Vessel Construction Contract

VESSEL CONSTRUCTION CONTRACT


BETWEEN


MATSON NAVIGATION COMPANY, INC.,
PURCHASER,


AND


KVAERNER PHILADELPHIA SHIPYARD INC.,
CONTRACTOR


MAY 29, 2002


VESSEL CONSTRUCTION CONTRACT


TABLE OF CONTENTS


ARTICLE I. GENERAL STATEMENT OF WORK.........................................1 ARTICLE II. PLANS AND SPECIFICATIONS, INTERPRETATION.........................5 ARTICLE III. CONTRACT PRICE AND PAYMENT......................................6 ARTICLE IV. CHANGES..........................................................8 ARTICLE V. RIGHTS OF PURCHASER WITH RESPECT TO ENGINEERING AND DESIGN
DATA .....................................................................12 ARTICLE VI. EXTENSION OF TIME FOR COMPLETION OF WORK........................13 ARTICLE VII. CERTAIN THIRD PARTY AGREEMENTS AND CONSENTS....................15 ARTICLE VIII. CONTRACTOR TO RECEIVE AND CARE FOR ITEMS FURNISHED BY
PURCHASER.................................................................17 ARTICLE IX. INSURANCE ON THE VESSEL AND MATERIALS............................17 ARTICLE X. DAMAGE TO OR LOSS OF THE VESSEL..................................19 ARTICLE XI. INJURY TO EMPLOYEES AND OTHERS; PROPERTY DAMAGE OR LOSS;
INDEMNITY REGARDING RELATED AGREEMENTS ...................................21 ARTICLE XII. APPOINTMENT OF REPRESENTATIVES OF THE PURCHASER................22 ARTICLE XIII. MATERIALS AND WORKMANSHIP.....................................23 ARTICLE XIV. INSPECTION-APPROVAL OF PLANS...................................25 ARTICLE XV. TRIALS..........................................................27 ARTICLE XVI. ADDITIONAL TRIALS-EXPENSES.....................................28 ARTICLE XVII. POST-TRIAL INSPECTION-ACCEPTANCE AND DAMAGES..................28 ARTICLE XVIII. GUARANTEE-PERIOD LIABILITY FOR DEFECTIVE WORK OR MATERIAL....29 ARTICLE XIX. DEFAULT OF PURCHASER...........................................35 ARTICLE XX. DEFAULT OF CONTRACTOR; ACTION BY THE PURCHASER UPON DEFAULT.....37 ARTICLE XXI. ADJUSTMENT OF CONTRACT PRICE AND TERMINATION FOR
NON-PERFORMANCE...........................................................40 ARTICLE XXII. CANCELLATION BY THE PURCHASER.................................46 ARTICLE XXIII. SUPPLIES USED DURING TRIALS AND ON BOARD AT DELIVERY;
SPARES....................................................................46 ARTICLE XXIV. TITLE.........................................................47 ARTICLE XXV. LIENS..........................................................48 ARTICLE XXVI. TAXES.........................................................48 ARTICLE XXVII. PATENT INFRINGEMENT..........................................48 ARTICLE XXVIII. ENTIRE AGREEMENT AND ASSIGNMENT OF CONTRACT; FACSIMILE......49 ARTICLE XXIX. COMPUTATION OF TIME...........................................50 ARTICLE XXX. CONTRACTOR TO COMPLY WITH ALL LAWS AND REGULATIONS..............50 ARTICLE XXXI. APPLICABLE LAW................................................51 ARTICLE XXXII. DISPUTES.....................................................51 ARTICLE XXXIII. NOTICE.......................................................52 ARTICLE XXXIV. LIMITATION OF LIABILITY AND NO BROKERAGE......................53 ARTICLE XXXV. ESCROW PROCEDURES..............................................54 EXHIBIT A. CERTIFICATE OF DELIVERY AND ACCEPTANCE OF VESSEL EXHIBIT B. KVAERNER ASA GUARANTY AGREEMENT EXHIBIT C. FORM OF CONTRACT CHANGE EXHIBIT D. CERTIFICATE OF FREEDOM FROM LIENS EXHIBIT E. LABOR CHARGE OUT RATES EXHIBIT F. BASIC DESIGN DRAWINGS EXHIBIT G. CONTRACTOR'S QUALITY ASSURANCE PROGRAM EXHIBIT H. REAL PROPERTY WAIVER AND GRANT OF LICENSE EXHIBIT I. STANDSTILL AGREEMENT EXHIBIT J. SUPPORT AND TRAINING AGREEMENT


