Exhibit 10.1

 

THE USE OF THE FOLLOWING NOTATION IN THIS EXHIBIT INDICATES THAT A CONFIDENTIAL
PORTION HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND
THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION: [***]

 

CONTRACT FOR CONSTRUCTION

 

OF

 

TWO VESSELS

 

FOR

 

MATSON NAVIGATION COMPANY, INC.

 

BY

 

NATIONAL STEEL AND SHIPBUILDING COMPANY

 

 

 

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TABLE OF CONTENTS

 

 

 

 

 

ARTICLE

 

PAGE

 

 

 

 

1

STATEMENT OF WORK

 

2 

2

SPECIFICATIONS AND VESSEL DRAWINGS

 

5 

3

PRICING

 

6 

4

PAYMENTS

 

6 

5

ECONOMIC PRICE ADJUSTMENTS

 

9 

6

CHANGES

 

10 

7

VESSEL PERFORMANCE

 

11 

8

FORCE MAJEURE

 

13 

9

DAMAGES FOR DELIVERY

 

15 

10

DESIGN RIGHTS

 

15 

11

REGULATORY BODY REQUIREMENTS

 

17 

12

SUBMISSION OF DESIGN PRODUCTS

 

19 

13

MATERIAL AND WORKMANSHIP

 

20 

14

INSPECTION

 

20 

15

SUBCONTRACTORS

 

23 

16

ITEMS FURNISHED BY PURCHASER

 

23 

17

TRIALS

 

25 

18

POST-TRIAL INSPECTION AND ACCEPTANCE

 

25 

19

GUARANTY AND LIMITATION OF CONTRACTOR'S AND PURCHASER’S LIABILITIES

 

26 

20

MAKER'S LIST, SPARE PARTS, TOOLS, AND SUPPLIES

 

32 

21

CONTRACTOR’S INSURANCE

 

34 

22

PURCHASER’S INSURANCE

 

37 

23

LOSS OR DAMAGE OF VESSEL

 

38 

24

INDEMNIFICATION

 

38 

25

DEFAULT OF PURCHASER AND CONTRACTOR'S REMEDIES

 

39 

26

DEFAULT OF CONTRACTOR AND PURCHASER’S REMEDIES

 

43 

27

TITLE, RISK OF LOSS, AND PROPERTY INTERESTS

 

46 

28

LIENS

 

46 

29

TAXES AND DUTIES

 

48 

30

INTELLECTUAL PROPERTY INFRINGEMENT –

 

48 

31

ASSIGNMENT

 

49 

32

COMPLIANCE WITH LAWS AND REGULATIONS

 

50 

33

DISPUTES

 

51 

34

ESCROW

 

52 

35

CERTIFICATES OF FINANCIAL RESPONSIBILITY

 

52 

36

PURCHASER USE OF CONTRACTOR FACILITIES

 

53 

37

COMPUTATION OF TIME

 

55 

38

PRESS RELEASES

 

55 

39

CONFIDENTIALITY

 

55 

40

INDEPENDENT CONTRACTOR

 

56 

41

SURVIVING OBLIGATIONS

 

57 

42

NOTICES AND COMMUNICATIONS

 

57 

44

INTERPRETATION

 

58 

45

CONDITIONS

 

59 

46

EXHIBITS

 

61 

 

 

 

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CONTRACT FOR CONSTRUCTION

 

of

 

TWO VESSELS for

 

MATSON NAVIGATION COMPANY, INC.

 

by

 

NATIONAL STEEL AND SHIPBUILDING COMPANY

 

PREAMBLE

 

This Contract for Construction of Two Vessels (“Contract”) is entered into by
and between Matson Navigation Company, Inc., a Hawaii corporation (“Purchaser”),
and National Steel and Shipbuilding Company, incorporated in the State of Nevada
(“Contractor” or “NASSCO”), effective  August 25, 2016 (“Effective
Date”).  Purchaser and Contractor are each a “Party” and collectively, the
“Parties.” 

 

RECITALS

 

WHEREAS, Purchaser desires to obtain two 3,000 twenty-foot equivalent unit
(“TEU”) vessels with a 500 car plus 25 trailer capacity garage located aft ships
as provided in this Contract, for United States coastwise trade in compliance
with 46 U.S.C. Section 55102 (formerly Section 27 of the Merchant Marine Act,
1920, as amended, referred to as the "Jones Act") (these specialty ships
individually or collectively referred to as “Vessel” or “Vessels”);

 

WHEREAS, Contractor jointly owns a design for the Vessels meeting Purchaser’s
requirements and has the right to license Purchaser’s use of the design, as set
forth in this Contract;

 

WHEREAS, Contractor owns or will contract with DSEC Co., Ltd. (“DSEC”), a
corporation organized and existing under the laws of the Republic of Korea, and
other suppliers to purchase certain equipment and material to construct the
Vessels;

 

WHEREAS, Contractor is capable of using Drawings and Design Data and the
equipment and material provided by DSEC to construct, test and complete the
Vessels;

 

WHEREAS, Purchaser and Contractor desire to enter into this Contract for the
design and construction of the Vessels in accordance with the terms and
conditions of this Contract; and

 

WHEREAS, as a condition to this Contract, General Dynamics Corporation for
Contractor, and Matson, Inc. for Purchaser (the “Guarantors”) have executed or
will execute a guaranty agreement dated as of the date hereof.

 

NOW THEREFORE, Purchaser and Contractor agree as follows:

 

 

 

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AGREEMENT

 

1                   STATEMENT OF WORK

 

(a)      Contract Work.  Contractor shall furnish all facilities, labor,
supervision, material, supplies, machinery and equipment, outfit, appurtenances
and appliances and shall perform all work necessary to design, engineer,
construct, launch, equip, outfit, test and deliver two Vessels (NASSCO Hull
Numbers 601 and 602) qualified for United States coastwise trade, and foreign
trade as set forth in the Specifications (such coastwise and foreign trade, the
“Trade”), in compliance with the Jones Act, in accordance with the
Specifications and Vessel Drawings (as defined below in the SPECIFICATIONS AND
VESSEL DRAWINGS Article 2) and this Contract.  Contractor shall do everything
required of it by this Contract, the Specifications, and the Vessel Drawings,
including the development of Design Products (as defined below in the DESIGN
RIGHTS Article 10) and the installation of any material that the Contract and/or
the Specifications provides shall be furnished by Purchaser (collectively
referred to in this Contract as the “Contract Work"), for the total
consideration of the Contract Price as defined in PRICING Article 3.

 

(b)      Vessel Certification and Classification.  Other than with respect to
the ballast water management system as described in the SPECIFICATIONS AND
VESSEL DRAWINGS Article 2, Contractor shall obtain all requisite approvals from
applicable U.S. regulatory authorities to qualify each of the Vessels for
operation in the U.S. coastwise on their U.S. Coast Guard (“USCG”) Certificates
of Documentation and have and provide to Purchaser all certificates and meet all
rules, regulations and requirements of the Classification Society and the
Regulatory Bodies (as defined in the REGULATORY BODY REQUIREMENTS Article 11)
required for operation of the Vessels in the Trade.  American Bureau of Shipping
("ABS") is the designated Classification Society.  Contractor shall obtain the
services of the Classification Society (CS) to review drawings and survey
construction, and shall take all other steps necessary or appropriate to obtain
and shall obtain classification of the Vessels according to the Classification
Society Rules, with notations as required by the Specifications. 

 

(1)      Contractor will ensure that, as part of its contract with the
Classification Society, a Classification Society Program Manager is provided.
The Classification Society Program Manager shall be primarily responsible for
maintaining a complete and up-to-date awareness of all matters related to
classification, statutory certification, and other compliance verification
matters for which Classification Society is responsible and for communicating
such information to Purchaser and Contractor. Contractor agrees to authorize the
Classification Society Program Manager to provide Purchaser with a copy, in
English, of submittals and official responses to drawing reviews, procedure
reviews, and correspondence when dealing with and rectifying issues related to
the Vessel classification, statutory certification, and other compliance
verification matters for which Classification Society is responsible and will
authorize the Classification Society to grant visibility privileges to Purchaser
and other related project team members through ABS Eagle Construct/Engineering
Manager.  In addition, Contractor will give written permission for the
Classification Society to inform Purchaser and other related project team
members, or notify directly under Purchaser’s formal request, the

2

 

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classification status regarding pending and/or outstanding items and any other
relevant information about Contractor and subcontractor’s scope.  However
Purchaser agrees that any meetings or correspondence, whether formal, informal,
scheduled or unscheduled held or exchanged with the Classification Society to
discuss disputes concerning such matters shall be conducted jointly with
Contractor unless otherwise agreed to by Contractor.  Contractor shall, to the
extent reasonably within its control, also obligate all other certification,
verification, and compliance agents involved in the Vessels to keep the
aforesaid Classification Society Program Manager continuously apprised of
developments relating to their respective certification, verification, and
compliance functions. Contractor shall provide the Classification Society
Program Manager with the names and contact information for all such agents. It
shall remain Contractor’s responsibility to arrange and schedule all necessary
attendance with such agents and to ensure compliance with all classification
requirements, statutory requirements, and other standards elected under this
Contract. 

 

(2)      Purchaser agrees to accept all interpretations and final rulings issued
or made by the Classification Society. In the event Purchaser believes it has
discovered materials, appurtenances or Contract Work that does not conform with
Class Rules and Contractor does not agree with the view of Purchaser, then the
Parties may seek a final ruling from the Classification Society. Contractor
shall provide reasonable notice to Purchaser of any meetings with the
Classification Society specifically related to the identified non-conformance,
and shall authorize the Classification Society to provide to Purchaser all
correspondence related to the identified nonconformance, until an interpretation
or final ruling is rendered. For issues related to the design of the Vessel, the
Chief Surveyor of the Classification Society in Busan, Korea will provide the
final ruling of the Classification Society. With respect to issues related to
the fabrication, construction and quality of the Vessel, technical survey
questions, or exceptions to rules, the local Classification Society
representative in San Diego, CA will provide the final ruling of the
Classification Society. Contractor shall make reasonable efforts to ensure that
the local Classification Society representative consults with other
classification society resources as necessary to resolve such matters.

 

(c)      Delivery.  The Vessels shall be constructed at Contractor's
shipbuilding facility located at San Diego, California ("Shipyard").  When the
construction of each Vessel is complete or Substantially Complete (as defined
below) in accordance with this Contract, and the Vessel has satisfied the tests
required by this Contract, each Vessel shall be tendered by Contractor and
accepted by Purchaser (such tender and acceptance shall constitute “Delivery”
and such Vessel shall be deemed “Delivered”) at the Shipyard free and clear of
all mechanics, possessory or other liens or rights in rem of every nature,
whether arising by statute, common law or in admiralty, charges, encumbrances or
security interests placed in, created by or through Contractor, its
subcontractors or suppliers (herein collectively referred to as “Liens”),
excepting, however, Liens in favor of a claimant other than Contractor or its
subcontractors or suppliers, arising out of the acts or omissions of
Purchaser.  As used in this Contract, the term "Substantially Complete" shall
mean complete within the requirements of this Contract but for minor items,
which are defined by international standard shipbuilding and shipping practices
as items that do not substantially affect the commercial utility or safe
operation of the Vessel, do not negate or impair the required certifications set
forth below, prevent or limit the Vessel from

3

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trading or violate any material requirements of a Regulatory Body related to the
commercial utility or safe operation of the Vessel (“Minor Items”). In addition,
unless waived by Purchaser, the Vessel shall not be deemed to be Substantially
Complete if the mutually agreed to aggregate value of such Minor Items is in
excess of $[***].  Upon each such tender, as a protocol of Delivery, Contractor
shall provide:

 

(i)    A "Certificate of Actual Delivery and Completion of Vessel—Acceptance and
Receipt" (“Delivery Certificate”) substantially in the form of Exhibit A.  This
includes: trial data, inventory, stores and consumables, deadweight
determination, and certificates set forth below and in the Specifications, which
shall be executed on behalf of Contractor to certify completion of the Vessel
and on behalf of Purchaser to acknowledge receipt and acceptance, all subject to
such reservations as may be appropriate;

 

(ii)   A "Builder's Certification" on USCG Form 1261 (Rev. 5-82), or such
version thereof as may be current at the time of Delivery;

 

(iii)  An Interim Classification Certificate issued by the CS, classing the
Vessel as provided in the Specifications;

 

(iv)  Any and all other navigational and other certificates required by U.S.
Government regulations for vessels constructed in the United States and operated
in the Trade identified in the Specifications.

 

(d)      Effect of Delivery.  Any provision elsewhere contained in this Contract
to the contrary notwithstanding, all risk of loss or damage with respect to each
Vessel shall remain with Contractor until Delivery.  Delivery of each Vessel
shall not affect (i) Purchaser's rights under the GUARANTY AND LIMITATION OF
CONTRACTOR'S LIABILITY Article 19, and (ii) Purchaser's rights to completion by
Contractor thereafter of any uncompleted Contract Work and correction by
Contractor of any Deficiencies in the Contract Work as shown in the Delivery
Certificate in accordance with the determination described in the POST-TRIAL
INSPECTION Article 18.

 

(e)      Vessel Contract Delivery Dates.  Contractor shall tender each Vessel to
Purchaser on or before the following respective Delivery dates for each Vessel
which may be extended by mutual agreement of the Parties or as provided
elsewhere in this Contract (“Vessel Contract Delivery Dates”):

 

 

 

 

 

 

Vessel Contract

Vessel Number

    

Delivery Dates

 

 

 

Vessel 1 (Hull 601):

 

December [***], 2019

Vessel 2 (Hull 602):

 

June [***], 2020

 

Contractor advises that it has a number of commercial and U.S. government ship
construction contracts committing Contractor to construct various vessels (the
“other ship contracts”) and has granted options under the other ship contracts
for the construction of additional vessels.  Contractor represents and warrants
that the Vessel Contract Delivery Dates are being committed to taking into
account Contractor’s obligations under the other ship contracts.  [***]

 

4

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(f)      Possession of Vessel after Delivery.  Purchaser shall take possession
of each Vessel upon Delivery and shall remove the Vessel from the Shipyard
within ten days after its date of Delivery.  The Vessel may remain at the
Shipyard for a maximum of [***] additional days; provided however Purchaser
shall pay to Contractor mooring charges of $[***] per day during such [***]-day
period.

 

(g)      Early Delivery.  If Contractor plans to deliver a Vessel prior to the
Vessel Contract Delivery Date, Contractor shall give notice to Purchaser at
least three months prior to the revised Delivery Date. [***]

 

(h)      Master Schedule.  At [***] days after the Effective Date, Contractor
shall begin providing weekly status reports including but not limited to general
program issues, design status, procurement and supply chain schedule status,
program commitment report status, production status, and other metrics relevant
to the conduct of the program.

 

2                   SPECIFICATIONS AND VESSEL DRAWINGS

 

(a)      Specifications and Vessel Drawings.  The Contract design requirements
for construction of the Vessels are set forth in a document entitled
"SPECIFICATIONS, NASSCO Number CE0316-FS-RC," published by DSEC and Contractor
(herein called the "Specifications"), dated August 19, 2016.  The Specifications
include the General Arrangement drawing identified in Section 101 of the
Specifications.  In addition, Contractor shall cause DSEC to provide to
Purchaser a complete set in electronic format and in English of the Finished
Plans in accordance with the Specifications.  Together, the General Arrangement
drawing, and the Finished Plans are the “Vessel Drawings.”  The Specifications
are hereby incorporated by reference and made a part of this Contract.  Any
reference in this Contract to the Specifications shall be deemed to include both
the Specifications and the General Arrangement drawing. [***]. Contractor is
required to deliver each of the Vessels with an EEDI certificate [***].  Any
change in the Regulatory Requirements with respect to EEDI following the
Effective Date is subject to the provisions of REGULATORY REQUIREMENTS Article
11, paragraph (c)(4).  Contractor shall have no liability to Purchaser with
respect to compliance with EEDI requirements [***]. 

 

(b)      Drawings Approval.  The Vessel Drawings and, to the extent required,
Design Products (as defined in the DESIGN RIGHTS Article 10) have been or will
be approved by the Regulatory Bodies (as defined in the REGULATORY BODY
REQUIREMENTS Article 11) having jurisdiction over the Contract Work, as
identified in the Specifications, and any deficiency in the Vessel Drawings and
Design Products in meeting the requirements of such agencies shall be remedied
by Contractor, except as provided in the REGULATORY BODY REQUIREMENTS Article
11.

 

(c)      Order of Precedence.  If any discrepancy, difference or conflict exists
between the Specifications and any terms of this Contract, the provisions of
this Contract shall prevail over the Specifications.  If there is any
discrepancy, difference or conflict between the Specifications and the General
Arrangement drawing, the Specifications shall prevail.  If there is any
discrepancy, difference or conflict between the Specifications and any document
referred to in the Specifications or this Contract, the Specifications

 

5

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shall prevail.  Further, any work called for by this Contract, the
Specifications or the General Arrangement drawing, but not shown on the others
shall be deemed included in this Contract and shall be performed by Contractor
as part of the Contract Work.

 

(d)      Builder's Standards. Contractor shall provide Purchaser an existing set
of Builder's Standards within 10 business days of the Effective Date, and shall
update Purchaser's copy of such Builder's Standards as changes and additions are
released.

 

3                   PRICING

 

(a)      Definition of “Contract Price”. All amounts are stated in United States
dollars, and are subject to adjustment in accordance with the provisions of the
ECONOMIC PRICE ADJUSTMENTS Article 5.  The “Contract Price” shall equal the sum
of the Contract Base Price, as defined in paragraph (b) and as adjusted from
time to time pursuant to the CHANGES Article 6, plus or minus Economic Price
Adjustments.

 

(b)      Contract Base Price and Contract Price.  The “Contract Base Price” for
Vessels 1 and 2 as of the Effective Date, shall be as set out in the table
below.

 

 

 

 

Vessel Number

    

Price

 

 

 

Vessel 1, Hull 601(including spare shaft and propeller)

 

$278,000,000

Vessel 2, Hull 602

 

$233,000,000

 

The Contract Price for each Vessel includes a Purchaser’s allowance of up to
$[***] for spares and supplies to be selected by Purchaser for a total of
$[***].  Contractor shall, consistent with its normal purchasing and accounting
practices, purchase, arrange for delivery and put these supplies on the Vessel
prior to Delivery.  Any unexpended amounts from this allowance shall be offset
against amounts due to Contractor at Delivery of each Vessel.

 

4                   PAYMENTS

 

(a)      Payment of Contract Base Price.  Purchaser shall pay or cause to be
paid to Contractor the Contract Base Price, as may be adjusted from time to time
pursuant to this Contract, in the manner hereinafter provided in this Article.  

 

(b)      Initial Milestone Payment. Within five business days of the Effective
Date of this Contract a payment, refundable only per the provisions of
CONDITIONS Article 45 and DEFAULT OF CONTRACTOR AND PURCHASER’S REMEDIES,
Article 26, of 5% of the Contract Base Price of each Vessel.

 

(c)      Milestone Payments.  The amounts of Milestone payments are determined
by completion of Milestones in accordance with Exhibit D, entitled "Milestone
Payments”.  Subject to the provisions of paragraph (b) above, and unless
otherwise provided by this Contract, Purchaser shall make 100% Milestone
payments to Contractor upon the

 

6

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achievement of each Milestone. Contractor shall submit invoices for the
Milestone payments in accordance with paragraph (d) below.

 

(d)      Invoices and Payments.

 

(1)      Contractor shall submit its invoices for all payments to Purchaser by
fax or other electronic means, with the original invoice mailed the same
day.  Payments by Purchaser shall be due in immediately available funds that are
received via wire transfer no later than twelve business days after the date
such invoice is received (if by fax, other electronic means or courier with
confirmation of completed transmission or delivery, as the case may be), to a
bank to be specified by Contractor.  Late payments shall bear Interest (as
defined in paragraph (j) of this Article).

 

(2)      If Purchaser and Contractor do not agree on the achievement of a
Milestone, Purchaser shall pay the Milestone payment for such disputed Milestone
into an interest bearing escrow account ("Escrow") with the Escrow Holder (as
hereinafter defined) pending resolution, and the parties shall resolve the
dispute over the achievement of the Milestone pursuant to the DISPUTES Article
33.  When the Disputed Milestone Payment is subsequently agreed upon or
resolved, Purchaser shall within one business day release the Milestone Payment
from Escrow.

 

(e)      Withholding for Deficiencies.  The Contract Work shall be deemed
complete at the time of Delivery of each Vessel except for the items of
uncompleted work, defects or deficiencies identified in the Delivery
Certificate. Purchaser may withhold payment amounts as described below:

 

(1)      As to Minor Items that require correction and/or are incomplete at
Delivery, Purchaser shall be entitled to deposit into Escrow at Delivery for
every Minor Item that exists at Delivery an amount reasonably agreed to in good
faith by Contractor and Purchaser to reflect the value of the uncompleted work
or if not so agreed, Purchaser shall deposit $[***] for each such item.
Purchaser may (a) withhold from the Delivery Payment the aggregate amount
associated with the Minor Items, as security for correction of such items by
Contractor and deposit such sum into Escrow; or (b) deduct from the Delivery
Payment such amounts as Purchaser and Contractor agree to be deducted in lieu of
completion of work that will not be completed by Contractor and if amount of the
proposed reduction is more than the amounts due from Purchaser at Delivery, the
amount to be paid by Contractor to Purchaser.  If there shall be a dispute about
the amounts to be withheld or deducted, the matter shall be referred for
resolution under DISPUTES Article 33.

 

(2)      As security for the correction of Deficiencies that may occur during
the Guaranty Period, as provided in the GUARANTY AND LIMITATION OF CONTRACTOR'S
LIABILITY Article 19, Purchaser shall withhold a further amount of $[***] from
final payment with respect to each Vessel, and deposit such sum into Escrow.

 

(3)      Amounts withheld for correction of Minor Items pursuant to paragraph
(e)(1) shall be released from Escrow on a monthly basis for all items corrected
during the prior month for each Vessel.

 

7

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(4)      The amount held as security for correction of Deficiencies pursuant to
paragraph (e)(2) shall be released from Escrow upon expiration of the Guaranty
Period for each Vessel, provided that amounts may be retained in Escrow for
correction of Deficiencies reported but not corrected during the Guaranty
Period, with the aggregated amount retained in Escrow for each Vessel for such
purposes to be mutually agreed upon by Purchaser and Contractor at the
time.  Such amounts shall be released from Escrow for each Vessel on a monthly
basis for all Deficiencies corrected during the prior month.

 

(f)      Adjustments.  Adjustments shall be made to the Contract Base Price for
the purpose of computing milestone payments for the next invoice following the
execution of a contract change under CHANGES Article 6 that revises the Contract
Base Price. 

 

(1)      If there has been no agreement as to adjustment of the Contract Base
Price resulting from a change, the affected payments shall be paid provisionally
based on the Contract Base Price without adjustment and the matter shall be
referred for resolution under DISPUTES Article 33.  When disputed adjustments to
the Contract Base Price are resolved, Contractor shall promptly refund or
Purchaser shall make an appropriate adjustment in subsequent payments to reflect
any variance between the amount paid by Purchaser and the final resolution,
together with Interest (as defined below) from the date of provisional payment.

 

(g)      Withholding of Liquidated Damages.  In accordance with the provisions
of VESSEL PERFORMANCE Article 7 and the DAMAGES FOR DELIVERY Article 9,
Purchaser shall be entitled to deduct from amounts payable pursuant to this
Article any amount agreed to be due to Purchaser as Liquidated Damages.

 

(1)      To the extent that such amount owed by Contractor as Liquidated Damages
exceeds the next amount that would otherwise be payable by Purchaser to
Contractor under this Article, Contractor shall remit such excess amount
promptly to Purchaser.

