Exhibit 10.38
**FIRST AMENDMENT TO THE SELLER WARRANT AGREEMENT**
     THIS **FIRST AMENDMENT TO THE SELLER WARRANT AGREEMENT**(the “Amendment”) ismade effective as of December 16, 2004, between Alion Science and TechnologyCorporation, a Delaware corporation (the “Company”), and Illinois Institute ofTechnology, an Illinois not-for-profit corporation (“IIT”).
     WHEREAS, the Company, IIT Research Institute, an Illinois not-for-profitcorporation affiliated with and controlled by IIT (“IITRI”), and Alion Scienceand Technology Corporation Employee Ownership, Savings and Investment Trust(the “Trust”) entered into that certain Seller Warrant Agreement dated as ofthe 20th day of December 2002 (the “Seller Warrant Agreement”), pursuant towhich the Company issued to IITRI warrants to purchase One Million EightyThousand Four Hundred Thirty-Six and Eight-Tenths (1,080,436.8) shares of theCompany’s $0.01 par value per share common stock (“Common Stock”);
     WHEREAS, as of July 1, 2004, IITRI transferred to IIT all its rights andinterests in the Seller Warrant Agreement;
     WHEREAS, the Company and IIT desire to amend Sections 3(l)(v) and 16(e) ofthe Seller Warrant Agreement;
     WHEREAS, the Trust is a party to the Seller Warrant Agreement only for thepurposes of Sections 6, 7, 15 and 17 through 25 of the Seller WarrantAgreement, and pursuant to Section 18 of the Seller Warrant Agreement, Sections3(l)(v) and 16(e) may be amended by the mutual written agreement of the Companyand IIT, without the need to obtain the Trust’s consent; and
     WHEREAS, the Company and IIT desire to amend the Seller Warrant Agreementas set forth herein.
     NOW, THEREFORE, in consideration of the premises set forth above and therespective covenants and agreements contained in this Amendment, and for othergood and valuable consideration, the receipt and sufficiency of which is herebymutually acknowledged, and intending to be legally bound, the parties heretohereby agree as follows:
     1. Amendments to the Seller Warrant Agreement.
          (a) Section 3(l)(v) of the Seller Warrant Agreement is hereby amended bydeleting the entire text of Section 3(l)(v) and substituting in lieu thereof:
“interests or rights designated as phantom stock issued or grantedby the Company to employees, consultants, officers or directors ofthe Company or any of its Subsidiaries in accordance with aphantom stock plan to be adopted by theCompany’s board of directors after the Effective Date, except forsuch amount of phantom stock that, at the time of issuance orgrant, would cause the aggregate
First Amendment to the Seller Warrant Agreement
 

 

number of shares of phantom stockthen outstanding (excluding any shares of phantom stock that have(x) expired, terminated unexercised or become unexercisable, or(y) been forfeited or otherwise terminated, surrendered orcancelled) to be in excess of 225,000 shares of phantom stock.”
          (b) Section 16(e) of the Seller Warrant Agreement is hereby amended bydeleting the entire text of Section 16(e) and substituting in lieu thereof:
“The Company will not issue shares of phantom stock that cause thenumber of shares of outstanding phantom stock (excluding anyshares of phantom stock that have expired, terminated unexercised,or become unexercisable, or that have been forfeited or otherwiseterminated, surrendered or cancelled), at the time of issuance, tobe in excess of 225,000 shares of phantom stock.”
     2. Waiver. IIT hereby irrevocably waives (i) any and all breachesby the Company of the Company’s covenants set forth in Section 16(e) of theSeller Warrant Agreement, and (ii) any and all adjustments to the ExercisePrice (as defined in the Seller Warrant Agreement), in each case based upon orarising out of the issuance by the Company of shares of phantom stock on orbefore the effective date of this Amendment, and hereby fully and forever,effective as of the effective date of this Amendment, releases, discharges andacquits the Company from any and all claims, demands, causes of action, and/ordamages, which IIT may now or hereafter have or claim to have against theCompany, based in whole or in part upon, or which may arise from the issuanceby the Company of shares of phantom stock on or before the effective date ofthis Amendment.
     3. Remainder of the Seller Warrant Agreement Not Affected. Exceptas set forth in Section 1 hereof, the terms and provisions of the SellerWarrant Agreement remain in full force and effect without change, amendment,waiver or modification.
     4. Ratification. As modified hereby, the Seller Warrant Agreementand its terms and provisions are hereby ratified for all purposes and in allrespects.
     5. Counterparts. This Amendment may be executed in one or morecounterparts, all of which taken together shall constitute one instrument.
     6. References. From and after the date provided above, allreferences to the Seller Warrant Agreement shall be deemed to be references tothe Seller Warrant Agreement as modified hereby.
     7. Governing Law. This Amendment shall be governed by andconstrued in accordance with the laws of the State of Delaware, without regardto the conflict of laws principles thereof.
     8. Conflict. In the event of any conflict between the terms ofthis Amendment and the Seller Warrant Agreement, the terms of this Amendmentshall govern.
***[Signatures follow on next page]***
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     **IN WITNESS WHEREOF,**the parties hereto have caused this Amendment to beexecuted by its officers thereunto duly authorized as of the date hereof.           **Alion Science and Technology Corporation** **Illinois Institute of Technology**           By:/s/ Bahman Atefi By:/s/ Lew Collens     Name: Bahman Atefi Name: Lew CollensTitle: Chief Executive Officer Title: President