AVONDALE INDUSTRIES, INC.
                             FLEXIBLE BENEFITS PLAN


                            Effective January 1, 1998




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                            AVONDALE INDUSTRIES, INC.
                             FLEXIBLE BENEFITS PLAN

                                Table of Contents


                                                                            Page

INTRODUCTION                                                                   1

ARTICLE I     Definitions                                                      2

ARTICLE II     Eligibility Provisions                                          5
         Effective Date of Participation for Eligible Employees                5
         Termination of Participation for Eligible Employees                   5
         Participation During FMLA                                             5

ARTICLE III     Contributions                                                  6
         Elective Contributions                                                6
         Nonelective Company Contributions                                     6
         New Employees                                                         6
         Pay Reduction and Payroll Withholding                                 6
         Maximum Amount of Elective Contributions                              7
         Participant Contributions by Participants on FMLA Leave               7

ARTICLE IV     Participant Elections/Benefit Options                           8
         Enrollment Procedures                                                 8
         Duration of Elections                                                 8
         Benefit Enrollment                                                    8
         Value of Benefits                                                     8
         New Employees                                                         8
         Absence of Completed Election Form                                    9
         Changes in Employee Elections                                         9
         Special Enrollment Rights                                            10

ARTICLE V     COBRA Rights                                                    11
         In General                                                           11
         Definition of Employee and Participant                               11
         Continuation of Benefits                                             11
         Benefit Plan                                                         11
         Enrollment Options                                                   11
         Other COBRA Provisions                                               11



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ARTICLE VI     Amendment or Termination                                       12

ARTICLE VII     Administration                                                13
         Company as Administrator                                             13
         Powers and Duties                                                    13
         Reliance on Tables, etc.                                             14
         Nondiscriminatory Exercise of Authority                              14
         Status as Fiduciary                                                  14
         Fiduciary Liability                                                  14
         Examination of Records                                               15
         Indemnification                                                      15

ARTICLE VIII     Miscellaneous Provisions                                     16
         Information to be Furnished                                          16
         Limitation of Rights                                                 16
         Governing Law                                                        16
         No Guarantee of Tax Consequences                                     16

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                                  INTRODUCTION



Avondale  Industries,  Inc. (the "Company")  established a cafeteria plan within
the meaning of Section 125 of the Internal Revenue Code of 1986, effective as of
July 1, 1987,  known as the Avondale  Industries,  Inc.  Flexible  Benefits Plan
(hereinafter  referred to as "Plan").  This Plan is amended effective January 1,
1998 to comply with the Family and  Medical  Leave Act of 1993 and to make other
clarifications  and revisions.  The purpose of this Plan is to provide  eligible
employees a choice between certain taxable and nontaxable benefits.

This Plan is intended to qualify as a  cafeteria  plan under  section 125 of the
Internal  Revenue Code of 1986 and is to be interpreted  in a manner  consistent
with the requirements of that section (as it may be amended).
                                       1
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                                    ARTICLE I

                                   Definitions

Definitions.  As used herein,  the following  words and phrases,  whether or not
capitalized,  shall have the following  meanings  unless a different  meaning is
plainly required by the context. Words implying the masculine gender include the
feminine,  and words in the singular shall include the plural and the plural the
singular.  Any headings herein are included for reference only and are not to be
construed so as to alter any of the terms of the Plan.

   1.01  "Benefit Plan" means any of the health (disability,  medical or dental)
         plans,  group term life insurance  plan,  and any accidental  death and
         dismemberment  plan  offered by the  Company to its  Employees.  All of
         these plans are maintained in accordance with, and described in, one or
         more other documents that are not  specifically  contained  within this
         plan document, but are by this reference incorporated herein.

   1.02  "Change in Family Status" includes:

         a.       Marriage, divorce, death of spouse or child, birth or adoption
                  of child;

         b.       Change  in  employment  status  of a spouse  or a  significant
                  change  in the  health  coverage  of the  employee  or  spouse
                  attributable to the spouse's employment; or

         c.       Such other  events  related to family  status  that are either
                  specifically  permitted  under  regulations  of  the  Internal
                  Revenue  Service or are  substantially  similar and consistent
                  with the intent of such  regulations.  Change in Family Status
                  does not include  termination  of  employment  or reduction in
                  hours, with respect to the Participant himself.

