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Stock Purchase Agreement

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STOCK PURCHASE AGREEMENT


AMONG


GENERAL DYNAMICS CORPORATION,


NASSCO HOLDINGS INCORPORATED


AND


THE STOCKHOLDERS


OF


NASSCO HOLDINGS INCORPORATED


-----------------------


OCTOBER 8, 1998 2


TABLE OF CONTENTS


Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1


Section 2. Purchase and Sale of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6


2.1 Purchase and Sale of Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.2 Purchase and Sale of Shares Issuable Pursuant to Stock Options . . . . . . . . . . . . . . .6
2.3 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6


Section 3. Closings; Delivery of Certificates; Payment . . . . . . . . . . . . . . . . . . . . . . . . . . .6


3.1 The Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.2 Closing Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.3 Transactions at the First Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.4 Transactions at the Second Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.5 Delivery of Tax Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7


Section 4. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . .8


4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.2 Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.3 Noncontravention; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.5 Financial Statements and Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Absence of Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8 Litigation and Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Contract Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.11 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.13 Title and Sufficiency of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.15 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.16 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.17 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23


Section 5. Representations and Warranties of the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . 23


5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24


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5.3 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
5.4 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24


Section 6. Representations and Warranties of General Dynamics . . . . . . . . . . . . . . . . . . . . . . .24


6.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.2 Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.3 Noncontravention; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24


Section 7. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25


7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
7.2 Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
7.3 Carry on in Regular Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
7.4 Preservation of Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
7.5 Full Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
7.6 Notice of Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
7.7 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
7.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
7.9 Actions Regarding Antitakeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . .29
7.10 Defense of Orders and Injunctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
7.11 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
7.12 Execution of Option Exercise Agreements by Optionholders . . . . . . . . . . . . . . . . . .29
7.13 Payments with Respect to Repurchased Shares . . . . . . . . . . . . . . . . . . . . . . . .29
7.14 No Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
7.15 Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
7.16 Certain Corporate Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
7.17 Amendment or Termination of Company Plans . . . . . . . . . . . . . . . . . . . . . . . . .31


Section 8. Conditions to the Obligations of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . .31


8.1 Conditions to the Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . .31
8.2 Conditions to the Obligation of the Company and the Sellers . . . . . . . . . . . . . . . .32
8.3 Conditions to the Obligation of General Dynamics . . . . . . . . . . . . . . . . . . . . .32


Section 9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33


9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33


Section 10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34


10.1 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
10.2 Mutual Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
10.3 No Right of Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35


-ii- 4

10.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.5 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.7 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.8 Extension and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
10.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
10.11 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
10.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
10.13 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
10.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
10.15 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
10.16 Incorporation of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
10.17 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
10.18 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39


-iii- 5
STOCK PURCHASE AGREEMENT


STOCK PURCHASE AGREEMENT dated as of October 8, 1998 between and among General Dynamics Corporation, a Delaware corporation ("General Dynamics"), NASSCO Holdings Incorporated, a Delaware corporation (the "Company"), Wells Fargo Bank, N.A. (the "Trustee"), as Trustee of the NASSCO Holdings Incorporated Employee Stock Ownership Plan (the "ESOP"), and Richard H. Vortmann, Donald A. Spanninga, Fred N. and Alicia H. Hallett, as Trustees under the Trust Agreement dated as of June 15, 1979, and Alfred W., Jr. and Ruth H. Lutter, as Trustees under the Trust Agreement dated as of January 19, 1988 (collectively, the "Management Stockholders"). The ESOP and the Management Stockholders are referred to in this Agreement collectively as the "Sellers."


The Company, through its wholly-owned subsidiaries International Manufacturing Technologies, Inc., a California corporation ("IMT"), National Steel and Shipbuilding Company, a Nevada corporation ("NASSCO"), NASSCO Funding Corporation, a California corporation ("NFC"), and Tecnologias Internacionales de Manufactura, S.A de C.V, a Mexican corporation ("TIMSA"), designs, constructs and repairs ships for the United States military and various commercial customers.