 

(2)      If agreement is not reached on the amount payable pursuant to VESSEL
PERFORMANCE Article 7 and DAMAGES FOR DELIVERY Article 9, Purchaser may withhold
payment of the total amount claimed by Purchaser from payments of the Contract
Price as Liquidated Damages and deposit such amount into the Escrow pending
resolution pursuant to the DISPUTES Article 33.  When the disputed amount is
resolved, Contractor shall release the agreed or resolved upon amount from
Escrow to Purchaser in settlement of the Liquidated Damages issue.  Should the
amount deposited into Escrow exceed the agreed or resolved upon amount,
Purchaser shall release the excess amount from Escrow in favor of Contractor
concurrently with Contractor releasing the agreed or resolved Liquidated Damages
amount from Escrow in favor of Purchaser.

 

(h)      Withholding Delivery.  Notwithstanding any other provision of this
Contract, Contractor shall not be obligated to deliver any Vessel until all
amounts with respect to such Vessel then due from Purchaser to Contractor have
been paid to Contractor or into Escrow, including, without limitation, any
amounts claimed by Contractor from Purchaser that remain in dispute, and,
failing such payment, the Vessel Contract Delivery Date shall be extended as
long as any such amounts are outstanding, without prejudice to Contractor's
rights and remedies for nonpayment by Purchaser pursuant to the provisions

 

8

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of this Contract, and without triggering any liquidated damages for late
Delivery under the DAMAGES FOR DELIVERY Article 9.

 

(i)      Interest  Amounts payable by either Party under this Contract, which
are not paid into Escrow when due, shall bear interest from the date on which
such payment was due, at a rate per annum equal to the prime rate (“Prime Rate”)
of interest charged by the Bank of America plus [***]% (“Interest”).  “Prime
Rate” is the base rate that Bank of America from time to time establishes and
that serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto.  Each change in the Prime Rate shall
become effective at 12:01 a.m. on the day such change becomes effective.  In the
event the Prime Rate is no longer available from Bank of America, the Parties
agree to negotiate in good faith to designate a replacement bank’s interest rate
to serve as the Prime Rate.

 

5                   ECONOMIC PRICE ADJUSTMENTS

 

(a)      The Contract Base Price is a base price. The Contract Base Price shall
be subject to adjustment as described in this Article.

 

(b)      Steel.  

 

(1)      Definitions and Indices. For purposes of this Article, "Steel $" shall
be defined as the dollar amount of the Contract Base Price identified as "Steel
Materials". Economic Price Adjustments for Steel shall be calculated using the
American Metal Market (AMM) Monthly Domestic Prices for Carbon Steel Plate Cut
to Length (“AMM Index”). The "Current Period" is defined as the 3 month period
commencing with the month four months prior to the estimated start of
construction milestone as set forth in a notice to Purchaser from Contractor for
each Vessel. The "Current Period Index" is defined as the arithmetic average of
the monthly values of the AMM Index published for the Current Period. The Base
Price Index is $[***] per hundred pounds, or centum weight ($/cwt), which is the
value of the AMM Index [***], the price used to calculate Steel $ and the Base
Contract Price at the time this Contract was formed.

 

(2)      Computation. For each Vessel, an Economic Price Adjustment for Steel
shall be computed using the following formula:

 

Steel $ [***] ((Current Period Index – Base Price Index) ÷ Base Price Index).

 

(3)      Invoicing and Payment of Economic Price Adjustment. At 30 days prior to
the start of construction of each Vessel, Contractor shall compute the Economic
Price Adjustment for such Vessel.  If a positive adjustment results, Contractor
shall invoice Purchaser, and Purchaser shall pay such adjustment within ten
business days of Contractor's invoice.  If a negative adjustment results,
Contractor shall credit such adjustment for prior Milestone payments against the
next Milestone payment(s) to be invoiced to Purchaser.

 

9

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6                   CHANGES

 

(a)      No Departures from Design.  Contractor shall not depart from the
requirements of the Specifications or make any changes to the Contract Work
("Changes") except in accordance with the provisions of this Article, VESSEL
PERFORMANCE Article 7 or REGULATORY BODY REQUIREMENTS Article 11.

 

(b)      Change Proposed Form.  For purposes of this Contract, Changes in the
Contract Work shall be classified as "Essential Changes" and "Non-Essential
Changes."  Each Change shall require a change proposal form ("CPF"), the form of
which is set out in Exhibit B hereto, be proposed in writing by Contractor or
Purchaser, as the case may be.

 

(c)      Essential Changes.  Essential Changes shall be Changes in the Contract
Work required under REGULATORY BODY REQUIREMENTS Article 11.  If either
Purchaser or Contractor should believe that an Essential Change is required it
shall promptly notify the other thereof.  If Contractor and Purchaser do not
agree in writing that a proposed change is an Essential Change, either Party may
treat the matter as a dispute to be resolved as provided in the DISPUTES
Article 33.  Non-Essential Changes shall be all changes other than Essential
Changes.

 

(d)      Purchaser Changes.  Purchaser may propose to Contractor in writing any
Non-Essential Change to the Contract Work on a CPF.  For both Essential Changes
and Purchaser-proposed Non-Essential Changes, Contractor shall promptly review
such proposal and submit to Purchaser within 15 days a detailed written estimate
of the impact of the change ("Change Impact") on the Contract Base Price, Vessel
Contract Delivery Dates, Vessel Key Performance Requirements, and weights and
moments, unless a Non-Essential Change request is rejected in accordance with
paragraph (g) of this Article.  If Contractor and Purchaser agree in writing
upon the Change Impact within 15 days of Purchaser's receipt of Contractor's
estimate and completed CPF, Contractor shall include the Change in the Contract
Work and the Contract Base Price, Vessel Contract Delivery Dates, Vessel Key
Performance Requirements, and weights and moments shall be amended
accordingly.  Contractor shall not be obligated to accept or perform
Non-Essential Changes proposed by Purchaser.

 

(e)      Contractor Changes.  Contractor may propose to Purchaser in writing any
Non-Essential Change to the Contract Work.  Contractor shall transmit to
Purchaser its proposed change accompanied by a detailed written estimate of the
Change Impact on a CPF.  Purchaser shall have 15 days after receipt to accept,
reject or recommend revisions to Contractor's proposed Change and CPF.  If
Purchaser does not take any action within such 15 day period, Contractor’s
proposed change shall be deemed rejected.

 

(f)      Disagreements.  Whenever the Parties disagree as to the Contract Work
requirements or Change Impact of an Essential Change, Purchaser may direct
Contractor to implement the Essential Change, and Contractor shall perform in
accordance with such direction.  If Contractor performs pursuant to any such
direction without prior agreement as to Change Impact, such performance shall be
without prejudice to either Party's rights, if any, to an adjustment of the
Contract Base Price, Vessel Contract Delivery Dates,

 

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Vessel Key Performance Requirements, and weights and moments in accordance with
DISPUTES Article 33, provided that Contractor has, prior to commencing such
performance, notified Purchaser in writing of the disagreement.

 

(g)      Cost of Estimates.  In all cases where Changes are proposed by
Purchaser, all costs incurred by Contractor in preparing an estimate of the
Change Impact shall be paid to Contractor by Purchaser as part of the Change if
the Change is authorized by Purchaser.  [***]

 

(h)      Execution of Contract Changes.  The CPF shall be an agreed amendment to
this Contract upon execution by both of the Parties.  Any changes to the
Contract provisions specifically identified on an executed CPF for a stand-alone
change shall become a part of this Contract as if the appropriate Contract page
had been replaced to reflect the revised values and language shown on the
executed CPF.

 

7                   VESSEL PERFORMANCE

 

(a)      Vessel Key Performance Requirements, Verification and Penalties.  While
each Vessel, upon Delivery, is required to meet the requirements of this
Contract, subject to the POST-TRIAL INSPECTION AND ACCEPTANCE Article 18,
certain Key Performance Requirements are deemed to be fundamental to the
Vessel’s commercial utility and value to Purchaser.  Contractor shall verify
each Vessel’s compliance with the Key Performance Requirements of this Article
in accordance with the test and trials methodologies detailed in the
Specifications.  Such verification shall include the extent to which the Vessel
fails to meet, meets, or exceeds the Key Performance Requirements.  If any
Vessel's performance does not meet any of the Key Performance Requirements,
Purchaser will suffer damages that are difficult to determine.  By way of
limitation of Contractor’s liability for such failure, and in lieu of actual
damages and all other remedies of Purchaser for such failure, the Contract Base
Price shall be adjusted downward as set forth in this Article. 

 

(1)      Service Speed Requirement and Verification: The “Service Speed” of the
Vessel at the design draft of 11.5 meters (”m”) on even keel shall be 23.0 knots
with the main engine running at [***]% of its maximum continuous rating (“MCR”)
(at [***] kW with [***]% sea margin). Speed shall be measured during sea trials
at a ballast draft condition and with the trial data corrected for wind, waves,
swell, and Vessel bottom cleanliness in accordance with the Specifications and
other conditions stated herein. Service Speed shall be rounded to the nearest
tenth of a knot with the Main Engine Operating at [***]% MCR ([***] kW) with
[***]% sea margin.  Early in the design process ship model tests shall be
conducted to refine the hull form in order to confirm the Vessel’s predicted
service speed for the range of operating drafts and trims defined in the
Specifications.  [***]  Vessel 1 verification results for Service Speed shall be
extended to subsequent Vessels where there have been no changes to the hull
form, loading, ballast or trim conditions or changes to the Vessel components
that would affect Service Speed.  Service Speed trials for Vessel 1, and each
subsequent Vessel for which verification is required as a result of a Change,
shall be conducted and measured utilizing the following procedural practices:

 

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1.     The sea trial speed test shall be conducted in water with a depth greater
than 100m and at a deep ballast draft corresponding to the model tests.

 

2.     Weather and sea conditions shall be Beaufort 3 or less.

 

3.     Assessment of the distance traveled for determining the performance speed
shall be conducted by means of DGPS (Differential Global Positioning System).  

 

4.     The influence of rudder helm during the test shall be minimized in
accordance with the standards set forth in International Standards Organization
(ISO) 15016 “Ships and Marine Technology – Guidelines for the Assessment of
Speed and Power Performance by Analysis of Speed Trial Data.”

 

5.     The speed trial shall consist of runs in alternate directions at each of
four power levels defined in the Contract Specifications.

 

6.     Results of speed trial shall be corrected to calm water (no wind, no
waves, no current) according to ISO 15016 “Ships and Marine Technology –
Guidelines for the Assessment of Speed and Power Performance by Analysis of
Speed Trial Data”.

 

(i)  Where performance does not meet requirements:  No liquidated damages shall
be payable for the first [***] knots less than [***] knots; $[***] for each of
the [***] knot increments less than [***] knots; and $[***] for each of the
[***] knot increments less than [***] knots. Service Speed shall be rounded to
the nearest tenth of a knot.

 

(2)      Main Engine Fuel Consumption Requirement and Verification:  The
specific fuel consumption rate in fuel oil mode for each Vessel’s main diesel
engines shall not exceed [***] grams/kilowatt-hour (g/kW-h) with an allowance of
[***]% at [***]% Maximum Continuous Rating (MCR) in Tier III mode, [***] kW at
[***] RPM, as defined in the Specifications. All calorific values to be
corrected to ISO standards.  The specific fuel consumption rate is defined using
fuel oil with lower caloric value of [***] kJ/kg and International Standards
Organization (ISO) 3046/1-2002(E) conditions, Ambient Air Temp [***] degrees
Celsius, Blower Inlet Pressure [***] mbar (measured at shop test bed).  Vessel 1
verification results shall be extended to subsequent  Vessels where there have
been no configuration changes to the Vessel or equipment and material that would
impact performance for the Main Engine Fuel Consumption.  Fractions of 1% shall
be rounded to the nearest 1%.

 

(i)  Where performance does not meet requirements:  No liquidated damages shall
be due for the first [***]% of specific fuel oil consumption rate above [***]
g/kW/h.  Liquidated damages shall be due in the amount of $[***] for each [***]%
of specific fuel oil consumption in excess of the above fuel consumption rate up
to $[***].  If the fuel consumption rate is [***]% in excess of the specified
fuel oil consumption rate of [***] grams/kilowatt-hour, the amount of liquidated
damages shall be $[***].  Fractions of 1% are to be rounded to the nearest 1%.

 

(4)      Homogenous Container Capacity Requirement and Verification:    The
number of loadable containers with [***] per TEU shall be 2,750 TEUs at the
design

 

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draft of 11.5 m in accordance with the Westbound condition as described in
Section 115 of the Specifications and calculated based on the conditions
detailed for loadable container capacity in that section.  All containers
(except 20’s which shall be 8’6” high) in holds and on deck shall be assumed as
9’-6” high for this calculation.   The stowage locations for the loadable
containers shall be verified in accordance with Sections 238 and 314.1 of the
Specifications by testing each container fitting location in a manner consistent
with Contractor’s standard practices and verifying fitting installation to
dimensional tolerances outlined in the Specification and the Class Rules and
Guidelines.

 

(i)   Where performance does not meet requirements: Purchaser has the option to
receive $[***] for each TEU below [***] TEU.

 

(b)      Vessel Adjustments.  In lieu of the Contract Base Price Adjustments
specified in paragraph (a) of this Article, and provided Contractor conforms to
the requirements of the Specifications and  the General Arrangement, Contractor
shall have the right, at its own expense, at any time prior to Delivery, to make
reasonable adjustments or modifications to any Vessel to cause such Vessel to
meet the Key Performance Requirements specified in paragraph (a) of this
Article, provided Contractor shall obtain any required Regulatory Body approval
for such adjustments or modifications and approval of Purchaser, which approval
shall not be unreasonably withheld.  Any such changes shall be documented in a
CPF indicating the specific changes at no cost to Purchaser and no delay to
delivery.

 

(c)      Effect of Changes.  The Key Performance Requirements set forth in
paragraph (a) of this Article are based on the Vessels as described and
delineated in the Specifications, and such Requirements shall be changed to take
into account any Contract Work change required or approved pursuant to the
CHANGES Article 6 only to the extent set forth in a CPF.  Contractor shall
promptly notify Purchaser if Contractor believes that any changes in the
Regulatory Requirements under REGULATORY BODY REQUIREMENTS Article 11 may
require a change to the Key Performance Requirements and the Parties will
endeavor to agree as to any changes to this Article.

 

(d)      Disagreements.  If either Party claims a Contract Base Price adjustment
pursuant to paragraph (a) of this Article, and if there is disagreement as to
any such proposed adjustment, Contractor or Purchaser, as the case may be, shall
deposit the disputed amount in Escrow and such amount shall be released to
Purchaser or Contractor as subsequently agreed upon or resolved pursuant to
DISPUTES Article 33.

 

8                   FORCE MAJEURE

 

(a)      Force Majeure.  Any delays in, or failure of performance by, either
Purchaser or Contractor shall not constitute a default under this Contract or
give rise to any claim for damages if, and to the extent, any such delay or
failure of performance is caused by the occurrence of Force Majeure.  The term
“Force Majeure” shall mean any cause (hereinafter the “Force Majeure Cause(s)”),
whatsoever beyond the reasonable control and without the fault of the Party
claiming Force Majeure, excluding any such causes that are in existence as of
the date of execution of this Contract, or, as to a cause impacting a
subcontractor, a cause that is actually known to Contractor or to the party or
parties to the subcontract as of the date of execution of the subcontract.  The
Party

 

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claiming Force Majeure must be unable to mitigate or prevent through
commercially reasonable efforts the Force Majeure Cause(s); and the Parties
acknowledge and agree that neither Party shall be required to incur commercially
unreasonable costs in its efforts to mitigate or prevent such Force Majeure
Causes.  Force Majeure shall include, without limitation or prejudice to the
generality of the foregoing, delay caused by any Regulatory Body whose approvals
or documents are required under this Contract, including delay caused by
different or inconsistent interpretations of governing rules or regulations;
Government priorities; civil, naval or military authorities; import or export
restrictions; delay caused by the US Government or any other government acting
in its capacity as sovereign; interruption or curtailment of utility services;
Acts of God (including hurricanes, earthquakes, lightning, floods or
extraordinarily severe wind or weather, but excluding ordinary storms and
inclement weather conditions); strikes, sympathy strikes, or other industrial
disturbances; explosions, fires, and vandalism; riots, insurrections, acts or
threats of terrorism, sabotage, blockades, embargoes, and epidemics; material
shortages of skilled workers provided that Contractor has exercised diligence in
the recruitment and training of labor; Force Majeure delays in other contracts
being performed by Contractor, where such delay results from causes herein
described that also delay the construction of any Vessel; delays by land, sea or
air carriers; the unavailability or late delivery to Contractor of machinery,
equipment and supplies which this Contract requires be incorporated in the
Vessels, provided that at the time of ordering the same could reasonably be
expected by Contractor to be delivered on time, Contractor’s choice of the
vendor was reasonable and Contractor has exercised due diligence to monitor the
actions and to expedite delivery by the vendor or to obtain substitute
performance; and, the late performance or default of a supplier, provided that
Contractor’s choice of the supplier was reasonable and responsible at the time
of supplier selection and Contractor exercised reasonable efforts in managing
its suppliers.

 

(b)      Notification of Claim.  When a Force Majeure event becomes known by
Contractor or Purchaser, the Party claiming Force Majeure shall promptly notify
the other Party in writing and no longer than 25 days after knowledge has come
to the Party.  Such notice shall include, as may be practical, an estimate of
the impact of Force Majeure on the Vessel Contract Delivery Date for any
affected Vessel and the proposed recovery plan.  The Party claiming a Force
Majeure event shall provide updates every 14 days to report the status when such
event continues to potentially delay Delivery for a period that exceeds 21 days
from the start of the impact.  Failure of the Party to provide notification of
any claim for Force Majeure within such 25 days shall be deemed to be a waiver
by the Party of its right to propose such Force Majeure.

 

(c)      Force Majeure Extension.  Either Party may request an extension of the
relevant Vessel Contract Delivery Date by a number of days not to exceed the
number of days that the Vessel Contract Delivery Date was delayed by Force
Majeure.

 

(d)      Support for Claim.  As soon as practicable after a Force Majeure cause
of delay has ceased to exist, the Party claiming Force Majeure shall furnish to
the other Party a detailed written statement of the proposed delay in the Vessel
Contract Delivery Dates resulting from such cause for any affected Vessel along
with a recovery plan.  When the amount of a Force Majeure delay has been agreed
to, the Parties shall execute a Contract Change in accordance with the CHANGES
Article 6 to adjust the Vessel

 

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Contract Delivery Dates.  If the Parties are unable to resolve either the
existence or magnitude of a Force Majeure delay within a reasonable period of
time, resolution shall be made in accordance with the DISPUTES Article 33.  The
burden of proof in such disputes shall be on the Party claiming Force Majeure.

 

9                   DAMAGES FOR DELIVERY

 

(a)      Damages for Delays.  If Contractor fails to deliver any Vessel more
than [***] days after its Vessel Contract Delivery Date, Purchaser will suffer
damages that are difficult to determine.  Contractor shall pay to Purchaser
Liquidated Damages in lieu of actual damages, not as a penalty, and as a
complete limitation of Contractor’s liability for late Delivery.  Liquidated
damages shall accrue for each Vessel at the rate of $[***] per day for each day
elapsing after [***] days past the Vessel Contract Delivery Date.  Liquidated
damages shall cease to accrue upon the date of Delivery of the Vessel, which day
shall not count for accrual of liquidated damages.

 

(b)      Limitation of Liquidated Damages.  The total liability of Contractor
for delay in Delivery of any Vessel shall not exceed Liquidated Damages payable
for [***] days of delay beyond the initial grace period of [***] days, or
$[***]. Payment of Liquidated Damages to Purchaser shall be as set out in
PAYMENTS, Article 4.

 

(c)      Purchaser’s Right to Terminate in Case of Delay.  If Contractor is more
than [***] days behind on any construction milestone set forth in Contractor’s
Major Milestone Schedule (reflecting the Delivery Dates as contained in this
Contract) as first provided to Purchaser not later than [***] days after the
Effective Date of this Contract for a Vessel (in such event, a "Delayed
Vessel"), excluding any delays to the extent attributable to a Force Majeure
event or to Purchaser's actions or inactions, Purchaser shall in its sole
discretion elect by written notice to Contractor to either (i) continue
performance under this Contract; or (ii) terminate this Contract with respect to
the Delayed Vessel. If Purchaser has not provided such written notice to
Contractor within 30 days after being notified in writing by Contractor of such
[***]-day delay with respect to a Delayed Vessel, then Purchaser shall have been
deemed to have elected to continue performance under this Contract.  In the
event Purchaser elects to terminate this Contract with respect to a Delayed
Vessel under this Article 9(c), Contractor shall refund all amounts that have
been paid to Contractor under this Contract with respect to such Delayed
Vessel.  The refund shall be Purchaser’s sole and exclusive remedy.

 

10                 DESIGN RIGHTS

 

(a)      Vessel Design.  The Parties acknowledge and agree that:

 

(i)      In performing this Contract, Contractor will, or Contractor will cause
DSEC to, produce specifications, drawings, calculations, computer models and
other technical data (“Design Products”) during the various Vessel design phases
to reflect the design of the Vessels embodied in the Specifications and the
Vessel Drawings; and

 

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(ii)      The design of the Vessels represents the accumulated experience,
knowledge and expertise of DSEC and Contractor, and such design, including any
subsequent changes thereto, as contained in the Specifications, the Vessel
Drawings, and the Design Products (“Vessel Design”), is intellectual property
proprietary to DSEC and Contractor and has substantial commercial value.

 

(b)      Design Rights.  Contractor and DSEC reserve to themselves, as separate
parties and collectively, all right, title and interest in and to the Vessel
Design, and each reserve the right to use and the right to sell the Vessel
Design.

 

(c)      License to Purchaser. Contractor grants to Purchaser (including others
providing services to Purchaser with respect to a Vessel), and its assignees and
any subsequent owners or operators of a Vessel, a perpetual, worldwide,
royalty-free license to use, including without limitation to reproduce and to
make derivative works, the Vessel Design, including the Specifications, the
Vessel Drawings, the Design Products and the plans and working drawings,
technical descriptions, calculations, test results and other data, information
and documents, and all intellectual property therein, concerning the design and
construction of the Vessel (jointly the “Contractor’s Vessel Design Materials”)
strictly limited for the operation, repair, maintenance, modification,
reconstruction, and classification of the Vessel or as must otherwise be
provided to regulatory authorities in connection therewith.  This license is
subject to Purchaser, its assignees and any subsequent owners or operators of a
Vessel agreeing to not disclose any portions of Contractor’s Vessel Design
Materials in whole or in part so as to enable third parties (excluding ABS, USCG
or any other regulatory body) to construct, or have constructed, a vessel of the
same design as the Vessels.  The license is an integral part of a Vessel and the
license transfers automatically with a Vessel when a Vessel is sold, thereby
terminating the license with the former Purchaser, assignee or owner or operator
to use Contractor’s Vessel Design Materials for any reason
whatsoever.  Contractor warrants that Contractor has full right, title and
interest in Contractor's Vessel Design Materials and is entitled to grant the
licenses to Purchaser under this Contract and that Contractor’s and DSEC’s
contributions to the Vessel Design Materials, including the plans will not
infringe the patent, copyright, trademark or trade secrets rights of any third
party.  Prior to making any disclosures of any Contractor’s Vessel Design
Materials to any third party, including operators, Purchaser shall enter in a
confidentiality agreement with the third party as required by CONFIDENTIALITY
Article 39. 

