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 
    


 











 

	
 
    	
 
    	
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 
    


 











 

	
 
    	
 
    	
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 
    


 











 

	
 
    	
 
    	
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.
    


 











 

	
 
    	
 
    	
 
    
	
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]

 











 

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]

 











 

Exhibit A

 

Terms of New First Lien Loan

 














 


 




	
  

  	
  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