VESSEL CONSTRUCTION CONTRACT


THIS VESSEL CONSTRUCTION CONTRACT (this "Contract"), is entered into as of this 29th day of May, 2002, by and between MATSON NAVIGATION COMPANY, INC., a corporation organized under the laws of the State of Hawaii (hereinafter called the "Purchaser"), and KVAERNER PHILADELPHIA SHIPYARD INC., a corporation organized under the laws of the Commonwealth of Pennsylvania (hereinafter called the "Contractor").


WITNESSETH:


WHEREAS: The Contractor entered into that certain shipbuilding contract dated April 18, 2002, (the "KSI Shipbuilding Contract"), with Kvaerner Shipholding, Inc., an affiliate of the Contractor ("KSI"), pursuant to which the Contractor agreed to sell to KSI one container vessel of the Contractor's Philadelphia CV 2600 design, designated as Hull 001 ("Hull 001");


WHEREAS: The Purchaser and KSI have negotiated a purchase and sale agreement, to be executed the date hereof (the "Purchase Agreement"), pursuant to which the Purchaser has agreed to purchase Hull 001 from KSI upon its delivery from the Contractor to KSI;


WHEREAS: The Contractor has begun construction of a second container vessel of the Contractor's Philadelphia CV 2600 design, designated as Hull 002; and


WHEREAS: The Purchaser desires to purchase from the Contractor and the Contractor desires to sell to the Purchaser Hull 002 upon its completion.


NOW THEREFORE: In consideration of the mutual premises and covenants herein contained, and other good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, the parties hereto agree as follows:


ARTICLE I. GENERAL STATEMENT OF WORK


(a) The Contractor shall furnish all plant, facilities, labor, materials, supplies and equipment, and shall perform all work necessary to design, construct, launch, outfit, test and deliver one (1) Philadelphia CV 2600 type container vessel for operation under the U.S. flag and in the U.S. coastwise trade (hereinafter the "Vessel"), to be identified as Hull 002, at its own risk and expense, in strict accordance with the Plans and Specifications referred to in ARTICLE II hereof, and shall do everything required of the Contractor by this Contract and the Plans and Specifications, including the development of working plans and the installation of any Purchaser's Supplies that the Plans and Specifications provide shall be furnished by the Purchaser, all for the consideration set forth in paragraph (a) of ARTICLE III below for , including the spare parts specifically identified in the Specifications, together with such additions and subject to such deductions as are herein provided (hereinafter called the "Contract Price").


(i) The Contractor shall arrange with the American Bureau of Shipping (hereinafter the "Classification Society") for the assignment by the Classification Society of a representative or representatives (hereinafter referred to as the "Classification Surveyor") to the Vessel during construction. All fees and charges incidental to classification and compliance with the Classification Society class requirements as required under this Contract, including all fees and charges relating to the Alternative Compliance Program with the United States Coast Guard (hereinafter referred to as "USCG"), unless otherwise specified, shall be for the account of the Contractor. Prior to the construction of the respective parts of the Vessel the Contractor shall submit to the Classification Society and obtain all necessary approvals of the plans and drawings related to the construction of the Vessel. The Contractor shall promptly furnish to the Purchaser copies of all correspondence with the Classification Society. Decisions of the Classification Society as to the compliance or non-compliance with the Classification Society requirements shall be final and binding upon the parties hereto.


(ii) The Contractor shall arrange with the USCG for all necessary plan approvals and for the inspection of the Vessel by representatives of USCG during construction of the Vessel. It is recognized and understood that USCG may appoint the Classification Society as its representative for some functions under the Alternative Compliance Program. The Contractor shall be responsible for payment of all costs and expenses associated with such inspections and surveys performed by USCG. The Contractor shall be responsible for formal communications with USCG and its representatives concerning construction of the Vessel. The above does not preclude the Purchaser or USCG from communicating directly on routine matters concerning the construction of the Vessel. The Classification Society, the USCG and all government and other departments or agencies (both domestic and international) having jurisdiction over the contract work, the Shipyard, the Vessel or whose certificates are required for operation of the Vessel in the international and domestic trades of the United States of America are hereinafter collectively called the "Regulatory Bodies."


