Vessel Construction Contract - Dated 08/01/97

VESSEL CONSTRUCTION CONTRACT


THIS VESSEL CONSTRUCTION CONTRACT (the "Contract") entered into as of this 1st day of August, 1997 by and between Halter Marine, Inc., a corporation organized and existing under and by virtue of the laws of the State of Nevada (hereinafter called "Builder"), and Sea Mar Equipment, Inc., a corporation organized and existing under and by virtue of the laws of Louisiana (hereinafter called "Owner").


W I T N E S S E T H:


ARTICLE I - DESCRIPTION OF VESSEL:


Builder, for and in consideration of the sum to be paid it by Owner as hereinafter set forth, unless prevented by "Force Majeure" as hereinafter defined, agrees to design, build, equip, and complete at Builder's Yard as designated in the attached Exhibits, free and clear from liens, claims and encumbrances, two (2) 200 ft. Supply Vessels (hereinafter referred to as "The Vessel", "each Vessel", or "Vessels", collectively, as the case may be), each of which is described on the attached Exhibits "A-1" and "A-2" and which shall be constructed in accordance with: (a) this Contract, (b) Specifications dated July 11, 1997 (Exhibit "B" to this Contract) (the "Specifications"), and (c) Outboard Profile and Arrangement Drawing No. 1A, dated June 5, 1997 and hand dated July 11, 1997 (Exhibit "C" to this "Contract") (the "Drawings") (hereinafter collectively as to each respective Vessel, the "Contract Documents"), all of which have concurrently been identified by the parties hereto and made a part hereof as if fully set forth herein.


Except for any Owner-furnished equipment as may be listed in the Specifications for a particular Vessel, Builder agrees to furnish all design, plant, labor, tools, equipment and material necessary for the construction and delivery of such Vessel(s).


The Vessel shall be constructed to meet the applicable requirements of regulatory bodies as set forth in the Contract Documents, and certificates evidencing the required classifications shall be furnished by Builder to Owner.


If any enforced changes in the rules and regulations (or interpretations thereof) of the American Bureau of Shipping or other applicable classification society or any governmental agency (collectively, "Enforced Changes") are made subsequent to the date of this Contract necessitating alterations or additions to the Vessel(s); whereby the cost of any Vessel is increased and/or the time required for completion for any Vessel is extended, Owner shall authorize, and pay for, as a change order under this Contract, such alterations, additional work items, outfit and/or equipment, and shall allow Builder such additional time as may be


1 2 required to meet the Enforced Changes, in accordance with Article IV hereof. Owner will only be responsible for the costs of the Enforced Changes if (i) Owner is advised of the Enforced Changes, (ii) Owner is given an opportunity to address the Enforced Changes with the applicable regulatory body before any work is performed and (iii) any resultant changes in the scope of work are the subject of prior agreement as to price and schedule impact before the work is performed; provided, however, any delay by Owner in accepting the Enforced Changes shall be an event of "Force Majeure" hereunder, and in the event Owner does not agree to be responsible for the Enforced Changes Builder shall be relieved of any responsibility to comply with the requirements of the applicable regulatory body set forth in the Contract Documents necessitated by that Enforced Change.


All general language or requirements contained in the Contract Documents for each Vessel and all other requirements inconsistent or in conflict with the provisions of this Contract are superseded by this Contract, it being the intent of the parties that the provisions of this Contract shall prevail. If there is any conflict or inconsistency between the Contract Plans and Specifications, the Specifications shall control.


Article II - PRICE AND PAYMENT:


Owner, in consideration of the true and faithful performance on the part of the Builder, agrees to pay to Builder the sum of U.S. $16,550,000.00, hereinafter called the "Contract Price". The portion of the Contract Price attributable to each Vessel (hereinafter called the "Assigned Value") is contained in Exhibit "A-1" and "A-2".


