ALION EXECUTIVE DEFERRED COMPENSATION PLAN
Executive Compensation Plan Agreement
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ALION EXECUTIVE DEFERRED COMPENSATION PLAN
Executive Compensation Plan Agreement
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ALION EXECUTIVE DEFERRED
The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated Employees who contribute materially to the continued growth, development and future business success of Alion, Inc., a Delaware corporation. The Plan is herein amended and restated effective January 1, 2008, to comply with final regulations under Code Section 409A and to make certain other changes to the Plan; provided, however, that any provision herein required to be effective as of an earlier date in order for the Plan to comply with Code Section 409A shall be effective as of such earlier date. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.
For purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:
2.1. “Account Balance” shall mean, with respect to a Participant, a credit on the records of the Employer equal to the Deferral Account balance. The Account Balance shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.
2.2. “Administrator” means the Committee or such other person or persons appointed by the Committee to be responsible for the daily operations of the Plan. Upon a Change in Control, the Administrator shall be determined pursuant to Section 9.2 of the Plan.
2.3. “Affiliate” means an entity which is a member of a “controlled group” of corporations with the Company under Code Section 414(b) or a trade or business under common control with the Company under Code Section 414(c); provided, however, that in applying Code Sections 1563(a)(1), (2) or (3) and for the purposes of Code Section 414(b), the language “at least 50 percent” will be used instead of “at least 80 percent” each place it appears, and in applying Treasury Regulation Section 1.414(c)-2 for purposes of Code Section 414(c), the language “at least 50 percent” will be used instead of “at least 80 percent” each place it appears. In addition, to the extent the Committee determines that legitimate business criteria exist to use a reduced ownership percentage to determine whether an entity is an Affiliate for purposes of determining whether a Termination of Employment has occurred, the Committee may designate an entity that would meet the definition of “Affiliate” by substituting “20 percent” in place of “50 percent” in the preceding sentence as an Affiliate. Such designation shall be made by December 31, 2007 or, if later, at the time a 20 percent or more ownership interest in such entity is acquired.
2.4. “Annual Base Salary” shall mean the annual cash compensation relating to services performed during any Plan Year, whether or not paid in such Plan Year or included on the Federal Income Tax Form W-2 for such Plan Year, excluding bonuses, SAR Payments, Phantom Stock Payments, income related to the exercise of stock options, overtime, fringe benefits, relocation expenses, incentive payments, non-monetary awards, directors fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee’s gross income). Annual Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant’s gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by the Employer; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Employee.
2.5. “Annual Bonus” shall mean any compensation payable to a Participant as an Employee under the Employer’s bonus plans, where the amount of, or entitlement to, the compensation is contingent on the satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least twelve (12) consecutive months.
2.6. “Annual Deferral Amount” shall mean that portion of a Participant’s Annual Base Salary, Annual Bonus, SAR Payment and Phantom Stock Payment that a Participant elects to defer in accordance with Article IV, for any one Plan Year. In the event of a Participant’s retirement, Disability, death or a Termination of Employment prior to the end of a Plan Year, such year’s Annual Deferral Amount shall be the actual amount withheld prior to such event.
2.7. “Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article VII, that are entitled to receive benefits under this Plan upon the death of a Participant.
2.8. “Beneficiary Designation Form” shall mean the form established from time to time by the Administrator that a Participant completes, signs and returns to the Administrator to designate one or more Beneficiaries.
2.9. “Board” shall mean the Board of Directors of the Company.
2.10. “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 fifty percent (50%) of the total Fair Market Value or total voting power of the stock of the Company. However, if any Person or Group is considered to own more than fifty percent (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 thirty percent (30%) 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 forty percent (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, fifty percent (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, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company; or
(iv) An entity, at least fifty percent (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 (other than an employee benefit trust established or maintained for the benefit of employees of the Company). The term “Group” shall have the meaning set forth in Rule 13d-5 of the Securities Exchange Commission (“SEC”), modified to the extent necessary to comply with Treasury Regulation Section 1.409A-3(i)(5), 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 Company 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.
2.11. “Claimant” shall have the meaning set forth in Section 11.1.
2.12. “Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time.
2.13. “Committee” shall mean the committee described in Article IX.
2.14. “Company” shall mean Alion, Inc., a Delaware corporation and any successor to such corporation that adopts the Plan.
2.15. “Deferral Account” shall mean (a) the sum of all of a Participant’s Subaccounts and any portion of the Account Balance to be paid in respect of the Participant’s Termination of Employment, plus (b) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Deferral Account, less (c) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account. The Deferral Account, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.
2.16. “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.
2.17. “Election Form” shall mean the form established by the Administrator that a Participant completes, signs and returns to the Administrator to make his or her deferral election under the Plan.
