Document:

exv10w58

 

Exhibit
10.58

ALION SCIENCE AND TECHNOLOGY CORPORATION

PHANTOM STOCK PLAN

     The Alion Science and Technology Corporation Phantom Stock Plan (the “Plan”) was
established by Alion Science and Technology Corporation, a Delaware corporation (the
“Company”), effective as of February 11, 2003. This amendment and restatement of the Plan
is effective as of November 9, 2005; provided, however, that any provisions of the Plan required to
bring the Plan into compliance with Code Section 409A shall be effective as of January 1, 2005; and
provided, further, that no provision shall apply to an Award earned and vested on or prior to
December 31, 2004, to the extent that such provision constitutes a material modification of such
Award for purposes of Code Section 409A.

ARTICLE I

PURPOSE

     The purpose of the Plan is to attract and retain key management employees of the Company and
to provide such persons with a proprietary interest in the Company through the granting of phantom
shares of common stock of the Company.

ARTICLE II

DEFINITIONS

     For the purpose of the Plan, unless the context requires otherwise, the following terms shall
have the meanings indicated:

     2.1. “Administrative Committee” means the Compensation Committee of the Board, or such person
or persons as the Compensation Committee shall designate, unless the Board resolves to act itself
as the Administrative Committee.

     2.2. “Affiliate” means any entity, whether now or hereafter existing, which at the time of
reference, controls, is controlled by, or is under common control with, Alion (including, but not
limited to, joint ventures, limited liability companies, and partnerships).

     2.3. “Award” means a grant of Phantom Stock under this Plan.

     2.4. “Board” means the Board of Directors of the Company.

     2.5. “Cause” or “Just Cause” shall have the same meaning as defined in the relevant
Participant’s Employment Agreement.

     2.6. “Change in Control” shall mean and shall be deemed to have occurred as of the date of the
first to occur of the following events:

     (a) any Person or Group acquires stock of the Company that, together with stock held by
such Person or Group, constitutes more than 50% of the total Fair Market Value or total
voting power of the stock of the Company. However, if any Person or

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Group is considered to own more than 50% of the total Fair Market Value or total voting
power of the stock of the Company, the acquisition of additional stock by the same Person or
Group is not considered to cause a Change in Control of the Company. An increase in the
percentage of stock owned by any Person or Group as a result of a transaction in which the
Company acquires its stock in exchange for property will be treated as an acquisition of
stock for purposes of this subsection. This subsection applies only when there is a
transfer of stock of the Company (or issuance of stock of the Company) and stock in the
Company remains outstanding after the transaction;

     (b) any Person or Group acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such Person or Group) ownership of stock of the
Company possessing 35% or more of the total voting power of the stock of the Company;

     (c) a majority of members of the Company’s Board is replaced during any 12-month period
by Directors whose appointment or election is not endorsed by a majority of the members of
the Company’s Board prior to the date of the appointment or election; or

     (d) any Person or Group acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such Person or Group) assets from the Company
that have a total gross fair market value equal to or more than 40% of the total gross fair
market value of all of the assets of the Company immediately prior to such acquisition or
acquisitions. For this purpose, gross fair market value means the value of the assets of
the Company, or the value of the assets being disposed of, determined without regard to any
liabilities associated with such assets. However, no Change in Control shall be deemed to
occur under this subsection (d) as a result of a transfer to:

     (i) A shareholder of the Company (immediately before the asset transfer) in
exchange for or with respect to its stock;

     (ii) An entity, 50% or more of the total value or voting power of which is
owned, directly or indirectly, by the Company;

     (iii) A Person or Group that owns, directly or indirectly, 50% or more of the
total value or voting power of all the outstanding stock of the Company; or

     (iv) An entity, at least 50% of the total value or voting power of which is
owned, directly or indirectly, by a person described in clause (iii) above.

     For these purposes, the term “Person” shall mean an individual, corporation,
association, joint-stock company, business trust or other similar organization, partnership,
limited liability company, joint venture, trust, unincorporated organization or government or
agency, instrumentality or political subdivision thereof. The term “Group” shall have the
meaning set forth in Rule13d-5 of the Securities Exchange Commission (“SEC”), modified to the
extent necessary to comply with Proposed Treasury Regulation Section 1.409A-3(g)(5)(v)(B), or any
successor thereto in effect at the time a determination of whether a Change in Control has occurred
is being made. If any one Person, or Persons acting as a Group, is considered to
effectively control the Corporation as described in subsections (b) or (c) above, the
acquisition of additional control by the same Person or Persons is not considered to cause a Change
in Control.

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     2.7. “Code” means the Internal Revenue Code of 1986, as amended and any successor Code, and
related rules, regulations and interpretations.

     2.8. “Common Stock” means the voting common stock, $0.01 par value per share, of the Company,
subject to adjustments pursuant to the Plan.

     2.9. “Company” means Alion Science and Technology Corporation, a Delaware corporation.

     2.10. “Disability” means that the Participant (a) is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment that can be
expected to result in death or to last for a continuous period of not less than 12 months; (b) is,
by reason of any medically determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period of not less than 12 months,
receiving income replacement benefits for a period of not less than 3 months under an accident and
health plan covering employees of the Company; or (c) has been determined to be totally disabled by
the Social Security Administration..

     2.11. “Employee” shall mean any person who is employed by the Company, is on the Company’s
payroll, and whose wages are subject to withholding under the Federal Insurance Contributions Act,
codified in Code Section 3121 or would be subject to such withholding if paid in the US.

     2.12. “Employer” shall mean the Company and any Affiliate that, with the consent of the
Company, elects to participate in the Plan and any successor entity that adopts the Plan. If any
such entity withdraws, is excluded from participation in the Plan or terminates its participation
in the Plan, such entity shall thereupon cease to be an Employer.

     2.13. “Employment Agreement” shall mean the employment contract specifying the terms of
Participant’s employment with Employer.

     2.14. “Exercise Date” shall mean the date as of which a Participant surrenders Phantom Stock
shares vested on or prior to December 31, 2004.

     2.15. “Fair Market Value” on any given date means the value of one share of Common Stock as
determined by the Administrative Committee in its sole discretion, based upon the most recent
valuation of the Common Stock made by an independent appraisal that meets the requirements of Code
Section 401(a)(28)(C) and the regulations thereunder as of a date that is no more than 12 months
before the relevant transaction to which the valuation is applied.

     2.16. “Grant Date” means the effective date on which an Award is made to a Participant as set
forth in the applicable Phantom Stock Agreement.

     2.17. “Participant” shall mean an Employee of the Company who has an Employment Agreement to
whom an Award is granted under this Plan.

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     2.18. “Phantom Stock Agreement” means the agreement between the Company and the Participant
pursuant to which the Company authorizes an Award hereunder. Each Phantom Stock Agreement entered
into between the Company and a Participant with respect to an Award granted under the Plan shall
incorporate the terms of this Plan and shall contain such terms and conditions, consistent with the
provisions of the Plan, as may be established by the Administrative Committee. Provisions in any
Phantom Stock Agreement relating to matters such as noncompetition, nonsolicitation and protection
of intellectual property are hereby deemed to be consistent with the Plan.

     2.19. “Phantom Stock” means a unit granted to a Participant that entitles the Participant to
receive a payment in cash equal to the Fair Market Value of a share of Common Stock on the date the
Phantom Stock vests.

     2.20. “Plan” means the Alion Science and Technology Corporation Phantom Stock Plan, as amended
from time to time.

     2.21. “Surrender Date” means the date as of which a Participant surrenders Phantom Stock
shares pursuant to Section 7.1 below.

