General Dynamics Corporation and Subsidiaries - Page 10

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          economically suitable to ship LNG between Alaska and the other              
          four domestic locations.  Throughout the period under                       
          consideration, it was not economically suitable to domestically             
          ship LNG where it is accessible in gas form through a pipeline.             
               Trunkline LNG Co. (Trunkline), a wholly owned subsidiary of            
          Pelmar’s parent, was organized to purchase LNG from Algeria and             
          to arrange for its transportation to Lake Charles, Louisiana, for           
          U.S. distribution.  On September 17, 1975, Pelmar’s parent                  
          entered a contract (LNG contract) with an Algerian national gas             
          producer to purchase 7,700,000 cubic meters of LNG annually for             
          20 years.  The purchaser was required to provide trans-Atlantic             
          transportation for 3,200,000 cubic meters of LNG each year.  On             
          January 2, 1976, the contract rights and obligations were                   
          assigned to Trunkline.                                                      
               Trunkline contracted with Lachmar (transportation contract),           
          on May 7, 1976, to transport LNG from Algeria to Louisiana over a           
          20-year period beginning in the first quarter of 1980.  On May 7,           
          1976, Lachmar entered into two contracts with GENDYN for the                
          construction and purchase of two LNG tankers to transport the               
          LNG.  Because of the combined 60-percent control by Morgas and              
          Pelmar, GENDYN did not control Lachmar, so the transactions                 
          between GENDYN and Lachmar were on an arm’s-length basis.  GENDYN           
          manufactured the LNG tankers in the ordinary course of its                  
          business for sale to Lachmar.  The LNG tankers were to be                   
          delivered on December 4, 1979, and March 18, 1980.  On May 7,               

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