As filed with the Securities and Exchange Commission on April 29, 2015

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Alion Science and Technology Corporation

(Exact name of registrant as specified in its charter)

Delaware

8711

54-2061691

(State or other jurisdiction of

incorporation or organization)

(Primary standard industrial

classification code number)

(I.R.S. employer

identification number)

1750 Tysons Boulevard

Suite 1300

McLean, Virginia 22102

(703) 918-4480

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Bahman Atefi

President, Chairman and Chief Executive Officer

Alion Science and Technology Corporation

1750 Tysons Boulevard

Suite 1300

McLean, Virginia 22102

(703) 918-4480

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Kevin T. Boyle, Esq.

Alion Science and

Technology Corporation

1750 Tysons Boulevard

Suite 1300

McLean, Virginia 22102

(703) 918-4480

Stuart H. Gelfond, Esq.

Joshua Wechsler, Esq.

Fried, Frank, Harris, Shriver &

Jacobson LLP

One New York Plaza

New York, New York 10004

(212) 859-8000

Marc D. Jaffe, Esq.

Senet S. Bischoff, Esq.

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

(212) 906-1200

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee
Common Stock, $0.0001 par value per share	$100,000,000	$11,620

(1)	Includes offering price of shares of common stock which the underwriters have the option to purchase.

(2)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated April 29, 2015.

LOGO

Alion Science and Technology Corporation

Common Stock

This is our initial public offering. We are offering shares of common stock.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . We intend to list the common stock on under the symbol “ ”.

We are an “emerging growth company” and we are eligible for, but have not elected to adopt in this prospectus, reduced reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company”.

See “Risk Factors” on page 17 to read about the factors you should consider before buying shares of the common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total
Initial public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to us	$	$

To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from us at the initial price to the public less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on , 2015.


Credit Suisse		Jefferies

Wells Fargo Securities

Prospectus dated , 2015.

TABLE OF CONTENTS


INDUSTRY AND MARKET DATA			i
TRADEMARKS			i
CERTAIN DEFINED TERMS			i
NON-GAAP FINANCIAL MEASURES AND OTHER FINANCIAL INFORMATION			iii
PROSPECTUS SUMMARY			1
RISK FACTORS			17
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS			34
USE OF PROCEEDS			35
DIVIDEND POLICY			36
CAPITALIZATION			37
DILUTION			39
SELECTED CONSOLIDATED FINANCIAL DATA			41
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			43
BUSINESS			78
MANAGEMENT			100
EXECUTIVE COMPENSATION			108
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			122
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			124
DESCRIPTION OF CERTAIN INDEBTEDNESS			126
DESCRIPTION OF CAPITAL STOCK			131
SHARES ELIGIBLE FOR FUTURE SALE			138
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS			139
UNDERWRITING			143
LEGAL MATTERS			146
EXPERTS			146
WHERE YOU CAN FIND ADDITIONAL INFORMATION			146
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

Through and including , 2015 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or any free writing prospectus that we, or someone on our behalf, have prepared. Neither we nor any underwriter take responsibility for, or can provide assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares that we are offering in this prospectus, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

INDUSTRY AND MARKET DATA

We obtained the industry, market and competitive position data used throughout this prospectus from our own research, surveys or studies conducted by third parties and industry or general publications. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified such data. Similarly, we believe our internal research is reliable but it has not been verified by any independent sources.

TRADEMARKS

This prospectus contains registered and unregistered trademarks and service marks of Alion Science and Technology Corporation and its affiliates, as well as trademarks and service marks of third parties. All brand names, trademarks and service marks appearing in this prospectus are the property of their respective holders. The following terms which may be used in this prospectus are our trademarks and/or trade names: Alion and the Alion logo.

CERTAIN DEFINED TERMS

The following are definitions of certain key terms used throughout this prospectus:

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“2010 Warrants” means the warrants issued by the Company on March 22, 2010 to holders of Secured Notes;

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“2014 Refinancing” means the series of transactions that occurred on August 18, 2014, as described in the section entitled “Business – 2014 Refinancing”;

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“2014 Warrants” means the warrants issued by the Company on August 18, 2014 to ASOF, Phoenix, and other holders of the Existing Third Lien Notes and the lenders under the Existing Second Lien Term Loan which, immediately prior to consummation of this offering and assuming consummation of the Transactions, will be exercised in full;

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“ASOF” means ASOF II Investments, LLC;

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“Company” means, unless the context requires otherwise, Alion Science and Technology Corporation, a Delaware corporation, and its subsidiaries on a consolidated basis;

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“ESOP” means the Alion Science and Technology Corporation Employee Ownership, Savings and Investment Plan, as amended, which is sometimes referred to as the “Plan”, the “KSOP” or “Alion KSOP”;

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“ESOP Trust” means the Alion Science and Technology Corporation Employee Ownership Savings and Investment Trust;

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“Existing Credit Agreements” means the credit agreements entered into as part of the 2014 Refinancing governing the Existing First Lien Term Loan and the Existing Second Lien Term Loan, and the Existing Revolving Credit Facility, collectively;

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“Existing Debt Instruments” means the Existing Credit Agreements and the indenture governing the Existing Third Lien Notes, collectively, entered into as part of the 2014 Refinancing;

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“Existing First Lien Term Loan” means our first lien term loan in an initial aggregate principal amount of $285 million entered into as part of the 2014 Refinancing, which includes two tranches: Tranche A (in an initial aggregate principal amount of $110 million) and Tranche B (in an initial aggregate principal amount of $175 million);

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“Existing Revolving Credit Facility” means our $65 million (subject to borrowing base limitations) revolving credit facility entered into as part of the 2014 Refinancing, with Wells Fargo Bank, National Association, as administrative agent and the lenders party thereto;

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“Existing Second Lien Term Loan” means our second lien credit agreement entered into as part of the 2014 Refinancing, in an initial aggregate principal amount of $70 million, with ASOF and JLP Credit Opportunity Master Fund Ltd., an affiliate of Phoenix, as lenders;

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“Existing Third Lien Notes” means third lien notes (i) in initial aggregate principal amount of $208.1 million issued by the Company as part of the 2014 Refinancing, in exchange for approximately 90% of the Company’s Unsecured Notes, plus (ii) $2.9 million in aggregate principal amount issued for cash at a discount;

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“Existing Warrants” means the 2010 Warrants and the 2014 Warrants;

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“New Credit Agreement” means that new credit agreement or credit agreements the Company expects to enter into pursuant to the IPO Refinancing;

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“Phoenix” means Phoenix Investment Adviser, LLC;

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“Secured Notes” means the 12% Senior Secured Notes due 2014, which were refinanced in their entirety in 2014;

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“Series A Preferred Stock” means shares of our outstanding Series A Preferred Stock, par value $0.01 per share, issued in August 2014, all of the outstanding shares of which, assuming the consummation of the Transactions, we expect will be eliminated in their entirety;

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“Transactions” means (a) our initial public offering and (b) the refinancing, or the IPO Refinancing, in full of our currently outstanding debt, a portion of which we expect to refinance through committed financing and the remainder of which will be repaid in full with the proceeds of this offering;

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“U.S. GAAP” means accounting principles generally accepted in the United States; and

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“Unsecured Notes” means the 10.25% Senior Notes due 2015, which are no longer outstanding.

NON-GAAP FINANCIAL MEASURES AND OTHER FINANCIAL INFORMATION

We have included certain financial measures in this prospectus that are not recognized under U.S. GAAP, including earnings before interest, income taxes, depreciation and amortization, which we refer to as EBITDA, and Consolidated EBITDA, which is defined in the Existing Credit Agreements. We believe that the presentation of EBITDA and Consolidated EBITDA enhances an investor’s understanding of our financial performance. We believe EBITDA is useful in assessing operating performance and in comparing our performance to other companies in the same industry. EBITDA is a common financial metric in the government contracting industry, in part because it excludes from performance the effects of a company’s capital structure, in particular taxes and interest. In addition, we believe Consolidated EBITDA can be useful in evaluating our ability to meet our debt covenants. Consolidated EBITDA information for the trailing four-quarters is used by management and is important to our security holders as our Existing Credit Agreements require that we achieve minimum trailing four-quarter Consolidated EBITDA levels and maintain a minimum one-to-one fixed charge coverage ratio, which is also measured on a trailing four-quarter basis at the end of each quarter. EBITDA and Consolidated EBITDA are not measures under U.S. GAAP and our use of the terms EBITDA and Consolidated EBITDA varies from others in our industry. EBITDA and Consolidated EBITDA should not be considered as alternatives to net income (loss), operating income or any other performance measures derived in accordance with U.S. GAAP, as measures of operating performance or operating cash flows or as measures of liquidity.

EBITDA and Consolidated EBITDA have material limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. For example, EBITDA and Consolidated EBITDA:

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do not reflect any cash capital expenditure requirements for assets being depreciated and amortized that may have to be replaced in the future;

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do not reflect changes in, or cash requirements for, our working capital needs; and

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do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt.

In addition, Consolidated EBITDA, as defined in the Existing Credit Agreements, reflects the cash impact relating to the Company’s ESOP and other long-term incentive plans (by adding back non-cash items and subtracting cash items that had been previously included in Consolidated EBITDA in prior periods), while EBITDA does not reflect such adjustments.

Numbers and percentages presented in the tables in this prospectus may not sum to the totals presented due to rounding.

iii

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus, but is not complete and may not contain all of the information that is important to you or that you should consider before making an investment decision. To understand all of the terms of this offering and to attain a more complete understanding of our business and financial situation, you should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and related notes contained elsewhere in this prospectus.

Our Company

We are a leading provider of engineering solutions and services to the Federal Government for national defense, security and other critical government areas. Founded in 1936 as the Illinois Institute of Technology Research Institute, or IITRI, Alion and its highly skilled and educated employees have consistently been at the forefront of originating, developing and applying innovative scientific, engineering, technology and research and development solutions to our customers’ most complex challenges. Based in McLean, Virginia, we operate in three core business areas:

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Naval Architecture and Marine Engineering core business area, in which we provide technical expertise for ship and systems design as well as acquisition and production supervision, testing, delivery and engineering support to naval and commercial markets, both domestically and internationally.

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Systems Analysis, Design and Engineering core business area, in which we provide services and technologies designed to enhance the performance and safety of complex systems and reduce costs.

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Modeling, Simulation, Training and Analysis core business area, in which we leverage our proprietary software, services and technologies to improve mission effectiveness and readiness through the cost effective application of virtual training.

A significant focus of our solutions and services is our agile engineering work, almost all of which is currently conducted in our systems analysis, design and engineering core business area. Agile engineering is the design, rapid prototyping, testing and limited production of systems and components. This is a substantial and growing part of our business. Within our agile engineering service we provide a broad range of solutions that respond directly to product line managers’ needs, usually on a time-critical basis. Our ability to progressively design, prototype, test and field solutions to emergent problems in close collaboration with (and often embedded in) customer teams results in effective, affordable and timely solutions. We believe our ability to combine traditional services with technological and engineering expertise in a time-critical, cost-efficient manner sets us apart in our industry.

Our solutions and services span the full lifecycle of key programs and provide us with long-standing, entrenched relationships with our customers. The long-term nature of our service offering also allows us to expand our footprint on existing programs and to use our capabilities and relationships to capture new growth opportunities. For fiscal year 2014, which ended on September 30, 2014, we generated revenue of $804.8 million, $68.0 million in Consolidated EBITDA and reported a net loss of $44.0 million. For the three months ended December 31, 2014 and 2013, we generated revenue of $227.9 million and $185.4 million, respectively, $19.2 million and $14.9 million in Consolidated EBITDA, respectively, and reported a net loss of $9.9 million and $18.5 million, respectively. This represents an increase in revenue and Consolidated EBITDA of 22.9% and 28.9%, respectively, and a decrease in net loss of 46.5%. For a discussion of our use of Consolidated EBITDA and a reconciliation to net loss, please refer to “– Summary Historical Consolidated Financial Data”.

customers and over 500 active contracts. For calendar year 2014, U.S. Department of Defense, or DoD, customers represented 93.8% of our revenue and other civilian agencies and commercial customers accounted for 6.2% of our revenue.

As illustrated in the diagram below, our value proposition is based on the strength of our customer relationships, combined with the quality, depth and skills of our people. This blend of capability and experience enables us to provide innovative and cost-efficient solutions to our customers’ most pressing problems. Our relentless focus on client-centric innovation is rooted in our heritage as a spin-out of IITRI and the passion and commitment of our highly educated workforce. Our business model is built upon a foundation of high-visibility, long-term programs with our long-standing customers, enabling us to continuously expand our presence into high-growth areas, both by responding to our customers’ identified needs as well as current or future challenges that we identify and work to solve for our customers.

LOGO

We further attribute our growth to being well-aligned with priorities in the Navy, the Army, the Air Force and other DoD customers, which accounted for 54.7%, 16.0%, 15.2% and 8.0%, respectively, of our calendar year 2014 revenues. The overwhelming majority of our revenues are funded by the DoD base budget. Of our calendar year 2014 revenue, 93.7% was generated from cost reimbursable and time and material contracts, which carry lower risk, are more predictable and provide greater revenue visibility than fixed price contracts. With over 88% of our calendar year 2014 revenue generated as a prime contractor, we have direct relationships that provide deep insight into our customers’ priorities.

The following charts show our revenue by core business area and contract type for the 2014 calendar year:

LOGO

Our innovative technology solutions in all of our core business areas are supported by our skilled employee base, which includes engineers, scientists, analysts and former military personnel. As of December 31, 2014, approximately 80% of our employees had security clearances, with approximately 30% of our employees holding clearances at the Top Secret level or above, allowing us access to highly classified DoD information systems and networks. Our workforce is highly educated with approximately 30% of degreed employees having PhDs or Masters degrees, 75% of which are in Engineering, Science or Math / Computer Science. To enhance our technology solutions, we have over 100,000 square feet of laboratory facilities, which we use to conduct customer-funded research and development activities, and to a lesser degree, internally-funded research and development activities.

We have a long operating history of providing a broad range of engineering-based solutions, from requirements development to the actual implementation, maintenance and upgrading of systems. We have supported the Information Analysis Centers for the Defense Technical Information Center for over 45 years and have been providing the U.S. Navy with naval architecture and marine engineering support for over 55 years. Illustrative examples of our engineering and technology solutions include:

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Alion provides agile engineering support for the modernization and upkeep of 146 Maritime Patrol and Reconnaissance Aircraft including multiple systems upgrades in the crew, electronics and radar systems.

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Alion provides agile engineering and in-service support to the U.S. Army to upgrade and maintain over 200 ground-based mobile surveillance systems. Our work integrated multiple technologies and upgrades to extend their service life and enhance system effectiveness.

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Alion is the prime contractor providing design, production, and in-service support across all of the Navy’s submarine classes for the Program Executive Officer Submarines. Our work spans design engineering, systems integration, logistics, production support, training, and in-service support across the 70 in-service submarines, six currently under construction, and the ongoing design of the Ohio Replacement Ballistic Missile Submarine Program.

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Alion is the prime contractor responsible for the design, development, integration, test and operation of the Navy Continuous Training Environment, or NCTE. The NCTE integrates simulation and stimulation systems into a single environment, which enables Navy personnel to train and experiment in virtual worldwide locations with realistic weapons, communications, command and control systems operations, and interactions.

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Alion is the developer of the Mobile Technology and Repair Complex for the Special Operations Forces, or SOF. These systems allow SOF to repair, modernize and fabricate equipment and material to execute a broad range of responsive engineering operations that address SOF-specific requirements and improve the effectiveness of deployed SOF mission capabilities in austere environments.

The Market Opportunity

For U.S. government fiscal year 2015, the approved DoD appropriations totaled $560 billion. Of that amount, $496 billion was for the base budget and the remainder was for what are termed overseas contingency operations. While the Budget Control Act of 2011 is still in effect, lawmakers have made efforts over the past several years to protect U.S. defense appropriations, including the Ryan-Murray Agreement and the Bipartisan Budget Act of 2013. We believe that these efforts will continue to stabilize actual budget allocations.

LOGO

Note: FY’08 through FY’15 represents actuals. FY’16 through FY’20 represents the President’s FY20l6 Budget request and forecast as submitted to Congress in February 2015.

Source: Department of Defense FY2016 Budget.

The overwhelming majority of Alion’s work and services are performed within the DoD’s base budget and in many cases focus on upgrading or optimizing existing programs and platforms efficiently and cost-effectively.

Alion growth opportunities are well-aligned with U.S. defense priorities. As illustrated in the chart below, Alion maintains a strong alignment with U.S. defense priorities. The DoD’s emphasis on an increased presence in the Asia-Pacific region is aligned with our work supporting the DDG-51 AEGIS Destroyer and the Flight III design and integration of Ballistic Missile Defense and the replacement fleet oiler required to support the Pacific region. DoD’s continuous investments to maintain technical superiority are aligned with our current engineering and technical work on critical programs, including F-35 Lightning II and the Ohio Replacement Ballistic Missile Submarine Program. Most importantly, our competency in agile engineering and rapid prototyping align with the DoD’s ongoing investments in existing platforms to address obsolescence, integrate new systems, upgrade legacy systems, extend in-service lives, and improve operational performance.

LOGO

Attractive addressable market. We believe that the total addressable market for our three core business areas is approximately $68 billion per annum, comprising three main end customers: (1) the DoD, representing approximately $55 billion, (2) the commercial/international market, representing approximately $7 billion and (3) the federal civilian market, representing approximately $6 billion. Based on our size, our market share within each of these three core areas is less than 3%, with an overall market share of approximately 1%. We believe that based on our ability to win and retain business as well as expand our footprint with constantly evolving products and solutions, gains in market share should continue to support Alion’s growth profile.

transport. There is an additional approximately $3 billion per annum addressable market where our competency in agile engineering can be applied to address obsolescence in fielded mature systems. For example, we are currently involved in reverse engineering component designs to upgrade the P-3 radar systems in support of the Naval Air Command because existing spare part inventories were exhausted. We are also supporting the Army’s program manager for electro-optic infrared sensors to reset perimeter monitoring towers that were brought back from Iraq and Afghanistan. This reset includes integrating new full-spectrum sensors and full motion video.

Government focus on efficient, cost-effective solutions and procurement practices. Criticism of government inefficiencies has led to a focus on identifying opportunities to achieve “more with less”. We believe government demand for solutions that enhance, upgrade, sustain and improve existing platforms and programs will continue to increase. Offering holistic packages that combine strong technical and economic solutions with effective, customer-tailored contract structures represents a significant competitive advantage.

Our Value Proposition

Relative revenue outperformance versus competitors in a challenging defense environment. Alion generated cumulative revenue growth of 9.1% from calendar year 2011 through 2014, and 2.1% from calendar year 2013 through 2014, which favorably compares with the average of our public company industry peers of cumulative revenue declines of (24.2)% and (8.2)%, respectively, as shown below. We believe Alion significantly outperformed that peer group due to our alignment with enduring defense priorities, and our ability to provide high-end, cost-effective services and solutions.

LOGO

Combining science, engineering and technology. We offer innovative science, engineering and technology solutions in all of our core business areas, which we have developed over our 79-year history. Our innovative solutions are supported by our skilled employee base, which includes engineers, scientists and former military personnel. This allows us to combine engineering capabilities, scientific skills and domain expertise to provide solutions that incorporate current technologies with real-world understanding of and experience with DoD programs, systems and networks. We employ approximately 2,800 people, at least 52% of whom have been with us for more than five fiscal years. Our workforce is highly educated, with approximately 30% of degreed employees having PhDs or Masters degrees, with 75% of those degrees in Engineering, Science or Math / Computer Science. Approximately 34% of our employees are veterans. As of December 31, 2014, approximately 80% of our employees had security clearances, with approximately 30% of our employees holding clearances at the Top Secret level or above, allowing us access to highly classified DoD systems and networks. To further enhance our technology solutions, we have over 100,000 square feet of laboratory facilities, which we use to conduct customer- and internally- funded technology and research and development activities, often times embedded within our customers facilities.

Large contract backlog and significant revenue visibility. As of December 31, 2014, our backlog was approximately $1.5 billion and approximately $499 million of this backlog was funded. The strength of our backlog provides us with longer-term visibility of our future revenue and the long-term nature of our contracts provides an ongoing revenue stream. As a result of our strong backlog, as of December 31, 2014, our fiscal year 2015 revenue forecast was 92% under contract.

Strong free cash flow generation. Our business model generates strong free cash flow as a result of low capital expenditure requirements and modest working capital needs. Our capital expenditures have been less than 1% of revenue on average over the past five fiscal years. We intend to utilize our strong free cash flow to continue to deleverage the business going forward. In addition, as of December 31, 2014, we had net operating loss carryforwards, or NOLs, and other deferred tax assets, of $241 million and $127 million, respectively.

Long-standing customer relationships. As a result of our innovative technology solutions and long operating legacy of superior performance, we have developed a strong reputation within our industry and with our customers for providing quality expertise in our core business areas. Our relationships across the DoD span decades.

Diverse government customer base with multiple contract vehicles. As of December 31, 2014, we perform services for a broad base of more than 200 distinct customers, including Cabinet-level government departments and agencies, and state and foreign governments. We earn revenue from our diverse customer base through a broad array of task orders that are issued under multiple contract vehicles awarded by U.S. government agencies and through other customers. Our multiple contract vehicles provide us with more flexibility to obtain tasking and associated funding from the U.S. government. For calendar year 2014, U.S. government contracts accounted for 97.3% of our revenue, with 93.8% of our revenue derived from DoD contracts. As of December 31, 2014, we had more than 200 distinct customers and over 500 active contracts. We are the prime contractor for 88% of the revenue generated in calendar year 2014 from our contracts. Our largest individual contract (stand-alone contract) accounted for approximately 8.0% of our revenues for calendar year 2014.

Experienced, consistent management team. The six senior members of our management team average more than 30 years of experience in the defense and related industry sectors, and have significant experience in government contracting. Members of senior management hold equity stakes through investment in our common stock through our ESOP.

Our Strategy for Continued Growth

Our engineering capabilities are aligned with DoD budget and mission priorities. A critical part of the DoD’s success in the future will depend on cost-effective, rapid engineering solutions for critical platform and operational programs. Alion’s high-end agile engineering solutions provide a differentiated capability to support the DoD’s missions through modernization and upgrade of platforms and systems. Our design engineering and systems analysis services continue to address the DoD requirements for development of new programs and solutions to maintain the country’s technology edge and to meet the decisive superiority requirements of the 2014 Quadrennial Defense Review, or 2014 QDR. Alion’s deep domain knowledge, turn-key solutions approach, and design, production and in-service support offering directly support our current and continued growth. Our strategy to maintain our growth will leverage our experience and reputation to expand our work for existing and new customers. We will continue to leverage our high-end engineering and agile engineering services to support the modernization and upgrade of existing systems. We will further continue to broaden our core business areas through internal investment and organic growth that complements our customer-funded research and development in new capabilities, technologies, and solutions.

Alion’s technical services span the product life cycle, which allows us to service both new systems and programs as well as deliver agile engineering and in-service support services in the operations and sustainment of existing platforms and equipment, as shown in the following diagram.

LOGO

Continue to prioritize organic revenue and cash flow growth. We completed our most recent corporate acquisition in calendar year 2007. Subsequently, our revenue has grown at a compounded annual growth rate of 2.2% despite a difficult defense budget environment, from $745.1 million for calendar year 2008 to $847.3 million for calendar year 2014. More recently, our revenue has grown on a sequential basis for each quarter of calendar year 2014. For the three months ended December 31, 2014, revenue increased by 22.9% over the three months ended December 31, 2013. Going forward, we plan to continue to prioritize organic revenue and cash flow growth and to further deleverage our balance sheet. For more than five years, Washington Technology and Defense News has continued to rank us among the top professional services government contractors. Washington Business Journal continues to rank us in its top 20 technology government contractors and government contract awardees.

Multiple engines of growth. Alion will continue to invest in multiple engines of growth, including:

Agile engineering. Our agile engineering business more than doubled over the last three fiscal years, and accounted for approximately 20% of our calendar year 2014 revenue. Our competency in agile engineering and rapid prototyping align with the DoD’s ongoing investments in existing systems to address obsolescence, integrate upgrades, and improve operational performance. Our competency in agile engineering requires a high level of skill, but is cost-efficient, and provides a fast fix for our customers.

Continued growth in engineering services. We are expanding our design engineering, production oversight, test and evaluation and in-service support to the Navy warfare center community and international customers including Canada. We are expanding our systems engineering, logistics and foreign military sales support for the F-35 Lightning II Joint Project Office, multiple Naval Aviation programs, and the Littoral Combat Ship programs.

Expansion of our modeling & simulation, information technology and cybersecurity solutions. We will carry our prime role on NCTE across the fleet and shore-side infrastructure. We continue to grow our cyber capabilities to support training of cyber warriors by emulating the effects and remediation of cyber attacks. We are expanding our work across the cyber domain including electronic warfare, cyberspace operations, and military information support operations.

Continue to focus on operational efficiency and profitability. We remain focused on growing our business and continuously achieving operating efficiencies that will benefit our performance directly through increased profitability and indirectly through our increased competitiveness vis-à-vis our customers. In the past two fiscal years, we reduced annual operating costs by approximately $8.0 million. These operational improvements and cost reductions have enabled us to improve our competitive position by delivering cost effective solutions to the Federal Government. In addition, in the first quarter of fiscal year 2015, we began to implement additional cost reductions that we expect to reduce our annual operating costs by approximately $13.0 million.

Continue to attract and retain highly experienced employees. We plan to continue to expand our expertise, in particular in the areas of technological developments, where we believe we have a significant advantage over our competition. We hire skilled employees, engage in business development initiatives and invest in projects to expand our employees’ skill sets within our strong culture of innovation. We increase our employees’ technological and program management skills through training, internally funded projects and mentoring. We offer our employees non-degree programs in information technology, business, and desktop applications through “Alion University” to maintain and enhance our employees’ skills and advance our reputation in the commercial technology solutions markets. Additionally for the past four years, Military Times EDGE has voted us a “Best for Vets Employer”.

Contracting tools promote growth. Our Information Analysis Centers, or IAC, contracts provide an agile contracting mechanism across the Federal Government for best value for highly technical services. IAC vehicles are growing in popularity as our customers across the Federal Government use the IAC vehicles to rapidly access the most effective and advanced technologies and services. Our award values under the IAC programs grew 52% from fiscal year 2013 to fiscal year 2014 and our current pipeline of identified new business is over $2 billion.

Refinancing and Operational Initiatives

In August 2014, we completed a series of refinancing transactions in order to extend our debt maturities, reduce our cash interest expense and provide institutional sponsorship (as described more fully in “Business—2014 Refinancing”. Following the 2014 Refinancing, we reorganized by shifting to a matrix structure with four P&L centers reporting directly to the CEO, which eliminated management layers and associated indirect costs. We also

engaged external consultants to conduct industry benchmarking, which has resulted in identifying meaningful cost-savings opportunities that enhance our competitive position on new bids. We continue to focus on gross margin expansion through improved program execution, diversification of our customer and contract mix and increasing of our labor content, as well as increased investment in and efficiency of our business development efforts.

IPO Refinancing

In connection with this offering, we intend to refinance all of our currently outstanding debt, a portion of which we expect to refinance through committed financing and the remainder of which will be repaid in full with the proceeds of this offering. See “Use of Proceeds”, “Capitalization” and “Description of Certain Indebtedness”.

Risks Relating to Our Business and This Offering

Participating in this offering involves substantial risk. Our ability to execute our strategies is also subject to certain risks. The risks described under the heading “Risk Factors” immediately following this summary may cause us not to realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategies. Some of the more significant challenges and risks include the following:

•

we depend on U.S. government contracts for substantially all of our revenue. Changes in the contracting or fiscal policies of the U.S. government could adversely affect our business, financial condition, results of operations and ability to satisfy our financial obligations, and grow our business;

•

delays in the federal budget process, including actions related to the need to raise the debt ceiling and any future Federal Government shutdown, could delay procurement of, and payment for, the products, services and solutions we provide and materially and adversely affect our revenue, gross margin, operating results and cash flow;

•

the Budget Control Act of 2011 caused significant delays or reductions in Federal Government appropriations for our current and future programs and may negatively affect our revenue and materially and adversely affect our financial condition, operating results, cash flows and ability to satisfy our financial obligation, and grow our business;

•

we face intense competition from many companies that have greater resources than we do. This could cause price reductions, reduced contract profitability, and loss of market share;

•

historically, a few contracts have provided most of our revenue. If we do not retain or replace these contracts our operations and financial condition will suffer;

•

if we are unable to achieve or manage growth, our business could be materially adversely affected;

•

we may lose one or more members of our senior management team or fail to develop new leaders, which could cause the disruption of the management of our business;

•

our business could suffer if we fail to attract, train and retain skilled employees;

•

our subcontractors’ failure to perform contractual obligations could damage our reputation as a prime contractor and our ability to obtain future business;

•

further adverse changes in market conditions, the stock market, the merger and acquisition environment in our industry or Federal Government budget constraints could adversely affect the value of our operating businesses which could cause us to recognize a goodwill impairment charge in the future;

•

our employees may engage in misconduct or other improper activities, which could harm our business;

•

many of our U.S. government customers produce goods and services through multiple delivery order type contracts under which we must compete for post-award orders;

•

U.S. government contracts contain termination provisions that are unfavorable to us;

•

as a U.S. government contractor, we must comply with complex procurement laws and regulations and our failure to do so could result in suspension or debarment from doing business with the U.S. government or otherwise have a negative impact upon our business;

•

we derive significant revenue from U.S. government contracts awarded through competitive bidding, which is an inherently unpredictable process;

•

our business could be materially negatively impacted by security threats and breaches, including cybersecurity threats, and other disruptions;

•

our failure to maintain necessary security clearances may limit our ability to carry our confidential work for U.S. government customers, which could cause our revenue to decline; and

•

the other factors set forth under the “Risk Factors” in this prospectus.

Before you participate in this offering, you should carefully consider all of the information in this prospectus, including those matters set forth under the heading “Risk Factors”.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include:

•

we are required to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

•

we are not required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002;

•

we are not required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

•

we are not required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay”, “say-on-frequency” and “say-on-golden parachutes”; and

•

we are not required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have not elected to adopt the reduced disclosure in this prospectus other than with respect to the reduced disclosure in the section entitled “Selected Consolidated Financial Data”.

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period is irrevocable.

Corporate Information

We are a Delaware corporation. Our executive offices are located at 1750 Tysons Boulevard, Suite 1300, McLean, VA 22102, and our telephone number is (703) 918-4480. Our corporate website address is http://www.alionscience.com. Our website and the information contained on our website are not part of the prospectus, and information contained therein should not be relied upon when making an investment decision.

The Offering

Issuer

Alion Science and Technology Corporation.

Common stock offered by us

shares.

Option to purchase additional shares of common stock from us

shares.

Common stock outstanding immediately after the offering

shares, assuming no exercise of the underwriters’ option to purchase up to an additional shares of common stock from us.

Use of proceeds

We estimate that the net proceeds we will receive from the sale of shares of our common stock in this offering, after deducting underwriter discounts and commissions and estimated offering expenses payable by us (assuming the shares are sold at the midpoint of the range on the cover of the prospectus), will be approximately $ , million, or $ million if the underwriters’ exercise their option to purchase additional shares in full. We intend to use the net proceeds from this offering to repay debt. See “Use of Proceeds”.

Dividend policy

Alion has never declared any cash dividends. Following the completion of this offering, we do not expect to pay any dividends in the future and the terms of our debt instruments will limit our ability to do so. See “Dividend Policy”.

Risk factors

See “Risk Factors” beginning on page 17 of this prospectus for a discussion of factors that you should carefully consider before deciding to invest in shares of our common stock.

Listing

We intend to apply to have our common shares listed on the , under the symbol “ ”.

Unless otherwise indicated, all information in this prospectus assumes or gives effect to:

•

the IPO Refinancing;

•

the elimination of all of our outstanding Series A Preferred Stock as described in “Description of Capital Stock – Preferred Stock”;

•

full exercise of the 2014 Warrants as described in “Description of Capital Stock – 2014 Warrants”;

•

no exercise by the underwriters of their option to purchase additional shares of our common stock; and

•

an assumed initial public offering price of $ per share, the midpoint of the estimated offering price range set forth on the cover of this prospectus.

Summary Historical Consolidated Financial Data

The following tables present summary historical condensed consolidated financial data for each of our last three fiscal years ended September 30, 2014, 2013 and 2012, for the three months ended December 31, 2014 and 2013, for the twelve months ended December 31, 2014, and as of September 30, 2014 and 2013 and December 31, 2014. The summary historical condensed consolidated financial data for the fiscal years ended September 30, 2014, 2013 and 2012 and as of September 30, 2014 and 2013 have been derived from our audited financial statements which are included elsewhere in this prospectus. The summary historical condensed consolidated financial data for the three months ended December 31, 2014 and 2013 and as of December 31, 2014 has been derived from our unaudited condensed consolidated interim financial statements which are included elsewhere in this prospectus. The summary historical condensed consolidated financial data for the twelve months ended December 31, 2014 was calculated by adding amounts from our financial statements for the fiscal year ended September 30, 2014 to amounts from our unaudited financial statements for the three months ended December 31, 2014 and subtracting amounts from our unaudited financial statements for the three months ended December 31, 2013. In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments and reclassifications that are necessary for a fair presentation of the periods presented.

The results presented below are not necessarily indicative of results that may be expected for any future period. The following information should be read in conjunction with “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and our audited annual and unaudited interim financial statements and notes included elsewhere in this prospectus.


	Twelve Months Ended December 31, 2014			Three Months Ended December 31,						Fiscal Years Ended September 30,
	Twelve Months Ended December 31, 2014			2014			2013			2014			2013			2012
	(Dollars in thousands except per share data)
Consolidated Statement of Operations and Comprehensive Loss:
Contract revenue	$	847,301		$	227,871		$	185,380		$	804,809		$	848,972		$	817,204
Direct contract expense		665,907			181,870			145,275			629,311			669,504			632,831

Gross profit		181,394			46,001			40,105			175,498			179,468			184,373
Operating expenses		78,240			19,043			18,864			78,061			84,128			91,494
General and administrative expenses		45,113			12,947			18,993			51,159			53,139			52,441

Operating income		58,041			14,011			2,248			46,278			42,201			40,438
Other income (expense)
Interest income		58			14			11			55			55			78
Interest expense		(85,068	)		(22,353	)		(18,948	)		(81,661	)		(75,700	)		(74,934	)
Other		(105	)		(10	)		(28	)		(123	)		(84	)		(55	)
Change in warrant value		10,095			201			—			9,894			—			—
Gain (loss) on debt extinguishment		(11,458	)		—			—			(11,458	)		3,913			—

Total other expense		(86,478	)		(22,148	)		(18,965	)		(83,294	)		(71,816	)		(74,911	)
Loss before income taxes		(28,435	)		(8,137	)		(16,717	)		(37,016	)		(29,615	)		(34,473	)
Income tax expense		(6,980	)		(1,746	)		(1,745	)		(6,980	)		(6,977	)		(6,974	)

Net loss	$	(35,417	)	$	(9,883	)	$	(18,462	)	$	(43,996	)	$	(36,592	)	$	(41,447	)
Post-retirement actuarial gains (loss)		(149	)		—			—			(149	)		279			26

Comprehensive loss	$	(35,566	)	$	(9,883	)	$	(18,462	)	$	(44,145	)	$	(36,313	)	$	(41,421	)

Loss Per Share Data:
Net loss per share of common stock
Basic				$	(0.75	)	$	(2.41	)	$	(5.53	)	$	(5.39	)	$	(6.74	)
Diluted(a)				$	(0.75	)	$	(2.41	)	$	(5.53	)	$	(5.39	)	$	(6.74	)
Weighted average shares of common stock outstanding
Basic					13,106,777			7,659,817			7,952,248			6,787,660			6,148,438
Diluted(a)					13,106,777			7,659,817			7,952,248			6,787,660			6,148,438

Pro Forma Earnings (Loss) Per Share Data(b):
Net income (loss) per share of common stock (unaudited)
Basic				$						$
Diluted(c)				$						$
Weighted average shares of common stock outstanding used in computing pro forma net income (loss) per share of common stock (unaudited)
Basic
Diluted(c)


	Twelve Months Ended December 31, 2014			Three Months Ended December 31,						Fiscal Years Ended September 30,
	Twelve Months Ended December 31, 2014			2014			2013			2014			2013			2012
	(Dollars in thousands)
Other Financial Data:
Capital expenditures	$	(1,461	)	$	(552	)	$	(273	)	$	(1,182	)	$	(1,869	)	$	(2,731	)
EBITDA(d)		61,164			15,266			3,536			49,435			53,433			52,178
Consolidated EBITDA(d)		72,316			19,234			14,895			67,978			71,000			71,754


	As of December 31, 2014			As of September 30,
	As of December 31, 2014			2014		2013
	(Dollars in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	12,984		$	10,732	$	25,613
Working capital		(2,554	)		1,412		42,569
Total assets		607,674			604,269		624,626
Total debt(e)		575,875			569,028		556,118

(a)	Does not reflect the impact of the exercise of any warrants for any period.

(b)

Pro Forma net income (loss) per share data reflects the Transactions, including the issuance of shares of common stock in this offering and the IPO Refinancing, and the use of proceeds therefrom, full exercise of the 2014 Warrants, and the elimination of the Series A Preferred Stock, as if they had occurred on October 1, 2013.

(c)	Does not reflect the impact of the exercise of the 2010 Warrants for any period.

(d)

We have included certain financial measures in this prospectus that are not recognized under U.S. GAAP, including earnings before interest, income taxes, depreciation and amortization, which we refer to as EBITDA and Consolidated EBITDA, which is defined in our Existing Credit Agreements. We believe that the presentation of EBITDA and Consolidated EBITDA enhances an investor’s understanding of our financial performance. We believe EBITDA is useful in assessing operating performance and in comparing our performance to other companies in the same industry. EBITDA is a common financial metric in the government contracting industry, in part because it excludes from performance the effects of a company’s capital structure, in particular taxes and interest. In addition, we believe Consolidated EBITDA can be useful in evaluating our ability to meet our debt covenants. Consolidated EBITDA information for the trailing four-quarters is used by management and is important to our security holders as our Existing Credit Agreements require that we achieve minimum trailing four-quarter Consolidated EBITDA levels and maintain a minimum one-to-one fixed charge coverage ratio, which is also measured on a trailing four- quarter basis at the end of each quarter. EBITDA and Consolidated EBITDA are not measures under U.S. GAAP and our use of the terms EBITDA and Consolidated EBITDA varies from others in our industry. EBITDA and Consolidated EBITDA should not be considered as alternatives to net income (loss), operating income or any other performance measures derived in accordance with U.S. GAAP, as measures of operating performance or operating cash flows or as measures of liquidity.

•

do not reflect any cash capital expenditure requirements for assets being depreciated and amortized that may have to be replaced in the future;

•

do not reflect changes in, or cash requirements for, our working capital needs; and

•

do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt.

The following table provides a reconciliation of our net loss to EBITDA and Consolidated EBITDA for the periods presented:


	Twelve Months Ended December 31, 2014			Three Months Ended December 31,						Fiscal Years Ended September 30,
	Twelve Months Ended December 31, 2014			2014			2013			2014			2013			2012
	(Dollars in thousands)
Net loss	$	(35,417	)	$	(9,883	)	$	(18,462	)	$	(43,996	)	$	(36,592	)	$	(41,447	)
Interest expense		85,068			22,353			18,948			81,662			75,700			74,934
Income tax expense		6,980			1,746			1,745			6,980			6,977			6,974
Depreciation and amortization		4,533			1,050			1,305			4,789			7,348			11,717

EBITDA	$	61,164		$	15,266		$	3,536		$	49,435		$	53,433		$	52,178

Gain on asset sales		(1,500	)		—			—			(1,500	)		(157	)		(104	)
Debt extinguishment gain		11,458			—			—			11,458			(3,913	)		—
Change in fair value of warrants(1)		(10,094	)		(201	)		—			(9,894	)		—			—
Non-cash stock-based compensation expense (credit)		(21	)		1			1			(21	)		(219	)		(90	)
Non-cash LTIP expense (credit)		1,744			626			804			1,922			2,281			1,400
Non-cash ESOP and 401(k) contributions		14,174			3,555			3,576			14,195			13,844			13,735
Employee salary deferrals used to purchase Alion common stock		—			—			—			—			1,968			2,427
Cash paid for ESOP obligations		(457	)		(13	)		(238	)		(682	)		(1,636	)		(857	)
Cash paid for stock-based compensation		—			—			—			—			—			—
Cash paid for LTIP grants		(1,858	)		—			—			(1,858	)		(1,843	)		(1,869	)
Non-recurring expenses		(2,293	)		—			7,216			4,923			7,242			4,934

Consolidated EBITDA	$	72,316		$	19,234		$	14,895		$	67,978		$	71,000		$	71,754

Consolidated EBITDA margin		8.5	%		8.4	%		8.0	%		8.4	%		8.4	%		8.8	%

(1)

The 2014 Warrants are derivative instruments measured at fair value. Their initial fair value was $16.4 million. From August 2014 to September 2014 the estimated value of the shares underlying the 2014 Warrants declined. From October 2014 through December 2014, the risk free interest rate used to value the 2014 Warrants declined.

Our Existing Credit Agreements define Consolidated EBITDA. Each quarter the Company must achieve $50 million in minimum Consolidated EBITDA (on a trailing twelve-month basis) in order to maintain access to the Existing Revolving Credit Facility and avoid potential cross default under Alion’s other debt instruments. Alion exceeded the requirement by approximately $22.3 million for the twelve months ended December 31, 2014. Neither EBITDA nor Consolidated EBITDA is a measure of financial performance in accordance with generally accepted accounting principles. The Existing Credit Agreements permit Alion to exclude certain expenses and requires it to exclude certain one-time gains when computing Consolidated EBITDA.

(e)

Total debt as of December 31, 2014 and September 30, 2014 consisted of obligations under the Existing Debt Instruments, as well as that portion of our Unsecured Notes that remained outstanding after the 2014 Refinancing, which were repaid in January 2015, and is net of unamortized debt issue costs and original issue discount. Total debt as of September 30, 2013 consisted of obligations under our prior revolving credit facility, our Secured Notes and our Unsecured Notes, as well as accrued PIK interest, and is net of unamortized debt issue costs and original issue discount.

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following risks as well as the other information included in this prospectus, including under “Selected Consolidated Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated and combined financial statements, as applicable, and related notes included elsewhere in this prospectus, before investing in our common stock. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. In such a case, the trading price of our common stock could decline, and you may lose all or part of your investment in us.

Risks Related to Our Business and Operations

We depend on U.S. government contracts for substantially all of our revenue. Changes in the contracting or fiscal policies of the U.S. government could adversely affect our business, financial condition, results of operations and ability to satisfy our financial obligations, and grow our business.

For the calendar year 2014, U.S. government contracts accounted for 97.3% of our revenue, with 93.8% of our revenue derived from DoD contracts. The U.S. Navy is our largest single customer, generating 54.7% of our calendar year 2014 revenue. Changes in U.S. government contracting policies could directly affect our financial performance. Factors that could materially adversely affect our U.S. government contracting business include:

•

budgetary constraints affecting U.S. government spending generally, or specific departments or agencies in particular;

•

changes in U.S. government fiscal policies or available funding;

•

U.S. government shutdowns, threatened shutdowns or budget delays;

•

changes in U.S. government defense and homeland security priorities;

•

changes in U.S. government programs or requirements;

•

U.S. government curtailment of its use of technology services firms;

•

adoption of new laws, regulations, or enforcement policies;

•

technological developments;

•

competition and consolidation in our industry; and

•

general economic conditions.