   1.03  "Code" means the Internal Revenue Code of 1986, as amended from time to
         time.  Reference  to any  section or  subsection  of the Code  includes
         references to any comparable or successor provisions of any legislation
         that amends, supplements or replaces such section or subsection.

   1.04  "Company" means Avondale Industries, Inc.

   1.05  "Compensation"  means a  Participant's  salary,  as  determined  by the
         Company.

   1.06  "Company  Contributions"  means those contributions made by the Company
         to provide certain taxable and nontaxable benefits to the Employees.

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   1.07  "Dependent  means an  unmarried  child of a  Participant  (including  a
         legally  adopted  child,  or a  stepchild)  who is  dependent  upon the
         Participant for his or her support and:

         a.       is under the age of nineteen; or

         b.       is under the age of twenty-five and is a full-time student.


   1.08  "Effective Date" means January 1, 1998. The original effective date was
         July 1, 1987.

   1.09  "Election  Form" means the Flexible  Benefits Plan 1998 Enrollment Form
         and any future  Enrollment  Forms  provided  by the  Company by which a
         Participant  makes his benefits  selection and by which the Participant
         may authorize the Company to reduce his Compensation in order to obtain
         certain benefits.

   1.10  "Election   Period"   means  the  period   designated  by  the  Company
         immediately  preceding the beginning of each Plan Year during which the
         Employee must complete his Election Form.

   1.11  "Elective  Contributions"  means those  contributions  as  described in
         Article III, Section 3.01.

   1.12  "Employee" means a full-time  employee of the Company who is performing
         active work for at least 30 hours per week.

   1.13  "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
         amended from time to time.  Reference to any section or  subsection  of
         ERISA includes references to any comparable or successor  provisions of
         any  legislation  that amends,  supplements or replaces such section or
         subsection.

   1.14  "FMLA"  means the Family and Medical Leave Act of 1993  (29 USCSss.2601
         et seq.). 

   1.15  "FMLA  Leave"  means a leave of absence that the Company is required to
         extend to an Employee under the provisions of the FMLA.

   1.16  "Nonelection  Company   Contributions"  means  those  contributions  as
         described in Article III, Section 3.02.

   1.17  "Participant"  means any eligible  Employee  covered under this Plan in
         accordance with Article II.
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   1.18  "Plan" means the  Avondale  Industries,  Inc.  Flexible  Benefits  Plan
         maintained pursuant to this plan document.

   1.19  "Plan Year" means the period beginning on the effective date and ending
         on December  31, 1998 and each  succeeding  12-month  period  beginning
         January 1 thereafter;  except that the first Plan Year was from July 1,
         1987 to December 31, 1987.

   1.20  "Qualified Beneficiary" means, with respect to a Participant, any other
         individual  who,  on the day  before  the  qualifying  event  for  that
         Employee,  is a  beneficiary  under  the plan (a) as the  spouse of the
         covered Employee, or (b) as the dependent child of the Employee.
                                       4
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                                   ARTICLE II

                             Eligibility Provisions

   2.01  Effective Date of Participation for Eligible Employees

         An Employee will become a Participant  in this Plan on the first day of
         the first month following 30 days of employment with the Company.

   2.02  Termination of Participation for Eligible Employees

         With  respect  to any  Participant,  coverage  ends on the  date of the
         earlier of the following events:

         a. The date this Plan terminates;

         b. The date the person ceases to be an Employee.

   2.03  Participation  During FMLA. Any Participant who is absent from work due
         to a FMLA Leave shall have the right to continue to  participate in the
         Plan  conditioned  on the  Participant's  (a)  continuing  to  have  an
         employment  relationship with the Company,  and (b) making the payments
         pursuant to Section 3.06. If the Participant fails to make the required
         Elective Contributions, upon return from FMLA Leave the Participant can
         elect to be reinstated  as a Participant  of the Plan on the same terms
         as  prior  to  taking  FMLA  Leave  (including   family  and  dependent
         coverage).
                                       5
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                                   ARTICLE III

                                  Contributions

   3.01  Elective Contributions

         A   Participant   may  elect  under  this  Plan  to  receive  his  full
         Compensation  for any Plan Year in cash or elect to have a  portion  of
         his Compensation withheld from receipt to be applied to the cost of his
         participation  in the Company Health Plan,  that provides a combination
         of life  insurance  and medical  benefits,  and any other  Benefit Plan
         offered by the Company.