(b) The Vessel shall be constructed at the Contractor's plant or shipyard (hereinafter called the "Shipyard"), located at Philadelphia, Pennsylvania. When the work on the Vessel is complete or substantially complete in accordance with this Contract and the Vessel has passed the tests required by this Contract, the Vessel as completed or substantially completed shall be delivered by the Contractor and accepted by the Purchaser alongside a safe and accessible pier at the Shipyard, where there must be sufficient water for the Vessel always to be afloat and during egress from the berth, custom to the contrary notwithstanding, free and clear of all liens, security interests, and claims of every nature, excepting, however, those in favor of a claimant, other than the Contractor, arising out of the acts or omissions of the Purchaser,with not less than ten (10) days prior written notice to the Purchaser of such delivery. Upon such delivery, the Contractor shall furnish to the Purchaser a Builder's Certification (U.S. Coast Guard Form 1261), a bill of sale and a Certificate of Freedom from Liens in the form of Exhibit D hereto, and the Contractor and the Purchaser shall execute a Delivery Certificate in the form of Exhibit A accepting the Vessel and the Purchaser shall, within ten (10) days thereafter, remove or cause the Vessel to be removed from the Shipyard. Delivery and Acceptance by the Purchaser of the Vessel shall be expressly conditioned upon (i) the Purchaser's rights under ARTICLE XVIII of this Contract, and (ii) the Purchaser's right to completion by the Contractor thereafter of any uncompleted contract work and correction by the Contractor of any defective contract work as shown in the Delivery Certificate in accordance with ARTICLE XVII below.


(c) As used in this Contract, the term "substantially complete" shall mean complete except for minor items not affecting the commercial utility and safe operation of the Vessel and not violating any requirement of a Regulatory Body. Unless waived by the Purchaser, in the Purchaser's sole discretion, the Vessel shall not be deemed to be "substantially complete" if a delivery deficiency will require the Vessel to be taken out of service prior to the Vessel's regular maintenance schedule or if the aggregate value of such delivery deficiencies is in excess of SIX HUNDRED AND TWENTY-FIVE THOUSAND DOLLARS ($625,000.00).


(d) The work on the Vessel shall be prosecuted with due diligence, and delivery of the Vessel shall be made to the Purchaser on or before April 30, 2004 (such date, as modified pursuant to paragraph (e) of this ARTICLE I, ARTICLE IV and ARTICLE VI, hereinafter called the "Contract Delivery Date")


The Contractor shall promptly notify the Purchaser in writing if, at any time during the performance of the contract work, the Contractor's Master Production Schedule (referred to in paragraph (d) of ARTICLE XIV hereof) estimates that the actual delivery date of the Vessel will differ from the Contract Delivery Date by more than five (5) days, and in any event shall notify the Purchaser not less than one hundred fifty (150) days, one hundred twenty (120), one hundred (100) days, sixty (60) days, thirty (30) days and ten (10) days prior to the estimated delivery date provided for in such schedule.


(e) The Contractor, in its sole discretion, may accelerate the Contract Delivery Date set forth in paragraph (d) above by providing written notice to the Purchaser. If the Contractor accelerates the Contract Delivery Date pursuant to this paragraph (e), such new date shall become the Contract Delivery Date for the purposes of determining liquidated damages pursuant to ARTICLE XXI and the Purchaser's right to terminate this Contract pursuant to ARTICLE XXII. To the extent that any of the Purchaser's obligations under this Contract are based on the Contract Delivery Date, Purchaser's fulfillment of such obligations will be extended as reasonably required by the Purchaser with reference to the original Contract Delivery Date and the Contractor's proposed adjustment; provided, there shall be no such adjustment to the Purchaser's obligation to make the Delivery Payment, as provided in this Contract, on the Contract Delivery Date.