These or other factors could cause U.S. government departments or agencies to reduce their purchases under contracts, to exercise their right to terminate contracts or fail to exercise options to renew contracts, any of which could have a material adverse effect on our business, financial condition, operating results and ability to meet our financial obligations.

Many of our U.S. government customers are subject to tightened constraints. We have substantial contracts in place with many U.S. government departments and agencies. Our continuing performance under these contracts, or the possibility of new contracts from these agencies, could be materially adversely affected by agency spending reductions or budget cutbacks. Such reductions or cutbacks could materially adversely affect our business, financial condition, operating results and ability to meet our financial obligations.

Delays in the federal budget process, including actions related to the need to raise the debt ceiling and any future Federal Government shutdown, could delay procurement of, and payment for, the products, services and solutions we provide and materially and adversely affect our revenue, gross margin, operating results and cash flow.

We derive a significant portion of our revenue from the Federal Government and from prime contractors to the Federal Government. We expect to continue to do so. Funding under those contracts is conditioned upon the continuing availability of Congressional appropriations and agency budgets. Congress usually appropriates funds on a fiscal year basis even though contract performance may extend over many years. The programs in which we participate must compete with other Federal Government programs and policies for funding during the budget and appropriation process. Concerns about increased deficit spending, along with continued economic challenges, continue to place pressure on federal customer budgets. While we believe that our programs are well aligned with national defense and other priorities, legislative shifts in domestic spending and tax policy, changes in security, defense, and intelligence priorities, the affordability of our products and services, general economic conditions and developments, and other factors may affect a decision to fund or the level of funding for existing programs under which we perform contracts or proposed programs under which we might bid for future work. In addition, a continuing resolution allows U.S. government agencies to operate only at spending levels equal to or less than levels approved in the prior budget cycle, which can delay or even cancel new initiatives which could adversely affect our business, financial condition, operating results, cash flows and our ability to meet our financial obligations. Even if our contracts are fully funded, full or partial furloughs of government employees may also result in delays in our customers approving or paying our invoices.

Congress’ failure to agree on deficit reduction goals and disputes on whether to increase the debt ceiling create constraints on and uncertainties about the level of future federal spending. While specific budgetary decisions for the Federal Government’s next fiscal year are not yet known, such constraints could delay or cancel key programs in which we are involved and could materially and adversely affect our cash flows, liquidity and operating results. If the federal budget process were to result in a prolonged Federal Government shutdown, we could incur substantial unreimbursed labor or other costs, or it could delay or cancel key programs, which could materially and adversely affect our operating results, cash flow and liquidity.

In addition, when the U.S. government requires supplemental appropriations to operate or fund specific programs, and legislation to approve any supplemental appropriation bill is delayed, credit markets can react adversely to the uncertainty. Budgetary uncertainties and our lower credit rating could materially and adversely affect our access to credit and our overall liquidity. If we were to use our revolving credit facility to a greater extent and for greater amounts than we have in the recent past, this could also increase the cost of credit to us if our floating interest rates were to rise.

The Budget Control Act of 2011 caused significant delays or reductions in Federal Government appropriations for our current and future programs and may continue to negatively affect our revenue and materially and adversely affect our financial condition, operating results, cash flows and ability to satisfy our financial obligations, and grow our business.

In August 2011, Congress enacted the Budget Control Act intended to significantly reduce the federal deficit over ten years. The Budget Control Act established discretionary spending caps through 2021 and a Joint Committee of Congress to identify additional deficit reductions.

Although we believe we are well-positioned in areas the DoD has indicated are the focus for future defense spending, the Budget Control Act may continue to have a negative impact on our business and industry.

Management cannot forecast whether government shutdowns will disrupt our business or adversely affect timing of collection of our receivables in the future, but we did experience significant payment delays as a result of the government shutdown that occurred immediately after the end of fiscal year 2013. Earlier in fiscal year

2013, the Federal Government altered some of its accelerated payment practices which affected the overall payment cycle of our invoices. It took us until the fourth quarter of fiscal year 2013 to recover from most of the effects of these changes.

We face intense competition from many companies that have greater resources than we do. This could cause price reductions, reduced contract profitability, and loss of market share.

We operate in highly competitive markets and often encounter intense competition to win contracts. If we are unable to successfully compete for new business, our revenue may not grow and operating margins may decline. Many of our competitors have greater financial, technical, marketing, and public relations resources, have larger client bases and have greater brand or name recognition than we do. Main competitors include, but are not limited to, U.S. federal systems integrators and service providers such as Booz Allen Hamilton, CACI International, Leidos Holdings, Science Applications International Corporation, ManTech International, NCI, Engility and the NAPS segment of Computer Sciences Corporation.

Our main competitors may be able to vie more effectively for very large-scale government contracts. Our main competitors also may be able to provide clients with different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past performance on large-scale contracts, geographic presence, price, and availability of key professional personnel. Our competitors have established relationships among themselves or with third parties, including through mergers and acquisitions, to increase their ability to address client needs. They may establish new relationships, and new competitors or competitive alliances may emerge.

Our ability to compete for desirable contracts will depend in large part on the effectiveness of our internal and customer-funded research and development programs, our ability to offer better performance than our competitors at lower or comparable cost, the readiness of our facilities, equipment and personnel to perform the programs for which we compete, our ability to attract and retain key personnel, our financial viability as assessed by government contracting officers and our ability to write superior proposals. If we do not continue to compete effectively and win contracts, our future business, financial condition, results of operations and our ability to meet our financial obligations will be materially compromised.

Historically, a few contracts have provided most of our revenue. If we do not retain or replace these contracts, our operations and financial condition will suffer.

The following five Federal Government contracts (contract vehicles and stand-alone contracts) accounted for more than half of our revenue in fiscal years 2014, 2013 and 2012.

Weapons System Technology Information Analysis Center for the Defense Technical and Information Center (26%, 28%, 17%) (Defense Technical Information Center Indefinite Delivery, Indefinite Quantity (IDIQ) contract vehicle);

Seaport-E Multiple Award Contract for the Naval Sea Systems Command (21%, 21%, 20%) (IDIQ contract vehicle);

Technical and Analytical Support for the U.S. Air Force (9%, 8%, 10%) (stand-alone contract);

Naval Sea Systems Command Surface Ships Life Cycle Program Management and Engineering Support (7%, 7%, 6%) (stand-alone contract); and

Software, Networks, Information, Modeling and Simulation for the Defense Technical and Information Center (6%, 2%, 0.2%) (IDIQ contract vehicle).

Complete or partial termination of any of these contracts or any related follow-on contracts, stoppage of new tasking under these contracts or our inability to renew or replace them when they expire could cause our revenue to decrease and could have a material adverse effect on our business, financial condition, operating results or ability to meet our financial obligations.

If we are unable to achieve or manage growth, our business could be materially adversely affected.

Attempting to achieve long-term growth has placed significant demands on our management, and on our administrative, operational and financial resources. To achieve and manage growth, we must improve operational, financial and management information systems, and expand, motivate and manage our workforce. If we are unable to achieve and manage growth without compromising our quality of service and our profit margins, or if systems we implement to aid in managing our growth do not produce expected benefits, our business, prospects, financial condition, and operating results could be materially adversely affected.

We may lose one or more members of our senior management team or fail to develop new leaders, which could cause the disruption of the management of our business.

We believe that the future success of our business and our ability to operate profitably depends on the continued contributions of the members of our senior management and the continued development of new members of senior management. We rely on our senior management to generate business and execute programs successfully. In addition, the relationships and reputation that many members of our senior management team have established and maintain with our clients are important to our business and our ability to identify new business opportunities. The loss of any member of our senior management or our failure to continue to develop new members could impair our ability to identify and secure new contracts, to maintain good client relations, and to otherwise manage our business. We do not maintain key man life insurance policies on any members of management.

Our business could suffer if we fail to attract, train and retain skilled employees.

Availability of highly trained and skilled professional, administrative and technical personnel is critical to our future growth and profitability. Competition in our industry for scientists, engineers, technicians, management and professional personnel is intense and competitors aggressively recruit key employees. Competition for experienced personnel, particularly in highly specialized areas, has made it more difficult for us to timely meet all our staffing needs. We cannot be certain we will be able to attract and retain required staff on acceptable terms. Any failure to do so could have a material adverse effect on our business, financial condition, operating results and our ability to meet our financial obligations. Failure to recruit and retain a sufficient number of these employees could adversely affect our ability to maintain or grow our business. In some cases, our customers require us to staff a program with personnel that the customer considers to be key to successful performance of their contract. If we cannot provide these key personnel or acceptable substitutes, the customer may terminate the contract, and we may not be able to recover our costs on the contract or lose potential business in the future.

Our subcontractors’ failure to perform contractual obligations could damage our reputation as a prime contractor and our ability to obtain future business.

As a prime contractor, we often rely significantly upon other companies as subcontractors to perform work we are obligated to deliver to our customers. A failure by one or more of our subcontractors to timely perform services satisfactorily could cause us to be unable to perform our duties as a prime contractor. We have limited involvement in the work our subcontractors perform, but we may have exposure to problems our subcontractors cause. Subcontractor performance deficiencies could result in a government customer terminating our contract for default. A default termination could make us liable for customer re-procurement costs, and other breach of contract damages, damage our reputation, and hurt our ability to compete for future contracts. Subcontractor work has accounted, and we expect it will continue to account, for a material portion of our work. In fiscal year 2014, subcontractor expense, as a percentage of our revenue, was 39%.

Further adverse changes in market conditions, the stock market, the merger and acquisition environment in our industry or Federal Government budget constraints could adversely affect the value of our operating businesses which could cause us to recognize a goodwill impairment charge in the future.

If market conditions were to become unfavorable, if merger and acquisition activity in our industry were to occur at significantly lower valuations, or we are unable to increase revenue and operating profit, the value of our

operating businesses could be adversely affected and we might have to recognize an impairment charge to the significant goodwill we have from acquisitions. An impairment charge could have a material adverse effect on our operating results.

Our employees may engage in misconduct or other improper activities, which could harm our business.

We are exposed to the risk of employee fraud or other misconduct. Employee misconduct could include intentional failures to comply with U.S. government procurement laws or regulations, failure to comply with regulations regarding the use and safeguarding of classified or other protected information, failure to comply with laws and regulations relating to environmental, health or safety matters, attempts to obtain reimbursement for improper expenses, submission of falsified time records or other unauthorized activities. Employee misconduct could also involve improper release or use of our customers’ sensitive or classified information, which could result in regulatory sanctions against us and serious harm to our reputation. The precautions we take to prevent employee misconduct may not prevent all misconduct, and as a result, we could face unknown risks or losses. Misconduct by any of our employees could damage our reputation and subject us to civil, criminal and/or administrative penalties including fines and penalties, restitution or other damages, loss of security clearance, loss of current and future customer contracts and suspension or debarment from contracting with federal, state or local government agencies, any of which would adversely affect our business, reputation and our future results. Employees, even employees engaged in improper activities, could take “whistleblower” actions that could result in or exacerbate such adverse results.

Our operations involve several risks and hazards, including potential dangers to our employees and to third parties that are inherent in aspects of our business. If we do not adequately insure against these risks, unanticipated losses could materially and adversely affect our financial condition and operating results.

Our business includes the maintenance of global networks and the provision of services that require us to dispatch employees to various countries around the world. These countries may be experiencing political upheaval or unrest, and in some cases war or terrorism. It is possible that certain of our employees or executives will suffer injury or bodily harm, or be killed or kidnapped in the course of these deployments. We could also encounter unexpected costs for reasons beyond our control in connection with the repatriation of our employees or executives. Any of these types of accidents or other incidents could involve significant potential claims of employees, executives and/or third parties who are injured or killed or who may have wrongful death or similar claims against us.

We maintain insurance against risk and potential liabilities related to our operations. We believe we maintain reasonable levels of insurance that limit our likely exposure to unanticipated losses. Our insurance coverage may not be adequate to cover claims or liabilities, and we could be forced to bear significant costs from an accident or incident. Substantial claims in excess of our related insurance coverage could cause our actual results to differ materially and adversely from those anticipated. Due to future claims or liabilities, or to market conditions, our insurance premiums could increase.

Internal system or service failures could disrupt our business and impair our ability to effectively provide our services and products to our customers, which could damage our reputation and adversely affect our revenue, profitability and operating results.

Our information technology systems are subject to systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, intruders or hackers, computer viruses, natural disasters, power shortages or terrorist attacks. Any such failures could cause loss of data and interruptions or delays in our business, negatively affect our ability to service our clients and perform our contracts, cause us to incur remediation costs, subject us to claims and damage our reputation. Failure or disruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Any system or service disruptions, if not anticipated and appropriately mitigated, could have a

material adverse effect on our business including, among other things, an adverse effect on our ability to bill our customers for work performed on our contracts, collect the amounts that have been billed and produce accurate financial statements in a timely manner. Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our results of operations could be materially and adversely affected.

Security breaches in sensitive U.S. government systems could result in the loss of clients and negative publicity.

Many of the systems we develop, install and maintain involve managing and protecting information involved in intelligence, national security and other sensitive or classified U.S. government functions. A security breach in one of these systems could cause serious harm to our business, damage our reputation, result in the termination of our contracts, and prevent us from being eligible for further work on sensitive or classified systems for U.S. government clients. We could incur losses from such a security breach that could exceed the policy limits under our errors and omissions and product liability insurance. Damage to our reputation or limitations on our eligibility for additional work resulting from a security breach in one of the systems we develop, install or maintain could cause us to incur remediation costs and could materially reduce our revenue. Costs we incur to address security breaches could be material and materially reduce our operating margin.

Our business could be materially negatively impacted by security threats and breaches, including cybersecurity threats, and other disruptions.

As a defense contractor, we face various security threats and breaches, including cybersecurity threats to gain unauthorized access to sensitive information, threats to the safety of our employees, threats to the security of our facilities and infrastructure and threats from terrorist acts. Cybersecurity experts believe that attacks are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. As a Federal Government contractor, we are a potential target to those who want to gain unauthorized access to sensitive and classified information of the United States, including officially and non-officially sponsored acts of other countries and non-state actors.

We utilize various procedures and controls to monitor these threats and mitigate our exposure to such threats. We are subject to frequent and increasingly sophisticated attempts by unauthorized individuals and/or entities to obtain access to sensitive, protected, and even classified data. We regularly review our systems and cybersecurity protocols. We do not outsource our cybersecurity functions.

Several years ago, an unauthorized party was able to gain access to our computer network. Management retained an independent third-party expert data security firm to assess the nature and extent of unauthorized access, and to recommend remedial actions. We also asked the outside data security expert to recommend additional steps we could take to further enhance our ability to detect, monitor and defend against cybersecurity incidents. We notified government authorities and outside parties based on information obtained from the data security expert’s investigation.

We undertook remedial actions based on the data security expert’s recommendations. Our insurance carrier covered our investigation costs subject to our $250 thousand policy deductible. We continue to consider additional enhancements to our network security.

There can be no assurance that our remedial actions will be effective against future attacks or that future security breaches will be prevented. Any future security breach could impact our relationship with the customers whose information or matters were the subject of the breach or our other customers and could have a material adverse effect on our business, financial condition and results of operations.

We may not realize the full amount of our backlog, which could lower future revenue.

The maximum contract value identified in a U.S. government contract does not necessarily determine the revenue we will realize from that contract. Congress normally appropriates funds for a given program each fiscal year, even when actual contract performance may take many years. As a result, U.S. government contracts ordinarily are only partially funded at the time of award. Normally a procuring agency commits additional money to a contract only as Congress makes subsequent year appropriations. Estimates of future revenue attributed to backlog are not necessarily precise. The actual recognition of revenue on contracts included in our backlog may never occur or may change because program funding could be decreased, program schedule could change, the program could be canceled, a contract could be reduced, modified, or terminated early, whether for the convenience of the government or otherwise; or an option that we had assumed would be exercised could not be exercised. Many contingencies are beyond our control. The backlog on a given contract may not ultimately be funded or may only be partially funded, which may cause our revenue to be lower than anticipated, and adversely affect our business, financial condition, operating results, cash flows and our ability to meet our financial obligations.

Many of our U.S. government customers procure goods and services through multiple delivery order type contracts under which we must compete for post-award orders.

Budgetary pressures and reforms in the procurement process have caused many U.S. government customers to purchase goods and services through Government-wide Acquisition Contracts, or GWACs, IDIQ, General Services Administration, or GSA, schedule contracts and other multiple award contract vehicles. These contract vehicles increase competition and pricing pressure requiring us to make sustained post-award efforts to obtain awards and realize revenue. There can be no assurance that we will maintain or increase revenue or otherwise sell successfully under these contract vehicles. Our failure to compete effectively after an award under any of these types of contracts could harm our business, financial condition, operating results, cash flows and our ability to meet our financial obligations.

U.S. government contracts contain termination provisions that are unfavorable to us.

U.S. government agencies can generally terminate contracts with suppliers at any time without cause under a termination for convenience clause. If a government agency terminates one of our contracts without cause, we are likely to be compensated for services we have provided and costs we have incurred through the termination date, and we may receive payment for termination-related costs and a negotiated contract fee. However, if the U.S. government terminates a contract because we defaulted under the terms of the contract, we may be liable for any extra costs the U.S. government incurs to procure undelivered services from another company and other potential damages. Termination of any of our large U.S. government contracts could negatively impact our revenue and our ability to win future contracts and adversely affect our business, financial condition, operating results, cash flows and our ability to meet our financial obligations.

To the extent that we do not accurately estimate the expenses, time and resources necessary to meet our contractual obligations, our contract profits will be lower than expected.

The total price on a cost-reimbursement contract is primarily based on allowable costs incurred subject to a contract funding limit. U.S. government regulations do not permit us to recover unallowable costs, and require us to notify our customers of any cost overruns or underruns on a cost-reimbursement contract. We may not be able to recover cost overruns in excess of a contract’s funding limit and may not earn the profit we anticipated from the contract.

In a fixed-price contract, we estimate project costs and agree to perform services for a predetermined price regardless of our actual costs. We pay for any cost overruns. If we fail to anticipate technical problems, or accurately estimate or control costs, we may face a lower fixed-price contract profit margin or even a loss. Further, we may enter into a higher number of fixed-price contracts in the future, which could impact our operations. Provisions in our financial statements for estimated contract losses may not be adequate to cover all our actual losses.

If our fixed-price contract revenue were to decline in total or as a proportion of our total business, or if profit rates on these contracts deteriorate, our operating margins and operating results may suffer.

We have historically earned higher profit margins on fixed-price contracts than on cost-reimbursement contracts, because government regulations and business practices limit cost-reimbursement contract fee levels. Our U.S. government customers typically choose the type of contract they issue. If in the future, our proportion of fixed-price contract revenue were to significantly decrease, or customers shift to other types of contracts such as cost-reimbursement contracts, our operating margins and operating results may suffer. We cannot ensure we will be able to maintain our historic profitability levels on fixed-price contracts overall nor can we ensure that our percentage of total revenue generated from fixed-price contracts will remain the same or improve.

If we fail to recover at-risk contract revenue, we may have reduced fees or losses.

We are at risk for any revenue we incur before a contract is executed, modified or renewed. A customer may choose not to pay us for these costs. As of December 31, 2014, we had approximately $15.6 million in at-risk revenue. While such revenue is associated with specific anticipated contracts and funding modifications, we cannot be certain that our customers will execute these anticipated contracts or contract renewals or that they will pay us for all our related at-risk costs.

Actual or perceived conflicts of interest may prevent us from being able to bid on or perform contracts.

U.S. government agencies have conflict of interest policies including policies pertaining to organizational conflicts of interest, that may prevent us from bidding on or performing certain contracts. When dealing with U.S. government agencies, we must decide, at times with insufficient information, whether to participate in the design process and lose the chance of performing the contract or to turn down the design opportunity for the chance of performing the future contract. U.S. government agencies have the ability to exclude contractors from specific competitions due to actual or perceived conflicts of interest. We have, on occasion, declined to bid on particular projects because of actual or perceived conflicts of interest. We are likely to continue encountering such conflicts of interest in the future. Future conflicts of interest could cause us to be unable to secure key contracts with U.S. government customers.

As a U.S. government contractor, we must comply with complex procurement laws and regulations and our failure to do so could result in suspension or debarment from doing business with the U.S. government or otherwise have a negative impact upon our business.

We must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. government contracts, which may impose added risks and costs on our business. If a government review or investigation, or a private “whistleblower” or qui tam action under the Federal Civil False Claims Act, uncovers improper or illegal activities, we may be subject to civil and/or criminal penalties and administrative sanctions, including contract termination, damages, fines, forfeiture of fees, suspension of payment, suspension or debarment from doing business with U.S. government agencies and the curtailment or restructuring of our operations, any of which could materially and adversely affect our ability to conduct our business.

We derive significant revenue from U.S. government contracts awarded through competitive bidding, which is an inherently unpredictable process.

We obtain most of our U.S. government contracts through competitive bidding, including (in many cases) contracts and renewals. We face risks associated with:

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the frequent need to bid on programs in advance of the completion of their design, which can result in unforeseen technological difficulties and/or cost overruns;

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the substantial time and effort, including design, development and promotional activities, required to prepare bids and proposals for contracts we may not win; and

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the rapid rate of technological advancement and design complexity of most of our research offerings.

We may not succeed in winning new contract awards or renewals in the future. Our failure to renew or replace existing contracts when they expire or win new contracts, would negatively affect our business, financial condition, operating results, cash flows and our ability to meet our financial obligations.

Our business could be adversely affected by delays caused by our competitors protesting major contract awards received by us, resulting in the delay of the initiation of work or loss of contracts.

A contract award or a solicitation’s terms and conditions are subject to protest for a variety of reasons, including that a solicitation or competitive bidding process violates law or regulations, or that the government agency has failed to comply with the terms of a solicitation or acted unreasonably in conducting a procurement. Moreover, changes to an existing contract are subject to protest on the basis that they involve a cardinal change which exceeds the scope of the contract. A bid protest may result in a decision by a court, the Government Accountability Office, or by the cognizant government agency to cancel a contract award or to take other action that may result in the loss of a contract or in delay in a contract’s start date. Even a bid protest that does not result in such a decision or action will involve legal expenses and will result in delay of the start date of the contract until resolution of the protest. U.S. government contracts are subject to bid protests by other interested parties that compete with us for new contracts and in re-competitions. It can take many months to resolve protests by one or more of our competitors of contract awards we receive. The resulting delay in the startup and funding of the work under these contracts may cause our actual results to differ materially and adversely from those anticipated. Accordingly, bid protests may negatively affect our business, financial condition, operating results, cash flows and our ability to meet our financial obligations.

Our failure to obtain and maintain necessary security clearances may limit our ability to carry out confidential work for U.S. government customers, which could cause our revenue to decline.

As of December 31, 2014, we had facility security clearances at 20 of our sites. As of December 31, 2014, approximately 80% of our employees held security clearances. Each cleared facility has a Facility Security Officer and Key Management Personnel whom the U.S. Department of Defense-Defense Security Service requires to be cleared to the level of the facility security clearance. Individual employees are selected to be cleared, based on specific classified contract task requirements and each employee’s technical, administrative or management expertise. Once an employee is cleared, he or she may be granted access classified contract information, based on clearance level and a “need-to-know”.

Protecting classified information is paramount. Loss of a facility clearance, or an employee’s failure to obtain or maintain a security clearance, could result in a U.S. government customer terminating an existing contract or choosing not to renew a contract. If we cannot maintain or obtain the required security clearances for our facilities and our employees, or cannot obtain these clearances in a timely manner, we may be unable to perform certain U.S. government contracts. Lack of required clearances could also impede our ability to bid on or win new government contracts, which might result in terminating current research activities. This could damage our reputation and our revenue would likely decline, which could materially and adversely affect our business, financial condition, operating results and ability to meet our financial obligations.

If we fail to establish and maintain important relationships with government entities and agencies, our ability to successfully bid for new business and retain existing business may be adversely affected.

To bid on new business, we rely in part on establishing and maintaining relationships with various government officials. These government relationships help us to better understand government agencies’ needs before we develop a formal proposal. Due to change in personnel at the customer agencies or within our company, we may be unable to maintain our relationships with government entities and agencies; any failure to do so could adversely affect our ability to bid successfully for new business or to retain existing business. This could adversely affect our operating results, cash flow and financial condition and our ability to meet our financial obligations.

Failure to maintain strong relationships with other contractors could result in a decline in our revenue.

Approximately 13% of our fiscal year 2014 revenue resulted from our work as a subcontractor to and from teaming arrangements with other contractors. As a subcontractor or teammate, we cannot control performance by our prime contractor or other teammates. Poor performance on a given contract could impact our customer relationship, even when we perform as required. We expect to continue to depend on relationships with other contractors for a portion of our revenue for the foreseeable future. Our revenue, operating results, financial position and cash flows could differ materially and adversely from what we anticipate if one or more of our prime contractors or teammates were to rely on one of our competitors, instead of us, or were to directly provide our customers the kind of services we provide.

The Federal Government’s payment process and other factors may delay the collection of our receivables, and our business may be adversely affected if we cannot collect our receivables in a timely manner.

We must collect our receivables to generate cash flow, provide working capital, pay interest and principal on our debt and continue our business operations. If the Federal Government, or any of our prime contractors fails to pay or delays paying our invoices for any reason, our business and financial condition may be materially and adversely affected. The government may fail to pay outstanding invoices and the Defense Contract Audit Agency, or DCAA, could revoke our direct billing privileges, which would adversely affect our ability to timely collect our receivables. Contracting officers can also withhold payment of some portion or all of an outstanding invoice, which could also adversely affect our ability to collect our receivables timely.

Government rules could limit our ability to get paid for the work we perform.

Government rules require DoD contracting officers to impose contractual withholdings at no less than certain minimum levels if a contracting officer determines that one or more of a contractor’s business systems have one or more significant deficiencies. If a contracting officer were to impose such a withholding on us or even one of our prime contractors or subcontractors, it would increase the risk we would not be paid in full or paid timely. If we experience difficulties collecting receivables, it could materially and adversely affect our operating results, cash flow and financial condition and our ability to meet our obligations.

The U.S. government may adopt new contract laws and regulations or revise its procurement practices in a manner adverse to us at any time.

The U.S. government may face restrictions or pressure regarding the type and amount of services it may obtain from private contractors. Legislation, regulations and initiatives dealing with procurement reform, environmental responsibility or sustainability, and mitigation of potential conflicts of interest, as well as any resulting shifts in the buying practices of U.S. government agencies could adversely affect us. Such changes could impair our ability to obtain new contracts or win a recompete of an existing contract. Any new contracting requirements or procurement methods could be costly or administratively difficult for us to implement and could materially and adversely affect our operating results, cash flow and financial condition and our ability to meet our obligations.

The U.S. government may prefer minority-owned, small and small disadvantaged businesses; therefore, we may not win certain contracts on which we bid.

As part of the Small Business Administration set-aside program, the U.S. government may decide to restrict certain procurements only to bidders that qualify as minority-owned, small, small disadvantaged, or veteran-owned, businesses. As a result, we would not be eligible to perform as a prime contractor on those programs and would be restricted to a maximum of 49% of the work as a subcontractor on those programs. An increase in the amount of procurements under the Small Business Administration set-aside program may impact our ability to bid on new procurements as a prime contractor or restrict our ability to recompete on incumbent work that is placed in the set-aside program.

Some of our contracts with the U.S. government are classified or subject to other security restrictions, which may limit investor insight into portions of our business.

For fiscal year 2014, we derived a portion of our revenue from contracts with the U.S. government that are classified or subject to security restrictions that preclude the dissemination of certain information. In addition, a significant number of our employees have security clearances which preclude them from providing information regarding certain of our clients and services provided to such clients to persons without security clearances and investors. Because we are limited in our ability to provide information about these contracts and services, the various risks associated with these contracts or services or any dispute or claims relating to such contracts or services, you may not have important information concerning our business, which will limit your insight into a portion of our business and therefore may be less able to fully evaluate the risks related to that portion of our business.

Our business is subject to fluctuations that may cause our operating results to decline.

The U.S. government’s fiscal year ends on September 30th of each year. It is not uncommon for U.S. government agencies to award extra tasks or complete other contract actions in the weeks before the end of its fiscal year in order to avoid the loss of unexpended fiscal year funds. In addition, we also have generally experienced higher bid and proposal costs in the months leading up to the U.S. government’s fiscal year end as we pursue new contract opportunities being awarded shortly after the U.S. government fiscal year end as new opportunities are expected to have funding appropriated in the U.S. government’s subsequent fiscal year. We may continue to experience this seasonality in future periods, and our future periods may be affected by it. Changes in the government’s funding and spending patterns have altered historical seasonality trends, supporting our approach to managing the business on an annual basis. Seasonality is just one of a number of factors, many of which are outside of our control, which may affect our results in any period.

Our business is subject to routine audits and cost adjustments by the U.S. government, which, if resolved unfavorably to us, could adversely affect our revenues.

U.S. government agencies routinely audit and review their contractors’ performance on contracts, cost structure, pricing practices and compliance with applicable laws, regulations, cost allowability principles, and cost accounting standards. They also review a contractor’s financial capability and the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Such audits may result in adjustments to our contract costs to the extent that our costs are not allowable, properly allocated and/or exceed obligated contract funding, and any costs found to be unallowable or improperly allocated will not be reimbursed. In addition, if costs have already been reimbursed to us by our government customers through our contracts, but those costs are subsequently disallowed by audits, we would be required to repay those amounts, and may be required to pay interest and possible penalties. We have recorded revenue on Federal Government contracts in amounts we expect to realize. If the estimated reserves in our financial statements are not adequate, future government contract revenue may be lower than expected.

The DCAA is currently auditing our 2009 claimed indirect costs. We have settled our indirect rates through 2008 but all subsequent years are open. The U.S. government has made a claim for penalties and interest in respect of our 2005 claimed indirect costs of approximately $300 thousand. It is our position that the statute of limitations has expired on any such government contractual claims, but there can be no assurance that such position will be determined in our favor, or that we will not need to adjust our 2005 revenue.

We are subject to risks associated with operating internationally.

Our U.S. and foreign operations are subject to the Foreign Corrupt Practices Act and similar worldwide anti-corruption laws, including the U.K. Bribery Act of 2010, which generally prohibit companies and their

intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our internal policies mandate compliance with these anti-corruption laws and inclusion of appropriate clauses in agreements with foreign counterparties. Despite our training and compliance programs, we cannot assure that our internal control policies and procedures always will protect us from reckless or criminal acts committed by our employees or agents. Any expansion of our international business operations, including in developing countries, could increase the risk of such violations in the future. Violations of these laws, or allegations of such violations, could result in our suspension or debarment from doing business with the U.S. government, or otherwise disrupt our business and result in a material adverse effect on our results of operations or financial condition.

Failure to adequately protect, maintain, or enforce our rights in our intellectual property may adversely limit our competitive position.

We rely upon a combination of nondisclosure agreements and other contractual arrangements, as well as copyright, trademark, patent, and trade secret laws to protect our proprietary information. U.S. government contracts typically contain provisions that allow it to claim rights, including intellectual property rights, in products and data developed under such agreements. We may not have the right to prohibit the U.S. government from using certain technologies developed by us, and we may not be able to prohibit third party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts.

We also enter into proprietary information and intellectual property agreements with employees, which require them to disclose any inventions created during employment, to convey such rights to inventions to us, and to restrict any disclosure of proprietary information. Trade secrets are generally difficult to protect. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation of our confidential information and/or the infringement of our patents and copyrights. Further, we may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights. Additionally, we may only assert restrictions on the government’s rights to use, modify, reproduce, release, perform, display, or disclose technical data to be delivered under our government contracts by properly identifying and marking the deliverable data subject to restriction. Failure to adequately protect, maintain, or enforce our intellectual property rights may adversely limit our competitive position.

We use estimates in recognizing revenue and if we make changes to estimates used in recognizing revenue, our profitability may be adversely affected.

Revenue from our fixed-price contracts is primarily recognized using the percentage-of-completion method with progress toward completion of a particular contract based on actual costs incurred relative to total estimated costs to be incurred over the life of the contract. Revenue from our cost-plus-award-fee contracts are based on our estimation of award fees over the life of the contract. Estimating costs at completion and award fees on our long-term contracts is complex and involves significant judgment. Adjustments to original estimates are often required as work progresses, experience is gained, and additional information becomes known, even though the scope of the work required under the contract may not change. Any adjustment as a result of a change in estimate is recognized as events become known.

In the event updated estimates indicate that we will experience a loss on the contract, we recognize the estimated loss at the time it is determined. Additional information may subsequently indicate that the loss is more or less than initially recognized, which requires further adjustments in our consolidated financial statements. Changes in the underlying assumptions, circumstances, or estimates could result in adjustments that could have a material adverse effect on our future results of operations.

In order to succeed, we will have to keep up with a variety of rapidly changing technologies. Various factors could affect our ability to keep pace with these changes.

Our success will depend on our ability to keep pace with changing technologies in our core business areas. These technologies can change rapidly. Even if we keep up with the latest developments and available technology, newer services or technologies could negatively affect our business. Our success will depend significantly on our ability to develop, integrate and deliver technologically advanced services and solutions at the same or faster pace as our competitors, many of which have greater resources than we do. The Existing Debt Instruments limit, and our future debt instruments may limit, how much we may spend annually on capital expenditures. Those limitations could restrict our ability to invest in new and developing technologies in one or more of our core business areas. Failure to make the appropriate investment could materially affect our business, financial condition and operating results and ability to meet our financial obligations.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Any inability to provide reliable financial reports or prevent fraud could harm our business. We are continuing to evaluate and, where appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, our financial statements may not accurately reflect our financial condition.

We identified a material weakness in our internal control over financial reporting as of September 30, 2014, related to the accounting for the 2014 Refinancing. We have a remediation plan which includes appropriate review of such transactions going forward.

As a public company, we will be required to conduct an annual evaluation of our internal control over financial reporting and include a report of management on our internal control over financial reporting. In addition, we expect to be required to have our independent registered public accounting firm report on the effectiveness of our internal control over financial reporting. If we are unable to conclude that we have effective internal control over financial reporting, or if our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock. In addition, even if we were to conclude, and our auditors were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. This, in turn, could have a material adverse effect on our business, financial condition and results of operations.

An economic downturn could harm our business.

Our business, financial condition, operating results and ability to meet our financial obligations may be affected by various economic factors. Unfavorable economic conditions may make it more difficult for us to achieve or maintain revenue growth. In an economic recession, or under other adverse economic conditions which may arise from natural or man-made events, customers and vendors may be less likely to meet contractual terms and payment or delivery obligations. Weakness or deterioration of economic conditions may have a material adverse effect on our business, financial condition, operating results and ability to meet our financial obligations.

Environmental laws and regulations and our use of hazardous materials may subject us to significant liabilities.

Our operations are subject to U.S. federal, state and local and foreign environmental, health and safety laws and regulations, including laws and regulations relating to the discharge, storage, treatment, handling, disposal and remediation of regulated substances and waste products, such as radioactive, biochemical or other hazardous materials and explosives. We may incur substantial costs in the future because of modifications to current laws and regulations, new laws and regulations, new guidance or new interpretation of existing laws or regulations, violations of environmental laws or required operating permits or discovery of previously unknown contamination.

As a highly-leveraged company, our ability to meet our financial and other future obligations depends on our future operating results and our ability to service our debt. Currently, the Existing Debt Instruments restrict our operations and any new debt agreements may restrict our operations in the future.

We are a highly-leveraged company. In connection with this offering, we intend to refinance all of our existing debt, although there is no assurance we will be able to do so. Our Existing Debt Instruments require us to make regularly scheduled payments of principal and interest, prepay our debt under certain circumstances, and comply with certain financial covenants, such as the maintenance of a minimum Consolidated EBITDA. Our ability to pay our debt, to comply with financial covenants, and to fund working capital and planned capital expenditures depends on our ability to generate cash flow currently and in the future. We cannot be certain our business strategy will succeed or that we will achieve our anticipated financial results. Our financial and operational performance depends upon a number of factors, many of which are beyond our control.

Further, the Existing Debt Instruments contain, and our future debt agreements may contain, covenants that restrict our ability to engage in activities that may be in our long-term best interest, including financing future operations or capital needs or engaging in other business activities. The Existing Debt Instruments restrict, among other things, our ability and the ability of our subsidiaries to:

•

incur additional debt;

•

pay dividends or distributions on our capital stock;

•

purchase, redeem or retire capital stock or warrants to purchase capital stock other than to satisfy ESOP repurchase obligations that exist prior to this offering;

•

prepay or repurchase certain debt;

•

pay certain amounts required under our equity-based and incentive compensation plans;

•

purchase capital assets;

•

make acquisitions and investments;

•

issue or sell preferred stock of subsidiaries;

•

create liens on our assets;

•

enter into certain transactions with affiliates;

•

merge or consolidate with another company; or

•

transfer or sell assets outside the ordinary course of business.

From time to time we may require consents or waivers from our lenders or note holders to permit actions prohibited by one or more of the Existing Debt Instruments or our future debt agreements. If, in the future, lenders or note holders refuse to waive restrictive covenants and/or financial level requirements, we could be in default. We could be prohibited from undertaking actions necessary or desirable to maintain or expand our business. There is no guarantee we will be able to obtain consents or waivers from our lenders or note holders.

We may also need to seek additional capital in the future to meet current or future business plans, meet working capital needs or for other reasons. There can be no assurance that we will be able to obtain future financings on acceptable terms, if at all. If we are unable to obtain alternative or additional financing arrangements in the future, or if we cannot obtain such financing on acceptable terms, we may not be able to execute our business strategies. Moreover, the terms of any such additional financings may restrict our financial flexibility, including the debt we incur in the future, or may restrict our ability to manage our business as we intended.

Risks Related to an Investment in our Common Stock and this Offering

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity. If our stock price fluctuates after this offering, you could lose a significant part of your investment.

Prior to this offering, there has not been a public market for our common stock. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. Negotiations among the Company and the underwriters will determine the initial public offering price for the shares, which may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price you paid in this offering. The market price of our common stock may be influenced by many factors including:

•

the failure of securities analysts to cover our common stock after this offering or changes in analysts’ financial estimates;

•

our or our competitors’ announcements of significant contracts or acquisitions or other business developments;

•

variations in quarterly results of operations;

•

loss of a large customer or supplier;

•

U.S. and international general economic conditions;

•

increased competition;

•

terrorist acts;

•

future sales of our common stock or the perception that such sales may occur;

•

investor perceptions of us and the industries in which our products are used; and

•

the other factors listed in “Risk Factors”.

As a result of these factors, investors in our common stock may not be able to resell their shares at or above the initial offering price. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry factors may significantly reduce the market price of our common stock, regardless of our operating performance.

If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution.

Dilution is the difference between the offering price per share and the pro forma net tangible book value per share of our common stock immediately after the offering. The price you pay for shares of our common stock sold in this offering is substantially higher than our pro forma net tangible book value per share immediately after this offering. If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of $ per share. As a result of this dilution, investors purchasing shares of common stock in this offering may receive significantly less than the full purchase price that they paid for the stock purchased in this offering in the event of liquidation. See “Dilution”.

If our operating and financial performance in any given period does not meet the guidance that we provide to the public, our stock price may decline.

We may provide public guidance on our expected operating and financial results for future periods. In the event we do provide public guidance, any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in this prospectus and in our other public filings and public statements. Our actual results may not always be in line with or exceed any guidance we have provided, especially in times of economic uncertainty. If, in the future, our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts or if we reduce our guidance for future periods, the market price of our common stock may decline as well.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our common stock, the price of our common stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our common stock could decline. If one or more of these analysts cease to cover our common stock, we could lose visibility in the market for our stock, which in turn could cause our common stock price to decline.

We do not currently expect to pay any cash dividends.

Alion has never declared any cash dividends. We do not expect to pay any dividends in the future, and the terms of our Existing Debt Instruments limit, and our future debt instruments will limit, our ability to do so. We currently intend to retain future earnings, if any, to use in operating our business. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend on our operating results, our financial condition, contractual restrictions, applicable law and other factors our Board of Directors determines to be relevant.

Shares eligible for future sale by existing stockholders, including the ESOP Trust may cause the price of our common stock to decline.

Sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline. ASOF and Phoenix hold warrants to purchase up to 9,419,371 shares of our common stock, which, following consummation of this offering, including full exercise of the 2014 Warrants, will represent % of our shares of outstanding common stock. The holders of the 2010 Warrants hold warrants to purchase up to 602,741 shares of our common stock which following consummation of this offering, including full exercise of the 2014 Warrants, will represent the right to acquire % of our shares of outstanding common stock. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our amended and restated certificate of incorporation, we are authorized to issue up to million shares of common stock, of which shares of common stock will be outstanding upon consummation of this offering. Of these shares, the shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act by persons other than “affiliates”, as that term is defined in Rule 144 under the Securities Act. Our directors and executive officers and certain of our principal stockholders, who collectively beneficially own shares, will enter into lock-up agreements, pursuant to which they will agree not to sell or transfer, directly or indirectly, any shares of our common stock for a period of 180 days from the date of this prospectus, subject to extension in certain circumstances. Upon the expiration of these lock-up agreements, all of these shares of common stock will be tradable subject to limitations imposed by Rule 144 under the Securities Act. See “Shares Eligible for Future Sale”.

As of December 31, 2014, there were 13,106,777 shares of common stock held by our ESOP Trust which will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144. After the completion of this offering, the common stock held by our ESOP Trust will account for approximately % of our outstanding common stock (after taking into account full exercise of the 2014 Warrants).

Taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” may make our common stock less attractive to investors.

•

we are not required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002;

•

we are not required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay”, “say-on-frequency” and “say-on-golden parachutes”; and

•

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have not elected to adopt the reduced disclosure in this prospectus, except for reduced disclosure with respect to the Selected Consolidated Financial Data.

We cannot predict if investors will find our common stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our common stock.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Information included in this prospectus may contain forward-looking statements that involve risks and uncertainties, including statements herein regarding the Transactions, our ability to meet our debt service obligations, our future capital expenditures, our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position and our business outlook and business trends. These statements relate to future plans, objectives, expectations and intentions and are for illustrative purposes only. These statements may be identified by the use of words such as “believe”, “expect”, “intend”, “plan”, “anticipate”, “likely”, “will”, “pro forma”, “forecast”, “projections”, “could”, “estimate”, “may”, “potential”, “should”, “would”, and similar expressions.

Factors that could cause actual results to differ materially from anticipated results include, but are not limited to:

•

U.S. government decisions to reduce funding for projects we support;

•

U.S. government debt ceiling limitations, sequestration, continuing resolutions, or other similar Federal Government budgetary or funding issues;

•

delays in the federal budget process including U.S. government shutdowns and threatened shutdowns;

•

delays in payments from U.S. government customers;

•

competitive factors such as pricing pressures and competition to hire and retain employees;

•

termination of our material contracts or our inability to replace or renew our material contracts;

•

failure to retain our existing government contracts;

•

suspension or debarment from doing business with the U.S. government;

•

our ability to achieve or manage the growth of our business;

•

our ability to retain and development members of our senior management team;

•

failure of our subcontractors to perform contractual obligations;

•

changes in market conditions including material changes in laws or regulations affecting our business;

•

employee misconduct, security breaches or the occurrence of other operational risks;

•

security threats and breaches, including cybersecurity threats and other disruptions;

•

an inability to recover contract revenue;

•

failure to comply with procurement laws and regulations or obtain security clearances;

•

economic downturns; and

•

our ability to meet our financial and other future obligations and to service our debt.

