Alion Science and Technology Corp. said yesterday that its employees bought the company from the Illinois Institute of Technology, using $130 million from their retirement funds to create an independent defense contractor.

McLean-based Alion, with 1,650 employees, has been a consultant to the Pentagon on military strategy and has developed modeling software for soldiers training on new weapons.

Company executives said the change in ownership will give Alion an edge in keeping talented employees in an increasingly competitive market where it faces industry giants such as Science Applications International Corp. and Booz Allen Hamilton Inc.

"When IIT professors launched this venture during the Depression, it was a different era in research and development," said Bahman Atefi, president of Alion.

"Nowadays, competition for R&D dollars and people is fierce. Rather than face losing some of our key people to private companies, it's critical that we ourselves become private and for-profit, as a way to retain the best and brightest."

Alion, shedding its nonprofit status, will use stock to lure employees with military experience or a scientific and research background, said Barry Watson, Alion's technology systems sector manager.

The company accelerated hiring last year when work on several projects stepped up because of the Sept. 11, 2001, attacks. Alion recently won a Defense Department contract to develop technology concerning chemical and biological weapons, arms control, and homeland defense, Watson said.

The company has about 100 job openings, he said.

For most of its history the company was known as IIT Research Institute and did most of its business with the government. With the new ownership, the company changed its name and moved its headquarters to Northern Virginia, where it had offices for several years.

Several other major defense contractors are employee-owned, including Reston's DynCorp and SAIC. Computer Sciences Corp. plans to buy DynCorp for $950 million in cash and stock.

Lawyers working on the deal could not find another instance of a nonprofit entity created by a university becoming a private, employee-owned company, Watson said.

Alion reported $201 million in revenue during fiscal 2002 and $4.7 million in profit. More than 20 percent of its revenue is from a single contract with the Defense Department to run an Annapolis facility that manages wireless service for the agency, including finding available frequencies for communications, an Alion spokesman said. Fifteen percent of revenue is from a contract to develop modeling and simulation software for the military, according to a Securities and Exchange Commission filing.

For the Illinois Institute of Technology, the sale provides money for its endowment, which stood at $150 million before the deal, said Lew Collens, the Chicago university's president. The deal also includes a warrant, worth $100 million, that the university could exercise in five years if Alion meets certain financial goals, Collens said.

"We talked about whether to sell it outright or to sell it to employees," Collens said.

"Our trustees thought we should give first crack to the employees," he said.