         The monetary amount associated with this election  constitutes Elective
         Contributions.  Such  salary  redirection  shall be  authorized  by the
         Participant   on  the  Election   Form.  The  Company  may  reduce  any
         Participant's  allocation  of Elective  Contributions  to the extent it
         deems  it   necessary   to  enable   the  Plan  to   comply   with  any
         nondiscrimination  requirements  imposed  by the  Code,  and any  other
         applicable law or regulation.

   3.02  Nonelective Company Contributions

         If a Participant  elects one or more of the benefit  options under this
         Plan, the Company shall make Nonelective  Company  Contributions  which
         vary  based  on the  benefit  option(s)  chosen.  The  amount  of  such
         Nonelective  Company  Contribution  shall  be the  amount  equal to the
         premium required for the benefit option(s) selected,  less the Elective
         Contribution for such benefit option.

   3.03  New Employees

         In the case of a new Employee who first  becomes a  Participant  during
         the middle of a Plan Year, the maximum amount of Elective Contributions
         made  available to such  Participant  for the balance of that Plan Year
         shall be prorated  on the basis of the number of pay periods  remaining
         in such Plan Year.

   3.04  Pay Reduction and Payroll Withholding

         A  Participant's  Compensation  for a Plan Year shall be reduced by the
         amount of the Elective  Contributions  that the Participant  elects for
         the Plan Year under this Article III. Such contributions  shall be made
         only by payroll reduction on a pre-tax basis.

                                       6
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   3.05  Maximum Amount of Elective Contributions

         The Elective  Contributions under each Benefit Plan for any Participant
         are listed in the Election Form provided each year by the Company.

   3.06  Participant   Contributions   by  Participants   on  FMLA  Leave.   Any
         Participant  who elect to maintain  coverage while on unpaid FMLA Leave
         must continue to make any Elective  Contributions  specified in Section
         3.01 by remitting  payment on an  after-tax  basis to the Company on or
         before  each pay  period  for which the  contributions  would have been
         deducted  from the  Participant's  paycheck  if FMLA Leave had not been
         taken,  provided  that any  delinquent  payments must be made within 30
         days of their due date.


                                       7
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                                   ARTICLE IV

                      Participant Elections/Benefit Options

   4.01  Initial Enrollment Period

         An Employee who is eligible to become a Participant  must complete sign
         and file an Election  Form at any time during the period  beginning  on
         the first day of employment through the end of that month.  Coverage is
         effective as of the first of the following month.

         The Election Form shall permit an Employee to elect to  participate  in
         the Plan by:

         a.       an affirmative election to participate; and

         b.       authorizing a pay reduction in exchange for benefits under the
                  Company  Health Plan or any other  Benefit Plan offered by the
                  Company.

         If an Employee fails to complete, sign and file an Election Form during
         such period the  Employee may become a  Participant  on a later date in
         accordance with Section 4.02, 4.07, or 4.08.

   4.02  Annual Enrollment Period

         Each  Employee  who is a  Participant  or who is  eligible  to become a
         Participant  shall complete,  sign and file an Election Form during the
         thirty (30) day period  immediately prior to the beginning of each Plan
         Year. The elections made by the Participant on this Election Form shall
         be  effective,  subject to Section  4.07,  for the entire Plan Year. An
         Employee who is a Participant and who fails to complete,  sign and file
         an Election  Form as required by this  Section  4.02 shall be deemed to
         have  elected to  continue  the same  benefits  then in effect for such
         Participant.

   4.03  Duration of Elections

         Except as  provided  in  Changes  in  Employee  Elections  below,  each
         Participant's  election is irrevocable and shall remain in effect until
         the beginning of the following Plan Year.

   4.04  Benefit Enrollment

         Election to enroll in a Benefit Plan  offered  under this Plan shall be
         governed by the terms,  conditions  and  provisions  of the  respective
         Benefit Plan's plan document.
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   4.05  Value of Benefits

         Each Plan Year the Company has the duty and right to determine  and set
         the values and  Elective  Contributions  associated  with each  benefit
         offered under this Plan.