     2.22. “Termination of Employment” means cessation of performance of services for the Company.
For purposes of maintaining a Participant’s continuous status as an Employee and accrual of rights
under any Award granted pursuant to the Plan, transfer of an Employee among Alion and any of its
Affiliates shall not be considered a Termination of Employment with the Company. A Participant
will not be deemed to have incurred a Termination of Employment while he or she is on military
leave, sick leave, or other bona fide leave of absence (such as temporary employment by the
government) if the period of such leave does not exceed six months or such longer period as the
Participant’s right to reemployment with the Company or an Affiliate is provided either by statute
or by contract. If the period of leave exceeds six months and the Participant’s right to
reemployment is not provided either by statute or by contract, the Termination of Employment will
be deemed to occur on the first date immediately following such six-month period. For the
avoidance of doubt, and by way of example only, if a Participant works for a wholly-owned
subsidiary of the Company, then a sale of the subsidiary by the Company would be regarded as a
Termination of Employment of such Participant for purposes of this Plan, notwithstanding the
Participant’s continued employment with that former subsidiary. Whether an Employee of the Company
incurs a termination of employment with the Company will be determined in accordance with the
requirements of Code Section 409A.

     2.23. “Valuation Date” shall mean a date as of which the Fair Market Value of Common Stock of
the Company is determined.

ARTICLE III

ADMINISTRATION

     3.1. General. The Plan shall be administered by the Administrative Committee. The
Administrative Committee shall have the full and final authority, in its discretion, to interpret
conclusively the provisions of the Plan; to adopt such rules for carrying out the Plan as it may
deem advisable; to decide all questions of fact arising in the application of the Plan; and to
make all other determinations necessary or advisable for the administration of the Plan.

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     3.2. Procedure. The Administrative Committee shall meet at such times and places and
upon such notice as it may determine. A majority of the members of the Board or committee serving
as Administrative Committee hereunder shall constitute a quorum. Any acts by the Administrative
Committee may be taken at any meeting at which a quorum is present and shall be by majority vote of
those members entitled to vote. Additionally, any acts reduced to writing or approved in writing
by all of the members of the Board or committee serving as Administrative Committee hereunder shall
be valid acts of the Administrative Committee. Members of the Board or committee who are either
eligible for Awards or have been granted Awards may vote on any matters affecting the
administration of the Plan or the grant of Awards pursuant to the Plan, except that no such member
shall act upon the granting of an Award to himself or herself, but any such member may be counted
in determining the existence of a quorum at any meeting of the Administrative Committee during
which action is taken with respect to the granting of an Award to him or her.

     3.3. Duties. The Administrative Committee shall have full power and authority to
administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and
instruments for the administration of the Plan and for the conduct of its business as the
Administrative Committee deems necessary or advisable, all within the Administrative Committee’s
sole and absolute discretion. The Administrative Committee shall have full power and authority to
take all other actions necessary to carry out the purpose and intent of the Plan, including, but
not limited to, the authority to:

     (a) construe the Plan and any Award under the Plan;

     (b) select the Employees of the Company to whom Awards may be granted and the time or
times at which Awards shall be granted;

     (c) determine the number of shares of Common Stock to be covered by or used for
reference purposes for any Award;

     (d) determine and modify from time to time the terms and conditions, including
restrictions, of any Award and to approve the form of Phantom Stock Agreements;

     (e) impose limitations on Awards, including limitations on transfer provisions;

     (f) modify, extend or renew outstanding Awards, or accept the surrender of outstanding
Awards and substitute new Awards; or

     (g) to prescribe, amend and rescind rules and regulations relating to the Plan,
including rules and regulations relating to sub-plans established for the purpose of
qualifying for preferred tax treatment under foreign tax laws.

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     3.4. Limited Liability. To the maximum extent permitted by law, no member of the Board
or committee serving as Administrative Committee hereunder shall be liable for any action taken or
decision made in good faith relating to the Plan or any Award.

     3.5. Effect of Administrative Committee’s Decision. All actions taken and decisions
and determinations made by the Administrative Committee on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrative Committee’s sole and
absolute discretion and shall be conclusive and binding on all parties concerned, including the
Company, its stockholders, any Participants in the Plan and any other employee of the Company, and
their respective successors in interest.

ARTICLE IV

PARTICIPATION

     Individual Participants in the Plan shall be selected by the Administrative Committee in its
sole discretion from key executive Employees of the Company. Awards may be granted by the
Administrative Committee at any time and from time to time to new Participants, or to existing
Participants, or to a greater or lesser number of Participants, and may include or exclude previous
Participants, as the Plan Administrative Committee shall determine. Except as required by this
Plan, Awards granted at different times need not contain similar provisions.

ARTICLE V

GRANT OF PHANTOM STOCK

     5.1. Shares Subject to the Plan. Subject to adjustments as provided in Article X, the
shares of Common Stock that may be used for reference purposes with respect to Awards granted under
this Plan shall not exceed 2,000,000 shares of Common Stock, reduced by any shares of Common Stock
used for reference purposes with respect to awards issued under the Alion Science and Technology
Corporation Board of Directors Phantom Stock Plan and the Alion Science and Technology Corporation
Performance Shares and Retention Phantom Stock Plan (whether or not such awards have expired,
terminated unexercised, or become unexercisable, or have been forfeited or otherwise terminated,
surrendered or cancelled). No actual shares of Common Stock are reserved hereunder. References to
shares of Common Stock are for accounting and valuation purposes only, and not to grant any voting
or other rights associated with ownership of Common Stock.

     5.2. Grant of Award. Subject to Section 5.3 and other applicable provisions of the
Plan, the Administrative Committee may at any time and from time to time grant Awards of Phantom
Stock to eligible Participants, as it deems appropriate. The grant of an Award shall be authorized
by the Administrative Committee and shall be evidenced by a Phantom Stock Agreement in a form
approved by the Administrative Committee, between the Company and the Participant. Each such
Phantom Stock Agreement shall set forth its Grant Date, the number of shares of Phantom Stock
awarded, and the vesting provisions. Each such Phantom Stock Agreement shall be subject to the
express terms and conditions of this Plan, and shall be subject to such other terms and conditions
that, in the reasonable judgment of the Administrative Committee, are appropriate and not
inconsistent with this Plan.

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     5.3. Disqualified Persons. Notwithstanding the foregoing, no grant of Phantom Stock
may be made to any “Disqualified Person” (within the meaning of Sections 409(p)(4) and
4979A of the Code, as added by the Economic Growth and Tax Relief Reconciliation Act of 2001) for
any period during which the Company maintains the Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Plan or any other employee stock ownership plan as described in
and qualified under Section 4975(e)(7) and 401(a) of the Code, respectively. Any grant of Phantom
Stock made in violation of this provision shall be null and void ab initio. In addition, no grant
of Phantom Stock may be made to any eligible individual if and to the extent that such grant would
cause such individual to become a Disqualified Person.

ARTICLE VI

RIGHT TO PAYMENT

     6.1. Vesting. A Participant shall have no right to exercise or receive payment for
any share of Phantom Stock until it is vested, as described below.

     (a) For Awards granted on or before November 10, 2003, unless otherwise determined by
the Administrative Committee in a Participant’s Phantom Stock Agreement, Awards shall vest
in accordance with the following schedule:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Anniversary from Grant Date	 	Vested Amount	 	 	 	 
	 
	 	3rd	 	 	50	%	 	 	 	 
	 
	 	4th	 	 	25	%	 	 	 	 
	 
	 	5th	 	 	25	%	 	 	 	 

     (b) For Awards granted on or after November 11, 2003, unless otherwise determined by
the Administrative Committee in a Participant’s Phantom Stock Agreement, Awards shall vest
in accordance with the following schedule:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Anniversary from Grant Date	 	Vested Amount	 	 	 	 
	 
	 	1st	 	 	20	%	 	 	 	 
	 
	 	2nd	 	 	20	%	 	 	 	 
	 
	 	3rd	 	 	20	%	 	 	 	 
	 
	 	4th	 	 	20	%	 	 	 	 
	 
	 	5th	 	 	20	%	 	 	 	 

     6.2. Termination and Forfeiture of Awards. If a Participant incurs a Termination of
Employment on or before becoming 100% vested in an Award, he or she shall forfeit any unvested
portion of the Award, except as provided below:

     (a) Voluntary Termination of Employment. If a Participant voluntarily
terminates employment with the Company, then such Participant shall forfeit all rights to
all unvested Awards, unless such termination is for Good Reason, as defined in the
Participant’s Employment Agreement (but for this purpose only, without regard to