(f) Fourteen (14) days prior to the projected delivery of the Vessel, employees of the Purchaser and the Purchaser's contractors or agents shall be entitled to access to the Vessel to engage in such activities and perform such work as the Purchaser may specify and to familiarize the crew with the Vessel and to provision the Vessel; provided that the Purchaser's activities shall not (i) interfere with any work being performed by the Contractor or (ii) contravene any collective bargaining agreement of the Contractor.


(g) To the extent the Plans and Specifications referred to in ARTICLE II require without limitation work, trials, spares, materials or equipment to be furnished to the "first vessel," the parties agree that such work, trials, spares, material or equipment shall be furnished to Hull 001 under the Purchase Agreement. Where any work, trials, spares, material or equipment is to be furnished to one vessel only, but it is not clear if it is Hull 001 or Hull 002, the parties will agree on which vessel is to receive same.


ARTICLE II. PLANS AND SPECIFICATIONS, INTERPRETATION


(a) The Specifications for the construction of the Vessel, entitled "SPECIFICATION - PHILADELPHIA CV2600," Document number 001 0101 80 202 Version F, dated and initialed by the parties on April 19, 2002 and May 16, 2002, and the related Plans identified therein and initialed by the parties on April 19, 2002 are hereby made a part of this Contract with the same force and effect as though herein set out in full (herein the "Plans and Specifications").


(b) If any discrepancy, difference or conflict exists between the provisions of this Contract and the Plans and Specifications, then to the xtent of such discrepancy, difference or conflict only, the Plans and Specifications shall be ineffectual and the provisions of this Contract shall prevail; provided, however, any work called for by the Specifications in addition to that specified in the Contract shall be performed by the Contractor as part of the contract work, but in all other respects the Plans and Specifications shall be in full force and effect. If there is any discrepancy, difference or conflict between the Plans and the Specifications, then to the extent of such discrepancy, difference or conflict the Specifications shall prevail; provided, however, any work called for by the Specifications and not shown on the Plans and any work shown on the Plans but not called for in the Specifications shall be performed by the Contractor as a part of the contract work. Any discrepancy, difference or conflict between the Plans and Specifications and the provisions of this Contract and any discrepancy, difference or conflict between the Plans and the Specifications themselves discovered by one party to this Contract shall be brought to the attention of the other party promptly in writing.


ARTICLE III. CONTRACT PRICE AND PAYMENT


(a) The Contract Price with respect to the Vessel shall be NINETY-SEVEN MILLION DOLLARS ($97,000,000); provided, if the Purchaser waives its right to cancel this Contract pursuant to ARTICLE XXII hereof and its right to cancel the Purchase Agreement pursuant to Article XI thereof, before December 31, 2002, the Contract Price for the Vessel shall be NINETY-FOUR MILLION DOLLARS ($94,000,000).


(b) The Contract Price with respect to the Vessel shall be paid upon delivery of the Vessel by wire transfer to an account specified by the Contractor (the "Delivery Payment"); provided that the Delivery Payment shall be subject to (i) deferral of payment of the amounts stated on the Delivery Certificate to be withheld in accordance with ARTICLE XVII; (ii) the holdback described in paragraph (j) of ARTICLE XVIII; (iii) disputed amounts deposited in escrow pursuant to paragraph (d) of this ARTICLE III, and (iv) less any reduction in the Contract Price pursuant to ARTICLE XXI hereof.


(c) In the event that an increase or decrease in the Contract Price due to a change is not finally determined prior to delivery of the Vessel, appropriate adjustment of any overpayments or underpayments shall be made promptly upon final determination of the increase or decrease after such delivery.


