so as to enable the Contractor to perform contracts with the Government or others; and

WHEREAS, the necessary funds for the purpose of this contract are available under the appropriation 17X0605, Repair Facilities, Navy; and

WHEREAS, a Letter of Intent has been addressed to the Contractor, by the terms of which the Contractor was authorized to institute the acquisition, construction and installation of items substantially as described in Schedules 1, 2 and 3 attached hereto, and the execution of this contract was proposed, which said Letter of Intent was subsequently amended; and

WHEREAS, the Contractor accepted the terms of said Letter of Intent, as amended, and has commenced the acquisition, construction and installation of such items;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter contained, the parties hereto do mutually agree as follows:

ARTICLE 1. PRIMARY OBLIGATIONS

(a) The Contractor shall as soon as practicable:

(i) In addition to the plans, specifications, lists of machinery and equipment, and estimated costs already approved by the Department, obtain the approval of the Department for such additional detailed plans, specifications, lists of machinery and equipment, and estimated costs as the Department shall require, for the Schedule 2 and 3 Facilities.

(ii) As the approvals required by subparagraph (i) are given, do or cause to to be done to the extent so approved all other things necessary to acquire, construct, install and complete the Schedule 2 and 3 Facilities, being obligated to acquire, construct, install, and complete the Schedule 2 Facilities only to the extent possible within the total estimated cost thereof stated in Article 6 hereof, as such sum may from time to time be revised in accordance with Article 4 hereof.

(b) The Government shall as soon as practicable acquire the Schedule 1 Facilities, and furnish them to the Contractor for the purposes of this contract. ART. 2. SUBCONTRACTS

Prior to the letting of each subcontract and the placing of each order for purchases, including items to be supplied directly by the Contractor, the Contractor shall give the Department notice of its intention of so doing and shall comply with any and all requirements which may be imposed by the Department as to the extent to which and the terms and conditions upon which such subcontract or order shall or may be made; and no such subcontract or order shall be made hereunder without the approval of the Department having been first obtained. In addition to such other requirements as may be imposed by the Department, every subcontract and order made by the Contractor in the performance hereof shall provide that title to the item or items to be supplied shall vest in the Government as provided in Article 5 hereof.

ART. 3. INSPECTION

All materials, supplies and equipment furnished and all work done in the performance of this contract shall be subject to such inspection and test both in process and upon completion, and at such places and at such times, as the Department may from time to time determine. The Department shall have the right to reject, within a reasonable time, and to require correction or replacement of such material, supplies, equipment and work as it may determine to be defective. The Contractor shall bear the cost, without reimbursement, of all such correction and replacement which could have been avoided by reasonable diligence on the part of the Contractor or any subcontractor, and the Government shall reimburse the Contractor for the cost of all other such correction and replacement.

ART. 4. CHANGES

The Department by order to the Contractor, or the Contractor with the prior approval of the Department, may at any time make changes in or additions to the items specified in Schedules 1, 2 and 3 and the estimated costs thereof: Provided, however, that no such order shall reduce the estimated cost of any such item below the actual authorized cost or authorized commitment theretofore incurred by the Contractor with respect to such item.

ART. 5. TITLE TO FACILITIES

Title to each item of the Schedule 2 Facilities, and to all materials, supplies and equipment therefor, shall vest in the Government as payment is made therefor by the Government. Title to each item of the Schedule 1 and 3 Facilities shall remain in the Government and the Contractor, respectively. Nothing contained in this Article shall relieve the Contractor of any of its duties or obligations under this contract or constitute any waiver of the Government's right to require fufillment of all of the terms thereof.

ART. 6. ESTIMATES

It is estimated that the total cost of acquiring, constructing, installing and completing the Schedule 2 Facilities will be approximately six million, six hundred thirty-eight thousand, seven hundred dollars ($6,738,700), and that the Facilities will be ready for use by the Contractor within twelve (12) months for* the date first above written. The Contractor does not guarantee the correctness of either

of these estimates.

ART. 7. DETERMINATION OF COSTS

(a) The Navy Compensation Board shall determine true cost of (i) such part of the performance of this contract as is to be paid by the Government to the Contractor, (ii) the acquisition of the Schedule 1 Facilities, and (iii) all items which replace items of the Facilities; the decision of such Board or a majority thereof shall be binding on the parties hereto, subject only to the provisions of Article 25 hereof. In determining such true cost said Board shall, subject to the provisions of this Article, employ so far as applicable the accounting methods for determining costs as set forth in Treasury Department Regulations T. D. 5000, and insofar as such Regulations are not applicable, shall comply with sound accounting practice. Such true cost shall include all sales and excise taxes paid by the Contractor and which it was legally obligated to pay in the acquisition, construction and installation of the Facilities in accordance with the provisions of this contract, but such true cost shall not include any profit to the Contractor, except that it shall include the full amount of the Contractor's charges for all materials, supplies and equipment furnished and work done hereunder by the Contractor, to the extent that such charges shall have been approved by the Department.