The ESOP and the Management Stockholders together own all of the issued and outstanding shares of the Common Stock, par value $.01 per share ("Common Stock"), of the Company. This Agreement contemplates a transaction pursuant to which General Dynamics will purchase for cash all of the issued and outstanding shares of Common Stock and all of the shares of Common Stock issuable upon the exercise of outstanding stock options held by certain current and former employees of the Company and its subsidiaries.


NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the value, receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


Section 1. Definitions. For purposes of this Agreement, the following terms have the meanings set forth below:


"Acquisition Proposal" has the meaning set forth in Section 7.7.


"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended.


"Affiliated Group" means any affiliated group within the meaning of Section 1504(a) of the Code or any similar provision of state, local or foreign Law.


"Agreement" means this Stock Purchase Agreement, as the same may be amended from time to time in accordance with the terms hereof.


6
"Closings" has the meaning set forth in Section 3.1.


"Code" means the Internal Revenue Code of 1986, as amended.


"Common Stock" has the meaning set forth in the Preamble to this Agreement.


"Company" has the meaning set forth in the Preamble to this Agreement.


"Company Plans" has the meaning set forth in Section 4.11(a).


"Company Subsidiaries" means, collectively, IMT, NASSCO, NFC and TIMSA.


"Confidentiality Agreement" means the Confidentiality Agreement between the Company and General Dynamics dated August 13, 1998.


"Contract" means any oral or written contract, agreement, commitment, lease, license, instrument, guaranty, bid or proposal to which the Company or any of the Company Subsidiaries is a party or by which the Company or any of the Company Subsidiaries is otherwise bound.


"Employee Benefit Plan" means an Employee Pension Benefit Plan or an Employee Welfare Benefit Plan, where no distinction is required by the context in which the term is used.


"Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA.


"Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1) of ERISA.


"Environmental Law" means any Law with respect to the protection of the environment or the promotion of worker health and safety, including any Law relating to Hazardous Materials, drinking water, surface water, groundwater, wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid waste, waste water, storm water run-off, noises, odors, air emissions, waste emissions or wells. Without limiting the generality of the foregoing, the term will encompass each of the following statutes and the regulations promulgated thereunder, and any similar applicable state, local or foreign Law, each as amended (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, (b) the Solid Waste Disposal Act, (c) the Hazardous Materials Transportation Act, (d) the Toxic Substances Control Act, (e) the Clean Water Act, (f) the Clean Air Act, (g) the Safe Drinking Water Act, (h) the National Environmental Policy Act of 1969, (i) the Superfund Amendments and Reauthorization Act of 1986, (j) Title III of the Superfund Amendments and Reauthorization Act, (k) the Federal Insecticide, Fungicide and Rodenticide Act, (l) the provisions of the Occupational Safety and Health Act of 1970 relating to the handling of and exposure to Hazardous Materials and similar substances and (m) the Resource Conservation and Recovery Act.


"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.


-2- 7
"ESOP" has the meaning set forth in the Preamble to this Agreement.


"Financial Statements" has the meaning set forth in Section 4.5(c).


"First Closing" has the meaning set forth in Section 3.1.


"First Closing Date" has the meaning set forth in Section 3.2.


"GAAP" means United States generally accepted accounting principles, as in effect as of the date of this Agreement.


"General Dynamics" has the meaning set forth in the Preamble to this Agreement.


"Governmental Entity" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.


"Government Contract" means a Contract between the Company or any of the Company Subsidiaries and the Department of Defense or any other Governmental Entity, including any facilities contract for the use of government-owned facilities.


"Government Subcontract" means any Contract that is a subcontract between the Company or any of the Company Subsidiaries and any third party relating to a contract between such third party (or any higher-tier contractor) and the Department of Defense any other Governmental Entity.