There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including factors disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s view only as of the date of this prospectus. We undertake no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectations or otherwise.

USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of shares of our common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us (assuming the shares are sold at the midpoint of the range on the cover of the prospectus), will be approximately $ million, or $ million if the underwriters exercise their option to purchase additional shares in full.

A $1.00 increase (decrease) in the assumed public offering price of $ per share would increase (decrease) the net proceeds that we will receive from this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering, together with the proceeds of debt incurred pursuant to the IPO Refinancing, to repay:

•

all outstanding amounts under the Existing Revolving Credit Facility, which matures on April 30, 2018 and bears interest at a rate of daily one-month London Inter-bank Offered Rate, or LIBOR, plus 475 basis points;

•

$ million, representing all outstanding amounts (including accrued and unpaid interest and any applicable premiums) under Tranche A of the Existing First Lien Term Loan, which matures on August 18, 2018 and bears interest at a rate of one-month LIBOR with a floor of 1.00% plus 700 basis points;

•

$ million, representing all outstanding amounts (including accrued and unpaid interest and any applicable premiums) under Tranche B of the Existing First Lien Term Loan, which matures on August 18, 2019 and bears interest at a rate of one-month LIBOR with a floor of 1.00% plus 1,000 basis points;

•

$ million, representing all outstanding amounts (including accrued and unpaid interest and any applicable premiums) under the Existing Second Lien Term Loan, which matures on February 18, 2020 and bears interest at a rate of 14.25% per annum; and

•

$ million, representing all outstanding amounts (including accrued and unpaid interest and any applicable premiums) under the Existing Third Lien Notes, which mature on February 18, 2020 and bear interest at a rate of at 15.25% per annum.

See “Capitalization” and “Description of Certain Indebtedness”.

The net proceeds from the Existing First Lien Term Loan, the Existing Second Lien Term Loan and the Existing Third Lien Notes, and a portion of the net proceeds from the Existing Revolving Credit Facility, were used to refinance a substantial majority of our then-existing debt in August 2014 in the 2014 Refinancing. See “Description of Certain Indebtedness”.

A portion of the net proceeds from this offering and debt incurred in the IPO Refinancing will be used to repay or redeem debt held by certain of our affiliates. See “Certain Relationships and Related Party Transactions”.

DIVIDEND POLICY

Alion has never declared any cash dividends. Following the completion of this offering, we do not expect to pay any dividends in the future, and the terms of our debt instruments will limit our ability to do so. We currently intend to retain future earnings, if any, to use in operating our business. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend on our operating results, financial condition, contractual restrictions, applicable law and other factors our Board of Directors determines to be relevant. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2014:

(1)

on a historical basis;

(2)

on an as adjusted basis to give effect to the IPO Refinancing as if it had occurred on December 31, 2014;

(3)

on a pro forma basis to give effect to the Transactions, including the consummation of this offering and the IPO Refinancing, and the elimination of all of our outstanding Series A Preferred Stock and the full exercise of the 2014 Warrants, as if each had occurred on December 31, 2014.

Debt is presented at carrying value, net of original issuance discount and unamortized transaction costs.

You should read this table in conjunction with our audited and unaudited interim financial statements and related notes included elsewhere in this prospectus, as well as the information set forth under the captions “Use of Proceeds”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Other Indebtedness”.


	As of December 31, 2014
	Actual			As Adjusted		Pro Forma
	(In thousands)
Cash and cash equivalents(a)	$	12,894		$		$

Indebtedness:
New Credit Agreement(a)(b)		—
Existing Revolving Credit Facility		39,812			—		—
Existing First Lien Term Loan
Tranche A		95,709			—		—
Tranche B		160,329			—		—
Existing Second Lien Term Loan(c)		59,460			—		—
Existing Third Lien Notes(d)		196,566			—		—
Unsecured Notes(e)		23,999			—		—

Total indebtedness		575,875

Total equity:
Redeemable common stock(f)(g)		32,105					—
Common Stock(f)(g)		—			—
Series A Preferred Stock(h)		2,339					—
2014 Warrants		6,317					—
2010 Warrants(i)		20,785
Accumulated other comprehensive loss		(19	)
Accumulated deficit		(263,358	)

Total shareholders’ deficit		(201,831	)

Total capitalization	$	374,044		$		$

(a)

us. We intend to use any increased proceeds to reduce borrowings under the New Credit Agreement and/or increase our pro forma cash and cash equivalents, and any decrease in net proceeds would increase borrowings under the New Credit Agreement and/or reduce our pro forma cash and cash equivalents.

(b)	We expect to enter into a new credit agreement or agreements pursuant to the IPO Refinancing, which we expect will provide for availability of up to $ million.

(c)	Includes $3.8 million of issued and accrued PIK Interest.

(d)	Includes $7.8 million of issued and accrued PIK Interest.

(e)	All amounts previously outstanding in respect of the Unsecured Notes were repaid in January 2015.

(f)

The common stock currently held by the ESOP Trust is redeemable because, under certain circumstances, ESOP beneficiaries can require Alion to purchase shares distributed by the ESOP Trust at the then redemption value. We expect that following this offering, we will no longer be required to redeem ESOP shares because there will be an established securities market for the public sale of our stock.

(g)	Actual: $0.0001 par value, 24,000,000 shares authorized, 13,103,912 shares issued and outstanding as of December 31, 2014; pro forma: $0.0001 par value, shares authorized, shares issued and outstanding.

(h)	Actual: $0.01 par value, 5,000,000 shares authorized, 70 shares issued and outstanding; pro forma: $0.01 par value, shares authorized, and no shares issued or outstanding.

(i)	After consummation of this offering and the full exercise of the 2014 Warrants, the 2010 Warrants would be exercisable for shares of our common stock.

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock after this offering. Dilution results from the exercise of the 2014 Warrants and the fact that the initial public offering price per share of common stock is substantially in excess of the net tangible book value per share of our common stock attributable to the existing shareholders for our presently outstanding shares of common stock. We calculate net tangible book value per share of our common stock by dividing the net tangible book value (total consolidated tangible assets less total consolidated liabilities) by the number of outstanding shares of our common stock.

Our net tangible book value as of December 31, 2014 was $ , or $ per share of our common stock, based on shares of our common stock outstanding on April , 2015.

After giving effect to the full exercise of the 2014 Warrants, and the issuance and sale of shares of our common stock in this offering assuming an initial public offering price of $ per share, less the underwriting discounts and commissions and the estimated offering expenses payable by us, and without taking into account any other changes in the net tangible book value after December 31, 2014, our pro forma net tangible book value as of December 31, 2014 would have been a deficit of $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share of our common stock to the existing shareholders and an immediate dilution in net tangible book value of $ per share of our common stock, or % of the estimated offering price of $ per share, to investors purchasing shares of our common stock in this offering. The following table illustrates such per share of our common stock dilution:


Assumed initial public offering price per share		$
Net tangible book value (deficit) per share before the change attributable to new investors		$
Increase in net tangible book value per share attributable to new investors		$
Pro forma net tangible book value (deficit) per share after this offering and full exercise of the 2014 Warrants		$

Dilution per share to new investors		$

The following table summarizes as of December 31, 2014, the total number of shares of our common stock purchased from us, the total cash consideration paid to us and the average price per share paid by purchasers of our common stock and new investors purchasing shares of our common stock in this offering:


	Shares of our Common Stock Purchased			Total Consideration (Amount) (in millions)	Total Consideration (Percentage)			Average Price Per Share
	Number (in millions)	Percent		Total Consideration (Amount) (in millions)	Total Consideration (Percentage)			Average Price Per Share
Existing holders			%	$			%	$
New investors(1)			%	$			%	$

Total			%	$		100	%	$

(1)

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors and total consideration paid by all stockholders by $ million, assuming the number of shares offered by us, as set forth on the cover page of the prospectus, remains the same.

If the underwriters were to fully exercise the underwriters’ option to purchase additional shares of our common stock, the percentage of shares of our common stock held by existing shareholders would be % ( % on a diluted basis), and the percentage of shares of our common stock held by new investors would be % ( % on a diluted basis).

As of December 31, 2014, there were 306,889 2014 Warrants outstanding to purchase 9,419,371 shares of our common stock (with an additional 307,668 shares reserved for issuance pursuant to anti-dilution protections upon exercise of the 2010 Warrants as of December 31, 2014), at an exercise price of $0.0001 per share and 310,000 2010 Warrants outstanding to purchase 602,741 shares of our common stock (with an additional 444,035 shares reserved for issuance pursuant to anti-dilution protections upon exercise of the 2014 Warrants as of December 31, 2014), at an exercise price of $0.01 per share. The tables and calculations above assume full exercise of the 2014 Warrants. If the 2010 Warrants were also fully exercised, resulting in the purchase of shares of our common stock, the additional dilution per share to new investors would be $ , assuming such investors purchase their shares at the midpoint of the price range set forth on the cover page of this prospectus.

To the extent that we grant options or other equity awards to our employees or directors in the future and the holders of those options or other equity awards exercised, or vest in, they or we issue other shares of our common stock, there will be further dilution to new investors.

SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present summary historical condensed consolidated financial data for each of our last three fiscal years ended September 30, 2014, 2013 and 2012 and for the three months ended December 31, 2014 and 2013, and as of September 30, 2014 and 2013 and December 31, 2014. The summary historical condensed consolidated financial data for the fiscal years ended September 30, 2014, 2013 and 2012 and as of September 30, 2014 and 2013 have been derived from our audited financial statements which are included elsewhere in this prospectus. The summary historical condensed consolidated financial data for the three months ended December 31, 2014 and 2013 and as of December 31, 2014 has been derived from our unaudited condensed consolidated interim financial statements which are included elsewhere in this prospectus. In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments and reclassifications that are necessary for a fair presentation of the periods presented.


	Three Months Ended December 31,						Fiscal Year Ended September 30,
	2014			2013			2014			2013			2012
	(Dollars in thousands except per share data)
Consolidated Statement of Operations and Comprehensive Loss:
Contract revenue	$	227,871		$	185,380		$	804,809		$	848,972		$	817,204
Direct contract expense		181,870			145,275			629,311			669,504			632,831

Gross profit		46,001			40,105			175,498			179,468			184,373
Operating expenses		19,043			18,864			78,061			84,128			91,494
General and administrative expenses		12,947			18,993			51,159			53,139			52,441

Operating income		14,011			2,248			46,278			42,201			40,438
Other income (expense)
Interest income		14			11			55			55			78
Interest expense		(22,353	)		(18,948	)		(81,661	)		(75,700	)		(74,934	)
Other		(10	)		(28	)		(123	)		(84	)		(55	)
Change in warrant value		201			—			9,894			—			—
Gain (loss) on debt extinguishment		—			—			(11,458	)		3,913			—

Total other expense		(22,148	)		(18,965	)		(83,294	)		(71,816	)		(74,911	)
Loss before income taxes		(8,137	)		(16,717	)		(37,016	)		(29,615	)		(34,473	)
Income tax expense		(1,746	)		(1,745	)		(6,980	)		(6,977	)		(6,974	)

Net loss	$	(9,883	)	$	(18,462	)	$	(43,996	)	$	(36,592	)	$	(41,447	)

Comprehensive loss	$	(9,883	)	$	(18,462	)	$	(44,145	)	$	(36,313	)	$	(41,421	)

Loss Per Share Data:
Net loss per share of common stock
Basic	$	(0.75	)	$	(2.41	)	$	(5.53	)	$	(5.39	)	$	(6.74	)
Diluted(a)	$	(0.75	)	$	(2.41	)	$	(5.53	)	$	(5.39	)	$	(6.74	)
Weighted average shares of common stock outstanding
Basic		13,106,777			7,659,817			7,952,248			6,787,660			6,148,438
Diluted(a)		13,106,777			7,659,817			7,952,248			6,787,660			6,148,438


	December 31, 2014			As of September 30,
	December 31, 2014			2014		2013
				(Dollars in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	12,984		$	10,732	$	25,613
Working capital		(2,554	)		1,412		42,569
Total assets		607,674			604,269		624,626
Total debt(b)		575,875			569,028		556,118

(a)	Does not reflect the impact of the exercise of any warrants for any period.

(b)

Total debt as of December 31, 2014 and September 30, 2014 consisted of obligations under the Existing Debt Instruments as well as that portion of our Unsecured Notes that remained outstanding after the 2014 Refinancing, which were repaid in January 2015. Total debt as of September 30, 2013 consisted of obligations under our prior revolving credit facility, our Secured Notes and our Unsecured Notes, as well as accrued PIK Interest, and is net of unamortized debt issue costs and original issue discount.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to assist the reader’s understanding of Alion’s financial condition, results of operations, liquidity and capital resources. You should read the following discussion in conjunction with the “Capitalization”, “Selected Consolidated Financial Data”, “Business” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements about our business and operations that involve risks and uncertainties. Future results may differ materially from those we currently anticipate because of the “Risk Factors” described elsewhere in this prospectus.

Overview

We are a leading provider of engineering solutions and services to the Federal Government for national defense, security and other critical government areas. Founded in 1936 as IITRI, Alion and its highly skilled and educated employees have consistently been at the forefront of originating, developing and applying innovative scientific, engineering, technology and research and development solutions to our customers’ most complex challenges. Based in McLean, Virginia, we operate in three core business areas:

•

Systems Analysis, Design and Engineering core business area, in which we provide services and technologies designed to enhance the performance and safety of complex systems and reduce costs.

•

A significant focus of our solutions and systems is our agile engineering work, almost all of which is currently conducted in our systems analysis, design and engineering core business area. Agile engineering is the design, rapid prototyping, testing and limited production of systems and components. This is a substantial and growing part of our business. Within our agile engineering service we provide a broad range of solutions that respond directly to product line managers’ needs, usually on a time-critical basis. Our ability to progressively design, prototype, test and field solutions to emergent problems in close collaboration with (and often embedded in) customer teams results in effective, affordable and timely solutions. We believe our ability to combine traditional services with technological and engineering expertise in a time-critical, cost-efficient manner sets us apart in our industry.

Our solutions and services span the full lifecycle of key programs and provide us with long-standing, entrenched relationships with our customers. The long-term nature of our service offering also allows us to expand our footprint on existing programs and to use our capabilities and relationships to capture new growth opportunities. For fiscal year 2014, we generated revenue of $804.8 million, $68.0 million in Consolidated EBITDA and reported a net loss of $44.0 million. For the three months ended December 31, 2014 and 2013, we generated revenue of $227.9 million and $185.4 million, respectively, $19.2 million and $14.9 million in Consolidated EBITDA, respectively, and reported a net loss of $9.9 million and $18.5 million, respectively. This represents an increase in revenue and Consolidated EBITDA of 22.9% and 28.9%, respectively, and a decrease in net loss of 46.5%. For a discussion of our use of Consolidated EBITDA and a reconciliation to net loss, please refer to “Prospectus Summary – Summary Historical Consolidated Financial Data”.

serve customers in all branches of the U.S. military, a number of Cabinet-level U.S. government agencies, state and foreign governments and commercial customers. As of December 31, 2014, we had more than 200 distinct customers and over 500 active contracts. For calendar year 2014, DoD customers represented 93.8% of our revenue and other civilian agencies and commercial customers accounted for 6.2% of our revenue.

Transaction Expenses

Assuming consummation of the Transactions, the elimination of all of our outstanding Series A Preferred Stock and the full exercise of the 2014 Warrants, we anticipate that we will recognize approximately $ million of charges, including transaction expenses and redemption and prepayment premiums and the write-off of $ million of unamortized debt issue costs and original issue discount.

Seasonality

Although our business is not seasonal, it does fluctuate with the number of working days in each quarter. The first and fourth quarters each calendar year generally have fewer working days for our employees to generate revenue. In the weeks before the Federal Government’s September 30 fiscal year end, it is not uncommon for U.S. government agencies to award extra tasks or complete contract actions to avoid the loss of unexpended fiscal year funds. In addition, we also have generally experienced higher bid and proposal costs in the months leading up to the U.S. government’s fiscal year end as we pursue new contract opportunities being awarded shortly after the U.S. government fiscal year end as new opportunities are expected to have funding appropriated in the U.S. government’s subsequent fiscal year. We may continue to experience this seasonality in future periods, and our future periods may be affected by it.

Results of Operations

Quarter Ended December 31, 2014 Compared to Quarter Ended December 31, 2013

Despite a challenging U.S. Federal Government defense market, the Company won new contracts and executed on its existing base of business. First quarter fiscal year 2015 revenue increased 22.9% over first quarter fiscal year 2014 revenue and first quarter fiscal year 2015 operating income increased 523.3% compared to first quarter fiscal year 2014 operating income.

Notwithstanding over-arching defense sector market issues, first quarter fiscal year 2015 revenue marked the Company’s fourth consecutive quarter of increasing revenues. The Company’s revenue growth was driven by a number of factors which included winning new awards in our existing and new markets and increased funding on our existing contracts. The Company ended first quarter fiscal year 2015 with approximately $500 million in funded backlog which was one of the highest fiscal quarter-end levels of funded backlog in the Company’s history.

First quarter fiscal year 2015 operating income increased by 523% compared to first quarter fiscal year 2014. The Company incurred significant transaction expenses in first quarter fiscal year 2014 in connection with the 2014 Refinancing and there were no comparable costs in first quarter fiscal year 2015. Management’s focus on improved contract performance and execution also improved profitability. Company initiatives reduced first quarter fiscal year 2015 overhead and general and administrative expenses by $6.7 million compared to first quarter fiscal year 2014.

In first quarter fiscal year 2015, the Company’s net loss decreased by 46.5% compared to first quarter fiscal year 2014. Higher operating income, from lower overhead and general and administrative expenses outpaced increased interest expense from our debt structure resulting from the 2014 Refinancing.

Revenue

First quarter fiscal year 2015 revenue was $227.9 million, up $42.5 million (22.9%) as compared to first quarter fiscal year 2014. This increase was driven primarily by a $40.9 million overall increase in DoD revenue compared to first quarter fiscal year 2014. The growth was primarily a result of higher funding and new awards in our Systems Analysis, Design and Engineering core business area which provided a $40.9 million (71.5%) increase in revenue compared to first quarter fiscal year 2014. In addition, the Naval Architecture and Marine Engineering core business area increased $2.7 million (3.4%) due to higher funding levels on existing contracts and increased activities with international customers to provide naval architecture and engineering services. This growth was offset in part by declines in our Modeling, Simulation, Training and Analysis core business area of $1.1 million (2.2%) due to contract completions in our training market.

Sources of Revenue

We provide professional engineering, program management and information technology services and scientific expertise in a range of specialized core business areas aligned with our customers’ demands. The U.S. government continues to be our principal customer. As in the past, we expect to derive the overwhelming majority of our revenue from DoD and other federal agency contracts. Although we are investing to expand our international and commercial business, we believe commercial and international revenue will continue to be a low percentage of our total revenue. We expect changes in our internal resource allocations and planned cost reductions will improve our ability to provide cost-effective customer solutions.

The table below summarizes our revenue by customer for the first quarter of both fiscal years 2015 and fiscal year 2014.


	Three Months Ended December 31,
	2014				2013
	(Dollars in millions)
U.S. Air Force	$	33.5	14.7	%	$	28.8	15.5	%
U.S. Army		38.3	16.8	%		25.0	13.5	%
U.S. Navy		122.7	53.8	%		104.3	56.3	%
Other DoD customers		20.4	9.0	%		15.9	8.6	%

Sub-total DoD customers		214.9	94.3	%		174.0	93.9	%
Other Federal Agencies		6.8	3.0	%		6.8	3.6	%

Sub-total U.S. Government customers		221.7	97.3	%		180.8	97.5	%
Commercial and International customers		6.2	2.7	%		4.6	2.5	%

Total Revenue	$	227.9	100.0	%	$	185.4	100.0	%

We provide professional engineering, program management and information technology services and scientific expertise in a range of specialized core business areas. Our core business areas closely align with the demands of the marketplace. We expect our internal resource allocations and cost reductions will improve our efficiency and enhance our ability to provide cost-effective customer solutions. Factors impacting our Naval Architecture and Marine Engineering, Modeling, Simulation, Training and Analysis and Systems Analysis, Design and Engineering core business area revenue are noted in the Revenue section above.

The table below summarizes our first quarter fiscal year 2015 and fiscal year 2014 revenue by core business area.


Core Business Area Revenue	Three Months Ended December 31,
Core Business Area Revenue	2014				2013
	(Dollars in millions)
Naval Architecture and Marine Engineering	$	81.2	35.6	%	$	78.5	42.3	%
Systems Analysis, Design and Engineering		98.1	43.0	%		57.2	30.9	%
Modeling, Simulation, Training and Analysis		48.6	21.4	%		49.7	26.8	%

Total Revenue	$	227.9	100.0	%	$	185.4	100.0	%

Cost-reimbursement contract revenue increased $48.0 million (30.8%) in first quarter fiscal year 2015 versus first quarter fiscal year 2014. The growth in cost-reimbursement contract revenue was driven, in part, by customers utilizing the IDIQ type contract vehicle to access our services in the Systems Analysis, Design and Engineering core business area. First quarter fiscal year 2015, fixed price contract revenue was down $5.4 million to 4.5% of quarterly revenue as compared to the first quarter fiscal year 2014 due, in part, to contract completion in our training market. First quarter fiscal year 2015 time and material contract revenue decreased to 6.3% of annual revenue as compared to first quarter fiscal year 2014.

The table below summarizes our first quarter fiscal year 2015 and fiscal year 2014 revenue by contract billing type.


Revenue by Contract Billing Type	Three Months Ended December 31,
Revenue by Contract Billing Type	2014				2013
	(Dollars in millions)
Cost reimbursable contracts	$	203.4	89.2	%	$	155.4	83.9	%
Fixed price contracts		10.1	4.5	%		15.5	8.4	%
Time and material contracts		14.4	6.3	%		14.5	7.7	%

Total Revenue	$	227.9	100.0	%	$	185.4	100.0	%

In first quarter fiscal year 2015, our prime contract revenue increased by $42.2 million, a 26.1% increase compared to first quarter fiscal year 2014. To a large degree, this increase was attributed to new awards and funding on existing programs, in our Systems Analysis, Design and Engineering core business area. Revenue from our work as a subcontractor to other prime contractors was up $0.3 million or 1.3% in first quarter fiscal year 2015 compared to the first quarter fiscal year 2014. Alion continues to look to increase its presence as a prime contractor on larger, more complex programs where we deliver services to customers by deploying our own staff and by managing the efforts of other contractors.


Prime and Subcontract Revenue	Three Months Ended December 31,
Prime and Subcontract Revenue	2014				2013
	(Dollars in millions)
Prime contracts	$	203.6	89.3	%	$	161.4	87.1	%
Subcontracts from other companies		24.3	10.7	%		24.0	12.9	%

Total Revenue	$	227.9	100.0	%	$	185.4	100.0	%

The trend by our customers to access our services through IDIQ contract vehicles continued in first quarter fiscal year 2015 as IDIQ contract revenue increased by 36.7% compared to first quarter fiscal year 2014. This increase was attributed, in part, to new task orders awards and funding on existing task orders. Our customers used our Weapons System Information Analysis Center IDIQ contract to obtain Alion’s services in the Systems Analysis, Design and Engineering core business area and the Seaport-E IDIQ contract to access our services in the Naval Architecture and Marine Engineering core business area.


Contract Vehicles	Three Months Ended December 31,
Contract Vehicles	2014				2013
	(Dollars in millions)
IDIQ Contracts	$	160.3	70.3	%	$	117.3	63.3	%
Individual contracts and delivery orders		67.6	29.7	%		68.1	36.7	%

Total Revenue	$	227.9	100.0	%	$	185.4	100.0	%

Selected Financial Information

The table below summarizes our first quarter fiscal year 2015 and 2014 revenues and income from operations. First quarter fiscal year 2015 revenue increased by $42.5 million (22.9%) period over period and our gross profit increased $5.9 million. Total first quarter fiscal year 2015 operating expenses decreased $5.9 million as compared to first quarter fiscal year 2014 as general and administrative costs decreased by $6.0 million and depreciation and amortization expenses decreased $255 thousand. Occupancy costs rose $1.0 million as we expanded our presence in several locations in conjunction with our growing revenue base. First quarter fiscal year 2015 operating income was $11.8 million more than it was in first quarter fiscal year 2014, as revenues increased and operating expenses decreased.


	Three Months Ended December 31,
	2014				2013
	(Dollars in millions and percentage of revenue)
Total contract revenue	$	227.9			$	185.4
Total direct contract expense		181.9	79.8	%		145.3	78.4	%
Direct labor costs		59.4	26.1	%		59.0	31.8	%
Materials and subcontracts		116.8	51.2	%		80.9	43.6	%
Other direct costs		5.7	2.5	%		5.4	2.9	%

Gross profit		46.0	20.2	%		40.1	21.6	%
Total operating expense		32.0	14.0	%		37.9	20.4	%
Major components of operating expense:
Overhead and G&A expenses		22.1	9.7	%		28.8	15.5	%
Rental and occupancy expense		8.8	3.9	%		7.8	4.2	%
Depreciation and amortization		1.0	0.5	%		1.3	0.7	%

Operating income	$	14.0	6.1	%	$	2.2	1.2	%

Direct Contract Expense and Gross Profit

First quarter fiscal year 2015 direct contract costs were up $36.6 million (25.2%) compared to the first quarter fiscal year 2014, which is in line with higher revenue. As compared to first quarter fiscal year 2014, first quarter fiscal year 2015 direct labor costs increased $0.4 million (0.7%) and third-party costs for materials and subcontracts increased by $35.9 million (44.3%). Direct labor and material and subcontract costs increased due to new funding and awards in fourth quarter fiscal year 2014 and first quarter fiscal year 2015. First quarter fiscal year 2015 other direct costs increased by $0.3 million (5.8%) over first quarter fiscal year 2014 as the Company required more non-labor goods and travel related costs to service our customers.

Gross profit was up by $5.9 million first quarter fiscal year 2015 as compared to the first quarter fiscal year 2014 due to the increase in revenue. Our first quarter fiscal year 2015 gross profit margins declined to 20.2% of revenue as compared to 21.6% of revenue in first quarter fiscal year 2014. The decrease in gross margins was due, in part, to the significant growth in material and subcontract activity which on certain contracts earns lower margins than the rest of the portfolio.

Operating and General and Administrative Expenses

First quarter fiscal year 2015 operating expenses decreased $5.9 million (15.5%) compared to first quarter fiscal year 2014. Overhead and general and administrative, or G&A, expenses were down $6.7 million in first quarter fiscal year 2015 compared to first quarter fiscal year 2014. The reductions in overhead and general and administrative expenses were due, in part, to the elimination of refinancing expenses the Company incurred in first quarter fiscal year 2014. Occupancy costs increased $1.0 million period over period as we expanded our presence in several locations in conjunction with our growing revenue base, while depreciation and amortization charges declined by $255 thousand. We expect to incur transaction costs in connection with the Transactions, and the elimination of all of our outstanding Series A Preferred Stock and the full exercise of the 2014 Warrants, and to have greater operating and general and administrative expenses as a result of becoming a public company.

Operating Income

First quarter fiscal year 2015 operating income was $14.0 million, as compared to $2.2 million in first quarter fiscal year 2014. The increase was due to higher revenue, and, in part, improved contract execution and performance, which generated higher contract profitability. Operating income was also higher period over period because of reduced overhead and core general and administrative costs. In fiscal year 2014, we faced refinancing related expenses that we did not have in first quarter fiscal year 2015. First quarter fiscal year 2015 operating income margin was 6.1% up from 1.2% in first quarter fiscal year 2014.

Interest and Other Expense

First quarter fiscal year 2015 aggregate interest income and interest expense and other expense was approximately $3.4 million higher than it was in first quarter fiscal year 2014. Cash settled interest expense declined by $3.3 million period over period because we had to pay cash interest on the Existing Debt Instruments. The Existing Third Lien Note cash interest rate is currently 5.5%. Last year we had to pay cash interest on a higher total outstanding principal for the now-extinguished Secured Notes and Unsecured Notes and at a higher cash paid interest rate. Interest expense on our Revolving Credit Facility increased because we carried a $43 million balance in the first quarter fiscal year 2015. In contrast, during first quarter fiscal year 2014, we only borrowed $10 million for a brief period. As a result of the Transactions, we expect our interest expense to decrease.

Interest expense increased overall because in first quarter fiscal year 2015 we had more debt outstanding subject to higher PIK interest rates than paid on the Secured Notes earned in first quarter fiscal year 2014. We accrued $7.9 million in PIK interest on the Existing Second Lien Loan and Existing Third Lien Notes in first quarter fiscal year 2015 compared to $1.7 million in PIK interest in first quarter fiscal year 2014 for the Secured Notes. We also amortized a higher amount of debt issue costs in first quarter fiscal year 2015 compared to first quarter fiscal year 2014.


	Three Months Ended December 31,
	2014		2013
	(Dollars in millions)
Cash Pay Interest
Revolver	$	0.6	$	0.3
First lien term loan, Tranche A		2.2		—
First lien term loan, Tranche B		4.9		—
Third lien notes		3.0		—
Secured notes		—		8.3
Unsecured notes		0.6		6.0
Other cash pay interest and fees		0.04		0.02

Sub-total cash pay interest	$	11.3	$	14.6
Deferred and Non-cash Interest
Secured notes PIK interest		—		1.7
Second lien term loan PIK interest		2.6		—
Third lien notes PIK interest		5.3		—
Debt issue costs and other non-cash items		3.1		2.7

Sub-total non-cash interest	$	11.0	$	4.4

Total interest expense	$	22.4	$	18.9

Income Tax Expense

Deferred income tax expense was $1.7 million in each of first quarter fiscal year 2015 and 2014. Deferred tax expense relates to tax-deductible goodwill. The Company also had modest current foreign tax expense for its Indian subsidiary’s business development activities.

Alion has not been profitable since it became a C Corporation in March 2010. As of December 31, 2014, the Company has generated $241.1 million in NOL tax deductions. The earliest NOL deduction does not expire until fiscal year 2030. As a result of the offering, the Company’s NOLs will become subject to an annual use limitation. The effect of the annual use limitation is that the Company will be able to use up to approximately $150 million of its NOLs over the five-year period following the offering. Another $20-25 million of the Company’s NOLs will be available to be used over the remaining available term of the NOLs. Thus, a portion of the Company’s NOLs is likely to expire unutilized. In addition to the Company’s existing NOLs, the Company has certain built-in deductions available to reduce its taxable income in future periods.

Alion’s ability to utilize NOL tax benefits will depend upon how much future taxable income it has. Management regularly reviews NOL-related U.S. Internal Revenue Code of 1986, as amended, or Code, provisions that could potentially limit the Company’s ability to use its existing NOL deductions in the future. Because Alion’s history of losses makes it unlikely it will be able to realize the full benefit of its deferred tax assets, U.S. GAAP requires management to record a full valuation allowance for all deferred tax assets including NOLs. Therefore, the Company’s deferred tax assets had a zero carrying value as of September 30, 2014 and 2013.

Alion carries a $66.8 million deferred tax liability that arose from prior goodwill deductions that increased its NOLs deductions. The Company expects its domestic tax liability to be limited for the foreseeable future due to available NOLs, and expects only minimal foreign income taxes for operations in India. Alion expects to

continue to recognize deferred income tax expense for tax-deductible goodwill for the next several years. See Note 18 to the unaudited financial statements for information about the components of the Company’s deferred tax assets.

Net Loss

We lost $9.9 million in first quarter fiscal year 2015. This was an $8.6 million improvement over the $18.5 million net loss in first quarter fiscal year 2014. Operating income was up $11.8 million in first quarter fiscal year 2015 as compared to first quarter fiscal year 2014 but was partly offset by $3.5 million in higher interest expense.

Backlog

As of December 31, 2014, management estimates the amount of future revenues to be recognized under our existing contracts to be approximately $1.5 billion, of which approximately $499 million is funded. Of the $1.5 billion of backlog, the amount not reasonably expected to be filled in fiscal year 2015 is approximately $0.8 billion.

All of our existing contracts may have funded backlog and unfunded backlog, each of which is described below. The contract values and management’s estimated revenues do not include any task orders or ceiling value under IDIQ contracts, including GWACs and GSA schedules, except to the extent that task orders have been awarded to us under those contracts.

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Funded Backlog. Funded backlog represents the estimated revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously recognized on these contracts. We expect to recognize a substantial portion of our funded backlog as revenue by December 31, 2015.


	As of December 31,
	2014		2013
	(Dollars in millions)
Backlog:
Funded	$	498.6	$	364.3

•

Unfunded Backlog. Unfunded backlog represents the estimated revenue value of orders for services under existing contracts for which funding has not been appropriated or otherwise authorized.


	As of December 31,
	2014		2013
	(Dollars in millions)
Backlog:
Unfunded	$	1,047.5	$	1,213.7

In fiscal year 2013, management refined the methodology used to determine funded backlog and unfunded backlog, including only estimates of future revenues to be recognized under awarded contracts. The change in backlog estimating methodology better aligned our backlog estimates with our industry peer group. Each fiscal year quarter our funded and unfunded backlog estimates are determined by analyzing a number of key factors and attributes for each of our executed contracts, task orders or delivery orders. Based upon the result of our analysis we establish the expected revenue value for each of those items contracts, task orders or delivery orders and report those results on a consolidated basis. See “Risk Factors – Risks Related to Our Business and Operations – We may not realize the full amount of our backlog, which could lower future revenue”.

with respect to unfunded backlog. The actual receipt and timing of any revenue is subject to various contingencies, many of which are beyond our control. The actual recognition of revenue on contracts included in our backlog may never occur or may change because a program schedule could change, the program could be canceled, a contract could be reduced, modified, or terminated early, whether for the convenience of the government or otherwise; or an option that we had assumed would be exercised could not be exercised. The primary risks that could affect timing and recognition of backlog-related contract revenue include: schedule changes, contract modifications, and our ability to assimilate and deploy new staff against funded backlog; U.S. government cost cutting initiatives and other efforts to reduce spending, which could reduce or delay funding for orders for services; and delayed funding of our contracts due to delays in the completion of the U.S. government’s budgeting process and the use of continuing resolutions by the U.S. government to fund its operations, as described under “Risk Factors”. See “Risk Factors – Risks Related to Our Business and Operations – We depend on U.S. government contracts for substantially all of our revenue. Changes in the contracting or fiscal policies of the U.S. government could adversely affect our business, financial condition, results of operations and ability to satisfy our financial obligations and grow our business” and “– We may not realize the full amount of our backlog, which could lower future revenue”.

Year Ended September 30, 2014 Compared to Year Ended September 30, 2013

Despite a challenging U.S. Federal Government defense market, the Company won new contracts and executed on its existing base of business. Fiscal year 2014 revenues decreased 5.2% over fiscal year 2013 revenue however, fiscal year 2014 operating income increased by 9.7% as compared to fiscal year 2013.

The decline in revenue was driven by a number of factors including reductions in defense spending, sequestration, the U.S. Federal Government shutdown and delays in new awards and funding on our existing contracts. Notwithstanding these over-arching market issues, the Company ended fiscal year 2014 with one of the largest funded backlog in the Company’s history and fourth quarter fiscal year 2014 revenues that posted an 8.2% increase over fourth quarter fiscal year 2013.

The increase in our fiscal year 2014 operating income of 9.7% was primarily driven by the Company’s focus to improve contract execution and performance, which produced an increase in contract profitability. In addition, company initiatives to drive efficiencies throughout the business have reduced overhead expenses by approximately $5.1 million and general and administrative expenses by $1.8 million in fiscal year 2014 as compared to fiscal year 2013.

In fiscal year 2014 the Company’s net loss grew by 20.2% as compared to fiscal year 2013 as increases in interest expense and costs related to refinancing our debt out-paced our improvements in operating income.

Risks related to sequestration, budget reductions, the 2013 government shutdown and other market factors disclosed in this prospectus have affected the revenue growth we have experienced in fiscal year 2013. In the future these factors could have a material, adverse effect on our business, financial condition, results of operations and cash flows.


	Fiscal Years Ended September 30,
	2014			2013
	(Dollars in millions)
Revenue	$	804.8		$	849.0
Net Loss	$	(44.0	)	$	(36.6	)

Revenue

Fiscal year 2014 revenue was $804.8 million, down $44.2 million (5.2%) as compared to fiscal year 2013 results. This decline was driven primarily by a $37.2 million overall decrease in DoD fiscal year 2014 revenue due to funding and award delays. These funding and award delays drove declines of $21.9 million (6.4%) in our

fiscal year 2014 Naval Architecture and Marine Engineering revenue which led to a $6.7 million (1.5%) decline in our fiscal year 2014 U.S. Navy revenue. In addition, our Modeling, Simulation, Training and Analysis decreased $20.6 million (9.4%) as we realized lower revenues with our U.S. Army and U.S. Air Force customers. The Systems Analysis, Design and Engineering core business area also decreased $1.7 million (0.6%) compared to fiscal year 2013 due to funding and new award delays.

The $5.4 million revenue decrease from our commercial and international customers in fiscal year 2014 over fiscal year 2013 is related to the completed naval architecture and marine engineering work in India. In addition, we also completed several high-end nuclear engineering projects at several international nuclear power plants which also contributed to the decrease in our Commercial and International revenue. Fiscal year 2014 other federal agencies revenue also declined $1.6 million compared to fiscal year 2013 as tasking in our high-end consulting revenue has decreased due to Federal Government budgetary pressures.

Sources of Revenue

The U.S. government continues to be our principal customer. For fiscal years 2014 and 2013, U.S. government contracts accounted for more than 96% of our revenue, with approximately 94% of our revenue derived from DoD contracts. The U.S. Navy is our largest single customer, generating more than 50% of our revenue each of the last two fiscal years.

The table below summarizes our revenue by principal customer for fiscal years 2014 and 2013.


Revenue by Customer	Fiscal Years Ended September 30,
Revenue by Customer	2014				2013
	(Dollars in millions)
U.S. Air Force	$	123.8	15.4	%	$	136.4	16.1	%
U.S. Army		122.1	15.2	%		152.7	18.0	%
U.S. Navy		444.9	55.3	%		451.6	53.2	%
Other Department of Defense Customers		62.9	7.8	%		50.2	5.9	%

Sub-total Department of Defense Customers		753.7	93.7	%	$	790.9	93.2	%
Other Federal Agencies		29.8	3.7	%		31.4	3.7	%

Sub-total U.S. government customers		783.5	97.4	%	$	822.3	96.9	%
Commercial and International customers		21.3	2.6	%		26.7	3.1	%

Total Revenue	$	804.8	100.0	%	$	849.0	100.0	%

We provide professional engineering, program management and information technology services and scientific expertise in a range of specialized core business areas. Our core business areas closely align our services with the demands of the marketplace. We expect our internal resource allocations and cost reductions will improve our efficiency and enhance our ability to provide cost-effective customer solutions. Factors reducing our Naval Architecture and Marine Engineering, Modeling, Simulation, Training and Analysis and Systems Analysis, Design and Engineering core business area revenue are noted in the Revenue section above.

The table below summarizes our revenue by core business area for fiscal years 2014 and 2013.


Core Business Area Revenue	Fiscal Years Ended September 30,
Core Business Area Revenue	2014				2013
	(Dollars in millions)
Naval Architecture and Marine Engineering	$	321.9	40.0	%	$	343.8	40.5	%
Systems Analysis, Design and Engineering		284.2	35.3	%		285.9	33.7	%
Modeling, Simulation, Training and Analysis		198.7	24.7	%		219.3	25.8	%

Total Revenue	$	804.8	100.0	%	$	849.0	100.0	%

Cost-reimbursement contract revenue decreased $39.1 million (5.4%) in fiscal year 2014 versus fiscal year 2013 and represented 85.0% of fiscal year 2014 revenue. Customers, including the Naval Sea Systems Command and the Defense Technical Information Center continued to issue this type of tasking on our IDIQ contract vehicles. Fiscal year 2014 fixed price contract revenue was down $15.4 million to 7.3% of annual revenue as compared to fiscal year 2013 due, in part, to a decline in our Naval Architecture and Marine Engineering international work and our high-end nuclear engineering and consulting services contracts. Fiscal year 2014 time and material contract revenue was up $10.3 million to 7.7% of annual revenue as compared to fiscal year 2013. The increase in time and material contract revenue is due, in part, to growth in several core business areas in our U.S. defense and civilian agencies customer base.

The table below summarizes our revenue by contract billing type for fiscal year 2014 and 2013.


Revenue by Contract Billing Type	Fiscal Years Ended September 30,
Revenue by Contract Billing Type	2014				2013
	(Dollars in millions)
Cost Reimbursable contracts	$	684.0	85.0	%	$	723.1	85.2	%
Fixed Price contracts		59.2	7.3	%		74.6	8.8	%
Time and Material contracts		61.6	7.7	%		51.3	6.0	%

Total Revenue	$	804.8	100.0	%	$	849.0	100.0	%

In fiscal year 2014, our prime contract revenue decreased by $55.2 million, a 7.3% decrease compared to fiscal year 2013. This decline was attributed to delays in new awards and funding on existing programs. Revenue from our work as a subcontractor to other prime contractors was up $11.0 million or 12.0% in fiscal year 2014 compared to fiscal year 2013. Alion continues to look to increase its presence as a prime contractor on larger, more complex programs where we deliver services to customers by deploying our own staff and by managing the efforts of other contractors.

The table below summarizes our prime and subcontract revenue for fiscal year 2014 and 2013.


Prime and Subcontract Revenue	Fiscal Years Ended September 30,
Prime and Subcontract Revenue	2014				2013
	(Dollars in millions)
Prime contracts	$	702.4	87.3	%	$	757.6	89.2	%
Subcontracts from other companies		102.4	12.7	%		91.4	10.8	%

Total Revenue	$	804.8	100.0	%	$	849.0	100.0	%

The trend by our customers to access our services through IDIQ contract vehicles continued in fiscal year 2014. Our customers used our Weapons System Information Analysis Center and Seaport-E contracts as well as other IDIQ contract vehicles to obtain Alion’s services. Fiscal year 2014 IDIQ contract revenue decreased by 5.3% compared to fiscal year 2013. This decline was attributed, in part, to delays in new task orders awards and funding on existing task orders.

The table below summarizes our revenue by contract vehicle type for fiscal years 2014 and 2013.


Contract Vehicles	Fiscal Years Ended September 30,
Contract Vehicles	2014				2013
	(Dollars in millions)
IDIQ Contracts	$	526.7	65.4	%	$	555.9	65.5	%
Individual contracts		278.1	34.6	%		293.1	34.5	%

Total Revenue	$	804.8	100.0	%	$	849.0	100.0	%

Selected Financial Information

The table below summarizes our fiscal year 2014 and fiscal year 2013 revenue and income from operations. Fiscal year 2014 full year revenue decreased by $44.2 million and total operating expenses declined by $8.0 million compared to fiscal year 2013. The Company benefited from continuing efforts to reduce our cost structure by trimming overhead expenses, general and administrative costs. Our declining contract amortization charges also contributed to the lower fiscal year 2014 operating expense. Costs associated with the Company’s refinancing efforts eroded the cost reductions in our general and administrative expenses. The table below presents selected comparative financial information for fiscal years ended September 30, 2014 and 2013. Our discussion and analysis refers to financial information in this table and to Alion’s consolidated financial statements in this prospectus.