The Assigned Value for each Vessel shall be payable in two (2) installments. The initial payment in an amount equal to ten percent (10%) of the Assigned Value for each Vessel shall be payable upon execution of this Contract. The remaining ninety percent (90%) of the Assigned Value of each Vessel and any amounts due for extras, change orders, other additional costs as provided in this Contract, together with interest at the Agreed Rate (as defined below) (such payment is the "Final Payment"), shall be payable upon delivery of the Vessel.


Owner and Builder have agreed on the following milestone events (each a "Milestone Event") for the construction of the Vessel and on the percentage of the Assigned Value of each Vessel allocable to each Milestone Event:


ALLOCABLE PERCENTAGE EVENT OF ASSIGNED VALUE ----- -------------------- Receipt of approximately 400 tons steel 15%
90% hull midbody erected on shipway, not completely welded 20%


2 3 Erection of superstructure 15%
Setting of main engines 20%
Launch of Vessel 12%
Delivery of Vessel 8%


Interest shall accrue on each respective portion of the Assigned Value of each Vessel at the rate of seven and one-quarter percent (7 1/4%) per annum (the "Agreed Rate") during the period between the time Builder achieves the corresponding Milestone Event and Builder's receipt of the Final Payment. All accrued interest shall be payable at the time of the Final Payment. Interest shall accrue at the Agreed Rate on that portion of the Assigned Value of each Vessel attributable to each Milestone Event from the time that Builder achieves such Milestone Event until Builder's receipt of the Final Payment. For instance, interest shall accrue at the Agreed Rate on fifteen percent (15%) of the Assigned Value for each Vessel from the time of Builder's receipt of steel until Builder's receipt of the Final Payment. In addition, interest shall also accrue at the Agreed Rate for that portion of the Assigned Value of each Vessel attributable to the other Milestone Events from the time of each respective Milestone Event until Builder's receipt of the Final Payment. The parties agree and acknowledge that while interest shall not accrue during the Grace Period (as hereinafter defined), interest shall continue to accrue at the Agreed Rate during the Liquidated Damages Period (as hereinafter defined).


In the event the down payment required for each Vessel shall not be tendered to Builder in immediately available funds by the close of business within ten (10) business days of Owner's execution of this Contract, either party shall have the right to terminate this Contract, in which event neither party shall have any further liability to the other. In the event Builder chooses not to terminate this Contract, then the Stipulated Date of Delivery as described in Article III shall be extended one day for every day that any portion of the deposit is made after the foregoing deadline.


The Builder shall submit appropriate invoices and/or certificates to evidence the occurrence of each Milestone Event for


3 4


each Vessel which shall be reviewed and approved in writing by Owner's representatives. Payments for all extras, less credits for any deductions, shall be made in cash upon the completion and prior to delivery of each Vessel. The full Assigned Value, including all amounts owed for extras, change orders and all other additional costs as provided in this Contract, must be paid prior to delivery of each Vessel.


Should Owner (a) fail to take delivery of the Vessel within ten (10) days of the completion of the Vessel (except for any Minor Items (as hereinafter defined)) and Owner's receipt of written notice that the Vessel is complete and available for Delivery in accordance with the Contract Documents (except for any Minor Items), or (b) fail to timely pay to Builder any amounts due hereunder, Owner shall be in default of this Contract and Builder shall have the right to mitigate its damages and protect its rights and interests. Without limiting the foregoing, Builder shall be entitled either to terminate this Contract or to sue Owner for specific performance. If Builder elects to terminate this Contract, then Builder shall have the option, in its sole discretion, to (i) sue Owner for damages as a result of its breach hereunder and apply any deposits or other payments made hereunder toward those damages, or (ii) retain title to each Vessel and/or sell the Vessel, free of any claim of Owner, and retain any deposits or other payments made hereunder. Provided, however, Builder shall refund to Owner the difference, if any, between: (X) the sum of (i) the sale price of the Vessel resulting from any sale by Builder pursuant to the terms of this paragraph, and (ii) the aggregate of all payments to Builder from Owner pursuant to this Contract, minus (Y) the sum of (i) the Assigned Value of the Vessel (as adjusted pursuant to the terms of this Contract), and (ii) the aggregate of all reasonable costs and expenses to Builder directly resulting from the sale contemplated hereunder, including (i) storage costs, relocation costs, and rescheduling costs and (ii) the default by Owner or the sale of the Vessel pursuant to the provisions of this paragraph, including the costs and expenses of the enforcement of Builder's rights under this paragraph. If the


4 5 sum of (X) is greater than the sum of (Y), Owner shall be reimbursed such difference. Other than as expressly set forth herein, in any such event, Builder shall have no further obligation whatsoever to Owner hereunder.


