<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
REGISTRATION NO. 333-49773
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CONRAD INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 3730 72-1416999
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
1501 FRONT STREET
P.O. BOX 790
MORGAN CITY, LA 70381
(504) 384-3060
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
WILLIAM H. HIDALGO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1501 FRONT STREET
P.O. BOX 790
MORGAN CITY, LA 70381
(504) 384-3060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
copies to:
THOMAS P. MASON L. R. MCMILLAN, II
ANDREWS & KURTH L.L.P. JONES, WALKER, WAECHTER,
600 TRAVIS, SUITE 4200 POITEVENT, CARRERE &
HOUSTON, TEXAS 77002 DENEGRE, L.L.P.
(713) 220-4200 201 ST. CHARLES AVENUE, 51ST FLOOR
FAX: (713) 220-4285 NEW ORLEANS, LOUISIANA 70170-5100
(504) 582-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 29, 1998
2,500,000 SHARES
LOGO
CONRAD INDUSTRIES, INC.
COMMON STOCK
All of the shares of common stock, par value $0.01 per share (the "Common
Stock"), of Conrad Industries, Inc., a Delaware corporation (the "Company"),
offered hereby are being sold by the Company. Prior to this offering (the
"Offering"), there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price will be between
$15.00 and $17.00 per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price.
The Company has made an application to list the Common Stock on the Nasdaq
National Market under the symbol "CNRD."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
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Total(3).......................... $ $ $
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</TABLE>
- --------------------------------------------------------------------------------
(1) Does not include additional compensation to Morgan Keegan & Company, Inc.
of warrants to purchase up to 77,000 shares of Common Stock exercisable for
five years at the initial public offering price per share. The Company and
certain of its stockholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $500,000.
(3) The Company has granted to the several Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to an
additional 375,000 shares of Common Stock on the same terms and conditions
as set forth above. If all such shares are purchased by the Underwriters,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1998.
-----------
MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1998.
<PAGE>
Conrad Industries, Inc. specializes in the construction, conversion and repair
of a wide variety of marine vessels for the offshore oil and gas industry, other
commercial markets and the U.S. Government. The Company also fabricates modular
components of offshore drilling rigs and floating production, storage and
offloading vessels ("FPSOs").
Conrad's versatility and experience reduce its dependence on particular
types of products and markets. With this flexibility, the Company
selectively pursues opportunities for construction, conversion and
repair projects that it believes can generate attractive profit margins.
[PHOTO OF BARGE]
Launching of 150 Foot Spud Barge
[PHOTO OF BARGE]
250 Foot Pipe Laying Barge
[PHOTO OF TUG]
Artist Rendering of U.S. Army ST Tug
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
[LEFT SIDE OF FOLD-OUT PAGE]
[PHOTO OF LIFT BOAT]
175 Foot Class Lift Boat
[PHOTO OF MODULE]
60 Person Living Quarters - FPSO
[PHOTO OF STABILITY COLUMNS]
30 Foot Diameter Stability Columns - Deep Water Drilling Rig
[RIGHT SIDE OF FOLD-OUT PAGE]
Conrad's multiple shipyards provide it with significant flexibility and the
ability to more effectively manage its shipyard capacity through the allocation
of projects between shipyards. New construction is conducted in 220,000 square
feet of enclosed building space allowing the Company to avoid weather delays,
control costs and meet critical construction schedules.
[AERIAL PHOTO OF SHIPYARD]
Conrad Shipyard - Morgan City, Louisiana
[AERIAL PHOTO OF SHIPYARD]
Orange Shipbuilding - Orange, Texas
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, (i) the information
in this Prospectus assumes the Underwriters' over-allotment option is not
exercised and (ii) the pro forma information included in this Prospectus gives
effect to the acquisition of Orange Shipbuilding Company, Inc. ("Orange
Shipbuilding") in December 1997 (the "Orange Acquisition"). References herein
to the "Company" mean Conrad Industries, Inc., a Delaware corporation, and its
subsidiaries assuming the completion of a Reorganization (defined herein) prior
to the completion of the Offering, and references herein to "Conrad" mean
Conrad Shipyard, Inc., a Louisiana corporation, and its subsidiary for periods
prior to the completion of such Reorganization. See "Corporate Reorganization."
THE COMPANY
Conrad Industries, Inc. specializes in the construction, conversion and
repair of a wide variety of marine vessels for commercial and government
customers and the fabrication of modular components of offshore drilling rigs
and floating production, storage and offloading vessels ("FPSOs"). The Company
constructs a variety of marine vessels, including large and small deck barges,
single and double hull tank barges, lift boats, push boats, tow boats and
offshore tug boats. The Company fabricates components of offshore drilling rigs
and FPSOs, including sponsons, stability columns, blisters, pencil columns and
other modular components. The Company's conversion projects primarily consist
of lengthening the midbodies of vessels, modifying vessels to permit their use
for a different type of activity and other modifications to increase the
capacity or functionality of a vessel. The Company also derives a significant
amount of revenue from repairs made as a result of periodic inspections
required by the U.S. Coast Guard, the American Bureau of Shipping ("ABS") and
other regulatory agencies. Since 1948, the Company has built over 650 vessels
and completed over 21,000 conversion and repair jobs.
The Company serves a variety of customers and markets, including the offshore
oil and gas industry, other commercial markets and the U.S. government. The
Company believes that its ability to construct a variety of vessels on a cost-
effective basis allows it to selectively pursue vessel construction
opportunities that arise out of changing demands of the industries served by
the Company. The Company is experiencing significantly improved demand for its
products and services from energy-related customers as a result of several
factors affecting the offshore oil and gas industry, including an increase in
offshore oil and gas activity during the last two years, the recent increases
in dayrates for offshore support vessels and drilling rigs and the limited
construction of new vessels serving this industry since the mid-1980s. As a
result, the Company is currently constructing lift boats and barges for the
offshore oil and gas industry, fabricating modular components for offshore
drilling rigs and FPSOs and providing conversion and repair services for
vessels and barges employed in offshore energy-related activities. The Company
is also pursuing opportunities to construct other types of offshore support
vessels such as supply boats and utility vessels.
Due to the Orange Acquisition as well as increased demand for the Company's
products and services, Conrad's revenues grew from $10.5 million in 1993 to
$35.9 million in 1997 (on a pro forma basis for the Company) and EBITDA grew
from $0.7 million in 1993 to $11.3 million in 1997 (on a pro forma basis for
the Company). For the first quarter ended March 31, Conrad's revenues grew from
$5.5 million in 1997 to $11.6 million in 1998, and EBITDA increased from $1.5
million in 1997 to $3.1 million in 1998. Conrad's EBITDA margin (EBITDA as a
percentage of revenues) increased from 6.7% in 1993 to 31.4% in 1997 (on a pro
forma basis for the Company) and from 26.3% for the quarter ended March 31,
1997 to 26.7% for the quarter ended March 31, 1998. In addition, Conrad's net
income increased from $66,000 in 1993 to $4.6 million in 1997 (on a pro forma
basis for the Company) and its operating cash flow increased from $0.7 million
in 1993 to $10.4 million in 1997 (on a pro forma basis for the Company). For
the first quarter ended March 31, Conrad's net income decreased from $1.2
million in 1997 to $(2.5 million) in 1998, primarily as a result of a $4.3
million non-cash executive compensation expense, and operating cash flow
decreased from $1.4 million to $(0.4 million).
3
<PAGE>
During 1997, the construction of marine vessels accounted for approximately
36.4% of pro forma revenue, fabrication of modular components for the offshore
oil and gas industry accounted for approximately 31.8% of pro forma revenue and
the conversion and repair of marine vessels accounted for approximately 31.8%
of pro forma revenue. As of March 31, 1998, the Company's backlog of new vessel
construction and modular component fabrication (excluding unexercised options
held by customers) was approximately $23.6 million and was attributable to 15
projects, consisting of three lift boats, five barges, six tugs and one modular
component fabrication project. Of this backlog amount, approximately $13.7
million was attributable to contracts with the U.S. Army and the U.S. Army
Corps of Engineers (the "Corps of Engineers").
The Company currently operates three shipyards located along the Gulf Coast
in Morgan City, Louisiana, Orange, Texas and Amelia, Louisiana. The Company's
shipyard in Morgan City is located on approximately 11 acres on the Atchafalaya
River, approximately 30 miles from the Gulf of Mexico, and its Orange shipyard
is located on approximately 12 acres on the Sabine River, approximately 37
miles from the Gulf of Mexico. In February 1998, the Company commenced
operations at a conversion and repair facility in Amelia, Louisiana located on
approximately 16 acres on Bayou Boeuf, approximately five miles from Morgan
City. The Company conducts its marine vessel construction activities indoors at
its Morgan City and Orange shipyards in approximately 220,000 square feet of
enclosed building space designed specifically for the construction of marine
vessels up to 400 feet in length. The Company believes that its indoor work
environment is a competitive advantage in attracting and retaining skilled
workers and meeting critical construction schedules. The Company's shipyards
employ advanced construction techniques, including modular construction and
zone outfitting methods, in order to efficiently utilize its building space,
equipment and personnel. The Company believes that these factors, together with
its experienced management team and skilled work force, have enabled the
Company to construct a wide variety of marine vessels at attractive profit
margins, as evidenced by its operating profit margin of 25.4% in 1997 on a pro
forma basis.
BUSINESS STRATEGY
The Company's objective is to increase its revenues while maintaining
attractive profit margins. Key elements of the Company's business strategy are
as follows:
. PURSUE PROJECTS WITH ATTRACTIVE PROFIT MARGINS. The Company has extensive
experience in the construction, conversion and repair of a wide variety of
vessels and modular components used in diversified markets. The Company's
shipbuilding versatility and experience reduce its dependence on particular
types of products and markets, which the Company considers one of its
principal competitive strengths. As a result of this flexibility, the
Company selectively pursues opportunities for construction, conversion and
repair projects that it believes can generate attractive profit margins.
. CAPITALIZE ON INDOOR CONSTRUCTION CAPABILITIES AND MODERN CONSTRUCTION
TECHNIQUES. The Company believes that it is a unique Gulf Coast shipyard
due to the construction of substantially all of its new vessels and modular
components indoors. In this environment, construction is not hampered by
weather conditions. In addition, the Company's shipyards employ many
advanced construction techniques, including modular construction, zone
outfitting methods, computerized plasma arc metal cutting and automatic
shotblasting and painting. The Company believes that these factors allow it
to more effectively utilize its workforce and equipment, thereby allowing
it to control costs, meet critical construction schedules and achieve
attractive profit margins.
. UTILIZE AVAILABLE CAPACITY AT EXISTING SHIPYARDS. The Company believes that
it has the ability to significantly increase its capacity for vessel
construction, conversion and repair at its existing shipyards without any
significant additional capital expenditures. The Company had 280 shipyard
workers as of December 31, 1997 and has increased its shipyard labor force
to 303 as of March 31, 1998. The Company estimates that it could employ
approximately 200 additional shipyard workers, primarily for conversion and
repairs, without significant expansion of its facilities. The Company plans
to increase its construction, conversion and repair activity to the extent
it is able to secure additional projects at attractive margins and attract
qualified workers who can maintain the Company's quality standards.
4
<PAGE>
. TAKE ADVANTAGE OF NEW CONSTRUCTION OPPORTUNITIES. Due to increased activity
in the offshore oil and gas industry, the Company believes there will
continue to be significant demand from customers in this industry for
vessel construction, particularly with respect to offshore support vessels
such as lift boats, utility vessels and supply vessels, as well as for the
fabrication of modular components for offshore drilling rigs and FPSOs. In
addition, the Company believes that other commercial customers will
continue to create demand for its products and services due to continued
demand for marine transportation of bulk products and due to the aging of
the current fleet of barges, tug boats and other marine vessels used for
commercial shipping. The Company also believes that there will continue to
be opportunities to construct vessels for the U.S. Army, U.S. Navy, U.S.
Coast Guard and Corps of Engineers due to the aging fleet of barges, tug
boats, tow boats and push boats currently used by these customers.
. INCREASE CONVERSION AND REPAIR ACTIVITY. The Company has five drydocks, one
submersible barge, five slips and approximately 4,100 feet of bulkhead
available for conversion and repair activity. The Company has made
significant capital expenditures over the last several years to add
capacity and improve the efficiency of its shipyards for conversion and
repair work, including expenditures to modify one of its drydocks to
increase its lifting capacity and to add roll-on and roll-off capabilities.
These improvements will allow barges and other vessels to be moved from the
drydock to previously unused dockside land repair areas, thereby permitting
the drydock to be used for other repair activity. The Company believes
there are significant opportunities to take advantage of its increased
conversion and repair capacity due to the age and condition of many vessels
currently operating in the Gulf of Mexico and due to the requirements for
periodic inspection and drydocking by the U.S. Coast Guard, ABS and other
regulatory agencies.
. CAPTURE EFFICIENCIES FROM MULTIPLE SHIPYARDS. The Company's multiple
shipyards provide it with significant flexibility and efficiency in
constructing a wide variety of vessels. With the addition of the Orange and
Amelia shipyards, the Company has the ability to more effectively manage
its available shipyard capacity through the allocation of projects between
these shipyards. In addition, the Company has the ability to fabricate
various components of a project at one shipyard for use in the construction
of a vessel or fabrication of a steel structure at another of its
shipyards.
. PURSUE STRATEGIC ACQUISITIONS. The Company believes opportunities exist for
consolidation in the highly fragmented U.S. Gulf Coast marine vessel
construction, conversion and repair industry, which consists of more than
70 shipyard companies located in the Gulf Coast area. The Company
significantly expanded its construction capacity through the Orange
Acquisition in December 1997 at a purchase price of approximately $22.8
million (net of cash acquired). In addition, during February 1998, the
Company commenced operations at a conversion and repair facility in Amelia,
Louisiana that it acquired in 1996 at a purchase price of approximately
$1.0 million. The Company will evaluate strategic acquisitions of one or
more additional shipyards in the future depending on a variety of factors,
including demand for vessel construction, conversion and repair, the
advantages offered by the particular shipyard and the terms of the
acquisition. The Company anticipates that it will focus on profitable
acquisition candidates with operations that complement the Company's
existing operations.
The Company's executive offices are located at 1501 Front Street, P.O. Box
790, Morgan City, Louisiana 70381, and its telephone number is (504) 384-3060.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company........................... 2,500,000 shares
Common Stock to be outstanding af-
ter the Offering (1).............. 7,700,000 shares
Use of proceeds.................... To repay (i) approximately $25.0 million of
indebtedness incurred to fund the purchase
price of the Orange Acquisition and (ii)
approximately $10.0 million of indebtedness
incurred to fund distributions to the
Company's current stockholders in
connection with the termination of Conrad's
S corporation status. Any remaining net
proceeds will be used for working capital
and other general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol...... CNRD
</TABLE>
- --------
(1) Excludes options granted to directors, officers and employees of the
Company to purchase 130,000 shares of Common Stock, all of which will have
an exercise price equal to the initial public offering price of this
Offering. Also excludes 77,000 shares of Common Stock issuable upon
exercise of warrants that will be outstanding at the completion of the
Offering. See "Management--Stock Plan" and "Underwriting."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prior to making an investment decision, prospective purchasers of Common
Stock should consider all of the information set forth in this Prospectus and
should evaluate the considerations set forth in "Risk Factors."
6
<PAGE>
SUMMARY FINANCIAL, OPERATING AND INDUSTRY DATA
The following table sets forth certain historical consolidated financial and
operating data of Conrad, pro forma financial data of the Company and certain
industry information as of the dates and for the periods indicated. The
historical financial data have been derived from the historical financial
statements of Conrad. The historical financial statements of Conrad included
elsewhere in this Prospectus reflect only the assets and operations of Conrad
as of the dates and for each of the periods presented in such financial
statements and do not reflect the combined assets and operations of Conrad and
Orange Shipbuilding for any such date or period, except that the balance sheet
of Conrad at December 31, 1997 and the historical financial statements of
Conrad for the three-month period ended March 31, 1998 include the operations
of Orange Shipbuilding. The following table also sets forth pro forma statement
of operations data of the Company that give effect to certain transactions,
including the Orange Acquisition and the Reorganization. See "Corporate
Reorganization," the historical financial statements of each of Conrad and
Orange Shipbuilding and the related notes thereto included elsewhere in this
Prospectus and the unaudited pro forma statement of operations of the Company
and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED MARCH 31,
-------------------------------------------- DECEMBER 31, ----------------
1993 1994 1995 1996 1997 1997(1) 1997 1998
------- ------- ------- ------- -------- ------------ ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AND INDUSTRY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $10,482 $14,166 $20,914 $23,174 $ 22,117 $ 35,922 $ 5,546 $11,569
Cost of revenue........ 9,217 11,271 16,660 17,003 15,032 22,749 3,810 8,140
------- ------- ------- ------- -------- -------- ------- -------
Gross profit........... 1,265 2,895 4,254 6,171 7,085 13,173 1,736 3,429
Selling, general and
administrative
expenses.............. 1,132 1,621 1,497 1,847 2,242 4,055 493 888
Executive
compensation(2)....... -- -- -- -- -- -- -- 4,316
------- ------- ------- ------- -------- -------- ------- -------
Income (loss) from
operations............ 133 1,274 2,757 4,324 4,843 9,118 1,243 (1,775)
Interest and other
income (expense), net. (29) (159) (112) (26) 62 (1,933) (11) (410)
------- ------- ------- ------- -------- -------- ------- -------
Income (loss) before
income taxes.......... 104 1,115 2,645 4,298 4,905 7,185 1,232 (2,185)
Provision for income
taxes................. -- -- -- -- -- -- -- 293
------- ------- ------- ------- -------- -------- ------- -------
Net income (loss)...... $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185 $ 1,232 $(2,478)
======= ======= ======= ======= ======== ======== ======= =======
NET INCOME (LOSS) PER
COMMON SHARE:
Basic and diluted...... $ 0.02 $ 0.24 $ 0.57 $ 0.92 $ 1.05 -- $ 0.26 $ (0.53)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic and diluted...... 4,660 4,660 4,660 4,660 4,660 -- 4,660 4,666
UNAUDITED PRO FORMA
DATA:
Net income (loss) as
reported above........ $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185 $ 1,232 $(2,478)
Pro forma provision for
income taxes(3)....... 38 413 979 1,590 1,815 2,541 456 125
------- ------- ------- ------- -------- -------- ------- -------
Pro forma net income
(loss) (3)............ $ 66 $ 702 $ 1,666 $ 2,708 $ 3,090 $ 4,644 $ 776 $(2,603)
======= ======= ======= ======= ======== ======== ======= =======
Pro forma net income
(loss) per
share(3)(4)........... -- -- -- -- $ 0.58 $ 0.87 -- $ (0.49)
Common and equivalent
shares outstanding.... -- -- -- -- 5,342 5,342 -- 5,348
STATEMENT OF CASH FLOWS
DATA:
Cash provided by (used
in) operating
activities............ $ 711 $ 1,110 $ 3,604 $ 5,313 $ 6,114 $ 10,446 $ 1,431 $ (376)
Cash (used in)
investing
activities(5)......... (2,871) (287) (1,120) (1,961) (23,872) (24,432) (168) (1,073)
Cash provided by (used
in) financing
activities............ 1,832 (516) (623) (2,619) 22,100 16,179 (1,033) (310)
OTHER FINANCIAL DATA:
Depreciation and
amortization.......... $ 566 $ 676 $ 722 $ 798 $ 850 $ 2,166 $ 213 $ 547
Capital
expenditures(5)....... $ 2,871 $ 287 $ 1,120 $ 1,961 $ 23,872 $24, 432 $ 168 $ 1,073
EBITDA(6).............. $ 699 $ 1,950 $ 3,479 $ 5,122 $ 5,693 $ 11,284 $ 1,456 $ 3,088
EBITDA margin(7)....... 6.7% 13.8% 16.6% 22.1% 25.7% 31.4% 26.3% 26.7%
Operating profit
margin(8)............. 1.3% 9.0% 13.2% 18.7% 21.9% 25.4% 22.4% (15.3)%
OPERATING DATA:
Direct labor hours..... 261 292 347 354 350 501 88 136
GULF OF MEXICO INDUSTRY
DATA:
Active offshore supply
vessels(9)............ 216 235 249 263 286
Active offshore
drilling rigs(10)..... 163 170 181 212 233
Offshore supply vessel
dayrates(11).......... $ 3,508 $ 3,302 $ 3,185 $ 5,273 $ 8,048
Offshore drilling rig
utilization(12)....... 76.5% 76.2% 76.2% 88.0% 93.9%
Active inland drilling
barges(13)............ 69 74 75 80 92
Total blocks
leased(14)............ 336 560 835 1,508 1,778
U.S. SHIPBUILDING
INDUSTRY DATA:
Number of offshore
service vessels
constructed(15)....... 5 1 3 5 14
Number of mobile
offshore drilling rigs
constructed(16)....... 4 11 2 0 0
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(17) ADJUSTED(18)
------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 7,665 $(3,935) $ 9,849
Property, plant & equipment...................... 19,025 18,619 18,619
Total assets..................................... 49,400 47,394 49,094
Long term debt, including current maturities..... 25,534 35,534 534
Stockholders' equity............................. 16,611 3,975 40,675
</TABLE>
- --------
(1) Gives effect to (i) the Orange Acquisition as if it had occurred as of the
beginning of the period presented and (ii) the Reorganization. For
purposes of the pro forma statement of operations data, the results of
operations of Orange Shipbuilding for its fiscal year ended September 30,
1997 and the results of operations of Conrad for its fiscal year ended
December 31, 1997 were utilized. See Note 3 below and the pro forma
financial statements of the Company and the related notes thereto.
(2) Represents non-cash executive compensation expense related to the issuance
of shares of common stock by Conrad in the first quarter of 1998 to
William H. Hidalgo, the Company's President and Chief Executive Officer,
and Cecil A. Hernandez, the Company's Vice President-Finance and
Administration and Chief Financial Officer. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Recent
Events."
(3) Gives effect to the application of federal and state income taxes to the
Company as if it were a C corporation for tax purposes. For all periods
presented herein, Conrad operated as an S corporation for federal and
state income tax purposes. Prior to the completion of the Offering, the
stockholders of Conrad made an election terminating its S corporation
status. As a result, Conrad became subject to corporate level income
taxation following such election. See "Corporate Reorganization" and the
historical financial statements of Conrad and the related notes thereto
included elsewhere in this Prospectus.
(4) Calculated based on the number of shares of Common Stock to be outstanding
immediately after the Reorganization upon exchange of shares of Conrad
common stock by stockholders of Conrad as of December 31, 1997 (4,660,486
shares) as if such shares had been outstanding throughout each period
presented, as increased for each period to reflect such additional shares
as would have been required to be sold to pay the pro forma distribution
of estimated undistributed earnings to stockholders. The number of such
additional shares (681,199) is based on the assumed initial public
offering price of $16.00 per share, net of estimated Offering expenses.
See "Corporate Reorganization."
(5) Includes acquisition expenditures of $22.8 million (net of cash acquired)
incurred in December 1997 in connection with the Orange Acquisition.
(6) Represents income from operations before deduction of depreciation,
amortization and non-cash compensation expense related to the issuance of
stock and stock options to employees. EBITDA is not a measure of cash
flow, operating results or liquidity as determined by generally accepted
accounting principles. The Company has included information concerning
EBITDA as supplemental disclosure because management believes that EBITDA
provides meaningful information regarding a company's historical ability
to incur and service debt. EBITDA as defined and measured by the Company
may not be comparable to similarly titled measures reported by other
companies. EBITDA should not be considered in isolation or as an
alternative to, or more meaningful than, net income or cash flow provided
by operations as determined in accordance with generally accepted
accounting principles as an indicator of the Company's profitability or
liquidity.
(7) Represents EBITDA as a percentage of revenues.
(8) Represents income from operations as a percentage of revenues.
(9) Represents the average number of contracted anchor handling tug/supply and
platform supply vessels for the period presented. Information obtained
from Offshore Data Services.
(10) Represents the average number of mobile offshore drilling rigs and
platform drilling rigs under contract for the period presented.
Information obtained from Offshore Data Services.
(11) Represents the average dayrates for platform supply vessels for the period
presented. Information obtained from Offshore Data Services.
(12) Represents the average mobile drilling rig utilization rate for the period
presented. Information obtained from Offshore Data Services.
(13) Represents the average number of active inland drilling barges in
Louisiana for the period presented. Information obtained from Offshore
Data Services.
(14) Represents the total blocks leased for the period presented. Information
obtained from Mineral Management Services.
(15) Information obtained from Clarkson Research Studies.
(16) Information obtained from Offshore Data Services.
(17) Gives effect to (i) an accrual of $11.6 million for the cash portion of
the Shareholder Distributions (including $10.0 million of indebtedness
incurred to fund part of such distributions) to Conrad's shareholders in
connection with the termination of Conrad's S corporation status prior to
the completion of the Offering, (ii) the distribution of certain
nonoperating assets of Conrad to its shareholders prior to the completion
of the Offering with a fair market value of approximately $406,000, (iii)
the recognition of deferred tax liabilities in an amount of approximately
$630,000 in connection with the termination of Conrad's S corporation
status and (iv) the Reorganization.
(18) Gives effect to the Offering and the application of the net proceeds
therefrom. See "Use of Proceeds."
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RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information in this
Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the Common Stock. Except for historical
information contained herein, the discussion in this Prospectus contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. The Company's actual results could differ materially from
those discussed in this Prospectus. Factors that could cause or contribute to
such difference include those discussed below, as well as those discussed
elsewhere herein.
ABSENCE OF COMBINED OPERATING HISTORY
Although Conrad and Orange Shipbuilding have been in business for
approximately 50 years and 24 years, respectively, each of these companies
operated as an independent entity prior to the Orange Acquisition in December
1997. Prior to the Orange Acquisition, Conrad engaged primarily in the
construction, conversion and repair of vessels for commercial customers
whereas Orange Shipbuilding engaged primarily in the construction of vessels
for government customers and the fabrication of modular components for
offshore drilling rigs and FPSOs. There can be no assurance that the Company
will be able to integrate the personnel and operations of Orange Shipbuilding
successfully or institute the systems and procedures, including accounting and
financial reporting systems, project management, engineering and contract
administration, necessary to manage the combined enterprise on a profitable
basis. The discussions of the Company's operations and the pro forma financial
results of the Company included elsewhere in this Prospectus cover periods
when Conrad and Orange Shipbuilding were not under common control or
management and may not be indicative of the Company's future operating
performance or financial results. The inability of the Company to integrate
Orange Shipbuilding successfully could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Business Strategy" and "Management."
RELIANCE ON CYCLICAL INDUSTRIES
The demand for the Company's products and services is dependent upon many
factors, including the financial condition of companies that purchase marine
vessels and require marine repair and conversion services, including companies
in the offshore oil and gas industry and the petrochemical industry. Companies
in these industries are subject to significant fluctuations in their revenue
and profitability due to a variety of factors, including general economic
conditions and factors affecting each of these industries individually. The
offshore oil and gas industry, in particular, is affected by prevailing oil
and gas prices, which historically have fluctuated significantly. Oil prices
have declined significantly during the last several months. Adverse
developments in the industries to which the Company provides its products and
services could have a material adverse effect on the Company's financial
condition and results of operations.
NEW PRODUCT RISKS
The Company has been bidding on contracts for the past two years for the
construction of offshore support vessels of types that have not been
constructed by the Company in the past. The Company believes it has the
capability to build such vessels on a profitable basis due to its experience
performing extensive conversion and repair work on such vessels and in
constructing similar vessels such as push boats and offshore tug boats. No
assurance can be given, however, that the Company will be successful in
winning any such bids or that such contracts, if secured, can be completed
profitably.
In addition, the Company, through its Orange Shipbuilding subsidiary,
commenced fabrication of a significant amount of modular components for
offshore oil and gas rigs and FPSOs in 1996. Most of these projects are
subcontracts received from companies that are capable of building such
components themselves but
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do not have the capacity to meet current demand. Therefore, any decrease in
demand for such fabrication services or increase in the capacity of such
primary contractors could have a material adverse effect on the ability of the
Company to secure similar work in the future.
GOVERNMENT CONTRACTING
The Company builds vessels for the U.S. Army, U.S. Navy, U.S. Coast Guard
and Corps of Engineers. The Company has also built vessels and performed
conversion or repair services for local, state and foreign governments in
recent years, either directly or as a subcontractor. Revenue derived from U.S.
government customers accounted for approximately 6.7% of the Company's total
pro forma revenue in 1997, and approximately 49.2% of the Company's backlog at
December 31, 1997 (approximately 57.9% at March 31, 1998) was attributable to
U.S. government contracts. U.S. government contracts are generally subject to
strict competitive bidding requirements. Purchases of vessels by the U.S.
government are generally subject to the uncertainties inherent in the
budgeting and appropriations process, which is affected by political events
over which the Company has no control. In addition, although the Company has
never been subject to suspension or debarment, the U.S. government has the
right to suspend or debar a contractor from government contracting for
significant violations of government procurement regulations. There can be no
assurance that the Company will be successful in obtaining new government
contracts. See "Business--Contract Procedure, Structure and Pricing."
The Company's principal U.S. government business is currently being
performed under fixed-price contracts that wholly or partially shift to the
Company the risk of construction costs that exceed the contract price. A
typical program begins with the award and an "established functional
baseline." Engineering changes may be proposed by the contractor or the U.S.
government throughout the design and development process. These changes, when
accepted by both parties, are formalized in engineering change proposals and
include either increased costs, no costs or decreased costs. In the event of
such changes, the Company and the U.S. government must agree on additional
compensation, if any; however, the Company is not required to accept changes
requested by the U.S. government that cause a cost impact without
remuneration.
CONTRACT PRICING RISKS
Most of the Company's contracts for marine vessel construction, whether
commercial or governmental, are fixed-price contracts under which the Company
retains all cost savings on completed contracts but is also liable for the
full amount of all cost overruns. Although the Company anticipates increased
costs of labor and materials in its bids, the revenue, cost and gross profit
realized on a fixed-price contract will often vary from the estimated amounts
because of many factors, including changes in job conditions, variations in
labor and equipment productivity over the term of the contract and unexpected
increases in costs of materials and labor. In addition, costs of labor may
differ from the Company's estimates in bidding on and building new vessels not
previously constructed by the Company due to unanticipated time to complete
such project. See "Business--Employees."
These variations and the risks generally inherent in the shipbuilding
industry may result in gross profits realized by the Company being different
from those originally estimated and may result in reduced profitability or
losses on these projects. Depending on the size of the project, variations
from estimated contract performance could have a significant adverse effect on
the Company's operating results for any particular fiscal quarter or year.
