Capital Construction Fund Agreement for Vessels

Exhibit 10.39


Contract No. MA/CCF-478


CAPITAL CONSTRUCTION FUND AGREEMENT
BETWEEN
MARITIME ADMINISTRATION -- UNITED STATES DEPARTMENT
OF TRANSPORTATION AND NATIONAL STEEL AND
SHIPBUILDING COMPANY


This Capital Construction Fund Agreement ("Agreement"), made on September 13, 1988, by and between the United States of America, represented by the Maritime Administrator, Department of Transportation (the "Maritime Administrator"), and National Steel and Shipbuilding Company, a corporation organized and existing under the laws of the State of Nevada (the "Party"), a citizen of the United States of America.


WHEREAS:


1. The Party has applied for the establishment of a Capital Construction Fund (the "Fund") under Section 607 of the Merchant Marine Act, 1936, as amended (the "Act").


2. The Party is or has been the owner of, and has contracted for the construction or reconstruction of, one or more eligible vessels as defined in Section 607(k) of the Act, which vessels are listed in Schedule A hereof;


3. The Party has a program for the construction, reconstruction or acquisition of qualified agreement vessels as defined in Section 607(k) of the Act, which program is described in Schedule B hereof;


4. The Maritime Administrator and the Party desire to enter into an Agreement for the purpose of providing for the construction, or reconstruction of vessels, built in the United States and documented under the laws of the United States for operation in the United States foreign, Great Lakes, or noncontiguous domestic trades;


5. The Maritime Administrator has determined that the Party qualifies for an Agreement under the Act; and


6. The Maritime Administrator has authorized the award of an Agreement upon the terms and conditions set forth herein subject to the Act, as it may be amended from time to time, and such rules and regulations as shall be prescribed by the Secretary of Transportation or his delegate, either alone or jointly with the Secretary of the Treasury, as necessary to carry out the powers, duties, and functions vested in them by the Act (the "rules and regulations"). 2
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NOW, THEREFORE in consideration of the premises the Maritime Administrator and the Party hereby agree as set forth in the following Articles 1 through 15:


1. ESTABLISHMENT OF A FUND:


(A) A Fund is hereby established for the purposes set forth in Article 2
hereof, pursuant to such terms and conditions as shall be prescribed
in this Agreement, the Act, and the rules and regulations.


(B) The Fund shall be established in the depository or depositories
listed in Schedule C hereof.


2. PURPOSES OF THE FUND:


The Fund established hereunder shall be utilized to provide for the
construction or reconstruction of replacement vessels, additional vessels,
or reconstructed vessels, built in the United States and intended for
documentation as vessels of the United States for operation by qualified
United States citizens in the United States foreign, Great Lakes, or
noncontiguous domestic trades, and to provide for qualified withdrawals
to achieve the program set forth in Schedule B hereof.


3. TERM OF THE AGREEMENT


This Agreement shall be effective on the date of execution by the Maritime
Administrator and shall continue until terminated under Article 4.


4. TERMINATION OF AGREEMENT


(A) This Agreement may be terminated at any time under any of the
following circumstances:


(1) Upon written mutual agreement by the Parties.


(2) Upon written notice by the Party that a change has been made
in federal laws or regulations which would have substantial
effect upon the rights or obligations of the Party or the
economic benefits derived by Party from the Fund. 3
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(3) Upon passage of thirty-five (35) months, from the date hereof
without contracting for a part or all of the program listed in
Schedule B.


(B) This Agreement shall terminate upon completion of the program as set
forth in Schedule B hereof in its present form or as it may be amended
from time to time, or upon written notice by the Party that in its
judgement the program listed in Schedule B as in effect at any time,
will not be contracted for, or will not be contracted for in a fashion
such that the benefits of the Fund will be available to the Party.


(C) Upon termination of this Agreement pursuant to paragraphs (A) and/or
(B) hereof all amounts remaining in the Fund shall be treated as if
withdrawn in a nonqualified withdrawal (as that term is defined in the
Act and the rules and regulations) on the date of termination of this
Agreement.