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whether the occurrence of one of the events is during the Protected Period, as defined
by the Employment Agreement). If a Participant voluntarily terminates employment with the
Company for Good Reason, then such Participant shall immediately vest in a prorated portion
of his or her unvested Awards issued prior to November 9, 2005, based on a ratio the
numerator of which is the number of months from the Grant Date through the end of the month
of such termination and the denominator of which is sixty (60). For Awards made on or after
November 9, 2005, if a Participant voluntarily terminates employment with the Company for
Good Reason, then such Participant shall immediately vest in a prorated portion of his or
her outstanding Awards equal to the greater of the amount vested under Section 6.1(b) and
the amount determined based on a ratio the numerator of which is the number of months from
the Grant Date through the end of the month of such termination and the denominator of which
is sixty (60),

     (b) Involuntary Termination of Employment Without Cause. If a Participant is
involuntarily terminated from employment with the Company for any reason other than for
Cause or Just Cause, then he or she shall immediately vest in a prorated portion of his or
her unvested Awards issued prior to November 9, 2005, based on a ratio the numerator of
which is the number of months from the Grant Date through the end of the month of such
termination and the denominator of which is sixty (60). For Awards made on or after
November 9, 2005, if a Participant is involuntarily terminated from employment with the
Company for any reason other than for Cause or Just Cause, then such Participant shall
immediately vest in a prorated portion of his or her outstanding Awards equal to the greater
of the amount vested under Section 6.1(b) and the amount determined based on a ratio the
numerator of which is the number of months from the Grant Date through the end of the month
of such termination and the denominator of which is sixty (60).

     (c) Death or Disability. If the Participant’s Termination of Employment is due
to death or Disability, any outstanding Awards at the time of such Termination of Employment
shall immediately become 100% vested.

     (d) Change in Control. If the Participant incurs a Termination of Employment
for any reason on or after a Change in Control, any Awards granted prior to such Change in
Control that are outstanding at the time of such Termination of Employment shall immediately
become 100% vested.

     (e) Disqualified Persons. If Participant is or becomes a Disqualified Person
as described in Section 5.3 above, then the full amount of any then outstanding Award that
has not yet vested shall be forfeited; and no amount of an Award shall become vested, if, as
a result of such vesting, the Participant would become a Disqualified Person.

ARTICLE VII

PAYMENT OF PHANTOM STOCK BENEFITS

     7.1. Exercise of Awards Vested on or before December 31, 2004. A Participant may
elect to exercise any shares of Phantom Stock granted and vested on or before December 31, 2004, by
filing a written election to exercise with the Administrative Committee at least six

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(6) months in advance of the Exercise Date and at least three (3) months in advance of the
Valuation Date that will apply to such Exercise Date; provided, however, that the Phantom Stock
that becomes vested on November 12, 2004 may be exercised as of November 12, 2004, based upon an
election by the Participant filed no later than August 2, 2004. Notwithstanding the foregoing, the
Exercise Date of vested shares of Phantom Stock shall not be earlier than the date the Phantom
Stock becomes vested nor later than the earliest of (1) the date of the occurrence of a termination
event described in Section 6.2 or any other Termination of Employment of the Participant; (2) the
date of a Change in Control; or (3) the fifth (5th) anniversary of the Grant Date of the
Phantom Stock. An election to exercise Phantom Stock shall be made in such form and at such time
as the Administrative Committee deems acceptable.

     7.2. Payment of Awards Granted before November 9, 2005, and Vesting on or after January 1,
2005. A Participant granted Phantom Stock under this Plan before November 9, 2005, but not
vesting until on or after January 1, 2005, shall be entitled to a cash payment on the Surrender
Date, which shall be the earlier of (i) the date on which the Participant becomes fully vested in
the Award, or (ii) the date of the Participant’s Termination of Employment. Notwithstanding the
foregoing, (a) the Surrender Date of a vested Award may be accelerated, with the consent of the
Administrative Committee, under the circumstances set forth in Section 7.3(a) through (d); and (b)
a Participant may elect, in accordance with Internal Revenue Service Notice 2005-1, Q-20(a), to
receive payment of any Awards granted before November 9, 2005, and vesting on or after January 1,
2005, calendar year 2005 or, if later, the taxable year in which the amounts are earned and vested.
Any such election shall be made in a form acceptable to the Administrative Committee and filed
with the Administrative Committee no later than December 31, 2005.

     7.3. Payment of Awards Granted on or after November 9, 2005. The Administrative
Committee may, in its discretion, permit a Participant to elect whether the Surrender Date with
respect to an Award granted on or after November 9, 2005 shall occur (a) with respect to any
portion of an Award which has become vested under Section 6.1(b), the date on which such portion of
the Award becomes vested; or (b) the date on which the entire amount of the Award becomes 100%
vested or, if earlier, upon the Participant’s Termination of Employment. Any such election shall
be made in a writing acceptable to the Administrative Committee and filed with the Administrative
Committee prior to the Award Grant Date; provided, however, that in the case of a new Participant,
such election shall be made within 30 days after the Participant becomes eligible to participate in
the Plan. If the Administrative Committee does not permit an election under this provision, or if
a Participant fails to make a timely election to the contrary hereunder, the Participant shall be
deemed to have elected the Surrender Date described in clause (b) above. Notwithstanding the
foregoing, the Surrender Date of a vested Award may be accelerated, with the consent of the
Administrative Committee, under the following circumstances:

     (a) Compliance with Domestic Relations Order: To permit payment to an
individual other than the Participant as necessary to comply with the provisions of a
domestic relations order (as defined in Code Section 414(p)(1)(B));

     (b) Conflicts of Interest: To permit payment as necessary to comply with the
provisions of a certificate of divestiture (as defined in Code Section 1043(b)(2));

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     (c) Payment of Employment Taxes: To permit payment of federal employment taxes
under Code Sections 3101, 3121(a) or 3121(v)(2), or to comply with any federal tax
withholding provisions or corresponding withholding provisions of applicable state, local,
or foreign tax laws as a result of the payment of federal employment taxes, and to pay the
additional income tax at source on wages attributable to the pyramiding Code Section 3401
wages and taxes; or

     (d) Tax Event: Upon a good faith, reasonable determination by the Company,
upon advice of counsel, that the Plan or an Award fails to meet the requirements of Code
Section 409A and regulations thereunder. Such payment may not exceed the amount required to
be included in income as a result of the failure to comply with the requirements of Code
Section 409A.

     7.4. Amount and Timing of Payment. A Participant shall be entitled to a cash payment
upon exercise or surrender (as applicable) of an Award equal to the number of vested units of
Phantom Stock subject to surrender, multiplied by the Fair Market Value as of the Valuation Date
coincident with or immediately preceding the Surrender Date; provided, however, that, in the case
of an Award outstanding on the date of a Change in Control, the Fair Market Value of such Phantom
Stock units shall be determined based upon the Fair Market Value of Common Stock as of the
Valuation Date coincident with or immediately preceding the Surrender Date, or the Valuation Date
coincident with or immediately preceding the date of the Change in Control, whichever produces the
higher Fair Market Value.

     7.5. Time of Payment. Except as provided in Section 7.6, the Company shall make
payment of the amount receivable upon the exercise of an Award by the delivery of cash in a lump
sum within sixty days after the Exercise Date of an Award described in Section 7.1, or as soon as
practicable after the Surrender Date of an Award described in Section 7.2 or 7.3, as applicable,
but in any event within 21/2 months after the end of the Plan Year in which the Surrender Date
occurs. Notwithstanding the foregoing, payment under this Section 7.5 may be delayed (without
imputation of earnings, interest or other gains or losses after the Surrender Date) solely to the
extent necessary under the following circumstances, provided that payment is made as soon as
possible after the reason for delay no longer applies:

     (a) Unforeseeable Administrative or Financial Cause. The Compensation
Committee reasonably determines that (1) it is administratively impracticable to make
payment by the end of the applicable 21/2 month period or that making such payment will
jeopardize the solvency of the Company, and (2) such impracticability or insolvency was
unforeseeable as of the Grant Date.

     (b) Payments Subject to Section 162(m). The Company reasonably anticipates
that its deduction with respect to such payment would otherwise be limited or eliminated by
application of Code Section 162(m).