The Company's contracts for marine vessel construction may require the
Company to pay liquidated damages if the Company fails to meet specified
performance deadlines, the payment of which could have a material adverse
effect on the Company's operating results depending upon (i) the amount of the
liquidated damages specified in such contracts for failure to meet specified
deadlines and (ii) other operating results at such time. At the present time,
the Company has two contracts that may require the Company to pay liquidated
damages calculated per day up to a maximum amount in the event of delay.
Payments of any maximum amount of liquidated damages for any vessel under
these contracts individually would not have a material adverse effect on the
Company.
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The Company performs many of its repair and conversion projects on a time
and materials basis, under which the Company receives a specified hourly rate
for direct labor hours (which exceeds its direct labor costs and includes
related overhead) and a specified percentage mark-up over its cost of
materials. Under such contracts, the Company is protected against cost
overruns but does not benefit directly from cost savings.
PERCENTAGE OF COMPLETION ACCOUNTING
The Company uses the percentage-of-completion method to account for its
construction contracts in process. Under this method, revenue and expenses
from construction contracts are based on the percentage of labor hours
incurred as compared to estimated total labor hours for each contract. As a
result, the timing of recognition of revenue and expenses for financial
reporting purposes may differ materially from the timing of actual contract
payments received and expenses paid. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. To the extent that such provisions result in a loss or a reduction
or elimination of previously reported profits with respect to a project, the
Company would recognize a charge against current earnings, which could be
material. As many of the Company's contracts are completed over a period of
several months, the timing of the recognition of revenue and expense for these
types of contracts could have a significant impact on quarter-to-quarter
operating results.
SHORTAGE OF TRAINED WORKERS
Shipyards located in the Gulf Coast area are experiencing shortages of
skilled labor as a result of recent demands for skilled workers brought about
by increases in offshore drilling activities, the construction of offshore
drilling rigs and production platforms and the crewing of offshore vessels. In
1997, this labor shortage resulted in increased costs of labor at the
Company's Morgan City and Orange shipyards and limited the Company's ability
to increase its skilled work force at its Morgan City shipyard. While the
Company believes that its shipyards are not currently experiencing severe
labor shortages, the Company's shipyards are faced with limitations on the
availability of skilled labor that could limit the Company's ability to
increase production at its shipyards to the extent the Company might otherwise
desire. No assurances can be given regarding whether severe labor shortages
will be experienced at the Company's shipyards in the future.
RELIANCE ON PRINCIPAL CUSTOMERS
A significant portion of the Company's revenue has historically been
generated by a few customers, although not necessarily the same customers from
year to year. For the years ended December 31, 1997 and December 31, 1996, the
Company's ten largest customers in such years collectively accounted for 75.8%
and 70.9% of revenue on a pro forma basis, respectively. The loss of a
significant customer for any reason could result in a substantial loss of
revenue and could have a material adverse effect on the Company's operating
performance. See "Business--Customers."
BACKLOG
The Company's backlog is based on unearned revenue with respect to those
projects on which a customer has authorized the Company to begin work or
purchase materials pursuant to written contracts or other forms of
authorization. Although the Company's contracts with its commercial customers
generally do not permit the customer to terminate the contract, certain
government projects currently included in the Company's backlog are subject to
change and/or termination at the option of the customer, either of which could
substantially change the amount of backlog currently reported. In the case of
a termination of a government project, the government is generally required to
pay the Company for work performed and materials purchased through the date of
termination and, in some cases, is required to pay the Company a termination
fee; however, due to the large dollar amounts of backlog estimated for each of
a small number of government projects, amounts included in the Company's
backlog could decrease substantially if one or more of these projects were to
be terminated by the government. The Company's backlog of $23.6 million at
March 31, 1998 was attributable to 15 projects, of which $13.7 million was
attributable to seven government projects. Termination of one or more of the
government projects could have a material adverse effect on the Company's
revenue, net income and cash flow for fiscal 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview" and "Business--Operations."
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COMPETITION
U.S. shipbuilders are generally classified in two categories: (i) the six
largest shipbuilders which are capable of building large scale vessels for the
U.S. Navy and commercial customers and (ii) other shipyards that build small
to medium sized vessels for governmental and commercial markets. The Company
does not compete for large vessel construction projects. The Company competes
for U.S. government contracts to build small to medium sized vessels
principally with approximately 10 to 15 U.S. shipbuilders, which may include
one or more of the six largest shipbuilders. The Company competes for domestic
commercial vessel construction contracts principally with up to approximately
15 U.S. shipbuilders. The number and identity of competitors on particular
projects vary greatly depending on the type of vessel and size of the project,
but the Company generally competes with only three or four other companies
with respect to a particular project. The Company competes with over 70
regional shipyards for its conversion and repair business.
The marine vessel construction business is highly competitive. During the
1990's, the U.S. shipbuilding industry has been characterized by substantial
excess capacity because of the significant decline in new construction
projects for the U.S. Navy, the difficulties experienced by U.S. shipbuilders
in competing successfully for commercial projects against foreign shipyards,
many of which are heavily subsidized by their governments, and the decline in
the construction of vessels utilized in the offshore energy industry. As a
result of these factors, competition by U.S. shipbuilders for domestic
commercial projects has increased significantly and resulted in substantial
pressure on pricing and profit margins. Recently, there has been an increase
in demand for vessel construction, conversion and repair services and this
increased demand could result in the redeployment of previously idled shipyard
capacity or other shipyards shifting their focus to the types of products and
services currently provided by the Company. In addition, due to the increased
demand for fabrication services involving the offshore oil and gas industry,
it is possible that land or facilities with water access to the Gulf of Mexico
that were previously not used in the fabrication business could be converted
to use for this purpose. Any of these events could increase the amount of
competition experienced by the Company for construction, conversion and repair
activity, which could have a material adverse effect on the Company's revenue
and profit.
Contracts for the construction of vessels are usually awarded on a
competitive bid basis. Although price is the primary factor in determining
which qualified bidder is awarded a contract, customers also consider, among
other things, availability and technical capabilities of equipment and
personnel, efficiency, reliability, safety record and reputation.
OPERATING RISKS
The Company's activities involve the fabrication and refurbishment of large
steel structures, the operation of cranes and other heavy machinery and other
operating hazards that can cause personal injury or loss of life, severe
damage to and destruction of property and equipment and suspension of
operations. The failure of the structure of a vessel after it leaves the
Company's shipyard can result in similar injuries and damages. Litigation
arising from any such occurrences may result in the Company being named as a
defendant in lawsuits asserting large claims. In addition, due to their
proximity to the Gulf of Mexico and location along rivers in flood plains, the
Company's work in progress and facilities are subject to the possibility of
significant physical damage caused by hurricanes or flooding. Although the
Company maintains insurance protection as it considers economically prudent,
there can be no assurance that such insurance will be sufficient in coverage
or effective under all circumstances or against all hazards to which the
Company may be subject. A successful claim for which the Company is not fully
insured could have a material adverse effect on the Company.
REGULATION
The Company's commercial shipbuilding opportunities are materially dependent
on certain U.S. laws and regulations, including (i) the Merchant Marine Act of
1920 (the "Jones Act") which requires that vessels transporting products
between U.S. ports be constructed by U.S. shipyards, (ii) the Oil Pollution
Act of 1990
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("OPA '90"), which requires a phased-in transition of single-hull tankers,
barges and other product carriers to double-hull vessels beginning January 1,
1995, and (iii) the 1993 amendments to Title XI of the Merchant Marine Act of
1936, which permit the U.S. government to guarantee loan obligations of
foreign vessel owners for foreign-flagged vessels built in U.S. shipyards. In
connection with U.S. efforts to implement a 1994 multilateral agreement
designed in part to eliminate government subsidies to commercial shipbuilders,
legislation has been introduced and is now pending in the U.S. Congress that
would eliminate certain competitive advantages afforded to U.S. shipyards
under the 1993 amendments to the Title XI guarantee program, although Congress
adjourned during 1996 and 1997 without adopting similar proposed legislation.
In addition, legislative bills seeking to rescind or substantially modify the
provisions of the Jones Act mandating the use of U.S.-built ships for
coastwise trade are introduced from time to time and are expected to be
introduced in the future. Although management believes that Congress is
unlikely to rescind or materially modify the Jones Act in the foreseeable
future, there can be no assurance to this effect with respect to the Jones Act
or any other law or regulation benefitting U.S. shipbuilders. Many foreign
shipyards are heavily subsidized by their governments and, as a result, there
can be no assurance that the Company would be able to compete effectively with
such shipyards if they were permitted to construct vessels for use in the U.S.
coastwise trade. The repeal of the Jones Act, or any amendment of the Jones
Act that would eliminate or adversely affect the competitive advantages
provided to U.S. shipbuilders, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Regulation."
In addition, the Company depends, in part, on the demand for its services
from the oil and gas industry and is affected by changing taxes and other laws
and regulations relating to the oil and gas industry generally. The adoption
of laws and regulations curtailing exploration and development drilling for
oil and gas in the Gulf of Mexico for economic, environmental and other policy
reasons would adversely affect the Company's operations by limiting demand for
its services. The Company cannot determine to what extent future operations
and earnings of the Company may be affected by new legislation, new
regulations or changes in existing regulations.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental
laws and regulations that impose limitations on the discharge of pollutants
into the environment and establish standards for the transportation, storage
and disposal of toxic and hazardous wastes. Significant fines and penalties
may be imposed for non-compliance and certain environmental laws impose joint
and several "strict liability" for remediation of spills and releases of oil
and hazardous substances, rendering a person liable for environmental damage
without regard to negligence or fault on the part of such person. Such laws
and regulations may expose the Company to liability for the conduct of or
conditions caused by others, or for acts of the Company that are or were in
compliance with all applicable laws at the time such acts were performed.
Compliance with environmental laws increases the Company's cost of doing
business. Additionally, environmental laws have been subject to frequent
change. The Company is unable to predict the future costs or other future
effects of environmental laws on its operations. There can be no assurance
that the Company will not incur material liability related to the Company's
operations and properties under environmental laws.
RELIANCE ON KEY PERSONNEL
The Company will be highly dependent on the continuing efforts of William H.
Hidalgo, the Company's President and Chief Executive Officer, and the
Company's other executive officers and key operating personnel. The Company
does not maintain key person life insurance for Mr. Hildalgo or any other
executive officers or key employees. The loss of the services of any of these
persons could have an adverse effect on the business or prospects of the
Company. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the consummation of this Offering, the Company's executive
officers and directors and persons and entities affiliated with them will
beneficially own approximately 5,200,000 shares of Common Stock representing
67.5% of the outstanding shares of Common Stock (64.4% if the Underwriters'
over-allotment
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option is exercised in full), of which J. Parker Conrad, John P. Conrad, Jr.
and Katherine Conrad Court will own or control through trusts 4,660,486 shares
of Common Stock, representing 60.5% of all shares of Common Stock outstanding.
These holders of Common Stock will control in the aggregate 60.5% of the votes
of all shares of Common Stock, and, if acting in concert, will be able to
exercise control over the Company's affairs, to elect the entire Board of
Directors and to control the outcome of substantially all of the matters
submitted to a vote of stockholders. See "Principal Stockholders."
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Stock. Therefore, the initial public offering price for the Common Stock will
be determined by negotiation between the Company and the Representatives of
the Underwriters and may bear no relationship to the price at which the Common
Stock will trade after the Offering. See "Underwriting" for the factors to be
considered in determining the initial public offering price. Application has
been made to list the Common Stock on the Nasdaq National Market. However,
there can be no assurance that an active trading market will develop
subsequent to this Offering or, if developed, that it will be sustained. After
this Offering, the market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including variations
in the Company's annual or quarterly financial results or those of its
competitors, the timing of the recognition of revenue and expenses under
percentage of completion accounting, changes by financial research analysts in
their recommendations or their estimates of the future earnings of the
Company, conditions in the economy in general or in the Company's industry in
particular, unfavorable publicity or changes in applicable laws and
regulations (or judicial or administrative interpretations thereof) affecting
the Company or the shipbuilding industry. From time to time, the stock market
experiences significant price and volume volatility, which may affect the
market price of the Common Stock for reasons unrelated to the Company's
performance.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Upon completion of the Offering, 7,700,000 shares of Common Stock will be
outstanding (8,075,000 shares if the Underwriters' overallotment option is
exercised in full). The 2,500,000 shares sold in this Offering (other than
shares that may be purchased by affiliates of the Company) will be freely
tradeable. The remaining outstanding shares may be resold publicly only
following their registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption from registration
(such as provided by Rule 144 following a one-year holding period from
issuance for previously unregistered shares). The Company has granted the
holders of these remaining shares certain registration rights exercisable not
earlier than 180 days following the completion of the Offering. The holders of
these remaining shares have agreed with the Company and the Underwriters that
they will not sell, transfer or otherwise dispose of any of their shares for
180 days following the completion of the Offering. On completion of the
Offering, the Company also will have outstanding options to purchase up to a
total of 130,000 shares of Common Stock granted to certain directors, officers
and employees of the Company. The Company intends to register all the shares
subject to these options under the Securities Act for public resale. These
shares generally will be freely tradeable after their issuance by persons not
affiliated with the Company unless the Company contractually restricts their
resale. Upon completion of the Offering, the Company will issue warrants to
purchase an aggregate of 77,000 shares of Common Stock at the initial public
offering price per share to Morgan Keegan & Company, Inc. The Company has also
granted to Morgan Keegan & Company, Inc. one demand registration right
exercisable not earlier than one year after the closing date of the Offering
and certain piggyback registration rights with respect to the shares of Common
Stock underlying the warrants. Sales, or the availability for sale, of
substantial amounts of the Common Stock in the public market could adversely
affect prevailing market prices and the future ability of the Company to raise
equity capital and complete any additional acquisitions for Common Stock. See
"Description of Capital Stock--Registration Rights" and "Shares Eligible for
Future Sale."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such
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preferences, powers and relative, participating, optional and other rights
(including preferences over the Common Stock respecting dividends and
distributions and voting rights) as the Board of Directors may determine. The
issuance of this "blank-check" preferred stock could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise and would have a dilutive effect on
stockholder equity. In addition, the Charter provides for a classified Board
of Directors, which may also have the effect of inhibiting or delaying a
change in control of the Company. Certain provisions of the Delaware General
Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Description of Capital Stock."
HOLDING COMPANY STRUCTURE
The Company, as a holding company whose principal assets are the shares of
capital stock of its operating subsidiaries, does not generate any operating
revenues of its own. Consequently, it depends on dividends, advances and
payments from its operating subsidiaries to fund its activities and meet its
cash needs, including its debt service requirements. The subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any dividends or to make funds available therefor. The
ability of the operating subsidiaries to pay dividends or make other payments
or advances to the Company will depend on their operating results and will be
subject to various business considerations and to applicable state laws.
Accordingly, there can be no assurance that the operating subsidiaries will
generate sufficient earnings and cash flows to pay dividends or distribute
funds to the Company to enable it to meet its obligations and pay its
expenses.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in this Offering will experience immediate,
substantial dilution in the net tangible book value of their stock of $11.36
per share and may experience further dilution in that value from issuances of
Common Stock in connection with future acquisitions. See "Dilution."
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. In addition, the Company's revolving credit
facility will restrict the payment of dividends. See "Dividend Policy."
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CORPORATE REORGANIZATION
The Company was incorporated in March 1998 to serve as the holding company
for Conrad and Orange Shipbuilding. The current shareholders of Conrad have
entered into an exchange agreement (the "Exchange Agreement") pursuant to
which they will exchange their shares of common stock of Conrad for shares of
Common Stock of the Company (the "Reorganization"). In accordance with the
terms of the Exchange Agreement, the shareholders of Conrad will receive a
number of shares of Common Stock in direct proportion to their relative
shareholdings in Conrad. The number of shares to be issued to each of the
shareholders is set forth in "Principal Stockholders." As a result of the
Reorganization, the Company will be a holding company whose only assets will
consist of all of the outstanding shares of capital stock of Conrad. Conrad
will continue to own all of the outstanding stock of Orange Shipbuilding.
Conrad has operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad currently pays no federal or
state income tax, and the entire earnings of Conrad are subject to tax only at
the shareholder level. Prior to the Reorganization and the completion of the
Offering, Conrad's current shareholders will make an election terminating
Conrad's S corporation status. Thereafter, Conrad will become subject to
corporate level income taxation. As a result of its conversion from an S
corporation to a C corporation, the Company estimates that it will be required
to record as a charge to earnings a one-time deferred tax liability in the
amount of approximately $630,000 in the second quarter of 1998. See the
historical financial statements of Conrad and notes thereto and the pro forma
financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
In the past, Conrad has made distributions to its shareholders in order to
provide a cash return to them and to fund their federal and state income tax
liabilities that resulted from Conrad's S corporation status. In accordance
with this practice, since January 1, 1998, Conrad has distributed
approximately $506,000 to its current shareholders and estimates that it will
distribute an additional $1.6 million prior to the completion of the Offering
to fund the shareholders' federal and state income tax liabilities through the
date of termination of its S corporation status. Conrad intends to make an
additional distribution to its current shareholders of approximately $10.0
million, which amount represents undistributed earnings of Conrad, estimated
through the date of the termination of Conrad's S corporation status, on which
Conrad's current shareholders will have incurred federal and state income
taxes. Conrad also expects to make a distribution of certain nonoperating
assets with a fair market value of approximately $406,000 to its shareholders
prior to the completion of the Offering. The distributions of cash and non-
operating assets (the "Shareholder Distributions") will be made prior to the
completion of the Offering, and Conrad intends to fund part of the cash
portion of the Shareholder Distributions with borrowings under its Revolving
Credit Facility (as hereinafter defined), which borrowings will be repaid with
proceeds of the Offering. See "Use of Proceeds," "Dividend Policy" and
"Certain Transactions."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting estimated underwriting discounts and estimated
Offering expenses payable by the Company, are estimated to be approximately
$36.7 million (approximately $42.3 million if the Underwriters exercise their
over-allotment option in full), assuming an initial public offering price of
$16.00 per share.
Approximately $35.0 million of the net proceeds will be used to repay
indebtedness of the Company outstanding at the time of the closing of the
Offering, consisting of $25.0 million of indebtedness under the Term Loan
(described below) incurred by Conrad in connection with the Orange Acquisition
and approximately $10.0 million of indebtedness to be incurred by the Company
under the Revolving Credit Facility (described below) to fund part of the cash
portion of the Shareholder Distributions. See "Corporate Reorganization." The
remaining net proceeds will be used for working capital and other general
corporate purposes. Pending such uses, the Company intends to invest the net
proceeds of the Offering in short-term, investment-grade, interest-bearing
instruments.
All of the $25.0 million of indebtedness under a term loan with Whitney
National Bank (the "Term Loan") bears interest at LIBOR plus 2.0% until
September 18, 1998, and thereafter at the option of the Company at the prime
rate of Whitney National Bank minus 0.5% or at LIBOR plus 2.0%. The Term Loan
requires the payment of interest only until May 1998 and thereafter the Term
Loan is payable in 70 monthly principal payments of $209,000 plus interest,
with a final payment due in April 2004. The Term Loan currently bears interest
at 7.68% per annum. The indebtedness under the Term Loan was incurred by
Conrad to fund the purchase price of the Orange Acquisition in December 1997,
and the Term Loan will be terminated upon the repayment of its outstanding
indebtedness with proceeds from the Offering.
The Company has received a commitment from Whitney National Bank to provide
the Company with a $10.0 million credit facility which may be used for working
capital and other general corporate purposes, including funding of
acquisitions (the "Revolving Credit Facility"). The Revolving Credit Facility
will bear interest on the same terms as the Term Loan and will mature April
30, 1999. A fee of 0.25% per annum on the unused portion of the credit
facility will be charged quarterly. The Company intends to borrow
approximately $10.0 million under the Revolving Credit Facility prior to the
completion of the Offering in order to fund part of the cash portion of the
Shareholder Distributions. The Company intends to use a portion of the net
proceeds of the Offering to repay the borrowings under the Revolving Credit
Facility.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company intends to retain all its earnings, if any, after the Offering
to meet its working capital requirements and to finance the expansion of its
business. Accordingly, the Company does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Any future dividends
will be at the discretion of the Board of Directors after taking into account
various factors, including, among others, the Company's financial condition,
results of operations, cash flows from operations, current and anticipated
cash needs and expansion plans, the income tax laws then in effect and the
requirements of Delaware law. In addition, the Revolving Credit Facility will
restrict or prohibit the payment of dividends by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Conrad has operated as an S corporation prior to the Offering and has made
cash distributions to its shareholders in order to provide a cash return to
them and to fund their federal and state income tax liability relating to
earnings of Conrad. In accordance with this practice, Conrad made aggregate
cash distributions of approximately $0.6 million, $2.0 million and $2.0
million for the calendar years ended December 31, 1995, 1996 and 1997,
respectively, and Conrad made a cash distribution of approximately $506,000 in
the first quarter of 1998. Conrad intends to distribute an additional $1.6
million in cash prior to the Reorganization to fund the shareholders' income
tax liabilities through the date of the termination of Conrad's S corporation
status. Conrad also intends to distribute to its stockholders prior to the
completion of the Offering $10.0 million of undistributed earnings as well as
certain nonoperating assets having a fair value of approximately $406,000. See
"Corporate Reorganization."
17
<PAGE>
CAPITALIZATION
The following table sets forth (i) the cash and cash equivalents and
capitalization of Conrad at March 31, 1998, (ii) the pro forma cash and cash
equivalents and capitalization of the Company at March 31, 1998 and (iii) the
pro forma cash and cash equivalents and capitalization of the Company at March
31, 1998 as adjusted to give effect to the Offering and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with the historical financial statements of Conrad and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 5,792 $ 4,192 $ 5,892
======= ======= =======
Long-term obligations, including current ma-
turities:
Term Loan.................................. $25,000 $25,000 $ 0
Revolving Credit Facility(2)............... 0 10,000 0
Other...................................... 534 534 534
------- ------- -------
Total long-term debt....................... 25,534 35,534 534
------- ------- -------
Stockholders' equity:
Preferred Stock: $0.01 par value, 5,000,000
shares, authorized; no shares issued and
outstanding............................... -- -- --
Common Stock: $0.01 par value, 20,000,000
shares authorized; 5,200,000 shares issued
and outstanding, pro forma; and 7,700,000
shares issued and outstanding, pro forma
as adjusted(3)............................ 52 52 77
Additional paid-in capital................... 8,783 8,239 44,914
Unearned stock compensation.................. (4,316) (4,316) (4,316)
Retained earnings............................ 12,092 -- --
------- ------- -------
Total stockholders' equity................. 16,611 3,975 40,675
------- ------- -------
Total capitalization..................... $42,145 $39,509 $41,209
======= ======= =======
</TABLE>
- --------
(1) Gives effect to (i) an accrual of $11.6 million for the cash portion of
the Shareholder Distributions (including $10.0 million of indebtedness
incurred to fund part of such distributions) to Conrad's shareholders in
connection with the termination of Conrad's S corporation status prior to
the completion of the Offering, (ii) the distribution of certain
nonoperating assets of Conrad to its shareholders prior to the completion
of the Offering with a fair market value of approximately $406,000, (iii)
the recognition of deferred tax liabilities in an amount of approximately
$630,000 in connection with the termination of Conrad's S corporation
status and (iv) the Reorganization.
(2) Represents approximately $10.0 million to be drawn under the Revolving
Credit Facility prior to the completion of the Offering to fund part of
the cash portion of the Shareholder Distributions.
(3) Excludes options granted to directors, officers and employees of the
Company to purchase 130,000 shares of Common Stock, all of which will have
an exercise price equal to the initial public offering price of this
Offering. Also excludes 77,000 shares of Common Stock issuable upon
exercise of warrants exercisable at the initial public offering price that
will be outstanding at the completion of the Offering. See "Management--
Stock Plan" and "Underwriting."
18
<PAGE>
DILUTION
As of March 31, 1998, the net tangible book value of the Company was
$1,512,000, or $0.29 per share. "Net tangible book value per share" is the
tangible net worth (total tangible assets less total liabilities) of the
Company divided by the number of shares of Common Stock outstanding after
giving pro forma effect to the Reorganization and assuming 5,200,000 shares of
Common Stock were outstanding as of such date. After giving effect to the sale
of the shares of Common Stock offered hereby (at an assumed initial public
offering price of $16.00 per share and after deducting underwriting discounts
and estimated offering expenses of $3.3 million), the pro forma net tangible
book value of the Company at March 31, 1998 would have been $25,576,000 or
$3.32 per share. This represents an immediate increase in net tangible book
value of $5.34 per share to existing stockholders and an immediate dilution of
$11.36 per share to the new investors purchasing the shares in this Offering.
See "Corporate Reorganization" and "Use of Proceeds." The following table
illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed net initial public offering price per share.............. $14.68
Net tangible book value per share at March 31, 1998............ $0.29
Decrease in net tangible book value per share attributable to
proposed Shareholder Distributions............................ (2.31)
Increase in net tangible book value per share attributable to
new investors................................................. 5.34
-----
Net tangible book value per share after the Offering............. 3.32
------
Dilution in net tangible book value per share to new investors... $11.36
======
</TABLE>
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by the new investors in this Offering, (assuming a
public offering price of $16.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)(2)........ 5,200,000 67.5% $ 3,975,000 9.0% $ 0.76
New investors.............. 2,500,000 32.5 40,000,000 91.0 16.00
--------- ----- ----------- -----
Total.................... 7,700,000 100.0% $43,975,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) The existing stockholders of the Company, after giving effect to the
Reorganization, will have acquired all of their shares of Common Stock in
exchange for the common stock of Conrad. Accordingly, the total
consideration paid by the existing stockholders for their shares of Common
Stock of the Company represents the total consideration paid by the
existing stockholders for their shares of common stock of Conrad.
(2) Excludes options to purchase an aggregate of 130,000 shares of Common
Stock to be held by directors, officers and employees of the Company upon
the closing of the Offering pursuant to the Company's 1998 Stock Plan.
None of such options will be immediately exercisable. See "Management--
Stock Plan." Also excludes 77,000 shares of Common Stock issuable upon
exercise of warrants exercisable at the initial public offering price that
will be outstanding at the completion of the Offering. See "Underwriting."
19
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of Conrad and pro forma financial data of the Company as of the dates and
for the periods indicated. The historical financial data have been derived
from the historical financial statements of Conrad. The historical financial
statements of Conrad included elsewhere in this Prospectus reflect only the
assets and operations of Conrad as of the dates and for each of the periods
presented in such financial statements and do not reflect the combined assets
and operations of Conrad and Orange Shipbuilding for any such date or period,
except that the balance sheet of Conrad at December 31, 1997 and the
historical financial statements of Conrad for the three-month period ended
March 31, 1998 include the operations of Orange Shipbuilding as of such date.
The following table also sets forth pro forma statement of operations data of
the Company that give effect to certain transactions, including the Orange
Acquisition and the Reorganization. See "Corporate Reorganization" the
historical financial statements of each of Conrad and Orange Shipbuilding and
related notes thereto included elsewhere in this Prospectus and the unaudited
pro forma statement of operations of the Company and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31,
------------------------------------------- DECEMBER 31, --------------------
1993 1994 1995 1996 1997 1997(1) 1997 1998
------- ------- ------- ------- ------- ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. $10,482 $14,166 $20,914 $23,174 $22,117 $ 35,922 $ 5,546 $11,569
Cost of revenue....... 9,217 11,271 16,660 17,003 15,032 22,749 3,810 8,140
------- ------- ------- ------- ------- -------- --------- ---------
Gross profit.......... 1,265 2,895 4,254 6,171 7,085 13,173 1,736 3,429
Selling, general and
administrative
expenses............. 1,132 1,621 1,497 1,847 2,242 4,055 493 888
Executive
compensation(2)...... -- -- -- -- -- -- -- 4,316
------- ------- ------- ------- ------- -------- --------- ---------
Income (loss) from
operations........... 133 1,274 2,757 4,324 4,843 9,118 1,243 (1,775)
Interest and other
income (expense),
net.................. (29) (159) (112) (26) 62 (1,933) (11) (410)
------- ------- ------- ------- ------- -------- --------- ---------
Income (loss) before
income taxes......... 104 1,115 2,645 4,298 4,905 7,185 1,232 (2,185)
Provision for income
taxes................ -- -- -- -- -- -- -- 293
------- ------- ------- ------- ------- -------- --------- ---------
Net income (loss)..... $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185 $ 1,232 $(2,478)
======= ======= ======= ======= ======= ======== ========= =========
NET INCOME (LOSS) PER
COMMON SHARE:
Basic and diluted..... $ 0.02 $ 0.24 $ 0.57 $ 0.92 $ 1.05 -- $ 0.26 $ (0.53)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic and diluted..... 4,660 4,660 4,660 4,660 4,660 -- 4,660 4,666
UNAUDITED PRO FORMA
DATA:
Net income (loss) as
reported above....... $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185 $ 1,232 $ (2,478)
Pro forma provision
for income taxes(3).. 38 413 979 1,590 1,815 2,541 456 125
------- ------- ------- ------- ------- -------- --------- ---------
Pro forma net income
(loss)(3)............ $ 66 $ 702 $ 1,666 $ 2,708 $ 3,090 $ 4,644 $ 776 $ (2,603)
======= ======= ======= ======= ======= ======== ========= =========
Pro forma net income
per share(3)(4)...... -- -- -- -- $ 0.58 $ 0.87 -- $ (0.49)
Common and equivalent
shares outstanding... -- -- -- -- 5,342 5,342 -- 5,348
STATEMENT OF CASH FLOWS
DATA:
Cash provided by (used
in) operating
activities........... $ 711 $ 1,110 $ 3,604 $ 5,313 $ 6,114 $ 10,446 $ 1,431 $ (376)
Cash provided by (used
in) investing
activities(5)........ (2,871) (287) (1,120) (1,961) (23,872) (24,432) (168) (1,073)
Cash provided by (used
in) financing
activities........... 1,832 (516) (623) (2,619) 22,100 16,179 (1,033) (310)
OTHER FINANCIAL DATA:
Depreciation and
amortization......... $ 566 $ 676 $ 722 $ 798 $ 850 $ 2,166 $ 213 $ 547
Capital
expenditures(5)...... $ 2,871 $ 287 $ 1,120 $ 1,961 $23,872 $ 24,432 $ 168 $ 1,073
EBITDA(6)............. $ 699 $ 1,950 $ 3,479 $ 5,122 $ 5,693 $ 11,284 $ 1,456 $ 3,088
EBITDA margin(7)...... 6.7% 13.8% 16.6% 22.1% 25.7% 31.4% 26.3% 26.7%
Operating profit
margin(8)............ 1.3% 9.0% 13.2% 18.7% 21.9% 25.4% 22.4% (15.3)%
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------ ------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ (677) $ 2,497 $ 3,733 $ 4,402 $ 7,760 $ 7,665
Property, plant &
equipment.............. 7,456 7,067 7,465 8,514 18,304 19,025
Total assets............ 9,813 10,395 13,895 15,236 48,945 49,400
Long term debt,
including current
portion................ 2,400 1,962 1,900 1,233 25,338 25,534
Stockholders' equity.... 6,798 7,948 10,032 12,379 15,279 16,611
</TABLE>
- --------
(1) Gives effect to (i) the Orange Acquisition as if it had occurred as of the
beginning of the period presented and (ii) the Reorganization. For
purposes of the pro forma statement of operations data, the results of
operations of Orange Shipbuilding for its fiscal year ended September 30,
1997 and the results of operations of Conrad for its fiscal year ended
December 31, 1997 were utilized. See Note 3 below and the pro forma
financial statements of the Company and the related notes thereto.