"Hazardous Materials" means each and every element, compound, chemical mixture, contaminant, pollutant, material, waste or other substance that is defined, determined or identified as hazardous or toxic under any Environmental Law or the spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, storing, escaping, leaching, dumping, discarding, burying, abandoning or disposing into the environment of which is prohibited under any Environmental Law. Without limiting the generality of the foregoing, the term will include (a) "hazardous substances" as defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, or Title III of the Superfund Amendments and Reauthorization Act and regulations promulgated thereunder, each as amended, (b) "hazardous waste" as defined in the Solid Waste Disposal Act and regulations promulgated thereunder, each as amended, (c) "hazardous materials" as defined in the Hazardous Materials Transportation Act and the regulations promulgated thereunder, each as amended, (d) "chemical substance or mixture" as defined in the Toxic Substances Control Act and regulation promulgated thereunder, each as amended, (e) petroleum and petroleum products and byproducts and (f) asbestos.


"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.


-3- 8
"IMT" has the meaning set forth in the Preamble to this Agreement.


"Intellectual Property" means, collectively, patents, patent disclosures, trademarks, service marks, trade dress, logos, trade names, copyrights and mask works, and all registrations, applications, reissuances, continuations, continuations-in-part, revisions, extensions, reexaminations and associated goodwill with respect to each of the foregoing, computer software (including source and object codes), computer programs, computer databases and related documentation and materials, data, documentation, trade secrets, confidential business information (including ideas, formulas, compositions, inventions, know-how, manufacturing and production processes and techniques, research and development information, drawings, designs, plans, proposals and technical data, financial, marketing and business data and pricing and cost information) and other intellectual property rights (in whatever form or medium).


"Interim Balance Sheet" has the meaning set forth in Section 4.5(b).


"Interim Financial Statements" has the meaning set forth in Section 4.5(b).


"IRS" means the Internal Revenue Service of the Department of the Treasury.


"knowledge" as applied to the Company means the actual knowledge, after reasonable investigation, of (a) the Management Stockholders, (b) the directors of the Company and the Company Subsidiaries and (c) the employees of the Company and the Company Subsidiaries whose names are set forth on Schedule 1.1.


"Law" means any constitutional provision, statute, law, rule, regulation, Permit, decree, injunction, judgment, order, ruling, determination, finding or writ of any Governmental Entity.


"Lien" means any mortgage, pledge, security interest, charge, claim or other encumbrance.


"Management Stockholders" has the meaning set forth in the Preamble to this Agreement.


"Multiemployer Plan" has the meaning set forth in Section 3(37) of ERISA.


"NASSCO" has the meaning set forth in the Preamble to this Agreement.


"NFC" has the meaning set forth in the Preamble to this Agreement.


"Option Exercise Agreement" has the meaning set forth in Section 2.2.


"Optionholders" means, collectively, the current and former employees of the Company and the Company Subsidiaries holding outstanding Stock Options.


-4- 9
"Permit" means any license, permit, franchise, certificate of authority or order, or any waiver of the foregoing, issued by any Governmental Entity.


"Permitted Liens" means, collectively, (a) Liens for current Taxes or assessments that are not delinquent, (b) builder, mechanic, warehousemen, materialmen, contractor, workmen, repairmen, carrier or other similar Liens arising and continuing in the ordinary course of business for obligations that are not delinquent, (c) the rights, if any, of vendors having possession of tooling of the Company and the Company Subsidiaries, (d) other similar common law or statutory Liens that do not materially affect the value of the property so subject or the usefulness thereof to the Company and the Company Subsidiaries, (e) Liens securing rental payments under capital lease arrangements, (f) easements, rights of way, restrictions, encumbrances, covenants, conditions, encroachments or any other matters affecting title to the real property owned or leased by the Company and the Company Subsidiaries that do not individually or in the aggregate materially impair the current use or value of any parcel of such real property and (g) liens and encumbrances set forth on Schedule 4.13.


"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a Governmental Entity.


