock and (iii) the ASOF Incremental Second Lien Extension Fee; and

 

(y) Phoenix shall receive (i) additional Penny Warrants to purchase 2.68% of the
outstanding Common Stock of the Company, (ii) 15 shares of Series A Preferred
Stock and (iii) the Phoenix Second Lien Commitment Fee (each as defined and
described below).

 

The ASOF Incremental Second Lien Extension Fee, the Phoenix

 

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Second Lien Commitment Fee, the issuance of the Penny Warrants to the Supporting
Noteholders and the issuance of the Series A Preferred Stock to the Supporting
Noteholders shall be in addition to any and all fees, including any commitment
fees, extension fees or ticking fees, paid or to be paid under the RSA, which
fees shall remain due and payable as set forth in the RSA.

 

 

 

Penny Warrants to Purchase 12.5% of the Outstanding Common Stock of the Company

 

The Penny Warrants to be issued to ASOF and Phoenix in consideration for the New
Second Lien Term Loan shall be identical to the Penny Warrants to be issued in
the Tender/Exchange Offer, and shall be subject to the terms of the Warrant
Agreement, as modified by this Term Sheet. The aggregate amount of Penny
Warrants to be issued in connection with the Refinancing will entitle holders to
purchase 40% of the Company’s outstanding Common Stock, on a fully diluted
basis. The Penny Warrants shall not be subject to dilution.

 

 

 

Series A Preferred Stock of the Company

 

The 1 share of Series A Preferred Stock shall no longer be distributed to the
Warrant Agent. Instead, the number of authorized and issued shares of Series A
Preferred Stock will be increased from 1 to 70, and all of the 70 shares of
Series A Preferred Stock will be distributed directly to the Supporting
Noteholders, with 55 shares to be distributed to ASOF and 15 shares to be
distributed to Phoenix. The Series A Preferred Stock shall not be redeemable by
the Company. The Series A Preferred Stock to be distributed to the Supporting
Noteholders shall have all of the rights and protections that were contained in
the 1 share of Series A Preferred Stock that was to be distributed to the
Warrant Agent, except as otherwise specifically modified herein. The holder or
holders of a majority of the Series A Preferred Stock shall have at all times
the right to appoint a majority of the members of the Board.

 

The certificate of designations for the Series A Preferred Stock and the
Company’s charter and by-laws shall provide that with respect to any and all
matters on which there is a shareholder vote, there shall be a class vote of the
Series A Preferred Stock, and the affirmative vote of the majority of the shares
of Series A Preferred Stock outstanding shall be both necessary and sufficient
to approve all such matters for all or any classes or series of shareholders,
including, without limitation, for matters relating to (i) a sale of all or
substantially all of the Company’s assets or business, (ii) a liquidation or
dissolution of the Company, (iii) a merger, consolidation, recapitalization,
restructuring or reclassification of the Company, (iv) a change to the size or
composition of the Board as then set forth in the Organizational Documents,
(v) amendments to the Organizational Documents, (vi) amendments to the
certificate of designations for the Series A Preferred Stock, or (vii) any
matter or action that affects in

 

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any way the Series A Preferred Stock. The vote of the majority of the Series A
Preferred Stock shall be deemed to be the vote of a majority of all voting stock
of the Company. The entire voting power of the Series A Preferred Stock shall be
exercised as directed by the holders of a majority of the Series A Preferred
Stock outstanding. Written consent of the majority of the Series A Preferred
Stock shall be permitted. The Series A Preferred Stock is a separate and
detachable security from the Penny Warrants.

 

 

 

ASOF Incremental Second Lien Extension Fee and Phoenix Second Lien Commitment
Fee

 

As further consideration for the $70,000,000 New Second Lien Term Loan:

 

·                  ASOF shall receive a fee, payable in cash, in an amount equal
to $2,200,000 (the “ASOF Incremental Second Lien Extension Fee”), which shall be
payable in two installments as follows: (i) $1,100,000 payable on July 31, 2014
and (ii) if the closing of the Refinancing has not yet occurred, $1,100,000
payable on September 15, 2014. The ASOF Incremental Second Lien Extension Fee
shall be deemed fully earned upon execution of this Term Sheet.

 

·                  Phoenix shall receive a fee, payable in cash, in an amount
equal to $600,000 (the “Phoenix Second Lien Commitment Fee”), which shall be
payable in two installments as follows: (i) $300,000 payable on July 31, 2014
and (ii) if the closing of the Refinancing has not yet occurred, $300,000
payable on September 15, 2014. The Phoenix Second Lien Commitment Fee shall be
deemed fully earned upon execution of this Term Sheet.

 

The $2,500,000 Second Lien Commitment Fee that would be due to ASOF under the
RSA shall not be due and payable due to Phoenix’s participation in the New
Second Lien Term Loan. The Second Lien Commitment Fee shall be revised such that
it is payable if any person other than ASOF or Phoenix is a lender under the
Second Lien Term Loan or following termination of the RSA other than as a result
of a breach by ASOF.

 

 

 

New Third Lien Notes

 

The New Third Lien Notes shall bear interest as follows:

 

·                  an amount accruing at an annual rate of 5.5% shall be payable
in cash, and

 

·                  an amount accruing at an annual rate of 9.75% (which shall
increase by 0.5% on each of the fourth anniversary and fifth anniversary of the
Closing Date) shall be capitalized and added to the principal.