2.18. “Employee” shall mean an employee of an Employer who is a member of a select group of management or highly compensated employees.
2.19. “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 pursuant to Section 13.11. 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.
2.20. “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.
2.21. “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 Alion 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.
2.22. “Hardship” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (a) a sudden and unexpected illness or accident of the Participant or the spouse, dependent (as defined in Code Section 152(a)) or Beneficiary of the Participant, (b) a loss of the Participant’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, not as a result of a natural disaster), or (c) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Administrator. In addition, the need to pay for medical expenses, including non-refundable deductibles, as well as for the costs of prescription drug medication, or the need to pay for the funeral expenses of a spouse or a dependent may also constitute a Hardship event. The Administrator shall determine whether the circumstances presented by the Participant constitute an unanticipated emergency. Such circumstances and the Administrator’s determination will depend on the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant’s assets, to the extent liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of his elective deferrals under this Plan or a similar deferred compensation plan for the remainder of the Plan Year.
2.23. “Participant” shall mean an Employee who meets the requirements for participation in Section 3.1, elects to participate in the Plan by signing and returning an Election Form in a manner acceptable to the Administrator, and actually commences participation in the Plan, and whose participation has not terminated.
2.24. “Phantom Stock Award” shall mean an award granted to an Employee pursuant to the terms of the Alion Science and Technology Corporation Phantom Stock Plan or the Alion Science and Technology Corporation Performance Shares and Retention Phantom Stock Plan, as such Plans may be amended from time to time (collectively, the “Phantom Stock Plans”).
2.25. “Phantom Stock Payment” shall mean an amount paid to an Employee upon vesting of a Phantom Stock Award.
2.26. “Plan” shall mean the Alion Deferred Compensation Plan, which shall be evidenced by this instrument, as may be amended from time to time.
2.27. “Plan Year” shall mean the twelve-month period commencing each January 1 and ending on December 31.
2.28. “SAR” shall mean an award granted to an Employee pursuant to the terms of the Alion Science and Technology Corporation 2004 Stock Appreciation Rights Plan, as amended from time to time.
2.29. “SAR Payment” shall mean an amount paid to an Employee upon his exercise or payment of an SAR.
2.30. “Scheduled Distribution” means a distribution from a Participant’s Scheduled Distribution Subaccount in accordance with Section 5.1.
2.31. “Scheduled Distribution Subaccount” or “Subaccount” shall mean the separate subaccounts under the Deferral Account that are established and maintained for each Participant. Such subaccounts shall reflect (a) the amount deferred pursuant to the Participant’s Election Form for each deferral election; (b) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Subaccount, less (c) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Subaccount. In the event that two or more Subaccounts reflect amounts deferred that are to be paid at the same time, all such Subaccounts shall be aggregated into a single Subaccount.
2.32. “Termination of Employment” shall mean the severing of employment with all Employers for any reason. A Termination of Employment will be deemed to have occurred if the facts and circumstances indicate that the Company and Participant reasonably anticipate that no further services will be performed after a certain date or that the level of bona fide services the Participant will perform for the Employer or an Affiliate after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than the lesser of (a) 19 hours of bona fide services per week, or (b) fifty percent (50%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the employer if the Participant has been providing services to the Participating Employer and its Affiliates less than 36 months). 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 an Employer 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. Whether an Employee incurs a termination of employment with the Company or an Affiliate will be determined in accordance with the requirements of Code Section 409A.
2.33. “Trust” shall mean one or more trusts established, effective as of , 2002 between the Company and the trustee named therein, as amended from time to time.
3.1. Eligible Employees . Each Employee who (a) provides services to the Employer at the level of Assistant Vice President (Corporate or Operation Management) or above, and (b) receives Annual Base Salary from the Employer at a rate of $100,000 or above, shall be eligible to become a Participant in the Plan; provided, however, that the Committee may, in its sole discretion, restrict the participation of an otherwise eligible Employee or designate additional eligible Employees from a select group of management and highly compensated Employees of the Employer, as it deems appropriate.
3.2. Enrollment Requirements . As a condition to participation, each eligible Employee described in Section 3.1 shall complete, execute and return to the Administrator an Election Form. The Committee shall establish from time to time such enrollment requirements as it determines in its sole discretion are necessary.
3.3. Commencement of Participation . An eligible Employee shall commence participation in the Plan on the first day of the first Plan Year following the date on which the Employee completes all enrollment requirements, provided that the Employee is then employed as an eligible Employee.
3.4. Termination of Participation and/or Deferrals . If the Committee determines in good faith that a Participant (a) no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, or (b) is or would be a “Disqualified Person” (within the meaning of Sections 409(p)(4) and 4979A of the Code) for any period during which the Corporation maintains an employee stock ownership plan, the Committee shall have the right, in its sole discretion, to terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant’s status changes to the extent permitted under Code Section 409A and to prevent the Participant from making future deferral elections.