 

(d)      Purchaser-Furnished Design.  If Purchaser furnishes design or
engineering data relating to the Vessels to Contractor (“Purchaser-Furnished
Design or Data”), all such design and engineering data shall be the sole
intellectual property of Purchaser.  Contractor shall use such design or
engineering data solely for the purpose of performing this Contract.  Unless
otherwise directed by Purchaser, Contractor shall take all reasonable
precautions to maintain, in confidence, all such data provided by Purchaser
other than data which is known to Contractor at the time provided to be of a
non-proprietary nature, or data that is, or becomes, available to Contractor
from sources other than Purchaser, or data that is independently developed by
Contractor, or its affiliates, agents and representatives without reference to
Purchaser-Furnished Designs or Data.  Contractor shall not be precluded from
disclosing to third persons Purchaser-Furnished Designs or Data which may be
necessary for the prosecution of the Contract Work,

 

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provided only that, in making such disclosures, Contractor shall impose upon
such third persons restrictions relating to the safeguarding to the same extent
as have been imposed on Contractor.  Contractor shall not be liable for
unauthorized actions of its employees in disclosing Purchaser-Furnished Designs
or Data, provided that Contractor has taken commercially reasonable precautions
to safeguard such data.

 

(e)      Design Re-Use. From the Effective Date of this Contract and for a
period of [***] following the delivery of Vessel 2 to Purchaser, Contractor
shall not contract for the construction of a vessel using the Vessel Design for
this Contract with any third party without the Purchaser’s prior written
consent.  After such [***] period, Contractor may use the Vessel Design in the
construction of vessels for others upon payment by Contractor to Purchaser of a
one-time fee of $[***].  For the avoidance of doubt:

 

(i)      Nothing in this Contract shall prevent Contractor or DSEC from
designing or building vessels, including containership vessels, for any third
party at any time provided that the vessels do not incorporate the Vessel
Design.

 

(f)      Intellectual Property.  Except as otherwise provided in this Article,
Purchaser agrees that Contractor shall be the owner of all inventions,
technology, designs, works of authorship, mask works, technical information,
computer software, business information and other information conceived,
developed or otherwise generated in the performance of this Contract by or on
behalf of Contractor. Purchaser assigns and agrees to assign all right, title,
and interest in the foregoing to Contractor, including without limitation all
copyrights, patent rights, trade secret rights and other intellectual property
rights and further agrees to execute, at Contractor’s request and expense, all
documentation necessary to perfect title in such materials in Contractor;
provided that Contractor grants to Purchaser and its assignees and subsequent
owners or operators of the Vessel a limited use license to all such intellectual
property pursuant to this Article, including the terms set forth in Article
10(c) above.

 

11                 REGULATORY BODY REQUIREMENTS

 

(a)      Regulatory Requirements.  Contractor and Purchaser acknowledge and
agree that, as set forth in the Specifications and US Federal and California
State law pertaining to workplace conditions affecting the employees or the
public and environmental standards and requirements and regulations, the
Contract Work is subject to certain state, federal and international
conventions, statutes, regulations, classification rules, standards,
interpretations, and practices including without limitation those required for
operation of the Vessels in the Trade (“Regulatory Requirements”).

 

(b)      Regulatory Bodies; Communications with Regulatory Bodies.  Contractor
and Purchaser acknowledge and agree that the Regulatory Requirements are
administered by United States federal, state and local government agencies,
organizations, societies, other authoring organizations of Regulatory
Requirements and the CS (“Regulatory Bodies”).  All plans or data required by
the CS or other relevant Regulatory Bodies in connection with approval of the
Vessels shall be prepared and

 

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submitted by Contractor or its subcontractors and suppliers, except such data
that is explicitly requested by the relevant Regulatory Body to be submitted by
Purchaser. 

 

(c)      Compliance. Except as to Minor Items as defined in STATEMENT OF WORK
Article 1(c), Contractor shall comply and Contractor guarantees that at Delivery
the Vessels shall be in compliance with the Regulatory Requirements as
administered by the Regulatory Bodies, notwithstanding that there may be shown
in or on any Vessel Drawings or Design Products or set out in the Specifications
contradictory requirements for any item of Contract Work, and notwithstanding
any approvals shown upon said Vessel Drawings and Design Products, subject,
however, to the following:

 

(1)      If the Specifications specifically require work in excess of that
required by a Regulatory Requirement enacted or adopted by a Regulatory Body,
such specifically required work shall be performed by Contractor, at its
expense, as Contract Work required by this Contract;

 

(2)      If the Specifications require work which is less than that which was
required by a Regulatory Requirement enacted or adopted by a Regulatory Body on
or before the Effective Date, Contractor shall perform, at its expense, the work
required by the Regulatory Body as Contract Work required by this Contract; and

 

(3)      If the Specifications require work that is less than the work required
by any Regulatory Requirements which have been enacted on or before the
Effective Date by a Regulatory Body, even if said Regulatory Requirements come
into effect at a future date (including any work required by regulation, order,
rule or standard, change in interpretation or practice by the local or national
office of a Regulatory Body), Contractor shall perform the work required by
those Regulatory Requirements at its expense as Contract Work required by this
Contract.

 

(4)      If the Specifications require work that is less than that required by
any Regulatory Requirement enacted or adopted by a Regulatory Body after the
Effective Date (including any effort required by regulation, order, rule or
standard, change in interpretation or practice by the local or national office
of a Regulatory Body) or that required by any other action or interpretation
enacted, adopted or issued after the Effective Date under any existing or future
statute, Contractor shall perform the required effort, but if said requirement
causes a Change Impact, the Contract Base Price, Key Performance Requirements,
and Vessel Contract Delivery Dates shall be adjusted pursuant to the provisions
of the CHANGES Article 6.

 

(d)      Contractor shall notify Purchaser pursuant to the CHANGES Article 6 if
it learns at any time of an implemented or prospective change in Regulatory
Requirements that is, or might, apply to any of the Vessels to be constructed
under this Contract.  Contractor is responsible for implementing any change in
the Specifications necessary to incorporate such change in Regulatory
Requirements, in accordance with the CHANGES Article 6.

 

(e)      If at delivery a Vessel shall fail to meet the Regulatory Requirements,
this shall be treated as Deficiencies under POST-TRIAL INSPECTION AND ACCEPTANCE
Article 18 and subject to Contractor’s guarantees under GUARANTY AND LIMITATION
OF CONTRACTOR’S LIABILITY Article 19.

 

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(f)      OFAC Requirements.  Contractor warrants that Contractor is not, and
agrees not to use any subcontractor that is, (a) a person whose name appears on
the list of Specially Designated Nationals and Blocked Persons published by the
Office of Foreign Assets Control, U.S. Department of Treasury (“OFAC Listed
Person”) or (b) a department, agency or instrumentality of, or is otherwise
controlled by or acting on behalf of, directly or indirectly, any OFAC Listed
Person or the government of a country subject to comprehensive U.S. economic
sanctions administered by OFAC, currently Iran, Sudan, Cuba, Burma, Syria and
North Korea.

 

12                 SUBMISSION OF DESIGN PRODUCTS

 

(a)      Submission.  Contractor may produce Design Products in any reasonable
format, including, but not limited to, paper and electronic formats.  Contractor
shall submit to Purchaser those Design Products identified in the Drawing List
in English.  Within thirty (30) days after the date hereof, the parties hereto
shall mutually agree upon a list of the plans and drawings for the Vessel to be
submitted to Purchaser and the submittal schedule.

 

(b)      Purchaser Review and Verification Rights.  Those Design Products
identified by the Drawing List as ”For Submittal” shall be submitted to
Purchaser for information and comment.

 

(1)      Design Products that require approval by the Regulatory Bodies shall be
submitted to, and receive approval from, the cognizant Regulatory Body.  Those
Design Products also will be submitted to Purchaser for information
only.  Calculations, simulations or other validations submitted to the
Regulatory Bodies in support of Regulatory Body approval also will be provided
to Purchaser for information and comment.

 

(2)      Purchaser may review and verify that Design Products meet the
requirements of the Specifications and provide Contractor with comments on any
Design Products that in Purchaser’s opinion do not conform to the requirements
of the Specifications.  Purchaser shall provide such comments on any Design
Products within 14 days after receipt of the documentation by Purchaser, and
shall cite with specificity those portions of the Specifications to which
Purchaser believes the Design Products do not conform.  Purchaser’s review of
Design Products shall not relieve, or in any way diminish, Contractor's
obligations under this Contract.

 

(3)      If Purchaser identifies a non-conformance with the Specifications on a
Design Product, Contractor, to the extent that Contractor agrees that such
comment is a non-conformance, shall take the required corrective action and
resubmit the affected Design Product to Purchaser.  Contractor shall be
responsible for obtaining Regulatory Body approval of any changes to
previously-approved Design Products that result from Purchaser’s comments. 

 

(c)      Method of Transmission.  Contractor may submit Design Products, and
Purchaser may transmit comments, by personal delivery, fax, overnight delivery
service or electronic means, as appropriate to the format of the Design Product,
and as agreed by the Parties.

 

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(d)      Computer Software and Computer Equipment.  Purchaser shall be
responsible for procuring and maintaining its own computer software licenses and
computer equipment necessary to view and use Design Products.  Contractor shall
assist Purchaser by identifying the specific software products and versions
required and suppliers of such software.

 

13                 MATERIAL AND WORKMANSHIP

 

(a)      Material and Workmanship Standards.  Unless otherwise specifically
provided in the Specifications, all workmanship shall be of commercially
acceptable quality suitable for marine use, and all equipment, material, and
supplies incorporated in each Vessel shall be new, with no more than normal
production repair of any manufacturing Deficiencies, and a suitable grade for
their purpose.  Any operating equipment shall be accepted by Purchaser with the
wear or other characteristics normally associated with operation of that type
equipment (e.g., minor scratches of exterior paint).

 

(b)      Minor Repairs to Material.  Contractor shall be responsible for the
adequacy of any minor repairs to material, provided such minor repairs do not
adversely affect or impact the Vessel(s) safe operation or performance or limit
the Vessel(s) ability to trade or void warranty requirements.  Contractor shall
be responsible for obtaining any necessary CS survey and approval of minor
repairs that require classification.

 

(c)      Purchaser Questions Regarding Material Condition.  If Purchaser has
reason to question the condition or origin of an item of equipment, material or
supplies, Contractor shall furnish information concerning the origin and history
of that item.  For those items surveyed by the CS, its acceptance of the origin
and history of that item shall eliminate any need for further response to any
Purchaser question regarding condition or origin except as may be required by
Regulatory Bodies or CONDITIONS Article 45.

 

14                 INSPECTION

 

(a)      Inspection.  Contractor shall develop and provide to Purchaser a
schedule for all material, equipment and workmanship, unless otherwise
designated by the Specifications or this Contract, that shall be subject to
inspection by Purchaser’s Representatives, as defined in PURCHASER USE OF
CONTRACTOR FACILITIES Article 36.  Inspections shall be completed by Purchaser’s
Representatives who are reasonably acceptable to Contractor and have been vetted
by Contractor prior to their commencing work on this project, which approval
shall not be unreasonably withheld.  Any Deficiencies (as defined in the
POST-TRIAL INSPECTION AND ACCEPTANCE Article 18) discovered during inspections
shall be promptly reported to Contractor in writing.

 

(b)      Inspection at Shipyard.  Contractor shall provide and maintain,
throughout the term of this Contract, a Quality Management System that, at a
minimum, adheres to the requirements of ANSI/ISO/ASQ 9001:2008 or ANSI/ISO/ASQ
9001:2015 Standard for Quality Management Systems as applicable, for design,
development, production, installation and servicing conducted under this
Contract.  Inspections shall be performed in accordance with the procedures
documented in Contractor’s Quality Management

 

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System.  Contractor shall provide Purchaser with an inspection schedule by 3:00
PM on the day prior to scheduled inspections at the Shipyard during either the
first or second shifts of production operation.  For weekend, Monday, or
Contractor holiday inspections, reasonable efforts shall be made to provide the
schedule by noon on Friday or, for holidays, the business day preceding the
holiday.  Contractor reserves the right to make minor modifications to the
inspection schedule after it is provided.  Contractor shall exercise reasonable
efforts to schedule most tests and inspections between the hours of 7am and 6pm
on workdays.  Final results shall be furnished to Purchaser for all tests,
trials and inspections.

 

(c)      Inspection at Subcontractor’s Facilities.

 

(1)      The equipment, machinery and material supplied by DSEC, its
subcontractors and other subcontractors and material suppliers, shall be subject
to inspection and testing by the Purchaser’s Representatives, classification
societies, and any Regulatory Bodies having jurisdiction over the Vessels or
their components at all places and reasonable times, including, but not limited
to, the subcontractor’s facilities and the facilities of its suppliers.

 

(2)      Contractor shall advise Purchaser of those tests and inspections to be
conducted at Contractor’s suppliers’ facilities and Purchaser shall advise
Contractor of those tests and inspections that it desires to witness at
Contractor’s suppliers’ facilities.  Contractor will advise Purchaser of
Contractor’s selections made of items on the Maker’s List.  Purchaser’s request
for such inspections and tests shall be provided to Contractor within 60 days
after approval of the Maker’s List as specified in the MAKER'S LIST, SPARE
PARTS, TOOLS, AND SUPPLIES Article 20 and Contractor’s notification as to the
individual makers selected by Contractor.  Contractor shall provide to Purchaser
advance notification a minimum of 21 days prior to the date for such inspections
and testing.

 

(3)      Purchaser’s Authorized Representatives, as designated under paragraph
(e) of this Article 14, shall advise Contractor in writing, as described in
paragraph (f) of this Article, of any Deficiencies in workmanship, material or
equipment discovered in any item inspected at a subcontractor’s
facility.  Contractor shall promptly notify the subcontractor of such reported
Deficiency.  Should Contractor not agree with Purchaser’s Authorized
Representatives in such respect, then either Contractor or Purchaser may:

 

(i)      seek an opinion of either the Chief Surveyor of the CS in Busan, Korea,
or for statutory survey or certification functions not delegated to Class
through the Alternate Compliance Program, the USCG Marine Safety Center, if such
alleged Deficiency relates solely to a Design Product or classification of a
Vessel; or

 

(ii)     for any other alleged nonconformity including any that relates to
construction, workmanship and materials, Contractor and Purchaser shall use the
process described in DISPUTES Article 33.

 

Contractor may invite the affected subcontractor’s representative to participate
in the resolution of these issues.

 

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(4)      Purchaser and Contractor each shall bear its own costs for
participation in any tests or inspections.

 

(d)      Contractor Support.  Contractor shall furnish facilities pursuant to
PURCHASER USE OF CONTRACTOR FACILITIES Article 36, as may be necessary for the
safe and convenient administration of the inspection and test oversight that may
be required by Purchaser’s Representatives.

 

(e)      Purchaser’s Authorized Representatives.  Purchaser shall designate
those Purchaser’s Authorized Representatives that shall be and act as agents of
Purchaser, and on behalf of Purchaser, having the authority to make binding
technical decisions, obligate Purchaser and approve invoices (“Purchaser’s
Authorized Representatives”).  Purchaser shall notify Contractor of the names of
individuals that it has designated as the Purchaser’s Authorized Representatives
within 14 days of the Effective Date of this Contract.

 

(f)      Documentation of Deficiencies.  Purchaser shall promptly advise
Contractor in writing of alleged Deficiencies coming to Purchaser’s attention
through its Purchaser’s Representatives.  The written notification of
Purchaser’s Representatives and the opinions rendered on behalf of Purchaser
shall not alter or diminish the responsibility of Contractor with regard to the
time and Delivery and quality of the Vessels, as elsewhere provided in this
Contract and the Specifications.

 

(1)      Contractor shall correct at its expense those Deficiencies in
workmanship, material or equipment reported by Purchaser that Contractor agrees
to be such, or are determined to be Deficiencies under the DISPUTES Article
33.  Contractor shall have no obligation to correct reported Deficiencies that
are not agreed or determined to be Deficiencies under the prior sentence.

 

(2)      Deficiencies in workmanship, material or equipment shall be documented
and tracked using the procedures established in Contractor's Quality Management
System, including, but not limited to, Task Card processes, Liaison Engineering
Disposition Sheet (“LED”) processes, Guaranty Deficiency Report (“GDR”) process,
and Material Problem Report (“MPR”) processes.  Purchaser shall respond promptly
to all Task Cards presented for signoff.  Contractor shall respond promptly to
any Purchaser comments.

 

(3)      If any Deficiency cannot be satisfactorily corrected, the material or
equipment shall be replaced by Contractor with proper material or equipment
without any adjustment to the Contract Base Price, unless such material or
equipment shall have been furnished by Purchaser, in which case the correction
or replacement such Deficient material or equipment, or re-performance of
workmanship, if performed by Contractor, shall be treated as a Change proposed
by Purchaser under the CHANGES Article 6 unless the Deficiency results from
Contractor damage to Purchaser supplied equipment, in which case there shall be
no such adjustment. Material, equipment and workmanship previously inspected by
Purchaser for which no Deficiency report was made shall not be subject to
re-inspection.  For workmanship, material and equipment governed by Regulatory
Body requirements, the Regulatory Body shall be the final authority on
acceptability.

 

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(4)      In the event that any of Purchaser’s Representative(s) advise
Contractor that they have discovered a Deficiency in construction, workmanship
or materials that he believes does not, or will not, conform to the requirements
of this Contract and/or the Specifications and Contractor does not agree with
the view of those Purchaser’s Representatives in such respect, then Contractor
or Purchaser may seek an opinion of the resident Chief Surveyor of the CS if
such alleged nonconformity relates solely to the classification of such Vessel
or the USCG if the alleged nonconformity relates to statutory survey or
certification functions not delegated to Class through the Alternate Compliance
Program, in which case the decision of the Chief Surveyor or USCG representative
shall be final.  In all other cases, either Purchaser or Contractor may use the
process described in Article 33 DISPUTES.

 

(5)      Contractor’s subcontractors routinely perform work in the
Shipyard.  For any alleged nonconformity related to work performed by a
subcontractor, Contractor may invite that subcontractor’s representative to
participate in the activities surrounding the resolution of the matter.

 

(g)      No Delay or Interference.  Purchaser shall perform inspections and
witness tests (including factory acceptance tests, off-site inspections and
re-inspection of corrected work) in a manner that does not delay the Contract
Work.

 

(1)      In cases where Purchaser does not attend scheduled inspections that are
held within two hours of the scheduled inspection time that was scheduled in
accordance with Paragraph (b), Purchaser waives its right for inspection.  If
Purchaser does not attend an inspection, the inspection will be performed on
behalf of Purchaser by Contractor’s Quality Assurance Department, applicable
trade supervision or Regulatory Body.

 

(2)      Contractor shall not schedule testing so as to place an undue time
burden on Purchaser’s Representatives who are available to witness testing.
Contractor shall make all reasonable efforts to schedule Shipyard inspections
and tests on weekdays during the first shift.  However with proper notification
as described in Paragraph (b), Purchaser shall provide Purchaser’s
Representatives for second and third shift and weekend inspections as required
to support construction schedules.

 

15                 SUBCONTRACTORS

 

Contractor may employ subcontractors for components or work as it sees fit under
the Contract.  Contractor will ensure that any subcontractor utilized performs
all work to standards no less than those specified in this Contract and the
Vessel Design and Specifications and meets applicable requirements under this
Contract for performance of the Contract Work.

 

16                  ITEMS FURNISHED BY PURCHASER

 

(a)      General.  Contractor shall, as part of the Contract Price, receive,
inspect, check as to agreement with the bill of lading, store, protect, insure
and install or place in a single location as designated by Purchaser aboard the
Vessels all of the items furnished by Purchaser as required by the
Specifications, together with Purchasers’ supplies,

 

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materials, stores, spares and gear (jointly “Purchaser’s Supplies”).  A
Purchaser's Representative shall be available to confirm both receipt and
subsequent delivery to the Vessel.  Contractor shall not be deemed to have
extended any guaranty as to material or equipment furnished by Purchaser other
than the guaranty set forth in the GUARANTY AND LIMITATION OF CONTRACTOR'S
LIABILITY Article 19 in respect of workmanship for the required
installation.  Contractor or its insurers shall be liable to Purchaser for any
damage to or loss of Purchaser’s Supplies occurring during Contractor's custody
thereof, solely to the extent not caused by the acts or omissions of Purchaser,
up to the value declared by Purchaser to Contractor for inclusion in
Contractor’s insurance program pursuant to CONTRACTOR’S INSURANCE Article 21.

 

(b)      Installation and Operation Instructions.  Purchaser shall provide
drawings, technical manuals, or other installation and/or operation instructions
for any item furnished by Purchaser.  Purchaser warrants the instructions
provided are suitable for installation and use of each item in the
Vessels.  Contractor shall be responsible for installing and operating the items
in accordance with the provided instructions.  Contractor shall promptly notify
Purchaser of a discrepancy, error, or omission discovered in those instructions.

 

(c)      Contractor’s Objection.  Contractor reasonably may object to items
furnished by Purchaser that are unsuitable or in improper condition for
installation on the Vessels.  At Purchaser’s expense, Purchaser shall replace,
adjust or repair such items. Alternately, Purchaser may elect to request
Contractor to install the original item on the Vessel.  If so requested by
Purchaser, the Parties shall prepare a Change Order and Contractor shall install
such original items, but Purchaser shall take responsibility for the
consequences of doing so.

 

(d)      Delivery Delays.  The Vessel Contract Delivery Date shall be extended
for each Vessel impacted by one or more of the following causes:

 

(i)      The Vessel Contract Delivery Date shall be extended to the extent
that  Delivery of the Vessel is delayed as a result of incorrect or missing
installation or operating instructions of Purchaser’s equipment.  Contractor
shall be compensated for any additional costs incurred to correct either the
design and installation or items needing repair as a result of the instructions
provided by Purchaser pursuant to paragraph (b) of this Article.

 

(ii)      The Vessel Contract Delivery Date shall be extended to the extent that
Delivery of the Vessel is delayed for the replacement, adjustment or repair of
items to which Contractor objects under this Article.

 

(iii)      In the event that items furnished by Purchaser for a Vessel are not
delivered to Contractor when required, the Vessel Contract Delivery Date shall
be extended to the extent that Delivery of the Vessel is delayed by such delay
in delivery, and Purchaser shall pay Contractor for all costs reasonably
incurred by reason of such delay. 

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17                  TRIALS

 

 (a)      Expenses of Trials and Tests.  Contractor shall conduct for each
Vessel the trials and tests provided by the Specifications and the Contract and
required by the Regulatory Bodies.  Reasonable expenses of such trials and
tests, including subsistence and lodging of Contractor’s and Purchaser's
Representatives necessary to be on the Vessels for the trials and tests, shall
be borne by Contractor and included in the Contract Price.  Up to eight
employees of Purchaser shall be included in the trials.  All such expenses of
additional persons on the Vessels not necessary for the trials and tests, but
who are on board pursuant to written request of Purchaser, shall be borne by
Purchaser.

 

(b)      Trials Schedule.  Contractor shall submit a schedule of trials along
with sequence of trials to Purchaser at a reasonable time before each Vessel is
ready for trials.

 

(c)      Additional Trials.  If, during the trials required by the Contract,
there shall be any material failure of any Vessel to meet the requirements of
the Contract that requires a Vessel to be underway to demonstrate correction of
such failure, Contractor shall, after corrective action is taken, make further
trials, sufficient in number reasonably to demonstrate the Vessel's compliance
with the requirements of this Contract.  Contractor shall not be entitled to an
adjustment in the Contract Base Price for the costs of additional trials
required by this Article, except with regard to any further trial made necessary
solely due to actions or omissions of Purchaser or by the failure of equipment
or material furnished by Purchaser.

 

18                  POST-TRIAL INSPECTION AND ACCEPTANCE

 

(a)      Definition.  “Deficiencies,” as used in this Contract, shall mean any
defect or failure of the material, equipment, or workmanship of the Vessel such
that it does not comply with the Specifications or this Contract.  Such
Deficiencies exclude any and all designs, specifications, material or equipment
furnished by Purchaser; or any routine and ordinary maintenance of the Vessel.