(2) Represents non-cash executive compensation expense related to the issuance
of shares of common stock by Conrad in the first quarter of 1998 to
William H. Hidalgo, the Company's President and Chief Executive Officer,
and Cecil A. Hernandez, the Company's Vice President-Finance and
Administration and Chief Financial Officer. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Recent
Events."
(3) Gives effect to the application of federal and state income taxes to the
Company as if it were a C corporation for tax purposes. For all periods
presented herein, Conrad operated as an S corporation for federal and
state income tax purposes. Prior to the completion of the Offering, the
stockholders of Conrad made an election terminating its S corporation
status. As a result, Conrad became subject to corporate level income
taxation following of such election. See "Corporate Reorganization" and
the historical financial statements of Conrad and the related notes
thereto included elsewhere in this Prospectus.
(4) Calculated based on the number of shares of Common Stock to be outstanding
immediately after the Reorganization upon exchange of shares of Conrad
common stock by stockholders of Conrad as of December 31, 1997 (4,660,486
shares) as if such shares had been outstanding throughout each period
presented, as increased for each period to reflect such additional shares
as would have been required to be sold to pay the pro forma distribution
of estimated undistributed earnings payable to stockholders. The number of
such additional shares (681,199) is based on the assumed initial public
offering price of $16.00 per share, net of estimated Offering expenses.
See "Corporate Reorganization."
(5) Includes acquisition expenditures of $22.8 million (net of cash acquired)
incurred in December 1997 in connection with the Orange Acquisition.
(6) Represents income from operations before deduction of depreciation,
amortization and non-cash compensation expense related to the issuance of
stock and stock options to employees. EBITDA is not a measure of cash
flow, operating results or liquidity as determined by generally accepted
accounting principles. The Company has included information concerning
EBITDA as supplemental disclosure because management believes that EBITDA
provides meaningful information regarding a company's historical ability
to incur and service debt. EBITDA as defined and measured by the Company
may not be comparable to similarly titled measures reported by other
companies. EBITDA should not be considered in isolation or as an
alternative to, or more meaningful than, net income or cash flow provided
by operations as determined in accordance with generally accepted
accounting principles as an indicator of the Company's profitability or
liquidity.
(7) Represents EBITDA as a percentage of revenues.
(8) Represents income from operations as a percentage of revenues.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of each of Conrad and Orange Shipbuilding and the related
notes thereto and the unaudited pro forma statement of operations of the
Company and the related notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
Conrad has operated since 1948 at its shipyard in Morgan City, Louisiana and
specializes in the construction, conversion and repair of large and small deck
barges, single and double hull tank barges, lift boats, push boats, tow boats
and offshore tug boats. In December 1997, Conrad acquired Orange Shipbuilding
to increase its capacity to serve Conrad's existing markets and to expand its
product capability into the construction of additional types of marine
vessels, including offshore tug boats, push boats and double hull barges, and
the fabrication of modular components for offshore drilling rigs and FPSOs. In
February 1998, Conrad commenced operations at a conversion and repair facility
in Amelia, Louisiana, thereby expanding its capacity to provide conversion and
repair services for marine vessels.
The demand for the Company's products and services is dependent upon a
number of factors, including the economic condition of the Company's customers
and markets, the age and state of repair of the vessels operated by the
Company's customers and the relative cost to construct a new vessel as
compared with repairing an older vessel. Demand for the Company's products and
services has been favorably impacted recently by increased activity in the
offshore oil and gas industry and by determinations by commercial and
government customers to construct new vessels to replace older vessels and
upgrade the capacity or functionality of existing vessels. In particular, the
Company is experiencing significant demand for the construction of lift boats
and barges employed in the offshore oil and gas industry and, as a result of
the Orange Acquisition, for the fabrication of modular components of offshore
drilling rigs and FPSOs. In addition, the Orange Acquisition has enabled the
Company to capitalize on the demand for new vessel construction by government
customers such as the U.S. Army, U.S. Navy, U.S. Coast Guard and Corps of
Engineers. The age of barges and other vessels operated by the Company's
customers has also led to an increase in repair activities. See "Business--
Industry Overview."
The Company is engaged in various types of construction under contracts that
generally range from one month to 24 months in duration. The Company uses the
percentage-of-completion method of accounting and, therefore, takes into
account the estimated cost, estimated earnings and revenue to date on fixed-
price contracts not yet completed. The amount of revenue recognized is equal
to the portion of the total contract price that the labor hours incurred to
date bears to the estimated total labor hours, based on current estimates to
complete. This method is used because management considers expended labor
hours to be the best available measure of progress on these contracts.
Revenues from cost-plus-fee contracts are recognized on the basis of cost
incurred during the period plus the fee earned.
Most of the contracts entered into by the Company for new vessel
construction, whether commercial or governmental, are fixed-price contracts
under which the Company retains all cost savings on completed contracts but is
liable for all cost overruns. The Company develops its bids for a fixed price
project by estimating the amount of labor hours and the cost of materials
necessary to complete the project and then bids such projects in order to
achieve a sufficient profit margin to justify the allocation of its resources
to such project. The Company's revenues therefore may fluctuate from period to
period based on, among other things, the aggregate amount of materials used in
projects during a period and whether the customer provides materials and
equipment. For projects in which the customer provides materials or equipment,
the Company generally charges material handling and warehousing fees,
resulting in higher profit margins than for projects in which the Company
provides the materials and equipment. The Company generally performs
conversion and repair services on the basis of cost-plus-fee arrangements
pursuant to which the customer pays a negotiated labor rate for labor hours
spent on the project as well as the cost of materials plus a margin on
materials purchased.
22
<PAGE>
Contracts with the U.S. government are subject to termination by the
government either for its convenience or upon default by the Company. If the
termination is for the government's convenience, the contracts provide for
payment upon termination for items delivered to and accepted by the
government, payment of the Company's costs incurred through the termination
date, and the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable profit.
Sales to three of Conrad's principal customers accounted for approximately
47% of Conrad's historical revenues for 1997 and sales to three other
customers accounted for 41% of Conrad's historical revenues during 1996. On a
pro forma basis, the Company derived approximately 42% of its revenues from
three of its principal customers during 1997 and approximately 24% of its
revenues from two other principal customers during 1996. The Company's
principal customers have differed substantially on a year-to-year basis due to
the size and limited number of new construction projects performed each year.
See "Business--Customers" and the Notes to the historical financial statements
of Conrad and Orange Shipbuilding.
Cost of goods sold is not tracked by the Company according to revenue type
due to the common use of facilities and equipment for all types of projects
performed by the Company. As a result, gross profit margins by revenue type
are not separately determined by the Company. The Company believes, however,
that gross profit margins for each of the revenue types described in the table
under the heading "Results of Operations" below are generally similar, on
average, except that the Company believes its gross margins for modular
component fabrication projects at Orange Shipbuilding were significantly
higher than other revenue types during 1997 due to favorable contract prices
resulting from the immediate needs of the customers. The Company does not
generally expect to realize gross profit margins or modular component
fabrication projects as Orange Shipbuilding realized in 1997. Accordingly, the
Company believes that gross profit margins realized by it during the quarter
ended March 31, 1998 are more consistent with Conrad's past operating results
and may be more indicative of the Company's future gross profit margins than
the pro forma gross profit margins for the year ended December 31, 1997.
RECENT EVENTS
On December 12, 1997, Conrad acquired all of the outstanding shares of
common stock of Orange Shipbuilding, a shipyard located in Orange, Texas, for
a cash purchase price and related acquisition costs of $25.8 million. The cash
purchase price and related acquisition costs were funded with $25.0 million of
borrowings and the remainder with existing cash. At the purchase date, Orange
Shipbuilding had $3.0 million in cash, resulting in a net purchase price of
$22.8 million. The Orange Acquisition has been accounted for under the
purchase method. The purchase price was allocated based on estimated fair
values at the date of acquisition. This resulted in an excess of purchase
price over fair value of assets acquired of approximately $15.3 million, which
excess amount will be amortized over 20 years on a straight-line basis. Due to
the close proximity of the acquisition date to Conrad's fiscal year end,
results of operations subsequent to the acquisition of Orange Shipbuilding are
not included in Conrad's operating results for the year ended December 31,
1997. The results of operations of Orange Shipbuilding for the two-week period
from the date of acquisition to the end of Conrad's fiscal year were
insignificant. Accordingly, the historical financial data presented herein
have been derived solely from the audited financial statements of Conrad. The
pro forma statement of operations data of the Company give effect to certain
transactions, including the Orange Acquisition and the Reorganization. See
"Corporate Reorganization."
Conrad anticipates that as a result of the Orange Acquisition it will
realize savings from the consolidation of insurance programs and other general
and administrative expenses. The Company expects that these savings will be
offset by the additional costs related to additional administrative and
personnel, costs associated with being a public company and integration costs
related to the Orange Acquisition.
Conrad has operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad currently pays no federal or
state income tax, and the entire earnings of Conrad are subject to tax
directly at the shareholder level. Prior to the completion of the Offering,
Conrad's current shareholders intend to make an election terminating Conrad's
S corporation status and thereafter Conrad will be subject to corporate level
income taxation. The Company estimates that it will be required to record a
one-time deferred tax liability charge to earnings of approximately $630,000
in the second quarter of 1998 in connection with the termination of
23
<PAGE>
its S corporation status. Orange Shipbuilding was also taxed as an S
corporation from April 1, 1995 to October 1, 1997, when it elected to
terminate its S corporation status, and as a result became subject to
corporate income taxes for periods commencing on or after such date. Orange
Shipbuilding was required to record a one-time deferred tax liability of
approximately $200,000 in the fourth quarter ending December 31, 1997.
Prior to the completion of the Offering, Conrad intends to make the
Shareholder Distributions to its shareholders and plans to fund part of the
cash portion of the Shareholder Distributions with borrowings under the
Revolving Credit Facility. The Company will use a portion of the net proceeds
of the Offering to repay such indebtedness. The Company will also complete the
Reorganization prior to the completion of the Offering. See "Corporate
Reorganization."
In the first quarter of 1998, Conrad issued shares of common stock to
William H. Hidalgo, the President and Chief Executive Officer, and Cecil A.
Hernandez, the Vice President-Finance and Administration and Chief Financial
Officer, in consideration of past services rendered. Fifty percent of the
shares of common stock issued to each such executive are subject to forfeiture
in the event of the voluntary termination of employment by such executive for
other than "good reason" prior to the expiration of the initial three-year
term of employment specified in the employment agreement of such executive,
provided that such restriction will lapse in the event of (i) the termination
by the Company of such executive's employment for reasons other than "cause"
(as defined) or (ii) the death, disability or retirement (at or after the age
of 65) of such executive and will also lapse with respect to 33 1/3% of such
restricted shares on each of the first three anniversaries of the completion
of the Offering. The shares of common stock of Conrad issued to Mr. Hidalgo
and Mr. Hernandez will be exchanged, respectively, for 385,695 and 153,819
shares of Common Stock of the Company pursuant to the Reorganization. In
connection with the issuance of shares of Conrad common stock, Mr. Hidalgo and
Mr. Hernandez executed promissory notes in the amounts of $239,870 and
$97,400, respectively, representing their tax liabilities paid by the Company.
These tax notes will be repaid in full by Mr. Hidalgo and Mr. Hernandez upon
the completion of this Offering. In connection with the issuance of these
shares to Messrs. Hidalgo and Hernandez, the Company estimates that it will
recognize aggregate compensation expense of $8.6 million, of which $4.3
million was recognized in the first quarter of 1998 and the remainder will be
recognized over a three-year vesting period.
RESULTS OF OPERATIONS
The following table sets forth certain historical data of Conrad, and pro
forma data of the Company, and the percentage of revenues for the periods
presented:
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, YEAR ENDED 31,
------------------------------------------- DECEMBER 31, ----------------------------
1995 1996 1997 1997 1997 1998
------------- ------------- ------------- ------------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues:
Vessel construction.... $11,669 55.8% $11,421 49.3% $10,671 48.2% $13,063 36.4% $2,987 53.9% $ 6,979 60.3%
Modular component
fabrication........... 0 0 0 0 0 0 11,413 31.8 0 0 1,625 14.1
Repair and conversions. 9,245 44.2 11,753 50.7 11,446 51.8 11,446 31.8 2,559 46.1 2,965 25.6
------- ----- ------- ----- ------- ----- ------- ----- ------ ----- ------- -----
Total revenues......... 20,914 100.0 23,174 100.0 22,117 100.0 35,922 100.0 5,546 100.0 11,569 100.0
------- ----- ------- ----- ------- ----- ------- ----- ------ ----- ------- -----
Cost of revenue......... 16,660 79.7 17,003 73.4 15,032 68.0 22,749 63.3 3,810 68.7 8,140 70.4
------- ----- ------- ----- ------- ----- ------- ----- ------ ----- ------- -----
Gross profit............ 4,254 20.3 6,171 26.6 7,085 32.0 13,173 36.7 1,736 31.3 3,429 29.6
SG&A expenses........... 1,497 7.1 1,847 7.9 2,242 10.1 4,055 11.3 493 8.9 888 7.7
Executive compensation.. 0 0 0 0 0 0 0 0 0 0 4,316 37.2
------- ----- ------- ----- ------- ----- ------- ----- ------ ----- ------- -----
Operating income (loss). $ 2,757 13.2% $ 4,324 18.7% $ 4,843 21.9% $ 9,118 25.4% $1,243 22.4% $(1,775) (15.3)%
======= ===== ======= ===== ======= ===== ======= ===== ====== ===== ======= =====
Income before income
taxes.................. $ 2,645 12.6% $ 4,298 18.5% $ 4,905 22.2% $ 7,185 20.0% $1,232 22.2% $(2,185) (18.9)%
======= ===== ======= ===== ======= ===== ======= ===== ====== ===== ======= =====
EBITDA.................. $ 3,479 16.6% $ 5,122 22.1% $ 5,693 25.7% $11,284 31.4% $1,456 26.3% $ 3,088 26.7%
======= ===== ======= ===== ======= ===== ======= ===== ====== ===== ======= =====
OPERATING DATA:
Direct labor hours..... 347 354 350 501 88 136
</TABLE>
24
<PAGE>
Three Months Ended March 31, 1998 Compared with Three Months Ended March 31,
1997
The Company's results of operations for the three months ended March 31,
1997 do not include information relating to Orange Shipbuilding and thus only
present Conrad's results of operations for that period.
During the three months ended March 31, 1998, the Company generated revenue
of $11.6 million, an increase of $6.0 million, or 108.6%, compared to $5.5
million generated for the three months ended March 31, 1997. This increase was
due to a $4.0 million increase in vessel construction and a $1.6 million
increase in modular component fabrication attributable primarily to the
inclusion of the activities of Orange Shipbuilding in the results of
operations of the Company for the three months ended March 31, 1998 and to a
$400,000 increase in repair and conversion revenue at Conrad.
Gross profit increased $1.7 million, or 97.5%, to $3.4 million (29.6% of
revenue) for the three months ended March 31, 1998 as compared to $1.7 million
(31.3% of revenue) for the three months ended March 31, 1997. The increase was
due primarily to the increase in revenue items described above. Gross profit
as a percentage of revenue for the three months ended March 31, 1998 (29.6%)
decreased as compared to pro forma for the year ended December 31, 1997
(36.7%) primarily as a result of higher gross profit margins realized on the
fabrication of modular components at Orange Shipbuilding during 1997. The pro
forma results of operations during the year ended December 31, 1997 included
four modular component fabrication projects with high gross profit margins due
to favorable pricing terms as discussed under "--Pro Forma Results of
Operations."
Selling, general and administrative expenses increased $395,000 to $888,000
(7.7% of revenue) for the three months ended March 31, 1998 as compared to
$493,000 (8.9% of revenue) for the three months ended March 31, 1997 primarily
due to $195,000 increase in goodwill amortization in connection with the
Orange Acquisition and $100,000 increase in salary and wages primarily
attributable to additional personnel.
Income before income taxes decreased $3.4 million to a loss of $2.2 million
for the three months ended March 31, 1998 as compared to $1.2 million for the
three months ended March 31, 1997 primarily due to (i) the non-cash executive
compensation charge of $4.3 million described under the caption "--Recent
Events" above and (ii) interest expense of $503,000.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
During the year ended December 31, 1997, Conrad generated revenue of $22.1
million, a decrease of approximately $1.1 million, or 4.6%, compared to $23.2
million generated in 1996. This decrease was due primarily to a $750,000, or
6.6%, decrease in new construction and a $307,000, or 2.6%, decrease in
conversions and repairs. The decrease in revenue from new vessel construction
during 1997 occurred primarily because the mix of jobs completed or in
progress during 1997 required less materials and equipment as compared to
projects completed or in progress in 1996. The decrease in conversion and
repair revenue was primarily attributable to (i) a slight decrease in the
availability of skilled laborers and (ii) downtime on one of Conrad's drydocks
while it was being modified to facilitate the movement of vessels from the
drydock to dockside land repair areas.
Gross profit as a percentage of revenue increased to 32.0% in 1997 as
compared to 26.6% in 1996. Gross profit increased $914,000, or 14.8%, to $7.1
million in 1997 as compared to $6.2 million in 1996. This increase was
primarily due to increases in negotiated prices for fixed price contracts,
increases in negotiated labor rates for conversion and repair services,
improved efficiencies resulting from multi-vessel contracts, the absence of a
charge of approximately $510,000 incurred in 1996 relating to the settlement
of a contract dispute and a decrease of approximately $360,000 in insurance
costs. The contract dispute settlement represented the amount of contract
retainage and billings for change orders for one job that the customer refused
to pay due to a delay in the delivery of the vessel. The delay in the delivery
of the vessel was caused by the change orders submitted by the customer. The
Company elected to settle this dispute in lieu of lengthly and costly
litigation. The Company realized a profit with respect to this project taking
into account this settlement.
Selling, general and administrative ("SG&A") expenses increased to $2.2
million (10.1% of revenue) in 1997 as compared to $1.8 million (7.9% of
revenue) in 1996 due to an increase in administrative wages, bonuses, payroll
taxes and 401(k) expenses in 1997 as compared to 1996.
Income before income taxes as a percentage of revenue increased to 22.2% in
1997 as compared to 18.5% in 1996. Income before income taxes increased
$607,000, or 14.1%, to $4.9 million in 1997 as compared to $4.3 million in
1996. This increase resulted primarily from the factors discussed above.
25
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
During the year ended December 31, 1996, Conrad generated revenue of $23.2
million, an increase of approximately $2.3 million, or 10.8%, compared to
$20.9 million in 1995. This increase was the result of an increase of $2.5
million, or 27.1%, in repairs and conversions that was offset partially by a
decrease of approximately $248,000, or 2.1%, in new vessel construction. The
increase in conversion and repair revenue was primarily attributable to the
increased demand for those types of services as offshore oil and gas activity
increased. The decrease in revenue from vessel construction was primarily due
to the types of jobs completed or in progress during 1996 requiring less
materials and equipment as compared to projects completed or in progress in
1995.
Gross profit as a percentage of revenue increased to 26.6% in 1996 as
compared to 20.3% in 1995. Gross profit increased $1.9 million, or 45.1%, to
$6.2 million in 1996 as compared to $4.3 million in 1995. This increase was
primarily due to price increases and improved performance on contracts that
was offset partially by an approximate $510,000 charge related to the
settlement of a dispute regarding a construction contract.
SG&A expenses increased approximately $350,000 to $1.8 million (7.9% of
revenue) in 1996 as compared to $1.5 million (7.1% of revenue) in 1995.
Approximately $300,000 of this amount was due to an increase in administrative
salaries and bonuses and $100,000 was due to an increase in charitable
contributions.
Income before income taxes as a percentage of revenue increased to 18.5% in
1996 as compared to 12.6% in 1995. Income before income taxes increased $1.7
million or 62.5% to $4.3 million as compared to $2.6 million in 1995. This
increase was primarily due to the factors discussed above.
Pro Forma Results of Operations
On a pro forma basis for 1997, giving effect to the Orange Acquisition as if
completed as of the beginning of the year, the Company's revenue would have
been $35.9 million, gross profit would have been $13.2 million (36.7% of
revenue), operating income would have been $9.1 million (25.4% of revenue),
income before income taxes would have been $7.2 million (20.0% of revenue),
income after income taxes would have been $4.6 million (12.9% of revenue), and
EBITDA would have been $11.3 million (31.4% of revenue). Gross profit,
operating income and EBITDA as a percentage of revenue increased on a pro
forma basis for the Company as compared to historical results for Conrad
primarily as a result of higher gross profit margins realized by Orange
Shipbuilding as compared to Conrad in 1997. Orange Shipbuilding realized
higher gross profit margins as compared to Conrad in 1997 primarily due to
favorable contract prices on four jobs for the fabrication of modular
components completed or in progress during the year. Orange Shipbuilding was
able to secure favorable pricing terms on these contracts due to Orange
Shipbuilding's available capacity to meet the customers' immediate deadlines
and needs.
The pro forma information includes $300,000 of additional depreciation in
cost of revenue to reflect the increase in the book value of the Orange
Shipbuilding property, plant and equipment purchased resulting from the
purchase method of accounting and $765,000 of additional SG&A expenses due to
the amortization of goodwill of $15.3 million, which will be amortized over 20
years on a straight-line basis. Interest expense of $2.0 million was recorded
assuming the debt of $25.0 million incurred to fund the purchase price of the
Orange Acquisition was outstanding from the beginning of the year. The Company
will use a portion of the net proceeds from the Offering to repay the debt
incurred to fund the Orange Acquisition. An assumed 37% income tax rate was
used for purposes of the pro forma results of operations. Although the Company
anticipates it will realize savings from the consolidation of insurance and
other general and administrative expenses, the Company also expects that these
savings will be offset by the additional costs related to additional
administrative and personnel, costs associated with being a public company and
integration costs related to the Orange Acquisition. None of these savings or
additional costs are reflected in the pro forma information.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Conrad has funded its business through funds generated from
operations. Net cash provided by operations was $3.6 million, $5.3 million and
$6.1 million for 1995, 1996, and 1997 respectively. Conrad has borrowed in the
past to expand its facilities and to fund the Orange Acquisition. Net
borrowings from all credit
26
<PAGE>
arrangements were $24.1 million during 1997, primarily in connection with the
Orange Acquisition. Conrad had net reduction in debt of $668,000 in 1996 and
$62,000 in 1995. The Company's working capital position was $7.8 million at
December 31, 1997 and $7.7 million at March 31, 1998.
Conrad's capital requirements historically have been primarily for
improvements to its facilities and equipment. Capital expenditures for plant
and equipment were $1.1 million for the three months ended March 31, 1998,
primarily for major improvements to drydocks, $1.1 million in 1997, which
included major repairs to drydocks, purchases of equipment and additions to
facilities, $2.0 million in 1996, of which $1.0 million was for the purchase
of the Amelia property, and $1.1 million in 1995 primarily for the purchase
and refurbishment of drydocks and improvements to facilities. Other investing
activities in 1997 included the acquisition of Orange Shipbuilding for $22.8
million (net of cash acquired).
In December 1997, Conrad borrowed $25.0 million on a term loan basis to fund
the purchase price of the Orange Acquisition. Interest on the Term Loan
accrues at LIBOR plus 2.0% until September 18, 1998, and thereafter at the
option of the Company either at the lender's prime rate minus 0.5% or LIBOR
plus 2.0%. The Company is currently utilizing the prime rate option and the
interest rate at December 31, 1997 was 8.0% per annum. The Term Loan requires
the payment of interest only until May 1998 and thereafter the Term Loan is
payable in 70 monthly principal payments of $209,000 plus interest, with a
final payment due in April 2004. The Term Loan is secured by substantially all
of the Company's assets and is guaranteed up to $2 million by J. Parker
Conrad. The Term Loan prohibits Conrad from paying dividends without the
consent of the lender. The Company intends to repay all indebtedness under the
Term Loan with the net proceeds of the Offering.
The Company has received a commitment for the $10.0 million Revolving Credit
Facility with Whitney National Bank which may be used for working capital and
other general corporate purposes, including funding of acquisitions. The
Revolving Credit Facility will bear interest on the same terms as the Term
Loan and will mature on April 30, 1999. A fee of 0.25% per annum on the unused
portion of the credit facility will be charged quarterly. The Company intends
to borrow approximately $10.0 million under the Revolving Credit Facility
prior to the completion of the Offering in order to fund part of the cash
portion of the Shareholder Distributions. The Company intends to use a portion
of the net proceeds of the Offering to repay the borrowings under the
Revolving Credit Facility, which will remain available for future use. The
Revolving Credit Facility will prohibit Conrad from paying dividends without
the consent of the lender and will restrict the ability of Conrad to incur
additional indebtedness. The Revolving Credit Facility will be secured by a
pledge of substantially all of the Company's assets which, in the event of a
failure by Conrad to make payments of principal and interest when due under
the terms of the Revolving Credit Facility, would permit the lender to
foreclose on the pledged assets.
Net cash used by operating activities was $376,000 for the three months
ended March 31, 1998 due to the increase in accounts receivable, costs and
estimated earnings on uncompleted contracts in excess of expenses and
increases in other assets.
Net cash provided by operating activities for 1996 and 1997 was $5.3 million
and $6.1 million, respectively. This increase was due principally to the
increases in net income, accounts payable and accrued expenses and billings
related to costs and estimated earnings on uncompleted contracts, offset by
changes in accounts receivable.
Net cash used in investing activities in 1996 was $2.0 million, all of
which was attributable to capital expenditures. Net cash used in investing
activities in 1997 was $23.9 million, of which $22.8 million was attributable
to the Orange Acquisition and $1.1 million was attributable to capital
expenditures.
Net cash provided by (used in) financing activities for 1996 and 1997 was
($2.6) million and $22.1 million, respectively. The increase was principally
due to the incurrence of the Term Loan in 1997 to fund the purchase price of
the Orange Acquisition.
Management believes that the remaining net proceeds from the Offering, the
Company's existing working capital, cash flows from operations and available
borrowing under the Revolving Credit Facility will be adequate to meet its
working capital needs and planned capital expenditures for property and
equipment through 1998.
27
<PAGE>
The Company may pursue attractive acquisition opportunities if and when such
opportunities arise. The timing, size or success of any acquisition effort and
the associated potential capital commitments cannot be predicted.
Due to the relatively low levels of inflation experienced in fiscal 1995,
1996 and 1997, inflation did not have a significant effect on the results of
the Company in those fiscal years.
YEAR 2000 COMPLIANCE
The Company has assessed both the cost of addressing and the costs or
consequences of incomplete or untimely resolution of the Year 2000 issue. The
Company has determined that its estimated costs related to the Year 2000 issue
are not anticipated to be material to the Company's business, operations or
financial condition. In addition, the Company is in the process of initiating
communications with its significant suppliers and large customers to determine
the extent to which the Company is vulnerable to those third parties failure
to remediate their own Year 2000 issues. The Company can give no guarantee
that the systems of other companies on which the Company's systems rely will
be converted on time or that a failure to convert by another company would not
have a material adverse effect on the Company.
QUARTERLY FLUCTUATIONS
The Company's results of operations are not materially affected by seasons.
However, the marine construction industry historically has been cyclical. As a
result, the Company's volume of business may be adversely affected by a
decline in projects as a result of a regional or national downturn in economic
conditions. The Company's quarterly results also may fluctuate and be
materially affected by the success of the Company in bidding for new projects,
the timing of the commencement of new projects, the timing of the recognition
of revenue and expense under the percentage-of-completion accounting method,
the aggregate amount of materials used in projects during a period and whether
customers provide materials and equipment during such period. See "--
Overview."
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 provides guidance for the presentation and display of
comprehensive income. SFAS 131 establishes standards for disclosure of
operating segments, products, services, geographic areas and major customers.
The Company is required to adopt both standards for its fiscal year ended
December 31, 1998. Management believes that the implementation of SFAS 130 and
SFAS 131 will not have a material impact on the presentation of the Company's
financial statements, but may require additional disclosure.
28
<PAGE>
BUSINESS
GENERAL
The Company specializes in the construction, conversion and repair of a wide
variety of marine vessels for commercial and government customers and the
fabrication of modular components of offshore drilling rigs and FPSOs. The
Company constructs a variety of marine vessels, including large and small deck
barges, single and double hull tank barges, lift boats, push boats, tow boats
and offshore tug boats. The Company fabricates components of offshore drilling
rigs and FPSOs, including sponsons, stability columns, blisters, pencil
columns and other modular components. The Company's conversion projects
primarily consist of lengthening the midbodies of vessels, modifying vessels
to permit their use for a different type of activity and other modifications
to increase the capacity or functionality of a vessel. The Company also
derives a significant amount of revenue from repairs made as a result of
periodic inspections required by the U.S. Coast Guard, the ABS and other
regulatory agencies. Since 1948, the Company has built over 650 vessels and
completed over 21,000 conversion and repair jobs.
The Company serves a variety of customers and markets, including the
offshore oil and gas industry, other commercial markets and the U.S.
government. The Company believes that its ability to construct a variety of
vessels on a cost-effective basis allows it to selectively pursue vessel
construction opportunities that arise out of changing demands of the
industries served by the Company. The Company is experiencing significantly
improved demand for its products and services from energy-related customers as
a result of several factors affecting the offshore oil and gas industry,
including an increase in offshore oil and gas activity during the last two
years, the recent increases in dayrates for offshore support vessels and
drilling rigs and the limited construction of new vessels serving this
industry since the mid-1980s. As a result, the Company is currently
constructing lift boats and barges for the offshore oil and gas industry,
fabricating modular components for offshore drilling rigs and FPSOs and
providing conversion and repair services for vessels and barges employed in
offshore energy-related activities. The Company is also pursuing opportunities
to construct other types of offshore support vessels such as supply boats and
utility vessels.
