Severance Pay Plan And Summary Plan Description

AVONDALE INDUSTRIES, INC.
SEVERANCE PAY PLAN AND SUMMARY PLAN DESCRIPTION


In order to recognize and encourage the continued employment
of employees of Avondale Industries, Inc. (the "Company"), and to
alleviate concerns about a possible loss of employment upon a
change of control (as defined below) of the Company, the Company
has adopted a Severance Pay Plan (the "Plan") having the
following terms and conditions. This document also constitutes
the Plan's Summary Plan Description, as described in Section 102
of the Employee Retirement Income Security Act of 1974 ("ERISA").


ARTICLE I
DEFINITIONS


1.1 Company Defined. As used in this Plan, "Company" shall
mean the Company as defined above and any successor to or
assignee of (whether direct or indirect, by purchase, merger,
consolidation or otherwise) all or substantially all of the
assets or business of the Company.


1.2 Change of Control Defined. "Change of Control" shall
mean:


(a) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than 25% of the
outstanding shares of the Company's Common Stock, $1.00 par
value per share (the "Common Stock"); provided, however,
that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control:


(i) any acquisition of Common Stock directly from
the Company,


(ii) any acquisition of Common Stock by the
Company,


(iii)any acquisition of Common Stock by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled
by the Company, or


(iv) any acquisition of Common Stock by any
corporation pursuant to a transaction that complies
with clauses (i), (ii) and (iii) of subsection (c) of
this Section 1.2; or


(b) individuals who, as of the date this Plan is
executed (the "Plan Effective Date") constitute the Board
(the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Plan
Effective Date whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be considered a member of the
Incumbent Board, unless such individual's initial assumption
of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a person other than
the Incumbent Board; or


(c) consummation of a reorganization, merger or
consolidation, or sale or other disposition of all of
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination,


(i) all or substantially all of the individuals
and entities who were the beneficial owners of the
Company's outstanding common stock and the Company's
voting securities entitled to vote generally in the
election of directors immediately prior to such
Business Combination have direct or indirect beneficial
ownership, respectively, of more than 50% of the then
outstanding shares of common stock, and more than 50%
of the combined voting power of the then outstanding
voting securities entitled to vote generally in the
election of directors, of the corporation resulting
from such Business Combination (which, for purposes of
this paragraph (i) and paragraphs (ii) and (iii), shall
include a corporation which as a result of such
transaction controls the Company or all or
substantially all of the Company's assets either
directly or through one or more subsidiaries), and


(ii) except to the extent that such ownership
existed prior to the Business Combination, no person
(excluding any corporation resulting from such Business
Combination or any employee benefit plan or related
trust of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly
or indirectly, 20% or more of the then outstanding
shares of common stock of the corporation resulting
from such Business Combination or 20% or more of the
combined voting power of the then outstanding voting
securities of such corporation, and


(iii)at least a majority of the members of the
board of directors of the corporation resulting from
such Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for
such Business Combination; or


(d) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.


1.3 Affiliate Defined. "Affiliate" or "affiliated
companies" shall mean any company controlled by, controlling, or
under common control with, the Company.


1.4 Cause Defined. "Cause" shall mean:


(a) the willful and continued failure of the
Participant to perform substantially the Participant's
duties with the Company or its affiliates (other than
any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Participant
by the Board of the Company which specifically
identifies the manner in which the Board believes that
the Participant has not substantially performed the
Participant's duties, or


(b) the willful engaging by the Participant in
illegal conduct or gross misconduct.


For purposes of this provision, no act or failure to act, on the
part of the Participant, shall be considered "willful" unless it
is done, or omitted to be done, by the Participant in bad faith
or without reasonable belief that the Participant's action or
omission was in the best interests of the Company or its
Affiliates. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or upon
the instructions of a senior officer of the Company or based upon
the advice of counsel for the Company or its Affiliates shall be
conclusively presumed to be done, or omitted to be done, by the
Participant in good faith and in the best interests of the
Company or its Affiliates. The cessation of employment of the
Participant shall not be deemed to be for Cause unless and until
there shall have been delivered to the Participant a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable
notice is provided to the Participant and the Participant is
given an opportunity, together with counsel, to be heard before
the Board), finding that, in the good faith opinion of the Board,
the Participant is guilty of the conduct described in
subparagraph (a) or (b) above, and specifying the particulars
thereof in detail.


1.5 Disability Defined. "Disability" shall mean a
condition that would entitle the Participant to receive benefits
under the Company's long-term disability insurance policy in
effect at the time either because he is Totally Disabled or
Partially Disabled, as such terms are defined in the Company's
policy in effect as of the Plan Effective Date or as similar
terms are defined in any successor policy. If the Company has no
long-term disability plan in effect, "Disability" shall occur if
(a) the Participant is rendered incapable because of physical or
mental illness of satisfactorily discharging his duties and
responsibilities to the Company for a period of 90 consecutive
days, (b) a duly qualified physician chosen by the Company and
acceptable to the Participant or his legal representatives so
certifies in writing, and (c) the Board determines that the
Participant has become disabled.


1.6 Good Reason Defined. "Good Reason" shall mean:


(a) Any failure of the Company or its Affiliates to
provide the Participant with the position, authority, duties
and responsibilities at least commensurate in all material
respects with the most significant of those held, exercised
and assigned at any time during the 120-day period
immediately preceding the Change of Control.


(b) The assignment to the Participant of any duties
inconsistent in any material respect with Participant's
position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 2.1(b) of this Plan, or any other
action that results in a diminution in such position,
authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action
not taken in bad faith that is remedied within 10 days after
receipt of written notice thereof from the Participant to
the Company;


(c) Any failure by the Company or its Affiliates to
comply with any of the provisions of this Plan, other than
an isolated, insubstantial and inadvertent failure not
occurring in bad faith that is remedied within 10 days after
receipt of written notice thereof from the Participant to
the Company;


(d) Any purported termination of the Participant's
employment otherwise than as expressly permitted by this
Plan; or


(e) Any failure by the Company to comply with and
satisfy Sections 3.1(a) and (b) of this Plan.


1.7 Participant Defined. "Participant" shall mean an
officer of the Company or a subsidiary designated by the
Compensation Committee of the Board of Directors of the Company
as a participant in the Plan.


ARTICLE II
CHANGE OF CONTROL BENEFIT


2.1 Employment Term and Capacity after Change of Control.
(a) If a Change of Control occurs on or before December 31, 2000
at a time that the Participant continues to be employed by the
Company or a subsidiary, then the Participant's employment term
(the "Employment Term") shall continue through the first
anniversary of the Change of Control, subject to any earlier
termination of Participant's status as an employee pursuant to
this Plan.


(b) After a Change of Control and during the Employment
Term, (i) the Participant's position (including status, offices,
titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately
preceding the Change of Control and (ii) the Participant's
service shall be performed during normal business hours at the
location where the Participant was employed immediately preceding
the Change of Control or any office or location less than 35
miles from such location.


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