	Fiscal Years Ended September 30,
	2014				2013
	(Dollars in thousands and percentage of revenue)
Total contract revenue	$	804,809			$	848,972
Total direct contract costs		629,311	78.2	%		669,504	78.9	%
Direct labor costs		245,068	30.5	%		248,934	29.3	%
Material and subcontract costs		362,408	45.0	%		402,171	47.4	%
Other direct costs		21,835	2.7	%		18,399	2.2	%

Gross profit		175,498	21.8	%		179,468	21.1	%

Total operating expense		129,220	16.1	%		137,267	16.2	%
Major components of operating expense:
Overhead and G&A expenses		92,256	11.5	%		99,381	11.7	%
Rental and occupancy expense		32,176	4.0	%		30,538	3.6	%
Depreciation and amortization		4,788	0.6	%		7,348	0.9	%

Operating income	$	46,278	5.8	%	$	42,201	5.0	%

Direct Contract Expense and Gross Profit

Fiscal year 2014 direct contract costs were down $40.2 million (6.0%) compared to fiscal year 2013, which is in line with lower revenue. As compared to fiscal year 2013, fiscal year 2014 direct labor costs decreased $3.9 million (1.6%) and third-party costs for materials and subcontracts decreased by $39.8 million (9.9%). Direct labor and material and subcontract costs decreased, in part, as a result of sequestration, the Congressional continuing resolution and the U.S. Federal Government shutdown at the beginning of fiscal year 2014. Fiscal year 2014 other direct costs increased by $3.4 million (18.7%) over fiscal year 2013 as the Company required more non-labor goods and travel related costs to service our customers.

Gross profit was down by $4.0 million in fiscal year 2014 as compared to fiscal year 2013 due to the decline in revenue. Our fiscal year 2014 gross profit margins increased to 21.8% of revenue as compared to 21.1% of revenue in fiscal year 2013. The increase in gross margins, was due, in part, to the Company’s focus to improve contract execution and performance, which produced an increase in contract profitability.

Operating and General and Administrative Expenses

Operating expenses were $8.0 million lower in fiscal year 2014 than they were in fiscal year 2013. Fiscal year 2014, overhead and G&A expenses decreased approximately $7.2 million compared to fiscal year 2013 due to ongoing cost reductions and cost avoidance measures. Fiscal year 2014 occupancy costs were up $1.6 million over fiscal year 2013 due, in part, to opening new office facilities to better serve our new and existing customers. Fiscal year 2014 depreciation and amortization expense declined $2.6 million compared to fiscal year 2013. Amortization charges for contracts from our acquisition in 2005 of the JJMA Corporation, or the JJMA

Acquisition, continue to decrease over time. Operating expenses continue to trend downward as they have since fiscal year 2013.

Operating Income

Fiscal year 2014 operating income rose to $46.3 million for the year, which was a $4.1 million (9.7%) increase over $42.2 million in fiscal year 2013. Fiscal year 2014 higher operating income was due, in part, to the Company’s focus to improve contract execution and performance, which produced an increase in contract profitability, as well as reductions in overhead and core general and administrative costs. Fiscal year 2014 operating income margin was 5.8% up from 5.0% in fiscal year 2013.

Interest and Other Expense

Fiscal year 2014 total interest expense was approximately $6.0 million higher than fiscal year 2013. This increase was a result of the 2014 Refinancing and increased interest expense on borrowings under our revolver, partially offset by a modest decrease in interest on our Secured Notes and Unsecured Notes. We retired most of the interest-bearing principal amount thereof in August 2014, prior to the end of fiscal year 2014. Interest expense for our new debt instruments issued in August 2014 also contributed to the increase in total interest expense in fiscal year 2014 as compared to fiscal year 2013.


	Fiscal Years Ended September 30,
	2014		2013
	(Dollars in thousands)
Cash Pay Interest
Revolver	$	1,866	$	887
First lien term loan, Tranche A		1,051		—
First lien term loan, Tranche B		2,299		—
Third lien notes		1,386		—
Secured Notes		32,111		32,761
Unsecured Notes		21,504		24,861
Other cash pay interest and fees		102		69

Sub-total cash pay interest		60,139		58,578

Deferred and Non-cash Interest
Secured Notes PIK interest		6,423		6,551
Second lien term loan		1,191		—
Third lien notes		2,457		—
Debt issue costs and other non-cash items		11,272		10,571

Sub-total non-cash interest		21,343		17,122

Total interest expense	$	81,662	$	75,700

Debt Extinguishment and Fair Value Adjustment

In August 2014, we refinanced our then-existing debt and recognized a loss of $11.5 million. We extinguished our Secured Notes and exchanged the Existing Third Lien Notes for approximately 90% of our Unsecured Notes. We paid $3.2 million to Unsecured Note holders who participated in the exchange or sold their notes at a discount. We paid ASOF and Phoenix $7.1 million to facilitate the 2014 Refinancing. We recognized a $1.1 million gain for the Unsecured Notes we repurchased. We recognized a loss of $2.1 million in unamortized debt issue costs. In fiscal year 2014, we recognized a $9.9 million benefit from the decline in value of the 2014 Warrants we issued in the 2014 Refinancing.

Income Tax Expense

Deferred income tax expense was $7.0 million in each of fiscal years 2014 and 2013. Deferred tax expense relates to tax-deductible goodwill. The Company also had modest current foreign tax expense for its Indian subsidiary’s business development activities.

As of September 30, 2014, the Company had generated $225.0 million in NOL tax deductions. The earliest NOL deduction does not expire until fiscal 2030. As a result of the offering, the Company’s NOLs will become subject to an annual use limitation. The effect of the annual use limitation is that the Company will be able to use up to approximately $150 million of its NOLs over the five-year period following the offering. Another $20-25 million of the Company’s NOLs will be available to be used over the remaining available term of the NOLs. Thus, a portion of the Company’s NOLs is likely to expire unutilized. In addition to the Company’s existing NOLs, the Company has certain built-in deductions available to reduce its taxable income in future periods.

Alion’s ability to utilize NOL tax benefits will depend on how much future taxable income it has. Management regularly reviews NOL-related Code provisions that could potentially limit the Company’s ability to use its existing NOL deductions in the future. Because Alion’s history of losses makes it unlikely that it will be able to realize the full benefit of its deferred tax assets, GAAP requires management to record a full valuation allowance for all deferred tax assets, including NOLs. Therefore, the Company’s deferred tax assets have zero carrying value.

As of September 2014, Alion carried a $65.1 million deferred tax liability that arose from prior goodwill deductions that increased its NOL deductions. The Company does not expect to pay any domestic income taxes for the foreseeable future and only minimal foreign income taxes for operations in India. Alion expects to continue to recognize deferred income tax expense for tax-deductible goodwill for the next several years. See Note 19 to the audited financial statements for information about the components of the Company’s deferred tax assets.

Net Loss

The Company posted a net loss of $44.0 million in fiscal year 2014, which was a $7.4 million increase over fiscal year 2013. Revenue, gross profit and operating expense were all lower while operating income was higher in fiscal year 2014 as compared to fiscal year 2013. In addition, increased levels of interest expense in fiscal year 2014 versus fiscal year 2013 led to an increase to our fiscal year 2014 net loss.

Results of Operations

Year ended September 30, 2013 Compared to Year ended September 30, 2012

Despite a challenging U.S. Federal Government defense market, the Company continued to win new contracts and execute on its existing base of business. Fiscal year 2013 revenues increased 3.9% over fiscal year 2012 revenues, and our fiscal year 2013 operating income increased by 4.4% compared to fiscal year 2012.

Fiscal year 2013 revenue increases of 3.9% over fiscal year 2012 were attributed to growth of our existing base of business with the U.S. Army and other DoD customers related to our Systems Analysis, Design and Engineering core business area.

Increases in fiscal year 2013 operating income of 4.4% as compared to fiscal year 2012 were impacted by Company initiatives that drove efficiencies throughout the business and reduced overhead expenses by approximately $2.5 million and occupancy costs by $548 thousand as compared to fiscal year 2012. Contract amortization charges also declined in fiscal year 2013 versus fiscal year 2012. Refinancing related expenses off-set other cost reductions in our general and administrative costs and drove an overall increase of $698 thousand in fiscal year 2013 compared to fiscal year 2012.

The reduction of our fiscal year 2013 net loss as compared to fiscal year 2012 was due, in part, to the increase in our fiscal year 2013 operating income and a fiscal year 2013 gain related to the extinguishment of debt.


	Fiscal Years Ended September 30,
	2013			2012
	(Dollars in millions)
Revenue	$	849.0		$	817.2
Net Loss	$	(36.6	)	$	(41.4	)

Revenue

Fiscal year 2013 revenue was $849.0 million, up $31.8 million (3.9%) over fiscal year 2012 results. The Systems Analysis, Design and Engineering core business area provided support for new and existing customers and drove a $35.3 million (4.7%) overall increase in DoD fiscal year 2013 revenue. Fiscal year 2013 growth was driven primarily by our work in the Systems Analysis, Design and Engineering core business area, which increased $71.9 million (33.6%) compared to fiscal year 2012. Reductions in the Modeling, Simulation, Training and Analysis from fiscal year 2012 to fiscal year 2013 totaling $29.3 million (11.8%) were due, in part, to award and funding delays, as well as sequestration related reductions in our customers’ training and travel budgets. Funding delays and reductions related to sequestration and budget reductions led to a $10.8 million (3.0%) decline in our fiscal year 2013 Naval Architecture and Marine Engineering revenue. Fiscal year 2013 other federal agencies revenue also declined $11.8 million compared to fiscal year 2012 as tasking in our high-end consulting revenue has decreased due to Federal Government budgetary pressures.

The $8.3 million revenue increase from our commercial and international customers in fiscal year 2013 over fiscal year 2012 is related to the Naval Architecture and Marine Engineering work we are performing in India as well as our nuclear engineering work at several international nuclear power plants also contributed to the increase from our Commercial and International revenue.

Sources of Revenue

The U.S. government continued to be our principal customer. For fiscal year 2013 and 2012, U.S. government contracts accounted for more than 96% of our revenue, with approximately 92% of our revenue derived from DoD contracts. The U.S. Navy is our largest single customer, generating more than 53% of our revenue in each of fiscal year 2013 and fiscal year 2012.

The table below summarizes our revenue by principal customer for each of the past two fiscal years.


Revenue by Customer	Fiscal Years Ended September 30,
Revenue by Customer	2013				2012
	(Dollars in millions)
U.S. Air Force	$	136.4	16.1	%	$	138.4	16.9	%
U.S. Army		152.7	18.0	%		119.9	14.7	%
U.S. Navy		451.6	53.2	%		450.9	55.1	%
Other Department of Defense Customers		50.2	5.9	%		46.4	5.7	%

Sub-total Department of Defense Customers		790.9	93.2	%		755.6	92.4	%
Other Federal Agencies		31.4	3.7	%		43.2	5.3	%

Sub-total U.S. government customers	$	822.3	96.9	%	$	798.8	97.7	%
Commercial and International customers		26.7	3.1	%		18.4	2.3	%

Total Revenue	$	849.0	100.0	%	$	817.2	100.0	%

We provided professional engineering, program management and information technology services and scientific expertise in a range of specialized core business areas. Our core business areas closely align our

services with the demands of the marketplace. Factors that impacted our core business revenue are noted in the Revenue section above.

The table below summarizes our revenue by core business area for fiscal year 2013 and fiscal year 2012.


Core Business Area Revenue	Fiscal Years Ended September 30,
Core Business Area Revenue	2013				2012
	(Dollars in millions)
Naval Architecture and Marine Engineering	$	343.8	40.5	%	$	354.6	43.4	%
Systems Analysis, Design and Engineering		285.9	33.7	%		214.0	26.2	%
Modeling, Simulation, Training and Analysis		219.3	25.8	%		248.6	30.4	%

Total Revenue	$	849.0	100.0	%	$	817.2	100.0	%

Cost-reimbursement contract revenue increased $47.8 million (7.1%) in fiscal year 2013 versus fiscal year 2012 and represented 85.2% of fiscal year 2013 revenue. Customers, including the Naval Sea Systems Command and the Defense Technical Information Center continued to issue this type of tasking on our IDIQ contract vehicles. Fiscal year 2013 fixed price contract revenue was up $10.4 million to 8.8% of annual revenue as compared to fiscal year 2012 from expanded international work in Naval Architecture and Marine Engineering work and high-end nuclear engineering services contracts. Fiscal year 2013 time and material contract revenue fell $26.4 million to 6.0% of annual revenue as compared to fiscal year 2012, as this reduction in Time and Material contract revenue occurred due to the reduction of our Commercial work within the Washington Consulting group.

The table below summarizes our revenue by contract billing type for the past two fiscal years.


Revenue by Contract Billing Type	Fiscal Years Ended September 30,
Revenue by Contract Billing Type	2013				2012
	(Dollars in millions)
Cost Reimbursable contracts	$	723.1	85.2	%	$	675.3	82.6	%
Fixed Price contracts		74.6	8.8	%		64.2	7.9	%
Time and Material contracts		51.3	6.0	%		77.7	9.5	%

Total Revenue	$	849.0	100.0	%	$	817.2	100.0	%

In fiscal year 2013, our prime contract revenue grew by $58.5 million, an 8.4% increase compared to fiscal year 2012. Revenue from our work as a subcontractor to other prime contractors was down $26.7 million, or 22.6%, in fiscal year 2013 compared to fiscal year 2012. Alion continued to increase its presence as a prime contractor on larger, more complex programs where we deliver services to customers by deploying our own staff and by managing the efforts of other contractors. Fiscal year 2013 prime contract revenue also grew as of a result of increased material procurement activity to support a number of DoD customers that utilized our agile engineering and rapid prototyping support services within our Systems Analysis, Design and Engineering Core Business Area.

Costs for companies that work for us on our prime contracts and costs for materials often generate lower contract fee percentages, which in turn, place downward pressure on our gross margins.

The table below summarizes our prime and subcontract revenue for fiscal years 2013 and 2012.


	Fiscal Years Ended September 30,
Prime and Subcontract Revenue	2013				2012
	(Dollars in millions)
Prime contracts	$	757.6	89.2	%	$	699.1	85.5	%
Subcontracts from other companies		91.4	10.8	%		118.1	14.5	%

Total Revenue	$	849.0	100.0	%	$	817.2	100.0	%

The trend by our customers to use our services through IDIQ contract vehicles continued in fiscal year 2013. IDIQ contract revenue increased by 11.2% compared to fiscal year 2012. Our customers used our Weapons System Information Analysis Center and Seaport-E contracts as well as other IDIQ contract vehicles to obtain Alion’s services.

The table below summarizes our revenue by contract vehicle type for the past two fiscal years.


	Fiscal Years Ended September 30,
Contract Vehicles	2013				2012
	(Dollars in millions)
IDIQ Contracts	$	555.9	65.5	%	$	499.7	61.1	%
Individual contracts		293.1	34.5	%		317.5	38.9	%

Total Revenue	$	849.0	100.0	%	$	817.2	100.0	%

Selected Financial Information

The table below presents selected comparative financial information for fiscal years ended September 30, 2013 and 2012. Our discussion and analysis refers to financial information in this table and to Alion’s consolidated financial statements contained in this prospectus.


	Fiscal Years Ended September 30,
	2013				2012
	(Dollars in millions and percentage of revenue)
Total contract revenue	$	849.0			$	817.2
Total direct contract costs		669.5	78.9	%		632.8	77.4	%
Direct labor costs		248.9	29.3	%		254.9	31.2	%
Material and subcontract costs		402.2	47.4	%		361.4	44.2	%
Other direct costs		18.4	2.2	%		16.5	2.0	%

Gross profit		179.5	21.1	%		184.4	22.6	%

Total operating expense		137.3	16.2	%		143.9	17.6	%
Major components of operating expense:
Overhead and G&A expenses		99.4	11.7	%		101.1	12.4	%
Rental and occupancy expense		30.5	3.6	%		31.1	3.8	%
Depreciation and amortization		7.3	0.9	%		11.7	1.4	%

Operating income	$	42.2	5.0	%	$	40.4	4.9	%

Direct Contract Expense and Gross Profit

Direct contract costs increased by $36.7 million (5.8%) in fiscal year 2013 compared to fiscal year 2012, in line with higher fiscal year 2013 revenue. Fiscal year 2013 direct labor costs decreased $6.0 million (2.4%) year over year while third-party costs for materials and subcontracts grew by $40.8 million (11.3%) compared to fiscal year 2012. The decrease in direct labor was driven by a reduced level of effort on a number of our contracts. Fiscal year 2013 increase in material and subcontractor costs were the result of Alion winning larger, more complex contracts as a prime contractor that required us to hire and manage other contractors. Fiscal year 2013 other direct costs increased by $1.9 million from fiscal year 2012. Gross profit was down by $4.9 million in fiscal year 2013. The decline in gross profit was due, in part, to the increase in material and subcontractor costs which typically garnered lower contract fees, coupled with the year over year decrease in Alion direct labor.

Operating and General and Administrative Expenses

In fiscal year 2013, operating expenses were $6.7 million lower than they were in fiscal year 2012, declining by 1.4% to 16.2% of revenue. In fiscal year 2013, the Company realized $2.5 million in overhead savings as a result of staffing reductions and other non-labor cost reductions and cost avoidance measures. Depreciation expense in fiscal year 2013 was down $1.1 million compared to fiscal year 2012 as Alion continued to utilize its fully-expensed assets without a charge to operations.

In fiscal year 2013, amortization expense for intangibles was down $3.3 million compared to fiscal year 2012. Charges for purchased contracts continued to decline over time as the contract portfolio acquired in connection with the JJMA acquisition reached the end of its useful life for accounting purposes. The useful life was initially established in 2005. As of September 30, 2013, the contract portfolio acquired in connection with the JJMA acquisition had an unamortized carrying value of $1.8 million.

Offsetting some of the benefits from lower fiscal year 2013 operating expenses, our general and administrative expenses were up year over year by approximately $0.7 million. This was primarily because of costs associated with fiscal year 2013 refinancing efforts. There were no comparable costs in fiscal year 2012.

Operating Income

Operating income rose to $42.2 million for fiscal year 2013, which was a 4.4% increase over $40.4 million for fiscal year 2012. The increase in operating income was due, in part, to the increase in revenue as noted in the “Sources of Revenue” section above. Lower fiscal year 2013 operating expenses as compared to fiscal year 2012 were due to reductions in overhead and core general and administrative costs that propelled the increase and offset lower gross profit margins. This operating income was 5.0% of revenue in fiscal year 2013, up from 4.9% in fiscal year 2012.

Interest and Other Expense

Fiscal year 2013 interest expense was stable compared to fiscal year 2012. Secured Note interest was higher in fiscal year 2013 because more interest-bearing PIK notes were outstanding. Fiscal year 2013 Unsecured Note interest was lower because our outstanding principal was lower. Our fiscal year 2013 revolver interest costs were higher as we accessed the revolver more frequently in fiscal year 2013 and also had a higher balance of outstanding letters of credit. PIK interest and debt issue cost amortization was also higher in fiscal year 2013 than fiscal year 2012 because the principal balance increased.


	Fiscal Years Ended September 30,
	2013		2012
	(Dollars in millions)
Cash Pay Interest
Revolver	$	0.9	$	0.8
Secured Notes		32.8		32.1
Unsecured Notes		24.9		25.1
Other cash pay interest and fees		0.07		0.07

Sub-total cash pay interest		58.6		58.1
Deferred and Non-cash Interest
Secured Notes PIK interest		6.6		6.4
Debt issue costs and other non-cash items		10.6		10.4

Sub-total non-cash interest		17.1		16.8

Total interest expense	$	75.7	$	74.9

Debt Extinguishment

In fiscal year 2013, we repurchased $10 million in aggregate principal amount of Unsecured Notes at a discount to face value in a series of open market transactions. We recognized a $3.9 million debt extinguishment gain on these debt repurchase transactions.

Income Tax Expense

Deferred income tax expense was $7.0 million in fiscal 2013 and 2012. Deferred tax expense relates to tax-deductible goodwill. In fiscal 2013, the Company also had modest current foreign tax expense for its Indian subsidiary’s business development activities. It had no foreign income tax expense in fiscal 2012.

As of September 30, 2013, the Company had generated $156.0 million in NOLs. The earliest NOL deduction does not expire until fiscal 2030. As a result of the offering, the Company’s NOLs will become subject to an annual use limitation. The effect of the annual use limitation is that the Company will be able to use up to approximately $150 million of its NOLs over the five-year period following the offering. Another $20-25 million of the Company’s NOLs will be available to be used over the remaining available term of the NOLs. Thus, a portion of the Company’s NOLs is likely to expire unutilized. In addition to the Company’s existing NOLs, the Company has certain built-in deductions available to reduce its taxable income in future periods.

Alion’s ability to utilize NOL tax benefits will depend upon how much future taxable income it has. Management regularly reviews NOL-related Code provisions that could potentially limit the Company’s ability to use its existing NOL deductions in the future. Because Alion’s history of losses makes it unlikely it will be able to realize the full benefit of its deferred tax assets, GAAP requires management to record a full valuation allowance for all deferred tax assets including NOLs. Therefore, the Company’s deferred tax assets have zero carrying value.

As of September 2013, Alion carried a $58.1 million deferred tax liability that arose from prior goodwill deductions that increased its NOL deductions. The Company does not expect to pay any domestic income taxes for the foreseeable future and only minimal foreign income taxes for operations in India. Alion expects to continue to recognize deferred income tax expense for tax-deductible goodwill for the next several years. See Note 19 to the audited financial statements for information about the components of the Company’s deferred tax assets.

Net Loss

The Company posted a net loss of $36.6 million in fiscal year 2013, which was a $4.9 million improvement from fiscal year 2012. Fiscal year 2013 revenue, gross margin and operating income were all higher and operating expenses were lower in fiscal year 2013. We benefited from a debt extinguishment gain in fiscal year 2013, although continued high levels of interest expense partially offset these improvements.

Liquidity and Capital Resources

The Company was highly leveraged, before and after the refinancing completed in August 2014. As of December 31, 2014, the Company had approximately $624.6 million of long-term debt outstanding (excluding PIK Interest). During fiscal year 2015, the interest and principal payments due under our various debt agreements would be, without taking into account the IPO Refinancing, approximately $43.3 million. As of December 31, 2014, the Company had $17.0 million available under its Existing Revolving Credit Facility.

On a pro forma basis following consummation of the Transactions, including this offering at the midpoint of the range on the front cover of this prospectus, the Company would have approximately $ million of long-term debt outstanding, with approximately $ million due in interest and principal payments during fiscal year 2015 and $ million available under our New Credit Agreement.

The Company’s high level of debt could have adverse effects on its business and financial condition. See “Risk Factors – Risks Related to our Business and Operations – As a highly-leveraged company, our ability to meet our financial and other future obligations depends on our future operating results and our ability to service our debt. Currently, the Existing Debt Instruments restrict our operations and any new debt agreements may restrict our operations in the future”.

The Company’s ability to continue as a going concern and make our scheduled payments depends on and is subject to its financial and operating performance, which in turn is affected by general economic, financial, competitive, business and other factors beyond the Company’s control.

The Company has several initiatives designed to increase revenue and profitability: improvement in program execution, cost reductions and avoidance initiatives, improvements that will reduce the Company’s days’ sales outstanding, or DSO, reductions in our unbilled receivables, and moving into more profitable business sectors. There can be no assurance, however, that these actions will be successful. If we are unable to generate sufficient funds from operations or raise additional capital, there could be material adverse effects on our liquidity.

Although the Company is significantly leveraged, it expects that, after taking into account the Transactions, the current cash balances, liquidity from its revolver, deferring expenditures, reducing overhead, securing rent abatements, collecting approved award fees related to past periods and cash generated from operations will be sufficient to meet working capital, capital expenditure, debt service, and other cash needs for fiscal year 2015; however, there can be no assurances that the Company will be able to generate sufficient cash flows to fund its operations and service its debt for the next year.

We use cash primarily to fund operations and service our debt. We had $12.9 million in cash and cash equivalents as of December 31, 2014 and had $43.0 million outstanding under our $65 million Existing Revolving Credit Facility. We were also contingently liable under $3.9 million in outstanding letters of credit which reduced our borrowing capacity. After taking borrowing base limitations into account, the maximum available borrowing capacity under our Existing Revolving Credit Facility as of December 31, 2014 was $17.0 million. Our Existing Revolving Credit Facility includes a provision that stipulates a cash dominion condition would occur if our borrowing availability falls below $13.0 million, including any letters of credit outstanding. A cash dominion condition would not limit the Company’s ability to access the full capacity of the existing credit facility, but could require mandatory repayments if the drawn amount on the credit facility exceeds $52.0 million. In fiscal year 2014 the Company did not meet the conditions requiring cash dominion.

As of December 31, 2014, we had approximately $624.6 million in outstanding current and noncurrent debt. Please see Note 11 to our audited consolidated financial statements contained in this prospectus for detail about our debt instruments. In fiscal year 2015, we are required to make principal payments on Tranche A and Tranche B of our Existing First Lien Term Loan until the consummation of the IPO Refinancing. We are also obligated to pay cash interest on outstanding credit agreement balances and our Existing First Lien Term Loan and Existing Third Lien Notes.

The terms of the Existing Debt Instruments the Company negotiated in the 2014 Refinancing materially affected Alion’s short and long-term cash obligations and the Company’s interest expense. Current and future interest expense for Alion’s Existing Debt Instruments include interest payable in cash, PIK interest, amortization of debt issue costs, amortization of original issue discount and amortization of the fair value of warrants issued to lenders. Fluctuations in our cash flows and liquidity demands required by operations may make it necessary for Alion to periodically access the Existing Revolving Credit Facility to meet cash demands.

Cash flows used in operating activities

Quarter Ended December 31, 2014, Compared to Quarter Ended December 31, 2013


	Three Months Ended December 31,
	2014		2013
	(Dollars in millions)
Net cash provided by (used in) operating activities		$ 6.9		$ (19.9)

Our operating cash flows are primarily affected by our ability to invoice and collect from our clients in a timely manner, our ability to manage our vendor payments, the overall profitability of our contracts and our cash interest expense. We bill most of our customers monthly after services are rendered. Some contracts permit us to bill our customers twice monthly. In the three months ended December 31, 2014, we generated $6.9 million in cash from operations compared to the $19.9 million of cash we used for the same period in 2013.

In first quarter fiscal year 2015, higher operating income, lower cash interest paid, and reduced vendor-related outflows increased operating cash flow. First quarter fiscal year 2015 cash interest expense was $7.4 million, more than $9.3 million less than the $16.7 million we paid for interest in first quarter fiscal year 2014. We also faced significant expenses for our refinancing efforts in first quarter fiscal year 2014.

In the three months ended December 31, 2014, we collected approximately $227.5 million in receivables, nearly 100% of the $227.9 million in revenue we recognized that quarter. In first quarter fiscal year 2014, we collected $187.7 million which was $2.3 million more than the $185.4 million in revenue recognized that quarter. In first quarter fiscal year 2015, even as we grew our period over period revenue, we were able to keep billings and collections on pace with revenue. We also managed to reduce unbilled receivables and increase amounts invoiced to customers. We expect to be able to sustain collections consistent with revenue performance.

We compute accounts receivable DSO based on trailing twelve-month revenue. Period over period trailing twelve month revenue was down by 0.2% ($1.7 million). Despite increased revenue in the three months ended December 31, 2014, net accounts receivable increased by only $113 thousand and DSO declined by 3.9 days, from 77.8 days as of September 30, 2014 to 73.9 days as of December 31, 2014.

In the three months ended December 31, 2014, there were modest delays in obtaining contract funding for customer-requested work performed in advance of receiving executed contract documents. As of September 30, 2014, we had $14.7 million in unfunded contract receivables for customer-requested work. As of December 31, 2014, this had grown by $0.9 million to $15.6 million even as we experienced a significant year over year revenue increase.

Year ended September 30, 2014 Compared to Year ended September 30, 2013


	Fiscal Years Ended September 30,
	2014		2013
	(Dollars in millions)
Net cash provided by (used in) operating activities		$ (23.3)	$	10.8

We used $23.3 million to fund our operations in fiscal year 2014 compared to the $10.8 million we generated in fiscal year 2013. The $34.1 million year over year change largely explains the revolving credit agreement draw when we closed our refinancing. Current year operating cash flows were affected by:

•

increased interest payments;

•

timing of collecting receivables;

•

timing of vendor payments; and

•

a higher net loss with lower non-cash expenses.

We collected approximately $804 million in receivables during fiscal year 2014. In fiscal year 2013, we collected $857 million. Although we were able to keep collections on pace with revenue, lower current year collections were consistent with reduced fiscal year 2014 overall revenue. Revenue and collections were both adversely affected by the government shut down and contract delays earlier in the year.

Accounts receivable DSO stood at 77.8 days as of September 30, 2014 and 74.2 days as of September 2013. From July to September 2014, our increasing revenue run rate reduced DSO by almost two days. However, growing receivable balances increased DSO by more than five days, for a net 3.3 day increase in DSO. Fiscal year 2014 over fiscal year 2013, our DSO increased by 3.6 days.

Even though Alion was affected by sequestration-related funding delays in fiscal year 2014, contract funding outpaced revenue and unfunded contract receivables were stable year over year.

Year ended September 30, 2013 Compared to Year ended September 30, 2012


	Fiscal Years Ended September 30,
	2013		2012
	(Dollars in millions)
Net cash provided by (used in) operating activities		$ 10.8		$ 12.7

We bill most of our customers monthly after services are rendered. Some contracts permit us to bill our customers twice monthly. We had $10.8 million in operating cash flows for fiscal year 2013, approximately $1.9 million less than the $12.7 million we generated in fiscal year 2012. Current year operating cash flows were affected by:

•

increased billings to customers;

•

timing of collecting receivables;

•

timing of vendor payments;

•

lower net losses; and

•

lower non-cash expenses for depreciation and amortization, and incentive compensation.

We collected approximately $857 million in receivables during fiscal year 2013. In fiscal year 2012, we collected $829 million. Earlier in fiscal year 2013, the Federal Government altered some of its accelerated payment practices, which affected the overall payment cycle of our invoices. It took us until the fourth quarter of fiscal year 2013 to recover from most of the effects of these changes. Management cannot forecast whether sequestration will adversely affect timing of Alion’s collection of its receivables in the future, but the Company did experience significant payment delays and funding reductions compared to the same period in prior fiscal years as a result of the government shutdown that occurred immediately after our fiscal year ended.

Accounts receivable DSO stood at 74.2 days as of September 30, 2013 and 78.5 days as of September 2012. From July to September 2013, improved collections reduced DSO by more than five days. Year over year our DSO improved by more than four days.

During fiscal year 2013, even though Alion was affected by sequestration-related funding delays, we made progress in obtaining contract funding. During fiscal year 2013, unfunded customer requested work declined even as revenue increased by almost $31.8 million compared to fiscal year 2012. By September 30, 2013, we

were able to reduce unfunded contract receivables by $4.4 million to $14.6 million for customer-requested work. This compares to $19.0 million as of September 30, 2012.

Cash used in investing activities

Quarter Ended December 31, 2014, Compared to Quarter Ended December 31, 2013


	Three Months Ended December 31,
	2014		2013
	(Dollars in millions)
Net cash used in investing activities		$ (0.6)		$ (0.3)

We use some of our cash to invest in equipment and software, leasehold improvements and internally-developed software. During the three months ended December 31, 2014 and 2013, we spent $552 thousand and $273 thousand, respectively, for these types of capital expenditures.

We expect our investing activities and capital expenditures to continue at comparable levels for the balance of fiscal year 2015. Our Existing Debt Instruments limit the amount we may spend on capital expenditures and investments.

Year ended September 30, 2014 Compared to Year ended September 30, 2013


	Fiscal Years Ended September 30,
	2014		2013
	(Dollars in millions)
Net cash provided by (used in) investing activities		$ 0.4		$ (1.9)

Fiscal year 2014 expense was net of $1.5 million we received from selling a contract. In fiscal year 2013, we invested $1.9 million in capital projects.

Year ended September 30, 2013 Compared to Year ended September 30, 2012


	Fiscal Years Ended September 30,
	2013		2012
	(Dollars in millions)
Net cash used in investing activities		$ (1.9)		$ (2.7)

During fiscal year 2013 and 2012, we spent $1.9 million and $2.7 million, respectively, for these types of capital expenditures.

Cash used in financing activities

Quarter Ended December 31, 2014 Compared to Quarter Ended December 31, 2013


	Three Months Ended December 31,
	2014		2013
	(Dollars in millions)
Net cash flow used in financing activities		$ (4.2)		$ (0.8)

Alion is required to make quarterly principal amortization payments on the Existing First Lien Term Loan. On December 31, 2014, the Company made a $3.75 million Tranche A payment and a $438 thousand Tranche B

payment in addition to required quarterly interest payments on the Existing First Lien Term Loan. During first quarter fiscal year 2015, we made our scheduled debt service payments without increasing our Existing Revolving Credit Facility balance. In November 2014, the Company paid $2.45 per share to redeem $15 thousand worth of Alion common stock distributed to ESOP participants. There were no other ESOP transactions during first quarter fiscal year 2015.

In first quarter fiscal year 2014, we sold shares of Alion common stock valued at $934 thousand to the ESOP Trust for employee purchases from April 1, 2013 through September 30, 2013. We also paid $750 thousand as the first of several refinancing related fees to ASOF. During first quarter fiscal year 2014, we borrowed and repaid $10.0 million under our Existing Revolving Credit Facility.

Our Existing Revolving Credit Facility balance (excluding letters of credit) remained at $43.0 million for the entire first quarter fiscal year 2015. That amount constituted the weighted average loan balance outstanding for the quarter.

Year ended September 30, 2014 Compared to Year ended September 30, 2013


	Fiscal Years Ended September 30,
	2014		2013
	(Dollars in millions)
Net cash flow provided by (used in) financing activities	$	8.0		$ (10.5)

The Company’s major cash flow events in fiscal year 2014 centered on its financing and refinancing activities. Alion received $348.0 million from issuing new debt instruments and another $25.0 million from its revolving credit facility. The Company also exchanged $208.1 million of Unsecured Notes for the Existing Third Lien Notes. As part of the 2014 Refinancing, we paid $3.2 million to induce Unsecured Note holders to tender their notes for Existing Third Lien Notes or accept less than face value in cash. We also paid $7.1 million in transaction fees to ASOF and Phoenix to facilitate the 2014 Refinancing.

The Company used the majority of its refinancing proceeds to retire its Secured Notes and used $30.5 million to fund debt issue and refinancing transaction costs. This was in addition to the $10.3 million we paid to ASOF, Phoenix and tendering Unsecured Note holders. In fourth quarter fiscal year 2014, Alion made $4.2 million in Existing First Lien Term Loan amortization payments as required.

In fiscal year 2014, the Company sold shares of Alion common stock valued at $934 thousand to the ESOP Trust. Alion also repurchased $2.3 million of its common stock from the ESOP Trust to satisfy liquidity demands from former employees. We loaned the ESOP Trust $855 thousand for it to fund statutorily required diversification of ESOP participant investments. The ESOP Trust repaid the loan in full. We expect that following the offering we will no longer make loans to the ESOP Trust.

In fiscal year 2013, we used $10.5 million for financing activities. ESOP transactions accounted for $4.5 million of our financing activities and debt repurchases accounted for the remaining $6.0 million of net cash used. In the fourth quarter of fiscal year 2013, we also borrowed and repaid an additional $10.0 million on our revolving credit facility to fund operations before our collections recovered from government payment delays. The $10.0 million we borrowed and repaid in the fourth quarter of fiscal year 2013 was the highest outstanding revolver balance at any point in fiscal year 2013.

million for it to fund statutorily required diversification of ESOP participant investments. The ESOP Trust repaid the loan in full prior to March 31, 2013.

In fiscal year 2013, as permitted by our existing debt agreements, we used our swingline facility to borrow and repay the $6.0 million we used to repurchase, at a discount, the $10.0 million of Unsecured Notes we retired. We repurchased the retired Unsecured Notes in a series of open market transactions and prepaid the interest on the notes we repurchased through the date of repurchase. We repaid all borrowed funds we borrowed to purchase Unsecured Notes by July 16, 2013, and the largest repurchase related loan balance outstanding was $3.3 million.

In fiscal year 2014, our weighted average revolving credit loan balance increased because of refinancing expenses as well as operating demands. As of September 30, 2014 our drawn balance was $43 million, the maximum for the year. Our weighted average loan balance was $11.5 million for the periods over which we borrowed funds. Our fiscal year 2013 weighted average loan balance for the period over which we borrowed funds was $323 thousand. Neither balance includes letters of credit.

Year ended September 30, 2013 Compared to Year ended September 30, 2012


	Fiscal Years Ended September 30,
	2013		2012
	(Dollars in millions)
Net cash flow provided by (used in) financing activities		$ (10.5)		$ (3.5)

In fiscal year 2013, we used $10.5 million for financing activities. ESOP transactions accounted for $4.5 million of our financing activities and debt repurchases accounted for the remaining $6.0 million of net cash used. In the fourth quarter of fiscal year 2013, we also borrowed and repaid an additional $10.0 million on our revolving credit facility to fund operations before our collections recovered from government payment delays. In fiscal year 2013 and 2102 the Company was able to service our debt without use of the revolving credit facility. The $10.0 million we borrowed and repaid in the fourth quarter of fiscal year 2013 was the highest outstanding revolver balance at any point in fiscal year 2013.

In fiscal year 2013, we paid out $6.7 million to redeem ESOP shares from former employees. We received $2.2 million for ESOP Trust purchases of Alion common stock from employee salary deferrals for the second half fiscal year 2012 and the first half of fiscal year 2013. In fiscal year 2013, we loaned the ESOP Trust $1.9 million for it to fund statutorily required diversification of ESOP participant investments. The ESOP Trust repaid the loan in full prior to March 31, 2013.

As permitted by our then existing debt agreements, we used our swingline facility to borrow and repay the $6.0 million we used to repurchase, at a discount, the $10.0 million of Unsecured Notes we retired. We repurchased the retired Unsecured Notes in a series of open market transactions and prepaid the interest on the notes we repurchased through the date of repurchase. We repaid all borrowed funds we borrowed to purchase Unsecured Notes by July 16, 2013, and the largest repurchase related loan balance outstanding was $3.3 million.

Our weighted average loan balance on our revolving credit facility for the period over which we borrowed funds was $323 thousand, not including letters of credit. The weighted average outstanding loan balance for fiscal year 2013 was only $45 thousand.

In fiscal year 2012, we used $3.5 million for ESOP-related financing activities and did not repurchase any of our outstanding debt. We paid $4.8 million to redeem ESOP shares from former employees. We received $1.3 million from the ESOP Trust for purchases of Alion common stock.

In fiscal year 2012, we used the revolving credit facility to offset the effects of delays in customer payments. From October 2011 through May 2012, we borrowed and repaid a total of $26.0 million.

Discussion of Debt Structure and Covenant Compliance

See Note 11 to our audited consolidated financial statements contained in this prospectus for a detailed discussion of Alion’s current debt structure and a list of relevant terms and limitations in existing long-term debt agreements. The Company expects to refinance all of its debt in connection with the Transactions.

Alion’s Existing Credit Agreements define Consolidated EBITDA. Each quarter the Company must achieve $50 million in minimum Consolidated EBITDA (on a trailing twelve-month basis) in order to maintain access to the Existing Revolving Credit Facility and avoid potential cross default under Alion’s other debt instruments. Neither EBITDA nor Consolidated EBITDA is a measure of financial performance in accordance with generally accepted accounting principles. The Existing Credit Agreements permit Alion to exclude certain expenses and requires it to exclude certain one-time gains when computing Consolidated EBITDA. Alion had approximately $72.3 million in Consolidated EBITDA for December 31, 2014, and exceeded the requirement by approximately $22.3 million.

The Existing Credit Agreements also require Alion to achieve a one-to-one fixed charge coverage ratio of Adjusted Net Cash Flow (based on Consolidated EBITDA) to fixed charges as defined in the Existing Credit Agreements. Fixed Charges are defined as cash interest and principal payments plus all fees paid to ASOF and Phoenix (the Existing Second Lien Term Loan lenders). The numerator for the Fixed Charge Coverage ratio is Consolidated EBITDA minus: capital expenditures; cash paid for income taxes; and non-recurring charges included in Consolidated EBITDA (Adjusted Net Cash Flow). The Existing Credit Agreements permit certain adjustments related to refinancing transactions. As of December 31, 2014, Alion’s fixed charge coverage ratio was $69.1 million in adjusted net cash flow to $59.6 million in adjusted total fixed charges. The Company was in compliance with all debt covenants as of September 30, 2014.

Capital Resources


	December 31,
Available Liquidity	2014			2013
	(Dollars in millions)
Cash and cash equivalents	$	12.9		$	10.7
Revolving credit facility		65.0			65.0
Less: Outstanding borrowings		(43.0	)		(43.0	)
Less: Letters of Credit		(3.9	)		(3.9	)

Net available liquidity	$	31.0		$	28.8

We believe our cash balances, investment securities, operating cash flows, and funds that we expect will be available under the New Credit Agreement as part of the IPO Refinancing and/or from other public or private financing sources, will, when taken together, provide adequate resources to fund ongoing operating and regulatory requirements, acquisitions, future expansion opportunities, and capital expenditures for at least twelve months, as well as to meet the covenants in the New Credit Agreement, and to refinance or repay debt.

Short-term Borrowings

From time-to-time, we borrow funds under our Existing Revolving Credit Facility for working capital requirements, to fund operations and for other permitted corporate purposes. Our Existing Revolving Credit Facility borrowings bear interest at the one-month Eurodollar rate plus 475 basis points (currently 4.90%). The current rate for an alternate base rate loan would be 500 basis points over the 3.5% base rate (8.50%).

We may use our Existing Revolving Credit Facility or any new sources of borrowings, as needed, to fund our anticipated cash requirements. We currently expect that we will maintain a balance on the Existing

Revolving Credit Facility for extended periods and may need to increase that balance for short periods of time based on collections cycles subject to government payment delays. In connection with this offering, we expect that we will repay our borrowings under our Existing Revolving Credit Facility.

If the Federal Government were to implement further changes to its current payment practices, as a result of sequestration, budget cuts, policy changes, government shut downs, or otherwise, we might have to use our Existing Revolving Credit Facility or New Credit Agreement, as applicable, to a more significant extent than currently expected. Delays in the government payment cycle could adversely affect our short-term cash flows and increase our interest expense if we need to use our Existing Revolving Credit Facility or New Credit Agreement, as applicable, to borrow larger amounts more frequently than we have in the past or currently plan to do in the future.

The following table summarizes the activity under our revolving credit facility for first quarter fiscal year 2015 and 2014, not including issued and outstanding letters of credit.


	Three Months Ended December 31,
	2014			2013
	(Dollars in millions)
Short term borrowings
Balance – beginning of period	$	(43.0	)	$	—
Aggregate revolving credit facility borrowings		—			10.0
Aggregate revolving credit facility repayments		—			(10.0	)

Net change in revolving credit facility balance payable	$	(43.0	)	$	—

Cash Management

To the extent possible, we invest our available cash in short-term, investment grade securities with the priorities of maintaining the safety of our principal, maintaining the liquidity of our investments, maximizing the yield on our investments and investing our cash to the fullest extent possible. Cash and cash equivalents include cash on hand, amounts due from banks and short term investments with maturity dates of three months or less at the date of purchase.