Due to the Orange Acquisition as well as increased demand for the Company's
products and services, Conrad's revenues grew from $10.5 million in 1993 to
$35.9 million in 1997 (on a pro forma basis for the Company) and EBITDA grew
from $0.7 million in 1993 to $11.3 million in 1997 (on a pro forma basis for
the Company). For the first quarter ended March 31, Conrad's net income
decreased from $1.2 million in 1997 to $(2.5 million) in 1998, primarily as a
result of a $4.3 million non-cash executive compensation expense, and
operating cash flow decreased from $1.4 million to $(0.4 million). Conrad's
EBITDA margin (EBITDA as a percentage of revenues) increased from 6.7% in 1993
to 31.4% in 1997 (on a pro forma basis for the Company) and from 26.3% for the
quarter ended March 31, 1997 to 26.7% for the quarter ended March 31, 1998. In
addition, Conrad's net income increased from $66,000 in 1993 to $4.6 million
in 1997 (on a pro forma basis for the Company) and its operating cash flow
increased from $0.7 million in 1993 to $10.4 million in 1997 (on a pro forma
basis for the Company). For the first quarter ended March 31, Conrad's
revenues grew from $5.5 million in 1997 to $11.6 million in 1998, and EBITDA
increased from $1.5 million in 1997 to $3.1 million in 1998.
During 1997, the construction of marine vessels accounted for approximately
36.4% of pro forma revenue, fabrication of modular components for the offshore
oil and gas industry accounted for approximately 31.8% of pro forma revenue
and the conversion and repair of marine vessels accounted for approximately
31.8% of pro forma revenue. As of March 31, 1998, the Company's backlog of new
vessel construction and modular component fabrication (excluding unexercised
options held by customers) was approximately $23.6 million and was
attributable to 15 projects, consisting of three lift boats, five barges, six
tugs and one modular component fabrication project. Of this backlog amount,
approximately $13.7 million was attributable to contracts with the U.S. Army
and the Corps of Engineers.
The Company currently operates three shipyards located along the Gulf Coast
in Morgan City, Louisiana, Orange, Texas and Amelia, Louisiana. The Company's
shipyard in Morgan City is located on approximately 11 acres on the
Atchafalaya River, approximately 30 miles from the Gulf of Mexico, and its
Orange shipyard is located on approximately 12 acres on the Sabine River,
approximately 37 miles from the Gulf of Mexico. In February 1998, the Company
commenced operations at a conversion and repair facility in Amelia, Louisiana
29
<PAGE>
located on approximately 16 acres on Bayou Boeuf, approximately five miles
from Morgan City. The Company conducts its marine vessel construction
activities indoors at its Morgan City and Orange shipyards in approximately
220,000 square feet of enclosed building space designed specifically for the
construction of marine vessels up to 400 feet in length. The Company believes
that its indoor work environment is a competitive advantage in attracting and
retaining skilled workers and meeting critical construction schedules. The
Company's shipyards employ advanced construction techniques, including modular
construction and zone outfitting methods, in order to efficiently utilize its
building space, equipment and personnel. The Company believes that these
factors, together with its experienced management team and skilled work force,
have enabled the Company to construct a wide variety of marine vessels at
attractive profit margins, as evidenced by its operating profit margin of
25.4% in 1997 on a pro forma basis.
HISTORICAL BACKGROUND
The Company was founded in 1948 by J. Parker Conrad and began operations at
its shipyard in Morgan City, Louisiana. In 1952, the Company expanded its
operations into the repair business through the acquisition of one of the
first drydocks on the Gulf Coast. In 1962, the Company began building steel
barges and other vessels for the offshore oil and gas industry. Due to adverse
conditions in the oil and gas industry, the Company refocused its operations
in 1984 on the construction and repair of vessels for other commercial and
foreign markets. During 1996, the Company acquired its conversion and repair
facility in Amelia, Louisiana, which commenced operations in the first quarter
of 1998.
In December 1997, Conrad purchased Orange Shipbuilding to expand its
construction capacity and to expand its production capabilities into
additional types of marine vessels, including the fabrication of modular
components for offshore drilling rigs and FPSOs. Orange Shipbuilding has been
engaged in shipbuilding since 1974. The Orange shipyard designed and built a
variety of vessels for use in offshore Gulf of Mexico oil and gas exploration
and production activities before that sector collapsed in 1983. Orange
Shipbuilding refocused its operations on small to medium sized vessels for the
U.S. government after this decline. During 1996 and 1997, in connection with
the upturn in offshore oil and gas exploration and production in the Gulf of
Mexico, Orange Shipbuilding capitalized on the demand for subcontractors that
could fabricate modular components for offshore drilling rigs and FPSOs on a
timely and cost effective basis. The Orange Acquisition is consistent with the
Company's strategy of considering acquisitions of businesses or operations
that are profitable and complimentary to the Company's business and
operations.
INDUSTRY OVERVIEW
The United States shipbuilding industry is generally classified into two
categories: (i) the six largest shipbuilders which are capable of building
large vessels for the U.S. government and commercial customers and (ii) other
shipyards that build small to medium sized vessels for governmental and
commercial markets consisting of several hundred companies engaged in
shipbuilding and repair activities located in various regions of the United
States. The Company is in the second category. Within the Gulf Coast region of
the United States, the Company believes there are approximately 70
shipbuilding and repair operators, most of which are smaller than the Company
in terms of total number of employees.
The Company constructs vessels and performs conversion and repair services
for a variety of customers and markets. Throughout the Company's 50 years of
operations, the Company has adapted its construction, conversion and repair
activity to changing industry conditions and changes in demand for different
types of products and services. As a result, the types of vessels constructed
and the types of conversion and repair services provided by the Company have
changed in response to these factors. The Company is currently focusing its
activity to respond to demand in three key markets: the offshore oil and gas
industry, other commercial markets, and the U.S. government.
Offshore Oil and Gas Market
The shipbuilding industry supports the offshore oil and gas industry through
the construction of (i) offshore support vessels, (ii) barges such as pipe
laying barges, oil and gas drilling barges and oil and gas production barges
and (iii) offshore drilling rigs. The demand for vessel construction,
conversion and repair for the offshore
30
<PAGE>
oil and gas market is substantially dependent upon various economic factors
affecting the offshore oil and gas industry. The shipbuilding industry has
been favorably impacted during the last two to three years by a number of
positive trends, including (i) the increasing percentage of worldwide oil and
gas supply being produced from offshore areas, (ii) the large increases in
cash flow experienced by many oil and gas companies, (iii) the increases in
capital expenditure budgets for offshore drilling activity by oil and gas
companies, (iv) technological advancements relating to exploration,
development and production techniques, including three-dimensional seismic
surveys, directional drilling and subsea completions, that have increased
drilling success rates and improved efficiencies of development and production
activities and (v) the increased focus on deep water exploration and projects,
particularly in the Gulf of Mexico, as evidenced by the prices paid for leases
during each of the last five years and the record $1.4 billion committed in
the two offshore lease sales in 1997. The following table illustrates the
impact of these trends in the Gulf of Mexico and the United States:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
GULF OF MEXICO INDUSTRY DATA:
Active offshore supply vessels(1).... 216 235 249 263 286
Active offshore drilling rigs(2)..... 163 170 181 212 233
Offshore supply vessel dayrates(3)... $3,508 $3,302 $3,185 $5,273 $8,048
Offshore drilling rig utilization(4). 76.5% 76.2% 76.2% 88.0% 93.9%
Active inland drilling barges(5)..... 69 74 75 80 92
Total blocks leased(6)............... 336 560 835 1,508 1,778
U.S. SHIPBUILDING INDUSTRY DATA:
Number of offshore service vessels
constructed(7)...................... 5 1 3 5 14
Number of mobile offshore drilling
rigs constructed(8)................. 4 11 2 0 0
</TABLE>
- --------
(1) Represents the average number of contracted anchor handling tug/supply and
platform supply vessels in the Gulf of Mexico for the period presented.
Information obtained from Offshore Data Services.
(2) Represents the average number of mobile offshore drilling rigs and
platform drilling rigs under contract in the Gulf of Mexico for the period
presented. Information obtained from Offshore Data Services.
(3) Represents the average dayrates for platform supply vessels in the Gulf of
Mexico for the period presented. Information obtained from Offshore Data
Services.
(4) Represents the average mobile drilling rig utilization rate in the Gulf of
Mexico for the period presented. Information obtained from Offshore Data
Services.
(5) Represents the average number of active inland drilling barges in
Louisiana for the period presented. Information obtained from Offshore
Data Services.
(6) Represents the total blocks leased in the Gulf of Mexico for the period
presented. Information obtained from Mineral Management Services.
(7) Information obtained from Clarkson Research Studies.
(8) Information obtained from Offshore Data Services.
These positive trends follow years in which the offshore oil and gas
industry was adversely affected by lower oil and gas prices and other factors
that resulted in minimal construction of offshore support vessels, barges for
the oil and gas industry and offshore drilling rigs.
Offshore Support Vessels. The primary role of offshore support vessels is to
support offshore oil and gas drilling and production operations, including
delivery of necessary equipment, personnel and supplies to offshore drilling
rigs and production facilities, assistance with the installation of offshore
production platforms, towing of offshore drilling rigs and conducting seismic
surveys. Offshore support vessels include lift boats, supply vessels, utility
vessels, crew vessels, offshore tugs, anchor handling tugs and seismic
vessels. As a result of the increase in offshore drilling activity, dayrates
for these vessels have increased substantially since 1995. Due to limited
construction of new offshore supply vessels since the mid-1980s, the average
age of the existing fleet of offshore supply vessels is increasing. According
to Offshore Marine Service Association ("OMSA"), the average age of the
offshore supply vessels currently in service in the Gulf of Mexico is
approximately 17 years. As these vessels
31
<PAGE>
age, maintenance, repair and vessel certification costs increase significantly
and eventually require replacement or remobilization outside of U.S. waters.
As a result of these factors, new construction of offshore support vessels
has recently increased. According to a November 1997 survey conducted by the
OMSA, since March 1995, U.S. shipbuilders had received firm orders for
approximately 72 offshore supply vessels, 42 crewboats, 20 utility boats, 14
lift boats and three offshore tugs, of which 14 of the ordered supply vessels,
15 of the crewboats and five of the lift boats had been completed and
delivered at the time of such survey. The Company's backlog at December 31,
1997 included four lift boats, and the Company is currently bidding on
projects to construct lift boats, utility vessels and supply vessels.
In addition to new construction opportunities, the Company believes that
current industry conditions and improved dayrates for offshore support vessels
will promote continued conversion and repair projects for offshore support
vessels. Because of the cost of constructing new offshore support vessels and
the 18-month to two-year lead-time necessary to construct new offshore support
vessels, the Company believes that offshore support vessel operators will
continue to upgrade and repair existing offshore support vessels. According to
the November 1997 OMSA survey, approximately 46 offshore support vessels,
having an average age of 17.5 years, have undergone major conversions or
modifications since March 1995 and an additional 42 vessels will undergo major
conversions or modifications prior to the end of 2002.
Barges. Barges are utilized in the offshore oil and gas industry to lay
underwater pipelines, to carry supplies to offshore locations, to support
offshore construction activities and to drill for and produce oil and gas in
shallow inland and coastal waters. Inland barges, such as posted drilling
barges, liquid mud barges and shale barges, are also utilized by the oil and
gas industry for drilling and workover activities in lakes, bays and sounds.
The Company has constructed numerous barges for use in the offshore oil and
gas industry during the last 10 years.
Offshore Drilling Rigs and FPSOs. The level of worldwide offshore drilling
activity has increased substantially over the last two years, resulting in
worldwide and Gulf of Mexico offshore drilling rig utilization of 96% in May
1998. Dayrates in the Gulf of Mexico for jackup rigs capable of drilling in
water depths of over 300 feet have increased from an average of $30,500 for
May 1996 to an average of $60,250 for May 1998. Similarly, dayrates in the
Gulf of Mexico for fourth generation semisubmersibles have increased from an
average of $107,000 for May 1996 to an average of $172,050 for May 1998. In
particular, the demand for deep water (deeper than 1,000 feet) drilling
services worldwide and in the Gulf of Mexico has increased substantially in
recent years as a result of reserve discoveries and technological advances
which have made development and production of reserves in deep water
economically viable.
As the demand for offshore drilling rigs is driven by the level of offshore
exploration and development activity, it is expected that there will be
continued demand for and construction of drilling rigs over the next several
years. It is currently estimated by OMSA that approximately 50 offshore
drilling rigs were being built as of November 1997. A December 1997 survey by
Marine Log magazine projects the construction of 100 offshore drilling rigs
(including semisubmersibles and jackups) in the U.S. over the next 10 years.
The Company believes that there will be continued opportunities for it to
fabricate modular components of offshore drilling rigs and FPSOs as shipyards
that specialize in constructing offshore drilling rigs and FPSOs are
experiencing difficulty meeting construction schedules caused by increased
demand for these products.
Barges for Other Commercial Markets
Barges are also used in a variety of commercial markets that are not related
to the offshore oil and gas industry, including the marine construction
industry, the petrochemical industry, the commodity grain industry and the
ocean shipping industry. Many of these industries utilize barges to ship bulk
products through inland waterways as well as offshore coastal waters and ocean
waters. Due to the general cost effectiveness of barges
32
<PAGE>
for transportation of these types of products, demand for barge transportation
of bulk products has remained relatively steady. Demand for barge
construction, conversion and repair services is affected by many factors,
including the volume of marine construction and shipping activity, shipping
rates, and the aging of the fleet. According to Corps of Engineers data, the
average ages of the domestic deck, single-hull tank and double-hull tank barge
fleets are approximately 24, 29 and 19 years, respectively. The Company
estimates that the average life of these barges is approximately 25 to 30
years. The Company believes that these factors have promoted the continued
demand for barge construction, conversion and repair projects.
Demand for new barge construction has also been favorably impacted by OPA
'90 which generally requires U.S. and foreign vessels carrying fuel and
certain other hazardous cargos and entering U.S. ports to have double hulls by
2015. Operators will be required either to retrofit existing barges or
construct new double hull barges in order to comply with the law's single hull
phase-out requirements that began January 1, 1995. As many barges are used in
both inland waterways and in offshore coastal waters, the Company believes
that many new barges are being constructed with double hulls in order to
provide flexibility for use in both inland waterways and offshore coastal
waters.
The Company has constructed numerous barges and provided conversion and
repair services for commercial markets other than the offshore oil and gas
industry during the last 10 years.
U.S. Government Market
Each of the U.S. Army, U.S. Navy, U.S. Coast Guard and Corps of Engineers
has a large fleet of small and medium size vessels, including barges, tow
boats and push boats that are used for a variety of purposes, including
transporting fuel, troops and supplies. The Company believes that the U.S.
Army, U.S. Navy, U.S. Coast Guard and Corps of Engineers are in the process of
replacing many of the older vessels of these types in their fleets due to the
age, condition and technological obsolescence of many of these vessels. In
addition, the Company believes that recent economic conditions have resulted
in the availability of government funding for the construction of vessels of
these types. The Company, through its Orange Shipbuilding subsidiary, has
constructed approximately 70 vessels for the U.S. Army, U.S. Navy, U.S. Coast
Guard and Corps of Engineers, including barges, tow boats and offshore
petroleum delivery system units. As of March 31, 1998, the Company had
contracts to construct six pusher tugs for the U.S. Army and one barge for the
Corps of Engineers, and the U.S. Army had the option to purchase six
additional pusher tugs.
BUSINESS STRATEGY
The Company's objective is to increase its revenues while maintaining
attractive profit margins. Key elements of the Company's business strategy are
as follows:
. PURSUE PROJECTS WITH ATTRACTIVE PROFIT MARGINS. The Company has extensive
experience in the construction, conversion and repair of a wide variety
of vessels and modular components used in diversified markets. The
Company's shipbuilding versatility and experience reduce its dependence
on particular types of products and markets, which the Company considers
one of its principal competitive strengths. As a result of this
flexibility, the Company selectively pursues opportunities for
construction, conversion and repair projects that it believes can
generate attractive profit margins.
. CAPITALIZE ON INDOOR CONSTRUCTION CAPABILITIES AND MODERN CONSTRUCTION
TECHNIQUES. The Company believes that it is a unique Gulf Coast shipyard
due to the construction of substantially all of its new vessel
construction and modular components indoors. In this environment,
construction is not hampered by weather conditions. In addition, the
Company's shipyards employ many advanced construction techniques,
including modular construction, zone outfitting methods, computerized
plasma arc metal cutting and automatic shotblasting and painting. The
Company believes that these factors allow it to more effectively utilize
its workforce and equipment, thereby allowing it to control costs, meet
critical construction schedules and achieve attractive profit margins.
33
<PAGE>
. UTILIZE AVAILABLE CAPACITY AT EXISTING SHIPYARDS. The Company believes
that it has the ability to significantly increase its capacity for vessel
construction, conversion and repair at its existing shipyards without any
significant additional capital expenditures. The Company had 280 shipyard
workers as of December 31, 1997 and has increased its shipyard labor
force to 303 as of March 31, 1998. The Company estimates that it could
employ approximately 200 additional shipyard workers, primarily for
conversion and repairs, without significant expansion of its facilities.
The Company plans to increase its construction, conversion and repair
activity to the extent it is able to secure additional projects at
attractive margins and attract qualified workers who can maintain the
Company's quality standards.
. TAKE ADVANTAGE OF NEW CONSTRUCTION OPPORTUNITIES. Due to increased
activity in the offshore oil and gas industry, the Company believes there
will continue to be significant demand from customers in this industry
for vessel construction, particularly with respect to offshore support
vessels such as lift boats, utility vessels and supply vessels, as well
as for the fabrication of modular components for offshore drilling rigs
and FPSOs. In addition, the Company believes that other commercial
customers will continue to create demand for its products and services
due to continued demand for marine transportation of bulk products and
due to the aging of the current fleet of barges, tug boats and other
marine vessels used for commercial shipping. The Company also believes
that there will continue to be opportunities to construct vessels for the
U.S. Army, U.S. Navy, U.S. Coast Guard and Corps of Engineers due to the
aging fleet of barges, tug boats, tow boats and push boats currently used
by these customers.
. INCREASE CONVERSION AND REPAIR ACTIVITY. The Company has five drydocks,
one submersible barge, five slips and approximately 4,100 feet of
bulkhead available for conversion and repair activity. The Company has
made significant capital expenditures over the last several years to add
capacity and improve the efficiency of its shipyards for conversion and
repair work, including expenditures to modify one of its drydocks to
increase its lifting capacity and to add roll-on and roll-off
capabilities. These improvements will allow barges and other vessels to
be moved from the drydock to previously unused dockside land repair
areas, thereby permitting the drydock to be used for other repair
activity. The Company believes there are significant opportunities to
take advantage of its increased conversion and repair capacity due to the
age and condition of many vessels currently operating in the Gulf of
Mexico and due to the requirements for periodic inspection and drydocking
by the U.S. Coast Guard, ABS and other regulatory agencies.
. CAPTURE EFFICIENCIES FROM MULTIPLE SHIPYARDS. The Company's multiple
shipyards provide it with significant flexibility and efficiency in
constructing a wide variety of vessels. With the addition of the Orange
and Amelia shipyards, the Company has the ability to more effectively
manage its available shipyard capacity through the allocation of projects
between these shipyards. In addition, the Company has the ability to
fabricate various components of a project at one shipyard for use in the
construction of a vessel or fabrication of a steel structure at another
shipyard.
. PURSUE STRATEGIC ACQUISITIONS. The Company believes opportunities exist
for consolidation in the highly fragmented U.S. Gulf Coast marine vessel
construction, conversion and repair industry, which consists of more than
70 shipyard companies located in the Gulf Coast area. The Company
significantly expanded its construction capacity through the Orange
Acquisition in December 1997 at a purchase price of approximately $22.8
million (net of cash acquired). In addition, during February 1998, the
Company commenced operations at a conversion and repair facility in
Amelia, Louisiana that it acquired in 1996 at a purchase price of
approximately $1.0 million. The Company will evaluate strategic
acquisitions of one or more additional shipyards in the future depending
on a variety of factors, including demand for vessel construction,
conversion and repair, the advantages offered by the particular shipyard
and the terms of the acquisition. The Company anticipates that it will
focus on profitable acquisition candidates with operations that
complement the Company's existing operations.
34
<PAGE>
OPERATIONS
The Company's principal operations consist of the construction of marine
vessels, the fabrication of modular components for offshore drilling rigs and
FPSOs and repair and conversion services. During the year ended December 31,
1997, the Company's pro forma revenues (pro forma utilizing Orange
Shipbuilding's fiscal year ended September 30, 1997) were derived
approximately 29.7% from new vessel construction for commercial customers,
approximately 6.7% from new vessel construction for government customers,
approximately 31.8% from modular component fabrication for offshore drilling
rig contractors, and approximately 31.8% from repair and conversions. During
the year ended December 31, 1996, the Company's pro forma revenues (pro forma
utilizing Orange Shipbuilding's fiscal year ended September 30, 1996) were
derived approximately 37.5% from new construction for commercial customers,
approximately 13.9% from new vessel construction for government customers,
approximately 10.0% from modular component fabrication for offshore drilling
rig contractors, and approximately 38.6% from repairs and conversions.
Current Projects. The Company's construction and fabrication projects in
progress as of March 31, 1998 consisted of 14 vessels (including three lift
boats, five barges and six tugs) and one modular component fabrication project
for the oil and gas industry with aggregate remaining contract revenue of
approximately $23.6 million (excluding unexercised options held by customers).
The Company's backlog as of December 31, 1997 was approximately $24.6 million
as compared to Conrad's backlog (exclusive of Orange Shipbuilding) of $3.6
million as of December 31, 1996 and Orange Shipbuilding's backlog of $11.5
million as of September 30, 1996 (its fiscal year end). Of this remaining
contract revenue, approximately $13.7 million was attributable to contracts to
build vessels for the U.S. Army and the Corps of Engineers. The Company
anticipates that approximately $22.0 million of the aggregate remaining
revenue from firm contracts as of March 31, 1998 will be realized during
fiscal 1998. The following chart includes a description of the marine vessel
construction and modular component fabrication projects scheduled as of March
31, 1998 as well as a description of conversion and repair projects in
progress at March 31, 1998 or scheduled to commence during 1998.
<TABLE>
<CAPTION>
NUMBER OF
VESSELS
TYPE OF VESSEL OR PROJECT SHIPYARD OR PROJECTS CUSTOMER
- ------------------------- ------------------ ----------- ------------------------
<S> <C> <C> <C>
VESSEL CONSTRUCTION:
OFFSHORE AND INLAND
BARGES:
Tank Barge............. Morgan City 2 Private Fleet Operator
Deck Cargo Barge....... Morgan City 2 Private Fleet Operator
Steel River Service
Barge................. Orange 1 Corps of Engineers
LIFT BOATS:
1058 x 708 x 1758 leg.. Morgan City 2 Energy Service Companies
1158 x 708 x 1758 leg.. Morgan City 1 Energy Service Companies
TUG BOATS:
ST (small tug) Tugs.... Orange 6 U.S. Army
MODULAR COMPONENT
FABRICATION:
Sponsons............... Orange 1 Drilling Rig Fabricator
---
Total Construction
and Fabrication..... 15
===
CONVERSION AND REPAIR:
Supply Vessel.......... Morgan City 15 Energy Service Company
Utility Vessel......... Morgan City 3 Energy Service Company
Tow Boat............... Morgan City/Amelia 10 Energy Service Company
Barge.................. Morgan City/Amelia 9 Energy Service Company
---
Total Conversion and
Repair.............. 37
===
</TABLE>
Shipyards. The Company conducts its marine vessel construction, conversion
and repair operations at shipyards in Morgan City and Amelia, Louisiana and
Orange, Texas. The Company has owned and operated the Morgan City shipyard
since 1948. The Company acquired an additional conversion and repair facility
in Amelia, Louisiana for approximately $1.0 million in 1996 and commenced
conversion and repair services at this facility
35
<PAGE>
during February 1998. In December 1997, the Company acquired Orange
Shipbuilding for a purchase price of approximately $22.8 million (net of cash
acquired). This acquisition significantly increased the shipbuilding capacity
of the Company.
During the past five fiscal years, the Company has made, in the aggregate,
approximately $10.0 million of capital expenditures to add capacity and
improve the efficiency of its Morgan City and Orange Shipbuilding shipyards.
Of this amount, Conrad spent approximately $7.0 million at the Morgan City
shipyard for improvements to its building and facilities, to purchase cranes
and other fabrication equipment and to purchase and modify a drydock and
launch barge. A portion of Conrad's expenditures in 1997 were incurred to
increase the heavy lifting and drydocking capabilities of one of its drydocks.
These shipyard improvements will allow barges and vessels to be moved from
drydock space to dockside land repair areas, thereby enabling the Company to
perform major modifications and repairs, such as lengthening of vessel
midbodies, on previously unused dockside land while freeing the drydock for
other projects. The Company's capital expenditures during the last five fiscal
years also included approximately $3.0 million incurred by Orange Shipbuilding
for improvements to its buildings and facilities and to purchase cranes and
other fabrication equipment.
All of the Company's new vessel construction is done indoors in well-lighted
space specifically designed to accommodate construction of marine vessels up
to 400 feet in length. As a result, marine vessel construction is not hampered
by weather conditions, and the Company is able to more effectively utilize its
workforce and equipment, thereby allowing it to control costs and meet
critical construction schedules. The Company employs modular construction
techniques and zone outfitting, which involve the installation of pipe,
electrical wiring and other systems at the modular stage, thereby reducing
construction time while at the same time simplifying systems integration and
improving quality. The Company also uses computerized plasma arc metal cutting
for close tolerances and automated shotblasting and painting processes for
efficiency and high quality.
The Company's shipyards provide it with significant flexibility and
efficiency in constructing a wide variety of vessels. With the addition of the
Orange shipyard, the Company has the ability to more effectively manage its
available shipyard capacity through the allocation of projects between
shipyards. In addition, the Company has the ability to fabricate various
components of a project at one shipyard for use in the construction of a
vessel or fabrication of a steel structure at another shipyard. The new Amelia
facility will increase the Company's capacity to perform conversion and repair
services and will allow the Company to allocate these projects efficiently
between the Amelia and Morgan City shipyards.
The Company's Morgan City and Orange shipyards have five construction bays
that can support 35 workers each and four construction bays that can support
15 workers each. The Company is not utilizing the facilities at this time to
this maximum staffing level. Additionally, the facilities are currently
working a single ten-hour shift and have the capability of adding a second
shift without increasing bays or support equipment. The Company could add
additional workers at this time without significant capital expenditures by
purchasing only a few welding machines and small tools since buildings and
overhead cranes already exist at these facilities.
36
<PAGE>
The Company had 280 shipyard workers as of December 31, 1997 and increased
its shipyard labor force to 303 as of March 31, 1998. The Company intends to
expand its work force to the extent that it is able to secure additional work
at attractive profit margins and attract qualified workers who can maintain
the Company's quality standards. The following chart contains certain
information as of March 31, 1998, regarding each of the Company's shipyards:
<TABLE>
<CAPTION>
MAXIMUM
NUMBER OF NUMBER OF
SHIPYARD SHIPYARD
FACILITY PRIMARY PRODUCTS/ OPERATIONS(1) WORKERS(2) WORKERS(2)(3)
- ------------------------ ------------------------------------------- ---------- -------------
<S> <C> <C> <C>
Morgan City, LA......... Construction of barges, lift boats and 220 300
drydocks; repairs, conversions
Orange, TX.............. Construction of tug boats, barges, push 73 120
boats; fabrication of modular components
Amelia, LA (4).......... Repairs and conversions 10 100
--- ---
Total Shipyard Workers............................................ 303 520
=== ===
</TABLE>
- --------
(1) Includes operations currently conducted and principal products produced at
the applicable facility.
(2) As of March 31, 1998.
(3) Represents management's estimate of the maximum number of persons that
could be employed without significant capital expenditures on the existing
buildings or equipment. See "Risk Factors--Shortage of Trained Workers."
(4) Initial operations commenced during February 1998.
Morgan City. The Company's Morgan City, Louisiana shipyard is located on the
Atchafalaya River approximately 18 miles from the Gulf of Mexico on
approximately 11 acres. The shipyard has 14 buildings containing approximately
110,000 square feet of enclosed building area and nine overhead cranes. In
addition, the shipyard has five drydocks, one submersible launch barge, 1,700
feet of steel bulkhead, six rolling cranes and two slips. The buildings
include the Company's headquarters as well as three large fabrication
warehouses specifically designed to accommodate marine vessel construction.
The drydocks consist of two 120-foot by 52-foot drydocks, two 200-foot by 70-
foot drydocks and one 200-foot by 95-foot drydock with lifting capacities of
900, 2,400 and 3,000 tons, respectively.
Orange. The Company's Orange, Texas shipyard is located on the Sabine River
approximately 37 miles from the Gulf of Mexico on approximately 12 acres. The
shipyard has six construction bays under approximately 110,000 square feet of
enclosed building area with 14 overhead cranes. The site also has 300 feet of
steel bulkhead and one slip. The Company's Orange shipyard equipment includes
a Wheelabrator(TM), a "gantry" type NC plasma burner with a 21-foot by 90-foot
table, over 60 automatic and semi-automatic welding machines, three rolling
cranes, 600, 800 and 1,600-ton transfer/load-out systems and a marine railway
with side transfer system.
Amelia. The Company's Amelia, Louisiana conversion and repair facility is
located on Bayou Boeuf approximately 30 miles from the Gulf of Mexico on
approximately 16 acres. This facility has six buildings containing
approximately 30,000 square feet of enclosed building area. The site also has
2,100 feet of bulkhead and two slips. The Company commenced marine repair and
conversion operations at this shipyard during February 1998.
PRODUCTS AND SERVICES
Construction of Vessels
The Company manufactures a variety of small and medium sized vessels
principally for commercial and governmental customers. This activity accounted
for 36.4% of pro forma revenue during 1997. The principal types of vessels
manufactured by the Company are described below.
Offshore and Inland Barges. The Company builds a variety of offshore barges,
including tank, container and deck barges for commercial customers and YCs
(yard carrier barges) and YONs (yard oil Navy barges) for
37
<PAGE>
the U.S. Navy. The Company also builds a variety of inland barges, including
deck and tank barges. Contract prices for barges constructed by the Company
have recently ranged from $150,000 to $5 million. The Company has constructed
a variety of barges used in the offshore oil and gas industry, including shale
barges, pipe laying barges, oil and gas drilling barges, and oil and gas
production barges. The Company's barges are also used in marine construction
and are used by operators to carry liquid cargoes such as petroleum and
drilling fluids, dry bulk cargoes such as aggregate, coal and wood products,
deck cargoes such as machinery and equipment, and other large item cargoes
such as containers and rail cars. Other barges function as cement unloaders
and split-hull dump scows. The Company has built barges ranging from 50 feet
to 400 feet in length, with as many cargo tanks, decks and support systems as
necessary for the barges' intended functions. The Company is in a position to
benefit from the continued demand for offshore and inland tank barge
construction and conversion due to OPA '90 as well as the aging of the
worldwide fleet of offshore tank barges, and the Company is currently bidding
on a number of barge construction projects. The Company's backlog at March 31,
1998 included five barges. See "--Industry Overview" and "--Regulation--OPA
'90."
