AMENDMENT NUMBER ONE
                                       TO
                            AVONDALE INDUSTRIES, INC.
                                  PENSION PLAN


         WHEREAS,  Avondale  Industries,   Inc.,  a  corporation  organized  and
existing  under  the  laws  of the  State  of  Delaware,  adopted  the  Avondale
Industries,  Inc.  Pension Plan (the "Plan")  effective  September 1, 1985; said
Plan has been  amended  from time to time;  said Plan was amended  and  restated
January 1, 1988;

         WHEREAS, Avondale Industries, Inc. reserved the right to amend the Plan
by resolution of the Board of Directors;

         WHEREAS, it is desirable to  amend the Plan  to clarify the  forfeiture
provisions;

         NOW,  THEREFORE,  as  authorized  by Section  11.1,  the Plan is hereby
amended effective January 1, 1998 as follows:

                                       I.

         Paragraph Article I, Section 1.43, Year of Benefit Service,  is amended
and restated to eliminate  duplication  between  Section 1.43 and Section  1.35,
which defines the phrase "Service  Termination Date." Section 1.43 is amended to
read as follows:

                           1.43 Year of  Benefit  Service  shall mean a 12-month
                  period commencing on the date the Eligible Employee  completes
                  One  Hour of  Service,  but  counting  only  months  while  an
                  Eligible  Employee  (or such  later date of  participation  as
                  specified in Appendix A), or anniversary  thereof during which
                  he is employed by a Participating Employer, provided that:

                  a.       An  Employee  shall  be  credited  with  one  year of
                           Benefit  Service  for  each  12  complete  months  of
                           employment, whether or not consecutive.

                  b.       An  Employee  shall cease  accruing  Years of Benefit
                           Service on his Service  Termination  Date,  except if
                           such Employee  performs an Hour of Service within the
                           12-month period commencing on his Service Termination
                           Date,  his  period of  absence  shall be  treated  as
                           employment.

                  c.       Years of Benefit  Service shall include any period of
                           absence because of Service in the Uniformed  Services
                           for a Returning Veteran.
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<PAGE>
                           Except   as   provided   in   Section   1.43(b),    a
                  Participant's  Years of Benefit Service  regardless of whether
                  the   Participant   is  an  employee  of  Avondale   Shipyards
                  Corporation or Avondale Services Corporation,  is equal to the
                  years (and  fractional  years) of service  beginning  with the
                  Participant's  date  of  hire  and  ending  with  his  Service
                  Termination  Date  (other than  additional  credit for certain
                  periods as explained  above).  Fractional years are determined
                  by dividing the number of days between the Participant's  last
                  anniversary of employment and his Service  Termination Date by
                  365 (366 in leap years).

                                       II.

         Article II, Section  2.5(f),  Reemployment  of Vested  Participant,  is
amended  to  insert  the  phrase  "for  purposes  of  receiving  future  benefit
accruals". The amended provision reads as follows:

                           If a  Participant  who  was  vested  in  his  Accrued
                  Benefit  terminates  employment and is  re-employed  after any
                  number of One Year Breaks in Service or any number of One Year
                  Breaks  in  Benefit  Service,  he  shall  be  reinstated  as a
                  Participant for purposes of receiving future benefit accruals,
                  if he is an Eligible  Employee,  after he  completes a Year of
                  Benefit Service from his date of  re-employment.  His Years of
                  Service and Years of Benefit  Service  accumulated  before his
                  termination  shall be added to any Years of Service  and Years
                  of Benefit Service which subsequently accumulate. However, his
                  Employment  Year may be re-set  based on the  rules  stated in
                  Section 2.5(c).

                                      III.

         Article II, Section 2.5(g)(iv),  is amended to replace the reference to
Section 2.5(h) to Section 2.5(g).

                                       IV.

         Article III,  Section 3.5, Vesting Date, is amended to restate the last
paragraph to read as follows:

                           If a Participant, who was first credited with an Hour
                  of Service after December 31, 1987, terminates employment with
                  a zero  benefit,  such  Participant  will  be  deemed  to have
                  received his full benefit and the non-vested  portion shall be
                  immediately  forfeited.  A  Participant  can  have  a  benefit
                  restored after reemployment,  but only under the circumstances
                  described in Section 2.5.
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<PAGE>

                                       V.

         Article  X,  Provisions  to  Prevent  Discrimination,   is  amended  to
capitalize all references to Highly Compensated Employees.

                                       VI.

         Article XIV,  Section 14.6,  Payment of Small Benefits,  is amended and
restated to read as follows:

                           If the Actuarial  Equivalent present value of monthly
                  payments  of  retirement  income  to a  Participant,  who  was
                  covered  under either the Danly  Machine  Corporation  Pension
                  Plan for Salaried  Employees or the Danly Machine  Corporation
                  Hourly  (Non-Union)  Pension  Plan,  would amount to less than
                  $3,500 before such payments have commenced, the Committee may,
                  it its sole discretion,  direct the Trustee to pay such person
                  the then present value of such  retirement  income in one lump
                  sum payment.

                           If the Actuarial  Equivalent present value of monthly
                  payments of retirement  income to a Participant,  other than a
                  Participant described in the above paragraph,  would amount to
                  less than $5,000  before such  payments  have  commenced,  the
                  Committee may, in its sole  discretion,  direct the Trustee to
                  pay such  person  the then  present  value of such  retirement
                  income in one lump sum payment.

                           This Section  14.6  applies  even if the  Participant
                  retires prior to his Early,  Disability,  or Normal Retirement
                  Date.

         IN WITNESS WHEREOF, Avondale Industries, Inc. has caused this amendment
to be executed by its officers  thereunto duly authorized and its corporate seal
to be hereunto affixed, as of the 30th day of December, 1998.

                                            AVONDALE INDUSTRIES, INC.

                                            BY: /S/ THOMAS M. KITCHEN
                                                --------------------------------
                                                    Thomas M. Kitchen, Secretary
ATTEST
/S/ RONALD E. BAILEY
--------------------
(Corporate Seal)
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<PAGE>

                                 ACKNOWLEDGMENT


STATE OF LOUISIANA

PARISH OF JEFFERSON

         BEFORE ME, the undersigned Notary Public,  personally came and appeared
Thomas M. Kitchen, who being by me sworn did depose and state that he signed the
foregoing Amendment Number One to the Avondale Industries,  Inc. Pension Plan as
a free act and deed on behalf of  Avondale  Industries,  Inc.  for the  purposes
therein set forth.

                                                /S/ THOMAS M. KITCHEN
                                                ---------------------
                                                    Thomas M. Kitchen


SWORN TO AND SUBSCRIBED BEFORE ME THIS 30th DAY OF DECEMBER, 1998.

/S/ A. BLOMKALNS
----------------
NOTARY PUBLIC
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