Cash Flow Effects and Risks Associated with Equity-Related Obligations

Prior to this offering, there was no public market for our common stock and, therefore, we have been subject to certain potential repurchase obligations related to the right of ESOP beneficiaries to redeem shares allocated to them and held by the ESOP Trust as part of the distribution of their benefits under the ESOP, referred to as the ESOP Put Right, and ESOP beneficiaries’s rights to diversify their ESOP accounts under terms of the ESOP and applicable law. We expect that following this offering, we will no longer redeem ESOP shares in connection with the ESOP Put Right or diversification requirements because there will be an established securities market for the public sale of our stock.

Historically, we have monitored future potential repurchase liability cash flow demands by relying in part on internal and external financial models that incorporate ESOP census data and financial inputs intended to simulate changes in Alion’s share price. These models were developed based on the ESOP plan provisions in effect prior to this offering including the ESOP Put Right and diversification provisions. As more employees meet statutory and plan-specific age and length of service requirements, potential diversification demands are likely to increase. These demands can increase further with any increase in the price of a share of Alion common stock. Declines in our share price, like those we have experienced over the past several years reduce the value of each individual Plan participant’s beneficial interest. Our most recent share price declines have reduced expected ESOP cash flow demands. Notwithstanding this offering, we had anticipated that fiscal year 2015 demands

would not differ materially from amounts Alion paid out in fiscal year 2014. We expect that following this offering, these ESOP cash flow demands will be eliminated.

Changes in the price of a share of Alion common stock affect the fair value accounting for the 2014 Warrants which are derivative instruments. The 2010 Warrants are permanent equity and are not affected by changes in the price of a share of Alion common stock. All outstanding common stock warrants are permanent equity. The 2010 Warrants have a $0.01 exercise price, the 2014 Warrants have a $0.0001 exercise price, and both are in the money. Prior to the closing of this offering, and assuming the consummation of the Transactions, we expect the holders of at least a majority of the common stock to be received upon exercise of all outstanding 2014 Warrants to consent to an amendment to the 2014 Warrant Agreement to change the expiration date from August 17, 2024 to the day immediately prior to the closing of this offering, and to provide that any and all outstanding 2014 Warrants will be deemed automatically exercised on such date. The holders of the 2010 Warrants hold warrants to purchase up to 602,741 shares of our common stock which, following consummation of this offering, including full exercise of the 2014 Warrants, will represent the right to acquire % of our shares of outstanding common stock. They do not have a cash liquidation option and therefore Alion only recognizes interest expense for the debt issue cost associated with the initial fair value of these warrants.

Alion faces no significant stock-based compensation liabilities. Outstanding Stock Appreciation Rights, or SARs, have no intrinsic value. Prior to this offering, management has been unable to forecast the share price determined by State Street Bank and Trust Company, or the ESOP Trustee. Following this offering, the ESOP Trustee will no longer value the share price. The share price will be the public market price. However, interest rates, market-based factors and volatility, as well as Alion’s financial results will affect the future value of a share of our common stock. Therefore both before and following this offering, management is not able to predict future cash flow demands in respect of the existing SARs.

Contingent Obligations

Management currently expects that continuing net operating losses for income tax purposes will permit Alion to avoid significant cash outflows for income taxes. Other contingent obligations which will impact our cash flow include:

•

ESOP share repurchase and diversification obligations, until such time as repurchases are no longer conducted because there is an established securities market for the public sale of our stock, as is expected following this offering; and

•

Long-term incentive compensation plan obligations.

From the establishment of the ESOP in December 2002 to December 2014, Alion spent a cumulative total of $100.5 million to repurchase shares of its common stock to satisfy ESOP distribution and diversification requests from former employees and ESOP beneficiaries. Beginning in March 2008, we stopped making lump sum distributions and began paying ESOP beneficiaries over the five-year distribution period permitted by the Employee Retirement Income Security Act of 1974, as amended, or ERISA, and the terms of the Plan. Our Existing Debt Instruments limit our ability to fund certain discretionary ESOP diversification demands on our cash flow. The table below lists current and prior year share repurchases.


Date	Number of Shares Repurchased		ESOP Redemption Value Per Share			Total Value Purchased
						(Dollars in thousands)
November 2012		485	$	16.45		$	8
December 2012		119,555	$	16.45			1,967
January 2013		759	$	16.45			12
February 2013		5,593	$	16.45			92
March 2013		115,933	$	16.45			1,907
June 2013		164,548	$	16.25			2,674
July 2013		106	$	16.25			2
September 2013		111	$	16.25			2
December 2013		238	$	8.10			2
December 2013		107,717	$	8.10			873
December 2013		7,298	$	8.10			59
March 2014		106,757	$	8.10			864
September 2014		197,737	$	2.45			484
September 2014		256	$	10.00	⁽¹⁾		3
November 2014		6,131	$	2.45			15

Total		833,224				$	8,964

(1)

Price reflects terms of the ESOP providing for certain price protections to be utilized for distribution payments to participants who rolled over shares in connection with the establishment of the ESOP in 2002, were at least age 55 as of December 31, 2002 and terminated employment prior to December 31, 2007.

It is expected that in connection with this offering, the Company’s obligations to repurchase common shares from ESOP participants pursuant to the ESOP Put Right and diversification demands will be eliminated because there will be an established securities market for the public sale of our stock.

The Company maintains certain long-term incentive plans which provide for payment to employee participants if the performance or other vesting requirements are met under the terms of the Long-Term Incentive Plan and applicable award agreements.

The following table summarizes Alion’s contractual and other long-term debt obligations as of September 30, 2014.


			Fiscal Years Ended September 30,
	Total		2015		2016		2017		2018		2019		Thereafter
	(Dollars in thousands)
Contractual Obligations
Principal payments on long-term debt	$	867,639	$	43,264	$	26,750	$	31,750	$	35,500	$	207,563	$	522,812
Interest payments on long-term debt		208,340		43,453		41,258		40,323		39,446		34,649		9,211
Lease Obligations		101,189		25,800		21,569		18,413		15,888		6,537		12,982

Total contractual obligations	$	1,177,168	$	112,517	$	89,577	$	90,486	$	90,834	$	248,749	$	545,005

The following table summarizes Alion’s contractual and other long-term debt obligations as of September 30, 2014, after giving effect to the Transactions, including this offering and the IPO Refinancing, as if they had occurred on September 30, 2014.

Fiscal Years Ended September 30,

Total

2015

2016

2017

2018

2019

Thereafter

(Dollars in thousands)

Contractual Obligations

Principal payments on long-term debt

Interest payments on long-term debt

Lease Obligations

Total contractual obligations

Summary of Critical Accounting Policies

Revenue Recognition

Alion derives its revenue from delivering technology services under three types of contracts. Some contracts provide for reimbursement of costs plus fees; others are fixed-price or time-and-material type contracts. We recognize revenue when a contract has been executed, the contract price is fixed or determinable, delivery of services or products has occurred, and our ability to collect the contract price is considered reasonably assured. Alion applies the percentage-of-completion method in Accounting Standards Codification (ASC) 605 – Revenue Recognition to recognize revenue.

Alion recognizes revenue on cost-reimbursement contracts as it incurs costs and includes estimated fees earned. The Company recognizes time-and-material contract revenue at negotiated, fixed, contractually billable rates as it delivers labor hours and incurs other direct expenses. We use various performance measures under the percentage-of-completion method to recognize revenue for fixed-price contracts. Estimating contract costs at completion and recognizing revenue appropriately involve significant management estimates. Actual costs may differ from estimated costs and affect estimated profitability and revenue recognition timing. From time to time, facts develop that require us to revise estimated total costs or expected revenue. We record the cumulative effect of revised estimates in the period when the facts requiring revised estimates become known. We recognize the full amount of anticipated losses on any contract in the period a loss becomes known. For each of the periods presented, the cumulative effects of revised estimates were immaterial to the Company’s financial performance.

U.S. Federal Government contracts are subject to periodic funding by our contracting agency customers. A customer may fund a contract at inception or incrementally throughout the period of performance as services are provided. If we determine contract funding is not probable, we defer revenue recognition until realization is probable. The Federal Government can audit Alion’s contract costs and adjust amounts through negotiation. The Federal Government considers Alion a major contractor and maintains an office on site. The DCAA is currently auditing our 2009 claimed indirect costs. We have settled our rates through 2008. We timely submitted our indirect cost proposals for all open fiscal years. We have recorded revenue on Federal Government contracts in amounts we expect to realize.

We recognize revenue on unpriced change orders as we incur expenses and only to the extent it is probable we will recover such costs. The Company recognizes revenue in excess of costs on unpriced change orders only when management can also estimate beyond a reasonable doubt the amount of excess and experience provides a sufficient basis for recognition. Alion recognizes revenue on claims as expenses are incurred and only to the extent it is probable we will recover such costs and can reliably estimate the amount we will recover.

Income Taxes

Alion accounts for income taxes by applying the provisions in currently enacted tax laws. We determine deferred income taxes based on the estimated future tax effects of differences between the financial statement

and tax bases of our assets and liabilities. Deferred income tax provisions and benefits change as assets or liabilities change from year to year. In providing for deferred taxes, Alion considers the tax regulations of the jurisdictions where we operate; estimated future taxable income; and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies change, the carrying value of deferred tax assets and liabilities may require adjustment.

Alion has a history of operating losses for both tax and financial statement purposes. The Company has recorded valuation allowances equal to deferred tax assets based on the likelihood that we may not be able to realize the value of these assets. Alion recognizes the benefit of a tax position only after determining that the relevant tax authority would “more likely than not” sustain our position following an audit. For tax positions meeting the “more likely than not” threshold, we recognize the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Cash and Cash Equivalents

The Company considers cash in banks, and deposits with financial institutions with maturities of three months or less at time of purchase which it can liquidate without prior notice or penalty, to be cash and cash equivalents.

Accounts Receivable and Billings in Excess of Revenue Earned

Accounts receivable include billed accounts receivable and unbilled receivables. Unbilled receivables consist of costs and fees which are billable upon the occurrence of a specific event, amounts billable after the balance sheet date and revenue in excess of billings on uncompleted contracts (accumulated project expenses and fees which were not billed or were not currently billable as of the date of the consolidated balance sheet). Unbilled accounts receivable include revenue recognized for customer-requested work Alion performed on new and existing contracts for which the Company had not received contracts or contract modifications. Accounts receivable are stated as estimated realized value. The allowance for doubtful accounts is Alion’s best estimate of the amount of probable losses in the Company’s existing billed and unbilled accounts receivable. The Company determines the allowance using specific identification and historical write-off experience based on receivable age. Billings in excess of revenue and advance collections from customers represent amounts received from or billed to customers in excess of project revenue recognized to date.

Property, Plant and Equipment

Leasehold improvements, software and equipment are recorded at cost. Maintenance and repairs that do not add significant value or significantly lengthen an asset’s useful life are charged to current operations. Software and equipment are depreciated on the straight-line method over their estimated useful lives (typically 3 years for software and 5 years for equipment). Leasehold improvements are amortized on the straight-line method over the shorter of the asset’s estimated useful life or the life of the lease. Upon sale or retirement of an asset, costs and related accumulated depreciation are deducted from the accounts, and any gain or loss is recognized in the audited consolidated statements of operations.

Goodwill

Alion assigns the purchase price paid to acquire the stock or assets of a business to the net assets acquired based on the estimated fair value of assets acquired and liabilities assumed. Goodwill is the purchase price in excess of the estimated fair value of the tangible net assets and separately identified intangible assets acquired. There have been no changes to goodwill carrying value in fiscal year 2014.

The Company accounts for goodwill and other intangible assets in accordance with the provisions of ASC 350 – Intangibles-Goodwill and Other. Alion operates in one segment and tests goodwill at the reporting unit

level. There are two reporting units. We do not allocate corporate debt to our reporting units. We treat our corporate debt as part of our capital structure.

We review goodwill for impairment in the fourth quarter each year, and whenever events or circumstances indicate goodwill might be impaired. We are required to recognize an impairment loss to the extent our goodwill carrying value at the reporting unit level exceeds fair value. Evaluating goodwill involves significant management estimates. In the third quarter of fiscal year 2014, we determined that our declining revenue and the difficulties Alion had experienced in accessing capital and concluding a refinancing transaction were indicators that goodwill might be impaired. We conducted a full Step One impairment test as of June 30, 2014 and determined goodwill was not impaired. In the fourth quarter of fiscal year 2014, we elected to perform a qualitative Step Zero analysis based on favorable changes in Alion’s circumstances including the Company’s post-refinancing capital structure and its improved financial performance. To date, none of our reviews have resulted in a goodwill impairment adjustment. See Note 9 to our audited financial statements for a detailed discussion of the Company’s goodwill impairment testing process.

Intangible Assets

Alion amortizes intangible assets as it consumes economic benefits over estimated useful lives. As of December 31, 2014, the Company had approximately $0.8 million in net intangible assets, including contracts purchased in the JJMA acquisition and purchased software licenses. The JJMA Corporation contract portfolio has a remaining useful life of approximately 1.2 years.

Redeemable Common Stock

Following consummation of this offering, Alion will have one class of common stock which will not have any redemption features, and which is expected to be considered “readily tradable on an established market” as applicable to Section 409 of the Code. As such, certain redemption features that applied to common stock held by the ESOP Trust are expected to no longer apply following the effectiveness of the contemplated initial public offering.

However, prior to consummation of this offering and Alion common stock being considered “readily tradable on an established market” for purposes of the Section 409 of the Code, shares of Alion common stock were considered redeemable for certain accounting purposes. There was, prior to the contemplated initial public offering, no public market for Alion’s redeemable common stock and therefore there was no observable price for its equity, individually or in the aggregate. The ESOP Trust holds all the Company’s outstanding redeemable common stock and, under certain circumstances, the ESOP beneficiaries could require the ESOP Trust to distribute the value of their beneficial interests. The ESOP, in accordance with the Code and ERISA required the Company to offer ESOP participants who received Alion common stock a liquidity put right. This put right required the Company to purchase distributed shares at their then-current fair market value, as determined by the trustee, at any time during two put option periods. Redeemable common stock distributed by the ESOP Trust was also subject to a right of first refusal. Prior to any subsequent transfer, shares had to be first be offered to the Company and then to the ESOP Trust. Eventual redemption of shares of Alion redeemable common stock as a result of distributions was outside the Company’s control. Therefore, Alion classified its outstanding shares of redeemable common stock as other than permanent equity. In connection with the contemplated initial public offering, it is currently anticipated that this put right will be eliminated from the ESOP and the accounting practices regarding the Alion common stock will reflect this change as applicable.

During such period as the Alion common stock held by the ESOP Trust was considered redeemable, as discussed above, at each reporting date, Alion was required to increase or decrease the reported value of its outstanding redeemable common stock to reflect its estimated redemption value. Management estimated the value of Alion’s obligation to repurchase its outstanding shares of redeemable common stock by considering, in part, the most recent price at which the Company was able to sell shares to the ESOP Trust. The reported value of outstanding redeemable common stock equaled the current redemption price multiplied by total shares issued and outstanding.

In its fiduciary capacity, the ESOP Trustee is independent of the Company and its management. As part of the stock valuation process that existed prior to the initial public offering, consistent with its fiduciary responsibilities, the ESOP Trustee retained an independent third party valuation firm to assist it in determining the fair market value (share price) at which the ESOP Trustee could have acquired or disposed of investments in Alion common stock. The Audit and Finance Committee of Alion’s Board of Directors reviewed the reasonableness of the amount management had determined Alion should recognize for the Company’s obligation to repurchase shares of its outstanding redeemable common stock. The Audit and Finance Committee considered various factors in its review, including, in part, the most recent valuation report prepared for, and the share price selected by the ESOP Trustee.

In accordance with the valuation process described above, Alion recorded changes in the reported value of its outstanding common stock through an offsetting charge or credit to accumulated deficit. The accumulated deficit as of December 31, 2014 included a $110.1 million cumulative benefit for changes in redemption value which reduced the Company’s aggregate share redemption obligation. Outstanding redeemable common stock had an aggregate redemption value of approximately $32.1 million as of December 31, 2014.

Following the consummation of this offering, it is expected that there will be a public market for the Alion common stock, and, therefore, it is expected that the value of a share of Alion common stock will be determined based on the market price as reported by the applicable national securities exchange and that Alion will no longer be obligated to redeem shares purchased by the ESOP Trust. It is anticipated that the accounting practices regarding the valuation and recognition of Alion common stock will reflect this change as applicable.

Concentration of Credit Risk

Alion is subject to credit risk for its cash equivalents and accounts receivable. The Company believes the high credit quality of its cash equivalent investments limits its credit risk with respect to such investments. Alion believes its concentration of credit risk with respect to accounts receivable is limited as the receivables are principally due from the Federal Government. As of December 31, 2014, approximately 19% of the Company’s receivables were due from commercial customers including other prime contractors.

Fair Value of Financial Instruments

Alion is required to disclose the fair value of its financial instruments, but is not required to record its senior long term debt at fair value. See Note 11 to our unaudited financial statements for a discussion of Alion’s long term debt and Note 12 to our unaudited financial statements for the related fair value disclosures. The fair value of cash, cash equivalents, accounts payable and accounts receivable is not materially different from carrying value because of the short maturity of those instruments.

Net Operating Losses

Even though we have recorded a full valuation allowance for all deferred tax assets and are carrying a $66.8 million deferred tax liability, we expect our domestic tax liability to be limited for the foreseeable future due to available NOLs, and expect only minimal foreign income taxes for operations in India. As a result of the offering, the Company’s NOLs will become subject to an annual use limitation. The effect of the annual use limitation is that the Company will be able to use up to approximately $150 million of its NOLs over the five-year period following the offering. Another $20-25 million of the Company’s NOLs will be available to be used over the remaining available term of the NOLs. Thus, a portion of the Company’s NOLs is likely to expire unutilized. In addition to the Company’s existing NOLs, the Company has certain built-in deductions available to reduce its taxable income in future periods. Our ability to utilize NOL tax benefits will depend upon how much future taxable income we have and may be limited under certain circumstances. We do not have any NOL tax benefits we can carry back to prior years.

Off-Balance Sheet Financing Arrangements

Alion accounts for operating leases entered into in the routine course of business in accordance with ASC 840 Leases. We have no off-balance sheet financing arrangements other than operating leases and letters of credit under our Existing Revolving Credit Facility. Alion has no relationship with any unconsolidated or special purpose entity and has not issued any guarantees.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09 (ASU 2014-09), “Revenue from Contracts with Customers” which requires an entity to recognize revenue when a customer obtains control rather than when an entity has transferred substantially all risks and rewards of a good or service. This update is effective for annual reporting periods beginning on or after December 15, 2016 and interim periods therein and requires expanded disclosures. ASU 2014-09 is effective for the Company beginning in the first quarter of fiscal 2018, using one of two retrospective methods of adoption. Early adoption is not permitted. The Company has not selected a method for adoption nor has it determined the potential effects on Alion’s financial position, cash flows or results of operations.

In August 2014, the FASB issued ASU 2014-15 “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. ASU 2014-15 defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. GAAP-basis financial statements are prepared under the presumption a reporting organization will continue to operate as a going concern. The presumption, commonly called the going concern basis of accounting, establishes the basis for measuring and classifying assets and liabilities.

ASU 2014-15 provides the guidance GAAP currently lacks regarding management’s responsibilities related to going concern analysis and disclosures. It establishes principles and definitions intended to reduce diversity in both timing and content for financial statement disclosures. ASU 2014 -15 is effective for annual periods ending after December 15, 2016, including interim periods within that reporting period. Early application is permitted for annual or interim reporting periods for which financial statements have not been issued. The Company does not believe that adopting ASU 2014-15 will materially affect its operating results, financial position or cash flows.

Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

We face interest rate risk for periodic borrowings on our $65.0 million Existing Revolving Credit Facility as well as the Existing First Lien Term Loan. Variable rates increase the risk that interest charges could increase materially if either market interest rates or outstanding balances were to increase.

The Existing Revolving Credit Facility balances bear interest at a variable rate based on LIBOR plus 475 basis points. The current interest rate is 4.9%. Tranche A of the Existing First Lien Term Loan bears interest at a minimum 100 basis point LIBOR rate plus 700 basis points. The current interest rate is 8.0%. The Tranche B First Lien Term Loan bears interest based on the Tranche A rate plus 300 basis points. Tranche B of the Existing First Lien Term Loan interest rate is currently 11.0%.

Based on the assumption that Alion would maintain an average drawn balance of $40 million, we estimate that a 100 basis point change in interest rates would cost the Company $400 thousand per year under the Existing Revolving Credit Facility. The same 100 basis point change would cost the Company approximately $2.8 million in additional Existing First Lien Term Loan interest next fiscal year and approximately $11.1 million in total over the life of the Existing First Lien Term Loan.

The Existing Second Lien Term Loan and the Existing Third Lien Notes are fixed-rate obligations. We do not use derivatives for trading purposes. We invest excess cash, if any, in short-term, investment grade, and interest-bearing securities. See “Prospectus Summary – 2014 Refinancing”.

In the IPO Refinancing, we expect to replace our Existing Debt Instruments with a New Credit Agreement. In connection with the IPO Refinancing, we expect that our interest rate risk will likely decrease.

Foreign currency risk

Alion does not have a material number of foreign currency based contracts. Most international contract expenses and revenues are U.S. dollar-denominated. Contracts denominated in foreign currency typically are priced to allow for potential adverse foreign exchange impacts and foreign withholdings. Management does not believe Alion’s operations are subject to material risks from currency fluctuations.

Risk associated with value of Alion redeemable common stock

Changes in the fair market value of a share of Alion redeemable common stock affect estimated ESOP share repurchase obligations and, potentially, SAR obligations. The number of employees who seek to redeem shares of Alion stock held by the ESOP Trust following termination of employment and the number of shares they seek to redeem affect the timing and amount of the Company’s repurchase obligations. Declining share prices favorably affect ESOP-related demands on the Company’s cash flow. We expect that following this offering, we will no longer redeem ESOP shares because there will be an established securities market for the public sale of our stock.

Only the stock appreciation rights granted in fiscal year 2014 are outstanding. They were issued at a $8.10 per share strike price and are underwater. If the public market price exceeds the per share strike price, taking into account any appropriate adjustments, the Company may have cash-flow risk related to these outstanding SAR grants.

BUSINESS

Overview

Alion was organized in October 2001 as a for-profit Delaware corporation to acquire substantially all the assets and liabilities of IITRI, a not-for-profit Illinois corporation which was founded in 1936. In December 2002, some eligible IITRI employees directed funds from qualifying retirement account balances into an employee stock ownership plan which is now known as the ESOP. In December 2002, the ESOP Trustee used those proceeds to purchase Alion common stock on behalf of the ESOP Trust. In December 2002, Alion used those stock sale proceeds plus certain other indebtedness to purchase substantially all of IITRI’s assets. The ESOP Trust currently owns all of Alion’s issued and outstanding common stock.

Since December 2002, Alion has grown both organically and through acquisitions. From 2004 through 2007, Alion completed a number of levered and unlevered acquisitions. When Alion issued its secured notes in March 2010, the Company also issued common stock warrants constituting a second class of stock under the Code. As a result, Alion no longer qualified to be treated as an S Corporation for U.S. federal income tax purposes and became a C Corporation.

Based in McLean, Virginia, we operate in three core business areas:

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Systems Analysis, Design and Engineering core business area, in which we provide services and technologies designed to enhance the performance and safety of complex systems and reduce costs.

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Our solutions and services span the full lifecycle of key programs and provide us with long-standing, entrenched relationships with our customers. The long-term nature of our service offering also allows us to expand our footprint on existing programs and to use our capabilities and relationships to capture new growth opportunities. For fiscal year 2014, we generated revenue of $804.8 million, $68.0 million in Consolidated EBITDA and reported a net loss of $44.0 million. For the three months ended December 31, 2014 and 2013, we generated revenue of $227.9 million and $185.4 million, respectively, $19.2 million and $14.9 million in Consolidated EBITDA, respectively, and reported a net loss of $9.9 million and $18.5 million, respectively. This represents an increase in revenue and Consolidated EBITDA of 22.9% and 28.9%, respectively, and a decrease in

net loss of 46.5%. For a discussion of our use of Consolidated EBITDA and a reconciliation to net loss, please refer to “Prospectus Summary – Summary Historical Consolidated Financial Data”.

We provide high-end research and development capabilities, technical expertise and operational support to a diverse group of U.S. government customers and, to a lesser degree, commercial and international customers. We serve customers in all branches of the U.S. military, a number of Cabinet-level U.S. government agencies, state and foreign governments and commercial customers. As of December 31, 2014, we had more than 200 distinct customers and over 500 active contracts. For calendar year 2014, DoD customers represented 93.8% of our revenue and other civilian agencies and commercial customers accounted for 6.2% of our revenue.

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The following charts show our revenue by core business area and contract type for the 2014 calendar year:

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Our innovative technology solutions in all of our core business areas are supported by our skilled employee base, which includes engineers, scientists, analysts and former military personnel. As of December 31, 2014, approximately 80% of our employees had security clearances, with approximately 30% of our employees holding clearances at the Top Secret level or above, allowing us access to highly classified DoD information systems and networks. Our workforce is highly educated with approximately 30% of degreed employees having PhDs or Masters degrees, 75% of which are degrees in Engineering, Science or Math / Computer Science. To enhance our technology solutions, we have over 100,000 square feet of laboratory facilities, which we use to conduct customer-funded research and development activities, and to a lesser degree, internally-funded research and development activities.

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Alion provides agile engineering support for the modernization and upkeep of 146 Maritime Patrol and Reconnaissance Aircraft, including multiple variants of the P-3 and P-8 manned aircraft as well as the M1-4C Triton unmanned aircraft system. We developed modifications to existing crew compartment and mission electronics cooling systems to support maintenance and upkeep requirements, and we developed critical technical depot procedures to support depot facility certification for system maintenance and repair. Our specialists prepared repair analysis on threat warning receivers to define maintenance and repair requirements, we developed a radar test system, and we developed the repair bench and test equipment for radar signal analysis, which we can perform at our site.

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Alion is the prime contractor for the in-service support services that lead maintenance and upgrade management for the Navy’s 158 surface combatant and amphibious ships. We coordinate the maintenance periods with fleet and central commanders to ensure these combatants are available to support operational needs. We coordinate an average of one ship per week moving into and out of a maintenance and upgrade activity. Alion and our team provide worldwide maintenance planning,

engineering scope and work package development, and overhaul and upgrade management including in-port oversight of the shipyards. We provide readiness assessment teams to ensure the ship is operationally ready at the completion of the maintenance periods.

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Alion provides agile engineering and in-service support to the U.S. Army to upgrade and maintain tower mounted terrestrial sensors. Ongoing efforts include repair and upgrade actions to restore full operational capability for the 160 Army Persistent Surveillance System – Ground and the 66 Cerberus Systems. Our work integrated the technologies and upgrades to extend their life and enhance system effectiveness. This work includes incorporation of hybrid solar power, weather hardening, and pro-active maintenance systems. We are applying our agile engineering services to integrate full motion video, commercial radars, and other sensor systems into the towers to enhance system effectiveness.

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Alion is the prime contractor providing design engineering, systems integration, logistics, production support, training, and in-service support to the Navy’s Program Executive Officer Submarines. Under this 5 year contract we provide design services to the Ohio Replacement Ballistic Missile Submarine Program. We provide systems integration, logistics and production oversight for the six Virginia class attack submarines currently under construction. We provide in-service and logistics support across the 70 in-service attack, ballistic missile, and guided missile submarines. Our team also supports the decommissioning and nuclear de-fueling of retiring Los Angeles Class submarines. This decommissioning work includes engineering services related to converting two submarines to moored training systems that will be used to train and certify future submariners.

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Alion is the prime contractor responsible for the design, development, integration, test and operation of the premier Navy simulation training environment, the Navy Continuous Training Environment, or NCTE. The NCTE is a virtual range complex that integrates simulation and stimulation systems into a single environment. This environment enables Navy personnel to train and experiment in virtual worldwide locations with realistic weapons, communications, command and control systems operations, and interactions. Alion provides enterprise services, network design, integration and deployment and we are the sole developer of the Navy Training Baseline. This Training Baseline integrates 205 simulation models, 2.1 million software lines of code, and 97 training systems into a single standard simulation environment for training. Under the Fleet Synthetic Training Program, the NCTE enables naval surface and air forces to train and certify for major combat operations from tactical to strike group levels.

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The Market Opportunity

For government fiscal year 2015, the approved DoD appropriations totaled $560 billion. Of that amount, $496 billion was for the base budget and the remainder was for what are termed overseas contingency operations. While the Budget Control Act of 2011 is still in effect, lawmakers have made efforts over the past several years to protect U.S. defense appropriations, including the Ryan-Murray Agreement and the Bipartisan Budget Act of 2013. We believe that these efforts will continue to stabilize actual budget allocations.

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Note: FY’08 through FY’15 represents actuals. FY’16 through FY’20 represents the President’s FY20l6 Budget request and forecast as submitted to Congress in February 2015.

Source: Department of Defense FY2016 Budget.

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Innovative science, engineering and technology solutions. We offer innovative science, engineering and technology solutions in all of our core business areas, which have been developed over our 79 year history. For example, our work in agile engineering sets us apart from our peers within the DoD market. Agile engineering is based in an approximately $5 billion per annum market for reset, repair and modernization of mature systems. For example, we are currently involved in upgrading the electronic warfare pod for the F-15 fighter aircraft to allow the radar warning receiver to better identify new threats. We are also involved in upgrading the Apache helicopter blade folding systems to develop an easier, less labor-intensive folding mechanism for helicopter transport. There is an additional approximately $3 billion per annum addressable market where our competency in agile engineering can be applied to address obsolescence in fielded mature systems. For example, we are currently involved in reverse engineering component designs to upgrade the P-3 radar systems in support of the Naval Air Command because existing spare part inventories were exhausted. We are also supporting the Army’s program manager for electro-optic infrared sensors to reset perimeter monitoring towers that were brought back from Iraq and Afghanistan. This reset includes integrating new full-spectrum sensors and full motion video.

Industry Overview

The DoD’s strategy has been defined in its 2012 Strategic Defense Guidance and detailed in the 2014 QDR. Underpinning the three pillars of the 2014 QDR is a renewed emphasis on innovation, systems in-service maintenance and modernization, rebalancing the force, and improved business practices. The DoD has implemented the Defense Innovation Initiative, or DII, in 2014, its 3rd Offset Strategy, and the Long Range Research and Development Program Plan, or LRRDPP. These efforts were developed to ensure that the United States maintains its military technical edge through investments in emerging technology and in acquisition programs to field available solutions. We believe that Alion’s expertise as an engineering solutions provider aligns well with all of these objectives.

Improved DoD Business Practices. Underlying these innovations, systems in-service management and modernization and rebalancing initiatives are the DoD’s plans to continue to improve its business practices. As implemented in Better Buying Power 2.0, or BBP 2.0, these practices returned significant efficiency improvements and cost savings. Examples include the use of competitive allocation strategies on the DDG-51 construction contracts that has returned savings of $298 million. The Secretary of Defense has now implemented BBP 3.0, continuing its increased emphasis on cost performance and efficiency. Aligned with the 2014 QDR and related initiatives, BBP 3.0 includes specific alignment with the DII and LRRDPP. The DoD’s emphasis on removing barriers to the use of commercial and non-developmental technologies directly addresses current efforts to modernize systems. Increased use of small unit prototyping and experimentation reduces development cycle times, identified failures and other issues quickly and provides for early and rapid resolution of these issues prior to impacting operational performance. These initiatives align closely with our core business areas in system acquisition and program management. Through targeted cost-cutting measures, Alion has also been able to further solidify and increase our competitiveness in new program and recompete situations without sacrificing fees and profitability levels.

Innovation. Our core business areas in systems design, acquisition management and production support are well-aligned with the DoD’s emphasis on innovation. Our emerging technology investments include unmanned systems development and human/systems integration, spectrum management and spectrum sharing and alternatives to GPS and space-based long-haul communications, advancement in energy storage to support sustained forward- deployed operations and enhancements in subsurface operations including the integration of the payload module on the VIRGINIA Class submarines. Investments include ongoing platform acquisition program, including multiple systems critical to the defense strategy such as the DDG-51 Flight III AMDR capable Destroyer, the Ohio Replacement Ballistic Missile Submarine, and the F-35 Lightning II Joint Strike Fighter programs.

Systems In-Service Maintenance and Modernization. The government fiscal year 2015 and 2016 defense budgets continue to show significant and expanded investment in certain specific systems in-service support and modernization to ensure systems provide for and meet today’s operational requirements. Our efforts and investments include systems maintenance actions, obsolete components and systems, and new systems integration. Examples include filling capability gaps with near-term solutions, such as up-armor kits for ground vehicles, and resolution of small issues, such as streamlining the repair processes for C-130 decking. A central theme spanning the in-service, maintenance and modernization activities is the need for rapid, cost effective solutions. To successfully meet this theme, our industry is expected to develop creative and effective solutions and to be efficient in both schedule and budget performance. These investments in modernization and upgrades align with our core business areas in agile engineering, in-service support and test and evaluation.

Re-balancing the Force. The DoD continues to make specific focused investments in capabilities structured to rebalance the force as outlined in the 2014 QDR and the DoD’s Five Year Defense Program. These investments include complex integration of new systems such as the sustainment work to extend the in-service life of AEGIS Cruisers. Rebalancing programs can also include restructuring existing procurements to shift the focus to evolving capabilities, such as upgrades to the Littoral Combat Ship program. The Littoral Combat Ship program is comprised of 52 ships – 32 Flight 0 ships, followed by 20 vessels in the Fast Frigate program. These rebalancing efforts can include new programs, including ongoing investment in surveillance and combat unmanned aircraft, such as the Reaper, Predator, and the evolving Unmanned Combat Air Vehicle programs.

Our Value Proposition

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Our Strategy for Continued Growth

Our engineering capabilities are aligned with DoD budget and mission priorities. A critical part of the DoD’s success in the future will depend on cost-effective, rapid engineering solutions for critical platform and operational programs. Alion’s high-end agile engineering solutions provide a differentiated capability to support the DoD’s missions through modernization and upgrade of platforms and systems. Our design engineering and systems analysis services continue to address the DoD requirements for development of new programs and solutions to maintain the country’s technology edge and to meet the decisive superiority requirements of the 2014 QDR. Alion’s deep domain knowledge, turn-key solutions approach, and design, production and in-service support offering directly support our current and continued growth. Our strategy to maintain our growth will leverage our experience and reputation to expand our work for existing and new customers. We will continue to leverage our high-end engineering and agile engineering services to support the modernization and upgrade of existing systems. We will further continue to broaden our core business areas through internal investment and organic growth that complements our customer-funded research and development in new capabilities, technologies, and solutions.

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Continue to prioritize organic revenue and cash flow growth. We completed our most recent corporate acquisition in calendar year 2007. Subsequently, our revenue has grown at a compounded annual growth rate of 2.2% despite a difficult defense budget environment, from $745.1 million for calendar year 2008 to $847.3 million for calendar year 2014. More recently, our revenue has grown on a sequential basis for each quarter of calendar year 2014. For the three months ended December 31, 2014, revenue increased by 22.9% over the three months ended December 31, 2013. Going forward, we plan to continue to prioritize organic revenue and cash flow growth and to further deleverage our balance sheet. For more than five years, Washington Technology and Defense News has continued to rank us among the top professional services government contractors. Washington Business Journal continues to rank us in its top 20 technology government contractors and government contract awardees.

Multiple engines of growth. Alion will continue to invest in multiple engines of growth, including:

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Agile engineering. Our agile engineering business more than doubled over the last three fiscal years, and accounted for approximately 20% of our calendar year 2014 revenue. Our competency in agile engineering and rapid prototyping align with DoD’s ongoing investments in existing systems to address obsolescence, integrate upgrades, and improve operational performance. Our competency in agile engineering requires a high level of skill, but is cost-efficient, and provides a fast fix for our customers.

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Expansion of our modeling & simulation, information technology and cyber security solutions. We will carry our prime role on NCTE across the fleet and shore-side infrastructure. We continue to grow our cyber capabilities to support training of cyber warriors by emulating the effects and remediation of cyber attacks. We are expanding our work across the cyber domain including electronic warfare, cyberspace operations, and military information support operations.

profitability and indirectly through our increased competitiveness vis-à-vis our customers. In the past two fiscal years, we reduced annual operating costs by approximately $8.0 million. These operational improvements and cost reductions have enabled us to improve our competitive position by delivering cost effective solutions to the Federal Government. In addition, in the first quarter of fiscal year 2015, we began implementing additional cost reductions that we expect to reduce our annual operating costs by approximately $13.0 million.

Recent Operating Results

Annual revenue by core business area for the past three fiscal years was:


Core Business Area Revenue	Fiscal Years Ended September 30,
Core Business Area Revenue	2014				2013				2012
	(Dollars in millions)
Naval Architecture and Marine Engineering	$	321.9	40.0	%	$	343.8	40.5	%	$	354.6	43.4	%
Systems Analysis, Design and Engineering		284.2	35.3	%		285.9	33.7	%		214.0	26.2	%
Modeling, Simulation, Training and Analysis		198.7	24.7	%		219.3	25.8	%		248.6	30.4	%

Total Revenue	$	804.8	100.0	%	$	849.0	100.0	%	$	817.2	100.0	%

The table below summarizes our first quarter fiscal year 2015 and 2014 revenue by core business area.


Core Business Area Revenue	Three Months Ended December 31,
	2014				2013
	(Dollars in millions)
Naval Architecture and Marine Engineering	$	81.2	35.6	%	$	78.5	42.3	%
Systems Analysis, Design and Engineering		98.1	43.0	%		57.2	30.9	%
Modeling, Simulation, Training and Analysis		48.6	21.4	%		49.7	26.8	%

Total Revenue	$	227.9	100.0	%	$	185.4	100.0	%

Our Core Business Areas

Naval Architecture and Marine Engineering. We provide technical expertise for ship and systems design as well as acquisition and production supervision, testing, delivery and engineering support to commercial and naval markets, both domestically and internationally.

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We provide systems engineering and design integration services for naval and commercial vessels, surface and subsurface, manned and unmanned. These services span the entire design process from concept through detail design. In addition to our capabilities as a full-service design agent, our specialty skills include mission needs analysis, analysis of alternatives, combat systems engineering, simulation-based design, threat and damage recovery analysis, and systems engineering.

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We provide operational sustainment and life cycle support, encompassing in-service support as well as lifecycle logistics. This includes technical data development, contractor advisory services, performance-based logistics and interim supply support. We also conduct availability planning, execution and control and provide schedule management and on-site logistics representatives at home ports.

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We provide acquisition and production management for ships, systems and marine equipment. We also provide waterfront and field engineering support along with post-shakedown availability planning and execution, damage control audits and shipboard completion inspections.

Systems Analysis, Design and Engineering. We provide services and technologies designed to enhance the performance and safety of complex systems and reduce costs.

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We apply our agile engineering and prototyping skills to reverse engineer obsolete components, to engineer integrated solutions for modernized and upgraded components, and to integrate these solutions into existing platforms. Our teams identify cost-effective concepts, develop technical data and production packages, build initial prototypes, oversee qualification testing, and implement fielding of the final solutions.

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We support enterprise networking, databases, and healthcare-related information technologies. We provide requirements engineering, integration of commercial and government off the shelf products and architecture design and development. We also provide full software development lifecycle and help desk support as well as cybersecurity and information assurance services.

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We support testing and evaluation, including reliability, availability, maintainability, supportability and usability testing. This includes developing detailed plans and requirements and performing data collection and analysis.

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We provide engineering and analysis services to optimize man-machine interfaces and manpower requirements. Alion develops, designs, prototypes and implements crew stations, floor plans, and virtual interfaces as well as workflow and ergonomic enhancements.

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We support the planning, procurement, maintenance, distribution and replacement of people or equipment. This includes support to logistical reset, depot level support, tracking systems, Radio-frequency identification, barcoding and other technologies as well as predictive analysis.

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We provide nuclear safety support to both domestic and international utilities in response to regulatory requirements for appropriate resolution of safety issues.

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We provide support for environmental protection through risk assessments, organic and inorganic analysis and air quality monitoring and laboratory management.

Modeling, Simulation, Training and Analysis. We leverage our proprietary software, services and technologies to improve mission effectiveness and readiness through the cost effective application of virtual training.

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We develop and integrate live, virtual, constructive and gaming technologies to support individual and group training. We produce interactive, immersive training tools and virtual environments using open-source and commercial video game engines. In addition, we develop geospatial databases and products for training and analysis.

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We provide modeling capabilities for decision support, acquisition, strategy development, transportation systems, program management and production and provide human, social, cultural and behavioral modeling and analysis.

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We produce training environments and manage the necessary infrastructure. This includes developing architectures and equipment and integrating training systems with command, control and communications systems. We also engage in instructional design and curriculum development, and develop and implement learning management systems.

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We develop and deliver vulnerability and risk modeling tools and services for the security and protection of structures and vessels.

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We perform modeling, analysis and management of wireless spectrum and satellite communications and technologies, and provide expertise to support wireless policy development.

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We provide support to and analysis of strategic, tactical and weapons systems usage of the wireless spectrum, satellite communications and related technologies.

We are Primarily a Government Contractor

For calendar year 2014, U.S. government contracts accounted for 97.3% of our revenue, with 93.8% of our revenue derived from DoD contracts. The U.S. Navy is our largest single customer, generating 54.7% of our revenue in calendar year 2014.

Our Federal Government contracts are normally multi-year contracts funded on an annual basis based on Congressional budget authorizations and appropriations. Each year Congress appropriates funds for authorized programs for the coming government fiscal year. Budget delays and uncertainties have continued to push the approval process later into the fiscal year. The annual Congressional appropriations process means a contract is usually only partially funded at the outset of a major program. Normally a procuring agency commits additional money to a contract only as Congress makes appropriations in future fiscal years. The U.S. government can terminate or modify any contract at its discretion or due to contractor default. The U.S. government may terminate or modify a contract for any of a variety of reasons, including funding constraints, changing government priorities or changes in program requirements. If the government terminates one of our contracts at its discretion, it typically pays us for all the services we performed and costs we incurred prior to termination, our termination-related costs, and a negotiated contract fee.

Contract Types. We have a diverse contract base including many task orders and multiple-award contract vehicles (IDIQ). Many customers utilize our IDIQ contracts to hire us. Three of our five largest contracts are IDIQ delivery order contracts; they accounted for 53% of fiscal year 2014 revenue. Our largest individual contract accounted for 8.5% of our fiscal year 2014 revenue. We had a portfolio of over 500 active contracts as of December 31, 2014.

We have three contract pricing structure types: cost-reimbursement, fixed-price and time-and-material. Cost-reimbursement contracts allow us to recover expenses for direct labor and materials, a share of indirect expenses, and a fixed or variable fee depending on contract terms. Government contract rules permit us to recover certain, though not all, of our operating expenses (indirect costs). Fixed-price contract customers pay a stated amount intended to cover all direct and indirect costs, and profit. We assume the risk of any cost overruns and receive the benefit of any cost savings on fixed price contracts. Time-and-material contracts have fixed hourly billing rates designed to cover our labor costs, indirect expenses and profit, with cost reimbursable provisions for materials and other direct costs. We have traditional closed-end contracts and multiple award contracts which require sustained post-award effort to realize revenue. The following table summarizes our revenue by contract type for the years ended September 30, 2014, 2013, and 2012.