Lift Boats. Lift boats are used primarily to furnish a stable work platform
for drilling rigs, to house personnel, equipment and supplies for such
operations and to support construction and ongoing operation of offshore oil
and gas production platforms. Lift boats are self-propelled, self-elevating
and self-contained vessels that can efficiently assist offshore platform
construction and well servicing tasks that traditionally have required the use
of larger, more expensive mobile offshore drilling units or derrick barges.
Lift boats have different water depth capacities and have legs, ranging from
65 to 200 feet, that are used to elevate the deck of the boat in order to
perform required procedures on a platform at different heights above the
water. For example, lift boats can dismantle offshore rigs, set production
facilities and provide a work platform for operations such as diving and
salvage, and have been used as an adjacent support platform for applications
ranging from crew accommodations to full workovers on existing platforms.
Because of worldwide overcapacity in the marine service support industry,
there was no significant construction of lift boats from 1983 through 1997.
The Company's backlog at March 31, 1998 included three lift boats, consisting
of contracts to construct a hull for one lift boat and to construct two lift
boats for which the Company will subcontract with third parties for the
construction of legs and other components.
Tug Boats. The Company builds tug boats for towing and pushing, anchor
handling, mooring and positioning, dredging assistance, tanker escort, port
management, shipping, piloting, fire fighting and salvage. For each offshore
barge that is built in the United States pursuant to OPA '90, a tug boat is
generally added to the purchaser's fleet. Tug boats are built with two or
three engines, standard propellers, controllable pitch propellers, azimuthing
Z-drives, cycloidal propulsion and with or without steerable or fixed nozzles.
Tug boats range from 85 feet to 155 feet in length and range in price from $2
million to $12 million. The Company has constructed several tug boats for the
U.S. government, and the Company believes that it has the capability to
construct tug boats for commercial customers without any significant
modification to its facilities.
Other Offshore Support Vessels. In addition to lift boats and tug boats, the
Company is capable of building other types of offshore support vessels that
serve exploration and production facilities and support offshore construction
and maintenance activities. These offshore support vessels include supply
vessels, utility vessels and anchor handling vessels. Supply vessels are
generally 150 feet to 250 feet in length and are differentiated from other
vessel types by cargo flexibility and capacity. In addition to transporting
deck cargo, such as drill pipe and heavy equipment, supply boats transport
liquid mud, potable and drilling water, diesel fuel, dry bulk cement and dry
bulk mud. These vessels range in price from $7 to $10 million. Utility vessels
(also called standby vessels) are smaller than supply vessels, usually 85 feet
to 140 feet, and are utilized primarily to transport light cargo including
food and supplies and to standby as a rescue vessel at production platforms,
rigs and other offshore installations. These vessels range in price from $2 to
$4 million. Anchor handling vessels, which include anchor handling tug/supply
vessels are more powerful than supply vessels and are capable of towing and
positioning drilling rigs, production facilities, and construction barges.
Some are specially equipped to assist tankers while they are loading from
single-point buoy mooring systems. These vessels range in price from $10 to
$25 million.
38
<PAGE>
The Company believes that there will be increased demand for new offshore
support vessels in the next several years due to the need for larger vessels
to service deep water oil and gas exploration and production activities and
the aging of the remaining fleet. See "--Industry Overview." Although the
Company has not previously constructed offshore supply or anchor handling
vessels and has not constructed any utility vessels since 1980, the Company
believes that its extensive experience in manufacturing vessels and its
ability to expand its production at its shipyards without significant
modifications to its existing facilities makes it well positioned to take
advantage of the demand for new construction of these offshore support
vessels. Other than lift boats, the Company's backlog at March 31, 1998 did
not include any offshore support vessels, and the Company has not entered into
any contracts to construct offshore support vessels since that date.
Push Boats/Tow Boats. Push boats, also known as tow boats, are used by
inland waterway operators to push barges. These vessels range in size from 55
feet to 200 feet in length and range in price from $750,000 to over $5 million
depending on horsepower and service. The Company has built 18 push boats
ranging in size from 55 feet to 85 feet for commercial and government
customers and expects to continue to build this type of vessel in the future.
Drydocks. Drydocks are used to lift marine vessels from the water in order
to facilitate the inspection and/or repair of the vessels' underwater areas. A
drydock is composed of a floodable pontoon with wing walls and its designated
capacity identifies the number of tons it is capable of safely lifting from
the water. The drydock is submerged by opening valves to flood compartments,
the vessel is placed over the submerged deck of the drydock, and the vessel is
lifted from the water by closing the valves and pumping the water out of the
flooded compartments.
The Company has built 16 drydocks which, after construction, were towed to
various permanent locations around the world for use in conversion and repair
activities. Although the Company has not built a drydock in the last few
years, it estimates that a new drydock would range in price from $1 to $4
million.
Fabrication of Modular Components
The Company has been involved in the fabrication of modular components for
offshore drilling rigs and FPSOs for the offshore oil and gas industry since
1996. This activity accounted for approximately 31.8% of the Company's pro
forma revenue during 1997. The Company's Orange shipyard has performed this
fabrication work as a subcontractor for other marine construction companies
that specialize in these types of rigs and vessels. These fabrication projects
include sponsons, stability columns, blisters, pencil columns, a 350-ton flare
buoy and a 66-man quarters house. The Company's transfer system, consisting of
dollies, turntables and roll-on, roll-off equipment, allows the movement of
modules of up to 1,600 tons without the need for large capacity cranes.
Modules move from the covered fabrication bays on track systems to turntables
and finally onto dockside barges. The Company believes that this system allows
it to move large modular components efficiently and safely.
Conversion and Repair Services
Since 1952, the Company's Morgan City facility has been involved in the
repair of vessels and barges. The Company has completed over 21,000 repair and
conversion jobs since that time. Conversion and repair services accounted for
approximately 31.8% of the Company's pro forma revenue during 1997. The
Company has five drydocks and dockside space capable of accommodating vessels
and barges up to 300 feet long. The Company's marine repair activities include
shotblasting, painting, electrical system and piping repairs, propeller and
shaft reconditioning and ABS certified welding. The Company's conversion
projects primarily consist of lengthening the midbodies of vessels, modifying
vessels to permit their use for a different type of activity and other
modifications to increase the capacity or functionality of a vessel.
All U.S. Coast Guard inspected vessels and ABS classed vessels are required
to undergo periodic inspections and surveys which require drydock examination
at least twice during any five year period. Non-U.S. flag vessels are subject
to similar regulations. The inspection of vessels generally results in repair
work being
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required in order to pass inspection. In addition, vessel owners often elect
to make other repairs or modifications to vessels while in drydock undergoing
required repairs. While the Company is not aware of any proposals to reduce
the frequency or scope of such inspections, any such reduction could adversely
affect the Company's results of operations.
Demand for vessel repair and conversion services has increased in recent
years as vessel owners have attempted to extend the useful lives of barges and
support vessels, a significant portion of which are approaching the end of
their useful lives. Management believes that the Company is well positioned to
benefit from these trends and expects these trends to continue for the next
several years.
CUSTOMERS
The Company services a wide variety of customers domestically and
internationally. Customers include marine service companies, offshore support
companies, rig fabricators, offshore and inland barge and support vessel
operators, offshore construction and drilling contractors, diving companies,
energy companies, the U.S. Army, U.S. Navy, U.S. Coast Guard and Corps of
Engineers, many of whom have been customers of the Company on a recurring and
long-term basis. The Company has also provided and continues to provide repair
and conversion services to many of the major offshore support vessel companies
and barge operators. The Company's principal customers may differ
substantially on a year-to-year basis due to the size and limited number of
new construction projects performed each year.
During fiscal 1997 on a pro forma basis (utilizing Orange Shipbuilding's
fiscal year ended September 30, 1997), the Company derived 18.7% of its
revenues from AMFELS, Inc. for the construction of sponsons, blisters and
columns which are used as components of offshore drilling rigs and FPSOs,
12.2% from Tidewater Inc. for repair and conversion services and 10.7% from
Oceaneering Production Systems for construction of a flare buoy and a
deckhouse. Another 54.1% of revenues was attributable to 20 other customers.
During fiscal 1996 on a pro forma basis (utilizing Orange Shipbuilding's
fiscal year ended September 30, 1996), the Company derived 12.3% of its
revenues from British Petroleum Venezuela for the construction of a 400 foot
barge and 11.2% from Fletcher General Incorporated for a 300-foot deck barge.
Another 70.2% of revenues was attributable to 24 other customers.
CONTRACT PROCEDURE, STRUCTURE AND PRICING
The Company's contracts for new construction projects generally are obtained
through a competitive bidding process. A potential buyer ordinarily provides
specifications and performance criteria for a proposed project and invites
numerous shipyards to submit bids for the construction of the projects. After
being invited to place a bid, the Company generally assigns members of its
estimating and engineering departments to project the costs of and schedule
for completion. Management then determines the applicable profit margin and
finalizes the bid. Contracts for the construction and conversion of vessels
for the U.S. government are generally subject to competitive bidding. As a
safeguard to anti-competitive bidding practices, the U.S. Army, the U.S. Navy,
the U.S. Coast Guard and the Corps of Engineers have recently employed the
concept of "cost realism," which requires that each bidder submit information
on pricing, estimated costs of completion and anticipated profit margins. The
government agencies use this and other data to determine an estimated cost for
each bidder. They then conduct a cost comparison of the bidders' estimates
against an independent estimate to arrive at a close approximation of the real
cost. The award is then made on the basis of the expected cost to build, which
often results in an award to a higher bid.
The Company submits a large number of bids to commercial customers. However,
in the case of U.S. government contracts for which the bidding process is
significantly more detailed and costly, the Company tends to be more selective
regarding the projects on which it bids.
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Most of the contracts entered into by the Company, whether commercial or
governmental, are fixed-price contracts under which the Company retains all
cost savings on completed contracts but is liable for all cost overruns. The
Company's contracts for marine vessel construction may require the Company to
pay liquidated damages if the Company fails to meet specified performance
deadlines. Provisions for liquidated damages under these contracts are
generally capped at a maximum amount.
Contracts with the U.S. government are subject to termination by the
government either for its convenience or upon default by the Company. If the
termination is for the government's convenience, the contracts provide for
payment upon termination for items delivered to and accepted by the
government, payment of the Company's costs incurred through the termination
date, and the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable profit. Under the
Truth in Negotiations Act, the U.S. government has a right for three years
after final payment on substantially all negotiated U.S. government contracts
to examine all of the Company's cost records with respect to such contracts to
determine whether the Company used and made available to the U.S. government,
or to the prime contractor in the case of a subcontract, accurate, complete
and current cost or pricing information in preparing bids and conducting
negotiations on the contracts or any amendments thereto.
Although varying contract terms may be negotiated on a case-by-case basis,
the Company's commercial and government contracts ordinarily provide for a
downpayment, with progress payments at specified stages of construction and a
final payment upon delivery. Final payment under U.S. government contracts may
be subject to deductions if the vessel fails to meet certain performance
specifications based on tests conducted by the Company prior to delivery.
Under commercial contracts, the Company generally provides a six-month
warranty with respect to workmanship. In the majority of commercial contracts,
the Company passes through the suppliers' warranties to the customer and does
not warrant materials acquired from its suppliers. The Company's government
contracts typically contain one-year warranties covering both materials and
workmanship. Expenses of the Company to fulfill warranty obligations have not
been material in the aggregate.
BONDING AND GUARANTEE REQUIREMENTS
Although the Company generally meets financial criteria that exempt it from
bonding and guarantee requirements for most contracts, certain contracts with
federal, state or local governments require contract performance bonds, and
foreign governmental contracts generally require bank letters of credit or
similar obligations. Commercial contracts also may require contract bid and
performance bonds if requested by the customer. As of March 31, 1998, the
Company had outstanding one government contract performance bond issued by a
third party with an aggregate face amount of approximately $3.7 million.
Although the Company believes that it will be able to obtain contract bid and
performance bonds, letters of credit and similar obligations on terms it
regards as acceptable, there can be no assurance it will be successful in
doing so. In addition, the cost of obtaining such bonds, letters of credit and
similar obligations may increase.
ENGINEERING
The Company generally builds vessels or fabricates modular components based
on its customers' drawings and specifications. The Company also develops in-
house custom designs for customers' special requirements using its computer
aided design (CAD) capabilities and has designed and built numerous barges,
pusher tugs and other vessels. The process of computer drafting, preparation
of construction drawings and development of cut tapes for numerically
controlled plasma cutting of steel with the latest 3-D software programs
allows the Company to prevent engineering mistakes and costly rework, thereby
ensuring the vessel's intended function while meeting budget estimates.
MATERIALS AND SUPPLIES
The principal materials used by the Company in its marine vessel
construction, conversion and repair and modular component fabrication
businesses are standard steel shapes, steel plate and paint. Other materials
used
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in large quantities include aluminum, steel pipe, electrical cable and
fittings. The Company also purchases component parts such as propulsion
systems, hydraulic systems, generators, auxiliary machinery and electronic
equipment. All these materials and parts are currently available in adequate
supply from domestic and foreign sources. All of the Company's shipyards
obtain materials and supplies by truck or barge, and the Company's Orange
shipyard is located on a railroad service line and receives much of its steel
by rail. The Company has not engaged, and currently does not intend to engage,
in hedging transactions with respect to its purchase requirements for
materials.
VESSEL CONSTRUCTION PROCESS
Once a contract has been awarded to the Company, a project manager is
assigned to supervise all aspects of the project from the date the contract is
signed through delivery of the vessel. The project manager oversees the
engineering department's completion of the vessel's drawings and supervises
the planning of the vessel's construction. The project manager also oversees
the purchasing of all supplies and equipment needed to construct the vessel,
as well as the actual construction of the vessel.
The Company constructs each vessel from raw materials, which are fabricated
by shipyard workers into the necessary shapes to construct the hull and vessel
superstructure. Component parts, such as propulsion systems, hydraulic systems
and generators, auxiliary machinery and electronic equipment, are purchased
separately by the Company and installed in the vessel. The Company uses job
scheduling and costing systems to track progress of the construction of the
vessel, allowing the customer and the Company to remain apprised of the status
of the vessel's construction.
With the assistance of computers, construction drawings and bills of
materials are prepared for each module to be fabricated. Modules are built
separately, and penetrations for piping, electrical and ventilation systems
for each module are positioned and cut during the plasma cutting operation.
Piping, raceways and ducting are also installed prior to the final assembly of
modules. After the modules are assembled to form the vessel, piping,
electrical, ventilation and other systems, as well as machinery, are installed
prior to launching, testing and final outfitting and delivery of the vessel.
SALES AND MARKETING
The Company believes that its reputation and experience facilitate the
Company's marketing efforts. The Company believes that its customer-driven
philosophy of quality, service and integrity leads to close customer
relationships that provide the Company with on-going opportunities to be
invited to bid for customer projects.
The Company's marketing and sales strategy includes utilizing key employees,
including its President and its project managers, as salespersons to target
relationships previously established and develop new relationships with
customers in the targeted markets. The Company also employs one full-time
salesperson. The Company's personnel identify future projects by contacting
customers and potential customers on a regular basis in order to anticipate
projects that will be competitively bid or negotiated exclusively with the
Company. The Company's personnel also keep its customers advised of available
capacity for drydocking, conversion and repair activity. The Company does not
have a standard distribution process because the Company generally negotiates
the terms of a project order prior to commencement of such project.
Accordingly, the Company does not maintain an inventory of products for
distribution.
Marketing efforts are currently focused in four areas: (i) new construction
of all types of barges, drydocks, lift boats, push boats, tug boats and
offshore support vessels; (ii) conversion and repair of barges and offshore
support vessels; (iii) fabrication of modular components of offshore drilling
rigs and FPSOs; and (iv) construction of vessels and barges for the U.S. Army,
U.S. Navy, U.S. Coast Guard and Corps of Engineers.
The Company is actively involved in strengthening its relationships with
customers through continuous interaction between the Company's key personnel,
project managers and the customers' project supervisors with respect to
ongoing projects. To accommodate the needs of the customers' project
supervisors, the Company has established on-site office facilities that such
project supervisors may use during the construction, repair or
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conversion project. The Company also seeks to anticipate the current and
future needs of its customers as well as broader industry trends through these
relationships.
COMPETITION
U.S. shipbuilders are generally classified in two categories: (i) the six
largest shipbuilders, which are capable of building large scale vessels for
the U.S. Navy and commercial customers; and (ii) other shipyards that build
small to medium sized vessels for governmental and commercial markets. The
Company does not compete for large vessel construction projects. The Company
competes for U.S. government contracts to build small to medium sized vessels
principally with 10 to 15 U.S. shipbuilders, which may include one or more of
the six largest shipbuilders. The Company competes for domestic commercial
shipbuilding contracts principally with approximately 15 U.S. shipbuilders.
The number and identity of competitors on particular projects vary greatly
depending on the type of vessel and size of the project, but the Company
generally competes with only three or four companies with respect to a
particular project. The Company competes with over 70 shipyards for its
conversion and repair business.
Competition is based primarily on price, available capacity, service,
quality, and geographic proximity. The Company competes with a large number of
shipbuilders on a national, regional and local basis, some of which have
substantially greater financial resources than the Company and some of which
are public companies or divisions of public companies. The Company may also
face competition for acquisition candidates from these companies, some of
which have acquired shipbuilding and ship repair businesses during the past
decade. Other smaller shipbuilding and ship repair businesses may also seek
acquisitions from time to time.
The Company believes that it competes effectively because of its hands-on,
team management approach to design, project management and construction, its
indoor vessel construction capabilities, its specialized equipment, its
advanced construction techniques and its skilled work force. The Company seeks
to differentiate itself from its competition in terms of service and quality
(i) by investing in enclosed work spaces, modern systems and equipment, (ii)
by offering a broad range of products and services, including modular
component fabrication, (iii) through its hands-on team management, (iv) by
targeting of profitable niche products and (v) by maintaining close customer
relationships.
The shipbuilding industry is highly competitive, and competition by U.S.
shipbuilders for domestic commercial projects increased significantly during
the 1990s due to a number of factors, including (i) substantial excess
capacity because of the significant decline in spending by the U.S. Navy for
the construction of new vessels and (ii) difficulties experienced by U.S.
shipbuilders in competing successfully for commercial projects against foreign
shipyards, many of which are heavily subsidized by their governments.
EMPLOYEES
At March 31, 1998, the Company's labor force consisted of 23 salaried
employees, 258 hourly employees and 51 contract workers. The Company's
shipyard labor force of 303 workers consisted of 252 of the hourly employees
and all of the contract workers. The Company is not a party to any collective
bargaining agreements. The Company's ability to remain productive and
profitable depends substantially on its ability to attract and retain skilled
construction workers (primarily welders, fitters and equipment operators). In
addition, the Company's ability to expand its operations depends primarily on
its ability to increase its skilled labor force. The Company, along with other
Gulf Coast shipyards, has experienced shortages of skilled labor in recent
years. See "Risk Factors--Shortage of Trained Workers."
To address the shortage of skilled labor, the Company has implemented in-
house training programs and participates in training programs through local
vocational-technical and high schools. In December 1997, the Company received
an award from the State of Louisiana Economic Development Department that will
allow the Company to be reimbursed for certain costs related to the training
of new and existing employees, not to exceed a specified amount. The Texas
Employment Commission (TEC) supplies the Orange shipyard with applications
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for employment and promptly filled ten job requests in a period of one week in
early 1998. The Louisiana State Department of Labor has also formed an
Advisory Committee with shipyards and is helping to attract skilled labor to
the Louisiana Gulf Coast and working on the availability of limited duration
visas for foreign workers as a temporary method to bring more labor to the
area. Additionally, the Company is working closely with several contract labor
companies that have assisted the Company in attracting many skilled Native
American workers to the area from the western states of the United States.
While the Company believes that its relationship with its skilled labor
force is good, a significant increase in the wages paid by competing employers
or an increase in hiring activity by those employers could result in a
reduction of the Company's skilled labor force, increases in the wage rate
paid by the Company, or both. If either of these occurred, in the near term
the profits expected by the Company from work in progress could be reduced or
eliminated, and in the long term the production capacity of the Company could
be diminished and the growth potential of the Company could be impaired.
INSURANCE
The Company maintains insurance against property damage caused by fire,
flood, explosion and similar catastrophic events that may result in physical
damage or destruction to the Company's facilities and equipment. All policies
are subject to deductibles and other coverage limitations. The Company also
maintains commercial general liability insurance, including builders' risk
coverage. The Company currently maintains excess and umbrella policies. Other
coverages currently in place include workers compensation, water pollution,
automobile and hull/P&I. The Company also maintains a type of business
interruption insurance that would compensate the Company for the loss of
business income and would reimburse the Company for additional expenses
resulting from certain specified events such as floods, hurricanes and fire.
These policies are subject to deductibles, maximum coverage amounts and
various exclusions. Although the Company maintains insurance protection that
it considers economically prudent, there can be no assurance that the Company
will be able to maintain adequate insurance at rates which management
considers commercially reasonable, nor can there be any assurance such
coverage will be adequate to cover all claims that may arise.
REGULATION
Environmental Regulation
The Company is subject to extensive and changing federal, state and local
laws (including common law) and regulations designed to protect the
environment ("Environmental Laws"), including laws and regulations that relate
to air and water quality, impose limitations on the discharge of pollutants
into the environment and establish standards for the treatment, storage and
disposal, of toxic and hazardous wastes. Stringent fines and penalties may be
imposed for non-compliance with these Environmental Laws. Additionally, these
laws require the acquisition of permits or other governmental authorizations
before undertaking certain activities, limit or prohibit other activities
because of protected areas or species and impose substantial liabilities for
pollution related to Company operations or properties. The cost of compliance
with Environmental Laws has not had, and the Company does not believe that the
cost of compliance with existing Environmental Laws will have, any material
effect on the expenditures, earnings and competitive position of the Company;
however the Company cannot predict how existing laws and regulations may be
interpreted by enforcement agencies or court rulings, whether additional laws
and regulations will be adopted, or the effect such changes may have on the
Company's business, financial condition or results of operations.
The Company's operations are potentially affected by the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). CERCLA (also known as the "Superfund" law) imposes
liability (without regard to fault) on certain categories of persons for
particular costs related to releases of hazardous substances at a facility
into the environment and for liability for natural resource damages.
Categories of responsible persons under CERCLA include certain owners and
operators of industrial facilities and certain other persons who generate or
transport hazardous substances. Liability under CERCLA is strict and
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generally is joint and several. Persons potentially liable under CERCLA may
also bring a cause of action against certain other parties for contribution.
In addition to CERCLA, similar state or other Environmental Laws may impose
the same or even broader liability for the discharge, release or the mere
presence of certain substances into and in the environment.
Because industrial operations have been conducted at some of the Company's
properties by the Company and previous owners and operators for many years,
various materials from these operations might have been disposed of at such
properties. This could result in obligations under Environmental Laws, such as
requirements to remediate environmental impacts. There could be additional
environmental impact from historical operations at the Company's properties
that require remediation under Environmental Laws in the future. However, the
Company currently is not aware of any such circumstances that are likely to
result in any such impact under Environmental Laws.
In order to comply with a relatively recent requirement of the Environmental
Protection Agency, the Company has recently applied to the Louisiana
Department of Environmental Quality ("DEQ") for an air quality permit for its
Morgan City shipyard and is in the process of applying for an air quality
permit for its Amelia facility. The Company is also in the process of applying
to the DEQ for a storm water permit at its Morgan City shipyard. The Company
believes that it will obtain these permits in the ordinary course without any
significant adverse effect on its operations and without the need for any
significant capital expenditures.
Although no assurances can be given, management believes that the Company
and its operations are in compliance in all material respects with all
Environmental Laws. However, stricter interpretation and enforcement of
Environmental Laws and compliance with potentially more stringent future
Environmental Laws could materially and adversely affect the Company's
operations.
Health and Safety Matters
The Company's facilities and operations are governed by laws and
regulations, including the federal Occupational Safety and Health Act,
relating to worker health and workplace safety. The Company believes that
appropriate precautions are taken to protect employees and others from
workplace injuries and harmful exposure to materials handled and managed at
its facilities. While it is not anticipated that the Company will be required
in the near future to expend material amounts by reason of such health and
safety laws and regulations, the Company is unable to predict the ultimate
cost of compliance with these changing regulations.
Jones Act
The Jones Act requires that all vessels transporting products between U.S.
ports must be constructed in U.S. shipyards, owned and crewed by U.S. citizens
and registered under U.S. law, thereby eliminating competition from foreign
shipbuilders with respect to vessels to be constructed for the U.S. coastwise
trade. Many customers elect to have vessels constructed at U.S. shipyards,
even if such vessels are intended for international use, in order to maintain
flexibility to use such vessel in the U.S. coastwise trade in the future.
Bills seeking to substantially modify the provisions of the Jones Act
mandating the use of ships constructed in the United States for U.S. coastwise
trade have been introduced in Congress. Similar bills seeking to rescind or
substantially modify the Jones Act and eliminate or adversely affect the
competitive advantages it affords to U.S. shipbuilders have been introduced in
Congress from time to time and are expected to be introduced in the future.
Although management believes it is unlikely that the Jones Act requirements
will be rescinded or materially modified in the foreseeable future, there can
be no assurance that such rescission or modification will not occur. Many
foreign shipyards are heavily subsidized by their governments and, as a
result, there can be no assurance that Company would be able to effectively
compete with such shipyards if they were permitted to construct vessels for
use in the U.S. coastwise trade.
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OPA '90
Demand for double hull carriers has been created by OPA '90, which generally
requires U.S. and foreign vessels carrying fuel and certain other hazardous
cargos and entering U.S. ports to have double hulls by 2015. OPA '90
establishes a phase-out schedule that began January 1, 1995 for all existing
single hull vessels based on the vessel's age and gross tonnage. OPA '90's
single hull phase-out requirements do not apply to offshore supply vessels
less than 6,000 gross tons.
Title XI Amendments and the OECD Accord
In late 1993, Congress amended Title XI of the Merchant Marine Act of 1936
to permit the Secretary of Transportation to provide a U.S. government
guarantee for certain types of financing for the construction, reconstruction,
or reconditioning of U.S.-built vessels. As a result of these amendments, the
Secretary of Transportation was authorized to guarantee loan obligations of
foreign owners for foreign-flagged vessels that are built in U.S. shipyards on
terms generally more advantageous than available under guarantee or subsidy
programs of foreign countries. Additionally, Title XI includes tax and subsidy
programs that provide benefits limited to vessels constructed in the United
States. If the U.S. Congress adopts the Agreement Respecting Normal
Competitive Conditions in the Commercial Shipbuilding and Repair Industry (the
"OECD Accord"), which was signed in December 1994, among the United States,
the European Union (on behalf of the twelve European member countries), Japan,
Korea and Norway (which collectively control over a significant portion of the
market for worldwide vessel construction), the Title XI guarantee program will
be required to be amended to eliminate the competitive advantages provided by
the 1993 amendments to Title XI. During the 104th Congress, legislation
providing for the implementation of the OECD Accord and the elimination of
competitive advantages provided by the 1993 amendments to Title XI passed the
U.S. House of Representatives but was not acted upon by the U.S. Senate. In
the 105th Congress, the legislation has been introduced and is now pending.
The OECD Accord, when implemented, would provide the same treatment to
signatory countries under the tax and subsidy programs as is currently
accorded to U.S.-built vessels. Despite the fact that the OECD Accord will
require the elimination of certain competitive advantages provided to U.S.
shipbuilders by the 1993 amendments to Title XI, management believes that the
OECD Accord should significantly improve the ability of U.S. shipbuilders to
compete successfully for international commercial contracts with foreign
shipbuilders, many of which currently are heavily subsidized by their
governments.
LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings primarily
involving commercial claims and workers' compensation claims. While the
outcome of these claims and legal proceedings cannot be predicted with
certainty, management believes that the outcome of all such proceedings, even
if determined adversely, would not have a material adverse effect on the
Company's business or financial condition.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company's Board of Directors currently has four directors. Three
independent directors will be elected to the Board of Directors effective upon
the consummation of the Offering. In accordance with the Charter, the members
of the Board of Directors are divided into three classes and are elected for a
three-year term of office or until a successor is duly elected and qualified,
except that the initial terms of office of the Class I, Class I and Class III
directors expire at the annual meetings of stockholders to be held in 1999,
2000 and 2001, respectively. The Charter also provides that such classes shall
be as nearly equal in number as possible.
The following table sets forth certain information regarding each of the
executive officers, key employees, directors and nominees for director of the
Company.
<TABLE>
<CAPTION>
DIRECTOR'S
NAME AGE POSITION WITH THE COMPANY TERM EXPIRING
---- --- ------------------------- -------------
<S> <C> <C> <C>
J. Parker Conrad........ 82 Co-Chairman of the Board 2001
John P. Conrad, Jr...... 55 Co-Chairman of the Board 2001
William H. Hidalgo...... 58 President, Chief Executive Officer and 2000
Director
Cecil A. Hernandez...... 41 Vice President--Finance and Administration, 1999
Chief Financial Officer and Director
Ralph C. Thon........... 55 General Manager--Orange Shipbuilding
Michael J. Harris....... 49 Nominee for Director(1) 2000
Louis J. Michot, Jr..... 75 Nominee for Director(1) 1999
Richard E. Roberson, 60 Nominee for Director(1) 2001
Jr.....................
</TABLE>
- --------
(1)To be named as director upon completion of the Offering.
Set forth below are descriptions of the backgrounds of the executive
officers, key employees and directors of the Company and their principal
occupations for the past five years.
J. Parker Conrad founded Conrad and has served as Chairman of the Board of
Conrad from its inception in 1948 and as President of Conrad from 1948 until
1994. Mr. Conrad has served as Co-Chairman of the Board of the Company since
March 1998. Mr. Conrad is the father of John P. Conrad, Jr.
John P. Conrad, Jr. has been with Conrad since 1962, serving as Vice
President of Conrad since 1982. Mr. Conrad has served as Co-Chairman of the
Board of the Company since March 1998. Mr. Conrad founded Johnny's Propeller
Shop in 1963, a marine-related service company, and has been Chairman of the
Board of this company since its inception. Mr. Conrad is also the Chairman and
President of Bay Star, a Houston-based paging company which Mr. Conrad founded
in 1986. Additionally, Mr. Conrad is a founder of Venture Transport, Inc., a
specialized carrier in oilfield and energy equipment, and has served on its
Board of Directors since its inception in 1987.