4.1. Deferrals . For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Annual Base Salary, Annual Bonus, SAR Payments and/or Phantom Stock Payments in the following percentages:
If no election is made, the amount deferred shall be zero.
4.2. Election to Defer; Effect of Election Form .
(a) Annual Election Forms . A Participant’s Election Form shall be effective only for the Plan Year that will be listed on the Election Form. The Administrator shall maintain an open enrollment period preceding each Plan Year in order to allow Participants to submit Election Forms. An Election Form shall become irrevocable as of the last day for filing such election as described below.
(b) Timing of Election to Defer Annual Base Salary . To be effective for any Plan Year, an Election Form to defer a percentage of Annual Base Salary must be received by the Administrator no later than December 31 of the Plan Year preceding the year in which such Compensation is earned.
(c) Timing of Election to Defer Annual Bonus . An Election Form to defer Annual Bonus meeting the requirements for “performance-based” compensation under Treasury Regulation Section 1.409A-1(e) must be received by the Administrator as of a date established by the Administrator which is at least six months prior to the end of the performance period in which such Annual Bonus is earned, provided that (i) performance criteria have been established in writing by not later than ninety (90) days after the commencement of the applicable performance period and the outcome is substantially uncertain at the time the criteria are established, (ii) the Participant is in employment with the Company continuously from the later of the beginning of the performance period or the date such performance criteria are set, and (iii) the election is made before such performance-based compensation has become readily ascertainable ( i.e. , is both calculable in amount and substantially certain to be paid).
(d) New Employees . If an individual first becomes an Employee eligible to participate in the Plan during a Plan Year, he or she may submit an Election Form to defer a percentage of Annual Base Salary for the Plan Year in which he or she becomes a Participant by filing such Election Form with the Administrator within thirty (30) days after he or she first becomes eligible to participate in the Plan; provided, however, that the Election Form shall apply only to compensation earned subsequent to the date of such election; and provided further that an election under this Section 4.2(d) shall not be available if (i) the individual is or was a participant in any other non-qualified defined contribution deferred compensation plan maintained by an Employer or any Affiliate, or (ii) the Employee first becomes eligible to participate in the Plan on or before September 30 of such year. An election under this Section 4.2(d) shall not apply to Annual Bonus.
(e) Timing of Election to Defer SAR Payment and Phantom Stock Payment . A Participant may elect to defer receipt of all of any SAR or Phantom Stock Award, as provided in the Alion Science and Technology Corporation 2004 Stock Appreciation Rights Plan or the applicable Phantom Stock Plan. A Participant’s election must be made at least 12 months prior to the date that the applicable SAR or Phantom Stock Award would otherwise be paid under the terms of such Plan; provided, however, that an election to defer the receipt of a payment that would, absent such a deferral election, be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) must be made as of a date that is at least one year prior to the date such payment ceases to be subject to a substantial risk of forfeiture. Such deferrals shall be considered “redeferrals” under Treasury Regulation Section 1.409A-2(b) with respect to an applicable distribution event, and, as such, shall result in further deferral of the payment with respect to such distribution event for a minimum of five years.
(f) Timing and Method of Distribution . The Participant’s election shall, to the extent applicable, specify the Scheduled Distribution Subaccount or Subaccounts into which all or a portion of such Annual Deferral Amounts will be directed, as described in Section 5.1; and the payment commencement date and method of distribution to apply to benefits distributable upon the Participant’s Termination of Employment as described in Sections 5.2 and 5.3.
4.3. Withholding of Annual Deferral Amounts . For each Plan Year, the Annual Base Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Annual Base Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Annual Base Salary. The Annual Bonus, SAR Payment and Phantom Stock Payment portions of the Annual Deferral Amount shall be withheld at the time the Annual Bonus, SAR Payments and/or Phantom Stock Payments are or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself.
4.4. Investment of Trust Assets . The Trustee of the Trust shall be authorized, upon written instructions received from the Administrator or investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust Agreement.
4.5. Crediting/Debiting of Account Balances . In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant’s Account Balance in accordance with the following rules:
(a) Election of Measurement Funds for Deferral Account . A Participant, in connection with his or her initial deferral election in accordance with Section 4.2 above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 4.5(c) below) to be used to determine the additional amounts to be credited to his or her Deferral Account when the Participant commences participation in the Plan and continuing thereafter for each subsequent business day in which the Participant participates in the Plan, unless changed in accordance with the next sentence. Commencing with the business day that follows the Participant’s commencement of participation in the Plan and continuing thereafter for each subsequent business day in which the Participant participates in the Plan, the Participant may (but is not required to) elect, b