     (c) Payments that Would Violate Loan Covenant or Similar Contractual
Requirement. The Company reasonably anticipates that making the payment will violate a
term of a loan agreement to which the Company is a party, including any ESOP loan
agreement, or other similar contract to which the Company is a party, and such
violation will cause material harm to the Company.

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     (d) Payments that Would Violate Law. The Company reasonably determines that
payment would violate Federal securities laws or other applicable law.

     7.6. Election to Defer Benefits. If a Participant has elected as the Exercise Date
for Phantom Stock granted and vested on or before December 31, 2004, the fifth (5th)
anniversary of the Grant Date of such Phantom Stock, and the Participant is also a participant in
the Alion Science and Technology Corporation Executive Deferred Compensation Plan (the
“Deferred Compensation Plan”), he or she may elect, at least 180 days prior to such
Exercise Date, to defer receipt of all or a portion of the Plan benefit through a contribution to
the Deferred Compensation Plan equal to the amount that would otherwise have been payable under
Section 7.2. If a Participant has elected, or is deemed to have elected, as the Surrender Date of
an Award under Section 7.2 or 7.3 the date on which the entire amount of the Award becomes 100%
vested, then the Participant may elect to have the amount of payment for such Award that would
otherwise be made upon the Surrender Date deferred into the Deferred Compensation Plan,
provided that he or she has not incurred a Termination of Employment and is then (or is then
eligible to become) a participant in the Deferred Compensation Plan. Any such election shall be
made in a writing acceptable to the Administrative Committee and filed with the Administrative
Committee at least one year prior to the Surrender Date. Such election shall become effective upon
the Surrender Date and shall specify a time for payment and method of distribution available under
the Deferred Compensation Plan, provided that such election may not provide for a time of
distribution (other than as a result of Termination of Employment, death or Disability) earlier
than five years after the Surrender Date.

     7.7. Discharge. Any payment made by the Company in good faith in accordance with the
provisions of this Plan and a Participant’s Phantom Stock Agreement shall fully discharge the
Company from all further obligations with respect to such payment and the Phantom Stock Agreement.

     7.8. Compliance with Code Section 409A. No payment shall be made in violation of
Section 409A or any other applicable provisions of the Code and the rules and regulations
thereunder.

     7.9. Withholding. The Company shall have the right to deduct from all amounts paid
pursuant to the Plan any Federal, State or local income tax, social security contribution or other
payroll taxes required by law, whether domestic or foreign, to be withheld with respect to such
payments. The Company shall also have the right to deduct FICA contributions required at vesting.

ARTICLE VIII

AMENDMENT AND TERMINATION

     8.1. Amendment. The Board may amend the Plan at any time and from time to time,
provided that (a) no amendment shall deprive any person of any rights granted under the Plan before
the effective date of such amendment without such person’s consent; and (b) amendments

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may be subject to shareholder approval to the extent needed to comply with applicable law.
Notwithstanding the foregoing, the Board may unilaterally amend the Plan or any outstanding Award
subject to Section 409A as necessary to cause the Plan or such Award to comply with Code Section
409A.

     8.2. Termination. The Board reserves the right to terminate the Plan in whole or in
part at any time, without the consent of any person granted any rights under the Plan. Termination
of the Plan shall not affect the Administrative Committee’s ability to exercise the powers granted
to it hereunder with respect to Awards granted under the Plan prior to the date of such
termination. Notwithstanding the foregoing, termination of the Plan shall not result in the
acceleration of payment of any Award except as permitted by the Administrative Committee and
consistent with the requirements of Code Section 409A.

ARTICLE IX

TERM

     The Plan shall be effective from the date that this Plan is approved by the Board. Unless
sooner terminated by action of the Board, the Plan will terminate on February 11, 2013, but Awards
granted before this termination date will continue to be effective in accordance with their terms
and conditions.

ARTICLE X

TRANSACTIONS

     10.1. Adjustment of Number and Price of Shares. Any other provision of the Plan
notwithstanding, if through, or as a result of, any merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar transaction, the outstanding
shares of Common Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or different shares or
other securities of the Company or other non-cash assets are distributed with respect to such
shares of Common Stock or other securities, the Administrative Committee shall make an appropriate
or proportionate adjustment in the Awards as it deems appropriate, in its sole discretion. The
adjustment by the Administrative Committee shall be final, binding and conclusive.

     10.2. Adjustments Due to Special Circumstances. The Administrative Committee is
authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events affecting the Company, or the financial statements
of the Company, or of changes in applicable laws, regulations, or accounting principles, whenever
the Administrative Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be made available under
the Plan.

     10.3. Compliance with Code Section 409A. Notwithstanding the foregoing, the
Administrative Committee shall not make an adjustment under this Article X which results in a
violation of Code Section 409A.

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ARTICLE XI

MISCELLANEOUS PROVISIONS

     11.1. No Guarantee of Employment. Neither the Plan nor any Award granted under the
Plan shall confer upon any Participant any right with respect to continuance of employment by the
Company. Participation in this Plan shall not be construed to confer upon any Participant the
legal right to be retained in the employ of the Company or give any person any right to any payment
whatsoever, except to the extent of the benefits provided for hereunder. Each Participant shall
remain subject to discharge to the same extent as if this Plan had never been adopted. Nothing in
this Plan shall prevent, interfere with or limit in any way the right of the Company to terminate a
Participant’s employment at any time, whether or not such termination would result in: (a) the
failure of any Award to vest; (b) the forfeiture of any unvested or vested portion of any Award
under the Plan; and/or (c) any other adverse effect on the Participant’s interests under the Plan.

     11.2. No Rights as a Shareholder. A Participant shall not have any rights as a
shareholder with respect to any shares of Phantom Stock.

     11.3. Indemnification of Board and Plan Administrative Committee. No member of the
Board or the Administrative Committee, nor any officer or Employee of the Company acting on behalf
of the Board or the Administrative Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Administrative Committee and each and any officer or Employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination, or interpretation.

     11.4. Effect of the Plan. Neither the adoption of this Plan nor any action of the
Board or the Administrative Committee shall be deemed to give any person any right to be granted an
Award or any other rights except as may be evidenced by a Phantom Stock Agreement, or any amendment
thereto, duly authorized by the Administrative Committee and executed on behalf of the Company, and
then only to the extent and upon the terms and conditions expressly set forth therein.

     11.5. Non-Assignability. Phantom Stock granted to a Participant may not be
transferred or assigned other than by will or by the laws of descent and distribution. If the
Participant attempts to alienate, assign, pledge, hypothecate, or otherwise dispose of his Phantom
Stock or any right thereunder, except as provided for in this Plan or the Phantom Stock Agreement,
or in the event of any levy, attachment, execution, or similar process upon the right or interest
conferred by this Plan or the Phantom Stock Agreement, the Administrative Committee may terminate
the Participant’s Phantom Stock by notice to him, and it shall thereupon become null and void.

     11.6. Restrictive Legends. The Company may at any time place legends referencing any
restrictions described in the Phantom Stock Agreement and any applicable federal or state
securities law restrictions on all Awards.

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     11.7. Company Charter and Bylaws. This Plan is subject to the charter and by-laws of
the Company, as they may be amended from time to time.

     11.8. No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary relationship between the
Company and a Participant or any other person. To the extent that any Participant or other person
acquires a right to receive payments from the Company pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company; however, in the event of
commencement of a voluntary or involuntary case of bankruptcy against or by the Company, all vested
and unvested Awards made hereunder shall be canceled and void.

     11.9. Governing Law. All questions arising with respect to this Plan and any Phantom
Stock Agreement executed hereunder shall be determined by reference to the laws of the State of
Delaware in effect at the time of their adoption and execution, respectively, without implementing
its laws regarding choice of law.

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed as of November
9, 2005, and certifies that the foregoing Plan was duly adopted by the Board of the Company on that
date.