William H. Hidalgo has served as President and Chief Executive Officer of
Conrad since May 1994. Mr. Hidalgo has served as President, Chief Executive
Officer and Director of the Company since March 1998. Prior to joining Conrad,
Mr. Hidalgo was employed by Oil & Gas Marine Service, Inc., a marine-related
service company, from 1977 to 1994, and from 1988 to 1994 was responsible for
all marine operations as Vice President and General Manager. Mr. Hidalgo has
35 years experience in the marine business and has been actively involved in
the design, construction, repair, conversion, modification, and operation of
marine vessels throughout his career. Mr. Hidalgo is a licensed professional
Civil Engineer with extensive experience in the design and construction of
energy related marine structures.
Cecil A. Hernandez joined Conrad in January 1998 as Vice President--Finance
and Administration and Chief Financial Officer. Mr. Hernandez has served as
Vice President--Finance and Administration, Chief
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Financial Officer and Director of the Company since March 1998. Mr. Hernandez
founded Hernandez & Blackwell CPAs in 1983 and served as its Managing Partner
until December 1997. Hernandez & Blackwell CPAs merged with Darnall, Sikes &
Frederick CPAs in 1996. Additionally, Mr. Hernandez provided accounting and
consulting services for Conrad as the outside Certified Public Accountant from
1993 until 1997. From 1982 to 1983, Mr. Hernandez served as Assistant
Controller for Oceaneering International, a publicly traded diving company.
Mr. Hernandez was employed at Deloitte Haskins & Sells, an international
accounting firm, from 1979 to 1982.
Ralph C. Thon has been employed by Orange Shipbuilding as Chief Engineer
from 1980 until 1997 and as General Manager since 1997. Mr. Thon has 36 years
of experience in shipbuilding management.
Michael J. Harris has been nominated as a Director of the Company effective
as of the consummation of the Offering. Mr. Harris is a Managing Director of
Morgan Keegan & Company, Inc., where he has been employed since 1986. Morgan
Keegan & Company, Inc. is a subsidiary of Morgan Keegan, Inc., a publicly
traded firm providing securities brokerage, investment banking and other
financial services. Mr. Harris has headed the Energy Investment Banking Group
of Morgan Keegan since 1994 and prior to 1994 was the senior energy securities
analyst.
Louis J. Michot, Jr. has been nominated as a Director of the Company
effective as of the consummation of the Offering. Since 1991, Mr. Michot has
been Chairman of the Board of Louis J. Michot & Associates, Inc., a family-
owned holding company which at present deals principally in real estate sales,
development and rentals. From 1952 to 1991, Mr. Michot served as its President
and CEO, during which time he developed a chain of 45 fast food restaurants in
Louisiana, Mississippi and Texas and became actively engaged in other business
ventures. Mr. Michot was one of the organizers of the Bank of Lafayette and
served on its Board of Directors from 1975 to 1980. He served in the Louisiana
Legislature from 1960 to 1964, on the State Board of Education from 1968 to
1972 and as the State Superintendent of Education from 1972 to 1976. Mr.
Michot's wife is a first cousin of J. Parker Conrad.
Richard E. Roberson, Jr. has been nominated as a Director of the Company
effective as of the consummation of the Offering. Mr. Roberson served as Vice
President, Chief Financial Officer, Treasurer and a director of Global
Industries, Ltd. from December 1992 to May 1996, when he retired. From March
1986 until September 1991, Mr. Roberson served as Vice President--Finance for
Ocean Drilling & Exploration Company. Mr. Roberson has over 30 years of
experience in the oil and gas and oil service industry, including over 20
years as an accounting and financial officer. Mr. Roberson also currently
serves as a director of UNIFAB International, Inc.
The Charter provides that the number of directors constituting the Company's
Board of Directors shall be fixed by the Board of Directors, but shall not be
less than three nor more than 15. Vacancies in unexpired terms and any
additional positions created are filled by the Board of Directors. See
"Description of Capital Stock --Certain Provisions of the Company's Charter
and Bylaws and Delaware Law." All officers serve at the discretion of the
Board of Directors, subject to terms of their employment agreement terms. See
"--Employment Agreements."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee recommends the appointment of auditors and
oversees the accounting and audit functions of the Company. The Compensation
Committee determines executive officers' and key employees' salaries and
bonuses and administers the Company's 1998 Stock Plan. Messrs. Harris and
Roberson will serve as members of the Company's Compensation Committee and
Audit Committee.
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Following the completion of the
Offering, each director who is not an employee of the Company will
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receive a fee of $12,000 annually, $1,000 for attendance at each Board of
Directors meeting and $500 for each committee meeting attended (unless held on
the same day as a Board of Directors meeting). Directors of the Company are
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or committees thereof, and for other expenses incurred in
their capacity as directors of the Company. Under the Company's 1998 Stock
Plan, each non-employee director will receive stock options to purchase 1,000
shares of Common Stock upon election to the Board of Directors and an annual
grant of 1,000 options. See "--Stock Plan."
EXECUTIVE COMPENSATION
The following table sets forth the compensation of the Company's Chief
Executive Officer and each of the Company's most highly compensated executive
officers for 1997. No other executive officer of the Company earned total
annual salary and bonus in excess of $100,000 during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION (1) YEAR SALARY BONUS COMPENSATION (2) COMPENSATION
------------------ ---- -------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
J. Parker Conrad......... 1997 $210,000 $ 0 $ 0 $ 0
Co-Chairman of the Board
John P. Conrad, Jr....... 1997 150,000 50,000 0 0
Co-Chairman of the Board
William H. Hidalgo....... 1997 185,990 200,000 0 2,375(3)
President and Chief
Executive Officer
</TABLE>
- --------
(1) Cecil A. Hernandez was not an employee of the Company in 1997 but will
have a salary in excess of $100,000 for 1998. See "--Employment
Agreements."
(2) None of the executive officers has received perquisites, the value of
which exceeded the lesser of $50,000 or 10% of the salary of such
executive officer.
(3) Consists of payments made by the Company under the Company's 401(k) plan
of $2,375 for the benefit of Mr. Hidalgo.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to April 1998, the Board of Directors had no Compensation Committee,
and J. Parker Conrad, John P. Conrad, Jr., William H. Hidalgo and Cecil A.
Hernandez participated in deliberations of the Company's Board of Directors
concerning executive officer compensation.
EMPLOYMENT AGREEMENTS
Conrad has entered into employment and non-competition agreements with each
of J. Parker Conrad, John P. Conrad, Jr., William H. Hidalgo, and Cecil A.
Hernandez. Orange Shipbuilding has entered into a similar agreement with Ralph
C. Thon. These agreements prohibit such officers from disclosing the Company's
confidential information and trade secrets and generally restrict these
individuals from competing with the Company for a period of two years after
the termination of their employment. Each of these agreements has an initial
term of three years and provides for annual extensions at the end of its
initial term, subject to the parties' mutual agreement, and is terminable by
the employer for "cause" upon ten day's notice and without "cause" (i) by the
employee upon 30 days' written notice and (ii) by the employer upon approval
by a majority of the board of directors. The employment agreements provide
that the employer shall pay a base salary of $220,500 to J. Parker Conrad,
$200,000 to John P. Conrad, Jr., $195,290 to William H. Hidalgo, $150,000 to
Cecil A. Hernandez and $85,000 for Ralph C. Thon, which base salaries may be
increased by the board of directors. Such agreements also provide that each
executive officer will be reimbursed for out-of-pocket business expenses and
that each executive officer shall be eligible to participate in all benefit
plans and programs as are maintained
49
<PAGE>
from time to time by the employer. Each employment agreement provides that if
the officer's employment is terminated by the employer without "cause" or is
terminated by the officer for "good reason," the officer shall be entitled to
receive a lump sum severance payment at the effective time of termination
equal to the base salary (at the rate then in effect) for the greater of (i)
the time period remaining under the term of the agreement or (ii) one year. In
addition, the time period during which such officer is restricted from
competing with the Company will be shortened from two years to one year.
The employment agreements also provide that if the officer's employment is
terminated within two years following a change in control by the Company other
than for "cause" or by the officer for "good reason," or the officer is
terminated by the Company within three months prior to the change in control
at the request of the acquirer in anticipation of the change in control, (i)
the officer will be entitled to receive a lump sum severance amount equal to
the greater of (a) in the case of J. Parker Conrad, John P. Conrad, Jr. and
William H. Hidalgo, three years' base salary and, in the case of Cecil A.
Hernandez and Ralph C. Thon, two years' base salary or (b) the base salary for
whatever period is then remaining on the initial term; (ii) the provisions
which restrict competition with the Company shall not apply; and (iii) if any
payment to the officer is subject to the 20% excise tax on excess parachute
payments, the officer shall be made "whole" on a net after tax basis. A change
in control is generally defined to occur upon (i) the acquisition by any
person of 50% or more of the total voting power of the outstanding securities
of the Company, (ii) the first purchase pursuant to a tender or exchange offer
for Common Stock, (iii) the approval by the stockholders of the Company of
certain mergers, sale of substantially all the assets, or dissolution of the
Company or (iv) a change in a majority of the members of the Company's Board
of Directors.
In general, a "parachute payment" is any payment made by the Company in the
nature of compensation that is contingent on a change in control of the
Company and includes the present value of the accelerations of vesting and the
payment of options and other deferred compensation amounts upon a change in
control. If the aggregate present value of the parachute payments to certain
individuals, including officers, equals or exceeds three times that
individual's "base amount" (generally, the individual's average annual
compensation from the Company for the five calendar years ending before the
date of the change in control), then all parachute amounts in excess of the
base amount are "excess" parachute payments. An individual will be subject to
a 20% excise tax on excess parachute amounts and the Company will not be
entitled to a tax deduction for such payments.
STOCK ISSUANCE TO EXECUTIVE OFFICERS
In the first quarter of 1998, Conrad issued shares of common stock to
William H. Hidalgo, President and Chief Executive Officer, and Cecil A.
Hernandez, Vice President--Finance and Administration and Chief Financial
Officer, in consideration of past services rendered. Fifty percent of the
shares of common stock issued to each such executive are subject to forfeiture
in the event of the voluntary termination of employment by such executive for
other than "good reason" prior to the expiration of the initial three-year
term of employment specified in the employment agreement of such executive,
provided that such restriction will lapse in the event of (i) the termination
by the Company of such executive's employment for reasons other than "cause"
(as defined) or (ii) the death, disability or retirement (at or after the age
of 65) of such executive and will also lapse with respect to 33 1/3% of such
restricted shares on each of the first three anniversaries of the completion
of the Offering. The shares of common stock of Conrad issued to Mr. Hidalgo
and Mr. Hernandez will be exchanged, respectively, for 385,695 and 153,819
shares of Common Stock of the Company pursuant to the Reorganization. In
connection with the issuance of shares of Conrad common stock, Mr. Hidalgo and
Mr. Hernandez executed promissory notes in the amounts of $239,870 and
$97,400, respectively, representing their tax liabilities paid by the Company.
These tax notes will be repaid in full by Mr. Hidalgo and Mr. Hernandez upon
the completion of this Offering.
INDEMNIFICATION AGREEMENTS
The Company intends to enter into indemnification agreements with certain of
its directors and officers pursuant to which it will indemnify such persons
against expenses (including attorneys' fees), judgments, fines
50
<PAGE>
and amounts paid in settlement incurred as a result of the fact that such
person, in his or her capacity as a director or officer, is made or threatened
to be made a party to any suit or proceeding. Such persons will be indemnified
to the fullest extent now or hereafter permitted by the General Corporation
Law of the State of Delaware. The indemnification agreements will also provide
for the advancement of certain expenses to such directors and officers in
connection with any such suit or proceeding.
STOCK PLAN
The Conrad Industries, Inc. 1998 Stock Plan (the "Stock Plan") was adopted
by the Board of Directors of the Company and approved by the Company's
stockholders in March 1998. The Stock Plan permits the granting of any or all
of the following types of awards ("Awards"): stock appreciation rights, stock
options, restricted stock, dividend equivalents, performance units, automatic
director options, phantom shares, limited stock appreciation rights ("LSARs"),
bonus stock and cash tax rights. All officers and employees of, and any
consultants to, the Company or any affiliate of the Company will be eligible
for participation in all Awards under the Stock Plan other than director
options with tandem LSARs. The non-employee directors of the Company will only
receive automatic grants of Director options with tandem LSARs.
An aggregate of 700,000 shares of Common Stock have been authorized and
reserved for issuance pursuant to the Stock Plan. As of the date of this
Prospectus, options to purchase an aggregate of 130,000 shares of Common Stock
have been granted under the Stock Plan, all of which have an exercise price
equal to the initial public offering price for shares of Common Stock sold in
the Offering. The Stock Plan is administered by the Compensation Committee of
the Company's Board of Directors. The Compensation Committee will select the
participants who will receive Awards, determine the type and terms of Awards
to be granted and interpret and administer the Stock Plan. No Awards may be
granted under the Stock Plan after March 31, 2008.
401(K) PLAN
The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan") for
its employees. Under the 401(k) Plan, eligible employees are permitted to
defer receipt of up to 15% of their compensation (subject to certain
limitations imposed under the Internal Revenue Code). The 401(k) Plan provides
that a discretionary match of employee deferrals may be made by the Company in
cash. Pursuant to the 401(k) Plan, the Company currently has elected to match
$.25 for each $1.00 of employee deferral, not to exceed 5% of an employee's
salary, subject to certain limitations imposed by the Internal Revenue
Service. The amounts held under the 401(k) Plan are invested among various
investment funds maintained under the 401(k) Plan in accordance with the
directions of each participant. Salary deferral contributions under the 401(k)
Plan are 100% vested. Matching contributions vest over a period of four years
after an employee completes two years of service with the Company.
Participants or their beneficiaries are entitled to payment of vested benefits
upon termination of employment.
ANNUAL INCENTIVE PLAN
The Company has established an annual incentive plan under which key
employees will be awarded cash payments based upon the achievement of certain
performance goals. The aggregate amount shall not exceed five percent of the
Company's EBITDA (defined as operating income before depreciation,
amortization and non-cash compensation expenses related to issuance of stock
and stock options to employees). The Board of Directors will determine the
actual amount of the bonus pool, subject to this limitation, and the key
employees who would be recipients of any such cash bonuses and the individual
amount of the cash bonus for each such key employee.
51
<PAGE>
CERTAIN TRANSACTIONS
During 1995, 1996 and 1997, the Company purchased in its ordinary course of
business certain components from Johnny's Propeller Shop, Inc., a company
wholly owned by John P. Conrad, Jr., Co-Chairman of the Board of Directors, in
the aggregate amount of approximately $140,000, $121,000 and $164,000. The
Company believes that such transactions were made on a competitive basis at
market prices.
Prior to the Offering, the Company distributed certain non-operating assets
to certain stockholders with an aggregate fair market value of approximately
$406,000. These assets included certain vehicles and boats.
In 1991, Conrad and J. Parker Conrad, Co-Chairman of the Board of Directors,
entered into a Key Executive Insurance Agreement pursuant to which each year
Conrad has paid $20,000 of the annual premium due under an insurance policy on
Mr. Conrad's life and Conrad was the beneficiary of $650,000 of the death
benefit under the policy. Conrad and Mr. Conrad have agreed to terminate this
agreement, thereby allowing Mr. Conrad to select the beneficiary of the death
benefit, prior to the completion of the Offering.
J. Parker Conrad has guaranteed the indebtedness under the Term Loan up to
$2 million for which he has not received any compensation. Mr. Conrad has also
guaranteed indebtedness of the Company from time to time for which he has not
received any compensation.
Certain members of the immediate families of the Company's executive
officers, directors and principal stockholders are employees of the Company or
its subsidiaries. William A. Hidalgo, Jr., the son of William A. Hidalgo, the
President and Chief Executive Officer, is an employee of Conrad and was paid
aggregate compensation of $62,000 and $66,550 during 1996 and 1997,
respectively. James Court, the husband of Katherine Court, is an employee of
Conrad and was paid aggregate compensation of $61,200, $85,800 and $89,350
during 1995, 1996 and 1997, respectively. Katherine Court is a principal
stockholder of the Company, the daughter of J. Parker Conrad and the sister of
John P. Conrad, Jr. Daniel Conrad, the son of John P. Conrad, Jr., is an
employee of Conrad and was paid aggregate compensation of $70,750 during 1997.
Messrs. Hidalgo and Hernandez executed promissory notes payable to the
Company bearing interest at 9.0% in the amounts of $239,870 and $97,400,
respectively, representing their tax liabilities paid by the Company in
connection with the issuance of shares of common stock of Conrad to them.
These notes will be repaid in full by Messrs. Hidalgo and Hernandez upon the
completion of the Offering.
Michael J. Harris, a nominee for director of the Company, is a Managing
Director of Morgan Keegan & Company, Inc. Morgan Keegan is the lead managing
underwriter of the Offering and has provided and may in the future provide
financial advisory services to the Company. See "Underwriting."
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates of
the Company are anticipated to be minimal, and must be approved in advance by
a majority of disinterested members of the Board of Directors.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock before and after giving
effect to the Offering, by (i) all persons known to the Company to be the
beneficial owner of 5% or more thereof, (ii) each director and nominee for
director, (iii) each executive officer and (iv) all executive officers and
directors as a group. Unless otherwise indicated, the address of each such
person is c/o Conrad, 150 Front Street, Post Office Box 790, Morgan City,
Louisiana 70381. All persons listed have sole voting and investment power with
respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
-----------------
BEFORE AFTER
SHARES OFFERING OFFERING
--------- -------- --------
<S> <C> <C> <C>
J. Parker Conrad................................... 1,166,270 22.4% 15.2%
John P. Conrad, Jr.(1)............................. 1,749,403 33.6 22.7
Katherine C. Court(2).............................. 1,744,813 33.6 22.7
William H. Hidalgo(3).............................. 385,695 7.4 5.0
Cecil A. Hernandez(3).............................. 153,819 3.0 2.0
All executive officers and directors as a group(4)
(4 persons)....................................... 3,455,187 66.4 44.9
</TABLE>
- --------
* Less than one percent.
(1) Includes 374,216 shares held by The John P. Conrad, Jr. Trust, 268,609
shares held by The Daniel T. Conrad Trust, 268,609 shares held by The
Glenn Alan Conrad Trust and 268,609 shares held by The Kenneth C. Conrad
Trust. Mr. Conrad, Jr. exercises voting and investment control over these
shares as Trustee for each of these Trusts.
(2) Includes 459,161 shares held by The Katherine C. Court Trust and 275,497
shares held by The James P. Court Trust. Ms. Court exercises voting and
investment control over these shares as Trustee for each of these trusts.
(3) Includes 385,695 shares of Common Stock issued to Mr. Hidalgo and 153,819
shares of Common Stock issued to Mr. Hernandez prior to the Offering.
192,847 and 76,909 shares of Common Stock owned by Messrs. Hidalgo and
Hernandez, respectively, will be restricted shares subject to forfeiture
by such officers under certain circumstances. See "Management--Employment
Agreements."
(4) Excludes shares beneficially owned by Katherine Court, who is the daughter
of J. Parker Conrad and the sister of John P. Conrad, Jr.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"). After the completion
of the Reorganization and prior to the completion of the Offering, there will
be 5,200,000 shares of Common Stock outstanding held of record by eleven
stockholders, and no shares of Preferred Stock outstanding. After the
consummation of the Offering, 7,700,000 shares of Common Stock will be issued
and outstanding, assuming no exercise of the Underwriters' over-allotment
option, and 700,000 shares of Common Stock will be reserved for issuance
pursuant to the Company's Stock Plan. The following summary of the terms and
provisions of the Company's capital stock does not purport to be complete and
is qualified in its entirety by reference to the Company's Charter and Bylaws,
which have been filed as exhibits to the Company's registration statement, of
which this Prospectus is a part, and applicable law.
COMMON STOCK
Voting Rights. Each share of Common Stock entitles the holder to one vote on
each matter submitted to a vote of the Company's stockholders, including the
election of directors. There is no cumulative voting. After the Offering, the
executive officers and directors of the Company and persons and entities
affiliated with them will hold approximately 67.5% of the issued and
outstanding Common Stock (64.4% if the Underwriters' over-allotment option is
exercised in full) and will hold the voting power to determine the outcome of
all matters upon which a majority vote of the stockholders of the Company is
required for approval. The Charter prohibits the taking of any action by
written stockholder consent in lieu of a meeting.
Dividends. The holders of Common Stock are entitled to receive dividends if,
as and when such dividends are declared by the Board of Directors of the
Company out of assets legally available therefor after payment of dividends
required to be paid on shares of Preferred Stock, if any.
Liquidation or Dissolution. Upon liquidation or dissolution, holders of
Common Stock are entitled to share ratably in all net assets available for
distribution to stockholders after payment of any liquidation preferences to
holders of Preferred Stock, if any.
Other Provisions. The Common Stock carries no conversion or preemptive
rights. All outstanding shares of Common Stock are, and the shares of Common
Stock to be sold by the Company in the Offering when issued will be, duly
authorized, validly issued, fully paid and nonassessable.
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Common Stock is American Stock Transfer & Trust Company.
Listing. Application has been made to list the Common Stock on the Nasdaq
National Market under the trading symbol "CNRD."
PREFERRED STOCK
Preferred Stock may be issued from time to time by the Board of Directors as
shares of one or more series. Subject to the provisions of the Company's
Charter and certain limitations prescribed by law, the Board of Directors is
expressly authorized to adopt resolutions to issue the shares, to fix the
number of shares constituting any series, and to provide for the voting
powers, designations, preferences and relative, participating, optional or
other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),
redemption prices, conversion rights and liquidation preferences of the shares
constituting any series of the Preferred Stock, in each case without any
further action or vote by the stockholders. The Company has no current plans
to issue any shares of Preferred Stock of any series.
54
<PAGE>
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. If, in the exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal was not in the Company's
best interest, such shares could be issued by the Board of Directors without
stockholder approval in one or more transactions that might prevent or make
more difficult or costly the completion of the takeover transaction by
diluting the voting or other rights of the proposed acquiror or insurgent
stockholder group, by creating a substantial voting block in institutional or
other hands that might undertake to support the position of the incumbent
Board of Directors, by effecting an acquisition that might complicate or
preclude the takeover, or otherwise. In this regard, the Company's Charter
grants the Board of Directors broad power to establish the rights and
preferences of the authorized and unissued Preferred Stock, one or more series
of which could be issued that would entitle holders (i) to vote separately as
a class on any proposed merger or consolidation, (ii) to cast a
proportionately larger vote together with the Common Stock on any such
transaction or for all purposes, (iii) to elect directors having terms of
office or voting rights greater than those of other directors, (iv) to convert
Preferred Stock into a greater number of shares of Common Stock or other
securities, (v) to demand redemption at a specified price under prescribed
circumstances related to a change of control or (vi) to exercise other rights
designated to impede a takeover. Accordingly, the issuance of shares of
Preferred Stock may discourage bids for the Common Stock at a premium or may
otherwise adversely affect the market price of the Common Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS AND DELAWARE LAW
Certain provisions of the Charter and Bylaws are intended to enhance the
likelihood of continuity and stability in the Board of Directors of the
Company and in its policies, but might have the effect of delaying or
preventing a change in control of the Company and may make more difficult the
removal of incumbent management even if such transactions could be beneficial
to the interests of stockholders. Set forth below is a summary description of
such provisions:
Number of Directors; Filling Vacancies; Removal. The Charter provides that
the number of directors constituting the Company's Board of Directors shall be
fixed by the Board of Directors, but shall not be less than three nor more
than 15. The Charter further provides that the directors shall be divided into
three classes, each class serving staggered three-year terms. The Board of
Directors of the Company, through a majority vote of the directors then in
office, may fill any vacancy, whether arising by death, resignation or removal
of a director, or through an increase in the number of directors of any class.
Advance Notice of Intention to Nominate a Director. The Charter and Bylaws
permit a stockholder to nominate a person for election as a director only if
written notice of such stockholder's intent to make a nomination has been
given to the Secretary of the Company not less than 60 days or more than 90
days prior to the anniversary of the annual meeting held for the immediately
preceding year (subject to certain adjustments if the annual meeting date is
changed by more than 30 days from the date of the prior annual meeting) or, in
the case of a special meeting at which directors are to be elected, not less
than 40 days notice or prior public disclosure of the date of the meeting is
given, in which case notice by the stockholder must be received no later than
the 10th day following the day notice of the meeting was mailed or prior
public disclosure of the date of the meeting was given. This provision also
requires that the stockholder's notice set forth, among other things, a
description of all arrangements or understandings between the nominee and the
stockholder pursuant to which the nomination is to be made or the nominee is
to be elected and such other information regarding the nominee as would be
required to be included in a proxy statement filed pursuant to the proxy rules
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), had the nominee been nominated by the Board of Directors of
the Company. Any nomination that fails to comply with these requirements may
be disqualified.
55
<PAGE>
Stockholder Proposals. The Bylaws provide that only the Board of Directors
may bring business before a special meeting of the Company's stockholders. The
Bylaws further provide that at any annual meeting of stockholders, any
business to be conducted must be brought either by the Board of Directors or
by a stockholder who has complied with the procedures set forth in the Bylaws.
These procedures include notice in writing to the Company not less than 60
days nor more than 90 days prior to the anniversary of the annual meeting held
for the immediately preceding year.
Stockholders' Right to Call Special Meeting. The Charter and Bylaws provide
that a special stockholders' meeting may not be called by stockholders.
Removal of Directors; Filling Vacancies on Board of Directors. The Bylaws
provide that any director or the entire Board of Directors may be removed at
any time for cause by a vote of the holders of not less than a majority of the
shares of the Company entitled to vote in the election of directors. The
Bylaws also provide that any vacancies on the Board of Directors (including
any resulting from an increase in the authorized number of directors) may be
filled by the affirmative vote of a majority of the remaining directors.
Adoption and Amendment of Bylaws. The Bylaws provide that they may be
amended or repealed by either a majority vote of the Board of Directors or the
holders of at least 80% of the total voting power of all shares of stock of
the Company entitled to vote in the election of directors voting as one class.
Any provisions amended or repealed by the stockholders may be re-amended or
re-adopted by the Board of Directors.
Amendment of Certain Provisions of the Charter; Other Corporate Action.
Under Delaware law, unless a corporation's certificate of incorporation
specify otherwise, a corporation's certificate of incorporation may be amended
by the affirmative vote of the holders of a majority of the voting power of
each class of stock entitled to vote thereon. The Charter requires the
affirmative vote of not less than 80% of the total voting power of the Company
to amend, alter or repeal certain provisions of the Company's Charter with
respect to (i) the classification, filling of vacancies and removal of the
Board of Directors, (ii) amendments to the Bylaws, (iii) limitation of
liability of directors, (iv) the authority of the Board of Directors to create
and issue rights entitling holders thereof to purchase shares of capital stock
of the Company or other securities and (v) any amendments to the provisions
relating to this requirement in the Charter.
Anti-takeover Provisions. Delaware law permits a corporation's board of
directors to adopt certain anti-takeover measures in response to proposals to
acquire the corporation, its assets or its outstanding capital stock. Measures
to be adopted could include a stockholder rights plan or bylaw provisions
requiring supermajority stockholder approval of acquisition proposals.
Limitation on Personal Liability of Directors. Delaware law authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for breach of
director's fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors must exercise an informed business
judgment based on all material information reasonably available to them.
Absent the limitations authorized by Delaware law, directors are accountable
to corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such
as injunction or rescission. The Charter limits the liability of directors of
the Company to the Company or its stockholders (in their capacity as directors
but not in their capacity as officers) to the fullest extent permitted by
Delaware law. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit
56
<PAGE>
against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders.
Indemnification Arrangements. The Charter and Bylaws provide that, to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, the directors and officers of the Company shall be indemnified and
shall be advanced expenses in connection with actual or threatened proceedings
and claims arising out of their status as such. The Company has entered into
indemnification agreements with each of its directors and executive officers
that provide for indemnification and expense advancement to the fullest extent
permitted under the General Corporation Law of the State of Delaware.
No Action by Written Consent. The Charter prohibits the taking of any action
by written stockholder consent in lieu of a meeting. Such provisions may not
be amended or repealed without the affirmative vote of the holders of at least
80% of the capital stock of the Company entitled to vote on such matters.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware ("Section 203"). Section 203
provides, with certain exceptions, that a Delaware corporation may not engage
in any of a broad range of business combinations with a person or an
affiliate, or associate of such person, who is an "interested stockholder" for
a period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the Board
of Directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
such person an interested stockholder (excluding shares owned by persons who
are both officers and directors of the corporation, and shares held by certain
employee stock ownership plans), or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15%
or more of the outstanding voting stock of the corporation or (ii) an
affiliate or associate of the corporation and who was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by including in its certificate of incorporation or bylaws by
action of its stockholders to exempt itself from coverage. The Company has not
adopted such a provision in its Charter or Bylaws.
REGISTRATION RIGHTS
Pursuant to the terms of a Registration Rights Agreement among the Company
and each of the stockholders of the Company immediately prior to the Offering
(the "Registration Agreement"), the Company will provide such stockholders
with certain registration rights, including a maximum of three demand
registration rights that may be exercised by the stockholder group or certain
members of the group and certain piggyback registration rights, with respect
to Common Stock owned by such stockholders. The Company's obligation is
subject to certain limitations relating to a minimum amount of Common Stock
required for registration, the timing of registration and other similar
matters. For example, the Company will not be obligated to register the Common
Stock when, in the good faith judgment of its Board of Directors, such
registration would materially adversely affect a pending or proposed public
offering of the Company's securities, provided that such delay may not extend
for more than 180 days. The Company will indemnify such stockholders for
certain liabilities in connection with any such offering, other than
liabilities resulting or arising from untrue statements or omissions made in
conformity with information furnished to the Company in writing by any such
stockholder. The
57
<PAGE>
Company is obligated to pay all expenses incidental to any such registration,
excluding underwriters' discounts and commissions and certain legal fees and
expenses of such stockholders.