(b) The Contractor shall, to the extent of its ability, take all trade discounts, rebates, allowances, credits, salvage values, commissions, and bonifications available to the Contractor, and if unable to take advantage of any such benefits it shall promptly notify the Department of the reason therefor. In determining the true cost of articles and materials of every kind required for the purpose of this contract, there shall be deducted from the gross cost thereof all such benefits which have accrued to the Contractor or would have so accrued except for the fault or neglect of the Contractor. Such benefits lost through no fault or neglect on the part of the Contractor shall not be deducted from gross costs.

(c) The true cost of the acquisition, construction, installation, and completion of the Schedule 2 Facilities, which is to be paid by the Government to the Contractor, shall not exceed the total estimated cost thereof stated in Article 6 hereof, as such sum may from time to time be revised in accordance with Article 4 hereof.

ART. 8. PAYMENTS

(a) The Contractor shall be paid the true cost of: (i) the acquisition, construction, installation and completion of the Schedule 2 Facilities, and (ii) such other reimbursable items as are specifically provided in this contract. The true cost shall in each instance be determined in the manner provided in Article 7 hereof. (b) Once each month the Contractor shall submit to the Navy Compensation Board certified bills for all materials, supplies or equipment furnished, or work done hereunder, or advance payments made with the prior approval of the Department by the Contractor to its subcontractors or vendors for materials, supplies or equipment to be furnished, or work to be done, hereunder, for which bills have not been previously submitted; and the Contractor may also submit such bills at such other times as the expenditures of the Contractor for which bills have not already been submitted shall exceed five percent (5%) of the total estimated cost of the Schedule 2 Facilities. Within fifteen (15) days after receipt So in original contract.

of each such submission, the Government shall pay to the Contractor that amount of such bills which the Navy Compensation Board shall have determined to be true costs: Provided, however, that such payments shall not be made in excess of an amount equal to the total estimated cost of the acquisition of the Facilities (as stated in Article 6 hereof, and as may from time to time be revised in accordance with Article 4 hereof), less the total of all advance payments made under this contract.

(c) Upon completion of the acquisition, construction and installation of the Schedule 2 Facilities, final payment of the balance due to the Contractor hereunder on account thereof shall be paid. With its application for such balance due, the Contractor shall submit a release in such form and containing such provisions as shall be approved by the Department.

(d) When the true costs of the acquisition, construction, installation and completion of the Facilities shall be determined by the Navy Compensation Board, it shall certify such costs (hereinafter referred to as the "Acquisition Costs") to the Department and the Contractor: Provided, however, that should the said Board at any time find it necessary to revise the Acquisition Costs, such Costs shall be increased or decreased in accordance with any order received by the Contractor and the Department from such Board.

(e) When any payment is to be made hereunder, the Navy Compensation Board, as a condition precedent to approving such payment, may, in its discretion, require that affidavits satisfactory to it be furnished by the Contractor showing what, if any, liens or rights in rem of any kind against the Facilities or the materials or equipment on hand for use in the construction thereof have been or can be acquired for or on account of any work done, or any materials or equipment already incorporated as a part of the Facilities, or on hand for that purpose; but it is hereby further covenanted and agreed by the Contractor, for itself and on its own account and for and on account of all persons, firms, associations or corporations furnishing labor and/or material for the Facilities, and this contract is upon the express condition, that no liens or rights in rem of any kind shall lie or attach upon or against the Facilities, or materials or equipment therefor, or any part thereof, either for or on account of any work done upon or about the Facilities, or of any materials or equipment furnished therefor or in connection therewith, or of any other cause or thing, or of any claims or demands of any kind, except the claims of the Department: Provided, however, that in case the Contractor shall be unable to comply lawfully with such express condition, the Secretary may waive such condition or take such other action as he may deem proper under the circumstances.

(f) Payment of all reimbursable items to which the Contractor shall be entitled under this contract shall be made by the Government in accordance with the provisions of Articles 7 and 8 hereof.