   4.06  Absence of Completed Election Form

         Failure to return a completed Election Form to the Company on or before
         the specified due date for the Plan Year in which a new Employee  first
         becomes a Participant  shall be considered a choice by the  Participant
         to  select  cash  only  and to  select  no  Benefit  Plan  coverage.  A
         Participant  who fails to return an  Election  Form for any  subsequent
         Election  Period shall be deemed to have  elected to continue  whatever
         benefit  options  he had  selected  on the most  recent  Election  Form
         previously provided by the Participant to the Company.

   4.07  Changes in Employee Elections

         A Participant  may revoke his  elections  and make new  elections  with
         respect  to the  remainder  of  the  Plan  Year  only  if  the  Company
         determines that both the revocation and the new election are on account
         of and consistent with a Change in Family Status;  and provided further
         that such change is permitted under the terms of the respective Benefit
         Plan  document.  The  Company  shall make the  necessary  determination
         within a reasonable  time after receiving the new Election Form and any
         proof of such family  status change the Company may require in order to
         make  such   determination.   Changes  in  contributions  and  benefits
         attributable  to a  change  in  the  Participant's  election  shall  be
         effective with respect to the pay period which begins  coincident  with
         or  immediately  following  the date on which the new Election  Form is
         approved by the Company.

         Further, any Participant who takes an FMLA Leave may revoke any and all
         existing  elections  at the  beginning  of (or during) the leave.  Such
         Employee  shall have the right to  reinstate  any  revoked  election of
         Elective  Contributions  at the end of the FMLA Leave. The new election
         must be consistent with the reason that such change was permitted.

         In the event that a benefit option is materially  changed or terminated
         during a Plan year,  due in no fault to either the  Participant  or the
         Company,  any Participant who had elected such option may prospectively
         change, at the time the option is so changed or terminated,  to another
         similar  option;  provided  further that such change is permitted under
         the terms of the respective Benefit Plan document. In the event that no
         similar option remains, cash will be deemed to be elected.

                                       9
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   4.08  Special Enrollment Right

         Notwithstanding any provision of the Plan to the contrary,  an election
         of coverage under the Benefit Plan options made by a Participant on his
         or her  Election  Form may be revoked and a new election may be made if
         the  Participant  has  exercised a Special  Enrollment  Right under the
         Plan, provided such revocation and new election must be made within (a)
         30 days of marriage, birth, adoption, or placement of adoption of a new
         Dependent  or (b) within 30 days  following  the  termination  of other
         health  insurance  coverage for one of the following  reasons:  (i) the
         Participant  or  Participant's  Dependent's  coverage was under a COBRA
         continuation policy at open enrollment and such coverage was exhausted,
         or (ii) the Participant or Participant's  Dependent's  coverage was not
         under  a  COBRA  continuation   policy  and  either  the  coverage  was
         terminated  as a  result  of  loss  of  eligibility  for  the  coverage
         (including as a result of legal separation, divorce, death, termination
         of  employment,  or  reduction  of hours  of  employment)  or  employer
         contributions toward such coverage was terminated.

         Any such  revocation  and new election shall be made by executing a new
         Election Form.  The new Election Form shall become  effective as of the
         first payroll period of the month following  receipt of such form by an
         authorized  representative of the Company;  however,  if the revocation
         and new  election is made by reason of birth or adoption of a Dependent
         the election  shall be  retroactive  to the date of birth,  adoption or
         placement for adoption of the Dependent.

         For purposes of this Section  4.08, a Special  Enrollment  Right may be
         exercised by an Employee or  Dependent  who was covered  under  another
         group health plan or health  insurance  coverage at open enrollment and
         who stated in writing the reason for declining enrollment (provided the
         Company  required such  statement on the  enrollment  form).  A Special
         Enrollment  Right is also available to a Participant,  if not otherwise
         enrolled,  and to the Participant's spouse if the Participant has a new
         Dependent through birth, marriage, adoption, or placement for adoption.
                                       10
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                                    ARTICLE V

                                  COBRA Rights

   5.01  In General

         The  benefits   provided   under  this  Plan  may  be  subject  to  the
         Consolidated Omnibus Budget Reconciliation Act ("COBRA").  In the event
         any  provision  of  this  document  is  inconsistent  with  COBRA,  the
         provisions of COBRA are applicable.