 

(b)      Correction of Deficiencies.  After completion of the trials required by
this Contract, each Vessel shall be returned to the Shipyard, where Contractor
shall at its own expense correct all Deficiencies.  Contractor shall be
responsible for correction of Deficiencies in items provided by Purchaser only
in those instances when Contractor is responsible under the provisions of the
ITEMS FURNISHED BY PURCHASER Article 16.  Otherwise, Purchaser shall be
responsible for correction of Deficiencies in such items and any resulting
damages as provided in that Article.

 

(c)      Machinery or Equipment.  (i) If the performance of machinery or
equipment during trials is questioned by a Regulatory Body, or by both Purchaser
and Contractor, the machinery or equipment shall be opened for post-trials
inspection.  Contractor shall correct Deficiencies, if any, found as a result of
such inspection, and thereafter the machinery or equipment shall be closed,
connected, and satisfactorily tested, with all associated opening, inspection,
correction and testing costs borne solely by Contractor.  (ii) If performance of
machinery or equipment during trials is questioned only by Purchaser, Contractor
shall open machinery or equipment for inspection.  If Deficiencies are found as
a result of such inspection, Contractor shall correct such Deficiencies and
thereafter the machinery or equipment shall be closed, connected, and
satisfactorily tested, with all associated opening, inspection, correction and
testing costs borne solely

 

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by Contractor.  However, if the machinery or equipment is found to be without
any Deficiency as a result of such inspection, Contractor shall be entitled to
payment by Purchaser for Contractor’s costs in performing the inspection.

 

(d)      Acceptance of Vessel.  When a Vessel is Substantially Complete, upon
tender by Contractor in accordance with paragraph (c) of the STATEMENT OF WORK
Article 1, Purchaser shall accept the Vessel and countersign the Delivery
Certificate, which shall list any still-outstanding Deficiencies and any other
incomplete Contract Work.  Contractor shall remove all waste and debris about
the Vessel and all sludge and oily water wastes from the Vessel prior to
Delivery at Contractor’s cost.  During the period thirty days prior to the
expected Delivery, employees of Purchaser or Purchaser’s contractors or agents
shall be entitled to access to the Vessel on a not-to-interfere basis to
familiarize the crew with the Vessel and to provision the Vessel.

 

(e)      Damages in Lieu of Correction.  The Parties may stipulate monetary
payments by Contractor to Purchaser in lieu of the correction of any
Deficiencies, and any other incomplete Contract Work.  Such Deficiencies can be
either those remaining incomplete at Delivery or those discovered pursuant to
the GUARANTY AND LIMITATION OF CONTRACTOR’S LIABILITY Article 19.  Contractor
agrees that any such monetary payments to Purchaser shall not otherwise impact
Contractor’s Guaranty obligations or void suppliers’ warranties if any.

 

19                  GUARANTY AND LIMITATION OF CONTRACTOR'S AND PURCHASER’S
LIABILITIES

 

(a)      Guaranty.  Contractor guarantees each Vessel for a period of 12 months
from its date of Delivery (“Guaranty Period”) against all Deficiencies (as
defined in the POST-TRIAL INSPECTION AND ACCEPTANCE Article 18) that are
discovered and reported to Contractor prior to the expiration of the Guaranty
Period.  Contractor’s sole responsibility in the event of such a Deficiency
shall be to repair or replace, in Contractor’s sole discretion, all Deficiencies
at Contractor’s cost, such that the equipment on which such Deficiency exists is
brought in to proper working order.  In computing the Guaranty Period, there
shall be excluded any time that the Vessel is prevented from entering or is
taken out of service solely on account of any Deficiency as mutually agreed to
by the Parties or as determined in accordance with DISPUTES Article 33.  This
guaranty shall not extend to expected ordinary wear and tear, natural events,
nor to the extent that the Deficiency was caused or aggravated by the negligence
or other improper act of any third party not acting for Contractor, including
Purchaser or the Vessel operator.  This guaranty shall not extend to items
furnished by Purchaser, but it shall extend to damage to items furnished by
Purchaser caused by Contractor’s improper handling, storage, or installation of
such items, when such handling, storage, or installation was not in conformance
with the instructions provided by Purchaser pursuant to paragraph (b) of the
ITEMS FURNISHED BY PURCHASER Article 16, such nonconformance to be determined by
Contractor subject to objection by Purchaser under the DISPUTES Article 33.

 

(b)      Further Guaranty.  Contractor guarantees the workmanship and material
of the repairs or replacements made under the guaranty in paragraph (a) of this
Article for a further period of 90 days from the date of completion of such
repair or replacement, or

 

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to the end of the Guaranty Period, whichever is later, and, if necessary, this
further period shall be further extended for an additional 90 days if the
Deficiency requires additional repair, replacement or re-performance.

 

(c)      Assignment of Subcontractor and Vendor Guarantees.  Upon expiration of
the Guaranty Period, Contractor shall assign to Purchaser all rights and
privileges of Contractor in any extended guarantees and warranties provided by
subcontractors, equipment suppliers and vendors of equipment and materials, if
any, used in construction of the Vessel.  Such assignments shall not alter or
extend Contractor's responsibilities and guarantees.

 

(d)      Notification of Deficiencies.  Purchaser shall notify Contractor in
writing as soon as practicable, and in any event no more than ten business days
after discovery of any Deficiency falling within the provisions of this
Article.  Purchaser’s notice shall include such particulars as can reasonably be
given as to the nature and extent of such Deficiency, the applicable
Specifications or Regulatory Requirement, the date of discovery, the location of
the Vessel, and the place at which the Vessel can be made available for earliest
inspection by or on behalf of Contractor.  As soon as practicable, Purchaser
also shall furnish to Contractor copies of relevant survey or inspection
reports.

 

(e)      Contractor’s Inspection.  Upon receipt of notice of a Deficiency under
paragraph (d) of this Article, Contractor may (but shall not be bound to)
arrange for inspection of the Vessel on its own behalf at its own cost.  If such
an inspection is undertaken, Purchaser shall make the Vessel’s officers, crew
members, log books, and any other relevant documents and information available
to Contractor’s representative at the inspection.  Contractor may, from
time-to-time, request a subcontractor or supplier representative inspect an item
that is the subject of the notice of a Deficiency.  Purchaser shall provide the
same support and information to Contractor’s subcontractor or supplier for such
inspection.

 

(f)      Correction of Deficiencies. 

 

(i)      Purchaser, in consultation with Contractor, shall designate a
reasonable time and location suitable for correction of Deficiencies.  At
Purchaser’s sole risk and expense, Purchaser then shall cause the Vessel to be
available to Contractor at such time and location, ready in all respects for the
corrective action [***]. At all times during Contractor's correction of
Deficiencies under this Article, Purchaser shall retain full care, custody and
control of the Vessel.

 

(ii)      Contractor shall arrange for the correction of Deficiencies and
performance of any essential dismantling and reassembling at the designated
location at its own expense, including transportation costs of necessary parts,
machinery or equipment and all costs of attendance of suppliers' technical
representatives.  Any parts, machinery or equipment replaced shall on their
removal become the property of, and shall be disposed of at the risk of,
Contractor.  Replacement parts, machinery or equipment installed in the Vessel
shall upon installation and satisfactory testing become the property of
Purchaser.

 

(iii)      Purchaser shall be responsible for placing the Vessel and its
equipment in proper condition for the correction of Deficiencies (e.g., emptying
fluids from

 

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tanks and piping, isolation of piping and other systems) except as is the
responsibility of Contractor under subparagraph (i) and cessation of Vessel
operations as necessary to allow Contractor ready access to any Deficiency.

 

(iv)      If a Deficiency cannot reasonably be corrected except by drydocking
the Vessel, Purchaser shall be entitled to postpone correction and repair until
a subsequent drydocking of the Vessel.  $[***] shall be withheld from the
Guaranty Payment until the first drydocking, or if larger, the estimated cost of
correction and repair, or to be part of a monetary settlement.

 

(v)      If a Deficiency can be repaired without taking the Vessel out of
service, Purchaser shall promptly advise Contractor of the nature of the
Deficiency and Contractor may elect to send its personnel or hire a
subcontractor to be sent to the Vessel to make the repairs.  If Contractor does
not so elect, and Contractor confirms that under the warranty the repairs may be
completed by the Vessel crew or a Purchaser’s subcontractor, Purchaser may have
the Vessel crew or a subcontractor perform the repairs and bill Contractor for
costs reasonably incurred for correcting such Deficiency, provided, however,
that:

 

A.  Purchaser follows all manufacturer/OEM Technical and Installation Manual
work instructions for replacement and correction; and

 

B.  Purchaser submits a detailed claim in the format mutually specified between
the Parties describing in detail the deficient condition or operation of the
equipment as well as the documentation of correction per the Technical Manual(s)
noted above suitable  for Contractor’s use in submitting a subsequent claim to
the OEM; and

 

C.  Material replaced is discrete, identifiable, on hand in ship or depot stores
and requires no specialized troubleshooting to correct; and

 

D.  Purchaser returns deficient material to Contractor, at Contractor’s expense,
for subsequent analysis and inspection.

 

(g)      Emergency Correction.  Prior to the expiration of the Guaranty Period,
should any Deficiencies reasonably require emergency correction outside the
Vessel’s normal maintenance schedule, whether or not such Deficiencies require
the Vessel to be dry-docked, upon written notice of the need for emergency
repairs pursuant to paragraph (i) below and concurrence by Contractor, which
shall not be unreasonably withheld, Contractor shall pay the actual costs of
correcting the Deficiencies reasonably incurred by Purchaser.

 

(i)      Prior to performing any such emergency correction of Deficiencies,
Purchaser shall notify Contractor in writing of the nature of the Deficiency,
the reason that emergency correction is required, and the nature of the intended
correction work.

 

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(ii)      When the Vessel is taken to a facility or dry-docked solely for the
purpose of correcting a Deficiency, the costs chargeable to Contractor’s account
shall be limited to those costs reasonably incurred for correcting such
Deficiency at such facility, including dry docking for correction of such
Deficiency.  If any other work is performed for Purchaser other than by
Contractor while the Vessel is at such repair facility or in such dry dock,
Purchaser shall pay a proportional share of dry docking expenses (if such other
work requires dry-docking) and all additional expenses for such work completed
by a party other than Contractor, its agents or subcontractors.  All port
charges, tug charges, moorage, wharfage, and fire and security watches
incidental to the Vessel at the repair location shall be apportioned based on
the invoiced work performed by the repair facility for the respective Parties.

 

(h)      Normal Refit Schedule.  When a Deficiency is corrected as part of a
Vessel’s normal refit schedule, Contractor shall not be responsible for any
costs incurred to perform any other work undertaken by Purchaser as part of the
Vessel’s normal refit, including, but not limited to, any port charges, tug
charges, moorage fees, wharfage fees, and the cost of any fire and security
watches incidental to the work performed and the Vessel being at the repair
location.  Notwithstanding the prior sentence, if Contractor and Purchaser agree
that the repair of the Deficiency requires more time than the normal refit
schedule Contractor shall pay the direct costs charged by the repair facility
for the additional time so required.  For the avoidance of doubt such costs do
not include crew wages, lost revenue or any other incidental or consequential
costs or damages associated with the Vessel being out of service.  Further, such
additional time shall only be deemed to have occurred if Contractor had
reasonable access to the Vessel to correct Deficiencies during the entire refit
schedule and Purchaser does not perform any other work during that additional
time that, but for the additional time at that repair location, Purchaser could
not be performing.  Should the correction of a Deficiency require the Vessel to
be in a dry dock, and Purchaser has to place the Vessel in dry dock for other
work that it desires to have performed at the industrial facility, the one-time
cost to dry dock the Vessel shall be apportioned based on the cost of all of the
invoiced work performed while the Vessel is in dry dock and an apportioned daily
fee for those days during which Contractor is performing work to correct the
Deficiency that required the Vessel to be in the dry dock.

 

(i)      Paint Warranty.  Contractor confirms that, at no additional cost to
Purchaser, Contractor will utilize the paint suppliers designated by Purchaser,
in accordance with the Specifications and follow the paint suppliers’
application processes.  Coating system defects shall be defined in accordance
with the paint supplier’s warranty.  To the extent that the paint supplier’s
warranty extends beyond the Guaranty Period, Contractor will arrange for the
warranty to pass through to Purchaser.  At Delivery Contractor will execute an
assignment to Purchaser of all rights of Contractor against such paint supplier
in connection with such warranty.  Paint defects reported during the Vessel
Guarantee Period will be corrected by Contractor and paint supplier.  Paint
defects reported after the end of the Vessel Guarantee Period will be corrected
in accordance with the paint supplier warranty directly with the paint
supplier. 

 

(j)      Guaranty Engineer.  Contractor shall have the right to place a properly
documented citizen of the USA as a guaranty engineer on board each Vessel at any
time

 

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during the Guaranty Period as Contractor deems appropriate (“Guaranty
Engineer”).  Such Guaranty Engineer shall act as Contractor’s representative and
liaison between Purchaser and Contractor.

 

(i)      Purchaser may reasonably request deployment of Contractor's Guaranty
Engineer, and such request shall not be unreasonably denied by Contractor.

 

(ii)      The Guaranty Engineer shall comply with Purchaser's (or ship
operator’s) rules while on board the Vessel.  Purchaser shall not request the
Guaranty Engineer’s guidance, suggestions or advice concerning operation of the
Vessel.  Purchaser shall grant Contractor’s Guaranty Engineer reasonable access
to the Vessel and reasonable assistance in performing his/her duties.

 

(iii)      Purchaser shall provide Contractor’s Guaranty Engineer with suitable
accommodations and messing at no charge to Contractor.  Contractor shall be
responsible for payment of the costs of personal accident insurance, wages and
repatriation costs for its Guaranty Engineer.

 

(iv)      Contractor’s Guaranty Engineer shall, at all times and in all
respects, be deemed to be an employee of Contractor.  Purchaser shall be under
no liability whatsoever to Contractor or Contractor’s Guaranty Engineer for
personal injuries, including death, suffered by Contractor’s Guaranty Engineer
during the time when he is on board the Vessel, unless such injury or death, is
shown to have been caused by the gross negligence or willful acts of Purchaser,
and/or its subcontractors and/or their employees or agents (including
Purchaser’s Representatives), while acting within the scope of their employment
or engagement. 

 

(k)      Limitation of Liability.  (i) As to Contractor:

 

(A) NOTWITHSTANDING ANY PROVISION OF THIS CONTRACT TO THE CONTRARY INCLUDING THE
INDEMNIFICATION CLAUSE AND INSURANCE CLAUSE, CONTRACTOR SHALL NOT BE LIABLE TO
PURCHASER FOR ANY INDIRECT, INCIDENTAL, PUNITIVE, EXEMPLARY, SPECIAL, OR
CONSEQUENTIAL DAMAGES ARISING UNDER OR DIRECTLY OR INDIRECTLY RELATING TO THIS
CONTRACT OR THE SUBJECT MATTER HEREOF, (INCLUDING WITHOUT LIMITATION LOSS OF
USE, INCOME, PROFITS OR ANTICIPATED PROFITS, BUSINESS OR BUSINESS OPPORTUNITY,
SAVINGS, DATA, OR BUSINESS REPUTATION) ARISING UNDER, OR IN CONNECTION WITH THIS
CONTRACT OR THE SUBJECT MATTER HEREOF, REGARDLESS OF WHETHER SUCH DAMAGES ARE
BASED IN CONTRACT, EQUITY, OR WHEN THE DAMAGES ARE ALLEGED TO BE CAUSED BY
TORTIOUS CONDUCT, BREACH OF WARRANTY OR ANY OTHER THEORY, WHATSOEVER, AND
REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF, KNEW OF, OR SHOULD HAVE
KNOWN OF THE POSSIBILITY THAT SUCH DAMAGES COULD OCCUR.

 

(B)      CONTRACTOR’S TOTAL AGGREGATE LIABILITY ON A PER VESSEL BASIS,
(EXCLUSIVE OF CONTRACTOR’S GUARANTY OBLIGATIONS AS PROVIDED FOR IN THIS ARTICLE
19 WITH RESPECT TO EACH VESSEL;

 

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CONTRACTOR'S FAILURE TO OBTAIN A U.S. COASTWISE ENDORSEMENT FOR EACH VESSEL AS
REQUIRED IN ARTICLE 1; CONTRACTOR’S OBLIGATION TO PAY LIQUIDATED DAMAGES UNDER
VESSEL PERFORMANCE ARTICLE 7 OR UNDER DAMAGES FOR DELIVERY ARTICLE 9;
CONTRACTOR'S OBLIGATION TO REFUND PAYMENTS RECEIVED UNDER DEFAULT OF CONTRACTOR
AND PURCHASHER'S REMEDIES ARTICLE 26 OR CONTRACTOR'S OBLIGATION TO REFUND
PAYMENTS RECEIVED UNDER DAMAGES FOR DELIVERY ARTICLE 9(C), OR FOR LOSSES OR
OTHER CLAIMS THAT WOULD HAVE BEEN COVERED BY INSURANCE REQUIRED TO BE OBTAINED
BY CONTRACTOR UNDER CONTRACTOR’S INSURANCE ARTICLE 21 WHERE CONTRACTOR HAS NOT
OBTAINED THE REQUIRED INSURANCE; CONTRACTOR’S FAILURE TO REPAIR LOSS OR DAMAGE
TO THE VESSEL OR TO MAKE PAYMENTS AS REQUIRED UNDER LOSS OR DAMAGE OF VESSEL
ARTICLE 23; OR CONTRACTOR’S BREACH OF THE OBLIGATIONS TO RESOLVE ANY LIENS ON
THE CONTRACT WORK OR A VESSEL AS REQUIRED UNDER LIENS ARTICLE 28; OR FOR
CONTRACTOR’S FRAUD IN THE INDUCEMENT OF THIS CONTRACT) SHALL NOT EXCEED
$20,000,000.  THE FOREGOING LIMITATION OF LIABILITY SHALL REMAIN IN FULL FORCE
AND EFFECT REGARDLESS OF PURCHASER’S REMEDIES AVAILABLE UNDER THIS AGREEMENT, AT
LAW OR IN EQUITY.

 

(C)      [***]

 

(ii)      As to Purchaser:

 

(A)      NOTWITHSTANDING ANY PROVISION OF THIS CONTRACT TO THE CONTRARY
INCLUDING THE INDEMNIFICATION CLAUSE AND INSURANCE CLAUSE, PURCHASER SHALL NOT
BE LIABLE TO CONTRACTOR FOR ANY INDIRECT, INCIDENTAL, PUNITIVE, EXEMPLARY,
SPECIAL, OR CONSEQUENTIAL DAMAGES ARISING UNDER OR DIRECTLY OR INDIRECTLY
RELATING TO THIS CONTRACT OR THE SUBJECT MATTER HEREOF, (INCLUDING WITHOUT
LIMITATION LOSS OF USE, INCOME, PROFITS OR ANTICIPATED PROFITS, BUSINESS OR
BUSINESS OPPORTUNITY, SAVINGS, DATA, OR BUSINESS REPUTATION) ARISING UNDER, OR
IN CONNECTION WITH THIS CONTRACT OR THE SUBJECT MATTER HEREOF, REGARDLESS OF
WHETHER SUCH DAMAGES ARE BASED IN CONTRACT, EQUITY, OR WHEN THE DAMAGES ARE
ALLEGED TO BE CAUSED BY TORTIOUS CONDUCT, BREACH OF WARRANTY OR ANY OTHER
THEORY, WHATSOEVER, AND REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF,
KNEW OF, OR SHOULD HAVE KNOWN OF THE POSSIBILITY THAT SUCH DAMAGES COULD OCCUR.

 

(B)      PURCHASER’S TOTAL AGGREGATE LIABILITY ON A PER VESSEL BASIS, (EXCLUSIVE
OF PURCHASER’S OBLIGATIONS FOR PAYMENTS UNDER ARTICLE 4 OR FOR LOSSES OR OTHER
CLAIMS THAT WOULD HAVE BEEN COVERED BY INSURANCE REQUIRED TO BE OBTAINED BY
PURCHASER UNDER PURCHASER’S INSURANCE ARTICLE 22 WHERE PURCHASER HAS NOT
OBTAINED THE REQUIRED INSURANCE,

 

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OR FOR PURCHASER'S FRAUD IN THE INDUCEMENT OF THIS CONTRACT) SHALL NOT EXCEED
$20,000,000.  THE FOREGOING LIMITATION OF LIABILITY SHALL REMAIN IN FULL FORCE
AND EFFECT REGARDLESS OF CONTRACTOR’S REMEDIES AVAILABLE UNDER THIS AGREEMENT,
AT LAW OR IN EQUITY.

 

(l)      Express Guarantees Exclusive.  THE EXPRESS GUARANTEES OF CONTRACTOR, AS
SET FORTH IN THIS CONTRACT, ARE THE EXCLUSIVE GUARANTEES OF CONTRACTOR AND ARE
IN LIEU OF, AND PURCHASER HEREBY WAIVES, ALL OTHER GUARANTEES OR WARRANTIES,
EXPRESS OR IMPLIED, WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE AND
INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR INFRINGEMENT OF THIRD PARTY RIGHTS.

 

(m)      Deficiencies Not Timely Discovered or Reported.  Contractor shall not
be liable for any Deficiencies, whether latent or patent, that are not
discovered prior to the expiration of the Guaranty Period or are not reported to
Contractor within the time provided in paragraph (b) of this Article.      

 

20                  MAKER'S LIST, SPARE PARTS, TOOLS, AND SUPPLIES

 

(a)      Spare Parts, Tools and Supplies.  The Contract Price includes the cost
of the class spares and other spares set forth in the Specifications. 

 

(1)      Any spares, parts, tools, special tooling and supplies that are not
identified in this Article are not included in the Contract Work.

 

(2)      Contractor shall provide Purchaser, within 90 days after the Effective
Date, with offered lists of spares, and one- and three-year manufacturer’s
recommended lists of spares and pricing from all makers referred to in the Maker
List.

 

(b)      Maker’s List.

 

(1)      The “Maker’s List,” as used in this Contract, shall be the Maker’s List
dated August 8, 2016, which is hereby incorporated as part of the
Specifications. 

 

(2)      Contractor may purchase any of the materials listed on the Maker’s list
from any of the suppliers from the Maker’s List, at its sole option, as long as
the equipment fulfills the requirements of the Specifications.  Suppliers on the
Maker’s List are approved by Purchaser for use on the Contract with the
execution of this Contract.

 

(3)      Contractor may propose makers other than those on the Maker List for
Purchaser’s approval.  Purchaser, with Contractor’s concurrence, may request
that Contractor use alternate suppliers from the Maker’s List in lieu of
initially selected suppliers, which shall be considered as a change under the
CHANGES Article 6.

 

(i)      Contractor shall advise Purchaser with the name of the selected maker
and equipment model number as early as reasonably possible prior to each order
being placed by DSEC.  Contractor shall identify the price differential between
Contractor-selected maker and the other makers on the Maker List.  If Purchaser
requests

 

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an alternate supplier that is agreed to by Contractor, Contractor shall provide
the same price differential information for the alternate supplier.

 

(ii)      The requesting Party shall submit a proposal to the other Party in
accordance with the CHANGES Article 6 to revise the Maker’s List for any
alternate supplier or equipment model number that is requested by either
Contractor or Purchaser.  All additional cost for Purchaser’s preferred maker
shall be borne by Purchaser other than those items designated on the Maker's
List by Purchaser at execution. If Purchaser's designated maker's material is
not available, additional costs or credits for alternative makers shall be to
Purchaser's account.  The Vessel Contract Delivery Dates shall be adjusted if
required, based on material lead times for Purchaser-selected supplier or
equipment being longer than the longest lead time alternative identified on the
Maker’s List.  The Contract Base Price shall be adjusted for any more or less
costly supplier or equipment model that is procured for installation in the
Vessels that is other than that identified on the Maker’s List.