	Revenue by Fiscal Year
Contract Type	2014				2013				2012
	(Dollars in millions)
Cost-reimbursement	$	684.0	85.0	%	$	723.1	85.2	%	$	675.3	82.6	%
Fixed-price		59.2	7.3	%		74.6	8.8	%		64.2	7.9	%
Time and material		61.6	7.7	%		51.3	6.0	%		77.7	9.5	%

Total	$	804.8	100.0	%	$	849.0	100.0	%	$	817.2	100.0	%

We sometimes begin providing services before a U.S. government agency has actually signed or funded a contract or task order. We are at risk for costs we incur before a new contract is executed or an existing contract is modified. The practice is customary in our industry, particularly where a company has oral notification of a contract award, but has not received required contract documents. We designed our internal procedures to provide services “at risk” only when we believe funding is highly probable and delays are administrative or technical in nature. In most cases, we get paid for all our costs when a contract is ultimately executed or modified. However, we cannot be certain, when we work at risk, that we will receive an executed contract or that we will be paid for all our costs. As of December 31, 2014, we had approximately $15.6 million in contract revenue at risk; nearly 43% of that amount represents award fees we believe we have earned where we had yet to receive authorization to bill our customers.

We compete for key contracts from various U.S. government agencies. Our business development and technical personnel target contract opportunities and analyze each customer’s priorities and overall market dynamics. Depending upon whether a targeted contract is a renewal or a new opportunity, it can take as little as three months and up to three years to develop and execute our strategy before a customer ultimately issues a contract. When we decide to pursue a potential contract, we mobilize a core group of employees with the requisite expertise to lead our bidding and proposal preparation efforts. We supplement our internal capabilities with a network of consultants and other industry experts as necessary. To enhance our prospects of winning a contract, we team with other contractors, frequently our competitors, who have complementary technical strengths.

When we win a contract or task order, we assign a program manager, project manager and a task leader to ensure we timely deliver high-quality services. Program managers regularly interface with customers to evaluate our performance and customer satisfaction levels. Managers use our financial management and information systems to compare costs to funding ceilings and measure performance and profitability.

Government Oversight. Federal Government auditors and technical specialists regularly review our administrative procedures and our cost accounting policies and practices. Costs on flexibly-priced Federal Government contracts are subject to DCAA and other audits and adjustments. An audit may reveal that some costs charged to a government contract are not allowable, either in whole or in part. In these circumstances, we must repay the Federal Government any money it paid us for unallowable costs, plus possible interest and possible penalties. The government considers Alion a major contractor and maintains an onsite audit office. The Company has settled indirect rates through 2008 based on completed DCAA audits. All subsequent years are open. We are disputing the government’s claim for penalties and interest for 2005 of approximately $300 thousand. We believe the statute of limitations has expired on any government contractual claims, including any claims for penalties and interest, on our 2005 indirect rate proposal.

We timely submitted our indirect cost proposals for all open fiscal years. We have recorded revenue on Federal Government contracts in amounts we expect to realize.

Backlog

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Funded Backlog. Funded backlog represents the estimated revenue value of orders for services under existing contracts for which funding is appropriated or otherwise authorized less revenue previously

recognized on these contracts. We expect to recognize a substantial portion of our funded backlog as revenue in fiscal year 2015.


	As of September 30,
	2014		2013
	(Dollars in millions)
Funded	$	634.3	$	436.9

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Unfunded Backlog. Unfunded backlog represents the estimated revenue value of orders for services under existing contracts for which funding has not been appropriated or otherwise authorized.


	As of September 30,
	2014		2013
	(Dollars in millions)
Unfunded	$	1,123.3	$	1,286.6

In fiscal year 2013, management refined the methodology used to determine funded backlog and unfunded backlog, including only estimates of future revenues to be recognized under awarded contracts. The change in backlog estimating methodology better aligned our backlog estimates with our industry peer group. Each fiscal year quarter, our funded and unfunded backlog estimates are determined by analyzing a number of key factors and attributes for each of our executed contracts, task orders or delivery orders. Based upon the result of our analysis we establish the expected revenue value for each of those items contracts, task orders or delivery orders and report those results on a consolidated basis.

There can be no assurance that our existing contracts will result in actual revenue in any particular period, or at all, or that any contract included in backlog will be profitable. There is a higher degree of risk in this regard with respect to unfunded backlog. The actual receipt and timing of any revenue is subject to various contingencies, many of which are beyond our control. The actual recognition of revenue on contracts included in our backlog may never occur or may change because a program schedule could change; the program could be canceled; a contract could be reduced, modified, or terminated early, whether for the convenience of the government or otherwise; or an option that we had assumed would be exercised could not be exercised. The primary risks that could affect our ability to recognize such revenue on a timely basis or at all include: schedule changes, contract modifications, and our ability to assimilate and deploy new staff against funded backlog; cost cutting initiatives and other efforts to reduce U.S. government spending, which could reduce or delay funding for orders for services; and delayed funding of our contracts due to delays in the completion of the U.S. government’s budgeting process and the use of continuing resolutions by the U.S. government to fund its operations, as described under “Risk Factors”. See “Risk Factors — Risks Related to Our Business and Operations — We depend on U.S. government contracts for substantially all of our revenue. Changes in the contracting or fiscal policies of the U.S. government could adversely affect our business, financial condition, results of operations and ability to satisfy our financial obligations and grow our business” and “— We may not realize the full amount of our backlog, which could lower future revenue”.

2014 Refinancing

On August 18, 2014, Alion completed a comprehensive refinancing of its outstanding indebtedness, or the 2014 Refinancing. The 2014 Refinancing was made pursuant to an Amended and Restated Refinancing Support Agreement dated as of May 2, 2014, as amended, between the Company, ASOF and Phoenix, and included the following transactions:

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We exchanged $210,986,000 in aggregate principal amount of our Unsecured Notes, representing 89.78% of the aggregate principal amount of the Unsecured Notes then-outstanding, for, in the aggregate, (i) $208,135,000 in aggregate principal amount of the Existing Third Lien Notes, (ii) 208,135 2014 Warrants, and (iii) $1,710,600 in cash.

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The proposed amendments contained in the Second Supplemental Indenture relating to the Unsecured Notes, which was executed on May 29, 2014, became operative. The amendments eliminated substantially all of the negative covenants, certain events of default and the covenant restricting mergers and consolidations, modified certain provisions relating to defeasance, and made other technical and conforming changes to the indenture governing the Unsecured Notes.

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We sold 10 units at a price of $600 per unit, for aggregate proceeds of $6,000. The units in the aggregate consisted of $10,000 principal amount of Existing Third Lien Notes and ten 2014 Warrants.

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We entered into the Existing First Lien Term Loan, which consisted of a Term A Loan in aggregate principal amount of $110.0 million, having a term of four years, and a Term B Loan in aggregate principal amount of $175.0 million having a term of five years.

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We entered into the Existing Second Lien Term Loan, a new $70.0 million second lien term facility having a term of five and one-half years.

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With the proceeds of the Existing First Lien Term Loan and the Existing Second Lien Term Loan, on September 17, 2014, we redeemed our outstanding Secured Notes at a redemption price of 100% of principal amount, plus accrued and unpaid interest to, but not including, the date of redemption, for an aggregate payment of $351,667,904.

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We replaced our $45.0 million revolving credit facility with the Existing Revolving Credit Facility, a new $65.0 million revolving credit facility.

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ASOF purchased from Alion in a private placement units consisting of $2,841,000 principal amount of Existing Third Lien Notes and 2,841 2014 Warrants for an aggregate purchase price of $1,704,600.

In addition, as consideration for their funding the Existing Second Lien Term Loan, we issued in a private placement (i) all 70 shares of our new Series A Preferred Stock and (ii) 2014 Warrants to purchase 12.5% of our then-outstanding common stock to ASOF and affiliates of Phoenix. The holders of the Series A Preferred Stock have consent rights over certain actions to be taken by Alion and its subsidiaries. With respect to any and all matters on which there is a stockholder vote, the affirmative vote of the majority of the shares of Series A Preferred Stock outstanding is both necessary and sufficient to approve all such matters for all or any classes or series of stockholders of Alion. For so long as the Series A Preferred stock is outstanding and ASOF owns a majority of the Series A Preferred Stock, ASOF has the right to appoint a majority of the members of our Board of Directors, possesses voting control over all matters that require stockholder approval and controls decisions regarding consenting to certain specified actions.

The Alion ESOP

We have a KSOP that is a qualified retirement plan that includes an ESOP invested in Alion common stock and a non-ESOP component invested in mutual funds. The ESOP Trust owns all issued and outstanding shares of our common stock.

Formerly, eligible employees could use qualified retirement funds to purchase beneficial interests in Alion common stock. The ESOP Trust used the money employees invested in the ESOP to purchase Alion common stock and allocate ESOP interests to employee accounts according to the ESOP’s terms. We continue to make retirement plan contributions to the ESOP component for all eligible employee participants. We also make matching contributions to the ESOP for eligible employees based on their pre-tax salary deferrals.

Prior to this offering, except in certain limited circumstances, the ESOP Trustee must vote its shares as directed by the ESOP committee. The ESOP committee consists of four members of Alion’s management team and three other Alion employees; it is responsible for management and administration of the ESOP.

Prior to the consummation of this offering, by law, Alion is required to value the common stock held in the ESOP component at least once a year. Alion formerly had the ESOP Trustee value the common stock in the ESOP twice a year – as of March 31 and September 30. Beginning in fiscal year 2015, the ESOP Trustee will only value the common stock annually as of September 30^th, but following consummation of this offering, the ESOP Trustee will no longer value the common stock because the share price will be the public market price. The terms of the KSOP permit the ESOP Trust to use employee-directed funds to purchase shares of Alion common stock at the lesser of the then-current or the immediate prior value of a share of Alion common stock, but the ESOP plan administrator has suspended the option for employees to invest in Alion common stock. Currently, all ESOP transactions occur at the redemption value of a share of Alion common stock.

In connection with this offering, we expect to amend the Plan to reflect our status as a public company.

Corporate Culture, Employees and Recruiting

We strive to create a culture that promotes performance excellence; respects colleagues’ ideas and judgments; and recognizes the value of our professional staff’s skills and capabilities. We seek to attract highly qualified and ambitious employees. We strive to establish an environment in which all employees can make their best personal contribution and have the satisfaction of being part of a close-knit team. We believe we have a track record of successfully attracting and retaining highly skilled employees because of the quality of our work environment, the professional challenges of our assignments, and the financial and career advancement opportunities we offer.

As of December 31, 2014, we had 2,789 employees of whom 2,583 were full-time employees. Our workforce is highly educated with approximately 30% of degreed employees having Masters degrees, 75% of which are in Engineering, Science or Math/Computer Science. As of December 31, 2014, approximately 80% of our employees had security clearances, with approximately 30% of our employees holding clearances at the Top Secret level or above, allowing us access to highly classified DoD information systems and networks. We believe we have a good relationship with our employees. None of our employees are covered by a collective bargaining agreement.

We view our employees as our most valuable asset. Our success depends in large part on attracting and retaining talented, innovative, experienced professionals at all levels. We rely on the availability of skilled technical and administrative employees to perform our research, development and technological services for our customers. The market for certain technical skills in our core business areas is at times extremely competitive. This makes employee recruiting and retention in these and other specialized areas extremely important. We believe our benefits package, work environment, incentive compensation, and employee-ownership culture will continue to be important in recruiting and retaining highly skilled employees.

Our Customers

We provide scientific, research and development, technical expertise, and operational support to a diverse group of U.S. government customers. We also serve commercial, state, local and international government customers. As of December 31, 2014, we had more than 200 distinct customers, including Cabinet-level government departments and agencies, and state and foreign governments. We have over 500 active contracts, including over 350 contracts with the DoD. Commercial, state and local governments and international customers accounted for the remaining 2.7% of our calendar year 2014 revenue. The table below shows revenue by customer category for our past three fiscal years.


	Revenue by Fiscal Year
	2014				2013				2012
	(Dollars in millions)
U.S. Department of Defense	$	753.7	93.7	%	$	790.9	93.2	%	$	755.6	92.4	%
Other Federal Civilian Agencies		29.8	3.7	%		31.4	3.7	%		43.2	5.3	%
Commercial and International		21.3	2.6	%		26.7	3.1	%		18.4	2.3	%

Total	$	804.8	100.0	%	$	849.0	100.0	%	$	817.2	100.0	%

The following five Federal Government contracts (IDIQ contract vehicles and stand-alone contracts) accounted for more than half of our revenue in fiscal years 2014, 2013 and 2012.

Weapons System Technology Information Analysis Center for the Defense Technical and Information Center (26%, 28%, 17%) (IDIQ contract vehicle);

Seaport-E Multiple Award Contract for the Naval Sea Systems Command (21%, 21%, 20%) (IDIQ contract vehicle);

Technical and Analytical Support for the U.S. Air Force (9%, 8%, 10%) (stand-alone contract);

Naval Sea Systems Command Surface Ships Life Cycle Program Management and Engineering Support (7%, 7%, 6%) (stand-alone contract); and

Software, Networks, Information, Modeling and Simulation – Defense Technical and Information Center (6%, 2%, 0.2%) (IDIQ contract vehicle).

The Weapons System Technology Information Analysis Center for the Defense Technical and Information Center, Seaport-E Multiple Award Contract for the Naval Sea Systems Command and the Software, Networks, Information, Modeling and Simulation for the Defense Technical and Information Center are all IDIQ contract vehicles. Revenues from these IDIQ contract vehicles are comprised of numerous individual task orders. Each task order is separately funded, includes a unique statement of work, period of performance and in some cases, distinct contractual terms and conditions. Complete or partial termination of any of these contracts or any related follow-on contracts, stoppage of new tasking under these contracts or our inability to renew or replace them when they expire could cause our revenue to decrease and could have a material adverse effect on our business, financial condition, operating results or ability to meet our financial obligations.

Competition

The U.S. government engineering and technology services industries consist of a large number of enterprises ranging from small, niche-oriented companies to multi-billion dollar corporations that serve many U.S. government customers. Competitors frequently form teams to pursue contract opportunities because large contracting initiatives are highly competitive and government customers have diverse requirements. Prime contractors leading large proposal efforts typically select team members based on particular capabilities and

experience relevant to each opportunity. Companies that compete on one opportunity may be team members on another opportunity.

We frequently compete against well-known firms in the industry as a prime contractor. Our main competitors include, but are not limited to, U.S. federal systems integrators and service providers such as Booz Allen Hamilton, CACI International, Leidos Holdings, Science Applications International Corporation, ManTech International, NCI, Engility and the North American public sector segment of Computer Sciences Corporation.

We also compete at the task order level, where knowledge of the customer, its procurement requirements and its environment is often the key to winning business. We have been successful in ensuring our presence on numerous contracts and GSA schedules, and in competing for tasks under those contracts. The variety of contract vehicles at our disposal, as a prime contractor or subcontractor, allows us to market our services to any U.S. government agency. We have experience providing services to a diverse array of U.S. government departments and agencies. We have first-hand knowledge of our customers and their goals, problems and challenges. Most government contracts we seek are competitive awards. We believe our customers typically consider the following key factors in awarding contracts: technical capabilities and approach; personnel quality and management capabilities; previous successful contract performance; and price.

In our experience, price and technical capabilities are a customer’s two most important considerations in contracts for complex technological programs. We believe our customer knowledge, our government contracting and technical capabilities, and our pricing policies enable us to compete effectively. See “Risk Factors – Risks Related to Our Business and Operations – We face intense competition from many companies that have greater resources than we do. This could cause price reductions, reduced contract profitability, and loss of market share”.

Business Development and Promotional Activities

We promote our contract research services by meeting face-to-face with current and potential customers, obtaining new work from satisfied customers, and responding to requests for proposals, or RFPs, and international tenders. We use our knowledge of and experience with U.S. government procurement procedures, and our relationships with government personnel, to try to maximize our ability to respond timely to RFPs and customer requests. We bid on contracts in our core business areas and related areas where we believe we have a good chance of being awarded the contract. When we bid on a potential contract, we draw on our core business area expertise to display the technical skills we can bring to a particular contract.

Our business developers work face-to-face with customers, are experienced in marketing to government customers, know the services and products they represent, and understand each particular customer’s organization, mission and culture. These professionals possess a working knowledge of rules governing the marketing limitations that are unique to the government arena. They understand government funding systems, conflict of interest restrictions, procurement integrity directives, and the procedural requirements designed to establish a level competitive playing field to ensure appropriate use of public funds.

Our technical staff is an integral part of our promotional efforts. The customer relationships they develop through their work often lead to additional business and new research opportunities. We hold weekly company-wide business development meetings to review proposal opportunities and determine strategy in pursuing these opportunities. We also use independent consultants for promoting business, developing proposal strategies and preparing proposals as necessary.

We focus most of our research and development activities on customer-funded projects and internally-developed capital assets. We believe actively fostering an environment of innovation is critical to our ability to grow our business, allowing us to proactively address issues of national concern in public health, safety and national defense.

Resources

Most of our work relies on computer and laboratory equipment and other supplies readily available from multiple vendors. Disruption in availability from any particular vendor is not likely to materially affect our ability to perform our contracts. Some of our specialized laboratory work depends on special materials and equipment whose unavailability could adversely affect experimental laboratory tasks. However, we believe these kinds of delays or disruptions are not likely to materially affect our overall operations or financial condition.

Patents and Proprietary Information

As a normal course of business, we perform research and development and engineering activities in support of our customers. Typically these services do not depend on patent protection. In accordance with applicable law, our U.S. government contracts often provide government agencies certain license rights to our inventions, copyrights, and other intellectual property. Government agencies may in turn sublicense to other contractors (including our competitors) the right to utilize our intellectual property. Similarly, our U.S. government contracts often license to us patents, copyrights, and other intellectual property owned by third parties. We maintain an active program to track and protect our intellectual property. We routinely enter into intellectual property assignment agreements with our employees to protect our rights to any patents or technologies they develop while employed by us. Costs for internal research and development, patent prosecution and maintenance and other intellectual property activities are not material to our financial statements.

We maintain a number of trade secrets that contribute to our success and competitive distinction and endeavor to accord such trade secrets protection adequate to ensure their continuing availability to us. While retaining protection of our trade secrets and vital confidential information is important, we are not materially dependent on maintenance of a specific trade secret.

Seasonality

Foreign Operations

In each of the past three fiscal years, nearly all our revenue came from contracts with U.S.-based customers. We treat sales to U.S. government customers as domestic sales regardless of where we perform our services. We have seen a modest increase in work for foreign customers which we perform in the U.S.

Regulatory Matters

Federal Acquisition Regulation

We are heavily regulated in most of the fields in which we operate. We provide services and products to numerous U.S. government agencies and entities, including the DoD, U.S. Navy, U.S. Army, U.S. Air Force and the Department of Homeland Security. When working with these and other U.S. government agencies and entities, we must comply with various laws and regulations relating to the formation, administration and

performance of contracts. U.S. government contracts generally are subject to the Federal Acquisition Regulation, or FAR, which sets forth policies, procedures and requirements for the acquisition of goods and services by the U.S. government, agency-specific regulations that implement or supplement FAR, such as the DoD’s Defense Federal Acquisition Regulation Supplement and other applicable laws and regulations. These regulations impose a broad range of requirements, many of which are unique to government contracting, including various procurement, import and export, employment, security, contract pricing and cost, contract termination and adjustment, audit and reporting requirements. Among other things, these laws and regulations:

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require certification and disclosure of all cost and pricing data in connection with certain contract negotiations;

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define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-based U.S. government contracts;

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require reviews by the DCAA, the Defense Contract Management Agency and other U.S. government agencies of compliance with government standards for a contractor’s financial capability and business systems;

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restrict the use and dissemination of information classified for national security purposes and the export of certain products and technical data;

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require us not to compete for work if an organizational conflict of interest, as defined by these laws and regulations, related to such work exists and/or cannot be appropriately mitigated; and

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require mandatory disclosure of certain circumstances of non-compliance.

The U.S. government may revise its procurement practices or adopt new contract laws and regulations at any time. In order to help ensure compliance with these complex laws and regulations, all of our employees are required to complete ethics training and other compliance training relevant to their position.

Internationally, we are subject to special U.S. government laws and regulations, local government laws and regulations and procurement policies and practices (including laws and regulations relating to bribery of foreign government officials, import-export control, investments, exchange controls and repatriation of earnings) and varying currency, political and economic risks.

Environmental Matters

We are subject to federal, state, local and foreign laws and regulations relating to environmental, health and safety matters, including, among other things, emissions and discharges into the environment, handling and disposal of regulated substances, and contamination by regulated substances and wastes. Some of our operations require environmental permits and/or controls to prevent or reduce air and water pollution. Issuing authorities can renew, modify, or revoke these permits.

Operating and maintenance costs associated with environmental compliance and preventing contamination at our facilities are a normal, recurring part of our operations. These costs have not been material in the past and are not material to our total operating costs or cash flows. Such costs are usually allowable under government contracts. Based on information presently available to us and on current U.S. government environmental policies relating to allowable costs, all of which are subject to change, we do not expect environmental compliance to materially affect us. We also believe our facilities’ environmental compliance costs will continue to be allowable.

Under existing U.S. environmental laws, potentially responsible parties can be held jointly and severally liable for the entire cost of the cleanup of contaminated sites. We could be potentially liable to the government or third parties for the full cost of investigating or remediating contamination at our current or former sites or at third-party sites where we have disposed of, transported, or arranged for the transportation of, any hazardous waste in the event contamination is identified and remediation is required at any of these sites. In the unlikely

event that we were required to fully fund remediation of a site, the statutory framework might allow us to pursue rights of contribution from other potentially responsible parties.

Properties

Our headquarters in McLean, Virginia consists of 23,823 square feet of leased office space. We also lease approximately 61 additional office facilities totaling 544,083 square feet. Our largest offices are located in Washington, DC; Fairfax, Alexandria, Vienna, Arlington, Norfolk, Portsmouth, and Newport News, Virginia; Pittsburgh and West Conshohocken, Pennsylvania; Huntsville, Alabama; New London, Connecticut; Annapolis, Annapolis Junction and Lanham, Maryland; Orlando, Florida; Rome, New York; Pascagoula, Mississippi; Fairborn, Ohio; Mt. Clemens, Michigan; Boulder, Colorado; Durham, North Carolina; Bath, Maine; San Diego, California; Albuquerque, New Mexico; and Burr Ridge, Illinois. We lease 18 facilities that contain laboratory space totaling over 100,000 square feet, for contract-related research. Our largest laboratories are located in Durham, North Carolina; Chicago and Geneva, Illinois; Annapolis Junction and Lanham, Maryland; West Conshohocken, Pennsylvania; Warren, Michigan and Louisville, Colorado. We also lease approximately 30 warehouse, conference, customer and other facilities totaling 192,411 square feet. Lease terms vary in length from one to twelve years, and are generally at market rates.

Aggregate average monthly base rental expense for fiscal year 2014, 2013 and 2012 was approximately $1.9 million, $1.8 million and $1.7 million, respectively. We periodically enter into other lease agreements that are, in most cases, directly chargeable to current contracts. Lease obligations are usually either covered by currently available contract funds or cancelable upon termination of the related contracts. We consider our leased space to be adequate for our current and our reasonable anticipated future operations. If sequestration further adversely affects the Company, we may find we have excess leased space. We cannot ensure that if we have excess capacity we will be able to sublease a portion of or assign our leases on terms and conditions favorable to us or at all.

Legal Proceedings

We are from time to time subject to various claims and lawsuits incidental to our business. In the opinion of management, these claims and suits, individually or in the aggregate, will not have a material adverse effect on our consolidated financial statements, results of operations or liquidity.

MANAGEMENT

The names, ages and positions of our current directors and executive officers are set forth below:


Name	Age		Position
Bahman Atefi		62	President, Chief Executive Officer and Chairman of the Board of Directors(1)
Stacy Mendler		52	Chief Operating Officer and Executive Vice President(1)
Kevin Boyle		45	Senior Vice President, General Counsel and Secretary
Barry Broadus		55	Chief Financial Officer, Senior Vice President and Treasurer(1)
Leslie L. Armitage		46	Director
Daniel H. Clare		43	Director
Lewis Collens		77	Director
Lawrence A. First		53	Director
Admiral Harold W. Gehman, Jr., USN (Ret.)		72	Director
General Michael V. Hayden, USAF (Ret.)		70	Director
General George A. Joulwan, USA (Ret.)		75	Director
General Michael E. Ryan, USAF (Ret.)		73	Director

(1)	Member of the ESOP Committee.

Bahman Atefi was appointed chief executive officer of Alion in December 2001 and as president in 2002. He is also chairman of Alion’s Board of Directors. Dr. Atefi also serves as chairman of the ESOP committee. Dr. Atefi served as president of IITRI from August 1997, and as its chief executive officer from October 2000, until December 20, 2002, when Alion purchased substantially all of IITRI’s assets. From June 1994 to August 1997, Dr. Atefi served as manager of the energy and environmental group at Science Applications International Corporation. In this capacity, he was responsible for a business unit, which provided scientific and engineering support to the U.S. Department of Energy, Nuclear Regulatory Commission, Environmental Protection Agency, Department of Defense, and commercial and international customers. Dr. Atefi is a member of the Board of Directors of The Wolf Trap Foundation for the Performing Arts. Dr. Atefi received a BS in Electrical Engineering from Cornell University, an MS in Nuclear Engineering and a Doctor of Science in Nuclear Engineering from the Massachusetts Institute of Technology.

Dr. Atefi was selected and continues to serve as a director of the Company because of his institutional and operational knowledge of the Company’s business, his financial acumen, his service as the Company’s chief executive officer and his more than twenty-five years of experience in the government contracting professional services market.

Stacy Mendler has served as our Chief Operating Officer and Executive Vice President since September 2006. She served as our Executive Vice President and Chief Administrative Officer from September 2005 until September 2006, and as our Senior Vice President and Chief Administrative Officer from May 2002 until September 2005. She is also a member of our ESOP committee. Ms. Mendler served IITRI as Senior Vice President and Director of Administration from October 1997 until December 20, 2002, when we purchased substantially all of IITRI’s assets. As of May 2002, Ms. Mendler was IITRI’s Chief Administrative Officer, as well as Senior Vice President. She also served as IITRI’s Assistant Corporate Secretary from November 1998 through December 2002. From February 1995 to October 1997, Ms. Mendler was Vice President and Group Contracts Manager for the Energy and Environment Group at Science Applications International Corporation where she managed strategy, proposals, contracts, procurements, subcontracts and accounts receivable. She currently serves on the Board of Directors of NVTC, the VA Chamber of Commerce, or VCOC, and the Professional Services Council and is Chair on the executive committee of VCOC. Ms. Mendler received a BBA in Marketing from James Madison University and a MS in Contracts and Acquisition Management from Florida Institute of Technology.

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Kevin Boyle became our Senior Vice President, General Counsel and Secretary on January 6, 2014. Prior to joining us, he served from February 2012 until January 2014 as Senior Vice President, General Counsel and Secretary of MCR, LLC, a privately-held professional services firm specializing in integrated program management solutions for the Department of Defense. From June 2007 until February 2012, Mr. Boyle served as Senior Vice President, General Counsel & Secretary for Vangent, Inc., a leading provider of information management and business process outsourcing services to the US Federal Government. From 2002 to May 2007, he served as Assistant General Counsel for General Dynamics Information Technology, Inc., following its acquisition of Anteon International Corporation in June 2006. Mr. Boyle also served as Vice President and General Counsel for publicly-held Interworld Corporation from 2000 to 2002. Prior to 2000, he held similar positions with Visual Networks, Cambridge Technology Partners and BMG Entertainment. Mr. Boyle received his Juris Doctor degree from Tulane Law School and his Bachelor of Arts degree in history from Yale University.

Barry Broadus has served as our Chief Financial Officer, Senior Vice President and Treasurer since September 2012. He served as our (Acting) Chief Financial Officer from April 2012 until September 2012 and Director of Financial Planning from September 2008 until April 2012. Prior to joining us, from November 2004 to September 2008, Mr. Broadus served as Vice President and Business Unit Controller at Science Applications International Corporation, or SAIC, where he was responsible for the financial oversight of the Energy, Environment & Infrastructure Business Unit. Prior to SAIC, from September 2000 to July 2004, he was the Chief Financial Officer for Brainbench, Inc. Prior to Brainbench, Mr. Broadus served for 12 years at EDS, as the Military Systems Business Unit Controller. He also worked for Andersen Consulting. In his earlier career, he was an Officer in the U.S. Army from 1982 to 1985. Mr. Broadus received a Bachelor of Science in Business Administration with a major in Accounting from the University of Alabama.

Leslie L. Armitage has served as a director of Alion since May 2002. Ms. Armitage currently serves as a Senior Managing Director and Co-Founder of Relativity Capital, a position she has held since January 2006. Ms. Armitage served as a Managing Director and Partner of The Carlyle Group from January 1999 until May 2005 and held various positions at Carlyle from 1990 to 1999. Ms. Armitage has served on the Board of Directors of Physmodo, Inc. since June 2014 and TangoTab since February 2015. She previously served on the Board of Directors of Vought Aircraft Industries, Inc., Honsel International Technologies, United Components, Inc., Nivisys Industries, Tactical Micro, Inc., MHF Services, Inc. and Berkshire Manufactured Products.

Ms. Armitage was selected and continues to serve as a director of the Company because of her extensive financial and board experience and acumen developed over the course of more than twenty years in the private equity market, in addition to her familiarity with companies in the government contracting professional services industry.

Daniel H. Clare is a Managing Director of ASOF and joined the firm in 2010. From 2005 to 2010, Mr. Clare was with Diamond Castle Holdings, LLC, a private equity firm focused on leveraged buyout and growth capital investments in middle market companies, most recently as a Senior Managing Director. From 1999 to 2005, Mr. Clare was an investment professional at CSFB Private Equity/DLJ Merchant Banking Partners. From 1993 to 1997, he was a management consultant at Bain & Company, and in 1998, was a summer associate in the investment banking division at Goldman Sachs & Co. Mr. Clare received a BA from Haverford College in Political Science, and an MBA from Harvard Business School. He also attended the University of Cambridge.

Mr. Clare was selected and continues to serve as a director of the Company because of his extensive experience investing in other companies and serving on the boards of directors of other companies.

Lewis Collens has served as a director of Alion since May 2002. From 1990 to 2009, Mr. Collens served as president of Illinois Institute of Technology, or IIT. He is currently President Emeritus and Professor of Law Emeritus at IIT, Chicago-Kent College of Law, a position he has held since August 2009. He also currently

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serves as Senior Advisor for Charles Dobrusin Associates. Mr. Collens has served as a director of Twani Foundation since 2006, Auditorium theater of Roosevelt University since 2010, Advance Illinois since 2008 and Cook County Health and Hospital Systems since 2013. Mr. Collens served as a director of Amsted Industries from 1991 to 2014 and as a director and Chairman of Colson Caster Corporation from 2002 to 2012.

Mr. Collens was selected and continues to serve as a director of the Company because of his familiarity with the Company’s business from his prior roles as the Chief Executive Officer and Board Chairman of the Company’s predecessor IITRI, as well as the financial and legal expertise he has developed over his career.

Lawrence A. First is the Chief Investment Officer and Managing Director of ASOF. Mr. First joined the firm in 2008. Prior to joining, Mr. First was a Managing Director and Co-Portfolio Manager in Merrill Lynch’s Principal Credit Group, a proprietary investing platform for the firm’s capital, where he was responsible for evaluating and managing assets in the team’s North American portfolio, including non-investment grade bank loans, stressed/distressed fixed income investments and public and private equity. Prior to joining Merrill Lynch in 2003, Mr. First was a senior partner in the Bankruptcy and Restructuring department of the law firm of Fried, Frank, Harris, Shriver & Jacobson, LLP, where he began his legal career in 1987. At Fried Frank, he represented both debtors and creditors in both in court and out of court restructurings as well as lenders to, investors in, and potential buyers and sellers of, financially troubled companies. Prior to his joining Fried Frank’s Bankruptcy and Restructuring department, he was a member of its Corporate Department, where he became partner in 1994. Mr. First received a BA from Haverford College in History and Sociology, and a JD from New York University School of Law. He also attended the London School of Economics.

Mr. First was selected and continues to serve as a director of the Company because of his extensive experience investing in other companies and serving on the boards of directors of other companies.

Admiral Harold W. Gehman, Jr., USN (Ret.) has served as a director of Alion since September 2002. Admiral Gehman retired from over 35 years of active duty in the U.S. Navy in October 2000. While in the U.S. Navy, Admiral Gehman served as NATO’s Supreme Allied Commander, Atlantic and as the Commander in Chief of the U.S. Joint Forces Command from September 1997 to September 2000. Since his retirement in November 2000, Admiral Gehman has served as an independent consultant to the U.S. government from October 2000 to present. Admiral Gehman has served on the Boards of Directors of Maersk Lines, Ltd. since April 2001, Transystems Corp since January 2002 and Nivisys Corp. from July 2008 to July 2011. He also served on the board of visitors of Old Dominion University. Admiral Gehman is a senior fellow at the National Defense University and was the chairman of the Governor of Virginia’s Advisory Commission for Veterans Affairs. Admiral Gehman served as co-chairman of the Defense Department’s investigation into the October 2000 attack on the U.S.S. Cole in Aden Harbor, Yemen, as chairman of the Space Shuttle Columbia Accident Investigation Board, and as the Commissioner of the 2005 National Base Realignment and Closure Act.

Admiral Gehman was selected and continues to serve as a director of the Company because of his extensive domain expertise developed over the course of his service as a naval officer, as well as his years of leadership in the most senior levels of the U.S. defense establishment.

General Michael V. Hayden, USAF (Ret.) has served as a director of Alion since July 2010. General Hayden retired from 39 years of service in the United States Air Force in July 2008. General Hayden served as Director of the Central Intelligence Agency from May 2006 until February 2009, and as Director of the National Security Agency from 1999 until 2005. He entered active duty in 1969 after earning a bachelor’s degree in history in 1967 and a master’s degree in modern American history in 1969, both from Duquesne University. He is a distinguished graduate of Duquesne’s ROTC program. General Hayden served as Commander of the Air Intelligence Agency and as Director of the Joint Command and Control Warfare Center. He has also served in senior staff positions at the Pentagon, Headquarters U.S. European Command, National Security Council and the U.S. Embassy to the People’s Republic of Bulgaria. General Hayden served as Deputy Chief of Staff, United Nations Command and U.S. Forces Korea, Yongsan Army Garrison, South Korea. He currently serves as a

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Distinguished Visiting Professor at George Mason University School of Public Policy and as a Principal at the Chertoff Group. General Hayden has served on the Board of Directors of Motorola Corporation since January 2011, Accenture Federal Services, LLC since May 2012 and Orbis Operations since July 2012. He served on the Board of Directors of National Interest Security Company from April 2009 to March 2010. General Hayden also serves as a Consultant and Advisory Board Member for Cubic Defense Applications, Computer Sciences Corporation, Draper Labs, Next Century Corporation, Accenture, Orbis Operations, IBM, the Commonwealth Bank of Australia OTOY, the Cipher and Michael Baker Corporation. From 2009 to 2014, General Hayden served as an advisor to Kaseman LLC, Catapult Technology and CSC.

General Hayden was selected and continues to serve as a director of the Company because of his extensive domain expertise developed over the course of his service as an Air Force officer, as well as his years of leadership in the senior-most levels of the U.S. defense and intelligence establishments, having served as director both the Central Intelligence Agency and the National Security Agency.

General George A. Joulwan, USA (Ret.) has served as a director of Alion since May 2002. General Joulwan retired from 36 years of service in the military in September 1997. While in the military, General Joulwan served as Commander in Chief for U.S. Southern Command in Panama from 1990-1993 and served as Commander in Chief of the U.S. European Command and NATO Supreme Allied Command from 1993-1997. From 1998 to 2000, General Joulwan served as an Olin Professor at the U.S. Military Academy at West Point. General Joulwan has also served as an adjunct professor at the National Defense University from 2001 to 2002. Since 1998, General Joulwan has served as President of One Team, Inc., a strategic consulting company. General Joulwan currently serves on the Board of Directors of Accenture Federal Services LLC since 2002, Freedom Group, Inc. since 2007 and Emergent Biosolutions since 2013. He also serves on the boards of several charity and non-profit organizations. General Joulwan has previously served on the Board of Directors for General Dynamics Corporation from 1998-2012, TRS-LLC from 2001-2012, and nGrain (Canada) Corporation from 2004-2011.

General Joulwan was selected and continues to serve as a director of the Company because of his extensive domain expertise developed over the course of his service as an Army officer, as well as his years of leadership in the senior-most levels of the U.S. defense establishment.

General Michael E. Ryan, USAF (Ret.) has served as a director of Alion since May 2002. General Ryan retired from the military in 2001 after 36 years of service. He served his last four years as the 16th Air Force Chief of Staff, responsible for organizing, training and equipping over 700,000 active duty, reserve and civilian members. He is currently president of the consulting firm, Ryan Associates, focusing on national defense issues, a position he has held since January 2001. He is Chairman of the Board of Directors of SELEX Galileo Inc. He has served on the Board of Directors of United Services Automobile Association from November 2002 to August 2014, Circadence Corporation since December 2003, VT Services, Inc. from December 2004 to July 2012, CAE USA from August 2002 to August 2014, SELEX Galileo Inc. since June 2005 and Nivisys Industries LLC from July 2008 to July 2011. He is a senior trustee of the Air Force Academy Falcon Foundation and a director of Air Force Village Charitable Foundation.

General Ryan was selected and continues to serve as a director of the Company because of his extensive domain expertise developed over the course of his service as an Air Force officer, as well as his years of leadership in the senior-most levels of the U.S. defense establishment, including as a Chief of Staff of the Air Force.

There is no known family relationship between any director and executive officer.

Board of Directors

Our business and affairs are managed under the direction of our Board of Directors. Our amended and restated bylaws will provide that our Board of Directors will be such number as may be fixed from time to time by resolution of at least a majority of our Board of Directors then in office. Upon the consummation of this

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offering, our Board of Directors will be composed of directors. Our executive officers and key employees serve at the discretion of our Board of Directors.

Director Independence

Under the applicable rules of the , our Board of Directors must be comprised of a majority of independent directors within one year of the completion of this offering.

Our Board of Directors has affirmatively determined that are independent directors under the applicable rules of the .

Board Committees

Our Board of Directors has the authority to appoint committees to perform certain management and administration functions. Upon the consummation of this offering, our Board of Directors will have three committees: an audit committee, a compensation committee and a nominating and corporate governance committee.

Audit and Finance Committee

The responsibilities of the Audit and Finance Committee are set forth in its charter and will include periodically reviewing and making recommendations to the Board of Directors and management of the Company concerning:

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professional services provided by our independent registered public accounting firm;

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independence of our independent registered public accounting firm from our management;

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policies for hiring employees or former employees of our independent registered public accounting firm;

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our quarterly and annual financial statements, earnings guidance and our system of disclosure control, including internal control over financial reporting;

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our capital structure, including the issuance of equity and debt securities, the incurrence of indebtedness, and related matters;

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general financial planning, including cash flow and working capital management, capital budgeting and expenditures, tax planning and compliance and related matters;

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risk assessment and risk management, including financial and operational risk exposures;

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mergers, acquisitions and strategic transactions;

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related party transactions;

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audit committee charter;

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receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters, and for confidential, anonymous submissions of accounting and auditing concerns by employees;

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investment policies, financial performance and funding of our employee benefit plans; and

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other transactions or financial issues that the Board of Directors or management presents to the committee to review.

Upon the consummation of this offering, will serve on the audit committee. will serve as chairman of the audit committee.

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qualifies as an “audit committee financial expert” as such term has been defined by the U.S. Securities and Exchange Commission, or SEC, in Item 401(h)(2) of Regulation S-K.

Our Board of Directors has affirmatively determined that meet the definition of an independent director for the purposes of serving on the audit committee, and we intend to comply with these independence requirements for all members of the audit committee within the time periods specified therein.

The audit committee will be governed by a charter that complies with the rules of , which will be available on our website prior to the completion of this offering at http://www.alionscience.com. The inclusion of our website address here and elsewhere in this prospectus does not include or incorporate by reference the information on our website into this prospectus.

Compensation Committee

The responsibilities of the Compensation Committee set forth in its charter will include:

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determining the compensation of our Chief Executive Officer and reviewing and approving the employment agreements, severance arrangements, change in control protections and other compensation of our other executive officers;

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exercising all rights, authority and functions under our KSOP, retirement and other compensation plans;

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approving and making recommendations to the Board of Directors regarding non-employee director compensation;

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preparing an annual report on executive compensation for inclusion in our annual proxy statement or report in accordance with the rules and regulations of the Securities and Exchange Commission;

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reviewing the adequacy of the compensation committee charter;

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establishing, implementing and monitoring adherence to the Company’s compensation philosophy; and

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evaluating performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of other companies.

Upon the consummation of this offering, will serve on the compensation committee, and will serve as the chairman.

Our Board of Directors has affirmatively determined that meet the definition of an “independent director” and qualify as outside directors under Section 162(m) of the Code, and we intend to comply with these independence requirements for all members of the compensation committee within the time periods specified therein.

The compensation committee will be governed by a charter that complies with the rules of , which will be available on our website prior to the completion of this offering at http://www.alionscience.com. The inclusion of our website address here and elsewhere in this prospectus does not include or incorporate by reference the information on our website into this prospectus.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee:

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oversees and reviews nominations for our Board of Directors and evaluates and recommends corporate governance policies and procedures;

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is charged with annually assessing the performance of management and the Board of Directors and its committees, including overseeing each committee’s annual self-assessment, including the Nominating and Corporate Governance Committee itself;

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develops and recommends minimum qualifications for service on our Board of Directors;

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reviews annually the independence of non-employee directors and members of committees of our Board of Directors;

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reviews and recommends changes to our code of business conduct and ethics; and

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reviews the adequacy of the Nominating and Corporate Governance Committee charter.

Upon the consummation of this offering, will serve on the nominating and corporate governance, and will serve as the chairman.

Our Board of Directors has affirmatively determined that meet the definition of an “independent director” for the purposes of serving on the nominating and corporate governance committee under applicable rules, and we intend to comply with these independence requirements for all members of the nominating and corporate governance committee within the time periods specified therein.

The nominating and corporate governance committee is governed by a charter that complies with the rules of , which will be available on our website prior to the completion of this offering at http://www.alionscience.com. The inclusion of our website address here and elsewhere in this prospectus does not include or incorporate by reference the information on our website into this prospectus.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves, or in the past year has served, as a member of the Board of Directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our Board of Directors or compensation committee. No interlocking relationship exists between any member of the compensation committee (or other committee performing equivalent functions) and any executive, member of the Board of Directors or member of the compensation committee (or other committee performing equivalent functions) and of any other company.

Code of Ethics

In November 2014, we adopted our revised Code of Ethics that applies to all of our employees and meets the definitional requirements set forth in the rules and regulations of the Securities and Exchange Commission. We provide access to a telephone hotline so our employees can report suspected instances of improper business practices such as fraud, waste, and violations of our Code of Ethics.