Pursuant to the Warrant Agreement and related Registration Rights Agreement
with Morgan Keegan & Company, Inc., the Company has also granted to Morgan
Keegan & Company, Inc. one demand registration right exercisable not earlier
than one year after the closing date of the Offering and certain piggyback
registration rights with respect to the shares of Common Stock underlying the
warrants. The obligations and limitations of the Company with respect to these
registration rights are otherwise similar to those provided to the
stockholders under the Registration Agreement described above.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 7,700,000 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option and excluding 375,000 shares issuable upon the exercise of
outstanding options). The 2,500,000 shares sold in the Offering plus any
additional shares sold upon the Underwriters' exercise of their over-allotment
option, except for shares acquired by affiliates of the Company, will be
freely tradeable without restriction under the Securities Act by persons who
are not deemed to be affiliates of the Company or acting as underwriters, as
those terms are defined in the Securities Act. The remaining 5,200,000 shares
of Common Stock held by existing stockholders were acquired in transactions
not requiring registration under the Securities Act, and, accordingly, will be
"restricted" stock within the meaning of Rule 144. Consequently, such shares
may not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration, including the exemption contained
in Rule 144 under the Securities Act.
In general, under Rule 144, as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned his or her shares for
at least one year, or a person who may be deemed an "affiliate" of the Company
who has beneficially owned shares for at least one year, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock or the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the proposed sale is sent to the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person who is not deemed to
have been an affiliate of the Company at any time for 90 days preceding a sale
and who has beneficially owned his shares for at least two years would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements or the
availability of current public information about the Company.
The Company has authorized the issuance of 700,000 shares of its Common
Stock in accordance with the terms of the Stock Plan. As of the date of this
Prospectus, options to purchase an aggregate of 130,000 shares of Common Stock
have been granted under the Stock Plan. See "Management--Stock Plan." The
Company intends to file a registration statement on Form S-8 under the
Securities Act registering the issuance of shares upon exercise of options
granted under the Stock Plan. As a result, such shares will be eligible for
resale in the public market.
The Company and each of its directors, executive officers and other
stockholders have agreed that they will not, with certain limited exceptions,
issue, offer for sale, sell, transfer, grant options to purchase or otherwise
dispose of any shares of Common Stock (other than stock issued or options
granted pursuant to the Company's Stock Plan) without the prior written
consent of the Underwriters for a period of 180 days from the date of this
Prospectus.
Prior to this Offering, there has been no established trading market for the
Common Stock, and there can be no assurance that a significant public market
for the Common Stock will develop or be sustained after the Offering. Any
future sale of substantial amounts of Common Stock in the open market may
adversely effect the market price of the Common Stock offered hereby.
All of the Company's existing stockholders, whose holdings immediately
following the closing of this Offering will aggregate 5,200,000 shares of
Common Stock, are entitled to certain rights with respect to the registration
of their shares of Common Stock under the Securities Act. In addition, the
Company has granted holders of the warrants to be issued to Morgan Keegan &
Company, Inc. upon completion of the Offering and the holders of the
underlying Common Stock certain registration rights with respect to the Common
Stock underlying the warrants. See "Description of Capital Stock--Registration
Rights."
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company and the Underwriters named below (the "Underwriting Agreement"), the
Underwriters named below, who are represented by Morgan Keegan & Company, Inc.
and Raymond James & Associates, Inc. (the "Representatives"), have severally
agreed to purchase from the Company, and the Company has agreed to sell to
each Underwriter, the respective numbers of shares of Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
------------ ------------
<S> <C>
Morgan Keegan & Company, Inc.................................
Raymond James & Associates, Inc..............................
---------
Total...................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligation of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby is subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all such shares, excluding shares
covered by the over-allotment option, if any are purchased. The Underwriters
have informed the Company that they do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The Company has been advised by the Underwriters that they propose initially
to offer the shares of Common Stock in part directly to the public at the
initial public offering price set forth on the cover page of this Prospectus
and in part to certain securities dealers at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain brokers and
dealers. After the shares of the Common Stock are released for sale to the
public, the offering price and other selling terms may be varied by the
Representatives at any time without notice.
The Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described below.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a
60
<PAGE>
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Company has granted to the Underwriters an option, exercisable at any
time within 30 days after the date of this Prospectus, to purchase, in whole
or in part, up to an aggregate of 375,000 additional shares of Common Stock at
the initial public offering price less underwriting discounts and commissions.
The Underwriters may exercise such option solely to cover over-allotments, if
any, made in connection with the Offering. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to
certain conditions, to purchase its pro rata portion of such additional shares
based on such Underwriter's percentage underwriting commitment as indicated in
the preceding table.
Each of the Company, its executive officers and directors and the other
stockholders of the Company, who beneficially own an aggregate of 5,200,000
shares of Common Stock, has agreed, subject to certain exceptions, not to (i)
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any
of the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise) for
a period of 180 days after the date of this Prospectus without the prior
written consent of Morgan Keegan & Company, Inc. In addition, during such
period the Company has also agreed not to file any registration statement with
respect to, and each of its executive officers, directors and other
stockholders of the Company has agreed, subject to certain exceptions, not to
make any demand for, or exercise any right with respect to, the registration
of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without the prior written consent
of Morgan Keegan & Company, Inc.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the shares of Common Stock offered
hereby has been negotiated between the Company and the Representatives. Among
the factors to be considered in determining the initial public offering price
will be the history of and the prospects for the industry in which the Company
competes, the past and present operations of the Company, the prospects for
future earnings of the Company, the recent market prices of securities of
generally comparable companies and the general condition of the securities
markets at the time of the Offering. There can be no assurance, however, that
the prices at which the Common Stock will sell in the public market after the
Offering will not be lower than the initial public offering price.
The Company has made an application to list the Common Stock on the Nasdaq
National Market under the symbol "CNRD." The Company has been advised by the
Representatives that each of the Representatives presently intends to make a
market in the Common Stock offered hereby; the Representatives are not obliged
to do so, however, and any market making activity may be discontinued at any
time. There can be no assurance that an active public market for the Common
Stock will develop and continue after the Offering.
The Company and certain of its stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
At the request of the Company, the Underwriters have reserved approximately
187,500 shares of Common Stock for sale at the initial public offering price
to directors, officers, employees, business associates and related
61
<PAGE>
persons of the Company. The number of shares of Common Stock available for
sale to the general public will be reduced to the extent such persons purchase
the reserved shares. Any reserved shares which are not purchased will be
offered by the Underwriters to the general public on the same basis as the
other shares offered hereby.
Morgan Keegan & Company, Inc. has provided and may in the future provide
financial advisory services to the Company for which its has received or
expects to receive fees and reimbursement of expenses. Morgan Keegan &
Company, Inc. provided financial advisory services to the Company prior to the
Offering, including financial advice in connection with the Orange
Acquisition, for which it has been paid fees of approximately $270,000 and
will be issued, upon completion of the Offering, warrants to purchase up to
77,000 shares of Common Stock exercisable for five years at the initial public
offering price per share. The warrants, or Common Stock purchased upon the
exercise thereof, may not be sold, transferred, assigned, pledged or
hypothecated (except by operation of law or by reason of reorganization of the
Company) for one year following the effective date of the registration
statement of which this Prospectus is a part, except to members of the
National Association of Securities Dealers, Inc. participating in the Offering
and the officers and partners thereof. The warrants contain anti-dilution
provisions providing for the adjustment of the number of shares of Common
Stock and exercise price under certain circumstances. The warrants also grant
to the holders thereof and the holders of the underlying Common Stock certain
registration rights with respect to the Common Stock underlying the warrants.
See "Description of Capital Stock--Registration Rights."
Michael J. Harris, a nominee for director of the Company, is a Managing
Director of Morgan Keegan & Company, Inc.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock being
offered hereby will be passed upon for the Company by Andrews & Kurth L.L.P.,
and for the Underwriters by Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P.
EXPERTS
The balance sheet of the Company as of March 31, 1998, the financial
statements of Conrad as of December 31, 1996 and 1997 and for each of the
three years in the period ended December 31, 1997, and the financial
statements of Orange Shipbuilding as of September 30, 1996 and 1997 and for
each of the two years in the period ended September 30, 1997 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as indicated in their reports appearing herein, and have been so included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
In November 1997, Conrad's Board of Directors replaced Darnall, Sikes &
Frederick CPAs with Deloitte & Touche LLP, independent public accountants. The
report of Darnall, Sikes & Frederick CPAs on Conrad's financial statements as
of and for the year ended December 31, 1996 did not contain an adverse opinion
or disclaimer of opinion and was not modified as to uncertainty, audit scope
or accounting principles. There were no disagreements or reportable events
with Darnall, Sikes & Frederick CPAs on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure
during the year ended December 31, 1996 or during the subsequent interim
period through the date of dismissal with respect to Conrad's financial
statements as of and for the year ended December 31, 1996. Prior to retaining
Deloitte & Touche LLP, neither the Company nor Conrad had consulted with
Deloitte & Touche LLP regarding accounting principles.
62
<PAGE>
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements of
the Exchange Act. The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (together
with all amendments, schedules and exhibits thereto the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which is included as part of the Registration
Statement, does not contain all the information contained in the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Statements made
in the Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected, without charge, at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Room 1400, Chicago, IL 60661, and 7 World
Trade Center, Suite 1300, New York, NY 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission at http://www.sec.gov. The Company has made an application to list
the Common Stock for quotation on the Nasdaq National Market and, if approved
for listing, the Company will be required to file with The Nasdaq Stock Market
copies of certain documents and information filed with the Commission if such
documents are not filed electronically with the Commission, and any such
documents and information may be inspected at the offices of The Nasdaq Stock
Market at 1735 K Street, Washington, D.C. 20006.
Upon completion of this Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith, will file periodic reports,
proxy statements and other information with the Commission. The Company
intends to furnish its stockholders with annual reports containing audited
financial statements certified by independent public accountants.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF CONRAD SHIPYARD, INC.
Independent Auditors' Report............................................ F-2
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998
(unaudited)............................................................ F-3
Statements of Operations for the Years Ended December 31, 1995, 1996 and
1997 and the Three Months Ended March 31, 1997 and 1998 (unaudited).... F-4
Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March 31, 1998
(unaudited)............................................................ F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997 and the Three Months Ended March 31, 1997 and 1998 (unaudited).... F-6
Notes to Financial Statements........................................... F-7
FINANCIAL STATEMENTS OF ORANGE SHIPBUILDING COMPANY, INC.
Independent Auditors' Report............................................ F-15
Balance Sheets as of September 30, 1996 and 1997........................ F-16
Statements of Operations for the Years Ended September 30, 1996 and 1997
and the Three Months Ended December 31, 1997 (unaudited)............... F-17
Statements of Stockholders' Equity for the Years Ended September 30,
1996 and 1997.......................................................... F-18
Statements of Cash Flows for the Years Ended September 30, 1996 and 1997
and the Three Months Ended December 31, 1997 (unaudited)............... F-19
Notes to Financial Statements........................................... F-20
FINANCIAL STATEMENT OF CONRAD INDUSTRIES, INC.
Independent Auditors' Report............................................ F-24
Balance Sheet as of March 31, 1998...................................... F-25
Notes to Balance Sheet.................................................. F-26
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of March 31, 1998............... F-29
Pro Forma Combined Statement of Operations for the Year Ended December
31, 1997............................................................... F-30
Notes to Pro Forma Financial Statements................................. F-31
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Conrad Shipyard, Inc.
We have audited the accompanying balance sheets of Conrad Shipyard, Inc. as
of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
Conrad's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Conrad Shipyard, Inc. at December 31, 1996
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
March 31, 1998
New Orleans, Louisiana
F-2
<PAGE>
CONRAD SHIPYARD, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
PRO FORMA
MARCH 31,
MARCH 31, 1998 (NOTE
1996 1997 1998 2)
----------- ----------- ----------- -----------
ASSETS (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.. $ 3,209,000 $ 7,551,000 $ 5,792,000 $ 4,192,000
Accounts receivable, net... 2,496,000 4,467,000 5,407,000 5,407,000
Costs and estimated
earnings in excess of
billings on uncompleted
contracts................. 604,000 2,499,000 2,511,000 2,511,000
Inventories................ 137,000 139,000 178,000 178,000
Other current assets....... 241,000 638,000 1,078,000 1,078,000
----------- ----------- ----------- -----------
Total current assets..... 6,687,000 15,294,000 14,966,000 13,366,000
PROPERTY, PLANT AND
EQUIPMENT, net.............. 8,514,000 18,304,000 19,025,000 18,619,000
COST IN EXCESS OF NET ASSETS
ACQUIRED.................... -- 15,294,000 15,099,000 15,099,000
OTHER ASSETS................. 35,000 53,000 310,000 310,000
----------- ----------- ----------- -----------
TOTAL ASSETS................. $15,236,000 $48,945,000 $49,400,000 $47,394,000
=========== =========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........... $ 641,000 $ 1,997,000 $ 1,633,000 $ 1,633,000
Accrued employee costs..... 292,000 448,000 744,000 744,000
Accrued expenses........... 226,000 725,000 681,000 681,000
Current maturities of long-
term debt................. 661,000 1,801,000 2,618,000 2,618,000
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... 465,000 2,563,000 1,625,000 1,625,000
Revolving credit facility.. -- -- -- 10,000,000
----------- ----------- ----------- -----------
Total current
liabilities............. 2,285,000 7,534,000 7,301,000 17,301,000
LONG-TERM DEBT, less current
maturities.................. 572,000 23,537,000 22,916,000 22,916,000
DEFERRED INCOME TAXES........ -- 2,595,000 2,572,000 3,202,000
----------- ----------- ----------- -----------
Total liabilities........ 2,857,000 33,666,000 32,789,000 43,419,000
----------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
(Note 10)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par
value, 20,000,000 shares
authorized, 4,660,486
shares outstanding in 1996
and 1997 and 5,200,000
shares outstanding in
1998...................... 47,000 47,000 52,000 52,000
Additional paid-in capital. 156,000 156,000 8,783,000 8,239,000
Unearned stock
compensation.............. -- -- (4,316,000) (4,316,000)
Retained earnings.......... 12,176,000 15,076,000 12,092,000 --
----------- ----------- ----------- -----------
Total stockholders'
equity.................. 12,379,000 15,279,000 16,611,000 3,975,000
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY............. $15,236,000 $48,945,000 $49,400,000 $47,394,000
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
CONRAD SHIPYARD, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE................. $20,914,000 $23,174,000 $22,117,000 $5,546,000 $11,569,000
COST OF REVENUE......... 16,660,000 17,003,000 15,032,000 3,810,000 8,140,000
----------- ----------- ----------- ---------- -----------
GROSS PROFIT............ 4,254,000 6,171,000 7,085,000 1,736,000 3,429,000
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 1,497,000 1,847,000 2,242,000 493,000 888,000
EXECUTIVE COMPENSATION
EXPENSE................ -- -- -- -- 4,316,000
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) FROM
OPERATIONS............. 2,757,000 4,324,000 4,843,000 1,243,000 (1,775,000)
INTEREST EXPENSE........ (152,000) (96,000) (126,000) (11,000) (503,000)
OTHER INCOME............ 40,000 70,000 188,000 -- 93,000
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES........... 2,645,000 4,298,000 4,905,000 1,232,000 (2,185,000)
PROVISION FOR INCOME
TAXES.................. -- -- -- -- 293,000
----------- ----------- ----------- ---------- -----------
NET INCOME (LOSS)....... $ 2,645,000 $ 4,298,000 $ 4,905,000 $1,232,000 $(2,478,000)
=========== =========== =========== ========== ===========
Net income (loss) per
common share:
Basic and diluted..... $ 0.57 $ 0.92 $ 1.05 $ 0.26 $ (0.53)
=========== =========== =========== ========== ===========
Weighted average common
shares outstanding:
Basic and diluted..... 4,660,000 4,660,000 4,660,000 4,660,000 4,666,000
=========== =========== =========== ========== ===========
Unaudited pro forma data
(Note 2):
Net income (loss)
reported above....... $ 2,645,000 $ 4,298,000 $ 4,905,000 $1,232,000 $(2,478,000)
Pro forma provision
for income taxes
related to operations
as S corporation..... 979,000 1,590,000 1,815,000 456,000 125,000
----------- ----------- ----------- ---------- -----------
Pro forma net income
(loss)............... $ 1,666,000 $ 2,708,000 $ 3,090,000 $ 776,000 $(2,603,000)
=========== =========== =========== ========== ===========
Unaudited pro forma per
share data (Note 2):
Pro forma net income
(loss) per share
(using 5,342,000
shares in 1997 and
5,348,000 shares in
1998)................ $ 0.58 $ (0.49)
=========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
CONRAD SHIPYARD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
$0.01 PAR VALUE ADDITIONAL UNEARNED
----------------- PAID-IN STOCK RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
--------- ------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1995................... 4,660,000 $47,000 $ 156,000 $ -- $ 7,745,000 $ 7,948,000
Distributions........... -- -- -- -- (561,000) (561,000)
Net income.............. -- -- -- -- 2,645,000 2,645,000
--------- ------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1995................... 4,660,000 47,000 156,000 -- 9,829,000 10,032,000
Distributions........... -- -- -- -- (1,951,000) (1,951,000)
Net income.............. -- -- -- -- 4,298,000 4,298,000
--------- ------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1996................... 4,660,000 47,000 156,000 -- 12,176,000 12,379,000
Distributions........... -- -- -- -- (2,005,000) (2,005,000)
Net income.............. -- -- -- -- 4,905,000 4,905,000
--------- ------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1997................... 4,660,000 47,000 156,000 -- 15,076,000 15,279,000
Distributions........... -- -- -- -- (506,000) (506,000)
Stock issued to
executives............. 540,000 5,000 8,627,000 (4,316,000) -- 4,316,000
Net loss................ -- -- -- -- (2,478,000) (2,478,000)
--------- ------- ---------- ----------- ----------- -----------
BALANCE, MARCH 31, 1998
(UNAUDITED)............ 5,200,000 $52,000 $8,783,000 $(4,316,000) $12,092,000 $16,611,000
========= ======= ========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
CONRAD SHIPYARD, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $2,645,000 $4,298,000 $ 4,905,000 $1,232,000 $(2,478,000)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization......... 722,000 798,000 850,000 213,000 547,000
Deferred income tax
benefit.............. -- -- -- -- (84,000)
Provision for bad
debts................ 12,000 510,000 -- -- --
Executive compensation
expense.............. -- -- -- -- 4,316,000
Other................. -- 115,000 -- -- --
Changes in assets and
liabilities, net of
effect of
acquisition:
Accounts receivable.. (678,000) (752,000) (1,086,000) 723,000 (940,000)
Net change in
billings related to
cost and estimated
earnings on
uncompleted
contracts........... 219,000 139,000 794,000 (624,000) (950,000)
Inventory and other
assets.............. (122,000) 337,000 (35,000) (255,000) (736,000)
Accounts payable and
accrued expenses.... 806,000 (132,000) 686,000 142,000 (51,000)
---------- ---------- ------------ ---------- -----------
Net cash provided by
(used in) operating
activities......... 3,604,000 5,313,000 6,114,000 1,431,000 (376,000)
---------- ---------- ------------ ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of
subsidiary, net of
cash acquired........ -- -- (22,819,000) -- --
Capital expenditures
for plant and
equipment............ (1,120,000) (1,961,000) (1,053,000) (168,000) (1,073,000)
---------- ---------- ------------ ---------- -----------
Net cash used in
investing
activities......... (1,120,000) (1,961,000) (23,872,000) (168,000) (1,073,000)
---------- ---------- ------------ ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of debt.............. 322,000 1,229,000 25,338,000 -- 524,000
Principal repayments
of debt.............. (384,000) (1,897,000) (1,233,000) (637,000) (328,000)
Distributions to
stockholders......... (561,000) (1,951,000) (2,005,000) (396,000) (506,000)
---------- ---------- ------------ ---------- -----------
Net cash provided by
(used in) financing
activities......... (623,000) (2,619,000) 22,100,000 (1,033,000) (310,000)
---------- ---------- ------------ ---------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 1,861,000 733,000 4,342,000 230,000 (1,759,000)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF YEAR............... 615,000 2,476,000 3,209,000 3,209,000 7,551,000
---------- ---------- ------------ ---------- -----------
CASH AND CASH
EQUIVALENTS, END OF
YEAR.................. $2,476,000 $3,209,000 $ 7,551,000 $3,439,000 $ 5,792,000
========== ========== ============ ========== ===========
SUPPLEMENTAL
DISCLOSURES CASH FLOWS
INFORMATION:
Interest paid......... $ 156,000 $ 99,000 $ 20,000 $ 11,000 $ 608,000
========== ========== ============ ========== ===========
NONCASH ACTIVITIES:
Issuance of stock to
executives........... $ -- $ -- $ -- $ -- $ 4,316,000
========== ========== ============ ========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation--Conrad Shipyard, Inc. ("Conrad"), a
Louisiana corporation, is engaged in the construction, conversion and repair
of a variety of marine vessels for commercial and government customers. New
construction work and the majority of repair work is performed on a fixed-
price basis, but Conrad also performs some repair work under cost-plus-fee
agreements.
On December 12, 1997, Conrad acquired all of the outstanding shares of
Orange Shipbuilding Company, Inc. ("Orange Shipbuilding") for $25,817,000 (see
Note 3). The accompanying balance sheet of Conrad as of December 31, 1997
includes the assets acquired and liabilities assumed of Orange Shipbuilding
based upon preliminary estimates of fair values. Conrad does not believe that
the final purchase price allocation will differ significantly from the
preliminary purchase price allocation. Due to the close proximity of the
acquisition date to Conrad's fiscal year end, results of operations subsequent
to the acquisition for Orange Shipbuilding are not included in Conrad's
accompanying statement of operations for the year ended December 31, 1997. The
results of operations of Orange Shipbuilding from the date of acquisition to
the end of Conrad's 1997 fiscal year were not significant.
In anticipation of an initial public offering of equity securities during
1998 (the "Offering"), Conrad Industries, Inc. (the "Company"), a newly formed
Delaware corporation was incorporated in March 1998 to serve as the holding
company for Conrad and Orange Shipbuilding. The current stockholders of Conrad
have entered into an exchange agreement (the "Exchange Agreement") pursuant to
which they will exchange their shares of common stock of Conrad for shares of
common stock of the Company (the "Reorganization"). In accordance with the
terms of the Exchange Agreement, the stockholders of Conrad will receive a
number of shares of common stock of the Company in direct proportion to their
relative shareholdings in Conrad. As a result of the Reorganization, the
Company will be a holding company whose only assets will consist of all of the
outstanding shares of capital stock of Conrad. Conrad will continue to own all
of the outstanding stock of Orange Shipbuilding. Immediately after the
Reorganization, the Company's authorized capital stock will consist of 5
million shares of preferred stock, $.01 par value, none of which will be
issued and 20 million shares of common stock, $.01 par value, of which
4,660,486 shares will be issued and outstanding, excluding 539,514 shares
issued to certain executive officers upon the exchange of shares of Conrad
common stock issued to them during the first quarter of 1998. The accompanying
financial statements reflect this change in capital stock that will result
from the Reorganization for all periods presented.
Prior to the Reorganization and the completion of the Offering, Conrad's
current stockholders will make an election terminating Conrad's S corporation
status and will become subject to federal and state tax thereafter (see Note
2).
Unaudited Interim Financial Statements--The unaudited financial statements
at March 31, 1998 and for the three months ended March 31, 1997 and 1998 have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (such adjustments consisting only
of a normal recurring nature) considered necessary for a fair presentation
have been included.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
At March 31, 1998, Conrad is in compliance with all covenants of the Term
Loan discussed in Note 6, except as waived by the lender.
F-7
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition--Conrad is engaged in various types of construction
under long-term construction contracts. The accompanying financial statements
have been prepared using the percentage-of-completion method of accounting
and, therefore, take into account the estimated cost, estimated earnings and
revenue to date on contracts not yet completed. The amount of revenue
recognized is equal to the portion of the total contract price that the labor
hours incurred to date bears to the estimated total labor hours, based on
current estimates to complete. This method is used because management
considers expended labor hours to be the best available measure of progress on
these contracts. Revenues from cost-plus-fee contracts are recognized on the
basis of cost incurred during the period plus the fee earned.
Contract costs include all direct material, labor, and subcontracting costs,
and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs, depreciation, and insurance costs. Revisions
in estimates of costs and earnings during the course of the work are reflected
in the accounting period in which the facts which require the revision become
known. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
Indirect costs are allocated to contracts and to self-constructed equipment
and improvements on the basis of direct labor charges.
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
on deposit and short-term investments with original maturities of three months
or less.
Property, Plant and Equipment--Property, plant and equipment is stated at
cost. Depreciation is recorded using the straight-line method over the
estimated useful lives of the individual assets which range from three to
forty years. Ordinary maintenance and repairs which do not extend the physical
or economic lives of the plant or equipment are charged to expense as
incurred. Management reviews property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the related carrying
amount may not be recoverable. When required, impairment losses are recognized
based on the excess of the asset's carrying amount over its fair value.
Cost in Excess of Net Assets Acquired--Cost in excess of net assets acquired
is amortized on a straight-line basis over twenty years. Management of Conrad
periodically reviews the carrying value of the excess cost in relation to the
current and expected undiscounted cash flows of the business which benefits
therefrom in order to assess whether there has been a permanent impairment of
the excess cost of the net purchased assets.
Inventories--Inventories consist primarily of excess job cost items and
supplies. They are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis.
Income Per Share--In 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 requires the replacement of previously reported primary
and fully diluted earnings per share required by Accounting Principles Board
Opinion No. 15 with basic earnings per share and diluted earnings per share.
The calculation of basic earnings per share excludes any dilutive effect of
stock options, while diluted earnings per share includes the dilutive effect
of stock options. Per share and weighted average share amounts for all years
presented have been restated to conform to the requirements of SFAS 128.
F-8
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes--Conrad's stockholders have elected to have Conrad taxed as an
S corporation for federal income tax purposes whereby stockholders are liable
for individual federal income taxes on their allocated portions of Conrad's
taxable income. Accordingly, the historical financial statements do not
include any provision for income taxes.
Shortly before the closing of the proposed Offering, Conrad's stockholders
will elect to terminate Conrad's status as an S corporation, and Conrad will
become subject to federal and state income taxes. This will result in the
establishment of a net deferred tax liability calculated at applicable federal
and state income tax rates (see Note 2).
Fair Value of Financial Instruments--The carrying amounts of Conrad's
financial instruments including cash and cash equivalents, receivables,
payables and long-term debt closely approximates fair value at December 31,
1997 and 1996.
New Accounting Pronouncements--During 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 provides guidance for the
presentation and display of comprehensive income. SFAS 131 establishes
standards for disclosure of operating segments, products, services, geographic
areas and major customers. Conrad is required to adopt both standards for its
fiscal year ended December 31, 1998. Management believes that the
implementation of SFAS 130 and SFAS 131 will not have a material impact on the
presentation of Conrad's financial statements, but may require additional
disclosure.
2. TERMINATION OF S CORPORATION STATUS (UNAUDITED)
Conrad has operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad currently pays no federal or
state income tax, and the entire earnings of Conrad are subject to tax only at
the stockholder level. Prior to the Reorganization and the completion of the
Offering, Conrad's current stockholders will make an election terminating
Conrad's S corporation status. Thereafter, Conrad will become subject to
corporate level income taxation. As a result of its conversion from an S
corporation to a C corporation, Conrad estimates that it will be required to
record as a one-time charge to earnings a deferred tax liability in the amount
of approximately $630,000 in the second quarter of 1998.
In the past, Conrad has made distributions to its stockholders in order to
provide a cash return to them and to fund their federal and state income tax
liabilities that resulted from Conrad's S corporation status. In accordance
with this practice, since January 1, 1998, Conrad has distributed
approximately $506,000 to its current stockholders and estimates that it will
distribute an additional $1.6 million prior to the completion of the Offering
to fund the stockholders' federal and state income tax liabilities through the
date of termination of its S corporation status. Conrad intends to make an
additional distribution to its current stockholders of approximately $10.0
million, which amount represents undistributed earnings of Conrad, estimated
through the date of the termination of Conrad's S corporation status, on which
Conrad's current stockholders will have incurred federal and state income
taxes. Conrad also expects to make a distribution of certain nonoperating
assets with a fair market value of approximately $406,000 (which approximates
book value) to certain of its stockholders prior to the completion of the
Offering. The distributions of cash and non-operating assets (the "Shareholder
Distributions") will be made prior to the completion of the Offering, and
Conrad intends to fund part of the cash portion of the Shareholder
Distributions with borrowings under its Revolving Credit Facility, which
borrowings will be repaid with proceeds of the Offering.
The pro forma balance sheet of Conrad as of March 31, 1998 reflects a
deferred income tax liability of $630,000 resulting from the assumed
termination of the S Corporation status, the distribution of nonoperating
F-9
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
assets, an accrual of $1,600,000 for the current tax distributions to
stockholders, and borrowings of $10.0 million under the Revolving Credit
Facility to fund the additional distribution of undistributed earnings to
stockholders.
Pro forma net income per share consists of Conrad's historical income as an
S corporation, adjusted for income taxes that would have been recorded had
Conrad operated as a C corporation. This amount is divided by the weighted
average shares of common stock outstanding which are increased to reflect
sufficient additional shares to pay the $10.0 million distribution of
estimated undistributed earnings to shareholders (681,199 shares). All such
additional shares are based on an assumed offering price of $16.00 per share,
net of offering expenses.
3. ACQUISITION
On December 12, 1997, Conrad acquired all of the outstanding shares of
common stock of Orange Shipbuilding, a shipyard in Orange, Texas, for
$25,817,000, which includes the costs of acquisition. The acquisition was
funded with a $25,000,000 promissory note (see Note 6) and existing cash. The
acquisition has been accounted for under the purchase method. The purchase
price was allocated to the net assets acquired (net book value of $6,758,000)
based on their estimated fair values at the date of acquisition, as follows:
<TABLE>
<S> <C>
Current assets, other than cash.................................... $ 1,857,000
Property, plant and equipment...................................... 9,588,000
Liabilities assumed................................................ (3,920,000)
Cost in excess of net assets acquired.............................. 15,294,000
-----------
Purchase price, net of cash acquired ($2,998,000).................. $22,819,000
===========
</TABLE>
Prior to the sale of its common stock to Conrad, the former stockholders of
Orange Shipbuilding elected to terminate its status as an S corporation for
federal income tax purposes. Accordingly, it became liable for federal income
taxes beginning October 1, 1997. The liabilities assumed by Conrad include a
current income tax liability of approximately $515,000 related to the
operations of Orange Shipbuilding from October 1, 1997 until the acquisition
date and a deferred income tax liability of $2,595,000 primarily relating to
the difference in the book and tax basis of property and equipment at the
acquisition date.