 

(4)      Purchaser shall confirm its agreement of the selection of makers or
advise Contractor of Purchaser’s preferred maker within 14 days after receipt of
notice of the maker selection.  Should Purchaser require more time to make a
decision, Purchaser may request a 14 day extension, which shall not be
unreasonably withheld.

 

(i)      If Purchaser fails to respond to Contractor’s notice of selection
within the allowed time, Purchaser shall be deemed to have agreed to
Contractor’s selection of such maker. 

 

(ii)      Purchaser may request additional time to evaluate specific selections
by Contractor or items from alternate makers or with equipment model numbers
that are not included on the Maker’s List.  Contractor shall grant Purchaser
reasonable time to complete its evaluation of such alternate selection
recommendations, but not to the extent that it would impact the Vessel
construction schedules.

 

(5)      Selection of supplier’s for all other equipment not specified on the
Maker List is at Contractor’s option, subject to the requirements of the
Specifications, and without confirmation from Purchaser.

 

(c)      Fuels, Lubricants and Consumables Before Delivery.  The Contract Price
includes all fuels, lubricants, and consumable stores used on trials, all of the
contents of the main and generator engines and auxiliary machinery and piping
systems, including without limitation lubricating oil sump tanks and hydraulic
oil sump tanks, which shall on Delivery be prepared as required for normal
operation of the Vessel.

 

(d)      Fuels, Lubricants and Consumables After Delivery.  At Purchaser’s cost,
Contractor shall arrange for the quantity of fuel oil, lubricating oils, greases
and fresh water to be loaded on the Vessel at Delivery in accordance with the
instructions of Purchaser.  Contractor shall sound all fuel and lubricant
stowage and service tanks within 24 hours prior to Delivery, in the presence of
Purchaser’s Representative.  Based on such soundings, Purchaser shall pay for
all fuels, lubricants and consumable stores remaining on-board each Vessel at
Delivery, other than as specified in paragraph (c) above, at the prices paid by
Contractor plus Contractor’s indirect material costs in accordance with its CAS
Disclosure Schedule.

 

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21                  CONTRACTOR’S INSURANCE

 

At any and all times during the term of this Contract, Contractor shall at its
own expense maintain, with an insurance company or companies, with a minimum
rating by A.M. Best Company of A minus or equivalent, and authorized to do
business in the state in which Work is to be performed, insurance and surety
coverage’s of the kind and in the minimum amounts as follows:

 

(a)      Cargo Insurance.  Contractor shall maintain All Risk Marine/War Risk
Cargo Insurance subject to a limit of $60 million any one conveyance on all
machinery, materials or equipment to be installed as part of each Vessel, at all
times while at the supplier’s premises and while in transit until such
machinery, materials or equipment reaches the Shipyard.

 

(b)      Property Insurance.  From the time that the first machinery, material
or equipment to be installed or included as part of each Vessel enters the
Shipyard, and until the laying of the keel of the Vessel, Contractor, at its
expense, shall keep all such machinery, material and equipment, including all
items furnished by Purchaser to the extent that Purchaser has declared the value
of such items to Contractor, insured at all times under Contractor’s existing
property insurance policy. 

 

(c)      Builder’s Risk Insurance.  

 

(1)      Requirement.  From the time of the laying of the keel of the Vessel,
and until Delivery of the Vessel, Contractor, at its expense, shall keep each
Vessel and all machinery, material and equipment to be installed in the Vessel,
including all items furnished by Purchaser to the extent that Purchaser has
declared the value of such items to Contractor, insured at all times under an
all-risk form Marine Builders Risk policy, acceptable to Purchaser (such
acceptance not to be unreasonably withheld).  Contractor may utilize existing
policies of insurance that cover the risks listed in subparagraph (c)(2) of this
Article, provided that such policies are maintained by Contractor in accordance
with the provisions of paragraph (b) of this Article.

 

(2)      Coverage. The insurance shall cover all usual marine risks, and in
particular, but without prejudice to the generality of the foregoing, shall
cover:

 

(i)      All risks of loss or damage, including earthquake, volcanic eruption,
hurricane, named windstorm and tidal wave, in respect of the Vessels and all
machinery, material and equipment, whether at the Shipyard or Contractor’s
suppliers’ premises or in transit or elsewhere, including and during launching
and trials;

 

(ii)      Strikes, riots, civil commotions, and malicious damage;

 

(iii)      Hull War Risks while the Vessel is at the Shipyard or other premises
of Contractor or any subcontractor, including after the Vessel has been launched
and is either dockside or in sea trials;

 

(iv)      Coverage for Terrorism while the Vessel is at the Shipyard or other
premises of Contractor or any subcontractor, including after the Vessel has been
launched and is either dockside or in sea trials;

 

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(v)      Collision, Protection and Indemnity Coverage (including pollution
liability after a Vessel has been launched); and

 

(vi)      Sudden and accidental pollution (prior to a Vessel being launched).

 

(3)      Coverage shall include [***]% cost escalation coverage and coverage for
Contractor’s soft costs.  Policy deductible shall be no more than $[***] per
occurrence.  Coverage shall be the equivalent of the American Institute
Builder’s Risk Clauses (July 1, 1973) with Addendum 1.  Coverage shall be
written without risk of liability of Purchaser for payment and without deduction
for depreciation.  There shall be no coinsurance penalty provision in any such
policy. 

 

      (4)      In addition to liability for physical loss of, damage to, or
damage caused by the Vessel imposed upon Contractor by law or by this Contract,
the Marine Builder’s Risk Insurance Policy shall be written to specifically
include, in part:

 

(i)      All Ship underway activity as often as necessary for completion and
testing of the Vessel;

 

(ii)      A statement that the policy is primary to all other collectible
insurance.

 

(5)      Minimum Sum.  The minimum sum insured, and the limit of Contractor's
liability, shall be the Vessel Contract Price plus the value declared by
Purchaser to Contractor for items furnished by Purchaser. 

 

(d)      Other Insurance.  Contractor, at its expense, shall keep and maintain
in effect the following additional insurance for the duration of this Contract
and with respect to the performance by Contractor of any guaranty work under
GUARANTY AND LIMITATION OF CONTRACTOR’S LIABILITY Article 19:

 

(1)      Commercial General Liability coverage to include, but not limited to,
broad form property damage, personal injury, premises, completed operations and
products liability, and contractual liability covering all liability assumed by
Contractor under the terms of this Contract and with limits of liability not
less than $1,000,000 any one occurrence or series of occurrences arising out of
any one event, subject to a general aggregate limit of $10,000,000 in the period
of insurance and a $3,000,000 aggregate in the period of insurance for Products
Liability.  Contractor shall maintain such insurance through the expiration of
each warranty period. 

 

(2)      Automobile Liability insurance with a combined single limit of
$2,000,000 per occurrence for Bodily Injury and Property Damage;

 

(3)      Workers’ Compensation Insurance.  Contractor, at its expense, shall
keep and maintain workers’ compensation insurance as required by law.  Such
insurance shall provide coverage in the location in which the work is
performed.  Contractor shall maintain an authorized program of self-insurance
for Worker’s Compensation and Longshore and Harbor Worker’s Compensation Act
insurance conforming to the statutory requirements of the State of California
and the United States of America, respectively, and including Employers
Liability with minimum limits of $2,000,000 per occurrence;

 

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(4)      Maritime Employer’s Liability Insurance (including transportation,
wages, Maintenance and Cure) for limits not less than $2,000,000 each person and
each occurrence.

 

(5)      Excess Liability insurance in the minimum amount of $25,000,000 per
occurrence in excess of the liability coverages specified in this Article.

 

(d)      Other.  Notice of any cancellation of required coverage or any material
change in any policy required under this Article shall be given in accordance
with that policy’s terms and conditions.

 

(e)      Certificates of Insurance.  Certificates evidencing compliance with the
insurance requirements of this Article, in a form satisfactory to Purchaser,
shall be delivered to Purchaser within ten days of the Effective Date of this
Contract, with the exception of the Builders’ Risk coverage which shall be
delivered prior to keel laying, and renewals thereof delivered a reasonable
amount of time before or after expiration of the respective policy terms.  Upon
request by Purchaser, Contractor will provide summaries of the policies referred
to in section 21(a) and (b) and a copy of the policy referred to in section
21(c).

 

(f)      General Requirements.

 

(1)      Each policy identified in Article 21, with the exception of Workers’
Compensation, shall be endorsed to provide that it is primary insurance to and
noncontributing with any other insurance carried by Purchaser.  Each policy
identified in Article 21 shall obligate the insurer to give Purchaser not less
than 30 days’ prior written notice in the event of policy cancellation or any
material change therein (except for war risk insurance, which shall be not less
than 7 days advance written notification).

 

(2) The policies referred to in Paragraphs (a), (b) and (c) of this Article
shall name Purchaser and its assigns as additional named insured and as loss
payee as their interests may appear.

 

(3)      With respect to the policies referenced in Paragraph c(3) Contractor
agrees that for all Worker’s Compensation and Longshore and Harbor Worker’s
Compensation Act Insurance, or authorized and approved self-insurance therefore,
and all Employer’s Liability and Maritime Employer’s Liability Insurance
policies, shall contain waivers of rights of subrogation against Purchaser and
its parent, subsidiaries, and affiliated companies.

 

(4)      Contractor agrees that for all Collision, Protection and Indemnity
Liability required in (c)(2)(v), Commercial General Liability and Auto Liability
and Excess Liability, that Purchaser and its parent, subsidiary, and affiliated
companies shall be named as additional assured on those policies and such
policies shall contain waivers of underwriter’s rights of subrogation. It is
agreed that such naming and waiving shall apply only to the extent of the
legally enforceable indemnity obligations and risks assumed by Contractor in
this Contract.

 

(g)      Coverage Limits and Contractor's Liability.  The insurance coverage
limits stated in Paragraphs (a) through (d) above are minimum insurance coverage
requirements, not limits of Contractor’s liability.  Notwithstanding the
above-required

 

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insurance policies, Contractor shall be obligated for the full and total amount
of any damage, injury, expense or loss.

 

(h) Contractor agrees to comply with all insurance coverage warranty
requirements applicable to the Project and provide evidence of compliance upon
reasonable request of Purchaser.  Should Contractor fail to procure or maintain
any of these insurance coverages, or by any act or omission vitiate or
invalidate any of the aforesaid insurance coverages, Contractor shall pay to
Purchaser all losses and indemnify Purchaser against all claims and demands
which would otherwise have been covered by such insurance. 

 

22                  PURCHASER’S INSURANCE

 

(a)      Purchaser's Insurance.  As a requirement for access of Purchaser
(including its employees, agents, affiliates, suppliers and subcontractors) or
Purchaser's Representatives and Purchaser’s Engineers to the Shipyard, Purchaser
shall maintain at its sole cost and expense the following insurance coverage:

 

(1)      Commercial General Liability/Excess Liability insurance with coverage
to include broad form property damage, personal injury, premises, completed
operations and products, and contractual liability with a minimum bodily injury
and property damage combined single limit of $2,000,000 per occurrence and
$2,000,000 in the aggregate.

 

(2)      Automobile Liability insurance with a combined single limit of
$2,000,000 for Bodily Injury and Property Damage;

 

(3)      California Workers' Compensation and United States Longshore and Harbor
Workers' Compensation Act insurance with minimum limits of liability conforming
to the statutory requirements of the State of California and the United States
of America, respectively; and if Purchaser's Representatives or Purchaser’s
Engineers are anticipated to be aboard an underway Vessel for any reason, Jones
Act coverage with minimum limits of liability of $2,000,000 per occurrence and
$2,000,000 in the aggregate.

 

(b)      Other.  Each policy required by this Article shall provide that it is
primary insurance to and noncontributing with any other insurance carried by
Contractor. Notice of any cancellation of required coverage or any material
change in any policy required under this Article shall be given in accordance
with that policy’s terms and conditions.  The policy referred to in paragraphs
(1) and (2) above shall name Contractor as an "additional insured," and the
certificates provided to Contractor shall reflect such additional insured
coverage.  The policies referred in paragraph (3) above shall contain a waiver
of subrogation in favor of Contractor.

 

(c)      Certificates of Insurance.  Certificates evidencing compliance with the
insurance requirements of this Article, in a form satisfactory to Contractor,
shall be delivered to Contractor within 10 days of the Effective Date of this
Contract, and renewals thereof delivered to Contractor within 10 days after
expiration of the respective policy terms. 

 

(d)      Coverage Limits and Purchaser's Liability.  The insurance coverage
limits stated in paragraph (a) above are minimum insurance coverage
requirements, not limits

 

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of Purchaser's liability.  Notwithstanding the above-required insurance
policies, Purchaser shall be obligated for the full and total amount of any
damage, injury, expense or loss.

 

23                  LOSS OR DAMAGE OF VESSEL

 

(a)      Partial Loss or Damage.  In the event that any loss or damage to a
Vessel prior to Delivery does not render the Vessel a “Total Loss” in accordance
with the terms and conditions of the Builder’s Risk Policy, Contractor shall
replace or repair the Vessel as mutually agreed between the Parties.  In such
event, Contractor shall be liable as part of the Contract Price for the cost of
such replacement or repair, but shall be entitled to apply against such costs
any amounts recoverable under any insurance policy pursuant to CONTRACTOR'S
INSURANCE Article 21.

 

(b)      Total Loss.  In the event of a “Total Loss” in accordance with the
terms and conditions of the Builders Risk Policy, of any Vessel prior to
Delivery, Purchaser or Contractor may elect to cancel the construction of such
Vessel.  If an election is made to cancel the construction of any such Vessel,
the Party electing to cancel shall give written notice in accordance with the
AUTHORIZED PERSONS, NOTICES AND COMMUNICATIONS Article 42, to that effect to the
other Party, within thirty (30) days of the date of determination of such
loss.  If no election is made to cancel the construction of any such Vessel,
construction and Delivery of the Vessel shall proceed in accordance with this
Contract.

 

(c)      Insured Loss.  In the event that there is a “Total Loss” in accordance
with the terms and conditions of the Builder’s Risk policy, of a Vessel prior to
Delivery, and such loss results from a risk covered by the insurances required
under CONTRACTOR'S INSURANCE Article 21, all of the proceeds of such insurance
payable as a result of such loss shall be paid to Purchaser in amounts equal to
the total payments made under this Contract for that Vessel with the balance
paid to Contractor.  Such distribution shall be made without regard to whether
under paragraph (b) of this Article construction of the Vessel is canceled or
proceeds.  If total payments made by Purchaser under the PAYMENTS Article 4 of
this Contract exceed the amounts collectable under Contractor's insurances, then
Contractor shall promptly pay the amount of such excess to Purchaser.

 

(d)      Uninsured Loss.  In the event that there is a Total Loss of a Vessel
prior to Delivery which is not covered by insurance, and regardless of whether
an election is made by Purchaser or Contractor to cancel construction of such
Vessel, Contractor shall pay to Purchaser an amount equal to the total payments
made or advanced for that Vessel under the PAYMENTS Article 4 of this Contract. 

 

24                  INDEMNIFICATION

 

(a)      Contractor.  Contractor shall indemnify, defend and hold harmless
Purchaser and each Vessel against all claims and demands asserted against
Purchaser arising from the injury to or death of employees, workmen,
trespassers, licensees and all other persons in, on or about the Contract Work,
and from damage to or loss of property of third parties to the extent that any
of the foregoing result from or are due to the act, neglect or fault of
Contractor, its employees, its subcontractors or their employees.

 

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(b)      Purchaser.  Purchaser shall indemnify, defend and hold harmless
Contractor and each Vessel against all claims and demands asserted against
Contractor arising from the injury to or death of employees, workmen,
trespassers, licensees and all other persons in, on or about the Contract Work,
and from damage to or loss of property of third parties to the extent that any
of the foregoing result from or are due to the act, neglect or fault of
Purchaser, its employees, its subcontractors or their employees.

 

(c)      Exclusion.  Neither Party’s indemnity obligations under this Article
shall apply to any injury to or death of any person or to any damage to or loss
of property of third parties occurring in connection with a Vessel after
Delivery; provided that this exclusion shall not apply to any death occurring
after Delivery due solely to an injury sustained prior to Delivery; and provided
further that Contractor’s obligations as to the Guaranty Engineer are
specifically set forth in GUARANTY AND LIMITATION OF CONTRACTOR'S AND
PURCHASER’S LIABILITIES Article 19, paragraph (f). 

 

(d) Indemnification Procedure.  Each Party’s obligations under this Article 24
shall arise only if: (i) the Party seeking to be indemnified (the “Indemnified
Party”) promptly notifies the other Party (the “Indemnifying Party”) in writing
of any such claim, provided that any delay shall not relieve the Indemnifying
Party of its obligations hereunder except to the extent it was prejudiced by the
delay; (ii) the Indemnifying Party has sole control of the defense and
settlement of such claim, provided that the Indemnifying Party shall not enter
into any settlement, without the Indemnified Party’s prior written consent, that
would require the Indemnified Party to take any action, or refrain from taking
any action, other than permitting the Indemnifying Party to pay money damages on
the Indemnified Party’s behalf; and (iii) the Indemnified Party fully cooperates
with the Indemnifying Party. The Indemnifying Party shall pay any reasonable
out-of-pocket expense incurred by the Indemnified Party in defending a claim
hereunder, and shall pay all other costs incurred in such defense, including
without limitation court filing fees, court costs, arbitration fees, witness
fees, and attorneys’ and other professional’s fees and disbursements.

 

25                 DEFAULT OF PURCHASER AND CONTRACTOR'S REMEDIES

 

(a)      Events of Default.  The following shall constitute events of default of
Purchaser under this Contract:

 

(1)      The failure of Purchaser to make a payment in accordance with the
provisions of this Contract, and such failure is not remedied within [***] days
after written notice thereof from Contractor. 

 

(2)      Two or more consecutive late payments, and Purchaser fails to provide
within [***] days after receipt of notice thereof from Contractor assurances
reasonably satisfactory to Contractor that Purchaser’s late payments will cease,
which assurances shall take the form of a letter of credit, performance bond, or
other credit support that is reasonably acceptable to Contractor.      

 

(3)      Any court of competent jurisdiction shall enter an order, decree or
judgment appointing a receiver of Purchaser or of the whole or any substantial
part of Purchaser's assets or property or approving a petition filed against
Purchaser for the giving of relief of any kind against enforcement of the rights
of creditors, and any such

 

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order, decree or judgment is not vacated or set aside or stayed within [***]
days of its entry; Purchaser shall commence, or there shall be commenced, any
acts or proceedings seeking the voluntary or involuntary dissolution of
Purchaser; Purchaser shall admit in writing its inability to pay its debts
generally as they become due; Purchaser shall make a general assignment for the
benefit of its creditors; Purchaser shall consent to the appointment of a
receiver for itself or of the whole or any substantial part of its assets or
property; Purchaser shall file a petition in bankruptcy; Purchaser shall file a
petition or answer in any proceeding under any bankruptcy act or other act or
under common law or in equity in any manner seeking relief from enforcement of
creditors' rights; or, Purchaser shall be adjudged bankrupt in any proceeding.

 

(4)      Purchaser hereby appoints Contractor as its Attorney-in-Fact following
the occurrence of any one or more of the events of default specified above to
take all actions necessary or desirable to effect Contractor’s rights and
remedies as described below.

 

(b)      Rights and Remedies.  Upon the occurrence of any event of default
specified in paragraph (a) of this Article, Contractor may immediately exercise
all of its rights and remedies as follows: 

 

(1)      Completion and Sale of Vessel.  Contractor may terminate this Contract
and thereafter Contractor shall be entitled to continue construction of any
Vessel not previously delivered to Purchaser and to complete and sell such
completed Vessel.

 

(i)      Pending such sale, Contractor shall be entitled to retain any initial
and Milestone payments already paid.  Any such sale may be effected by
Contractor, either by public auction or by private contract, on such terms and
conditions as Contractor may see fit, but Contractor shall be bound in good
faith to secure the best price obtainable under the circumstances.  In
connection with any such sale, all liens and security interests of Purchaser in
the Collateral (as defined in the TITLE, RISK OF LOSS, AND PROPERTY INTERESTS
Article 27) shall automatically terminate and be of no further force and
effect.  Purchaser hereby authorizes Contractor to file all documents necessary
to evidence the release of its liens in the Collateral (and by its acceptance of
any assignment of the security interest in the Collateral, any assignee of
Purchaser agrees to such automatic release of liens and the filing of
termination statements evidencing the same).

 

(ii)      In the event Contractor sells a Vessel, Contractor thereafter shall
repay to Purchaser (if the amount below is positive), without Interest, an
amount equal to (X) minus (Y), where:

 

(X) — all initial and progress payments already paid by Purchaser (plus the
value of any other equipment or materials of Purchaser in accordance with
paragraph (a) of Article 27) with respect to such Vessel(s) less

 

(Y) — the difference between the Contract Price (as adjusted under this Contract
from time to time) at the time of such sale and the net price realized for the
Vessel from the sale, after payment of all additional costs, charges and
expenses incurred by Contractor resulting from default, including reasonable
attorney's fees, incurred by Contractor in making such sale;

 

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Provided however, (i) that if the amount determined by subtracting (Y) from (X)
above is a negative number, Purchaser shall pay such amount to Contractor; and
(ii) that in no event will Contractor repay to Purchaser more than the value of
(X) as defined in this Article.

 

(iii)      In the event that Contractor elects to complete any Vessel,
Contractor may negotiate the revival of this Contract with Purchaser at any time
before the sale of the Vessel upon Purchaser’s providing evidence satisfactory
to Contractor that the events causing Purchaser’s default have been remedied.

 

(2)      Abandonment of Construction.  Contractor may terminate this Contract
and thereafter may abandon construction of any Vessel and sell such Vessel in
its state of completion at the time of abandonment of construction.  Any such
sale may be effected by Contractor, either by public auction or by private
contract, on such terms and conditions as Contractor may see fit, but Contractor
shall be bound in good faith to secure the best price obtainable under the
circumstances.

 

(i)      Contractor shall notify Purchaser in writing of its election to abandon
and sell and shall thereafter repay to Purchaser (if the amount below is
positive), without Interest, an amount equal to (X) minus (Y), where:

 

(X) — all initial and progress payments already paid by Purchaser (plus the
value of any other equipment or materials of Purchaser in accordance with
paragraph (a) of Article 27) with respect to such Vessel(s) less

 

(Y) — the sum of:

 

(A) One hundred twelve percent of Contractor’s costs incurred in the Contract
Work to the date of the abandonment of construction, plus

 

(B) such other costs, charges, expenses and damages as Contractor may have
incurred as a result of the default of Purchaser, including reasonable
attorney's fees, incurred by Contractor in making such termination and
abandonment, minus

 

(C) the proceeds of any sale of the Vessel in its state of completion as of the
time of abandonment of construction and the reasonable value of any part thereof
that remains unsold.

 

Provided however, (i) that, if the amount determined by subtracting (Y) from (X)
above is a negative number, Purchaser shall pay such amount to Contractor; and
(ii) that in no event will Contractor repay to Purchaser more than the value of
(X) as defined in this Article.

 

(ii)      In connection with any such abandonment and sale, all liens and
security interests of Purchaser in the Collateral (as defined in Article 27)
shall automatically terminate and be of no further force and effect and
Purchaser hereby authorizes Contractor to file all documents necessary to
evidence the release such liens

 

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in the Collateral (and by its acceptance of any assignment of the security
interest in the Collateral, any assignee of Purchaser agrees to such automatic
release of liens and the filing of termination statements evidencing the same).