(d) To the extent that there is a dispute with respect to the amount that the Contractor owes to the Purchaser for liquidated damages pursuant to ARTICLE XXI of this Contract or the amount that the Purchaser owes the Contractor for changes pursuant to ARTICLE IV hereof, or any other amounts alleged to be owed by either party pursuant to this Contract, such disputed amounts shall be placed into an interest-bearing escrow account (the "Disputes Escrow Account") prior to the delivery of the Vessel and released to the appropriate party upon resolution of such dispute pursuant to this Contract. In the case of liquidated damages, the Purchaser shall deduct from the Delivery Payment the amount of liquidated damages it is seeking from the Contractor and deposit such amount into the Disputes Escrow Account. With respect to disputed amounts resulting from changes, the Purchaser shall make a deposit into the Disputes Escrow Account equal to the amount that the Contractor is seeking from the Purchaser for the changes. The accrued interest from the Disputes Escrow Account shall be distributed pro rata between the parties based on the final distribution of the amounts held in the Disputes Escrow Account. Provided that the Purchaser has complied with the provisions of this paragraph (d), the Contractor shall not delay or refuse delivery of the Vessel by reason of any disputes with respect to such amounts.


(e) All amounts payable by either party under this Contract, which are not paid within the time period specified, shall bear interest from the date on which such payment should have been paid until paid or credited in full, to the extent legally enforceable, at the one-month LIBOR Rate charged by Wells Fargo Bank, National Association. The "one-month LIBOR rate" is a base rate that Wells Fargo Bank, National Association from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the one-month LIBOR Rate shall become effective at 12:01 a.m. on the day such change becomes effective.


(f) Concurrently with the execution of this Contract, the Contractor will deliver to the Purchaser the Contract Guarantee, in the form of Exhibit B attached hereto (the "Contract Guarantee"), of Kvaerner ASA (in its capacity as guarantor, hereinafter the "Guarantor") pursuant to which the Guarantor guarantees (i) repayment of all amounts paid by Purchaser to the Contractor pursuant to this Contract, and (ii) performance of the Contractor's obligations under this Contract through the Guarantee Period (as defined in ARTICLE XVIII hereof) for the Vessel.


(g) The Purchaser agrees that prior to the waiver, exercise or expiration of its cancellation rights under ARTICLE XXII, it will not enter into any agreement for the construction of one container vessel required to fill the need for one such new vessel (which the Vessel would fulfill) in its current fleet replacement program.


ARTICLE IV. CHANGES


(a) The Contractor shall not, except as provided in paragraph (b) of ARTICLE II, depart from the requirements of the Plans and Specifications or make any other changes in the contract work required by the Plans and Specifications without all prior authorization required by the provisions of this ARTICLE IV.


(b) For purposes of this ARTICLE IV, changes in contract work shall be classified as either "essential" changes or "non-essential" changes. "Essential Changes" shall consist of changes in the contract work due to an action of any of the Regulatory Bodies as set forth in paragraph (a)(iii) of ARTICLE XIII or due to any other promulgation of a new law or rule which renders it illegal to own or operate the unchanged Vessel. All other changes shall be "Non-essential Changes."


(c) (i) The Contractor shall be entitled to a fair and reasonable adjustment in the Contract Price and Contract Delivery Dates relating to any Essential Change or Non-essential Change performed hereunder. Upon receipt of the Purchaser's written direction for a change, the Contractor shall submit within fifteen (15) days to the Purchaser a "rough-order-of-magnitude" ("ROM") estimate of the net increase or decrease in the Contract Price and the effect on the Contract Delivery Date resulting from such change.


(ii) As soon as practicable thereafter, but in no event more than fifteen (15) days after the submission of the ROM estimate except for good cause due to the nature of the change requested by the Purchaser, the Contractor shall provide the Purchaser with a detailed estimate for such hange, which estimate shall include the following:


(A) the net increase or decrease in the Contract Price,
including (1) a materials cost estimate complete with copies of material
quotations valued at over $5,000 per item and with a ten percent (10%)
mark-up for materials handling and administration, and (2) a labor
man-hour estimate broken down by SFI at the one digit level and multiplied
by the composite labor charge out rate (including burden, overhead and
fees) for the relevant elements of engineering, planning and production
labor cost, which rates as of the date hereof are attached hereto as
Exhibit E and are subject to the provisions of subparagraph (iii) below;


(B) the estimate of the impact on the Contract Delivery Date
for the Vessel and the Contractor's Master Production Schedule, both in
calendar days and to the contract and additional overhead
(as appropriate);


(C) the effect on weight, moments and centers;


(D) the changes to the Vessel's speed, fuel consumption,
deadweight and container capacity;


(E) the effect of such change on the other terms and
conditions of this Contract; and


(F) a list of the plans and drawings affected by the proposed
change.