(g) As soon as practicable after the execution and delivery of this contract, or at such time prior thereto as the Department may determine, the Government shall make an advance payment to the Contractor in the amount of One Million, Nine Hundred and Ninety Thousand Dollars ($1,990,000). Such advance payment shall be made by a check payable to the order of the Contractor, for deposit in the Main Office of the Central Hanover Bank and Trust Company, at 70 Broadway, New York, New York, or in such other bank or trust company as the Department may determine (the bank or trust company in which such deposit shall be made being hereinafter called the "Bank"), in a special trust account for the purposes only of this contract. Upon receipt of such check, the Contractor shall forthwith cause the same to be deposited in the Bank, together with instructions that the sum so deposited shall be held and disposed of as provided below and shall cause the Bank to advise the Department in writing of the receipt of such deposit and instructions. The sum so deposited shall be credited to a special trust account which shall be designated upon the books of the Bank so as to indicate clearly that the credit balance at any time therein is subject in all respects to the provisions of this contract and to the rights of the Government in respect of such account. Such credit balance shall be applied only to or on account of payments necessary to be made by the Contractor in the authorized performance of this contract, and withdrawals from such account shall be made only by checks signed by the Contractor and countersigned by the Department, which, as a condition precedent to the giving of such countersignature, shall be furnished by the Contractor with such evidence as the Department shall request to show that the amount to be withdrawn is to be applied for purposes of this contract. To secure completion of the performance of this contract, the Government shall have a lien on the credit balance at any time in such account, which lien shall be superior to any lien or claim of the Bank or any other person in

respect thereof; and any assignment or pledge of any interest of the Contractor in such credit balance shall be subject to such lien of the Government. The interest of the Contractor in such account shall terminate, title thereto shall vest in the Government, and the credit balance therein shall be paid to the Government, either upon receipt by the Bank or notice from the Department of its election to terminate the interest of the Contractor in such account, or in the event that, to the knowledge of the Bank, any trustee in bankruptcy, receiver, liquidator, assignee for the benefit of creditors, or other custodian for the property of the Contractor, or any substantial portion thereof, is appointed, or any attachment, levy of execution or other proceeding in rem is instituted in respect of such account. The Contractor shall not be required to pay to the Government interest on such advance payment; but interest earned on credit balances of such account shall be paid to the Government by the Contractor as such interest is credited by the Bank, and each such payment shall be made by withdrawal from such account in the manner provided above in this paragraph. Any inclusion of or reference to the interest of the Contractor in such account, made in any financial statement of the Contractor, shall clearly indicate that such interest is subject to the provisions of this contract and to the rights of the Government in respect of such account. Any charges of the Bank in connection with the maintenance of such account shall, subject to the approval of the Department, be paid from the credit balance in such account.

ART. 9. SUSPENSION OR TERMINATION

(a) At any time or times prior to completion of the Schedule 1, 2 and 3 Facilities, the Department may by notice to the Contractor suspend or terminate, in whole or in part, the right and obligation of the Contractor to proceed with the acquisition, construction, installation and completion of the Schedule 2 and 3 Facilities. (b) No such suspension shall continue for more than six (6) months. Unless the Department, prior to the expiration of such period, shall have either directed the Contractor to proceed with the acquisition, construction, installation and completion of the Schedule 2 and 3 Facilities (whereupon the Contractor shall promptly comply with such direction), or shall have terminated such suspended right and obligation, said right and obligation shall terminate upon expiration of such period.

(c) Upon the Contractor's receipt of any such notice of suspension and during the period of such suspension, and also upon its receipt of any such notice of termination, the Contractor shall promptly stop all work in connection with the items designated in such notice, except as otherwise directed by the Department; protect and preserve the same and all materials, supplies and equipment on hand therefor, as the Department shall direct, but not for longer than the Stand-by Period provided in Article 13 hereof; and furnish to the Department such information with respect to all outstanding orders and subcontracts therefor, and take such action with respect to such orders and subcontracts, as may be directed by the Department. The Contractor shall be reimbursed by the Government for the true costs incurred by the Contractor in the performance of its obligation under this paragraph.

(d) Upon the Contractor's receipt of any such notice of termination, or upon the expiration of a suspension period of six (6) consecutive months under paragraph (b) of this Article, Articles 13 and 14 hereof shall become applicable to the items designated in such notice to the same extent as if such termination were the termination of a period of use: Provided, however, that nothing herein shall be deemed to limit the obligations of the Contractor to comply with all the provisions of paragraph (c) of this Article.