     Alion Science and Technology Corporation

	 	 	 	 	 
	 	 	 
	 	By:  	                                      /s/ Bahman Atefi
 	 
	 	 	Chief Executive Officer 	 
	 	 	 	 
	 

	 	 	 	 	 
	Attest:

	 	/s/ Jim Fontana
	 	 
	 

	 	 	 	 
	Secretary
	 	 	 	 

-14-exv10w59

 

Exhibit 10.59

ALION SCIENCE AND TECHNOLOGY CORPORATION

PERFORMANCE SHARES AND RETENTION PHANTOM STOCK PLAN

     The Alion Science and Technology Corporation Performance Shares and Retention Phantom Stock
Plan (the “Plan”) is hereby established by Alion Science and Technology Corporation, a
Delaware corporation (the “Company”), effective as of January 24, 2005. This amendment and
restatement of the Plan is effective as of November 9, 2005; provided, however, that any provisions
of the Plan required to bring the Plan into compliance with Code Section 409A shall be effective as
of January 24, 2005.

ARTICLE I

PURPOSE

     The purpose of the Plan is to attract and retain key management employees of the Company and
to provide such persons with a proprietary interest in the Company and an incentive to increase
shareholder value through the granting of phantom shares of common stock of the Company, based on
the appreciation of the per share price of Alion Common Stock over a given period of time.

ARTICLE II

DEFINITIONS

     For the purpose of the Plan, unless the context requires otherwise, the following terms shall
have the meanings indicated:

     2.1. “Administrative Committee” means the Compensation Committee of the Board, or such person
or persons as the Compensation Committee shall designate, unless the Board resolves to act itself
as the Administrative Committee.

     2.2. “Affiliate” means any entity, whether now or hereafter existing, which at the time of
reference, controls, is controlled by, or is under common control with, Alion (including, but not
limited to, subsidiaries, joint ventures, limited liability companies, and partnerships).

     2.3. “Award” means a grant of the opportunity to receive Performance Share Phantom Stock or
Retention Phantom Stock under this Plan.

     2.4. “Board” means the Board of Directors of the Company.

     2.5. “Cause” or “Just Cause” shall have the same meaning as defined in the relevant
Participant’s Employment Agreement.

     2.6. “Change in Control” shall mean and shall be deemed to have occurred as of the date of the
first to occur of the following events:

     (a) any Person or Group acquires stock of the Company that, together with stock held by
such Person or Group, constitutes more than 50% of the total Fair Market

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Value or total voting power of the stock of the Company. However, if any Person or
Group is considered to own more than 50% of the total Fair Market Value or total voting
power of the stock of the Company, the acquisition of additional stock by the same Person or
Group is not considered to cause a Change in Control of the Company. An increase in the
percentage of stock owned by any Person or Group as a result of a transaction in which the
Company acquires its stock in exchange for property will be treated as an acquisition of
stock for purposes of this subsection. This subsection applies only when there is a
transfer of stock of the Company (or issuance of stock of the Company) and stock in the
Company remains outstanding after the transaction;

     (b) any Person or Group acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such Person or Group) ownership of stock of the
Company possessing 35% or more of the total voting power of the stock of the Company;

     (c) a majority of members of the Company’s Board is replaced during any 12-month period
by Directors whose appointment or election is not endorsed by a majority of the members of
the Company’s Board prior to the date of the appointment or election; or

     (d) any Person or Group acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such Person or Group) assets from the Company
that have a total gross fair market value equal to or more than 40% of the total gross fair
market value of all of the assets of the Company immediately prior to such acquisition or
acquisitions. For this purpose, gross fair market value means the value of the assets of
the Company, or the value of the assets being disposed of, determined without regard to any
liabilities associated with such assets. However, no Change in Control shall be deemed to
occur under this subsection (d) as a result of a transfer to:

     (i) A shareholder of the Company (immediately before the asset transfer) in
exchange for or with respect to its stock;

     (ii) An entity, 50% or more of the total value or voting power of which is
owned, directly or indirectly, by the Company;

     (iii) A Person or Group that owns, directly or indirectly, 50% or more of the
total value or voting power of all the outstanding stock of the Company; or

     (iv) An entity, at least 50% of the total value or voting power of which is
owned, directly or indirectly, by a person described in clause (iii) above.

     For these purposes, the term “Person” shall mean an individual, corporation,
association, joint-stock company, business trust or other similar organization, partnership,
limited liability company, joint venture, trust, unincorporated organization or government or
agency, instrumentality or political subdivision thereof. The term “Group” shall have the
meaning set forth in Rule13d-5 of the Securities Exchange Commission (“SEC”), modified to the
extent necessary to comply with Proposed Treasury Regulation Section 1.409A-3(g)(5)(v)(B), or any

- 2 -

 

successor thereto in effect at the time a determination of whether a Change in Control has
occurred is being made. If any one Person, or Persons acting as a Group, is considered to
effectively control the Corporation as described in subsections (b) or (c) above, the acquisition
of additional control by the same Person or Persons is not considered to cause a Change in Control.

     2.7. “Code” means the Internal Revenue Code of 1986, as amended and any successor Code, and
related rules, regulations and interpretations.

     2.8. “Common Stock” means the voting common stock, $0.01 par value per share, of the Company,
subject to adjustments pursuant to the Plan.

     2.9. “Company” means Alion Science and Technology Corporation, a Delaware corporation.

     2.10. “Disability” means that the Participant (a) is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months; (b) is, by reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months, receiving income replacement benefits for a period of not less than 3 months under an
accident and health plan covering employees of the Company; or (c) has been determined to be
totally disabled by the Social Security Administration.

     2.11. “Employee” shall mean any person who is employed by the Company, is on the Company’s
payroll, and whose wages are subject to withholding under the Federal Insurance Contributions Act,
codified in Code Section 3121.

     2.12. “Employer” shall mean the Company and any successor entity that adopts the Plan.

     2.13. “Employment Agreement” shall mean the employment contract specifying the terms of
Participant’s employment with Employer.

     2.14. “Fair Market Value” on any given date means the value of one share of Common Stock as
determined by the Administrative Committee in its sole discretion, based upon the most recent
valuation of the Common Stock made by an independent appraisal that meets the requirements of Code
Section 401(a)(28)(C) and the regulations thereunder as of a date that is no more than 12 months
before the relevant transaction to which the valuation is applied.

     2.15. “Grant Date” means the effective date on which an Award is made to a Participant as set
forth in the applicable Phantom Stock Agreement.

     2.16. “Participant” shall mean an Employee of the Company who has an Employment Agreement to
whom an Award is granted under this Plan.

     2.17. “Payment Date” means the date established in Section 6.2 of the Plan.

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     2.18. “Performance Share Phantom Stock Agreement” or “Retention Phantom Stock Agreement”
(collectively referred to as “Phantom Stock Agreement”) means the agreement between the Company and
the Participant pursuant to which the Company authorizes an Award hereunder. Each Phantom Stock
Agreement entered into between the Company and a Participant with respect to an Award granted under
the Plan shall incorporate the terms of this Plan and shall contain such terms and conditions,
consistent with the provisions of the Plan, as may be established by the Administrative Committee.
Provisions in any Phantom Stock Agreement relating to matters such as non-competition,
non-solicitation and protection of intellectual property are hereby deemed to be consistent with
the Plan.

     2.19. “Performance Share Phantom Stock” or “Retention Phantom Stock” (collectively referred to
as “Phantom Stock”) means a unit granted to a Participant that entitles the Participant to receive
a payment in cash equal to the Fair Market Value of a share of Common Stock on the date the
respective grants of Phantom Stock pay out.

     2.20. “Plan” means the Alion Science and Technology Corporation Performance Shares and
Retention Phantom Stock Plan, as amended from time to time.

     2.21. “Target Performance Share Award” means the nominal shares awarded to a participant on a
Grant Date pursuant to a Performance Share Phantom Stock Agreement, which shares are subject to
vesting upon the achievement of a predetermined Fair Market Value price per share of Alion Common
Stock. Failure to achieve the minimum threshold price shall result in the vesting of no
Performance Share Phantom Stock under the Plan. Achievement of a Fair Market Value per share equal
to the predetermined target price per share shall result in the vesting of shares of Performance
Share Phantom Stock equal to the number of shares awarded pursuant to the Target Performance Share
Award. Achievement of a Fair Market Value per share in excess of the predetermined target price
per share shall result in the vesting of shares of Performance Share Phantom Stock in excess of the
number of shares awarded pursuant to the Target Performance Share Award up to the maximum
percentage specified in the underlying Performance Share Phantom Stock Agreement.

