General Dynamics Corporation and Subsidiaries - Page 15

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          of the Air Force and GENDYN in the event the Air Force cancels              
          its requirement for the items covered by the contract.  Clause              
          I-6 of Contract 2034 permitted the Air Force to cancel for any              
          program year that had not yet been fully funded, in the event               
          Congress did not appropriate the necessary funds.                           
               In the event that the Air Force canceled the contract,                 
          GENDYN was entitled to recover costs incurred on items concerning           
          aircraft that were not yet fully funded.  GENDYN was also                   
          entitled to recover specified amounts on the aircraft that were             
          fully funded and would be ultimately completed and delivered to             
          the Air Force after the contract cancellation.                              
               In particular, GENDYN's cancellation claim could include:              
                    (i) reasonable preproduction and other non-                       
               recurring costs, incurred by the Prime Contractor or                   
               his subcontractors applicable to and which normally                    
               would be amortized in all items to be furnished under                  
               the multiyear requirements (such as plant                              
               rearrangement, special tooling, preproduction                          
               engineering, initial rework, initial spoilage, and                     
               pilot runs);                                                           
                    (ii) labor, materials and other costs incurred by                 
               the Contractor or its subcontractors for production of                 
               the cancelled items consistent with Special Provision                  
               H-77 entitled "Material Commitment";                                   
                    (iii) the reversionary cost impact on the non-                    
               cancelled items; and                                                   
                    (iv) a reasonable profit on such incurred costs.                  
               “Reversionary cost impact” would involve cost variations               
          (presumably increased cost to GENDYN because of losing the                  
          benefit of volume discounts and labor savings).  In the event of            

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Last modified: May 25, 2011