The making of any partial payments shall in no way estop Owner from thereafter asserting any right or remedy accruing to its because of failure of Builder to deliver the completed Vessel in accordance with the terms hereof.


ARTICLE III - TIME AND CONDITIONS OF DELIVERY:


Each Vessel, after required trials, completed in accordance with the Contract Documents, shall be delivered to Owner, on or before the date indicated on the attached Exhibits "A-1" and "A-2" for the delivery of each Vessel (hereinafter called the "Stipulated Date of Delivery"), or on such later date or dates as may be required by reason of agreed changes in the Vessel, or by reason of specified delays resulting from "Force Majeure", as that term is defined in Article VI.


Builder shall deliver each Vessel to Owner at a location set forth on the attached Exhibit "A-1" and "A-2" (the "Place of Delivery"). All costs and expenses of transporting each Vessel to the Place of Delivery shall be borne by and be the obligation of the Builder. All costs and expenses of operating and/or transporting each vessel as it has reached the Place of Delivery and been accepted by Owner shall be borne by and be the obligation of Owner.


Builder shall furnish Owner on delivery of each Vessel a Bill of Sale (if necessary) and a Builder's Certification, together with whatever other documents may be required by law or by any regulatory agency of the United States having relevant jurisdiction in order for Owner to document the Vessel in its name. Any expense in connection with the furnishing of such documents and with the documentation of such Vessel shall be paid by Owner.


Owner shall execute a Delivery and Acceptance Certificate immediately prior to the time of delivery and acceptance of the Vessel by Owner, substantially in the form of Exhibit "D".


5 6
If completion and delivery of each Vessel shall be delayed more than thirty (30) days beyond the respective Stipulated Date of Delivery (such 30 day period is the "Grace Period"), as adjusted in accordance with the provisions of Articles IV and VI hereof or because of some other act of the Owner, or it is agreed that Owner will suffer damages which are difficult of ascertainment and the parties hereby agree that Owner shall sustain, and Builder agrees to pay as liquidated damages in accordance with the amounts noted on Exhibits "A-1" and "A-2" for the Vessel whose delivery is delayed for each calendar day of delayed delivery from the thirtieth (30th) day after the Stipulated Date of Delivery (as adjusted) until such time that Builder tenders delivery of the Vessel to the Owner in accordance with the Contract Documents (such period during which liquidated damages may accrue is the "Liquidated Damages Period"), except for minor items which do not adversely affect the commercial utility or efficient and lawful operation of the vessel (collectively, the "Minor Items") and Builder has agreed to correct such Minor Items in a timely manner, not to exceed a total of ninety (90) days or a total sum for liquidated and agreed damages for the Vessel not to exceed the total amount noted on Exhibits "A-1" and "A-2". All liquidated damages accruing hereunder shall be payable upon delivery of each affected Vessel. Except for Owner's termination rights set forth in the following paragraph, Owner's right to such liquidated damages shall be Owner's sole and exclusive remedy for damages or loss due to late delivery of the Vessel and Owner specifically waives all other rights or remedies at law or in equity therefor.