(e) The Department may also, by notice to the Contractor, at any time or times suspend or terminate the Government's obligation hereunder to acquire and furnish any of the Schedule 1 Facilities: Provided, however, that in the event the Government's obligation hereunder to acquire and furnish land is terminated, under the right set forth in this paragraph, the Government shall restore to the Contractor such right, title or interest in said land as the Contractor relinquished as a direct result of the negotiation of this contract, upon such terms as may be agreed upon by the Department and the Contractor, or at the election of the Department may give the Contractor a first option for sixty (60) days to purchase the land in which the Contractor had such interest, upon such terms as may be agreed upon by the Department and the Contractor.

ART. 10. USE OF FACILITIES AND PAYMENT THEREFOR

(a) The Contractor shall have the right to use any part of the Facilities as soon as it becomes sufficiently completed to permit use; and the Contractor shall diligently perform any and all work within the capabilities of the Contractor and the

capacity of the Facilities, which shall from time to time be ordered by the Department for the Department, its prime contractors or subcontractors. The terms upon which such work, and all other Government work, shall be performed shall be fairly comparable to those obtainable for the performance of like work by other contractors in similar circumstances, and shall be agreed upon from time to time between the contracting parties: Provided, however, that the Contractor's costs for any Government work shall not include reimbursement for any part of construction, amortization or depreciation of the Facilties, but may include proper proportions of the sums paid by the Contractor for its use of the Facilities, and of the expenses of maintenance, insurance and repair of the Facillties which are to be borne hereunder by the Contractor; and Provided further, that the Department shall at all times during the existing national emergency have the right to remove the drydocks specified in Schedules 1 or 2, from the site of the Facilities to such other place and to be used by such other person or persons as the Department shall deem to be necessary. During any period or periods when the Contractor shall be deprived of the use of said drydocks as a result of such removal, said drydocks shall not be considered a part of the Facilities. It is the intention of the Department, in the event of the exercise of the above right of removal, to return said drydocks to the custody and use of the Contractor prior to or upon termination of the Contractor's right to use all of the Facilities; but in the event the Department shall not have done so, the Contractor shall have the right, under Article 14 (a) hereof, to purchase the said drydocks in their then condition and location, and as a part of the purchase of the Facilities.

(b) The right of the Contractor to use the Facilities shall include the right to use them in the performance of work other than Government work: Provided, however, that the Contractor shall at all times give such priority to Government work as the Department shall from time to time require.

(c) For the right to use the Facilities the Contractor shall pay the Government, on or before the 15th day of each calendar month, the following amounts with respect to the preceding month:

1. For each foot of each ship either moored or multiple banked alongside of any pier, wharf or berth designated as part of the Schedule 4 Facilities: (i) Until certification of the Acquisition Costs of the Schedule 4 Facilities

in accordance with paragraph (d) of Article 8 hereof, at the rate of six and two-tenths cents (6.2¢) per calendar day or part thereof; and (ii) Upon and after such certification of the Acquisition Cost of the Schedule 4 Facilities, at a rate per calendar day or part thereof which shall equal seven percent (7%) of the Acquisition Costs thereof, divided by the figure obtained on multiplying three hundred sixty-five (365) by the total designed usable footage (excluding pier heads) of all such piers, wharves and berths:

Provided, however, That in applying either of the foregoing rates, ship lengths shall be measured over-all; the ship footage used in the computation for any calendar day shall not exceed the total designed usable footage (excluding pier heads) of all such piers, wharves and berths; and if any ship shall be moored or banked as aforesaid for more than one calendar day and if the part of the last calendar day during which such ship shall be so moored or banked shall be less than twelve (12) hours, no payment shall be due to the Government under the foregoing provisions of this paragraph (c) with respect to such ship for the said part of such last calendar day; and

Provided further, that within two (2) months after such certification of the Acquisition Costs, all payments which have been computed in accordance with (i) above shall be recomputed using the rate determined under (ii) above. If the amounts so recomputed shall exceed the payments computed under (i) above, the Contractor shall, within thirty (30) days after said recomputation, pay the difference between the two sums to the Government; if the amounts so recomputed shall be less than the payments computed under (i), the Government shall, within thirty (30) days after such recomputation, pay the difference between the two sums to the Contractor.

2. Forty percent (40%) of all charges made by the Contractor for the use of all drydocks and marine railways designated as part of the Schedule 5 Facilities, it being agreed that the Contractor will at all times charge for such use not less than the standard rates in the vicinity for the use of similar drydocks and marine railways.