 

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Increase in Amount of Penny Warrants to be Issued to Exchanging Noteholders and
Elimination of Cash Warrants

 

The amount of Common Stock issuable upon exercise of the Penny Warrants to be
issued to holders of Existing Unsecured Notes who participate in the
Tender/Exchange Offer shall be increased from 12.5% to 27.5% of the Company’s
outstanding Common Stock, on a fully diluted basis. There shall be no Cash
Warrants issued in connection with the Refinancing.

 

 

 

Amendments to Warrant Agreement and Stockholders’ Agreement

 

The Warrant Agreement and Stockholders’ Agreement shall be amended to remove the
following:

 

·                  Drag-Along Rights

·                  Tag-Along Rights

·                  Information Rights

·                  Any and all voting rights for Warrant holders

 

 

 

Incentive Plan

 

Following consummation of the Refinancing, the Company will put in place a stock
incentive plan for management and key employees of the Company (the “Incentive
Plan”). Grants under the Incentive Plan will be made from time to time by the
post-Refinancing Board, on terms and conditions to be determined by the
post-Refinancing Board in consultation with management. Shares of Common Stock
or other equity interests in the Company issued pursuant to the terms of the
Incentive Plan shall not trigger anti-dilution adjustments under the terms of
the Warrant Agreement.

 

 

 

Representations, Warranties and Covenants

 

The Company hereby confirms that it is in compliance with all covenants in the
RSA and that all of the representations and warranties in the RSA are true and
correct as of the execution this Term Sheet. The Company hereby confirms that
neither the Company nor any of its subsidiaries are in default under any
Indebtedness.

 

 

 

Supporting Noteholder Fees and Expenses

 

Upon execution this Term Sheet, the Company shall, by wire transfer of
immediately available funds, pay all invoiced and outstanding Supporting
Noteholder Fees and Expenses. Such payment shall be a condition to the
effectiveness of this Term Sheet.

 

 

 

Documentation

 

All changes to the documentation for the Refinancing shall be consistent with
this Term Sheet and only made with the approval of the Supporting Noteholders.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Term Sheet as of the
date first above written.

 

 

ALION SCIENCE AND TECHNOLOGY CORPORATION

 

 

 

 

 

 

 

By:

/s/ Bahman Atefi

 

Name:

Bahman Atefi

 

Title:

Chairman and Chief Executive Officer

 

 

 

 

 

 

 

 ASOF II INVESTMENTS, LLC

 

 

 

 

 

 

 

By:

/s/ Lawrence A. First

 

Name:

Lawrence A. First

 

Title:

Managing Director

 

 

 

 

 

 

 

Notice Information

 

 

 

 

Address:

299 Park Avenue, 34th Floor
New York, NY 10171

 

Attention:

Eric L. Schondorf

 

Facsimile:

(212) 697-5524

 

Email:

eschondorf@american-securities.com

 

 

 

 

 

 

 

PHOENIX INVESTMENT ADVISER, LLC

 

 

 

 

 

 

 

By:

/s/ Jeffrey Peskind

 

Name:

Jeffrey Peskind

 

Title:

Chief Investment Officer

 

 

 

 

Notice Information

 

 

 

 

Address:

420 Lexington Avenue, Suite 2040
New York, NY 10170

 

Attention:

Jeffrey Peskind

 

Facsimile:

(212) 359-6210

 

Email:

jlpeskind@phoenixinvadv.com

 

[Signature Page to Term Sheet]

 

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Exhibit A

 

Terms of New First Lien Loan

 

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1 PRIVATE & CONFIDENTIAL $285 million 1st Lien Term Loan Borrower . Alion
Science & Technology Corporation (the “Borrower”) Amount . $110mm Term Loan A .
$175mm Term Loan B Tenor . 4.0 years . 5.0 years Indicative Pricing . L + 700 .
L + 1000 LIBOR Floor . 1.0% . 1.0% OID . 98.0 . 97.0 Amortization . $15mm /
$25mm / $25mm / Bullet . 1% per annum Mandatory Repayments . N/A . Mandatory
Repayments to include: — 100% Excess Cash Flow on the First Lien — 100% of
certain specified Asset Sales and Insurance Proceeds — 100% of Debt Incurrence
(other than permitted debt incurrence) Call Protection . 103, 102, 101 . 105,
103, 102, 101 First Out Revolver . $65mm First-Out Revolver . L + 475 Permitted
2nd Lien Term Loan . $70mm 2nd Lien . 14.25% PIK for life Permitted 3rd Lien .
Up to $235mm, subject to exchange threshold (expected is ~$213mm) . 5.5% cash +
9.75% (0.5% increase in years 5 & 6) Minimum Exchange Threshold . 90% Negative
Covenants . The Facilities will contain negative covenants with customary
baskets/carve-outs to be agreed, including limitations on asset sales, liens,
debt incurrence, investments and transactions with affiliates, mergers, acquire
assets, restricted payments, operational flexibility, etc. (all such limited
carve outs and baskets shall be consistent with normal course operations of the
company) Financial Covenants . Minimum EBITDA of $50mm (with equity or 2nd lien
debt cure); customary 3rd lien payment blockages to be addressed in
Intercreditor Agreement Conditions Precedent . To include: — Satisfactory
minimum exchange threshold achieved — Payment of structuring fee — Satisfactory
credit documentation 1st Lien Term Loan Indicative Terms & Conditions