 

(3)      Transfer of Purchaser’s Rights Under This Contract.  Contractor may
amend, transfer and assign Purchaser’s right, title and interest in and to this
Contract, including the right to receive Delivery of and transfer title to the
Vessels upon their Delivery, to a third party that will perform and assume all
of Purchaser’s obligations under this Contract as so amended, transferred or
assigned, such amendment, transfer and assignment to be in accordance with
provisions of this paragraph (b) (3) and otherwise in accordance with applicable
law.

 

(i)      Purchaser hereby appoints Contractor as its Attorney-in-Fact to take
all actions necessary or reasonably incidental thereto to effect the amendment,
transfer and assignment of this Contract to Contractor or its designee(s) (any
such amendment, assignment or transfer, an “Assignment”).

 

(ii)      Any Assignment entered into in accordance with this paragraph (b) (3)
may only be effected following the consummation of an amendment, transfer or
assignment process conducted in all respects in a commercially reasonable manner
in accordance with applicable law, and upon consummation of any such Assignment
and the payment of the proceeds referenced below to Purchaser, the transferee
shall be entitled to all rights and benefits of this Contract and Purchaser
shall not have any further interests or rights in and to this Contract as so
amended by the Assignment.

 

(iii)      Contractor shall deliver written notice to Purchaser of its intent to
pursue an assignment of this Contract in accordance with terms of this paragraph
(b)(3) of this Article (the “Assignment Notice”). 

 

(iv)      Contractor will immediately use those proceeds of the Assignment
(which Contractor receives from time to time) that are allocable to the work in
process for any undelivered Vessels to pay to Purchaser (if the amount is
positive), without Interest, an amount equal to:

 

(X) — all initial and progress payments already paid by Purchaser for any
undelivered Vessels (plus the value of any other equipment or materials of
Purchaser in accordance with paragraph (a) of Article 27) less

 

(Y) — the sum of:

 

(A) such other costs, charges, expenses and damages as Contractor may have
incurred as a result of the event of default, and

 

(B) the difference between the Contract Price for any undelivered Vessels as of
the date of the event of default and the Contract Price for such undelivered
Vessels set forth in such Assignment (as in effect on the initial date thereof);

 

provided however, (i) that if the amount referenced in (B) is less than zero,
the value of (B) shall be assumed as zero; and (ii) that if the amount
determined by subtracting (Y) from (X) above is a negative number, Purchaser
shall pay such amount to Contractor;

 

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and (iii) that in no event will Contractor repay to Purchaser more than the
value of (X) as defined in this Article.  

 

(iii)      Nothing contained in this paragraph (b)(3), shall prohibit Contractor
at any time prior to any such Assignment from terminating this Contract and
pursuing its remedies under paragraphs (b)(1) and (b)(2) of this Article.

 

(iv)      In connection with any Assignment, all liens and security interests of
Purchaser in the Collateral (as defined in Article 27) shall automatically
terminate and be of no further force and effect and Purchaser hereby authorizes
Contractor to file all documents necessary to evidence the release of its liens
in the Collateral (and by its acceptance of any assignment of the security
interest in the Collateral, any assignee of Purchaser agrees to such automatic
release of liens and the filing of termination statements evidencing the same).

 

(c)      Rights and Remedies Not Exclusive.  The rights conferred upon
Contractor under the terms of this Article are several and shall not be
exclusive of any other remedies in law or equity that might be otherwise
available to Contractor upon the happening of the events of default specified in
herein.  The failure of Contractor to exercise any of the rights conferred upon
it hereunder with respect to any default of Purchaser shall not constitute a
waiver of any rights of Contractor with respect to any other events of default
of Purchaser hereunder.  If any such right is unenforceable, all other rights
and remedies shall remain.

 

26                 DEFAULT OF CONTRACTOR AND PURCHASER’S REMEDIES

 

(a)      Events of Default.  Events of default of Contractor under this Contract
shall be limited to the following:

 

(i) Any court of competent jurisdiction shall enter an order, decree or judgment
appointing a receiver of Contractor or of the whole or any substantial part of
Contractor’s assets or property or approving a petition filed against Contractor
for the giving of relief of any kind against enforcement of the rights of
creditors, and any such order, decree or judgment is not vacated or set aside or
stayed within [***] days of its entry;

 

(ii) Contractor shall commence, or there shall be commenced, any acts or
proceedings seeking the voluntary or involuntary dissolution of Contractor;

 

(iii) Contractor shall admit in writing its inability to pay its debts generally
as they become due;

 

(iv) Contractor shall make a general assignment for the benefit of its
creditors;

 

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(v) Contractor shall consent to the appointment of a receiver for itself or of
the whole or any substantial part of its assets or property;

 

(vi) Contractor shall file a petition in bankruptcy;

 

(vii) Contractor shall file a petition or answer in any proceeding under any
bankruptcy act or other act or under common law or in equity in any manner
seeking relief from enforcement of creditors’ rights;

 

(viii) Contractor shall be adjudged bankrupt in any proceeding;

 

(ix) Contractor’s failure to repair loss or damage to a Vessel or to make
payments as required under LOSS OR DAMAGE OF VESSEL Article 23 and Contractor's
failure to obtain insurance as required under CONTRACTOR'S INSURANCE Article 21;
or Contractor’s breach of the obligation to resolve any Liens on the Contract
Work or a Vessel as required under LIENS Article 28, where any such failure
continues unremedied for a period of ninety (90) days after written notice from
Purchaser to Contractor, or

 

(x) Guarantor shall in any manner reject its obligations under the guaranty
agreement provided to Purchaser or assign the guaranty agreement without
Purchaser’s prior written consent.

 

Contractor hereby appoints Purchaser as its Attorney-in-Fact following the
occurrence of any one or more of the events of default specified above to take
all actions necessary or desirable to effect Purchaser’s rights and remedies as
described below.

 

(b)      Rights and Remedies.  In the event of the occurrence of any one or more
of the events of default specified in paragraph (a) of this Article 26, upon
payment of any unpaid costs by Purchaser up to the date of default, which is not
contested by Contractor, or, which if contested, is resolved in Purchaser’s
favor under DISPUTES Article 33, then Purchaser may, at its election, terminate
this Contract on written notice to Contractor and exercise its rights below. 

 

(1)      Completion of Vessel.  In the event of termination of this Contract,
Purchaser may proceed, or have its designee proceed, to have the Contract Work
on any Vessel completed and for such purpose, subject to the rights of other
purchasers of other vessels to be constructed by Contractor and subject to the
rights and obligations of Contractor with respect thereto, Purchaser may take
possession and use and occupy so much of the Shipyard, plant equipment, tools,
machinery, and appliances as may be needed for such purposes, without the
payment of any rental or other charge therefore to Contractor, excepting,
however, an equitable allocation of Contractor’s overhead costs. If Purchaser or
its designee performs work at Contractor’s Shipyard, they agree to abide by all
applicable safety, environmental and security rules and regulations.

 

(i)      Contractor hereby agrees to assure to Purchaser or its designee such
use and occupancy of the said facilities and said other property of Contractor
for such period of time as reasonably may be necessary for the completion of the
Contract Work.

 

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(ii)      Contractor shall:

 

(A) assign to Purchaser such subcontracts and orders for material, services and
supplies, including without limitation (to the extent Contractor is legally able
to), all ownership and/or licensee rights in any software, drawings and
technology, whether in hard copy or electronic format, as are identified to the
Contract Work and to be used in the performance of said Contract Work as
Purchaser may direct; and

 

(B) pay to Purchaser the amount by which the total cost to Purchaser of
completing said Contract Work (including all amounts paid to Contractor
hereunder) exceeds the total Contract Price provided in this Contract, as
adjusted hereunder, provided, however, that in computing the amount, if any, to
be paid by Contractor to Purchaser, appropriate adjustment shall be made for
changes to the Contract Work subsequent to the termination of the Contract.

 

(2)      Sale of Incomplete Vessel.  In the event of termination of this
Contract, and if Purchaser shall elect not to complete any Vessel or Vessels,
Purchaser, at any time within [***] days from the date of termination hereunder,
may sell any partially completed Vessel or Vessels, work-in-process, material,
articles of machinery, outfit and equipment and supplies, together with the
Specifications and Design Products (to the extent Contractor is legally able
to). Purchaser shall be bound in good faith to secure the best price obtainable
under the circumstances.

 

(i)      Any purchaser at any such sale shall be given reasonable time, not less
than 60 days from the date of sale, within which to remove from the Shipyard any
Vessel, work-in-process, material, articles of machinery, outfit, equipment and
supplies purchased.

 

(ii)      The proceeds of the sale shall be applied:

 

First, to payment of all reasonable costs and expenses, including reasonable
attorney's fees, incurred by Purchaser or its assigns in making such sale;

 

Second, to reimbursement of Purchaser for payments theretofore made by Purchaser
to Contractor on account of the Vessel sold; and,

 

Third, to payment of any damages, demands or deficiencies arising by reason of
default of Contractor.  The remaining proceeds, if any, shall belong to
Purchaser.

 

In the event the proceeds of the sale shall not be sufficient to pay the first,
second and third items, as above set forth, the difference shall be paid to
Purchaser by Contractor.

 

(3)      Right to Remove:  In the event Purchaser shall elect to terminate this
Contract, at Purchaser's option Purchaser may elect in writing within [***] days
after the termination of this Contract to remove the work in process from the
Shipyard.  The preparation for such removal will be performed at Contractor's
cost and expense.  The cost for the actual removal will be at Purchaser’s
expense.  Contractor shall assign to Purchaser all existing subcontracts and
purchase orders required to complete the Vessel for which the work in process is
being removed as Purchaser may direct.

 

(4)      Refund.  In the event any one or more of the events of default
specified in paragraph (a) of this Article 26 occurs prior to start of
construction of the first

 

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Vessel, Purchaser may elect to obtain a refund.  If Purchaser elects to obtain a
refund, Contractor shall promptly refund to Purchaser the full amount of all
sums paid by Purchaser to Contractor on account of the Vessel. Upon such refund
by Contractor to Purchaser, all obligations duties and liabilities of each of
the parties hereto to the other under this Contract shall be forthwith
completely discharged.  Provided that if Contractor proceeds to dispute
resolution under the provisions of DISPUTES Article 33 hereof, the amount to be
refunded shall be determined as provided in Article 33. For the avoidance of
doubt, if Purchaser elects to receive a refund, Contractor may enter into a
contract for the construction of the Vessels with another party.

 

(c)      Rights and Remedies Not Exclusive.  The rights conferred upon Purchaser
under the terms of this Article are several and shall not be exclusive of any
other remedies in law or equity that might be otherwise available to Purchaser
upon the happening of the events of default specified in herein.  The failure of
Purchaser to exercise any of the rights conferred upon it hereunder with respect
to any default of Contractor shall not constitute a waiver of any rights of
Purchaser with respect to any other events of default of Contractor
hereunder.  If any such right is unenforceable, all other rights and remedies
shall remain.

 

27                 TITLE, RISK OF LOSS, AND PROPERTY INTERESTS

 

(a)      Title.  Title to each Vessel, and to the material and equipment to be
incorporated into each Vessel (except material furnished by Purchaser), shall
remain with Contractor until Delivery of each Vessel.

 

(b)      Security Interests. To secure all Contractor’s obligations to Purchaser
under this Contract, Contractor hereby grants to Purchaser a first priority lien
on and security interest in each Vessel, and to all the Contract Work, and all
material, inventory and equipment to be installed in or placed on board a
Vessel, for use in the performance of the Contract Work whether at the Shipyard
or located elsewhere and the Specifications, Vessel Drawings and Design
Products.

 

(c)      Scrap and Surplus Material.  Title to all scrap and to any material and
equipment that is surplus to the requirements of this Contract (except material
and equipment furnished by Purchaser) shall remain with Contractor.

 

(d)      Loss.  Except as may otherwise be provided in this Contract, the risk
of loss or damage to each of the Vessels and to all material and equipment
located at the Shipyard and elsewhere, but excluding Purchaser furnished
materials not yet delivered to Contractor, and shall remain with Contractor
until Delivery of each Vessel. 

 

28                  LIENS

 

(a)      Contractor’s Responsibility to Resolve.  At the time Contractor
requests any payment under the provisions of this Contract, Contractor shall
furnish to Purchaser a certificate in the form of Exhibit E executed by
Contractor certifying freedom of Liens of

 

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the Vessel and any property aboard any Vessel or any Contract Work or any
material at the Shipyard or elsewhere (including material furnished by
Purchaser) related to the performance of the Contract Work (provided such
property and material are intended to be incorporated into a Vessel but
regardless of whether such property or material have yet to be incorporated in a
Vessel) , excepting, however, those in favor of Purchaser arising out of its
security interest or title created herein, or a claimant, other than Contractor
and Contractor’s subcontractors, arising out of acts or omissions of
Purchaser.  Contractor shall grant no Liens of any kind in any Vessel or any
property or material incorporated or intended to be incorporated in any Vessel,
or any Contractor Work and Contractor shall take all actions required to the end
that no Liens, of any kind arising out of the Contract Work, or on account of
any claim against Contractor or against any subcontractor of Contractor
performing work or furnishing material under this Contract, or arising out of
any agreement to which Contractor or Guarantor is a party, shall be perfected
against or upon any of the Vessels any portions thereof or any of said property,
material or Contract Work at any time from and after the Effective Date.  If a
Lien of any kind is perfected against, or if there is any attachment upon, a
Vessel or any of said property, material or Contract Work, Contractor shall
promptly notify Purchaser thereof.

 

(1)      If such Lien does not arise out of acts or omissions of Purchaser,
Contractor shall, not later than [***] days after the Lien is created, secure
the discharge or release of such Lien provided, however, that Contractor may
contest such Lien or the claim upon which it is based, and shall within the time
herein provided secure the discharge or release of such Lien by court order,
and, if required, shall file such bond or security as the court shall require.

 

(2)      If release or discharge is not available under the law, Contractor
shall immediately take such steps as shall prevent such claimed Lien from
delaying the Contract Work and shall indemnify and save harmless Purchaser from
all costs, charges, and damages by reason of such claimed Lien or claims or in
any way attributable thereto.

 

(b)      Purchaser’s Right to Resolve.  Notwithstanding the provisions of
paragraph (a) of this Article, except with respect to matters being or proposed
to be contested promptly in good faith by Contractor, Purchaser may secure the
discharge or release of such Lien in which event Contractor shall reimburse
Purchaser for its costs of securing such discharge or release (which cost shall
include any reasonable expenses, including reasonable attorney’s fees, incurred
in connection therewith) by deducting such sum from any payments due or to
become due Contractor under this Contract.  In the event such cost is in excess
of the amount of any such reimbursement by deductions, Contractor shall pay the
amount of such excess to Purchaser upon demand.

 

(c)      Purchaser’s Right to Withhold Payment.  Notwithstanding the provisions
of paragraph (a) of this Article, Purchaser, without securing the discharge or
release of such Lien as provided in paragraph (b) of this Article, may
nevertheless withhold from any payments due or to become due Contractor, unless
and until such claimed Lien is released or discharged by Contractor, a sum equal
to the amount reasonably determined by Purchaser to be required to secure the
release or discharge of such Lien which amount may include the reasonably
estimated amount of all expenses, including reasonable attorney’s fees, which
might be incurred therewith.

 

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29                  TAXES AND DUTIES

 

(a)      Taxes and Duties Included in Contract Price.  Except as excluded by
paragraphs (b) and (c) of this Article, the Contract Price includes, and
Contractor shall pay when due, all United States, state, county, city and all
other taxes, assessments and duties of every kind lawfully assessed or levied
against or with respect to each Vessel and any material, supplies, or equipment
used in the performance of this Contract in connection with such Vessel
(excepting, however, material, supplies and equipment furnished to Contractor by
Purchaser) to the extent such taxes, assessments and duties are assessed or
levied (i) prior to Delivery; or (ii) with respect to any period preceding or
ending with Delivery.  Contractor shall indemnify, defend, and hold Purchaser
harmless from liability from the aforesaid United States, state, county, city
and all other taxes, assessments and duties with respect to each Vessel and any
materials, supplies, or equipment used in performance of this Contract.

 

(b)      Sales, Use and Excise Taxes Excluded.  The Contract Price expressly
excludes all sales, use or other excise taxes payable by reason of transfer of
such Vessel to Purchaser or by reason of Purchaser's use thereof, and Purchaser
shall indemnify and hold Contractor harmless from liability for any such sales,
use or other excise taxes.  To the extent that there is a dispute with a taxing
authority over the amount of sales, use or other excise taxes payable by reason
of the transfer of such Vessel to Purchaser or by reason of Purchaser’s use
thereof, Purchaser shall pay for and control the resolution of such dispute
(including cases in which Contractor is a Party to such dispute).

 

(c)      New Taxes and Duties Excluded.  The Contract Price expressly excludes
all United States, state, county, city and all other taxes, assessments and
duties with respect to each Vessel and any materials, supplies, or equipment
used in the performance of this Contract that were not in effect on the
Effective Date ("New Taxes and Duties").  To the extent New Taxes and Duties are
imposed upon and paid by Contractor, Purchaser and Contractor shall execute a
Contract Change in accordance with the CHANGES Article 6 to compensate
Contractor for the cost of such New Taxes and Duties.  New Taxes and Duties
shall not include a change in the amount or rate of a tax or duty in effect on
the Effective Date, but shall include a change in law or change in
interpretation of an existing tax or duty becoming applicable to any Vessel or
to any materials, supplies or equipment used in the performance of this
Contract.

 

30                  INTELLECTUAL PROPERTY INFRINGEMENT

 

Contractor shall be responsible for any and all claims against Purchaser or
against any Vessel for infringement of patents, patent rights, copyrights,
trademarks and trade secrets in the design, construction, use, or sale of any
Vessel as constructed by Contractor (excepting claims arising out of equipment
or machinery supplied to Contractor by Purchaser or the use or sale thereof),
and Contractor shall defend, save harmless and indemnify Purchaser and the
Vessel against all such claims and against all reasonable costs, expenses,
charges and damages which Purchaser or any Vessel may be obligated to pay by
reason thereof, including expenses of litigation, if any, provided that the
foregoing shall not apply to inventions covered by applications for United
States Letter Patent which, during the performance of this Contract, are being
maintained in secrecy,

 

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under the provisions of 35 U.S.C., Sections 181-188, and which are not known
lawfully by Contractor, nor shall Contractor be obligated to indemnify Purchaser
for any infringement of United States Letters Patent or other intellectual
property rights resulting from compliance by Contractor with specific written
instructions of Purchaser given subsequent to the Effective Date relating to
patent matters, or to indemnify Purchaser for an infringement of United States
Letters Patent or other intellectual property rights resulting from the use or
disposition of material, equipment or other items furnished to Contractor by
Purchaser, provided that, upon any such claim being made against Purchaser or a
Vessel or any notice thereof, Contractor shall be notified promptly in writing
of such claim and also of any suit brought in connection therewith and shall be
given an opportunity to defend the same; and provided, further, that so long as
Contractor has confirmed in writing its indemnification obligation hereunder and
is defending such claim actively and diligently, no payment on account of any
such claim shall be made by Purchaser unless made with the consent of Contractor
or pursuant to the decree of a proper court or tribunal.  If an intellectual
property infringement claim is initiated, or, in Contractor’s reasonable
opinion, is likely to be initiated, then Contractor shall, at its sole option
and expense: (1) modify or replace the infringing part of such Vessel so that it
is no longer infringing, provided that the functionality of the foregoing does
not change in any material adverse respect, and reimburse Purchaser for any
out-of-pocket expenses reasonably incurred by Purchaser in connection with such
modification or replacement; (2) procure for Purchaser the right to continue
using the infringing part of a Vessel; or (3) with Purchaser’s prior written
consent, which shall not be unreasonably withheld, if using commercially
reasonable efforts, Contractor can neither acquire the right to continue using
nor replace or modify the infringing part of a Vessel in accordance with this
Article, then remove the infringing part of a Vessel and refund to Purchaser the
amount paid by Purchaser for the infringing portion removed from a Vessel.  The
foregoing intellectual property infringement indemnification obligation shall
not apply when: (i) the infringement is a direct result of a modification made
to a Vessel and the modification was not authorized in writing by Contractor
where “but for” the modification the patent infringement claim would not occur
or would not have occurred; or (ii) the infringement resulted from Contractor
complying with a specific instruction of Purchaser; or (iii) the patent
infringement claim resulted from the use or disposition of material, equipment
or other items furnished to Contractor by Purchaser.

 

31                  ASSIGNMENT

 

(a)      Purchaser Assignment.  Purchaser may assign this Contract in whole or
in part to another individual or company at any time prior to Delivery of any
Vessel only with the prior written consent of Contractor, which consent will not
be unreasonably withheld.  It shall not be unreasonable for Contractor to
withhold consent for reasons of financial insecurity of any proposed assignee
unless Purchaser remains primarily liable for all of Purchaser’s obligations
under this Contract.  Purchaser will not assign the management of the
construction or supervising aspect of this Contract to another entity without
having obtained the prior written consent of Contractor, which consent will not
be unreasonably withheld.  Contractor consents to Purchaser granting a Permitted
Financing Assignment in this Contract and Purchaser’s rights in the Vessel and
materials in connection with the

 

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financing of the Vessel.  A “Permitted Financing Assignment” shall mean any
granting of any security interest or lien, or any other assignment (including
without limitation any assignment in connection with the exercise of remedies by
any Lender Party) by Purchaser of (a) this Contract and Purchaser’s rights
hereunder, and/or (b) Purchaser’s rights to and with respect to the Vessel and
the work in process with respect to the Vessel, in each case to or for the
benefit of MARAD as defined in Article XIX or any lender providing construction
or post-delivery period financing to Purchaser or any affiliate of Purchaser or
any other financing or refinancing to Purchaser or any affiliate of Purchaser
relating to or secured directly or indirectly by this Contract, the Vessel
and/or any work in process (any such lender, a “Lender Party”), or any designee
of any such Lender Party; provided that no such assignment shall diminish
Purchaser’s obligations to perform under this Contract.  The term “Lender Party”
shall include MARAD.  In connection with any such Permitted Financing
Assignment, Contractor agrees to execute a consent and agreement on commercially
reasonable terms and conditions.

 

(b)      Change in Control. Should 50% or more of the current ownership
composition of Purchaser or Contractor, change either directly, or indirectly,
by merger, operation of law, sale of a majority of its stock, assets, and/or
shares, (whether publicly traded or not), transferred, exchanged, and/or
subjected to a conveyance, in whole or in part, then a “change of control” shall
be deemed to have occurred.  A change of control for purposes of this Contract
shall constitute an assignment of a party’s interest under paragraph (a) or (c)
requiring the consent of the other party, which consent shall not be
unreasonably withheld.  Such consent shall be required even if the entity to
which the Party is being transferred has been corporately affiliated with it at
the time this Contract was executed.

 

(c)      Contractor Assignment.  Contractor may assign this Contract in whole or
in part to another individual or company only with the prior written consent of
Purchaser, which consent shall not be unreasonably withheld.

 

(d)      Obligations of Both Parties.  Should either Party determine that it
desires to assign this Contract in whole or in part, it shall provide written
notice to the other Party in accordance with the AUTHORIZED PERSONS, NOTICES AND
COMMUNICATIONS Article 42.  The other Party shall respond to such notice within
60 days of receipt with its written consent or set forth its objections to the
assignment.  As to any assignment by either Party hereto, however, the Party
making the assignment shall, after assignment, remain secondarily liable for
performance under this Contract. An assignee, if duly accepted, shall assume all
of the rights, duties and obligations of the assigning party. 

 

32                  COMPLIANCE WITH LAWS AND REGULATIONS

 

(a)      Governing Law.  This Contract shall be governed by the Federal laws of
the United States of America and the state laws of California, excluding
conflict of law rules that dictate the application of laws in other
jurisdictions.