   5.02  Definition of Employee and Participant

         For purposes of COBRA,  the terms Employee and  Participant may include
         former  Employees who have  terminated  employment with the Company and
         persons  who are  current  or former  dependent  spouses  or  dependent
         children of Employees.  Accordingly,  to the extent  required by COBRA,
         any Qualified  Beneficiary  who has elected  certain rights under COBRA
         shall be afforded  privileges  otherwise  restricted to Participants as
         defined in Section 1.16.

   5.03  Continuation of Benefits

         To the extent  required by COBRA,  rights  under the Benefit  Plan will
         continue  for any  Qualified  Beneficiary  beyond  the  date of  normal
         termination of coverage.

   5.04  Benefit Plan

         A statement  of COBRA rights under the Benefit Plan is contained in its
         plan document.

   5.05  Enrollment Options

         During open enrollment periods described in Section 4.02, a Participant
         who has  election  rights  on  account  of his  status  as a  Qualified
         Beneficiary  shall be limited to  electing  prospective  coverage in an
         option within the Benefit Plans.

   5.06  Other COBRA Provisions

         Provisions concerning length of COBRA benefits, COBRA election periods,
         and COBRA notification requirements, which apply to this Plan, shall be
         consistent with those specified in the Benefit Plan's plan document.
                                       11
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                                   ARTICLE VI

                            Amendment or Termination

         Avondale Industries, Inc. shall  have the right to terminate,  suspend,
         withdraw, amend or modify the Plan in whole or in part at any time on a
         prospective   basis  without  prior  consultation  with,  notice to, or
         approval by, the Participants.

                                       12
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                                   ARTICLE VII

                                 Administration

   7.01  Company as Administrator

         The  administration  of  the  Plan  shall  be under  the supervision of
         Avondale Industries, Inc. The day to day responsibilities are delegated
         by Avondale Industries, Inc. to the Avondale Industries, Inc.  Benefits
         Committee. It shall be a principal duty of Avondale Industries, Inc. to
         see that the Plan is carried out, in accordance with its terms, for the
         exclusive  benefit  of  persons  entitled  to  participate  in the Plan
         without discrimination among them.

   7.02  Powers and Duties

         The Company will have full power to  administer  the Plan in all of its
         details,  subject to applicable  requirement  of law. For this purpose,
         the  Company's  powers  will  include,  but will not be limited to, the
         following  authority,  in addition to all other powers provided by this
         Plan:

         a.       To establish a funding policy and method  consistent  with the
                  objectives of the Plan.

         b.       To make and  enforce  such rules and  regulations  as it deems
                  necessary or proper for the  efficient  administration  of the
                  Plan,  including the  establishment  of any claims  procedures
                  that may be required by applicable provisions of law.

         c.       To interpret the Plan, its  interpretation in good faith to be
                  final and  conclusive on all persons  claiming  benefits under
                  the Plan.

         d.       To  decide  all   questions   concerning   the  Plan  and  the
                  eligibility of any person to participate in the Plan.

         e.       To appoint such agents, counsel, accountants,  consultants and
                  other  persons as may be required  to assist in  administering
                  the Plan.

         f.       To allocate and delegate its  responsibilities  under the Plan
                  and  to  designate  other  persons  to  carry  out  any of its
                  responsibilities  under the Plan,  provided such allocation or
                  delegation  is  evidenced  in some  form  satisfactory  to the
                  Company.
  
                                       13
<PAGE>
         g.       To notify  the  Participants  in  writing  of any  substantive
                  amendment  or  termination  of  the  Plan  or of a  change  in
                  benefits available under the Plan.

         Notwithstanding  the provisions of this Section,  the powers and duties
         allocated to Avondale  Industries,  Inc. and  described in this section
         shall only be  applicable  with  respect to a claim  arising  under the
         Benefit  Plans or to the  administration  of the  Benefit  Plans to the
         extent that such power or duty is not allocated (either expressly or by
         implication)  to the  individual(s)  or  entity  appointed  to serve as
         administrator or insurer of the Benefit Plans.