A copy of the 2014 Code of Ethics is posted for all of our employees on our internal website and can also be found on our Investor Relations website at http://www.alionscience.com/en/Investor-Relations/Corporate-Governance-Documents. The inclusion of our website address here and elsewhere in this prospectus does not include or incorporate by reference the information on our website into this prospectus. A printed copy without charge can be obtained from our Secretary upon request.

Corporate Governance Guidelines

Our Board of Directors will adopt corporate governance guidelines in accordance with the corporate governance rules of , that serve as a flexible framework within which our Board of Directors and its committees operate. These guidelines will cover a number of areas including the size and composition of the board, board membership criteria and director qualifications, director responsibilities, board agenda, roles of the

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Chairman of the Board, Chief Executive Officer and presiding director, meetings of independent directors, committee responsibilities and assignments, board member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. A copy of our corporate governance guidelines will be posted on our website at: http://www.alionscience.com. The inclusion of our website address here and elsewhere in this prospectus does not include or incorporate by reference the information on our website into this prospectus.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

In accordance with applicable SEC regulations, this Compensation Discussion and Analysis, and the related disclosures that follow, reflect compensation matters related to fiscal year 2014, our most recently completed fiscal year, which ended September 30, 2014.

Objectives of Executive Compensation Program

Our executive compensation program’s primary objective is to attract and retain qualified, energetic employees who are enthusiastic about Alion’s mission and to reward them for their contributions to Alion. Our executive compensation program is designed to create strong financial incentives for our officers to increase revenue, profit, cash flow, operating efficiency and returns, which we expect to lead to increased shareholder value. We strive to promote an ownership mentality in our key leaders and our Board of Directors. We endeavor to ensure that our compensation program is perceived as fundamentally fair to all stakeholders.

The Compensation Committee of the Board of Directors evaluates both performance and compensation to ensure Alion maintains its ability to attract and retain employees in key positions. We seek to compensate key employees at levels that are competitive with what our peer group companies pay similarly situated executives. The Compensation Committee believes Alion’s compensation packages for named executives and other officers should include current cash and long-term incentives to reward performance as measured against established goals.

What We Designed Our Compensation Program to Reward

We believe we designed our compensation program to reward each employee’s contribution to Alion. The Compensation Committee considers numerous factors including the Company’s growth and financial performance in measuring named executive officers’ contributions. We refer to the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during the current fiscal year, along with the other individuals included in the Summary Compensation Table as “named executive officers”.

Roles and Responsibilities for Our Compensation Program

Role of the Compensation Committee

The Compensation Committee is responsible for establishing, implementing and monitoring adherence to Alion’s compensation philosophy and for setting the individual cash and incentive compensation levels for executive officers. The Compensation Committee’s responsibilities are set forth in its charter and discussed in “Management” under the heading “Establishment of Committees”.

Role of the Chief Executive Officer

Our Chief Executive Officer makes recommendations to the Compensation Committee in evaluating Alion’s executive officers, including recommending cash and incentive compensation amounts for these individuals. Dr. Atefi relies on his personal experience as Alion’s Chief Executive Officer in evaluating other executive officers and on comparable compensation guidance provided by an outside compensation consultant. Dr. Atefi was not present during Compensation Committee deliberations and voting pertaining to the determination of his own compensation.

Role of the Compensation Consultant

The Compensation Committee annually retains a consultant to provide independent advice on executive compensation matters and to perform specific project-related work. In 2014, we engaged AON Hewitt to review our named executive officers’ compensation packages and to provide the Compensation Committee with competitive data and analysis. AON Hewitt performed no other services for Alion.

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Elements of the Company’s Executive Compensation Program

Alion’s compensation program includes several major elements. We pay our named executive officers salaries that are competitive and non-discriminatory to attract, retain, and motivate them. We offer an incentive program designed to encourage exceptional employee performance. We offer our named executive officers fringe benefit, employee morale and wellness programs, and a 401(k) salary deferral program designed to attract and retain both executives and employees.

Our compensation program includes several major elements. We pay our named executive officers salaries that are competitive and non-discriminatory to attract, retain, and motivate them. We offer an incentive program designed to encourage exceptional employee performance. As an employee-owned company, we offer our named executive officers the ability to invest in our future through our ESOP. The Alion Science and Technology Corporation Employee Ownership, Savings and Investment Plan, includes an ESOP, which allows employees to own an interest in our stock, and a 401(k) salary deferral component that allows employees to have diversified retirement savings in other investments. ESOP investments are indirect investments in our common stock. 401(k) investments are investments in a variety of mutual funds. We offer fringe benefit and employee morale and wellness programs designed to attract and retain our named executive officers.

Base Salary

Alion pays each named executive officer a base salary for services rendered during the fiscal year. This fixed annual amount for performing specific job responsibilities is the minimum income the named executive officer may receive in any given year. The Compensation Committee determines each Alion executive’s base salary based on job responsibilities and performance, and by comparison to peer level compensation. The Compensation Committee establishes the Chief Executive Officer’s base salary, including periodic changes. It considers the Chief Executive Officer’s recommendations when it determines base salaries and changes, for other named executive officers.

Base salaries for our named executive officers as of September 30, 2014 were:


Named Executive Officer	Fiscal Year 2014 Base Salary
Bahman Atefi	$	750,348
Stacy Mendler	$	440,134
Barry Broadus	$	350,144
Robert Hirt	$	360,168
Roland Riddick	$	320,000

The base salaries set forth above reflect increases of approximately 2.0 - 12.5% for each of the Named Executive Officers, as compared to the base salary levels for fiscal year 2013, in part to reflect the market analysis, as described below. Each year, the Compensation Committee utilizes salary survey information provided by its outside compensation consultant for appropriate salary data for Alion’s senior positions.

In reviewing named executive officer base salaries, the Compensation Committee considers:

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market data from the Company’s outside compensation consultant;

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each executive’s compensation, individually and relative to other officers;

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each executive’s individual performance; and

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Alion’s financial and operating results.

The Compensation Committee and its outside consultant use publicly available data from other professional services government contracting companies to benchmark compensation for Alion’s named executive officers. The benchmark companies include some of the publicly-traded companies Alion uses in its market analyses

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when testing goodwill for potential impairment. The Compensation Committee compares Alion data to median data for the benchmark group when it evaluates named executive officer total compensation and the individual compensation elements. The Compensation Committee evaluates various factors including base salaries, total cash compensation and various types of long term incentive compensation benchmark companies provide their executives when it decides on compensation levels and elements for Alion’s named executive officers. The Compensation Committee sets total compensation levels to be within the range of the peer companies.

For fiscal year 2014, the Compensation Committee reviewed a peer group of companies from the information technology, professional services, and defense and aerospace industries. In its analysis, the Compensation Committee compared current executive compensation levels with selected peer group data and with data from several broader, national compensation surveys current executive compensation levels. The Compensation Committee updated its list of peer group companies fiscal year 2014. The following companies made up the compensation peer group for fiscal year 2014.


CIBER Inc.	Heico Corp.	Maximus Inc.
Cubic Corp.	ICF International, Inc.	NCI, Inc.
Engility Holdings, Inc.	Kratos Defense & Security	SRA International Inc.

The Compensation Committee and its outside consultant used data from industry compensation surveys and proxy statements of peer companies to establish benchmark total compensation ranges (salary, bonus and long term incentive compensation) for each named executive officer. For the Chief Executive Officer and the Chief Financial Officer, the Compensation Committee and its outside consultant gave equal weight to industry compensation survey data and peer group data to establish benchmark compensation ranges. The Compensation Committee and its outside consultant determined benchmark compensation ranges for the Chief Operating Officer based exclusively on industry compensation survey data as the peer group did not include sufficient comparable data for that position. For each sector Senior Vice President, the Compensation Committee and its outside Consultant weighted industry compensation survey data at 75% and peer group data at 25% to establish benchmark compensation ranges. The Compensation Committee then selected the mid-point (50th percentile) of each benchmark compensation range to set the benchmark compensation level for each named executive officer.

Total compensation for the Chief Executive Officer and the Chief Operating Officer exceeded the Compensation Committee’s selected benchmark level by approximately 6%. This reflects the long tenure at our company of Dr. Atefi and Ms. Mendler and recognition of their operating and financial acumen. Total compensation levels for the Chief Financial Officer (Mr. Broadus) and a recently appointed sector Senior Vice President (Mr. Riddick) were 46% less than the Compensation Committee’s selected benchmark level. Total compensation for Mr. Hirt, our other sector Senior Vice President, was 11% less than the Compensation Committee’s selected benchmark level.

Based on its review for fiscal year 2014, the Compensation Committee decided to maintain existing base salaries for all named executive officers for the next fiscal year.

Annual Bonus

We use annual bonuses in our compensation program to motivate and reward our named executive officers for current, short term performance such as meeting annual financial performance goals, and achieving certain milestones and other non-financial performance goals within a given year. The Compensation Committee believes it is important to encourage and reward both short-term and long-term performance. It has the discretion to set goals and objectives it believes are consistent with creating shareholder value, including financial measures, operating objectives, growth goals and other measures. Objectives may be based upon Alion achieving revenue or operating income targets as well as other financial and business objectives. Revenue growth and operating profitability are weighted as the most significant factors. The Compensation Committee evaluates

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achievement of objectives following the end of each year and makes annual bonus awards based on this assessment. The Compensation Committee considers individual achievement and also relies on the Chief Executive Officer’s recommendations with respect to other executive officers.

With respect to fiscal year 2014, bonuses that originally related to fiscal year 2013 but were not earned until fiscal year 2014, as well as bonuses that related to fiscal year 2014 and earned in fiscal year 2014 are included as compensation amounts for fiscal year 2014 in the Summary Compensation Table. In respect of the bonuses originally related to fiscal year 2013, for the named executive officers, the Compensation Committee determined that performance was subject to a further performance condition that the 2014 Refinancing be completed. Since the 2014 Refinancing was not completed in fiscal year 2013, no annual bonuses were earned by the named executive officers during fiscal year 2013.

In the first quarter of fiscal year 2014, the Compensation Committee determined that the named executive officers had substantially satisfied the refinancing-related performance condition precedent to earning bonus amounts related to fiscal year 2013 performance. The Compensation Committee authorized us to pay the named executive officers these bonus amounts in fiscal year 2014, set forth in the Summary Compensation Table.

In respect of the annual bonuses related to fiscal year 2014, the Compensation Committee determines annual bonuses based on a retrospective evaluation of each executive’s performance for the fiscal year and compares its evaluation to the information in the compensation consultant’s report.

The Chief Executive Officer reviews the performance of each of his direct reports with the Compensation Committee and ranks their performance percentile (25th - 50th - 75th) to determine their annual bonuses. The Chief Executive Officer and the Compensation Committee evaluate each executive’s contribution to our year over year overall performance including: revenue growth; operating income performance; contract backlog; new market penetration; DSO; and staff turnover. The Compensation Committee performs a similar review of the Chief Executive Officer’s performance in executive session.

Long-term Incentives/Awards

We use our long-term incentives to motivate, retain and reward our named executive officers for both short-term and sustained performance. The Compensation Committee establishes performance-based award opportunities specific to Alion’s financial performance and the specific core business area and/or corporate department an individual leads.

Long-Term Incentive Plan

We established the Alion Science and Technology Corporation Long-Term Incentive Plan, or LTIP, in November 2008. LTIP grants provides for award opportunities based on achieving predefined individual performance goals set by the Compensation Committee. Our named executive officers and other key employees are eligible to receive LTIP awards. The Board of Directors has adopted separate forms of LTIP award agreements for named and other executive officers. LTIP awards are paid in cash.

We established the LTIP to:

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facilitate recruiting and retaining key employees;

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provide at-risk awards contingent on achieving predetermined performance criteria over an extended period;

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provide a meaningful incentive to achieve long-term growth and improve profitability; and

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provide incentives to selected employees an incentive for excellence in achieving certain Company and business area or departmental goals.

Under the LTIP, our Compensation Committee is responsible for:

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selecting which key employees may participate;

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determining the performance period over which a participant must achieve his or her goals;

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setting each participant’s award opportunities for a given performance period; and

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establishing award vesting conditions.

Following consultation with the Compensation Committee’s outside compensation consultant, we determined Alion needed a non-equity based long-term incentive compensation plan to motivate and appropriately reward named executive officers and other key employees. LTIP compensation costs, subject to various DoD limitations, are allowable indirect expenses which can be reimbursed through government contracts. However, we do not expect to recover all LTIP compensation costs.

Three-year LTIP awards have been granted to named executive officers every year between 2008 and 2013. For fiscal year 2014, a new LTIP was not granted, pending a review of the LTIP program and its connection to the Company’s business goals by the Compensation Committee following the 2014 Refinancing.

Named executive officer LTIP grants issued in 2011 with a $1.85 million aggregate target value vested in 2014. Minimum aggregate grant value was 50% of target value and maximum value was 150% of target value. Detail regarding these grants follows the Summary Compensation Table, below. In fiscal year 2015, the Company paid 2011 LTIP grants at their target value.

In contemplation of the effects of potentially accelerating LTIP grants issued in 2012, the Company and certain named executive officers agreed to modify their 2012 LTIP grant agreements. Certain named executives agreed to waive accelerated vesting in the event of a change in control in exchange for increasing and fixing the amount payable under the 2012 LTIP grants to 110% of the target value. The modified 2012 LTIPs vest in November 2015, if the named executive officer remains employed with the Company as of the vesting date.

Performance goals under LTIP award agreements include, among others, reaching certain company-planned revenue targets; achieving certain levels of Consolidated EBITDA (as determined for our debt covenants); achieving certain levels of reporting unit revenue and operating income; complying with debt covenants; and achieving targeted levels of days’ sales outstanding.

LTIP grants to our named executive officers involve a three-year performance cycle. The Compensation Committee evaluates performance for three-year grants only at the end of each three-year performance cycle. Vesting acceleration can affect the extent to which LTIP grants are subject to performance evaluation.

A recipient may receive anywhere from 50% to 150% of the grant target amount at the end of a performance cycle. The actual award amount depends on whether the individual and the Company achieve performance goals, or substantially under- or over-achieve performance goals. The 50% floor was established in order to foster executive retention, while the 150% ceiling is intended to reward outstanding performance. Subject to evaluation on this percentage-based scale, each earned award vests in full on its vesting date, provided that the named executive officer is still employed with us. The Compensation Committee issued no LTIP awards to named executive officers in fiscal year 2014.

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Stock Appreciation Rights Plan

In January 2005, the Board of Directors adopted the Alion Science and Technology Corporation 2004 Stock Appreciation Rights Plan, or SAR Plan. The Compensation Committee, or the administrative committee as delegated, administers the SAR Plan. The Company amended and restated the SAR Plan in January 2007; amended it in January 2010; and amended and restated the SAR Plan in June 2013. The SAR Plan expires in November 2016. The most recent SAR Plan amendment revises certain change in control provisions. The SAR Plan permits grants to Alion directors, officers, employees and consultants. The SAR Plan permits the Chief Executive Officer to award SARs as he deems appropriate. Awards to executive officers are subject to the approval of the administrative committee of the SAR Plan. There were no SAR awards to named executive officers in 2014 and no named executive officers hold outstanding SARs.

Severance/Change in Control and Provisions in Employment Agreements

We maintain employment agreements with certain named executive officers to help ensure they will perform their roles for an extended period of time. These agreements provide for severance payments if an executive’s employment is terminated under certain conditions, such as following a change of control or a termination “without cause” as defined in the agreements.

Change in Control

As part of our normal course of business, we engage in discussions with other companies about possible collaborations and/or other ways to work together to further our respective long-term objectives. Many larger, established companies consider companies at stages of development similar to ours as potential acquisition targets. In certain circumstances, a potential merger, acquisition or material investment could be in the best interests of our shareholders. We provide severance compensation if an executive’s employment is terminated following a change in control transaction.

Termination without Cause

If we terminate the employment of a named executive officer without cause as defined in his or her employment agreement, we are obligated to continue to pay certain amounts as described below under Other Potential Post-Termination Payments. This provides us with flexibility to make a change in senior management if such a change is in the best interests of Alion and its shareholders.

Health and Welfare Benefits and Other Fringe Benefits

Alion provides all its named executive officers a comprehensive, balanced, and flexible fringe benefit program. Our fringe benefit program’s design plays an important role in attracting new employees and retaining our named executive officers. We review industry-wide fringe benefit packages annually to ensure that Alion’s fringe benefit program continues to provide the best value to our named executive officers. Benefits include medical, prescription drug, vision and dental coverage; life insurance; accidental death and dismemberment insurance, short and long-term disability insurance; business travel accident, kidnap and ransom insurance; an employee assistance program and flexible spending accounts for medical expense reimbursement and child care. Alion provides worker’s compensation insurance and unemployment benefits required by law to all employees, including named executive officers. We purchase worker’s compensation and unemployment insurance. Our benefit plans do not discriminate in favor of our named executive officers. Alion provides the major portion of its fringe benefit program as a core package of standard benefits supplemented by a set of employee-selected optional benefits. All eligible employees, including named executive officers contribute to the cost of certain benefits at the same rates and in the same manner. The Company also provides named executive officers a monthly automobile allowance.

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KSOP

Alion’s KSOP is a qualified retirement plan that includes an ESOP and a 401(k). Through June 2011, Alion made retirement plan contributions to both the ESOP and 401(k) components on behalf of all eligible employee KSOP participants. We currently make all retirement contributions to the ESOP along with matching contributions based on eligible employee pre-tax salary deferrals. Named executive officers do not receive preferential KSOP benefits.

Compensation Risk Assessment

The Compensation Committee believes that the design and mix of our compensation program appropriately encourages our employees to focus on the creation of long-term shareholder value while also serving to attract, retain and motivate needed talent. We believe our approach to setting company and individual goals with target payouts at multiple performance levels encourages a level of risk-taking behavior appropriate for our business. We also believe we have allocated our compensation among base salary, annual cash incentives and long-term incentive compensation in such a way as not to encourage excessive risk-taking. In its discussions, the Compensation Committee noted the following attributes of our compensation program.

•

There is a balance between short- and long-term financial and strategic objectives, intended to reward managers for continuous improvement in revenue and operating income and growth in shareholder value.

•

A significant portion of management compensation is “at risk” and depends on achieving specific company-wide strategic, operational and financial goals, as well as individual performance goals that can be objectively determined. These corporate goals have pre-established minimum, target and stretch performance levels, with individual metrics and overall maximums.

•

The Compensation Committee considers other qualitative matters in determining annual performance payments and achievement of long term incentive goals.

•

In fiscal year 2014, the Compensation Committee did not change named executive officer base salaries for the coming fiscal year, nor did it award any new LTIP grants to named executive officers.

•

Typically, the Compensation Committee issues long term compensation grants to named executive officers that vest over a three year period with performance goals measured only at the end of a three-year period. We believe this encourages our executives to focus on Alion’s long term performance.

Based on this review and currently known facts and circumstances, the Compensation Committee believes Alion’s compensation policies and practices, individually and in the aggregate, do not create known risks that are reasonably likely to materially adversely affect the Company.

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Summary Compensation Table

The following table sets forth all compensation with respect to our Chief Executive Officer and our other named executive officers for the years ended September 30, 2014, 2013, and 2012.


Name and Principal Position	Year		Salary		Bonus		Non-Equity Incentive Plan Compensation		All other		Total
Bahman Atefi		2014	$	776,378	$	1,500,000	$	1,200,000	$	121,934	$	3,598,312
Chief Executive Officer and President		2013	$	771,002		—	$	900,000	$	94,445	$	1,765,447
Chief Executive Officer and President		2012	$	763,929	$	700,000	$	900,000	$	106,612	$	2,470,541

Barry Broadus		2014	$	356,024	$	450,000		—	$	63,187	$	869,211
Senior Vice President and Chief Financial Officer		2013	$	316,716		—		—	$	56,641	$	373,357
Senior Vice President and Chief Financial Officer		2012	$	272,610	$	198,000		—	$	49,842	$	520,452

Stacy Mendler		2014	$	454,200	$	600,000	$	400,000	$	70,753	$	1,524,953
Chief Operating Officer and Executive Vice President		2013	$	445,081		—	$	315,000	$	68,794	$	828,875
Chief Operating Officer and Executive Vice President		2012	$	441,606	$	300,000	$	315,000	$	74,873	$	1,131,479

Robert Hirt		2014	$	370,305	$	440,000	$	200,000	$	66,241	$	1,076,546
Executive Vice President for Technology and Systems Engineering Programs		2013	$	342,997	$	35,000	$	49,583	$	63,328	$	490,908
		2012	$	318,495	$	210,000	$	28,875	$	50,150	$	607,520


Roland Riddick		2014	$	328,889	$	300,000	$	50,000	$	65,911	$	744,800
Executive Vice President for Maritime Programs

Amounts set forth in the Bonus column for fiscal year 2014 include the following discretionary bonuses: (1) for Bahman Atefi, an annual bonus of $750,000 earned and paid in fiscal 2014 and an annual bonus of $750,000 annual earned in fiscal year 2014 and paid in fiscal year 2015; (2) for Barry Broadus, an annual bonus of $225,000 earned and paid in fiscal 2014 and an annual bonus of $225,000 earned in fiscal year 2014 and paid in fiscal year 2015; (3) for Stacy Mendler, an annual bonus of $300,000 earned and paid in fiscal 2014 and an annual bonus of $300,000 earned in fiscal year 2014 and paid in fiscal year 2015; (4) for Robert Hirt, an annual bonus of $220,000 earned and paid in fiscal 2014 and an annual bonus of $220,000 earned in fiscal year 2014 and paid in fiscal year 2015; and (5) for Roland Riddick, an annual bonus of $125,000 earned and paid in fiscal 2014 and an annual bonus of $175,000 earned in fiscal year 2014 and paid in fiscal year 2015. The amounts set forth in the Bonus column for prior fiscal years include annual bonus amounts for each named executive officer, as applicable, as well as certain special discretionary performance bonuses including, for fiscal year 2013, $35,000 for Mr. Hirt, and, for fiscal year 2012, $33,000 for Mr. Broadus and $20,000 for Mr. Hirt.

Amounts reported under the Non-Equity Incentive Plan Compensation column represent Long Term Incentive Plan award amounts earned by or paid to the named executive officers for the three-year performance cycles ending 2014, 2013 and 2012. In 2013, Dr. Atefi, and Ms. Mendler met the conditions of their 2010 Long Term Incentive Plan grants and the Compensation Committee determined the final value of each named Executive Officer’s grant. Mr. Hirt received different category LTIP grants with annual evaluation periods that pre-date his status as a named executive officer. We are reporting LTIP grants earned by Mr. Hirt in the years all performance conditions were satisfied for such grants and amounts became payable. Mr. Hirt’s LTIP grants were not subject to evaluation by the Compensation Committee.

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Other compensation includes: 401(k) matching and profit sharing contributions under Alion’s KSOP; Company contributions for long and short term disability; amounts paid for life insurance premiums; amounts paid or reimbursed with respect to health and welfare including payroll taxes and the supplemental Medicare tax; amounts paid or reimbursed with respect to social club membership; and amounts paid or reimbursed with respect to leased cars.

Detail of All Other Compensation for Fiscal Year 2014, 2013, 2012

Recorded in the Summary Compensation Table


Name and Principal Position	Year		Company Matching Contributions Under Alion’s KSOP		Health and Welfare Benefits		Long and Short Term Disability Paid by the Company
Bahman Atefi		2014	$	16,900	$	66,280	$	4,488
		2013	$	16,575	$	39,266	$	4,416
		2012	$	16,250	$	51,209	$	5,250
Barry Broadus		2014	$	18,717	$	30,183	$	2,057
		2013	$	14,758	$	27,966	$	1,830
		2012	$	20,099	$	26,163	$	2,419
Stacy Mendler		2014	$	16,900	$	37,104	$	2,625
		2013	$	16,575	$	36,576	$	2,553
		2012	$	16,250	$	35,144	$	3,387
Robert Hirt		2014	$	17,427	$	30,894	$	2,140
		2013	$	11,843	$	19,161	$	2,164
		2012	$	15,842	$	18,733	$	2,998
Roland Riddick		2014	$	19,121	$	28,979	$	1,831

Detail of All Other Compensation for Fiscal Year 2014, 2013, 2012

Recorded in the Summary Compensation Table (continued)


Name and Principal Position	Year		Club Membership Fees		Term Life Insurance Paid by the Company		Leased Cars		Total
Bahman Atefi		2014	$	6,130	$	300	$	27,836	$	121,934
		2013	$	6,060	$	300	$	27,828	$	94,445
		2012	$	5,780	$	300	$	27,823	$	106,612
Barry Broadus		2014	$	—	$	206	$	12,024	$	63,187
		2013	$	—	$	183	$	11,904	$	56,641
		2012	$	—	$	158	$	1,002	$	49,842
Stacy Mendler		2014	$	—	$	263	$	13,861	$	70,753
		2013	$	—	$	256	$	12,834	$	68,794
		2012	$	—	$	256	$	19,836	$	74,873
Robert Hirt		2014	$	—	$	214	$	15,566	$	66,241
		2013	$	—	$	202	$	15,564	$	63,328
		2012	$	—	$	188	$	11,751	$	50,150
Roland Riddick		2014	$	—	$	184	$	15,796	$	65,911

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Summary of Prior Year LTIP Award Agreements

In 2011, the Board of Directors issued two separate forms of LTIP award agreements – one for named executive officers and a second for other corporate officers. Granted to encompass the performance period beginning October 1, 2011 and ending September 31, 2014, for Dr. Atefi and Ms. Mendler, the 2011 LTIP awards contain a number of quantitative company financial metrics and qualitative individual performance factors, the achievement of which, in the normal course, determine the level of payment following the end of the performance period. At the end of the period the Compensation Committee determines whether the performance goals for each category have been met and determines in its sole discretion the award amount, subject to a floor of 50% of the participant’s target award amount and a maximum of 150% of the target award amount. The terms of the 2011 LTIP awards also provide a payment of the target bonus award amount in the event of a change in control, as defined in the Long Term Incentive Plan. The quantitative performance goals and targets applicable to the 2011 LTIP awards for Dr. Atefi and Ms. Mendler include: attaining a revenue target for fiscal year 2014 of $914.9 million and consistent growth of revenue over the three year performance period of 5%, achieving a Consolidated EBITDA for fiscal year 2014 calculated in accordance with the relevant debt instrument covenants of $78.1 million, reducing debt to no more than $545 million and reducing the number of days sales outstanding to no more than 74 days by the end of fiscal year 2014. In addition, these awards include certain qualitative factors focused on Company market readiness, compliance considerations, company culture and reputation. In respect of Mr. Hirt and Mr. Riddick, the 2011 LTIP award predated their current job positions and therefore reflect certain differences in structure. For Mr. Hirt, 25% of his target award was based on the same company revenue, growth of revenue and reduction of debt targets as described above and 75% of Mr. Hirt’s award was based on achievement of business sector goals including, sector revenue of $512.5 million, sector operating profit percentage of 6.8%, sector contract backlog of $1,130,000 and number of sector days sales outstanding of no more than 64. For Mr. Riddick, his award was comprised of three annual performance cycles all vesting at the end of the three year period, which as a whole provided for 25% of the award being based on company revenue goals and 75% based on sector goals including revenue, net income, contract backlog and reduction of days sales outstanding. Mr. Hirt’s and Mr. Riddick’s awards include the same minimum, maximum and acceleration provisions as those described above for Mr. Atefi and Ms. Mendler. Reflecting the relevant actual results of the quantitative goals set forth above include attaining, for the company as a whole, a revenue target for fiscal year 2014 of $804.8 million and a slightly negative compound annual revenue growth rate of (0.5)%, achieving a Consolidated EBITDA for fiscal year 2014 calculated in accordance with the relevant debt instrument covenants of $68 million, reducing debt to no more than $628.8 million and a reducing the number “days sales outstanding” to 78 days, and for the sector relevant to Mr. Hirt, sector revenue of $455.6 million, sector operating profit percentage of 6.6%, sector contract backlog of $1,242,115 and sector days’ sales outstanding of 79.

Grants of Plan-Based Awards

There were no grants of plan-based awards to named executive officers in fiscal year 2014.

Deferred Compensation Plans

We maintain two Deferred Compensation Plans. One plan, the Executive Deferred Compensation Plan, covers members of management and other highly compensated officers of the Company. The other plan, the Directors Deferred Compensation Plan, covers members of the Company’s Board of Directors. Neither plan is a qualified plan under the Code.

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Each plan permits an individual to make a qualifying election to forgo current payment and defer a portion of his or her compensation. Officers may defer up to 50% of their annual base salary and up to 100% of bonus and/or stock-based compensation payments. Directors may defer up to 100% of their fees and their stock-based compensation payments.

Each Plan permits an individual to defer payment to a specified future date and to specify whether deferrals are to be paid in a lump sum or installments. Under certain limited circumstances, deferrals may be paid out early or further deferred. Typically, individuals may only make one qualifying deferral election per year.

No named executive officer participated in the Executive Deferred Compensation in fiscal year 2014.

Potential Payments Upon Termination or Change in Control

We have employment agreements with five named executive officers, which provide that if the named executive officer is involuntarily terminated without cause or if the named executive officer is involuntarily terminated or leaves with “good reason” either following or in anticipation of a change in control, he or she will be entitled to receive a lump sum cash payment as set forth in his or her individual agreement. The named executive officers’ employment agreements define “termination for cause”, “good reason” and “change in control” for purposes of determining payments upon termination of employment.

The named executive officer employment agreements provide for salary- and bonus-based severance payments as well as 18 months of company-subsidized health care benefits and a related 40% tax gross up upon an involuntary termination without cause or if the named executive officer is involuntarily terminated or leaves with “good reason” either following or in anticipation of a change in control. In the event of severance related to a change in control, the named executive officers are also eligible for up to $25 thousand in outplacement services from a firm selected and paid by Alion. The Company will provide outplacement services up through December 31 of the second calendar year following the calendar year in which the named executive’s employment terminated.

Generally, the LTIP award agreements provide for accelerated vesting upon death or disability. In addition, under the terms of the LTIP awards, a portion of the award vests if the named executive officer is terminated in the second half of the three-year performance period or if there is a change in the named executive officer’s responsibilities. The outstanding LTIP award agreements also provide, in certain cases, for accelerated vesting in the event of a change in control and, in other cases, for accelerated vesting in the event of an involuntary termination or termination by the named executive officer for “good reason” following a change in control.

In order to receive termination-related payments under their employment agreements, named executive officers must execute a release and agree to non-compete, non-interference and non-solicitation covenants that run the same length of time as their salary-based severance. Named executive officers must also agree to a two-year trade-secret non-disclosure covenant and a non-disparagement covenant that runs the life of their agreement.

The tables below set out the estimated payments and benefits that would be provided to each named executive officer as a result of (a) termination without cause; (b) termination on death or disability; (c) termination for cause, voluntary termination or retirement, (d) a change in control, and (e) termination or change in responsibility following a change in control. The calculations in these tables are based on the assumption that termination and/or change in control occurred on September 30, 2014, the last day of the Company’s most recently completed fiscal year. Amounts in the tables below do not include payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment.

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Potential Termination-Related Payments to Bahman Atefi, Chief Executive Officer


						Unrelated to a Change in Control						Change in Control
Incremental Compensation and Benefit Payment	Applicable Percentage			Base Dollars		Termination without Cause		Death/ Disability		Termination for Cause, Voluntary Termination, Retirement		Termination, Change in Responsibility or Other Good Reason
Salary-based severance		200	%	$	750,348	$	1,500,696		—		—	$	1,500,696
Bonus-based severance		200	%	$	750,000	$	1,500,000		—		—	$	1,500,000
Health care benefits				$	10,504	$	15,756		—		—	$	15,756
Tax Gross Up		40	%			$	6,302		—		—	$	6,302
Outplacement services				$	25,000		—		—		—	$	25,000
LTIP Acceleration							—		—		—		—

Total						$	3,022,754		—		—	$	3,047,754

Potential Termination-Related Payments to Stacy Mendler, Chief Operating Officer


						Unrelated to a Change in Control						Change in Control
Incremental Compensation and Benefit Payment	Applicable Percentage			Base Dollars		Termination without Cause		Death/ Disability		Termination for Cause, Voluntary Termination, Retirement		Termination, Change in Responsibility or Other Good Reason
Salary-based severance		200	%	$	440,134	$	880,268		—		—	$	880,268
Bonus-based severance		200	%	$	300,000	$	600,000		—		—	$	600,000
Health care benefits		—		$	13,813	$	20,720		—		—	$	20,720
Tax Gross Up		40	%	$	—	$	8,288		—		—	$	8,288
Outplacement services		—		$	25,000		—		—		—	$	25,000
LTIP Acceleration							—		—		—		—

Total						$	1,509,276		—		—	$	1,534,276

Potential Termination-Related Payments to Barry Broadus, Chief Financial Officer


						Unrelated to a Change in Control						Change in Control
Incremental Compensation and Benefit Payment	Applicable Percentage			Base Dollars		Termination without Cause		Death/ Disability		Termination for Cause, Voluntary Termination, Retirement		Termination, Change in Responsibility or Other Good Reason
Salary-based severance		200	%	$	350,144	$	700,288		—		—	$	700,288
Bonus-based severance		200	%	$	225,000	$	450,000		—		—	$	450,000
Health care benefits		—		$	13,813	$	20,720		—		—	$	20,720
Tax Gross Up		40	%		—	$	8,288		—		—	$	8,288
Outplacement services		—		$	25,000		—		—		—	$	25,000
LTIP Acceleration							—		—		—		—

Total						$	1,179,296		—		—	$	1,204,296

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Potential Termination-Related Payments to Robert Hirt, Executive Vice President


						Unrelated to a Change in Control						Change in Control
Incremental Compensation and Benefit Payment	Applicable Percentage			Base Dollars		Termination without Cause		Death/ Disability		Termination for Cause, Voluntary Termination, Retirement		Termination, Change in Responsibility or Other Good Reason
Salary-based severance		200	%	$	360,168	$	720,336		—		—	$	720,336
Bonus-based severance		200	%	$	225,000	$	450,000		—		—	$	450,000
Health care benefits		—		$	14,212	$	21,318		—		—	$	21,318
Tax Gross Up		40	%		—	$	8,527		—		—	$	8,527
Outplacement services		—		$	25,000		—		—		—	$	25,000
LTIP Acceleration							—		—		—		—

Total						$	1,200,181		—		—	$	1,225,181

Potential Termination-Related Payments to Roland Riddick, Executive Vice President


						Unrelated to a Change in Control						Change in Control
Incremental Compensation and Benefit Payment	Applicable Percentage			Base Dollars		Termination without Cause		Death/ Disability		Termination for Cause, Voluntary Termination, Retirement		Termination, Change in Responsibility or Other Good Reason
Salary-based severance		200	%	$	320,007	$	640,014		—		—	$	640,014
Bonus-based severance		200	%	$	175,000	$	350,000		—		—	$	350,000
Health care benefits		—		$	14,212	$	21,318		—		—	$	21,318
Tax Gross Up		40	%			$	8,527		—		—	$	8,527
Outplacement services		—		$	25,000	$	—		—		—	$	25,000
LTIP Acceleration						$	—		—		—	$	—

Total						$	1,019,859	$	—	$	—	$	1,044,859

Director Compensation

The following table sets forth certain information regarding the compensation paid to the Company’s non-employee directors for their service during the fiscal year ended September 30, 2014.


Name	Fees earned or paid in cash ($)(1)		All other compensation ($)(2)		Total
Edward C. (Pete) Aldridge, Jr.	$	92,454	$	1,546	$	94,000
Leslie Armitage	$	102,500		—	$	102,500
Lewis Collens	$	92,192	$	3,558	$	95,750
Admiral (Ret.) Harold W. Gehman, Jr.	$	102,000		—	$	102,000
Michael Hayden	$	87,000		—	$	87,000
General (Ret.) George A. Joulwan	$	93,000		—	$	93,000
General (Ret.) Michael E. Ryan	$	92,015	$	2,985	$	95,000
David Vitale	$	79,293	$	5,207	$	84,500

(1)

This column represents the total fees including the annual retainer fee to non-employee directors. Alion employee directors do not receive any additional compensation for service as a member of the Board of Directors. For the year ended September 30, 2014, Alion’s non-employee directors received an annual retainer and compensation of $70,000, payable in quarterly installments. Each director also receives a fee of $2,500 for in-person attendance or $1,000 for telephone attendance at a Board of Directors meeting. The Audit and

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Finance Committee chairperson receives $7,500 per year for each year he or she serves in such capacity. Other board committee chairpersons receive $5,000 per year for each year he or she serves in such capacity. Board committee members receive $1,000 per committee meeting when a committee meeting occurs on other than the day of a Board of Directors meeting. Alion reimburses directors for reasonable travel expenses in connection with attendance at Board of Directors and board committee meetings.

(2)	This column represents amounts paid by Alion for travel expenses to attend Board of Directors and board committee meetings.

(3)	On August 18, 2014, David J. Vitale and Edward C. (Pete) Aldridge, Jr. resigned as members of the Board.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are currently Harold Gehman (Chairman), Leslie Armitage, Daniel Clare, Lewis Collens, Lawrence First and George Joulwan. None of the members during fiscal year 2014 was an Alion officer or employee, formerly an Alion officer, or involved in a related party transaction. Dr. Atefi is the President and Chief Executive Officer of Alion.

During the fiscal year 2014:

(A) No executive officer of the Company served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire Board of Directors) of another entity, one of whose executive officers served on the Compensation Committee of the Company;

(B) No executive officer of the Company served as a director of another entity, one of whose executive officers served on the Compensation Committee of the Company; and

(C) No executive officer of the Company served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire Board of Directors) of another entity, one of whose executive officers served as a director of the Company.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

2014 Warrants

ASOF and Phoenix own warrants to purchase 5,877,687 and 2,439,617 shares of Alion’s common stock, respectively. Together, the warrants give ASOF and Phoenix the right to purchase up to 8,317,304 shares of Alion’s outstanding common stock at an exercise price of $0.0001. See “Description of Capital Stock – 2014 Warrants”. Assuming consummation of the Transactions, we expect all the 2014 Warrants to be exercised immediately prior to consummation of this offering.

Series A Preferred Stock

ASOF owns 55 shares of Alion’s Series A Preferred Stock. Phoenix owns 15 shares of Alion’s Series A Preferred Stock. Together, ASOF and Phoenix own 100% of the outstanding Series A Preferred Stock. See “Description of Capital Stock – Preferred Stock”. Assuming consummation of the Transactions, we expect the Series A Preferred Stock will be eliminated in its entirety immediately prior to consummation of this offering.

Existing Debt Instruments

As of December 31, 2014, ASOF owns $58.0 million of Existing Second Lien Term Loan and $116.0 million of Existing Third Lien Notes, plus $4.2 million in accrued and unissued PIK notes. Phoenix and its affiliates own $15.8 million of Existing Second Lien Term Loans and $58.9 million of Existing Third Lien Notes, plus $2.2 million in accrued and unissued PIK notes. See “Description of Certain Indebtedness”.

Support Agreement

We entered into an Amended and Restated Refinancing Support Agreement, or Support Agreement, with ASOF and Phoenix have dated May 2, 2014, as amended on July 22, 2014. The Support Agreement sets out the framework for the 2014 Refinancing and provides, among other things, that ASOF and Phoenix the right to require Alion to file a shelf resale registration statement within 15 days of the IPO closing covering any shares of common stock underlying the 2014 Warrants issued upon exercise of any such 2014 Warrants, (ii) the Existing Third Lien Notes and (iii) 2010 Warrants. The Support Agreement included an indemnification provision in which we agreed to indemnify ASOF and Phoenix, within limits agreed by the parties, from any breach of any of our representations, warranties or covenants. ASOF and Phoenix agreed to indemnify us, within limits agreed to by the parties, against losses resulting from its breach of any of their representations, warranties or covenants.

Stockholders’ Agreement

Upon closing of the 2014 Refinancing, we entered into a stockholders’ agreement, or Stockholders’ Agreement with the ESOP Trust and, upon exercise, the holders of the 2014 Warrants. The Stockholders’ Agreement imposes certain transfer restrictions upon the transfer of common stock including, (i) transfers resulting in a certain number of record holders; (ii) transfers that would limit, impair or eliminate the Company’s net operating losses; (iii) the Board of the Company determines the transferee is a competitor, customer or supplier of the Company and determines that the transfer would be adverse to the Company; (iv) the transferee does not agree to be bound by the terms of the Stockholders’ Agreement; (v) the transfer would have adverse regulatory consequences on the Company. Such restrictions do not apply in the event that (i) the ESOP Trust transfers 100% of the common stock owned by the ESOP Trust to a person that is not an affiliate of the Company, the ESOP Trustee or the ESOP Trust or (ii) the ESOP Trust transfers any shares of common stock to an employee or former employee of the Company who has a beneficial interest in the ESOP (“ESOP Participant”). The Stockholders’ Agreement also provides stockholders with preemptive rights and a right of first offer. Further, the Stockholders’ Agreement provides that the Company generally renounces corporate opportunities to the fullest extent permitted by law. The Stockholders’

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Agreement states that neither the Company nor the ESOP Trust will amend, supplement, restate or otherwise modify or alter the ESOP or the ESOP Plan Documents unless the amendment, supplement, restatement, modification or alteration (i) is not inconsistent with the terms of certain agreements including the terms of the Stockholders’ Agreement, the Warrant Agreement, the Third-Lien Notes, the First Lien Term Loan, the Revolving Credit Facility, the Second Lien Term Loan and the Certificate of Designation for the Series A Preferred Stock or (ii) is required by applicable law. The Stockholders’ Agreement will terminate upon the consummation of a qualified initial public offering of common stock by the Company that yields gross proceeds of at least $30 million.

ESOP Stock Purchase Agreement

On December 20, 2002, the Company and the ESOP Trustee entered into a stock purchase agreement, or ESOP Stock Purchase Agreement, with the ESOP Trust pursuant to which we issued 2,575,408 shares of our common stock at $10 per share, in exchange for the funds our employees directed to be invested in the ESOP component of the KSOP in the initial one-time ESOP investment election. The ESOP Stock Purchase Agreement was amended in December 2002 in connection with the Company’s elimination of its S-corporation status and in August 2014 in connection with the 2014 Refinancing. As amended, the ESOP Stock Purchase Agreement also imposes certain covenants on us regarding aspects of the maintenance, operation and actions of the KSOP. The ESOP Stock Purchase Agreement included indemnification provisions in which we agreed to indemnify the ESOP Trust, within limits agreed by the parties, against losses from our breach of any of our representations, warranties or covenants. The ESOP Trust agreed to indemnify us, within limits agreed by the parties, against losses resulting from its breach of any of its representations, warranties or covenants.

Fees in connection with the 2014 Refinancing

ASOF and Phoenix were paid fees in connection with the 2014 Refinancing of $6.8 million and $0.3 million, respectively, plus reimbursement of their professional fees.