 

(b)      Compliance with Laws.  Purchaser and Contractor shall comply with all
Laws affecting the Contract Work, shipyards, plants, and vessels in or on
navigable waters and the shores thereof, and all other waters subject to the
control of the United States.  For the purpose of this paragraph, "Laws" mean
any statute, ordinance, rule,

 

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decree, requirement or regulation of any governmental authority or agency,
whether national, state, municipal, local or other government subdivision in any
way affecting Contract Work. 

 

(c)      Permits.  Contractor shall procure at its own expense such permits from
the United States, state and local authorities as may be necessary for
performance of the Contract Work.

 

33                  DISPUTES

 

Except as otherwise provided in this Contract, any and all differences and
disputes of whatsoever nature arising out of the Contract which cannot be
settled by the parties themselves (“Dispute” or "Disputes") shall be subject to
the following:

 

(a)      Informal Dispute Resolution. The Parties agree to utilize informal
dispute resolution processes including but not limited to good faith efforts by
both management teams to resolve disputes prior to arbitration or litigation.

 

(b)      Arbitration.  Subject to the requirement that the Parties shall have
tried the informal dispute resolution process in paragraph (a) and have failed
to reach a resolution within a reasonable period, and subject to the paragraphs
below, Disputes shall be settled by arbitration.  Any such arbitration shall be
conducted by three arbitrators (“Arbitrators”) in accordance with the procedures
set forth by the American Arbitration Association, except as otherwise provided
by this Article.  Hearings during arbitration shall be held in Los Angeles
County, California.  The party desiring such arbitration shall serve upon the
other party written notice of its desire, specifying the question or questions
to be arbitrated.  The other party may, within 15 days after receipt of said
notice, specify any additional questions to be arbitrated. One of the three
Arbitrators will be selected by Contractor, one by Purchaser and the third will
be mutually agreed to by the Parties.  In the event that the parties cannot
agree on one neutral arbitrator within 30 days from the original notice, or
within 15 days after the position of Arbitrator shall become vacant, the parties
agree that the neutral Arbitrator shall be promptly selected by the President of
the Maritime Law Association of the United States, or by the person performing
the duties of the President if the President is absent or otherwise unable to
perform the duties of the President, upon written request by the party desiring
arbitration.  No person designated as Arbitrator under this Contract shall have
had or shall then have any expectation of acquiring any business or financial
relationship with either of the parties hereto, except such relationship as may
be acquired solely by reason of being designated as Arbitrator.  For all matters
submitted to arbitration during the term of this Contract, the Arbitrators shall
be directed to undertake proceedings on an expedited basis so that a prompt
decision of the question or questions can be announced by the Arbitrators to the
parties.  Upon the selection of the Arbitrators, each of the parties shall be
entitled to commence reasonable discovery through exchange of documents,
requests for admissions or depositions, subject to the sole discretion of the
Arbitrators, provided, however, that the Arbitrators shall limit depositions, if
any, to those deemed essential to the fair and reasonable resolution of the
dispute.  The decision of the Arbitrators shall be final, conclusive, and
binding upon the parties.  Notwithstanding any other provision of this Contract
to the contrary, either Party may appeal the Arbitrators’ decision on the
grounds

 

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that it is based upon (i) an error of law that is material and prejudicial, or
(ii) determinations of fact that are clearly erroneous.  An appellant or
cross-appellant may be assessed costs and attorneys’ fees if not determined to
be the prevailing party.  The fee and expenses of the Arbitrators shall be borne
equally by the parties.  The Arbitrators shall determine and shall include in
any award Interest (as defined in the PAYMENTS Article 4) on any amounts
determined payable by either party under the Contract from the date of
overpayment or underpayment.  The Arbitrators shall not be entitled to award
indirect, special, incidental, consequential, or punitive damages to either
party.  The decision of the Arbitrator may be entered and enforced in any court
having jurisdiction thereof.

 

(c)      Litigation.  Anything in subparagraph (a) and (b) above
notwithstanding, any Dispute for claims totaling in excess of $2,000,000,
excluding interest, attorney fees, expert fees and other costs, may be litigated
in the United States District Court for the Central District of California and
the parties hereby consent to such exclusive jurisdiction and venue for any such
Disputes.  In addition, regardless of the size or nature of the dispute, the
parties may seek injunctive relief at any time. 

 

(d)      Costs.  Each party shall bear its own fees, costs and expenses in
connection with Dispute resolution.   

 

34                  ESCROW

 

(a)      Establishment of Account.  For purposes of establishing an escrow
account for the deposit of amounts as specified elsewhere in this Contract, the
Parties shall jointly select a bank to designate as the escrow holder (“Escrow
Holder”) and shall execute escrow instructions (“Escrow Instructions”) with such
additional provisions as may be required by the Escrow Holder and as may be
acceptable to Purchaser and Contractor. One executed copy of the Escrow
Instructions shall be provided to the Escrow Holder, which shall constitute the
Escrow Instructions of the Parties, said Escrow Instructions and appointment of
said Escrow Holder to be irrevocable except upon mutual agreement of the Parties
to this Contract.

 

(b)      Payments Into and From Escrow.  The amounts required to be paid into
Escrow for various reasons and purposes pursuant to other Articles of this
Contract shall be paid to the Escrow Holder.  The Escrow Holder shall pay out of
Escrow to the Parties, in the amounts, at the times, and in the manner as
provided in the Escrow Instructions.

 

35                  CERTIFICATES OF FINANCIAL RESPONSIBILITY

 

(a)      Contractor COFR.  Contractor shall obtain Certificates of Financial
Responsibility (“COFRs”) as required by United States and California law for
coverage of each Vessel from time of launch until Delivery of the Vessel to
Purchaser.

 

(b)      Purchaser COFR.  Purchaser shall obtain COFRs as required by United
States and California law for coverage of each Vessel from time of Delivery of
the Vessel to Purchaser until the Vessel leaves Contractor’s Facilities after
Delivery. 

 

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36                  PURCHASER USE OF CONTRACTOR FACILITIES

 

 (a)      Contractor Facilities.  The term “Contractor Facilities,” for the
purposes of this Article, shall include the Shipyard, piers, adjacent waters,
warehouses and offices associated with the design, construction and testing of
the Vessels.  The term also includes any of Contractor’s vehicles used to move
material or personnel between any of those locations.

 

(b)      Contractor Support Facilities.  Contractor shall furnish beginning at
start of construction, without additional charge, all reasonable facilities
including parking reasonably close to the office location, suitably furnished
offices (to be at least equivalent to the offices of Contractor's employees of
comparable responsibility) [***] (“Purchaser’s Representatives”) who shall be
entitled to attend inspections of the Contract Work under INSPECTION Article 14
and four engineers (“Purchaser’s Engineers”) for the purpose of satisfying
Purchaser’s obligations under its labor agreements. Purchaser may designate some
number of Purchasers Representatives as Purchasers Authorized Representatives,
as described in INSPECTION Article 14, but in any case the total number of these
Representatives will not exceed three.  In addition, Purchaser’s Engineers may
attend inspections, provided however, that any Deficiencies identified pursuant
to INSPECTION Article 14 must be reviewed and approved by a Purchaser’s
Authorized Representative. Services provided to the facilities shall include
lighting, heat and air-conditioning as required by climatic conditions, cleaning
services, telephones, desks, drawing tables, and filing cabinets, necessary for
the safe and convenient administration of Purchaser’s activities under this
Contract and tests that may be required to be witnessed by Purchaser’s
Representatives and/or Regulatory Bodies and more particularly as follows: 

 

[***]

 

(1)      Purchaser shall provide its own computers and may utilize Contractor's
purchasing support capabilities to acquire such equipment on a cost-reimbursable
basis, including appropriate Contractor burden and direct labor costs associated
with procuring and receiving the material.

 

(2)  Contractor shall provide telephone connections through the Contractor’s
internal telephone system for use by Purchaser’s Representatives and Purchaser’s
Engineers.  Purchaser shall reimburse Contractor for all toll and long distance
charges on Contractor’s telephone lines assigned to Purchaser.

 

(3)      Purchaser shall remove any of its files, property or property of its
Purchaser’s Representatives and Purchaser’s Engineers from Contractor-provided
facilities no later than 30 days after Delivery of the last Vessel delivered
under this Contract to Purchaser.

 

(c)      Export Compliance.  Contractor has programs in place to ensure
compliance with the export laws and regulations that govern the activities of
Contractor at any Contractor Facility.

 

(1)      Purchaser and Contractor shall comply with the Export Administration
Act (50 U.S. Code Appendix 2401), the Export Administration Regulations (15 CFR
Parts 730 to 774) (“EAR”), and the regulations issued by the Office of Foreign
Assets Control (31 CFR Chapter V).  Since Contractor is the manufacturer of
“defense

 

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articles,” Contractor also complies with the Arms Export Control Act (22 U.S.
Code 2571) and with the International Traffic in Arms Regulations (22 CFR Parts
120 to 130) (“ITAR”), as may be applicable to the export and import activities
related to this Contract.  Purchaser and Purchaser’s Representatives and
Purchaser’s Engineers that are at Contractor’s facilities shall comply with the
ITAR to the extent applicable.

 

(2)      Purchaser shall provide Contractor with the name and each country of
citizenship of each employee of Purchaser, each Purchaser’s Representative, each
Purchaser’s Engineers and each of Purchaser’s sub-tier suppliers’ employees that
Purchaser desires participate in the performance of this Contract at
Contractor’s facilities or on board any Vessel constructed under this Contract
while such Vessel is at, departing from, or returning to, Contractor’s
facilities.  Purchaser shall obtain any required export authorization or license
that may be required for any employee, representative, or supplier’s employee
who is not a United States person, as defined by the ITAR and/or the
EAR.  Purchaser and Contractor shall cooperate fully with each other with
respect to any application made for any export authorization.

 

(d)      Purchaser's Representatives and Engineers to Comply with Shipyard
Regulations.  Purchaser's Representatives and Purchaser’s Engineers, while at
Contractor’s Facilities, shall comply with Contractor's security and safety
regulations, as provided below:

 

(1)      Insurance Provisions.  Purchaser shall provide insurance for any
activities at Contractor’s Facilities in accordance with PURCHASER’S INSURANCE
Article 22.

 

(2)      Security, Safety, and Environmental.  Purchaser shall comply with
Contractor’s standard security, safety, and environmental policies and
procedures and also shall comply with all applicable federal, state, and local
safety and environmental laws and regulations.  Purchaser and Purchaser’s
Representatives and Purchaser’s Engineers shall not operate motor vehicles in
the Shipyard.

 

(3)      Use of Contractor's Equipment.  Purchaser shall not use, or permit any
other person to use, any of Contractor's equipment, tools, devices, apparatus or
property.

 

(4)      Medical Treatment.  Contractor shall have no obligation to furnish
medical treatment to Purchaser's Representatives, Purchaser’s Engineers or
Vessel officers while such representatives may be in the Shipyard.  In the event
Contractor furnishes medical treatment to any such Purchaser's Representatives,
Purchaser’s Engineers  or Vessel officers , Purchaser shall defend, indemnify
and hold harmless Contractor, its affiliated companies, and the directors,
officers and employees of each of them, from and against any and all claims,
demands or causes of action, by Purchaser's Representatives, Purchaser’s
Engineers or Vessel officer or their representatives, heirs or assigns for costs
or damages (including without limitation punitive damages and reasonable
attorney fees) arising out of or in connection with medical treatment furnished
by Contractor, and excluding only claims based on Contractor's sole negligence
or willful misconduct.

 

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(5)      Denial of Access.  Contractor reserves the right to eject from or deny
admission to the Shipyard and access to Vessels to any person or entity that
fails to comply with the provisions of this Article or Contractor’s rules,
policies, procedures or practices.

 

37                 COMPUTATION OF TIME

 

(a)      Time is of the essence with respect to Contractor’s construction of the
Vessel(s) and Purchaser’s making payments to Contractor.

 

(b)      Except where specifically identified otherwise, the word "day" in this
Contract shall mean calendar day.  All periods of time shall be computed by
including Saturdays, Sundays, and U.S. holidays, except that if such period
terminates on a Saturday, Sunday, or U.S. holiday, it shall be deemed extended
to the California business day next succeeding.

 

(c)      The terms “Contractor’s working days” or “business days” in this
Contract shall mean Monday through Friday of each week except for those days
that Contractor identifies as a “holiday” for its represented employees.  Days
designated as “optional work days” or “voluntary work days” shall be included in
determining the number of working days.

 

38                  PRESS RELEASES

 

(a)      All Other Releases.  Either Party may prepare a press release or other
statement announcing an event that occurs during the performance of this
Contract (e.g., Delivery of a Vessel).  Neither Party shall publish such press
releases or other statements without the prior written concurrence of the other
Party, which concurrence shall not be unreasonably withheld.

 

(1)      Releases citing Subcontractors or Suppliers.  Contractor shall be
responsible for obtaining approval of its subcontractors and suppliers as may be
necessary for the naming of that subcontractor or supplier in any press releases
that either Purchaser or Contractor may prepare.  Purchaser shall be responsible
for obtaining approval of any supplier, design agent, or other support that it
has retained, as may be necessary for the naming of that subcontractor or
supplier in any press releases that either Purchaser or Contractor may prepare.

 

39                 CONFIDENTIALITY

 

(a)      Contractor.  Contractor shall hold in confidence and not disclose to
others or use, except as required for the proper performance of Contract Work,
business or technical information of Purchaser labeled as “proprietary” or
“trade secret” or otherwise to indicate its proprietary or trade secret nature.
Contractor shall similarly obligate in writing its subcontractors, suppliers,
and any third Party receiving disclosure of Purchaser’s proprietary or trade
secret information hereunder, unless otherwise approved by Purchaser.

 

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(b)      Purchaser.  Purchaser shall hold in confidence and not disclose to
others or use, except as required for the proper performance of Contract Work
and for the operation, maintenance, repair, conversion and documentation or
governmental approval of the Vessels, the Vessel Drawings and business or
technical information of Contractor or DSEC labeled as “proprietary” or “trade
secret” or otherwise to indicate its proprietary or trade secret
nature.  Purchaser shall similarly obligate in writing any third Party receiving
disclosure of Contractor’s or DSEC’s proprietary or trade secret information
hereunder naming Contractor and DSEC as third party beneficiaries, unless
otherwise approved by Contractor or DSEC, as applicable.  Purchaser may use and
disclose the Vessel Design only as provided by the DESIGN RIGHTS Article 10.

 

(c)      Exclusions.  The obligations of paragraphs (a) and (b) of this Article
shall not apply to business or technical information in the public domain or
information which Purchaser or Contractor owns or acquires lawfully from others
and which may be freely disclosed without breach of any obligation of
confidence. Contractor agrees that should Purchaser be under a legal or
regulatory obligation to disclose the Contract, including without limitation
disclosures required under federal securities laws or the listing rules of the
New York Stock Exchange, Purchaser may make such disclosure provided that (A)
the proposed disclosure is submitted to Contractor prior to disclosure and (B)
Purchaser gives due consideration to Contractor’s comments with respect to such
disclosure, including any request for Purchaser to redact specific confidential,
business, or proprietary data or information in the disclosure.

 

40                  INDEPENDENT CONTRACTOR

 

(a)      Contractor as Independent Contractor.  In performing Contract Work and
other obligations under this Contract, Contractor shall be an independent
contractor and not the agent or employee of Purchaser and/or its related
companies.  The relationship of employer and employee shall not exist between
Purchaser and Contractor or any of Contractor’s employees or subcontractors’,
vendors’, or suppliers’ employees.  Contract Work shall be performed under the
supervision and control of Contractor.  Purchaser shall have no authority to
supervise Contractor’s employees, representatives, subcontractors, vendors or
suppliers.

 

(b)      Authority Limited.  Neither Contractor nor Purchaser shall have any
authority to make statements, representations, or commitments of any kind or
take any other action binding on the other Party, except as specifically
provided in this Contract. 

 

(c)      No Partnership or Joint Operation.  It is expressly agreed that it is
not the purpose or intention of this Contract, nor shall the same be construed
as creating, any partnership or joint operation between Purchaser and
Contractor.

 

(d)      No Benefits.  Contractor acknowledges and agrees that, with respect to
any Contract Work performed under this Contract, neither Contractor nor its
employees, nor any of its subcontractors’, vendors’, or suppliers’ employees, is
eligible to participate in and will not receive any benefits from any employee
benefit plan sponsored by Purchaser and/or its related companies.

 

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41                  SURVIVING OBLIGATIONS

 

The following Articles of this Contract shall, as applicable, survive any
termination of this Contract, completion of Contract Work, Delivery of Vessels,
or Purchaser's making full payment of the Contract Price, anything in this
Contract to the contrary notwithstanding:

 

DAMAGES AND INCENTIVES FOR DELIVERY Article 9,

 

DESIGN RIGHTS Article 10,

 

GUARANTY AND LIMITATION OF CONTRACTOR'S LIABILITY Article 19,

 

CONTRACTOR’S INSURANCE Article 21

 

INDEMNIFICATION Article 24,

 

DEFAULT OF CONTRACTOR AND PURCHASER’S REMEDIES Article 26,

 

LIENS Article 28,

 

TAXES AND DUTIES Article 29,

 

INTELLECTUAL PROPERTY INFRINGEMENT Article 30

 

COMPLIANCE WITH LAWS AND REGULATIONS Article 32,

 

DISPUTES Article 33,

 

PRESS RELEASES Article 38,

 

CONFIDENTIALITY Article 39,

 

INTERPRETATION Article 44, and

 

CONDITIONS Article 45

 

42                  NOTICES AND COMMUNICATIONS

 

(a)      Notices.  Notices and other communications required by this Contract to
be in writing shall be deemed to have been duly and legally given when served
personally; delivered by courier service (with confirmation of delivery);
deposited in the U.S. Mail, postage prepaid, return receipt requested (with
receipt received); or, successfully transmitted by facsimile or e-mail (with
confirmation of completed transmission received), addressed as follows:

 

To Purchaser:

 

Matson Navigation Company, Inc.

 

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Attention: Vice President, Vessel Operations & Engineering

Address: 555 12th Street, Oakland, CA 94607

Telephone:    (510) 628-4283

Fax:               (510) 628-7344

E-mail:           jsullivan@matson.com

 

To Contractor:

 

National Steel and Shipbuilding Company

Attention: Charles I. Zigelman

Director, Contracts and Estimating

2798 East Harbor Drive

San Diego, California  92113

Telephone:      (619) 544-7608

Fax:                 (619) 544-8880

E-Mail:             czigelma@nassco.com

 

or to such Party at such other address or addresses as either Party may later
specify in writing to the other Party.

 

(b)      Technical Engineering Communications.  All technical engineering
communications originated by Contractor, including submissions pursuant to the
SUBMISSION OF DESIGN PRODUCTS Article 12, shall be transmitted by authorized
Contractor personnel to designated personnel of Purchaser.  All technical
engineering communications originated by Purchaser shall be transmitted by
authorized personnel of Purchaser to designated personnel of Contractor.

 

(1)      The personnel authorized to transmit and receive such communications
shall be designated in writing by each Party to the other pursuant to paragraph
(a) of this Article. 

 

(2)      Technical communications shall be used for such purposes as
clarification or interpretation of a requirement of the Specifications,
providing design information as required by the SUBMISSION OF DESIGN PRODUCTS
Article 12, or discussion of an alleged Deficiency pursuant to the INSPECTION
Article 14.  Such technical communications between the Parties, however, shall
not be deemed to change or modify the terms of this Contract, including the
Specifications.

 

43                 RESERVED

 

 

44                 INTERPRETATION

 

(a)      Entire Agreement.  This Contract, together with its Exhibits and other
documents incorporated herein, including the Specifications, sets forth the
entire agreement and understanding of Purchaser and Contractor relating to the
subject matter contained herein and supersedes all prior discussions and
agreements between

 

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Purchaser and Contractor.  This Contract may be modified or amended only in
writing and signed by both Parties in accordance with the CHANGES Article 6.

 

(b)      Benefit of Parties.  This Contract shall be binding upon the Parties
hereto and shall inure to the benefit of and be enforceable by the Parties
hereto and their respective successors and assigns.

 

(c)      Interpretation.  If any one or more of the provisions of this Contract
is found to be invalid, the remaining provisions shall not be affected, and this
Contract shall be interpreted as if not containing such invalid
provisions.  This Contract shall be interpreted without regard to which Party is
deemed to have drafted the Contract.  Article and paragraph headings are for
administrative convenience only and shall not be used to interpret this
Contract.

 

(d)      Corrections.  The Parties agree to work together in good faith to
correct any Contract language or provisions of the Contract that are discovered
to be erroneous or inaccurate.  Such changes to Contract language or provisions
shall promptly be made in accordance with CHANGES Article 6.

 

45                 CONDITIONS

 

(a)      Parent Company Guarantees.  The agreements set forth in this Contract
are subject to the following actions:

 

(1)      No later than [***] days after the Effective Date, Purchaser shall
cause its parent company to execute a guaranty agreement in favor of Contractor,
in form and substance as shown in Exhibit C, to guarantee the performance of
Purchaser’s obligations under this Contract. 

 

(2)      No later than [***] days after the Effective Date, Contractor shall
cause its parent company to execute a guaranty agreement in favor of Purchaser,
in form and substance as shown in Exhibit C, to guarantee the performance of
Contractor’s obligations under this Contract. 

 

(b)      Failure of Purchaser or Contractor to Meet Conditions.   If any of the
conditions referred to in subparagraph (a) of this Article have not been
satisfied within 15 days of the Effective Date (and Purchaser and Contractor
agree to exercise best efforts to arrange for the satisfaction of said
conditions), then the Contract shall be immediately terminated and neither Party
shall have any liability to the other for such termination except that if
Contractor failed to meet the Conditions then Contractor shall promptly refund
to Purchaser all amounts that have been paid to Contractor under this Contract.
If Purchaser failed to meet the Conditions, then Contractor will retain all
amounts paid by Purchaser.

 

(c)      Cooperation Regarding Financing and Related Matters.  

 

Purchaser may seek financing under the Title XI program administered by the
United States Department of Transportation, acting by and through the Maritime
Administrator (“MARAD”), under 46 U.S.C. chapter 537 (“Title XI”), and/or
private market

 

59

--------------------------------------------------------------------------------

 

or bank financing in connection with the funding of any of the cost of the
Vessels (collectively, “Vessel Related Financing”).

 

(i) Should Purchaser pursue Title XI financing, Contractor agrees to provide the
technical information (table of vessel characteristics, drawings, etc.) and the
overall cost information on the specific MarAd forms that MarAd requires (MA-133
and MA-440) all at no cost to Purchaser.  [***], Contractor agrees to provide
information with respect to the Vessels, construction and Contractor (including
confidential information) reasonably requested  by MARAD in support of
Purchaser's Title XI application.  Contractor agrees that cooperation under the
prior sentence would include up to [***] manhours of Contractor and any
subcontractor personnel.  Any hours expended by such personnel in excess of such
amount shall be charged at $[***] per hour for Contractor personnel and
reasonable actual expenses for attorney, as may be reasonably approved by
Purchaser, or consultant.

 

(ii) Commencing on the date of execution of this Contract and continuing through
the date that is one year following the Delivery Date of the Vessel, Contractor
agrees to cooperate with and support Purchaser in arranging other non-Title XI
Vessel Related Financing and to make commercially reasonable efforts to supply
information requested by the lenders (“Private Lenders”).