     2.22. “Termination of Employment” means cessation of performance of services for the Company.
For purposes of maintaining a Participant’s continuous status as an Employee and accrual of rights
under any Award granted pursuant to the Plan, transfer of an Employee among Alion and any of its
Affiliates shall not be considered a Termination of Employment with the Company. A Participant
will not be deemed to have incurred a Termination of Employment while he or she is on military
leave, sick leave, or other bona fide leave of absence (such as temporary employment by the
government) if the period of such leave does not exceed six months or such longer period as the
Participant’s right to reemployment with the Company or an Affiliate is provided either by statute
or by contract. If the period of leave exceeds six months and the Participant’s right to
reemployment is not provided either by statute or by contract, the Termination of Employment will
be deemed to occur on the first date immediately following such six-month period. For the
avoidance of doubt, and by way of example only, if a Participant works for a wholly-owned
subsidiary of the Company, then a sale of the subsidiary by the Company would be regarded as a
Termination of Employment of such Participant for purposes of this Plan, notwithstanding the
Participant’s continued employment with that former subsidiary. Whether an Employee of the Company incurs a termination of employment with the
Company will be determined in accordance with the requirements of Code Section 409A.

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     2.23. “Valuation Date” shall mean a date as of which the Fair Market Value of Common Stock of
the Company is determined.

ARTICLE III

ADMINISTRATION

     3.1. General. The Plan shall be administered by the Administrative Committee. The
Administrative Committee shall have the full and final authority, in its discretion, to interpret
conclusively the provisions of the Plan; to adopt such rules for carrying out the Plan as it may
deem advisable; to decide all questions of fact arising in the application of the Plan; and to make
all other determinations necessary or advisable for the administration of the Plan.

     3.2. Procedure. The Administrative Committee shall meet at such times and places and
upon such notice as it may determine. A majority of the members of the Board or committee serving
as Administrative Committee hereunder shall constitute a quorum. Any acts by the Administrative
Committee may be taken at any meeting at which a quorum is present and shall be by majority vote of
those members entitled to vote. Additionally, any acts reduced to writing or approved in writing
by all of the members of the Board or committee serving as Administrative Committee hereunder shall
be valid acts of the Administrative Committee. Members of the Board or committee who are either
eligible for Awards or have been granted Awards may vote on any matters affecting the
administration of the Plan or the grant of Awards pursuant to the Plan, except that no such member
shall act upon the granting of an Award to himself or herself, but any such member may be counted
in determining the existence of a quorum at any meeting of the Administrative Committee during
which action is taken with respect to the granting of an Award to him or her.

     3.3. Duties. The Administrative Committee shall have full power and authority to
administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and
instruments for the administration of the Plan and for the conduct of its business as the
Administrative Committee deems necessary or advisable, all within the Administrative Committee’s
sole and absolute discretion. The Administrative Committee shall have full power and authority to
take all other actions necessary to carry out the purpose and intent of the Plan, including, but
not limited to, the authority to:

     (a) construe the Plan and any Award under the Plan;

     (b) select the Employees of the Company to whom Awards may be granted and the time or
times at which Awards shall be granted;

     (c) determine the number of shares of Common Stock to be covered by or used for
reference purposes for any Award;

     (d) determine and modify from time to time the terms and conditions, including
restrictions, of any Award and to approve the form of Phantom Stock Agreements;

- 5 -

 

     (e) impose limitations on Awards, including limitations on transfer provisions;

     (f) modify, extend or renew outstanding Awards, or accept the surrender of outstanding
Awards and substitute new Awards subject to restrictions or limitations of the Code; or

     (g) prescribe, amend and rescind rules and regulations relating to the Plan.

     3.4. Limited Liability. To the maximum extent permitted by law, no member of the Board
or committee serving as Administrative Committee hereunder shall be liable for any action taken or
decision made in good faith relating to the Plan or any Award.

     3.5. Effect of Administrative Committee’s Decision. All actions taken and decisions
and determinations made by the Administrative Committee on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrative Committee’s sole and
absolute discretion and shall be conclusive and binding on all parties concerned, including the
Company, its stockholders, any Participants in the Plan and any other employee of the Company, and
their respective successors in interest.

ARTICLE IV

PARTICIPATION

     Individual Participants in the Plan shall be selected by the Administrative Committee in its
sole discretion from key executive Employees of the Company. Awards may be granted by the
Administrative Committee at any time and from time to time to new Participants, or to existing
Participants, or to a greater or lesser number of Participants, and may include or exclude previous
Participants, as the Plan Administrative Committee shall determine. Except as required by this
Plan, Awards granted at different times need not contain similar provisions.

ARTICLE V

GRANT OF PHANTOM STOCK

     5.1. Shares Subject to the Plan. Subject to adjustments as provided in Article X, the
shares of Common Stock that may be used for reference purposes with respect to Awards granted under
this Plan shall not exceed 2,000,000 shares of Common Stock, reduced by any shares of Common Stock
used for reference purposes with respect to awards issued under the Alion Science and Technology
Corporation Board of Directors Phantom Stock Plan and the Alion Science and Technology Corporation
Phantom Stock Plan (whether or not such awards have expired, terminated unexercised, or become
unexercisable, or have been forfeited or otherwise terminated, surrendered or cancelled). No
actual shares of Common Stock are reserved hereunder. References to shares of Common Stock are for
accounting and valuation purposes only, and not to grant any voting or other rights associated with
ownership of Common Stock.

     5.2. Grant of Award. Subject to Section 5.3 and other applicable provisions of the
Plan, the Administrative Committee may at any time and from time to time grant Awards of Phantom
Stock to eligible Participants, as it deems appropriate. The grant of an Award shall be

- 6 -

 

authorized by the Administrative Committee and shall be evidenced by a Performance Share
Phantom Stock Agreement or a Retention Phantom Stock Agreement in a form approved by the
Administrative Committee, between the Company and the Participant. Each Phantom Stock Agreement
shall set forth its Grant Date, the number of shares of Retention Phantom Stock awarded or the
formula for determining the amount of Performance Share Phantom Stock payment based on a Target
Performance Share Award (meaning the nominal shares awarded to a Participant on a Grant Date
pursuant to a Performance Share Phantom Stock Agreement), which shares are subject to vesting upon
the achievement of a predetermined Fair Market Value price per share of Alion Common Stock.
Failure to achieve the minimum threshold price shall result in the vesting of no Performance Share
Phantom Stock under the Plan. Achievement of a Fair Market Value per share equal to the
predetermined target price per share shall result in the vesting of Performance Share Phantom Stock
equal to the number of shares awarded pursuant to the Target Performance Share Award. Achievement
of a Fair Market Value per share in excess of the predetermined target price per share shall result
in the vesting of Performance Share Phantom Stock in excess of the number of shares awarded
pursuant to the Target Performance Share Award up to the maximum percentage specified in the
underlying Performance Share Phantom Stock Agreement. Each such Phantom Stock Agreement shall be
subject to the express terms and conditions of this Plan, and shall be subject to such other terms
and conditions that, in the reasonable judgment of the Administrative Committee, are appropriate
and not inconsistent with this Plan.

     5.3. Disqualified Persons. Notwithstanding the foregoing, no grant of Phantom Stock
may be made to any “Disqualified Person” (within the meaning of Sections 409(p)(4) and 4979A of the
Code) for any period during which the Company maintains the Alion Science and Technology
Corporation Employee Ownership, Savings and Investment Plan or any other employee stock ownership
plan as described in and qualified under Section 4975(e)(7) and 401(a) of the Code, respectively.
Any grant of Phantom Stock made in violation of this provision shall be null and void ab initio.
In addition, no grant of Phantom Stock may be made to any eligible individual if and to the extent
that such grant would cause such individual to become a Disqualified Person.