"Prohibited Transaction" has the meaning set forth in Section 406 of ERISA and Section 4975 of the Code.


"Purchase Price" has the meaning set forth in Section 2.3.


"Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, storing, escaping, leaching, dumping, discarding, burying, abandoning or disposing of any Hazardous Materials into the environment.


"Reportable Event" has the meaning set forth in Section 4043 of ERISA.


"Restorative Payments" has the meaning set forth in Section 7.13.


"Second Closing" has the meaning set forth in Section 3.1.


"Second Closing Date" has the meaning set forth in Section 3.2.


"Securities Act" means the Securities Act of 1933, as amended.


"Sellers" has the meaning set forth in the Preamble to this Agreement.


"Stock Option" means any outstanding right to purchase or otherwise acquire shares of Common Stock.


-5- 10
"Tax" means any federal, state, local or foreign net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other tax, fee, assessment or charge, including any interest, penalty or addition thereto, and including any transferee or secondary liability in respect of any tax, whether by operation of Law, contractual agreement or otherwise, and any liability in respect of any tax as a result of being a member of any affiliated, consolidated, combined, unitary or similar group.


"Tax Return" means, with respect to any Tax, any return, declaration, report, claim for refund or information return or statement, including any consolidated, combined, unitary, fiscal unity or similar return.


"TIMSA" has the meaning set forth in the Preamble to this Agreement.


"Trustee" has the meaning set forth in the Preamble to this Agreement.


"Year-End Financial Statements" has the meaning set forth in Section 4.5(a).


Section 2. Purchase and Sale of Common Stock.


2.1 Purchase and Sale of Outstanding Shares. On the terms and subject to the conditions set forth in this Agreement, General Dynamics will purchase for cash all of the outstanding shares of Common Stock held by the Sellers as of the date of this Agreement for a purchase price equal to $225.82 per share and each Seller will sell, transfer, assign, convey and deliver to General Dynamics all right, title and interest in and to the shares of Common Stock held by such Seller.


2.2 Purchase and Sale of Shares Issuable Pursuant to Stock Options. On the terms and subject to the conditions set forth in this Agreement and in the separate Option Exercise and Release Agreements in substantially the form attached as Exhibit A to this Agreement (each, an "Option Exercise Agreement") to be entered into by the Company, General Dynamics and each of the Optionholders, General Dynamics will purchase for cash all of the shares of Common Stock issuable upon the exercise of the Stock Options held by the Optionholders as of the date of this Agreement for a purchase price equal to $225.82 per share and each Optionholder will sell, transfer, assign, convey and deliver to General Dynamics all right, title and interest in and to such shares of Common Stock.


2.3 Purchase Price. The aggregate purchase price to be paid by General Dynamics pursuant to this Agreement and the Option Exercise Agreements (the "Purchase Price") will be $368,880,867.64.


Section 3. Closings; Delivery of Certificates; Payment.


3.1 The Closings. Upon the terms and subject to the conditions set forth in this Agreement, the consummation of the transactions contemplated by this Agreement will take place


-6- 11 in two separate closings (the "Closings") at the offices of Latham & Watkins, 701 "B" Street, Suite 2100, San Diego, California 92101. The first Closing (the "First Closing") will take place at 10:00 a.m., local time, on the first business day following the satisfaction or waiver of the conditions set forth in Section 8. The second Closing (the "Second Closing") will take place at 10:00 a.m., local time, on May 3, 1999; provided that in no event will the Second Closing take place prior to the First Closing. In the event the First Closing has not occurred prior to May 3, 1999, the First Closing and the Second Closing will be combined and will take place at the same date, time and place.


3.2 Closing Dates. The date upon which the First Closing occurs is referred to in this Agreement as the "First Closing Date." The date upon which the Second Closing occurs is referred to in this Agreement as the "Second Closing Date." The dates on which the Closings occur are referred to in this Agreement collectively as the "Cl
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