This Offering, the IPO Refinancing and Related Transactions

A portion of the net proceeds from this offering and debt incurred in the IPO Refinancing will be used to repay or redeem the Existing Second Lien Term Loans and Existing Third Lien Notes owned by ASOF and Phoenix and its affiliates, including accrued interest and prepayment and redemption premiums thereon. See “Use of Proceeds” and “Description of Certain Indebtedness”. In connection with the prepayment of the Existing Second Lien Term Loans, Alion, as borrower, the administrative agent, and ASOF and an affiliate of Phoenix, as lenders, will agree to amend the terms of the Existing Second Lien Term Loans to permit their prepayment prior to date that is 1.5 years after August 18, 2014 at a prepayment premium equal to (together with an amount of cash equal to all accrued and unpaid cash interest on the portion of the Existing Second Lien Term Loan being redeemed through the date of redemption). Prior to the closing of this offering, and assuming the consummation of the Transactions, we expect ASOF and Phoenix, as the holders of at least a majority of the common stock to be received upon exercise of all outstanding 2014 Warrants, to consent to an amendment to the 2014 Warrant Agreement to change the expiration date from August 17, 2024 to the day immediately prior to the closing of this offering, and to provide that any and all outstanding 2014 Warrants will be deemed automatically exercised on such date. As a result, and assuming consummation of the Transactions, we expect all the 2014 Warrants, including those held by ASOF and Phoenix, will be exercised, and additionally, all of the Series A Preferred Stock, all of which is held by ASOF and Phoenix, will be eliminated. In connection with this offering, we also expect to amend the 2014 Warrant Agreement to provide ASOF and Phoenix with customary post-IPO registration rights.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial ownership of our shares of common stock and Series A Preferred Stock as of April , 2015 for: (i) each person or group known by us that beneficially owns more than 5% of our common stock or Series A Preferred Stock, (ii) each director, (iii) each named executive officer, and (iv) all directors and executive officers as a group.

In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and, for each shareholder, includes the shares which such holder has the right to acquire beneficial ownership in respect of within 60 days of April , 2015.

Name of Beneficial Owner

Common stock beneficially owned prior to this offering

Common stock beneficially
owned after this offering(3)

Actual(1)

As adjusted(2)

Number

ASOF II Investments, LLC(4)

Phoenix Investment Adviser, LLC(5)

Alion Science and Technology Corporation Employee Ownership, Savings and Investment Trust(6)

Bahman Atefi(6)

Stacy Mendler(6)

Barry Broadus(6)

Daniel Clare(7)

Lawrence First(7)

All directors and executive officers as a group (13 persons)

*	Less than 1%

(1)	Applicable percentages are based on shares of common stock outstanding as of April , 2015.

(2)

As adjusted data reflects the full exercise of the 2014 Warrants, which is expected to occur immediately prior to consummation of this offering, assuming consummation of the Transactions. Applicable percentages are based on shares of common stock outstanding as of April , 2015, on a diluted basis assuming full exercise of the 2014 Warrants but no exercise of the 2010 Warrants.

(3)	Does not reflect exercise by the underwriters of their option to purchase additional shares.

(4)	The address of ASOF II Investments, LLC is 299 Park Avenue, 34th Floor, New York, New York 10171.

(5)	The address of Phoenix Investment Adviser, LLC is 420 Lexington Ave., Suite 2040 New York, New York 10170.

(6)

The address of the Alion Science and Technology Corporation Employee Ownership, Savings and Investment Trust and all directors, other than Messrs. Clare and First, and named executive officers is 1750 Tysons Boulevard, Suite 1300, McLean, Virginia 22101. No directors (other than Dr. Atefi and Messrs. Clare and First) are beneficial owners of our common stock.

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(7)

The address of Messrs. Clare and First is 299 Park Avenue, 34th Floor New York, NY 10171. Given their responsibilities at the entity which manages ASOF, Messrs. Clare and First may be deemed beneficial owners of the shares of common stock underlying the 2014 Warrants held by ASOF and the Series A Preferred Stock held by ASOF.


Name of Beneficial Owner	Series A Preferred Stock beneficially owned prior to this offering									Series A Preferred Stock beneficially owned after this offering(2)
	Actual(1)					As adjusted(2)
	Number		%			Number		%		Number		%
ASOF II Investments, LLC(3)		55		78.6	%		—		—		—		—

Phoenix Investment Adviser, LLC(4)		15		21.4	%		—		—		—		—

(1)	Prior to consummation of this offering, combined voting power is held by ASOF and Phoenix, as the sole holders of Series A Preferred Stock. The Series A Preferred Stock votes as a class and its vote controls any vote in which holders of our common stock can participate.

(2)	Assuming the consummation of the Transactions, we expect the Series A Preferred Stock will be eliminated in its entirety immediately prior to consummation of this offering.

(3)	The address of ASOF II Investments, LLC is 299 Park Avenue, 34th Floor, New York, New York 10171.

(4)	The address of Phoenix Investment Adviser, LLC is 420 Lexington Ave., Suite 2040, New York, New York 10170.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

IPO Refinancing

Existing Revolving Credit Facility

On August 18, 2014, the Company entered into a credit agreement by and among the Company, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent.

The Existing Revolving Credit Facility limits the amount the Company may borrow under it at any given time. In addition to the overall maximum credit limit of $65 million, the Company may not borrow more than a borrowing base limited to (i) 85% of the Company’s eligible accounts receivable and (ii) the lesser of (a) 70% of the Company’s eligible unbilled accounts or (b) $30 million, subject to reduction for reserves the revolving lenders may take.

The Existing Revolving Credit Facility matures on April 30, 2018 and includes a $10.0 million letter of credit sub facility. The Existing Revolving Credit Facility bears cash interest at a variable rate based on one month LIBOR plus 4.75% per year. The Company will pay minimum interest of no less than $75 thousand per month (exclusive of fees) no matter the amount it has drawn under the Existing Revolving Credit Facility. If the Company were to default, the cash interest rate would increase by 2% per year. If the capacity to borrow under the Existing Revolving Credit Facility does not exceed the outstanding principal balance of outstanding revolving loans by $15.0 million, the administrative agent can block the Company’s ability to access funds in its designated account with the administrative agent’s financial institution and can seize those funds for the account of the lenders under the Existing Revolving Credit Facility.

The borrowings under the Existing Revolving Credit Facility are secured by a first priority lien on substantially all of the Company’s assets, which also secure the First Lien Term Loan on a pari passu basis and the Second Lien Term Loan and Third Lien Notes on a junior basis, subject to the terms of the Intercreditor Agreement. Pursuant to the Intercreditor Agreement, the lenders under the Existing Revolving Credit Facility enjoy certain first-out rights. The subsidiaries guaranteeing the Company’s other indebtedness are guaranteeing the Company’s obligations under the Existing Revolving Credit Facility. Pursuant to the Intercreditor Agreement, holders of the Company’s Existing First Lien Term Loan have certain rights to purchase from the Existing Revolving Credit Facility lenders the revolving credit loans made under the Existing Revolving Credit Facility.

The Existing Revolving Credit Facility contains customary events of default for non payment, breach of covenant, breach of representation and warranty, judgments for the payment of money involving an aggregate amount of $500 thousand or more, insolvency events, failure to pay other obligations exceeding $1.0 million, failure to maintain first priority liens, limitations or termination of guarantees by the Company’s subsidiary guarantors, change of control, certain ERISA events, breaches of the Company’s loan documentation including the Intercreditor Agreement, and the Company’s suspension or debarment, or receipt of notice of suspension or debarment and termination for default under a material government contract.

Term Loan Facilities

Existing First Lien Term Loan

On August 18, 2014, the Company and its guarantor subsidiaries entered into a $285.0 million First Lien Credit and Guaranty Agreement with various lenders and Goldman Sachs Lending Partners LLC as administrative agent which consists of a Tranche A of the Existing First Lien Term Loan and a Tranche B of the Existing First Lien Term Loan.

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The principal amount of the Tranche A of the Existing First Lien Term Loan is $110.0 million and it matures on August 18, 2018. The amortization schedule of the Tranche A of the Existing First Lien Term Loan is $15.0 million in the first year, $25.0 million in the second and third year (payable in each case in equal quarterly installments) and the balance at maturity.

The principal amount of the Tranche B of the Existing First Lien Term Loan is $175.0 million and it matures on August 18, 2019. The amortization schedule of the Tranche B of the Existing First Lien Term Loan is $1.75 million in the first, second, third, fourth years, and until June 30, 2019 (payable in each case in equal quarterly installments) and the balance thereafter at maturity.

The Existing First Lien Term Loan bears interest, payable in cash, at floating rates based on LIBOR plus an applicable margin or, at our election, an alternative base rate plus an applicable margin, plus, if at any time we are in default thereunder, a premium of 2.0% per annum. Additionally, the Existing First Lien Term Loan was issued with upfront fees (which may be OID) to the lenders thereunder. The Existing First Lien Term Loan provides that all consolidated excess cash flow generated by us (minus any repayments of the Existing Second Lien Term Loan made with internally generated cash) will be used to prepay the loans under the Existing First Lien Term Loan. The Company paid a structuring fee to the lenders under the Existing First Lien Term Loan.

Tranche A of the Existing First Lien Term Loan is subject to a prepayment premium equal to the applicable premium listed below, multiplied by the principal amount thereof being prepaid in the event of a refinancing of such Existing Tranche A First Lien Term Loan with a lower yielding indebtedness (or an amendment having effect of lowering the effective yield thereof), together, in each case, with the accrued and interest on the amount being prepaid to the date of repayment:


If redemption date occurs:	Applicable premium
On or prior to August 18, 2015		103.0	%
After August 18, 2015 and on or prior to August 18, 2016		102.0	%
After August 18, 2016 and on or prior to August 18, 2017		101.0	%
After August 18, 2017		100.0	%

Tranche B of the Existing First Lien Term Loan is subject to a prepayment premium equal to the applicable premium listed below, multiplied by the principal amount thereof being prepaid in the event of any voluntary prepayment thereof or mandatory prepayment thereof out of the proceeds of asset sales or incurrence of certain indebtedness, together, in each case, with the accrued and interest on the amount being prepaid to the date of repayment:


If redemption date occurs:	Applicable premium
On or prior to August 18, 2015		105.0	%
After August 18, 2015 and on or prior to August 18, 2016		103.0	%
After August 18, 2016 and on or prior to August 18, 2017		102.0	%
After August 18, 2017 and on or prior to August 18, 2018		101.0	%
After August 18, 2018		100.0	%

Existing Second Lien Term Loan

On August 18, 2014, the Company and the subsidiaries as guarantors entered into a new $70.0 million Second Lien Credit and Guaranty Agreement with ASOF and JLP Credit Opportunity Master Fund Ltd., an affiliate of Phoenix, as lenders, and Wilmington Trust, National Association, as administrative agent. The Existing Second Lien Term Loan matures on February 18, 2020. The net proceeds of the Existing Second Lien Term Loan were used to fund, together with the proceeds from the First Lien Term Loan, the redemption of all of the Company’s then-outstanding Secured Notes.

The Existing Second Lien Term Loan bears interest at a rate per annum of 14.25% per annum, all of which is payable in PIK. Additionally, upon the occurrence and during the continuance of a payment default or an event

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of default (as defined therein), the entire principal amount of the Existing Second Lien Term Loan bears interest at an annual rate equal to the then applicable interest rate plus 2.0%, with such default rate payable in cash on demand. The Existing Second Lien Term Loan was issued with upfront fees (which may be OID) to the lenders, payable pro rata to the lenders thereunder, of 5.5%.

The Existing Second Lien Term Loan may not be prepaid in whole or in part on or before the date that is 1.5 years after August 18, 2014. Thereafter, the Existing Second Lien Term Loan shall be subject to a prepayment premium equal to the applicable premium listed in the table below multiplied by the sum of (x) the then outstanding principal of the portion of the Existing Second Lien Term Loan being redeemed and (y) an amount of cash equal to 100% of the accrued and unpaid PIK Interest on the portion of the Existing Second Lien Term Loan being redeemed through the date of redemption (together with an amount of cash equal to all accrued and unpaid cash interest on the portion of the Existing Second Lien Term Loan being redeemed through the date of redemption):


If redemption date occurs:	Applicable premium
After the date that is 1.5 years after August 18, 2014, and on or before the date that is 2.5 years after August 18, 2014		110.0	%
After the date that is 2.5 years after August 18, 2014, and on or before the date that is 3.5 years after August 18, 2014		105.0	%
After the date that is 3.5 years after August 18, 2014, and on or before the date that is 4.5 years after August 18, 2014		102.5	%
After the date that is 4.5 years after August 18, 2014, up to the maturity date		100.0	%

In connection with the prepayment of the Existing Second Lien Term Loans, Alion, as borrower, the administrative agent, and ASOF and an affiliate of Phoenix, as lenders, will agree to amend the terms of the Existing Second Lien Term Loans to permit their prepayment prior to date that is 1.5 years after August 18, 2014 at a prepayment premium equal to (together with an amount of cash equal to all accrued and unpaid cash interest on the portion of the Existing Second Lien Term Loan being redeemed through the date of redemption).

General Terms of the Term Loans

The Existing First Lien Term Loan and the Existing Second Lien Term Loan are guaranteed by each of the subsidiaries that guarantee the Existing Third Lien Notes and are secured by a first and second priority security interest, respectively, in the collateral securing the Existing Revolving Credit Facility and the Existing Third Lien Notes, which security interest ranks equal, in the case of the Existing First Lien Term Loan, and which security interest is junior, in the case of the Existing Second Lien Term Loan, in priority with those securing the Existing Revolving Credit Facility. The respective security interests in the collateral securing the Existing First Lien Term Loan and the Existing Second Lien Term Loan each rank senior in priority to the security interests securing the Existing Third Lien Notes.

The Existing First Lien Term Loan and the Existing Second Lien Term Loan contain various covenants which limit the Company’s ability to, among other things, incur additional indebtedness; prepay or repurchase junior debt; pay dividends or make other distributions or repurchase or redeem our stock; make investments and acquisitions; sell assets, including capital stock of restricted subsidiaries; enter into agreements restricting our subsidiaries’ ability to pay dividends; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with our affiliates; and incur liens. Additionally, each of the Existing First Lien Term Loan and the Existing Second Lien Term Loan require compliance with a minimum EBITDA covenant. Subject to certain exceptions, the Existing First Lien Term Loan and the Existing Second Lien Term Loan permit the Company and its restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

The Existing First Lien Term Loan and the Existing Second Lien Term Loan (subject to the prior repayment of the Existing First Lien Term Loan) require the Company to prepay outstanding term loans, subject to certain

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exceptions, with (i) 100% of the Company’s annual excess cash flow (as defined in each of the two facilities), (ii) 100% of the net cash proceeds of certain asset sales (each as defined in each of the two facilities) and casualty and condemnation events, subject to reinvestment rights and certain other exceptions and (iii) 100% of the net cash proceeds (as defined in each of the two facilities) of any incurrence of certain debt, other than debt permitted under the Existing First Lien Term Loan and the Existing Second Lien Term Loan.

The Existing First Lien Term Loan and the Existing Second Lien Term Loan each contain a financial covenant requiring the Company to maintain $50.0 million and $45.0 million, respectively, in trailing four fiscal quarter Consolidated EBITDA. Both facilities also cap the amount of capital expenditures the Company may make on a consolidated basis in a fiscal year at $2.5 million under the Existing First Lien Term Loan and $2.75 million under the Existing Second Lien Term Loan.

The Existing First Lien Term Loan and the Existing Second Lien Term Loan include customary representations and warranties, affirmative covenants and events of default (including payment defaults, breach of representations and warranties, covenant defaults, cross defaults to certain indebtedness, certain bankruptcy and insolvency events, material judgments, certain ERISA and ESOP events, change of control, impairment of security interests in collateral, invalidity of guarantees and intercreditor provisions and certain events with respect to material contracts). If an event of default occurs, the lenders under the Existing First Lien Term Loan and the Existing Second Lien Term Loan are entitled to take certain actions, including the acceleration of all amounts due under the Existing First Lien Term Loan and Existing Second Lien Term Loan, respectively, and all actions permitted to be taken by a secured creditor (subject to the terms of the Intercreditor Agreement described below).

Existing Third Lien Notes Indenture

The Company issued $210,986,000 in aggregate principal amount of Existing Third Lien Notes pursuant to an indenture, or Indenture, dated as of August 18, 2014, among the Company, certain subsidiary guarantors of the Company and Wilmington Trust, National Association, as trustee.

Interest on the Existing Third Lien Notes is payable semiannually in arrears on March 1 and September 1 of each year, to holders of record on the immediately preceding February 15 and August 15, respectively. The Existing Third Lien Notes will mature on February 18, 2020. Interest on the Existing Third Lien Notes is payable partially in cash and partially by increasing the principal amount of the outstanding Existing Third Lien Notes or by issuing additional Existing Third Lien Notes, collectively, PIK Interest, and will accrue at the rates set forth in the following table. However, the Company will be required to pay all interest under the Third Lien Notes in PIK Interest for any interest payment date if, prior to such interest payment date, there is an event of default under the Existing First Lien Term Loan or the Existing Second Lien Term Loan, or the Company’s Consolidated EBITDA (as defined in the Indenture) for the most recent four fiscal quarter period ended prior to the determination date is less than $54.0 million. Interest for the six month period ended March 1, 2015 was paid as set forth below.


Dates	Cash Interest			PIK Interest			Total Interest
Issue Date – August 31, 2018		5.5	%		9.75	%		15.25	%
September 1, 2018 – August 31, 2019		5.5	%		10.25	%		15.75	%
September 1, 2019 – February 18, 2020		5.5	%		10.75	%		16.25	%

Upon the occurrence and during the continuance of a payment default or an event of default, the Company will pay interest on demand on the entire outstanding principal amount of the Existing Third Lien Notes in cash at 2% per annum in excess of the above rate and will pay interest on demand on overdue installments of cash interest or PIK Interest at 2% per annum in excess of the above rate to the extent lawful.

The Company is entitled at its option to redeem all or a portion of the Existing Third Lien Notes from time to time upon not less than 30 nor more than 60 days’ notice, at the redemption price equal to the applicable prepayment premium set forth below multiplied by the sum of (x) the then outstanding principal amount of such

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Existing Third Lien Notes being redeemed on the redemption date and (y) an amount of cash equal to 100% of the accrued and unpaid PIK Interest on the Existing Third Lien Notes being redeemed through but excluding the redemption date (together with an amount of cash equal to all accrued and unpaid Cash Interest (as defined in the Indenture) on the Existing Third Lien Notes being redeemed through but excluding the redemption date) (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:


Period	Redemption Price
August 18, 2014 to August 17, 2016		122.000	%
August 18, 2016 to August 17, 2017		120.000	%
August 18, 2017 to August 17, 2018		108.250	%
Thereafter		104.375	%

The Existing Third Lien Notes are guaranteed by certain of Alion’s subsidiaries and are secured by a third priority security interest in certain of Alion’s and its subsidiaries’ assets, which security interest ranks junior in priority with those securing the Existing Credit Agreements. The Indenture contains a financial covenant requiring the Company to maintain Consolidated EBITDA for the trailing four fiscal quarters of at least $40.0 million. The Indenture also includes customary affirmative and negative covenants and events of default. If an event of default occurs, the holders of Third Lien Notes are entitled to take certain actions, including the acceleration of all amounts due under the Third Lien Notes, and all actions permitted to be taken by a secured creditor (subject to the terms of the Intercreditor Agreement as described below).

Intercreditor Agreement

On August 18, 2014, the Company and the subsidiaries entered into an intercreditor agreement (the “Intercreditor Agreement”) with Wilmington Trust, National Association, Wells Fargo Bank, National Association, as administrative agent under the Existing Revolving Credit Facility, Goldman Sachs Lending Partners LLC, as administrative agent for the Existing First Lien Term Loan, Wilmington Trust, National Association, as administrative agent for the Existing Second Lien Term Loan and Wilmington Trust, National Association, as trustee under the Indenture.

The Intercreditor Agreement governs the relative priorities of the respective security interests in the Company’s and the subsidiaries’ assets securing the Existing Revolving Credit Facility, the Existing First Lien Term Loan, the Existing Second Lien Term Loan and the Existing Third Lien Notes and certain other matters relating to the administration of security interests. The Intercreditor Agreement also contains prohibitions on contesting priority of liens established by the Intercreditor Agreement by lenders, restrictions on granting new liens to any of the Existing Revolving Credit Facility, the Existing First Lien Term Loan, the Existing Second Lien Term Loan and the Existing Third Lien Notes without granting the liens of the requisite priority to the other facilities and agreements among the lenders with respect to actions each may take both before and after an insolvency event including certain rights of the lenders to purchase the loans made by other parties to the Intercreditor Agreement that rank senior to the purchaser’s loan.

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DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 29,000,000 shares of capital stock, 24,000,000 shares of which are designated as common stock, par value $0.0001 per share, and 5,000,000 shares of which are designated as preferred stock, par value $0.01 per share. Currently, all of our issued and outstanding common stock is held by the ESOP Trust. As of the date of this prospectus, we had shares of our common stock issued and outstanding and 10.8 million shares of our common stock held in reserve to be issued upon the exercise of the Existing Warrants.

Common Stock

The rights, preferences and privileges of holders of our common stock remain subject to the rights, preferences and privileges of any series of preferred stock or a superior series of common stock which we may issue in the future.

Series. We may issue shares of common stock from time to time in one or more series, each series to have voting power or no voting power as determined by our Board of Directors. Except as otherwise described in this “Description of Capital Stock”, each share of voting common stock and non-voting common stock will have the same powers, rights and privileges, and will rank equally, share ratably and be identical in all respects as to all matters.

Voting Rights. Each share of voting common stock entitles the holder to one vote per share of voting common stock on all matters submitted to a vote of our stockholders. The holders of non-voting common stock will not be entitled to any voting rights except as set forth in the certificate of incorporation or as required by law.

Dividends/Distributions. Subject to the rights of holders of preferred stock, the holders of our common stock are entitled to receive dividends when, as and if declared by our Board of Directors in its discretion out of funds legally available for the payment of dividends. If a dividend is paid in the form of shares of common stock or rights to acquire common stock, or securities convertible into, or exercisable or exchangeable for, common stock, the holders of non-voting common stock will receive non-voting common stock or rights to acquire non-voting common stock or securities convertible into, or exercisable or exchangeable for, non-voting common stock, as applicable. If a dividend or other distribution with respect to the common stock is paid in the form of shares of any class or series of securities of any other corporation or other entity, the holders of non-voting common stock may receive securities that differ solely with respect to their relative voting rights and related differences in conversion provisions so as to preserve the relative voting rights and related difference in conversion provisions of each series of common stock in effect immediately prior to the dividend or other distribution as determined by our Board of Directors. We are currently subject to covenants restricting our ability to pay dividends to holders of our common stock under the terms of the Existing Debt Instruments, and may be subject to similar restrictions in future debt agreements. We do not anticipate paying cash dividends on our common stock for the foreseeable period. See “Risk Factors” and “Dividend Policy”.

Put Right Held by the ESOP. Under certain circumstances, ESOP beneficiaries can require the ESOP Trust to distribute the value of their beneficial interests. The ESOP Trustee can distribute cash or shares of our common stock. Unless our shares are readily tradable on an established securities market, the Code and ERISA require us to offer ESOP participants who receive our common stock a liquidity put right which requires us to purchase distributed shares at fair market value. We expect that following this offering, we will no longer redeem ESOP shares because there will be an established securities market for the public sale of our stock.

Other Rights. In the event of our liquidation or dissolution, after payment of all amounts owed to lenders and other creditors, and subject to the rights of holders of preferred stock, the holders of our common stock will be entitled to a pro rata distribution per share of our remaining assets, if any. The holders of our common stock do not have any preemptive or other subscription rights, and the shares of our outstanding common stock are not subject to further calls or assessment by us. There are no conversion rights or sinking fund provisions applicable to the shares of our common stock.

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Adjustments. If an adjustment in the then outstanding shares of voting common stock will be made through a subdivision or combination of the outstanding shares of voting common stock into a greater or lesser number of shares of voting common stock, then an identical adjustment will at the same time be made to the then outstanding shares of non-voting common stock. We will not make an adjustment in the then outstanding shares of non-voting common stock, through a subdivision or combination of the outstanding shares of non-voting common stock into a greater or lesser number of shares of non-voting common stock, unless we make an identical adjustment at the same time to the then outstanding shares of voting common stock.

Preferred Stock

Our Board of Directors, without further stockholder approval, may issue shares of preferred stock in one or more series and fix the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each series, including dividend rights, dividend rates, conversion rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences, voting rights, and the number of shares constituting any series or designations of the series. The issuance of preferred stock could adversely affect the holders of common stock. The potential issuance of preferred stock may have the effect of discouraging, delaying or preventing a change of control of us, may discourage bids for the common stock at a premium over market price of the common stock, and may adversely affect the market price of the common stock.

As of the date of this prospectus, we have 70 shares of Series A Preferred Stock outstanding, which are the only shares of preferred stock outstanding, which were issued to ASOF and Phoenix as part of the 2014 Refinancing. 55 shares of Series A Preferred Stock are held by ASOF and 15 shares are held by Phoenix.

The Series A Preferred Stock is not redeemable by the Company. The holders of the Series A Preferred Stock have the right to elect up to a majority of the members of our Board of Directors. We refer to each Director elected by the holders of the Series A Preferred Stock as “Series A Directors”. As of the date of this prospectus, there are two Series A Directors serving on our Board of Directors. Each Series A Director has 5 votes on all matters that come before the Board of Directors or any committee or subcommittee thereof, as opposed to one vote for each Director that is not a Series A Director. Each Series A Director serves on every committee of the Board of Directors. If the Series A Directors constitute a majority of the Board of Directors, then a majority of each committee must be Series A Directors. If the Series A Directors do not constitute a majority of the Board of Directors, all Series A Directors must be present at a meeting of the Board of Directors in order to constitute a quorum. If the Series A Directors constitute a majority of the Board of Directors, then a quorum requires that a majority of those present be Series A Directors. The vote of a majority of the Series A Directors present at any meeting is required to approve any action of the Board of Directors.

The holders of the Series A Preferred Stock have consent rights over certain actions to be taken by us and our subsidiaries. With respect to any and all matters on which there is a shareholder vote, the affirmative vote of the majority of the shares of Series A Preferred Stock outstanding is 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:

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a sale of all or substantially all of the Company’s assets or business,

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a liquidation or dissolution of the Company,

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a merger, consolidation, recapitalization, restructuring or reclassification of the Company,

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a change to the size or composition of our Board of Directors as then set forth in our certificate of incorporation or by-laws,

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amendments to our certificate of incorporation, by-laws and other organizational documents, and those of our subsidiaries,

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amendments to the certificate of designations for the Series A Preferred Stock, or

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any matter or action that affects in any way the Series A Preferred Stock.

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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 Series A Preferred Stock is voted as a block, in the manner 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 is permitted in lieu of a vote.

Assuming the consummation of the Transactions, we expect the Series A Preferred Stock will be eliminated in its entirety and the two Series A Directors will continue to serve on the Board of Directors through the remainder of their current terms, which expire on the date of Alion’s 2017 annual shareholder meeting.

Following consummation of the Transactions, our board of directors may issue shares of preferred stock in one or more series as set forth above.

2014 Warrants

The Company issued an aggregate of 306,889 warrants, pursuant to a Warrant Agreement, dated August 18, 2014, with Wilmington Trust, National Association, as warrant agent, or 2014 Warrant Agreement, as part of the 2014 Refinancing. Each 2014 Warrant entitles the holder thereof to purchase 17.6773672 shares of the Company’s common stock at an exercise price of $0.0001 per share. The number of shares of our common stock underlying the 2014 Warrants equals 9,419,371 shares. There were an additional 307,668 shares reserved for issuance upon exercise of the 2010 Warrants as of December 31, 2014. The 2014 Warrants are immediately exercisable and were originally set to expire on August 17, 2024. 2014 Warrant holders have no voting rights.

The 2014 Warrants are subject to certain transfer restrictions. In addition, prior to selling any shares of common stock issuable upon exercise of the 2014 Warrants to a third party, a stockholder must first offer the shares to persons holding 5% or more of common stock, including holders of 2014 Warrants as if all then outstanding 2014 Warrants had been exercised. If these holders decline to purchase all or a portion of the shares, the shares not purchased must be offered to the Company. If the Company declines to purchase all or a portion of the shares, then the selling stockholder may offer the remaining shares for sale to third parties at a price not less than what was offered in connection with this right of first offer.

Subject to certain exceptions, the number of shares of common stock issuable upon exercise of the 2014 Warrants, and the exercise price of the 2014 Warrants, are subject to adjustment, and, subject to certain exceptions, the holders of the 2014 Warrants may receive certain distributions as if they had exercised their 2014 Warrants prior to a transaction record date.

If the Company pays a cash dividend or distribution in respect of shares of its common stock, it is required to pay such dividend or distribution to the holders of any outstanding 2014 Warrants on the same basis as cash dividends or distributions are made to holders of common stock based on the numbers of shares of common stock for which the 2014 Warrants are exercisable as if the 2014 Warrants had been exercised immediately prior to the record date for the dividend or other distribution.

In the event that the Company issues to all holders of its common stock securities as a dividend or distribution, the number of shares which the holder of the 2014 Warrant may subscribe will increase based on the then Current Market Value (as defined in the 2014 Warrant) of the common stock. If the Company reclassifies its common stock or splits its common stock, the holders of any outstanding 2014 Warrants will receive, upon exercise of the 2014 Warrants, shares of common stock based on the number of shares they would have received had they owned shares of common stock prior to the reclassification or split.

If the Company issues shares of common stock, or if the Company issues rights, options or warrants to acquire common stock or securities convertible, exchangeable or exercisable into common stock, the number of shares of common stock that the holder of the 2014 Warrant is entitled to purchase shall increase based on the holder’s pro rata ownership of the Company’s common stock on a fully diluted basis except that if the Company

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issues any common stock, or rights, options or warrants, in accordance with a Qualified Incentive Plan (as defined in the 2014 Warrant) or upon the exercise of other securities issued in accordance with a Qualified Incentive Plan, then no adjustment will be made.

If before March 15, 2017, a Liquidity Event (as defined in the 2014 Warrant) occurs, which includes any public offering of common stock having gross proceeds of not less than $30 million, the number of shares of common stock a holder of a 2014 Warrant may purchase shall increase based on the holder’s pro rata ownership of the Company’s common stock on a fully diluted basis assuming that all additional shares of the Company’s common stock that would have been issuable upon the exercise of the Company’s 2010 Warrants pursuant to anti-dilution adjustment mechanisms in the 2010 Warrants had been issued.

If the Company issues shares of common stock to the ESOP for Company contributions to the ESOP for matching and profit sharing contributions for any fiscal six-month period, or portion of a fiscal six month period, ended before August 18, 2014, or if the ESOP purchases shares of common stock using rollovers, transfers or deferrals for such periods, then the number of shares of common stock that a holder of a 2014 Warrant may purchase shall increase by 40% of the amount of common stock issued in such an event.

The 2014 Warrant Agreement provides that all holders of the 2014 Warrants will be deemed to be bound by the terms of a stockholders’ agreement upon exercise of the 2014 Warrants.

The 2014 Warrant Agreement requires Alion to file a shelf resale registration statement within 15 days of the closing of an initial public offering covering any shares of common stock underlying the 2014 Warrants issued upon exercise of any such 2014 Warrants. In connection with this offering, we expect to amend the 2014 Warrant Agreement to provide ASOF and Phoenix with customary post-IPO registration rights.

Prior to the closing of this offering, and assuming the consummation of the Transactions, we expect the holders of at least a majority of the common stock to be received upon exercise of all outstanding 2014 Warrants to consent to an amendment to the 2014 Warrant Agreement to change the expiration date from August 17, 2024 to the day immediately prior to the closing of this offering, and to provide that any and all outstanding 2014 Warrants will be deemed automatically exercised on such date. Upon the automatic exercise of the 2014 Warrants, the holders of the 2014 Warrants will receive an aggregate of shares of our common stock, in accordance with the terms of the 2014 Warrant Agreement.

2010 Warrants

The Company issued the 2010 Warrants to purchase 602,741 shares of our common stock in connection with the issuance of our Secured Notes, which were repaid in August 2014. The 2010 Warrants have an exercise price of $0.01 per share, are currently exercisable, and expire March 15, 2017. The 2010 Warrants are not redeemable. There were an additional 444,035 shares reserved for issuance upon exercise of the 2014 Warrants as of December 31, 2014. Following consummation of the Transactions, including this offering, and assuming full exercise of the 2014 Warrants, the 2010 Warrants (included those issued in the units described below under “– Units”) would be exercisable for an aggregate of shares of our common stock.

The number of shares of common stock issuable upon exercise of the 2010 Warrants and the exercise price will be subject to adjustment in certain events including:

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the payment by us of certain dividends (or other distributions) on our common stock including dividends or distributions payable in shares of such common stock or other shares of our capital stock;

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subdivisions, combinations and certain reclassifications of the common stock;

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the issuance to all holders of common stock of rights, options or warrants to subscribe for shares of common stock, or of securities convertible into or exchangeable or exercisable for shares of common stock, for a consideration per share which is less than the current market value per share of the common stock;

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the issuance of shares of common stock for a consideration per share which is less than the current market value per share of the common stock other than upon the conversion, exchange or exercise of convertible, exchangeable or exercisable securities of ours outstanding on the date we issued the 2010 Warrants (to the extent in accordance with the terms of such securities as in effect on such date); and

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the distribution to all holders of the common stock of any of our assets, debt securities or any rights or warrants to purchase securities (excluding those rights and warrants referred to in the second preceding bullet point).

No adjustment to the number of shares of common stock issuable upon the exercise of the 2010 Warrants or the exercise price will be required in certain events including:

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the issuance of shares of common stock in bona fide public offerings that are underwritten or in which a placement agent is retained by us;

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the issuance of options or shares of common stock, interests in our common stock and securities convertible into our common stock or whose value is derived or calculated with respect to our common stock to our officers, directors or employees; and

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the issuance of shares of common stock in connection with acquisitions of products and businesses other than to our affiliates.

No adjustment in the exercise price will be required unless such adjustment would require an increase or decrease of at least one percent in the exercise price. However, any adjustment which is not made as a result of this paragraph will be carried forward and taken into account in any subsequent adjustment.

Units

In connection with the 2014 Refinancing, the Company issued 10 units at a price of $600 per unit, for aggregate proceeds of $6 thousand. The units in the aggregate consisted of $10,000 principal amount of Existing Third Lien Notes and ten 2014 Warrants. In addition, ASOF purchased from the Company in a private placement at a unit price of $600 per unit $2,841,000 principal amount of Existing Third Lien Notes and 2,841 2014 Warrants.

Each Unit consists of the following:

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$1,000 principal amount of Existing Third Lien Notes; and

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one immediately exercisable 2014 Warrant to purchase no less than 15.8709660 shares of our common stock at an exercise price of $0.0001 per share.

No Unit certificates were issued. The components of the Units were immediately separable upon issuance, without any action by us or the holder. Participating holders who subscribed for Units received Third Lien Notes and 2014 Warrants, each in book-entry form and represented by one or more global certificates deposited with a custodian for, and registered in the name of a nominee of, DTC. See “Description of Certain Indebtedness – Third Lien Notes” for further information concerning the Third Lien Notes. In addition, see “– Common Stock” for additional information relating to the common stock issuable upon exercise of the 2014 Warrants.

Authorized but Unissued Shares

Delaware law does not require stockholder approval for the issuance of authorized shares. In addition, matching contributions, as well as a portion of our retirement plan contributions, are made by issuing additional shares of our common stock to the ESOP component.

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Delaware Law and Certain Certificate of Incorporation and Bylaw Provisions

Simultaneously with, and contingent upon, the closing of this offering, we intend to amend our certificate of incorporation and bylaws.

Number of Directors; Vacancies; Removal. Our bylaws provide that our board of directors must consist of at least three and not more than 12 members. The authorized number of directors was set in our bylaws and may be changed from time to time by our board of directors. Our board of directors is classified, with respect to the time for which they hold office, into three classes, each with approximately the same number of directors. Each class of directors serves for a term of three years, staggered to ensure that each annual stockholder meeting elects only one of the three classes in any given year. Each class of directors holds office until its respective successors are duly elected and qualified. At each annual meeting of our stockholder(s), the successors of the class of directors whose term expires at that meeting will be elected to hold office for a term expiring at the annual meeting of our stockholder(s) held in the third year following the year of their election. The board of directors is authorized to fill vacancies resulting from resignation or removal of a director by the vote of a majority of directors then in office, even if less than a quorum. New directorships will be filled by a vote of our stockholders. Directors may be removed with or without cause, by the vote, either in person or represented by proxy, of a majority of the shares of stock issued and outstanding and entitled to vote at a special meeting held for that purpose or by the written consent of a majority of the shares of stock issued and outstanding. A description of the composition of our board of directors and the committees of the board is described in “Management.”

For so long as the Series A Preferred Stock is outstanding, the holders of a majority of the Series A Preferred Stock have the right to appoint a majority of the members to our Board of Directors.

Actions Taken by the Board. In order for our Board of Directors to approve an action at a board meeting the presence and affirmative vote of a majority of all of the directors then in office are required. Our Board of Directors can take an action without holding a meeting if it does so by unanimous written consent.

Stockholder Action by Written consent; Special Meetings. Our bylaws provide that our stockholders, if we have more than one, may act by written consent, if the written consent is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted. The ESOP Trustee may take action as the sole stockholder of Alion at the direction of the ESOP committee, unless it determines that the action would be a breach of its fiduciary duties to ESOP participants. Our chairman of the board, chief executive officer, or a majority of the members of our Board of Directors may call a special meeting of the stockholders. In addition, holders of a majority of our outstanding common stock may call a special meeting of the stockholders.

Amendments to the Certificate of Incorporation. The Delaware General Corporation Law allows us to amend our certificate of incorporation at any time to add or change a provision that is required or permitted to be included in the certificate of incorporation or to delete a provision that is not required to be included in the certificate of incorporation. The Board of Directors may amend our certificate of incorporation only with the approval of our stockholder(s).

Amendments to the Bylaws. Our bylaws provide that our Board of Directors has the power to adopt, amend, alter or repeal the bylaws by the vote of at least a majority of the entire Board of Directors then in office, so long as at least ten days advance written notice is given to the Board of Directors, describing the proposed amendment or alteration of the bylaws, or notice is waived.

Indemnification of Directors and Officers. Our bylaws provide that, to the fullest extent permitted by the Delaware General Corporation Law, we will indemnify our directors and officers and any employee who acts as a fiduciary of the ESOP, who was or is a party to any action, suit or proceeding by reason of the fact that the person is or was a director or officer or employee acting as a fiduciary of the ESOP, against any (i) expenses,

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judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with any action, suit or proceeding (other than an action by or in the right of Alion) if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to our best interests or the interests of the ESOP participants, as applicable, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful; and (ii) expenses actually and reasonably incurred by the person in connection with the defense or settlement of any action, suit or proceeding by or in our right if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to our bests interests or in the interests of the ESOP participants, as applicable.

In addition, the bylaws permit us to indemnify other employees and agents of our corporation who are made party to an action, suit or proceeding, by reason of the fact that the person is or was one of our employees or agents. Our bylaws also provide that we may purchase insurance on behalf of any director, officer, employee or agent against any expenses, liabilities and losses, whether or not we would have the authority to indemnify these persons against these expenses, liabilities or losses under the Delaware General Corporation Law. We have purchased this insurance and have binders in place. We believe that these provisions will assist us in attracting and retaining qualified individuals to serve as directors, officers and employees and members of the ESOP committee.

Anti-Takeover Provisions of Delaware Law and the Certificate of Incorporation. Section 203 of the Delaware General Corporation Law provides state regulation over the acquisition of a controlling interest in certain Delaware corporations unless our certificate of incorporation or bylaws provide that the provisions of these sections do not apply. Our certificate of incorporation and bylaws do not state that these provisions do not apply. The Delaware General Corporation Law creates a number of restrictions on the ability of a publicly held Delaware corporation to engage in a “business combination” with an “interested stockholder” for a period of three years after a person becomes an interested stockholder unless an exception to this prohibition is available. “Business combinations” include mergers, asset sales and other transactions resulting in a financial benefit to the “interested stockholder”.

Subject to various exceptions, an “interested stockholder” is a person who, together with his or her affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock based on the percentage of the votes of the voting stock. We have agreed in the ESOP Stock Purchase Agreement that we will take all appropriate and necessary action under Section 203 to ensure that neither the ESOP nor its transferees or their successors or assigns will become an “interested stockholder” or other restricted person under Section 203. We have also agreed in the ESOP Stock Purchase Agreement, that we will refrain from taking any action that would cause Section 203 or any similar statute or regulation from becoming inapplicable to any other transaction, person or entity without the ESOP’s prior written consent. The provisions of Section 203 could limit the ability of others to accomplish mergers, change of control transactions and other transactions, which could discourage others from attempting a takeover of us even if our stockholders might consider the takeover to be in their best interest, including discouraging offers at a premium to the market price for our shares.

Our current certificate of incorporation authorizes the issuance of “blank check” preferred stock that could be issued by our Board of Directors to defend against a takeover attempt. See “– Preferred Stock” above.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been a public market for the common stock, and we cannot predict what effect, if any, market sales of our common stock or the availability of our common stock for sale will have on the market price of the Shares prevailing from time to time. Upon the completion of this offering, we will have outstanding shares of common stock (excluding shares of non-vested restricted stock). The shares sold in this offering plus any additional shares sold upon exercise of the underwriters’ option will be freely tradable without restriction under the Securities Act, unless purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act. In general, affiliates include executive officers, directors and our largest stockholders. Shares of common stock that affiliates purchase will be subject to the resale limitations of Rule 144.

The remaining shares outstanding following this offering are restricted securities within the meaning of Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration such as under Rule 144 promulgated under the Securities Act, which is summarized below.

Our executive officers and directors and certain of our principal stockholders will enter into lock-up agreements in connection with this offering, generally providing that they will not offer, sell, contract to sell, or grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock that they own for a period of 180 days after the date of this prospectus without the prior written consent of the representatives of the underwriters.

Despite possible earlier eligibility for sale under the provisions of Rule 144 under the Securities Act, any shares subject to the lock-up agreements will not be saleable until the lock-up agreements expire or the representatives of the underwriters waive the agreements. Taking into account the lock-up agreements, and assuming that the parties not released from their lock-up agreements, the shares held by our affiliates will be eligible for future sale in accordance with the requirements of Rule 144 upon the expiration of the lock-up agreements.

Rule 144 generally allows a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of us at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.

A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common stock or the average weekly trading volume of our common stock reported through during the four calendar weeks preceding the filing of the notice of the sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock that is being issued pursuant to this offering. This summary is limited to Non-U.S. Holders (as defined below) that hold our common stock as a capital asset (generally, property held for investment) for U.S. federal income tax purposes. This summary does not discuss all of the aspects of U.S. federal income and estate taxation that may be relevant to a Non-U.S. Holder in light of the Non-U.S. Holder’s particular investment or other circumstances. Accordingly, all prospective Non-U.S. Holders should consult their own tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of the ownership and disposition of our common stock.

This summary is based on provisions of the Code, applicable U.S. Treasury regulations and administrative and judicial interpretations, all as in effect or in existence on the date of this prospectus. Subsequent developments in U.S. federal income or estate tax law, including changes in law or differing interpretations, which may be applied retroactively, could alter the U.S. federal income and estate tax consequences of owning and disposing of our common stock as described in this summary. There can be no assurance that the Internal Revenue Service (the “IRS”) will not take a contrary position with respect to one or more of the tax consequences described herein and we have not obtained, nor do we intend to obtain, a ruling from the IRS with respect to the U.S. federal income or estate tax consequences of the ownership or disposition of our common stock.

As used in this summary, the term “Non-U.S. Holder” means a beneficial owner of our common stock that is not,

Large Accelerated Filer

Accelerated filer

Non-accelerated filer

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Smaller reporting company

ALION SCIENCE & TECHNOLOGY CORP S-1