 

(iii)      In connection with any such Vessel Related Financing arranged by
Purchaser, Contractor also agrees to allow authorized representatives of MARAD
and the Private Lenders to have reasonable access, as observers, at all
reasonable times during normal working hours to the Vessels and the Contract
Work, to permit them in a manner that does not delay the Contract Work to
inspect the work in process on the Vessel, to certify or confirm substantial
completion of the Vessel at delivery, and to attend any tests and sea trials;
and

 

(iv)      Contractor shall provide Purchaser with copies of all correspondence
with the U.S. Coast Guard in regards to any ruling to document compliance of the
Vessels with (i) 46 C.F.R. Part 67, Subpart F as eligible for a coastwise
endorsement and (ii) 46 C.F.R. 390.5 as U.S. constructed agreement vessels.

 

(d)      Notwithstanding any other term or provision of this Contract, (i) the
Parties agree to amend the terms and conditions of this Contract as necessary to
allow Purchaser to comply with the legal requirements of MARAD, including, if
applicable, amending the Contract to include the standard clauses required by
MARAD in construction contracts if Title XI debt is used to finance the
construction of the vessels subject thereto, and the commercially reasonable
requirements of Non-Title XI Lenders in a timely manner, subject to CHANGES
Article 6; and (ii) Contractor agrees to enter into such other agreements and
execute such other documents as may be reasonably requested by MARAD or the
Non-Title XI Lenders in furtherance of the assignment of this Contract for
security purposes, including without limitation a written consent to such
assignment and (ii) Contractor shall comply with its obligations under this
Article 45(c) without cost or expense charged to Purchaser, except for the
actual out-of-pocket costs plus overhead

 

60

--------------------------------------------------------------------------------

 

paid by Contractor to third parties for administrative costs incurred by such
third parties in complying with any amendment made to the Contract pursuant to
this Section 45(d)

 

46                  EXHIBITS

 

There are attached hereto and incorporated by reference as though fully set
forth herein the following exhibits:

 

 

 

Exhibit A:

Certificate of Actual Delivery and Completion of Vessel Acceptance and Receipt

 

 

Exhibit B:

Change Proposal Form

 

 

Exhibit C:

Parent Guaranties

 

 

Exhibit D:

Milestone Payments

 

 

Exhibit E:

Certificate of No Liens

 

IN WITNESS WHEREOF, the Parties have caused this Contract to be executed in two
counterparts as of the Effective Date.

 

 

 

 

Purchaser:

Matson Navigation Company, Inc.

 

 

 

 

 

By:

/s/ Ronald J. Forest

 

 

Ronald J. Forest

 

 

Senior Vice President

 

 

 

 

Contractor:

National Steel and Shipbuilding Company

 

 

 

 

 

By:

/s/ Kevin M. Graney

 

 

Kevin M. Graney

 

 

Vice President and General Manager

 

 

 

61

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Exhibit A

CERTIFICATE OF ACTUAL DELIVERY AND COMPLETION OF VESSEL

ACCEPTANCE AND RECEIPT

 

 

 

San Diego, California

 

 

[DATE]

 

National Steel and Shipbuilding Company, a Nevada corporation (“NASSCO”) on the
one hand and, on the other, Matson Navigation Company, Inc., a Hawaii
corporation (“Matson”), for itself, does hereby certify:

 

1.      That the Delivery of the Vessel named ____________, NASSCO Hull No. ___,
Official No. ____________ (the “Vessel”), by NASSCO to Matson occurred on the
___ day of ___________, 201_, at _________ o’clock (A.M.) Pacific Standard Time,
at San Diego, California, pursuant to Article 1 (Statement of Work) of the
Contract for the Construction of Two Vessels for Matson Navigation Company,
Inc., by National Steel and Shipbuilding Company, including the Plans,
Specification and changes thereto, entered into as on the ____ day of
___________, as such contract was amended by executed Contract Proposal Forms
Nos. ____ through ____ (the “Construction Contract”; capitalized items used and
not defined shall have the meaning set forth in the Construction Contract), for
the construction of said Vessel.

 

2.      Title to and ownership of the Vessel is vested in Matson.

 

3.      Notwithstanding Delivery, the following remains to be done:

 

(a) correction or completion by NASSCO of the uncompleted work and defects,
deficiencies, and damage itemized in, Exhibit 1 hereto (the “Deficiency List”);

 

(b) resolution of the spares list shortages, as shown by Exhibit 2 hereto;

 

(c) correction of Deficiencies to be identified during the Guaranty Period
pursuant to Construction Contract Article 19; and

 

(d) fulfillment of the other rights and obligations of the parties under the
Construction Contract.

 

4.      Pursuant to Article 4 (Payments) of the Construction Contract, the
withholdings shall be adjusted by an amount of $_________ at the time of
Delivery, which shall consist of:

 

1

 

--------------------------------------------------------------------------------

 

Certificate of Delivery

Page 2 of 2

 

(a) a reduction of $___________ as security for the correction of deficiencies
that may occur during the Guaranty Period; and

 

(b) a reduction of $_________, which is for correcting and/or completing the
aforesaid uncompleted work, uncorrected defects, deficiencies, damage and other
mutually acknowledged issues (see Exhibit 1-A).

 

(c) a reduction of $_________, which is in lieu of correcting uncompleted work,
uncorrected defects, deficiencies, damage and other mutually acknowledged issues
(see Exhibit 1-B).

 

5.      NASSCO shall issue a CPF to the Construction Contract within five days
of Delivery to define the balances owed above as well as the amount owed for the
fuels, lubricants and consumables remaining onboard pursuant to Article 20
(Maker's List, Spare Parts, Tools, And Supplies).

 

6.        Deficiencies identified on Exhibit 3 may extend beyond the Guaranty
Period pursuant to Construction Contract Article 19.

 

7.        Pursuant to Contract Article 1(f) for Post Delivery Work, the Matson
shall be allowed to keep the Vessel at NASSCO’s dock, free of dock fees or other
such charges, until [***] days after Delivery and for [***] additional days at a
cost of $[***] per day.

 

 

 

 

 

 

National Steel and Shipbuilding Company

    

Matson Navigation Company, Inc.

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

 

 

 

2

--------------------------------------------------------------------------------

 

EXHIBIT 1-A

TO

CERTIFICATE OF ACTUAL DELIVERY AND COMPLETION OF VESSEL

DEFICIENCY LIST

 

 

 

 

Vessel Name:

Date:

 

NASSCO’s Hull No.

 

Official No.

 

 

Report QA4011, which is attached hereto and is incorporated herein by this
reference, contains a list of uncompleted Work and uncorrected defects,
deficiencies, damage or acknowledgement of other issues at the time of delivery
to be completed and corrected by NASSCO after delivery in accordance with the
provisions of the Construction Contract.

 

The following values are assigned to the NASSCO-responsible items listed on the
attached Report QA4011 remain to be cleared by NASSCO:

 

 

 

 

 

 

National Steel and Shipbuilding Company

    

Matson Navigation Company, Inc.

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT 2-A

TO

CERTIFICATE OF ACTUAL DELIVERY AND COMPLETION OF VESSEL

SPARES LIST SHORTAGES

 

 

 

 

 

Vessel Name:

Date:

 

NASSCO’s Hull No.

 

Official No.

 

 

The following Allowance List Shortages remain to be cleared by NASSCO:

 

 

 

 

 

 

Item Description

    

Part Number

    

Quantity

 

 

 

 

 

 

 

 

National Steel and Shipbuilding Company

    

Matson Navigation Company, Inc.

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

 

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT 3-A

TO

CERTIFICATE OF ACTUAL DELIVERY AND COMPLETION OF VESSEL

VENDOR WARRANTIES EXTENDING BEYOND GUARANTY PERIOD

 

 

 

 

Vessel Name:

Date:

 

NASSCO’s Hull No.

 

Official No.

 

 

The warranty period of the following product(s) extends beyond the Contract
Guaranty Period end date:

 

 

 

 

 

 

 

 

 

 

Product

    

Supplier

    

PO Number

    

End Date

    

Point of Contact

 

 

 

 

 

 

 

National Steel and Shipbuilding Company

    

Matson Navigation Company, Inc.

 

 

 

 

 

 

By:

 

 

By:

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

Exhibit B

CHANGE PROPOSAL FORM

 

CONTRACT FOR CONSTRUCTION OF TWO Vessels

Between

Matson Navigation Company, Inc.

And

National Steel and Shipbuilding Company

 

Contract Change #  x

 

The purpose of this request for proposal to the Contract of Month XX, 20XX, is
to ________________________.  Accordingly, Contractor is requested to provide
the following information:

 

[OR]

 

The purpose of this modification to the Contract of Month XX, 20XX, is to
________________________.  Accordingly, the Contract is modified as follows:

 

1.    The Contract Article(s) ________ is (are) revised per the attached insert
page(s).  The Contract Specifications paragraph(s) __________ is (are) revised
per the attached insert page(s).

 

2.    The Contract Base Price for all Vessels set forth in Article 3, Pricing,
remains unchanged.

 

[OR]

 

2.    The Contract Base Price for all Vessels set forth in Article 3, Pricing,
is increased [decreased] by ________________ to a new total of ________________.

 

3.    The Contract Delivery Dates set forth in Article 1, Statement of Work,
remain unchanged.

 

[OR]

 

3.    The Contract Delivery Dates set forth in paragraph (e) of Article 1,
Statement of Work, are revised as follows:

 

 

 

 

 

 

Vessel Contract

 

    

Delivery Dates

Vessel 1 (Hull TBD):

 

new date

Vessel 2 (Hull TBD):

 

new date

 

4.    Vessel Key Performance Requirements pursuant to Article 7, Vessel
Performance, paragraph (a), remain unchanged.

 

[OR]

 

4.    Vessel Key Performance Requirement(s) pursuant to Article 7, Vessel
Performance, paragraph (a)(n), is (are) revised as follows [include only those
characteristics that are revised]:

 

 

 

 

 

 

Service Speed:

    

From

 

to

 

Deadweight:

 

From

 

to

 

 

 

 

 

 

 

1

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

 

Main Engine Fuel Consumption:

    

From

 

to

 

 

Except as provided herein, all terms and conditions of the Contract remain
unchanged and in full force and effect.  This Contract Change shall become
effective on the last date indicated below.

 

 

 

 

 

 

 

Matson Navigation Company, Inc.

    

National Steel and Shipbuilding Company

 

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Name/Title:

 

 

Name/Title:

 

 

 

 

 

 

Date:

 

 

Date:

 

 

 

2

--------------------------------------------------------------------------------

 

Exhibit C

Parent Guaranties

 

PURCHASER’S CORPORATE GUARANTY AGREEMENT

 

THIS CORPORATE GUARANTY AGREEMENT (“Guarantee Agreement”) dated as of this
25th day of August, 2016 is executed by Matson, Inc., a Hawaii corporation (the
“Corporate Guarantor”).

 

WHEREAS, Matson Navigation Company, Inc. (the “Purchaser”) and National Steel
and Shipbuilding Company (the “Contractor”) have entered into the Contract for
Construction of Two Vessels dated August 25, 2016 (the “Contract”); and

 

WHEREAS, as a condition of entering into the Contract, Contractor has required
that the Corporate Guarantor agree to guarantee the payment of Purchaser, an
indirect wholly owned subsidiary of the Corporate Guarantor, of its payment
obligations to Contractor arising under the Contract in accordance with the
terms and conditions of this Guaranty Agreement;

 

NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the value, receipt and sufficiency of which are
acknowledged, the Corporate Guarantor agrees as follows:

 

1.      Guaranty.  Upon the terms and subject to the conditions set forth in
this Guaranty Agreement, the Corporate  Guarantor unconditionally, absolutely
and irrevocably guarantees the payment of obligations of Purchaser to Contractor
arising under the Contract (collectively, the “Guaranteed Obligations”). The
guaranty set forth herein is one of payment and not of collection.

 

2.      Scope of Guaranteed Obligations.  The Corporate Guarantor guarantees
that the Guaranteed Obligations shall be paid when due in accordance with the
terms of the Contract, as the same may be amended, modified, waived, extended
and supplemented from time to time.  The failure of Contractor to obtain the
consent of the Corporate Guarantor to any such amendment, modification, waiver,
extension or supplement shall not excuse the performance of Guarantor of its
responsibilities to Contractor under this Guaranty Agreement.

 

3.      Enforcement.  Prior to taking any action to enforce its rights under
this Guaranty Agreement, Contractor shall notify the Corporate Guarantor in
writing of the circumstances surrounding the alleged non-performance of the
Guaranteed Obligations by Purchaser.  Upon its receipt of notice of alleged
non-performance, the Corporate Guarantor shall be provided with a reasonable
period of not less than thirty (30) days in which to remedy or cure, or cause
Purchaser to remedy or cure, such alleged non-performance.  In any action to
enforce this Guaranty Agreement, the Corporate Guarantor shall be entitled to
assert in

 

3

--------------------------------------------------------------------------------

 

its own name any and all of the rights, defenses, counterclaims, exculpations,
indemnities and limitations on liability to which Purchaser may be entitled to
assert in connection with such action.

 

4.      Termination.  This Guaranty Agreement is a continuing guaranty and shall
remain in full force and effect until (i) the indefeasible payment in full of
the Guaranteed Obligations; or (ii) December 31, 2021, whichever is earlier.

 

5.      Certain Limitations. Notwithstanding any provision of this Guaranty
Agreement or the Contract to the contrary, the aggregate liability of the
Guarantor to Contractor pursuant to this Guaranty Agreement shall not exceed the
amount per Vessel that Purchaser is liable for under the Contract, and in no
event shall the Guarantor be liable to Contractor for any exemplary, punitive,
consequential or other special damages pursuant to this Guaranty Agreement or
otherwise.

 

6.      Assignment.  This Guaranty Agreement shall be binding upon and
enforceable against the Corporate Guarantor and its successors and assigns, and
shall inure to the benefit of, and be enforceable by Contractor and its
permitted successors and assigns.  This Guaranty Agreement may not be assigned
by the Corporate Guarantor without the prior written consent of Contractor (such
consent not to be unreasonably withheld).

 

7.      No Third Party Beneficiaries.  This Guaranty Agreement is intended for
the sole and exclusive benefit of Contractor and its successors and assigns, and
shall not be enforceable by any other party.

 

8.      Governing Law.  This Guaranty Agreement shall be governed by, and
construed in accordance with the internal laws of the State of Delaware.

 

9.      Notices.  Any notice, request or other communication hereunder to
Purchaser or Corporate Guarantor shall be in writing and be duly given if
delivered personally or sent by prepaid registered mail to its address or by
telecopier to the number and to the attention of the person set forth below:

 

In the case of the Corporate Guarantor:

 

Matson Inc.

555 12th Street

Oakland, CA 94607

Attn: Senior Vice President

rforest@matson.com

Facsimile:  (510) 628-7379

 

In the case of the Contractor:

 

National Steel and Shipbuilding Company

2798 East Harbor Drive

San Diego, CA  92113

Director of Contracts and Estimating

czigelma@nassco.com

Phone:  (619) 544-7608

4

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the Corporate Guarantor has executed this Guaranty Agreement
as of the date first written above.

 

 

 

 

Matson Inc.

 

 

 

By:

 

 

 

Ronald J. Forest

Senior Vice President

 

 

 

Acknowledged and Agreed to this 25th  day of August 2016

 

NATIONAL STEEL AND SHIPBUILDING COMPANY

 

 

 

 

 

By:

 

 

 

Kevin M. Graney

Vice President and General Manager

 

 

5

--------------------------------------------------------------------------------

 

CONTRACTOR’S CORPORATE GUARANTY AGREEMENT

 

 

THIS GUARANTY AGREEMENT dated as of this 25th day of August, 2016 is executed by
General Dynamics Corporation, a Delaware corporation (the “Guarantor”).

 

WHEREAS, National Steel and Shipbuilding Company (“Contractor”) intends to enter
into a contract for the construction of two specialty cargo vessels (the
“Contract”) with Matson Navigation Company, Inc. (“Customer”); and

 

WHEREAS, in connection with the Contract, Customer requested that the Guarantor
agree to guarantee the obligations of Contractor, an indirect wholly owned
subsidiary of the Guarantor, to Customer arising under the Contract in
accordance with the terms and conditions of this Guaranty Agreement.

 

THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the value, receipt and sufficiency of which are acknowledged, the
Guarantor agrees as follows:

 

1.  Guaranty.  Upon the terms and subject to the conditions set forth in this
Guaranty Agreement, the Guarantor unconditionally, absolutely and irrevocably
guarantees the payment of Contractor’s obligations to Customer arising under the
Contract (collectively, the “Guaranteed Obligations”).  The guaranty set forth
herein is one of payment and not of collection.

 

2.  Scope of Guaranteed Obligations.  The Guarantor guarantees that the
Guaranteed Obligations shall be paid when due or in accordance with the terms of
the Contract, as the same may be amended, modified, waived, extended and
supplemented from time to time.  The failure to obtain the consent of the
Guarantor to any such amendment, modification, waiver, extension or supplement
shall not excuse the performance by the Guarantor of its responsibilities to
Customer under this Guaranty Agreement.

 

3.  Enforcement.  Prior to taking any action to enforce its rights under this
Guaranty Agreement, Customer shall notify the Guarantor in writing of the
circumstances surrounding the alleged non-performance of the Guaranteed
Obligations by Contractor.  Upon its receipt of notice of alleged
non-performance, the Guarantor shall be provided with a reasonable period of not
less than 30 days in which to remedy or cure, or cause Contractor to remedy or
cure, such alleged non-performance.  In any action to enforce this Guaranty
Agreement, the Guarantor shall be entitled to assert in its own name any and all

 

6

--------------------------------------------------------------------------------

 

of the rights, defenses, counterclaims, exculpations, indemnities and
limitations on liability that Contractor may be entitled to assert in connection
with such action.

 

4.  Termination.  This Guaranty Agreement is a continuing guaranty and shall
remain in full force and effect until: (i) the indefeasible payment in full of
the Guaranteed Obligations; or (ii) December 31, 2021, whichever is earlier.

 

5.  Certain Limitations.  Notwithstanding any provision of this Guaranty
Agreement or the Contract to the contrary, the aggregate liability of the
Guarantor to Customer pursuant to this Guaranty Agreement shall not exceed the
amount per Vessel that Contractor is liable for under the Contract, taking into
account the limitations of Article 19 of the Contract, and in no event shall the
Guarantor be liable to Customer for any exemplary, punitive, consequential or
other special damages pursuant to this Guaranty Agreement or otherwise.

 

6.  Assignment.  This Guaranty Agreement shall be binding upon and enforceable
against the Guarantor and its successors and assigns and shall inure to the
benefit of, and be enforceable by, Customer and its permitted successors and
assigns.  This Guaranty Agreement may not be assigned by the Guarantor without
the prior written consent of Customer (such consent not to be unreasonably
withheld).

 

7.  No Third Party Beneficiaries.  This Guaranty Agreement is intended for the
sole and exclusive benefit of Customer and its successors and assigns and shall
not be enforceable by any other party. 

 

8.  Governing Law.  This Guaranty Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware.

 

9.  Notices.  Any notice, request or other communication hereunder to  Customer
or the Guarantor shall be in writing and be duly given if delivered personally
or sent by prepaid registered mail to its address or by E-mail (with
confirmation of completed transmission received) to the number and to the
attention of the person set forth below:

 

If to the Guarantor:

 

General Dynamics Corporation

2941 Fairview Park Drive

Falls Church, VA 22042-4513

Attention: Treasurer

Facsimile No.: (703) 876-3366

 

If to Customer:

 

Matson Navigation Company, Inc.

555 12th St.

Oakland, CA 94607

Attn:  Senior Vice President Operations

 

7

--------------------------------------------------------------------------------

 

E-mail:  Rforest@matson.com

 

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty Agreement as of the
date first written above.

 

 

 

 

 

 

GENERAL DYNAMICS CORPORATION

 

 

 

 

 

 

 

By:

 

 

 

Gregory Gallopoulos

 

 

Sr. Vice President

 

 

Acknowledged and Agreed this 25th day of August, 2016

 

Matson Navigation Company, Inc.

 

 

 

 

 

By:

 

 

 

Name: R. J. Forest

 

 

Title:  Senior Vice President

 

 

 

 

8

--------------------------------------------------------------------------------

 

Exhibit D

 

Schedule of Milestone Payments for Each Vessel

 

 

 

 

 

 

 

 

Payment % of Contract Price

Milestone

    

Ship 1

    

Ship 2

Contract Signing

 

5%

 

5%

Completion of Plan Approval

 

[***]%

 

[***]%

SOC

 

[***]%

 

[***]%

Completion of 50 T block

 

[***]%

 

[***]%

Completion of First Grand Block over 200 T

 

[***]%

 

[***]%

First Dock Mounting

 

[***]%

 

[***]%

Main Engine on board

 

[***]%

 

[***]%

SSDG on board

 

[***]%

 

[***]%

Launch

 

[***]%

 

[***]%

Delivery

 

[***]%

 

[***]%

Guarantee Payment

 

[***]%

 

[***]%

 

Milestone Definitions:

 

Contract Signing: Contract signing date.

 

Completion of Plan Approval: The date that 90% of drawings have been approved by
Class

 

SOC: Cutting of the first plate for the first block

 

Completion of 50 T block:  Class inspection of first complete 50 Ton Block

 

Completion of first Grand Block: Completion of first Grand Block larger than 200
Tons

 

First Dock Mounting: Placement of the first block in the final build position
which has been painted, inspected and accepted by the BUYER and the
Classification Society.

Main Engine onboard: Mounting of the Vessel's Main Engine in the hull of the
ship in the final build position, after all required prior blocks of the Vessel
have been landed in the final build position.

 

SSDG’s onboard: Mounting of the Vessel’s Ship Service Diesel Generators (SSDG)
in the hull of the ship in the final build position, after all required prior
blocks of the Vessel have been landed in the final build position.

 

Launch: Transfer of Vessel from final build position to floating pier side.

 

Delivery: As defined in Article 1 (c).

 

 

1

--------------------------------------------------------------------------------

 

Exhibit E

 

CERTIFICATE OF NO LIENS

 

This Certificate of No Liens is being delivered by National Steel and
Shipbuilding Company (the “Contractor”) to Matson Navigation Company, Inc. (the
“Owner”) pursuant to the Contract for Construction of Two Vessels, effective as
of __________ (the “Contract’), between the Contractor and the Owner.

 

The Contractor does hereby represent, warrant, and certify to the Owner that
upon and concurrent with [Milestone Payment XXX or Delivery] for the Vessel
___________________ (the “Vessel”), that (1) the Vessel and any property aboard
the Vessel or any Contract Work or any material at the Shipyard or elsewhere
(including material furnished by Purchaser) related to the performance of the
Contract Work (provided such property and material are intended to be
incorporated into the Vessel but regardless of whether such property or material
have yet to be incorporated in the Vessel) are free and clear of any and all
Liens, claims, charges, security interests, encumbrances, and mechanics,
possessory or other liens or rights in rem of every nature, whether arising by
statute, common law or in admiralty, charges, including, without limitation, (a)
in favor of Contractor or any workmen, employees, crew, materialmen or
subcontractors of the Contractor for labor or materials furnished or used in
completing the Contract Work or arising from the operation of the Vessel during
sea trials or otherwise prior to delivery to the Owner, (b) arising out of any
agreement to which Contractor or Guarantor is a party, and (2) except any sales,
use or other excise taxes payable by reason of transfer of the Vessel to Owner
or by reason of Owner’s use thereof, the Vessel is absolutely free and clear of
any and all burdens in the nature of taxes, assessments and duties of every kind
lawfully assessed or levied by United States federal, state, county, city and
other local authorities or governmental bodies, and all such taxes, assessments
and duties of every kind lawfully assessed or levied prior to or on the delivery
date against the Vessel and the materials, supplies or equipment furnished by
Contractor in the performance of the Contract have been paid.

 

Capitalized terms used herein which are defined in the Contract or by reference
therein to other documents shall have the respective meanings stated in the
Contract or such other documents.

 

In witness thereof, I hereunto set my hand this ___ day of ____________

 

 

 

 

 

Signature:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

1

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