ARTICLE VI

RIGHT TO PAYMENT

     6.1. Vesting.

     (a) For grants of Performance Share Phantom Stock awarded November 9, 2004, and
thereafter, a Participant shall have no right to any share of Performance Share Phantom
Stock until it is vested, except in the event of the Participant’s death, Disability, or
Involuntary Termination of Employment Without Cause, or a Change in Control as set forth in
the Performance Shares Phantom Stock Agreement at the Grant Date. Vesting shall occur at
the third anniversary of the Grant Date. At vesting, a predetermined Target Performance
Share Award, stated in the Performance Shares Phantom Stock Agreement at Grant Date,
combined with the Fair Market Value of Common Stock in effect on the date of vesting, shall
be used in the calculation of the actual number of shares of Performance Shares Phantom
Stock that will be vested for all Participants.

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     (b) For grants of Retention Phantom Stock awarded November 9, 2004, and thereafter, a
Participant shall have no right to any share of Retention Phantom Stock until it is vested,
except in the event of the Participant’s death, Disability, or Involuntary Termination of
Employment Without Cause, or a Change in Control as set forth in the Retention Phantom Stock
Agreement at Grant Date. Vesting shall occur in accordance with the applicable provisions
expressed in the individual Retention Phantom Stock Agreements.

     6.2. Payment Date and Vesting Events.

     (a) Payment Date. The Payment Date is the date certain specified in the
Performance Share Phantom Stock Agreement or Retention Phantom Stock Agreement executed by
the Company and the Participant as of the Grant Date, for the conversion of Performance
Share Phantom Stock and/or Retention Phantom Stock into an amount certain in cash. The
Payment Date shall not be earlier than the date on which the Participant becomes 100% vested
in the Performance Share Phantom Stock or Retention Phantom Stock covered by the respective
Phantom Stock Agreement, except as provided below with respect to the Participant’s death,
Disability, Termination of Employment or Change in Control. Nothing in this Plan shall be
construed to require an identical Payment Date for any grants of Performance Share Phantom
Stock or Retention Phantom Stock as of a particular date.

     (b) Termination of Employment. Except as set forth in the respective Phantom
Stock Agreement, a Participant who has a Termination of Employment for any reason other than
an Involuntary Termination Without Cause (as defined in the Phantom Stock Agreement) shall
forfeit his or her rights to all unvested Awards. If a Participant suffers an Involuntary
Termination Without Cause, (i) the Participant’s Award under a Phantom Stock Agreement shall
vest as and to the extent specified in the Phantom Stock Agreement, and (ii) the Participant
shall be paid such amounts as and to the extent specified in the Phantom Stock Agreement.
Except as otherwise provided in the applicable Phantom Stock Agreement, the Payment Date
shall be the date of the Participant’s Termination of Employment.

     (c) Death. If a Participant dies prior to terminating employment with the
Company, (i) the Participant’s Award under a Phantom Stock Agreement shall vest as and to
the extent specified in the Phantom Stock Agreement, and (ii) the Participant’s beneficiary
shall be paid such amounts as and to the extent specified in the Phantom Stock Grant
Agreement. Except as otherwise provided in the applicable Phantom Stock Agreement, the
Payment Date shall be the date of the Participant’s date of death.

     (d) Disability. If a Participant incurs a Termination of Employment due to
Disability, (i) the Participant’s Award under a Phantom Stock Agreement shall vest as and to
the extent specified in the Phantom Stock Agreement, and (ii) the Participant shall be paid
such amounts as and to the extent specified in the respective Phantom Stock Grant
Agreements. Except as otherwise provided in the applicable Phantom Stock Agreement, the
Payment Date shall be the date of the Participant’s Termination of Employment due to
Disability.

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     (e) Change in Control. Upon a Change in Control, (i) each Participant’s Award
under a Phantom Stock Agreement shall immediately vest as and to the extent specified in the
Phantom Stock Agreement, and (ii) the Participant shall be paid such amounts as and to the
extent specified in the appropriate Phantom Stock Grant Agreement. Except as otherwise
provided in the applicable Phantom Stock Agreement, the Payment Date shall be the date of
the Change in Control.

     (f) Disqualified Persons. If Participant is or becomes a Disqualified Person
as described in Section 5.3 above, then the full amount of any then outstanding Award that
has not yet vested shall be forfeited; and no amount of an Award shall become vested, if, as
a result of such vesting, the Participant would become a Disqualified Person.

     6.3. Acceleration of Payment Date. Notwithstanding the foregoing, the Payment Date of
a vested Award may be accelerated, with the consent of the Administrative Committee, under the
following circumstances:

     (a) Compliance with Domestic Relations Order: To permit payment to an
individual other than the Participant as necessary to comply with the provisions of a
domestic relations order (as defined in Code Section 414(p)(1)(B));

     (b) Conflicts of Interest: To permit payment as necessary to comply with the
provisions of a certificate of divestiture (as defined in Code Section 1043(b)(2));

     (c) Payment of Employment Taxes: To permit payment of federal employment taxes
under Code Sections 3101, 3121(a) or 3121(v)(2), or to comply with any federal tax
withholding provisions or corresponding withholding provisions of applicable state, local,
or foreign tax laws as a result of the payment of federal employment taxes, and to pay the
additional income tax at source on wages attributable to the pyramiding Code Section 3401
wages and taxes; or

     (d) Tax Event: Upon a good faith, reasonable determination by the Company,
upon advice of counsel, that the Plan or an Award fails to meet the requirements of Code
Section 409A and regulations thereunder. Such payment may not exceed the amount required to
be included in income as a result of the failure to comply with the requirements of Code
Section 409A.

ARTICLE VII

PAYMENT OF PHANTOM STOCK BENEFITS

     7.1. Amount and Timing of Payment.

     (a) Retention Phantom Stock. Except as otherwise set forth in a Participant’s
Phantom Stock Agreements, for grants of Retention Phantom Stock, a Participant shall be
entitled to a cash payment on the Payment Date, equal to the number of vested shares of
Retention Phantom Stock multiplied by the Fair Market Value as of the Valuation Date
coincident with or immediately preceding the Payment Date; provided, however, that in the
case of payment due to a Change in Control, the Fair Market Value as of the date of the
Change in Control or the immediately preceding Valuation Date, whichever is higher,

- 9 -

 

shall be used. Except as provided below in this Article VII, the Company shall make
payment on a Payment Date by the delivery to the Participant of cash in a lump sum sixty
(60) days after the Payment Date, less any applicable withholdings required by the Code or
other similar regulations.

     (b) Performance Share Phantom Stock. Except as otherwise set forth in a
Participant’s Phantom Stock Agreements, for grants of Performance Share Phantom Stock, a
Participant shall be entitled to a cash payment on a Payment Date, equal to the amount
generated by the calculation of the vested Target Performance Share Award contained in
individual Performance Share Phantom Stock Agreements; provided, however, that in the case
of payment due to a Change in Control, the Fair Market Value as of the date of the Change in
Control or the immediately preceding Valuation Date, whichever is higher, shall be used.
Except as provided below in this Article VII, the Company shall make payment on a Payment
Date by the delivery to the Participant of cash in a lump sum sixty (60) days after the
Payment Date, less any applicable withholdings required by the Code or other similar
regulations.

     (c) Election Under Notice 2005-1. In lieu of payment of an Award under Section
7.1(a) or (b) above, a Participant granted Phantom Stock under this Plan before November 9,
2005, may elect, in accordance with Internal Revenue Service Notice 2005-1, Q-20(a), to
receive payment of any such Awards in calendar year 2005 or, if later, in the taxable year
in which amounts under the Award become earned and vested. Any such election shall be made
in a form acceptable to the Administrative Committee and filed with the Administrative
Committee no later than December 31, 2005.

     (d) Compliance with Code Section 409A. No payment shall be made in violation
of Section 409A or any other applicable provisions of the Code and the rules and regulations
thereunder.