5. DEPOSITS TO BE MADE INTO THE FUND


(A) Subject to any restrictions contained in the Act, the rules and
regulations, or this Agreement, the Party may deposit, for each taxable
year to which this Agreement applies, amounts representing some part or
all of:


(1) The net proceeds from the sale or other disposition of any of the
vessels listed in Schedule A or B hereof; and


(2) The net proceeds from insurance or indemnity attributable to the
vessels listed in Schedule A or B hereof.


(B) For each taxable year to which the Agreement applies, the Party shall
deposit all receipts from the investment or reinvestment of amounts
held in the Fund, except that the Party shall not be permitted to
deposit more than is necessary to complete its programs as set out in
Schedule B hereof, now or as it may then be amended.


(C) Notwithstanding anything in paragraph (A) or (B) hereof to the
contrary, the Party shall make the minimum deposits set forth in
Schedule D hereof at the time and in such amounts as may be set forth
herein, now or as it may then be amended.


(D) Deposits may be made in the form of cash or directly in the form of the
investments described in Article 7. 4
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6. WITHDRAWALS FROM THE FUND:


(A) The Party may make such qualified withdrawals (as that term is defined
in the Act and the rules and regulations) as shall be necessary to
fulfill the obligations set forth in Schedule B hereof. Any such
qualified withdrawal may be made without the consent of the Maritime
Administrator, except as required by the rules and regulations.


(B) Monies may be withdrawn from the Party's capital construction fund for
payments made by the Party or an affiliate to pay for the cost of
materials, labor, overhead or other components of the cost of a
qualified vessel or of the principal portion of indebtedness associated
with construction period financing with respect to such a vessel, or to
reimburse expenditures of general funds of the Party, or an affiliate,
where and to the extent that such general funds were used to pay for
the cost of materials, labor, overhead or other components of the cost
of a qualified vessel or for the principal portion of indebtedness
associated with construction period financing with respect to such a
vessel.


(C) Any other withdrawal from the capital construction fund shall be made
only upon prior written consent of the Maritime Administrator, or as
otherwise required herein by the rules and regulations.


7. INVESTMENT OF THE FUND:


(A) The Party, at its discretion, may invest fund assets in third party
receivables of NASSCO and of Morrison Knudsen Corporation, or of its
other affiliates, assigned to the Party for that purpose, from progress
payment billings contracts, and under other contracts, with the
collection of such receivables to be guaranteed by the Morrison Knudsen
Corporation if necessary to cause such receivables to be "qualified
investments", and in other investments which are "qualified
investments" under Maritime Administration regulations, as they exist
at the present time or as they may be amended. Investments in third
party receivables of Morrison Knudsen Corporation and its affiliates
(excluding the Party) shall be made pursuant to the terms of the form
of the Receivables Purchase and Sale Agreement attached hereto as
Appendix I. Investments in third party receivables of NASSCO shall be
made pursuant to the procedures set forth in Appendix II. 5
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(B) The Party agrees that when investing monies held in the Fund it will
make such investments as will insure that sufficient cash is available
at the time qualified withdrawals are required in accordance with the
program described in Schedule B hereof.


8. PLEDGES, ASSIGNMENTS AND TRANSFERS:


(A) The Party agrees not to assign, pledge or otherwise encumber, either
directly or indirectly or through any reorganization, merger, or
consolidation, all or any part of this Agreement, the Fund, or any
assets in the Fund without the prior written consent of the Maritime
Administrator; provided, however, the Party may transfer the assets of
the Fund, in whole or in part, to an investment trustee, as provided
in the rules and regulations.


(B) The Party shall not obligate any assets in the Fund as a compensating
balance.


(C) The Secretary hereby grants permission to sell or otherwise dispose
of any qualified vessel upon completion of its construction, provided
such sale or other disposition is to a United States citizen and
meets the requirements as provided in the Agreement and in the Act.


(D) If a qualified agreement vessel, in which basis has been reduced
through the application of qualified withdrawals, is sold or disposed
of by the Party at delivery or within one year of delivery, the
disposition will not be contrary to the policies of the Act, the
Agreement, and/or the rules and regulations; and no interest on the
tax applicable to the amount of gain attributable to the basis
reduction will be incurred.


(E) If a qualified agreement vessel undergoing construction in which
basis has been reduced through the application of qualified
withdrawals is destroyed or lost in the course of construction, or
prior to delivery and acceptance by the purchaser, as a result of
strikes, fires, earthquakes or other events beyond the control of the
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