   7.03  Reliance on Tables, etc.

         In administering the Plan, Avondale  Industries,  Inc. will be entitled
         to the extent  permitted  by law to rely  conclusively  on all  tables,
         valuations,  certificates, opinions and reports which are furnished by,
         or in accordance with the instructions of, the administrators of any of
         the plans offered within the Plan, or by accountants,  counsel or other
         experts employed or engaged by Avondale Industries, Inc..

   7.04  Nondiscriminatory Exercise of Authority

         Whenever,  in the administration of the Plan,  any discretionary action
         by  Avondale  Industries,  Inc. is required,  Avondale Industries, Inc.
         shall exercise its authority in a nondiscriminatory manner  so that all
         persons   similarly  situated  will  receive  substantially  the   same
         treatment.

   7.05  Status as Fiduciary

         Avondale  Industries,  Inc.  shall be the named  fiduciary of the Plan,
         pursuant  to  ERISA.  Any person  or group of persons may serve in more
         than one fiduciary capacity with respect to the Plan.

   7.06  Fiduciary Liability

         No named  fiduciary  shall  be  liable  with  respect  to a  breach  of
         fiduciary  duty, if such breach was committed  before he became a named
         fiduciary  or after he ceases  to be a named  fiduciary.  No  fiduciary
         shall be liable for an act or  omission  of another  person in carrying
         out any fiduciary responsibility where such fiduciary responsibility is
         allocated to such other person by the Plan,  or where such other person
         was designated to carry out such fiduciary responsibility in the manner
         prescribed by the Plan,  except to the extent that such fiduciary is in
         violation  of his duty under  Section  405(a) or Section  405(c)(2)  of
         ERISA.

                                       14
<PAGE>
   7.07  Examination of Records

         The Company will make available to each Participant such of his records
         under the Plan as pertain to him, for  examination  at reasonable  time
         during normal business hours.

   7.08  Indemnification

         The Company  agrees to  indemnify  and to defend to the fullest  extent
         permitted by law any Employee or other Plan fiduciary acting within the
         scope  of their  respective  duties  (including  any  former  Employee)
         against  all  liabilities,   damages,  costs  and  expenses  (including
         attorneys'  fees and amounts paid in settlement of any claims  approved
         by the Company)  occasioned by any act or omission to act in connection
         with the Plan, if such act or omission is in good faith.

                                       15
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                                  ARTICLE VIII

                            Miscellaneous Provisions

   8.01  Information to be Furnished

         Participants  shall  provide  the  Company  with such  information  and
         evidence and shall sign such documents,  as may reasonably be requested
         from time to time, for the purpose of administration of the Plan.

   8.02  Limitation of Rights

         Neither the  establishment of the Plan nor any amendment  thereof,  nor
         the  payment  of any  benefits,  will be  construed  as  giving  to any
         Participant  or other person any legal or equitable  right  against the
         Company except as provided herein.

   8.03  Governing Law

         This Plan shall be construed,  administered  and enforced  according to
         the laws of Louisiana.

   8.04  No Guarantee of Tax Consequences

         Notwithstanding  anything herein to the contrary,  the Company does not
         insure or make any  commitment or guarantee  that any amounts paid to a
         Participant   pursuant   to  the  Plan  or  any   amounts  by  which  a
         Participant's  wages  are  reduced  pursuant  to  Article  III  will be
         excludable from the  Participant's  gross income for federal,  state or
         local  income  tax  purposes.  It  shall  be  the  obligation  of  each
         Participant  to notify  the  Company if the  Participant  has reason to
         believe that any payment made or to be made to the Participant pursuant
         to the Plan is not excludable from the  Participant's  gross income for
         federal, state or local income tax purposes.

IN WITNESS WHEREOF,  the Company has caused this Plan to be executed in its name
and behalf  this 30th  day of  December,  1998,  by its officer  thereunto  duly
authorized.


WITNESSES:                                   AVONDALE INDUSTRIES, INC.

/S/ RONALD E. BAILEY                         By:    /S/ THOMAS M. KITCHEN
------------------------                            ---------------------
/S/ GEORGE E. WHITE, JR.                     Title: VP & CFO
------------------------                            ---------------------

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