The foregoing hereinafter collectively referred to as the "Essential Terms."


(iii) The composite labor rates set forth in Exhibit E attached hereto are subject to periodic adjustment by the Contractor not less than annually unless otherwise specified in a union contract. Such adjustments will be communicated to the Purchaser at which times the parties will execute an amendment to this Contract for the purposes of amending Exhibit E.


(iv) The Purchaser shall accept or reject the detailed estimate within fifteen (15) days after receipt of such estimate. If the estimate is accepted, the Contractor shall prepare, and the Purchaser and the Contractor shall execute, a contract change using the form attached to this Contract and identified as Exhibit C, Contract Change (the "Contract Change") to amend the terms and conditions of this Contract with respect to such Essential Change or Non-essential Change.


(d) The Purchaser shall have the right to direct the Contractor to perform an Essential Change, and the Contractor upon receipt of Purchaser's written direction shall commence the performance of the Essential Change at such time as the Purchaser may direct without regard to whether prior agreement has been reached as to the effect of the Essential Change on the Essential Terms.


(e) The Purchaser shall have the right to propose to the Contractor in writing a Non-essential Change in the contract work, and the Contractor shall promptly review such proposal and provide the Purchaser with estimates relating to such change in accordance with the procedures described in paragraph (c) above. The Contractor's obligation to perform such Non-essential Change shall be as follows:


(i) The Contractor shall perform such Non-essential Change, provided:


(A) such change or an accumulation of such Non-essential
Changes will not, in the Contractor's reasonable judgment, adversely
affect the Contractor's planning or program in relation to the
Contractor's other commitments;


(B) prior to the expiration or waiver of the Purchaser's right
to cancel this Contract pursuant to ARTICLE XXII, such change or an
accumulation of such Non-essential Changes will not, in the Contractor's
reasonable judgment, adversely affect the Contractor's ability to sell the
Vessel to another party in the event that the Purchaser cancels the
Contract pursuant to ARTICLE XXII; and


(C) the parties agree on the effect of the Non-essential
Change on the Essential Terms and execute a Contract Change with respect
thereto.


(ii) In the event that the parties are unable to agree as to the effect of the Non-essential Change on the Essential Terms pursuant to subparagraph (i) above, the Purchaser may direct the Contractor to perform a Non-essential Change without the prior agreement of the parties as to the effect of the Non-essential Change on the Essential Terms if such change will not, in the Contractor's reasonable estimate, cause a delay of more than thirty (30) days, or in the aggregate for all Non-essential Changes for which no agreement has been reached, of more than ninety (90) days, or that such Non-essential Change, in the aggregate with all other Non-essential Changes for which no agreement has been reached, will not cost, in the Contractor's reasonable estimate, more than SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS ($750,000).


(f) The Contractor shall have the right to propose to the Purchaser in writing any change in the contract work. The Contractor shall transmit to the Purchaser its proposed change accompanied by a detailed estimate containing the information provided in and in accordance with the procedures of paragraph (c), provided that nothing herein shall require the Purchaser to accept a change proposed by the Contractor.


(g) In all cases where changes are proposed by the Purchaser but the proposals are subsequently withdrawn, the reasonable costs incurred by the Contractor in preparing an estimate of the net increase or decrease in the Contract Price and the probable delay in delivery shall be paid to the Contractor by the Purchaser; provided that where withdrawal of the proposal is due to good-faith failure to agree as to cost and delay attributable to the proposed change, the Contractor shall be entitled to recover only those reasonable costs in excess of FIVE-HUNDRED DOLLARS ($500).


(h) In the event that the Purchaser has directed the Contractor to make an Essential Change pursuant to paragraph (d) or a Non-essential Change pursuant to paragraph (e) and the parties are unable to agree on the price and other Essential Terms of such change within thirty (30) days, the matter shall be settled in accordance with ARTICLE XXXII of this Contract, and the work on such Non-essential Change shall proceed during the pendency of the proceedings pursuant to ARTICLE XXXII, except as otherwise provided herein.


ARTICLE V. RIGHTS OF PURCHA ...