Should the Stipulated Date of Delivery be extended pursuant to this Contract for more than one hundred twenty (120) days from the Stipulated Date of Delivery (as adjusted pursuant to the terms of this Contract) solely based on delay by Builder, upon payment to Builder of all costs incurred to date by Builder in construction of the Vessel that are not included in the first installment of the Contract Price made to Builder as depicted in the Assigned Value documented by the parties, as adjusted for agreed change orders less all liquidated damages and less or without any accrued


6 7 interest from the Stipulated Date of Delivery until Owner takes possession of the Vessel, Owner shall have right, at its option, to terminate this Contract by providing written notice to Builder and to have the Vessel completed by another shipyard. If so requested by Owner, Builder shall (a) in the least expensive manner, complete all work required to permit the Vessel to be safely removed from the Builder's yard, (b) remove its employees, agents and contractors, together with their equipment, and (c) render all necessary assistance to the Vessel in leaving the Builder's yard at the earliest moment convenient to Builder. Once Owner has documented Owner's cost to complete the Vessel, Builder shall pay to Owner the difference, if any, between (a) the sum of (i) Owner's reasonable auditable costs of completion and (ii) liquidated damages that have accrued hereunder with respect to the Vessel, and (b) the Assigned Value for the Vessel, as adjusted for change orders performed by Builder.


Notwithstanding anything contained in this Contract to the contrary, should Owner terminate this Contract pursuant to the preceding paragraph, Owner shall have one hundred eighty (180) days from such termination to notify Builder of any defective materials or workmanship which were both (i) included in the percentage completion of the construction of the Vessel to date by Builder and (ii) represented in the amount paid to Builder upon such termination. In no event shall Builder be liable to Owner for any sum in excess of the cost of repairs or replacements of the materials or workmanship, nor shall Builder be obligated to repair or replace any material or workmanship, where such repair or replacement is caused by Owner, its contractors (except Builder), subcontractors or employees. Builder shall have no responsibility whatsoever for such defective materials or workmanship if Owner does not notify Builder within the period set forth above in this paragraph.


Owner and Builder waive, remit and release each other from any claims or causes of action for consequential damages arising out of either party's failure to perform or timely perform under this Contract. For purposes of this waiver and release, consequential


7 8 damages shall be considered any and all claims for delay (other than for liquidated damages as set forth herein), disruption, loss of profits, extended project management costs, overhead costs, lost revenues, interest expense, loss of revenue from other projects, or any other similar consequential damages, irrespective of the basis of such claimed consequential damages and even if caused or contributed to by the fault, neglect, or breach of contract of the other party.


ARTICLE IV - CHANGES IN THE PLANS AND SPECIFICATIONS:


Subject to the requirements of other work then pending in Builder's yard, Owner has the right to request any deletions from or additions to the plans and Specifications for each Vessel on giving due notice in writing to Builder, the dollar amount of any such changes to be agreed upon in advance by Owner and Builder, and added to, or deducted from, the total Contract Price and Assigned Value for such Vessel. If any such change shall delay the completion of such Vessel, Builder shall be allowed a reasonable extension of time of the Stipulated Date of Delivery sufficient to cover such delay. A statement of the increase or decrease to the Contract Price and Assigned Value, and/or any additional contract time required, as aforesaid, shall be submitted to Owner by Builder in the form shown on Exhibit "E", and shall be approved by Owner in writing before any such change is made. Notwithstanding the foregoing, no change shall be made in the general dimensions and/or characteristics of any Vessel which would diminish the capacity of the Vessel to perform as originally intended by the Contract Documents, except by mutual consent of the parties.


All change orders in excess of $25,000.00 shall be handled in the following manner. Upon the occurrence of the next Milestone Event, interest will accrue on change orders as agreed in the written change order executed prior to performance of the changed work.


8 9 ARTICLE V - INSPECTION BY OWNER'S REPRESENTATIVE:


Builder will furnish reasonable space at its yard for the duly authorized representative(s) of Owner who shall have reasonable access to the work of Builder. Owner's representative(s) shall promptly inspect and accept all workmanship and material which is in conformity with the Contract Documents and shall with equal promptness, reject all workmanship and material which does not comply with the Contract Documents, provided that the acceptance of such workmanship and material by Owner's representative shall not prejudice the rights of Owner ...