     7.2. Delay of Payments. A payment required to be made within sixty (60) days after an
applicable Payment Date shall in any event be made within 21/2 months after the end of the Plan Year
in which the Payment Date occurs, except that payment may be delayed (without imputation of
earnings, interest or other gains or losses after the Payment Date) solely to the extent necessary
under the following circumstances, provided that payment is made as soon as possible after the
reason for delay no longer applies:

     (a) Unforeseeable Administrative or Financial Cause. The Compensation
Committee reasonably determines that (1) it is administratively impracticable to make
payment by the end of the applicable 21/2 month period or that making such payment will
jeopardize the solvency of the Company, and (2) such impracticability or insolvency was
unforeseeable as of the Grant Date.

     (b) Payments Subject to Section 162(m). The Company reasonably anticipates
that its deduction with respect to such payment would otherwise be limited or eliminated by
application of Code Section 162(m).

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     (c) Payments that Would Violate Loan Covenant or Similar Contractual
Requirement. The Company reasonably anticipates that making the payment will violate a
term of a loan agreement to which the Company is a party, including any ESOP loan agreement,
or other similar contract to which the Company is a party, and such violation will cause
material harm to the Company.

     (d) Payments that Would Violate Law. The Company reasonably determines that
payment would violate Federal securities laws or other applicable law.

     7.3. Election to Defer Benefits. A Participant hereunder who is also a participant
in, or eligible to become a participant in, the Alion Science and Technology Corporation Executive
Deferred Compensation Plan (the “Deferred Compensation Plan”), may elect to defer receipt
of all or a portion of the Plan benefit otherwise payable through a contribution to the Deferred
Compensation Plan equal to the amount that would otherwise have been payable on the applicable
Payment Date under Section 7.1. Any such election shall be made in a writing acceptable to the
Administrative Committee and filed with the Administrative Committee at least one year prior to the
Payment Date. Such election shall become effective upon the applicable Payment Date and shall
specify a time for payment and method of distribution available under the Deferred Compensation
Plan, provided that such election may not provide for a time of distribution (other than as a
result of Termination of Employment, death or Disability) earlier than five years after the Payment
Date. Notwithstanding the above, this Section 7.3 shall not apply to amounts payable under
Section 7.1(c).

     7.4. Discharge. Any payment made by the Company in good faith in accordance with the
provisions of this Plan and a Participant’s Phantom Stock Agreement shall fully discharge the
Company from all further obligations with respect to such payment and such Phantom Stock Agreement.

     7.5. Withholding. The Company shall have the right to deduct from all amounts paid
pursuant to the Plan any Federal, State or local income tax, social security contribution or other
payroll taxes required by law, whether domestic or foreign, to be withheld with respect to such
payments. The Company shall also have the right to deduct FICA contributions required at vesting
from normal salary and wages or other cash compensation to be paid to the Participant

ARTICLE VIII

AMENDMENT AND TERMINATION

     8.1. Amendment. The Board may amend the Plan at any time and from time to time,
provided that (a) no amendment shall deprive any person of any rights granted under the Plan before
the effective date of such amendment without such person’s consent; and (b) amendments may be
subject to shareholder approval to the extent needed to comply with applicable law.
Notwithstanding the foregoing, the Board may unilaterally amend the Plan or any outstanding Award
subject to Section 409A as necessary to cause the Plan or such Award to comply with Code Section
409A.

     8.2. Termination. The Board reserves the right to terminate the Plan in whole or in
part at any time, without the consent of any person granted any rights under the Plan.

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Termination of the Plan shall not affect the Administrative Committee’s ability to exercise
the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date
of such termination. Notwithstanding the foregoing, termination of the Plan shall not result in
the acceleration of payment of any Award except as permitted by the Administrative Committee and
consistent with the requirements of Code Section 409A.

ARTICLE IX

TERM

     The Plan shall be effective from the date that this Plan is approved by the Board. Unless
sooner terminated by action of the Board, the Plan will terminate on November 9, 2014, but Awards
granted before this termination date will continue to be effective in accordance with their terms
and conditions.

ARTICLE X

TRANSACTIONS

     10.1. Adjustment of Number and Price of Shares. Any other provision of the Plan
notwithstanding, if through, or as a result of, any merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar transaction, the outstanding
shares of Common Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or different shares or
other securities of the Company or other non-cash assets are distributed with respect to such
shares of Common Stock or other securities, the Administrative Committee shall make an appropriate
or proportionate adjustment in the Awards as it deems appropriate, in its sole discretion. The
adjustment by the Administrative Committee shall be final, binding and conclusive.

     10.2. Adjustments Due to Special Circumstances. The Administrative Committee is
authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events affecting the Company, or the financial statements
of the Company, or of changes in applicable laws, regulations, or accounting principles, whenever
the Administrative Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be made available under
the Plan.

     10.3. Compliance with Code Section 409A. Notwithstanding the foregoing, the
Administrative Committee shall not make an adjustment under this Article X which results in a
violation of Code Section 409A.

ARTICLE XI

MISCELLANEOUS PROVISIONS

     11.1. No Guarantee of Employment. Neither the Plan nor any Award granted under the
Plan shall confer upon any Participant any right with respect to continuance of employment by the
Company. Participation in this Plan shall not be construed to confer upon any Participant the
legal right to be retained in the employ of the Company or give any person any right to any payment

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whatsoever, except to the extent of the benefits provided for hereunder. Each Participant
shall remain subject to discharge to the same extent as if this Plan had never been adopted.
Nothing in this Plan shall prevent, interfere with or limit in any way the right of the Company to
terminate a Participant’s employment at any time, whether or not such termination would result in:
(i) the failure of any Award to vest; (ii) the forfeiture of any unvested or vested portion of any
Award under the Plan; and/or (iii) any other adverse effect on the Participant’s interests under
the Plan.

     11.2. No Rights as a Shareholder. A Participant shall not have any rights as a
shareholder with respect to any shares of Phantom Stock.

     11.3. Indemnification of Board and Plan Administrative Committee. No member of the
Board or the Administrative Committee, nor any officer or Employee of the Company acting on behalf
of the Board or the Administrative Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Administrative Committee and each and any officer or Employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination, or interpretation.

     11.4. Effect of the Plan. Neither the adoption of this Plan nor any action of the
Board or the Administrative Committee shall be deemed to give any person any right to be granted an
Award or any other rights except as may be evidenced by a Phantom Stock Agreement, or any amendment
thereto, duly authorized by the Administrative Committee and executed on behalf of the Company, and
then only to the extent and upon the terms and conditions expressly set forth therein.

     11.5. Non-Assignability. Phantom Stock granted to a Participant may not be
transferred or assigned other than by will or by the laws of descent and distribution. If the
Participant attempts to alienate, assign, pledge, hypothecate, or otherwise dispose of his Phantom
Stock or any right thereunder, except as provided for in this Plan or the Phantom Stock Agreement,
or in the event of any levy, attachment, execution, or similar process upon the right or interest
conferred by this Plan or the Phantom Stock Agreement, the Administrative Committee shall terminate
the Participant’s Phantom Stock by notice to him, and it shall thereupon become null and void.

     11.6. Restrictive Legends. The Company may at any time place legends referencing any
restrictions described in the Phantom Stock Agreement and any applicable federal or state
securities law restrictions on all Awards.

     11.7. Company Charter and Bylaws. This Plan is subject to the charter and by-laws of
the Company, as they may be amended from time to time.

     11.8. No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary relationship between the
Company and a Participant or any other person. To the extent that any Participant or other person
acquires a right to receive payments from the Company pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company; however, in
the event of commencement of a voluntary or involuntary case of bankruptcy against or by the
Company, all vested and unvested Awards made hereunder shall be canceled and void.

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     11.9. Governing Law. All questions arising with respect to this Plan and any Phantom
Stock Agreement executed hereunder shall be determined by reference to the laws of the State of
Delaware in effect at the time of their adoption and execution, respectively, without implementing
its laws regarding choice of law.

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed as of November
9, 2005, and certifies that the foregoing Plan was duly adopted by the Board of the Company on that
date.

Alion Science and Technology Corporation

	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Bahman Atefi
 

Chief Executive Officer
	 	 

	 	 	 	 	 	 	 
	 

	 	Attest:
	 	/s/ Jim Fontana
 

	 	 
	 

	 	Secretary
	 	
 

	 	 

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