The following unaudited pro forma summary presents the consolidated results
of operations of Conrad as if the acquisition had occurred on January 1, 1996
and includes the financial information of Orange Shipbuilding for its fiscal
years ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenues............................................... $29,636,000 $35,922,000
=========== ===========
Net income............................................. $ 2,201,000 $ 7,185,000
=========== ===========
Net income per common share:
Basic and diluted.................................... $ 0.47 $ 1.54
=========== ===========
Pro forma net income adjusted for income taxes related
to operations as
S corporation......................................... $4,644,000
===========
Pro forma net income per share......................... $ 0.87
===========
</TABLE>
The above unaudited pro forma amounts have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill, additional depreciation expense for assets
recorded at fair market value at the date of acquisition, additional interest
expense for borrowings, and an adjustment to conform the revenue recognition
policy for contracts in progress. They do not
F-10
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
purport to be indicative of the results of operations which actually would
have resulted had the combination been in effect on January 1, 1996, or of
future results of operations of the consolidated entities.
4. RECEIVABLES
Receivables consisted of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
U.S. Government:
Amounts billed......................................... $ -- $ 26,000
Unbilled costs and estimated earnings on uncompleted
contracts............................................. -- 542,000
---------- ----------
-- 568,000
Commercial:
Amounts billed......................................... 2,496,000 4,441,000
Unbilled costs and estimated earnings on uncompleted
contracts............................................. 604,000 1,957,000
---------- ----------
Total.................................................... $3,100,000 $6,966,000
========== ==========
</TABLE>
Included above in amounts billed is an allowance for doubtful accounts of
$25,000 and $16,000 at December 31, 1996 and 1997, respectively. During 1996
the allowance included $510,000 charged to expense relating to the resolution
of a contract dispute. During 1995 and 1997 there were no significant
transactions recorded in the allowance for doubtful accounts.
Unbilled costs and estimated earnings on uncompleted contracts were not
billable to customers at the balance sheet dates under terms of the respective
contracts. Of the unbilled costs and estimated earnings at December 31, 1997,
substantially all is expected to be collected within the next twelve months.
Information with respect to uncompleted contracts as of December 31, 1996
and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts................ $2,607,000 $11,040,000
Estimated earnings..................................... 898,000 4,633,000
---------- -----------
3,505,000 15,673,000
Less billings to date.................................. 3,366,000 15,737,000
---------- -----------
$ 139,000 $ (64,000)
========== ===========
</TABLE>
The above amounts are included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... $604,000 $2,499,000
Billings in excess of cost and estimated earnings on
uncompleted contracts.................................... 465,000 2,563,000
-------- ----------
Total..................................................... $139,000 $ (64,000)
======== ==========
</TABLE>
F-11
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Land.................................................. $ 1,883,000 $ 2,459,000
Buildings and improvements............................ 3,857,000 10,469,000
Machinery and equipment............................... 2,636,000 4,982,000
Drydocks and bulkheads................................ 5,578,000 5,578,000
Barges and boat....................................... 914,000 933,000
Office and automotive................................. 375,000 626,000
Construction in progress.............................. -- 810,000
----------- -----------
15,243,000 25,857,000
Less accumulated depreciation......................... (6,729,000) (7,553,000)
----------- -----------
$ 8,514,000 $18,304,000
=========== ===========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Term loan--Bank, variable interest rate (8.00% at
December 31, 1997), due
April 30, 2004....................................... $ -- $25,000,000
Note payable--Bank, variable interest rate (6.00% at
December 31, 1996), due
July 17, 2001........................................ 1,004,000 --
Short-term financing agreement, 8.29% interest rate,
due September 1, 1998................................ 229,000 338,000
---------- -----------
1,233,000 25,338,000
Less current maturities............................... (661,000) (1,801,000)
---------- -----------
$ 572,000 $23,537,000
========== ===========
</TABLE>
In December 1997, Conrad entered into a $25 million promissory note with a
commercial bank to fund the acquisition of Orange Shipbuilding Company, Inc.
(see Note 3). Principal and interest at an 8.0% annual rate were payable
monthly. Subsequent to December 31, 1997, Conrad refinanced this short-term
obligation into a term loan. Interest accrues at the LIBOR rate plus 2.0%
until September 18, 1998. Conrad will then have the option to convert the
interest rate to either the lender's prime rate less 0.5% or LIBOR rate plus
2.0% at the expiration of any Interest Period. At Conrad's option an Interest
Period may be from one to six months. Interest only is payable monthly until
May 1998. Thereafter, the term loan will be payable in 70 monthly principal
payments of $209,000 plus interest with a final payment due in April 2004. The
term loan is secured by substantially all of Conrad's assets, and is
guaranteed up to $2 million by J. Parker Conrad, Co-Chairman of the Board of
Directors. The term loan is conditioned upon Conrad remaining in compliance
with the covenants of the loan agreement and maintaining certain financial
ratios.
Conrad has also received a commitment from the same commercial bank to
provide it with a $10.0 million revolving credit facility which may be used
for working capital and other general corporate purposes, including the
funding of acquisitions. The Revolving Credit Facility will bear interest on
the same terms as the Term Loan and will mature April 30, 1999. A fee of 0.25%
per annum on the unused portion of the line of credit will be charged
quarterly.
F-12
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Conrad enters into short-term notes payable to finance certain of its
insurance premiums. At December 31, 1996 and 1997 the amounts outstanding
related to these notes payable were $229,000 and $338,000, respectively. The
notes are secured by Conrad's insurance policies and provide for annual
interest rates of 7.75% and 8.29% at December 31, 1996 and 1997, respectively.
Annual maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
1998................................................................ $ 1,801,000
1999................................................................ 2,508,000
2000................................................................ 2,508,000
2001................................................................ 2,508,000
2002................................................................ 2,508,000
Thereafter.......................................................... 13,505,000
-----------
$25,338,000
===========
</TABLE>
7. EMPLOYEE BENEFITS
In August 1997, Conrad established a 401(k) plan that covers all employees
who meet certain eligibility requirements. Contributions to the plan by Conrad
are made at the discretion of the Board of Directors. Contribution expense was
$42,000 for the year ended December 31, 1997.
8. SALES TO MAJOR CUSTOMERS
Sales to various customers, which amount to 10% or more of Conrad's total
revenues for the three years ended December 31, 1995, 1996 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
AMOUNT % AMOUNT % AMOUNT %
---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Customer A......................... $4,604,000 21%
Customer B......................... 3,395,000 15%
Customer C......................... 2,351,000 11%
Customer D......................... $3,735,000 16%
Customer E......................... 3,407,000 15%
Customer F......................... 2,351,000 10%
Customer G......................... $5,130,000 25%
Customer H......................... 2,434,000 12%
</TABLE>
9. RELATED PARTY TRANSACTIONS
Conrad purchases in its ordinary course of business certain components from
Johnny's Propeller Shop, Inc., a company wholly owned by John P. Conrad, Jr.,
Co-Chairman of the Board of Directors. Total purchases for the three years
ended December 31, 1995, 1996 and 1997 were $140,000, $121,000 and $164,000,
respectively. Conrad believes that such transactions were made on a
competitive basis at market prices.
In 1991, Conrad and J. Parker Conrad, Co-Chairman of the Board of Directors,
entered into a Key Executive Insurance Agreement pursuant to which each year
Conrad has paid $20,000 of the annual premium due under an insurance policy on
Mr. Conrad's life and it was the beneficiary of $650,000 of the death benefit
under the policy. Conrad and Mr. Conrad have agreed to terminate this
agreement, allowing Mr. Conrad to select the beneficiary of the death benefit,
prior to the completion of the Offering.
F-13
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As discussed in Note 6 to the financial statements, J. Parker Conrad has
guaranteed the indebtedness under the Term Loan up to $2 million.
10. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, Conrad had outstanding a contract performance bond
issued by a third party in the amount of $3,660,000.
Conrad has employment agreements with certain of its executive officers
which generally provide for an initial term of three years and minimum annual
total compensation of $851,000.
Conrad is a party to various legal proceedings primarily involving
commercial claims and workers' compensation claims. While the outcome of these
claims and legal proceedings cannot be predicted with certainty, management
believes that the outcome of all such proceedings, even if determined
adversely, would not have a material adverse effect on Conrad's financial
statements.
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Orange Shipbuilding Company, Inc.
We have audited the accompanying balance sheets of Orange Shipbuilding
Company, Inc. as of September 30, 1996 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the management of Orange
Shipbuilding Company, Inc. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Orange Shipbuilding Company, Inc. at
September 30, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New Orleans, Louisiana
March 31, 1998
F-15
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
ASSETS 1996 1997
------ ---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $2,443,000 $ 294,000
Investments.......................................... 198,000 201,000
Accounts receivable.................................. 193,000 1,656,000
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 848,000 1,442,000
Other current assets................................. 87,000 85,000
---------- ----------
Total current assets............................... 3,769,000 3,678,000
PROPERTY, PLANT AND EQUIPMENT, NET..................... 3,414,000 3,723,000
OTHER ASSETS........................................... 208,000 353,000
---------- ----------
TOTAL ASSETS........................................... $7,391,000 $7,754,000
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable..................................... $ 25,000 $ 539,000
Accrued employee costs............................... 2,000 310,000
Accrued expenses..................................... 226,000 198,000
Current maturities of notes payable--stockholders.... 64,000 --
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 362,000 --
---------- ----------
Total current liabilities.......................... 679,000 1,047,000
NOTES PAYABLE--STOCKHOLDERS, less current maturities... 4,071,000 --
---------- ----------
Total liabilities.................................. 4,750,000 1,047,000
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 5,000,000 shares
authorized, 800,000 shares issued and 533,332 shares
outstanding (266,668 shares held in treasury)....... 800,000 800,000
Additional paid-in capital........................... 22,000 22,000
Retained earnings.................................... 2,219,000 6,285,000
Less: cost of treasury stock......................... (400,000) (400,000)
---------- ----------
Total stockholders' equity......................... 2,641,000 6,707,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $7,391,000 $7,754,000
========== ==========
</TABLE>
See notes to financial statements.
F-16
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER THREE MONTHS
30, ENDED
----------------------- DECEMBER 31,
1996 1997 1997
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE.................................. $7,268,000 $15,533,000 $5,207,000
COST OF REVENUE.......................... 5,278,000 8,623,000 2,998,000
---------- ----------- ----------
GROSS PROFIT............................. 1,990,000 6,910,000 2,209,000
GENERAL AND ADMINISTRATIVE EXPENSES...... 665,000 1,048,000 399,000
---------- ----------- ----------
INCOME FROM OPERATIONS................... 1,325,000 5,862,000 1,810,000
INTEREST EXPENSE......................... (261,000) (262,000) --
OTHER INCOME............................. 154,000 252,000 --
---------- ----------- ----------
INCOME BEFORE INCOME TAXES............... 1,218,000 5,852,000 1,810,000
PROVISION FOR INCOME TAXES............... -- -- 830,000
---------- ----------- ----------
NET INCOME............................... $1,218,000 $ 5,852,000 $ 980,000
========== =========== ==========
Unaudited pro forma data:
Net income reported above.............. $1,218,000 $ 5,852,000
Pro forma provision for income taxes
related to operations as
S corporation......................... 426,000 2,048,000
---------- -----------
Pro forma net income................... $ 792,000 $ 3,804,000
========== ===========
</TABLE>
See notes to financial statements.
F-17
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
$1.00 PAR VALUE $1.00 PAR VALUE ADDITIONAL
---------------- ----------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- -------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1,
1995................... 800,000 $800,000 266,668 $(400,000) $22,000 $ 1,532,000 $ 1,954,000
Distributions........... (531,000) (531,000)
Net income.............. 1,218,000 1,218,000
------- -------- ------- --------- ------- ----------- -----------
BALANCE, SEPTEMBER 30,
1996................... 800,000 800,000 266,668 (400,000) 22,000 2,219,000 2,641,000
Distributions........... (1,786,000) (1,786,000)
Net income.............. 5,852,000 5,852,000
------- -------- ------- --------- ------- ----------- -----------
BALANCE, SEPTEMBER 30,
1997................... 800,000 $800,000 266,668 $(400,000) $22,000 $ 6,285,000 $ 6,707,000
======= ======== ======= ========= ======= =========== ===========
</TABLE>
See notes to financial statements.
F-18
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER THREE MONTHS
30, ENDED
------------------------ DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 1,218,000 $ 5,852,000 $ 980,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation.......................... 215,000 251,000 88,000
Provision for deferred income taxes... -- -- 315,000
Changes in assets and liabilities:
Accounts receivable.................. 1,763,000 (1,463,000) 771,000
Other assets......................... (22,000) (146,000) 12,000
Net change in billings related to
costs and estimated earnings on
uncompleted contracts............... (1,112,000) (956,000) 196,000
Accounts payable and accrued
expenses............................ (88,000) 794,000 491,000
----------- ----------- ----------
Net cash provided by operating
activities......................... 1,974,000 4,332,000 2,853,000
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and
equipment............................. (234,000) (560,000) (149,000)
----------- ----------- ----------
Net cash used in investing
activities......................... (234,000) (560,000) (149,000)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable--
stockholders.......................... (1,465,000) (4,135,000) --
Distributions to stockholders.......... (531,000) (1,786,000) --
----------- ----------- ----------
Net cash used in financing
activities......................... (1,996,000) (5,921,000) --
----------- ----------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................ (256,000) (2,149,000) 2,704,000
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR................................... 2,699,000 2,443,000 294,000
----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR.. $ 2,443,000 $ 294,000 $2,998,000
=========== =========== ==========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid.......................... $ 261,000 $ 262,000 $ --
=========== =========== ==========
NONCASH ACTIVITIES:
Distributions of excluded assets of
the sale to stockholders............. $ -- $ -- $ 929,000
=========== =========== ==========
</TABLE>
See notes to financial statements.
F-19
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation--Orange Shipbuilding Company, Inc.
("Orange Shipbuilding") is engaged in the construction of a variety of marine
vessels for commercial and government customers and the fabrication of modular
components of offshore drilling rigs and floating production, storage and
offloading vessels at a shipyard located in Orange, Texas. New construction
work is generally performed on a fixed-price basis.
For the year ended September 30, 1997, Orange Shipbuilding was owned by
various management personnel. Effective December 12, 1997, all outstanding
shares of common stock were sold to Conrad Shipyard, Inc. ("Conrad"). Prior to
the closing of this transaction, Orange Shipbuilding made a distribution to
its current stockholders representing excluded assets of the sale consisting
primarily of land, personal vehicles and certain life insurance policies with
a net book value of approximately $929,000.
Unaudited Interim Financial Information--The financial information presented
for the three months ended December 31, 1997 is unaudited. In the opinion of
management, all adjustments (such adjustments consisting only of a normal
recurring nature) considered necessary for a fair presentation have been
included.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition--Orange Shipbuilding is engaged in various types of
construction under long-term construction contracts. The accompanying
financial statements have been prepared using the percentage-of-completion
method of accounting and, therefore, take into account the cost, estimated
earnings and revenue to date on contracts not yet completed. The amount of
revenue recognized at statement date is the portion of the total contract
price that the cost expended to date bears to the anticipated final total
cost, based on current estimates of cost to complete. This method is used
because management considers cost to be the best available measure of progress
on these contracts.
Contract cost includes all direct labor, materials, subcontract costs, and
allocated indirect construction costs. Indirect costs are allocated to
contracts on the basis of direct labor charges. Revisions in estimates of cost
and earnings during the course of the work are reflected in the accounting
period in which the facts which require the revision become known. Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
on deposit and short-term investments with original maturities of three months
or less.
Investments--Orange Shipbuilding's investments in tax exempt bonds and money
market funds are classified as securities held-to-maturity and, accordingly,
are reported at amortized cost, which approximates fair value.
Property, Plant and Equipment--Property, plant and equipment is stated at
cost. Depreciation is recorded using the straight-line method over the
estimated useful lives of the individual assets which range from three to
forty years. Ordinary maintenance and repairs which do not extend the physical
or economic lives of the plant or equipment are charged to expense as
incurred. Management reviews property, plant and equipment for
F-20
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
impairment whenever events or changes in circumstances indicate that the
related carrying amount may not be recoverable. When required, impairment
losses are recognized based on the excess of the asset's carrying amount over
its fair value.
Income Taxes--Orange Shipbuilding's stockholders elected to have the company
taxed as an S corporation for federal income tax purposes whereby stockholders
are liable for individual federal income taxes on their allocated portions of
Orange Shipbuilding's taxable income. Accordingly, the historical financial
statements do not include any provision for income taxes.
Prior to the sale of its outstanding stock to Conrad on December 12, 1997,
Orange Shipbuilding's stockholders elected to change its status from a S
corporation to a C corporation for federal income tax purposes. Accordingly,
Orange Shipbuilding became liable for all future federal income taxes
beginning October 1, 1997.
Fair Value of Financial Instruments--The carrying amount of Orange
Shipbuilding's financial instruments including cash and cash equivalents,
investments, accounts receivable, and accounts payable approximates fair value
at September 30, 1996 and 1997. Due to the related party nature of Orange
Shipbuilding's notes payable--stockholders, determination of fair value is not
considered practicable.
2. RECEIVABLES
Receivables consisted of the following at September 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
U.S. Government:
Amounts billed......................................... $ 69,000 $ 364,000
Unbilled costs and estimated earnings on uncompleted
contracts............................................. 436,000 1,249,000
---------- ----------
505,000 1,613,000
Commercial:
Amounts billed......................................... 124,000 1,292,000
Unbilled costs and estimated earnings on uncompleted
contracts............................................. 412,000 193,000
---------- ----------
Total.................................................... $1,041,000 $3,098,000
========== ==========
</TABLE>
Unbilled costs and estimated earnings on uncompleted contracts were not
billable to customers at the balance sheet dates under terms of the respective
contracts. Of the unbilled costs and estimated earnings at September 30, 1997,
substantially all is expected to be collected within the next twelve months.
Information with respect to uncompleted contracts as of September 30, 1996
and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts.................. $1,199,000 $3,980,000
Estimated earnings....................................... 280,000 1,903,000
---------- ----------
1,479,000 5,883,000
Less: Billings to date................................... 993,000 4,441,000
---------- ----------
$ 486,000 $1,442,000
========== ==========
</TABLE>
F-21
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The above amounts are included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on un-
completed contracts...................................... $ 848,000 $1,442,000
Billings in excess of costs and estimated earnings on un-
completed contracts...................................... 362,000 --
--------- ----------
$ 486,000 $1,442,000
========= ==========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following at September 30,
1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Land.................................................. $ 602,000 $ 602,000
Buildings and improvements............................ 2,194,000 2,196,000
Machinery and equipment............................... 2,576,000 2,951,000
Office furniture, fixtures and equipment.............. 175,000 191,000
Automobiles and light trucks.......................... 170,000 192,000
Construction in progress.............................. -- 118,000
----------- -----------
5,717,000 6,250,000
Less accumulated depreciation......................... (2,303,000) (2,527,000)
----------- -----------
$ 3,414,000 $ 3,723,000
=========== ===========
</TABLE>
4. LINE OF CREDIT
Orange Shipbuilding had a line of credit of $1,000,000 with an interest rate
of 1.0% over the bank's prime rate. The line of credit had a zero balance at
September 30, 1996. The line of credit was allowed to lapse during the year
ended September 30, 1997.
5. RELATED PARTY TRANSACTIONS
Notes payable-stockholders consisted of various notes payable to Orange
Shipbuilding stockholders and former stockholders. The notes, which were paid
during 1997, consisted of the following at September 30, 1996:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
6%, Unsecured, 10 year.............................................. $ 335,000
6%, Unsecured, 10 year.............................................. 243,000
6%, Unsecured, 10 year.............................................. 47,000
5%, Unsecured....................................................... 1,793,000
5%, Unsecured....................................................... 858,000
5%, Unsecured....................................................... 859,000
-----------
$ 4,135,000
===========
</TABLE>
Interest paid on the above notes was $261,000 and $262,000 for the years
ended September 30, 1996 and 1997, respectively.
F-22
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. SALES TO MAJOR CUSTOMERS
Sales to various customers which amount to 10% or more of Orange
Shipbuilding's total revenues for the years ended September 30, 1996 and 1997
are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
AMOUNT % AMOUNT %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Customer A........................................ $4,234,000 58% $3,346,000 22%
Customer B........................................ -- --% 7,054,000 45%
Customer C........................................ -- --% 4,039,000 26%
Customer D........................................ 2,892,000 40% -- --%
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Orange Shipbuilding is a party to various legal proceedings primarily
involving commercial claims and workers' compensation claims. While the outcome
of these claims and legal proceedings cannot be predicted with certainty,
management believes that the outcome of all such proceedings, even if
determined adversely, would not have a material adverse effect on Orange
Shipbuilding's financial statements.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Conrad Industries, Inc.
We have audited the accompanying balance sheet of Conrad Industries, Inc. (a
recently formed Delaware corporation) as of March 31, 1998. This financial
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluting the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Conrad Industries, Inc. at March
31, 1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New Orleans, Louisiana
April 8, 1998
F-24
<PAGE>
CONRAD INDUSTRIES, INC.
(A RECENTLY FORMED DELAWARE CORPORATION)
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash.................................................................. $1,000
------
TOTAL ASSETS............................................................ $1,000
======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
LIABILITIES............................................................. $ --
------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none
issued or outstanding................................................ --
Common stock, $0.01 par value, 20,000,000 shares authorized; 1,000
shares issued and outstanding........................................ 10
Additional paid-in capital............................................ 990
------
Total stockholders' equity.......................................... 1,000
------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $1,000
======
</TABLE>
See notes to balance sheet.
F-25
<PAGE>
CONRAD INDUSTRIES, INC.
NOTES TO BALANCE SHEET
MARCH 31, 1998
1. ORGANIZATION AND NATURE OF BUSINESS
Conrad Industries, Inc. (the "Company") was incorporated under the laws of
the State of Delaware in March 1998 to serve as the holding company for Conrad
Shipyard, Inc. ("Conrad") and Orange Shipbuilding Company, Inc. ("Orange
Shipbuilding"). Through April 8, 1998, the Company has had no operations other
than receipt of initial capital.
Management of the Company have indicated their intention to undertake an
initial public offering of the Company's equity securities during 1998 (the
"Offering"). In anticipation of the Company's proposed Offering, the current
stockholders of Conrad have entered into an exchange agreement (the "Exchange
Agreement") pursuant to which they will exchange their shares of common stock
of Conrad for shares of common stock of the Company, (the "Reorganization").
In accordance with the terms of the Exchange Agreement, the stockholders of
Conrad will receive a number of shares of common stock proportionate to their
relative stockholdings in Conrad. As a result of the Reorganization, the
Company will be a holding company whose only assets will consist of all of the
outstanding shares of capital stock of Conrad and Orange Shipbuilding.
The Company's certificate of incorporation established authority to issue
1,000 shares of $0.01 par value preferred stock and 2,000 shares of $0.01 par
value common stock. On March 31, 1998, in conjunction with the Company's
proposed Offering, the Company authorized an increase in the amount of
authorized shares to 5,000,000 shares of $0.01 par value preferred stock and
20,000,000 shares of $0.01 par value common stock. Preferred stock may be
issued in one or more series and in such amounts as may be determined by the
Company's board of directors. The voting powers, designations, preferences and
relative, participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions, if any, of each preferred stock
issue shall be fixed by resolution of the board of directors providing for the
issue. All shares of common stock of the Company shall be identical, and,
except as otherwise provided in a resolution of the board of directors with
respect to preferred stock, the holders of common stock shall exclusively
possess all voting power with each share of common stock having one vote.
Conrad was formed in 1953 under the laws of the State of Louisiana. Conrad
specializes in the construction, conversion and repair of a wide variety of
marine vessels for commercial and government customers and the fabrication of
modular components of offshore drilling rigs and floating production, storage
and offloading vessels. Conrad serves a variety of customers and markets,
including the offshore oil and gas industry, other commercial markets and the
U.S. government. Substantially all of Conrad's services are conducted at a
shipyard located in Morgan City, Louisiana. On December 12, 1997, Conrad
acquired all of the outstanding shares of common stock of Orange Shipbuilding,
a shipyard in Orange, Texas for $25,817,000. The acquisition was funded with a
$25 million promissory note and existing cash.
Conrad has operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad currently pays no federal or
state income tax, and the entire earnings of Conrad are subject to tax only at
the stockholder level. Prior to the Reorganization and the completion of the
Offering, Conrad's current stockholders will make an election terminating
Conrad's S corporation status. Thereafter, Conrad will become subject to
corporate level income taxation. As a result of its conversion from an S
corporation to a C corporation, the Company estimates that it will be required
to record as a charge to earnings a one-time deferred tax liability in the
amount of approximately $630,000 in the second quarter of 1998.
In the past, Conrad has made distributions to its stockholders in order to
provide a cash return to them and to fund their federal and state income tax
liabilities that resulted from Conrad's S corporation status. In accordance
with this practice, since January 1, 1998, Conrad has distributed
approximately $506,000 to its
F-26
<PAGE>
CONRAD INDUSTRIES, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
current stockholders and estimates that it will distribute an additional $1.6
million prior to the completion of the Offering to fund the stockholders'
federal and state income tax liabilities through the date of termination of
its S corporation status. Conrad intends to make an additional distribution to
its current stockholders of approximately $10.0 million, which amount
represents undistributed earnings of Conrad, estimated through the date of the
termination of Conrad's S corporation status, on which Conrad's current
stockholders will have incurred federal and state income taxes. Conrad also
expects to make a distribution of certain nonoperating assets with a fair
market value of approximately $406,000 to certain of its stockholders prior to
the completion of the Offering. The distributions of cash and non-operating
assets (the "Shareholder Distributions") will be made prior to the completion
of the Offering, and Conrad intends to fund part of the cash portion of the
Shareholder Distributions with borrowings under a revolving credit facility.
Proceeds from the Offering to the Company are intended to be used to repay
indebtedness of the Company, including the $25 million term loan incurred by
Conrad in connection with the Orange Shipbuilding acquisition and
approximately $10 million of indebtedness to be incurred by Conrad under a
revolving credit facility to fund part of the cash portion of the Shareholder
Distributions. The remaining proceeds will be used for working capital and
other general corporate purposes. There can be no assurance, however, that the
Offering will occur or that the proceeds, if any, will be sufficient for their
intended use.
F-27
<PAGE>
CONRAD INDUSTRIES, INC.
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma financial statements give effect to (1)
the termination of Conrad Shipyard, Inc.'s ("Conrad") status as an S
corporation; (2) the acquisition by Conrad of Orange Shipbuilding Company,
Inc. ("Orange Shipbuilding"), using the purchase method of accounting; and (3)
the formation of Conrad Industries, Inc. (the "Company") in March 1998 to
serve as the holding company for Conrad and Orange Shipbuilding (the
"Reorganization"). The pro forma financial statements do not give effect to
the proposed initial public offering (the "Offering").
The pro forma consolidated balance sheet reflects the Company's pro forma
balance sheet, as adjusted for the Reorganization and the termination of
Conrad's status as an S corporation, assuming that such termination occurred
on March 31, 1998. The accompanying consolidated historical balance sheet of
Conrad includes the assets acquired and liabilities assumed of Orange
Shipbuilding based upon preliminary estimates of fair values. The Company does
not believe that the final purchase price allocation will differ significantly
from the preliminary purchase price allocation. Conrad acquired all of the
outstanding shares of Orange Shipbuilding on December 12, 1997 for
$25,817,000, which was funded with a $25 million promissory note and existing
cash. This acquisition resulted in an excess of purchase price over net assets
acquired of $15,294,000 which will be amortized over twenty years on a
straight line basis.
The pro forma combined statement of operations combines the historical
statements of Conrad and Orange Shipbuilding assuming the acquisition had
occurred on January 1, 1997 and further reflects a pro forma provision for
income taxes that would have been recorded had the combined Company operated
as a C corporation during the year ended December 31, 1997. The pro forma
combined statement of operations for the year ended December 31, 1997 includes
Orange Shipbuilding's audited financial information for its fiscal year ended
September 30, 1997. Due to the close proximity of Conrad's fiscal year end,
results of operations subsequent to the acquisition of Orange Shipbuilding are
not included in the accompanying historical statement of operations of Conrad.
The results of operations of Orange Shipbuilding from the date of acquisition
(December 12, 1997) to the end of Conrad's 1997 fiscal year end (December 31,
1997) were not significant.
The unaudited pro forma financial statements do not purport to present the
actual financial condition or results of operations of the Company as if the
termination of Conrad's S corporation status and the acquisition of Orange
Shipbuilding had occurred on the dates specified, nor is it necessarily
indicative of future results. The unaudited pro forma financial statements
should be read in conjunction with the historical financial statements of the
Company, Conrad and Orange Shipbuilding included elsewhere in this Prospectus.
F-28
<PAGE>
CONRAD INDUSTRIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------
PRO FORMA
CONRAD ADJUSTMENTS FOR COMPANY
HISTORICAL CONVERSION FROM PRO FORMA
CONSOLIDATED S CORPORATION CONSOLIDATED
ASSETS BALANCE SHEET TO C CORPORATION BALANCE SHEET
------ ------------- ---------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.... $ 5,792 $ (1,600)(2) $ 4,192
Accounts receivable, net..... 5,407 5,407
Costs and estimated earnings
in excess of billings on
uncompleted contracts....... 2,511 2,511
Inventories.................. 178 178
Other current assets......... 1,078 1,078
------- -------- -------
Total current assets....... 14,966 (1,600) 13,366
PROPERTY, PLANT AND EQUIPMENT,
NET........................... 19,025 (406)(2) 18,619
COST IN EXCESS OF NET ASSETS
ACQUIRED...................... 15,099 15,099
OTHER ASSETS................... 310 310
------- -------- -------
TOTAL ASSETS................... $49,400 $ (2,006) $47,394
======= ======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable............. $ 1,633 $ 1,633
Accrued employee costs....... 744 744
Accrued expenses............. 681 681
Current maturities of long-
term debt................... 2,618 2,618
Billing in excess of costs
and estimated earnings on
uncompleted contracts....... 1,625 1,625
Revolving credit facility.... -- 10,000 (2) 10,000
------- -------- -------
Total current liabilities.. 7,301 10,000 17,301
LONG-TERM DEBT, less current
maturities.................... 22,916 22,916
DEFERRED INCOME TAXES.......... 2,572 630 (1) 3,202
------- -------- -------
Total liabilities.......... 32,789 10,630 43,419
------- -------- -------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par
value, 20,000,000 shares
authorized, 5,200,000 shares
outstanding in 1998......... 52 52
Additional paid-in capital... 8,783 (544)(1)(2) 8,239
Unearned stock compensation.. (4,316) (4,316)
Retained earnings............ 12,092 (12,092)(1)(2) --
------- -------- -------
Total stockholders'
equity.................... 16,611 (12,636) 3,975
------- -------- -------
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY............... $49,400 $ (2,006) $47,394
======= ======== =======
</TABLE>
See notes to pro forma financial statements.
F-29
<PAGE>
CONRAD INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ -------------------------
ORANGE COMPANY
CONRAD SHIPBUILDING ADJUSTMENTS COMBINED
------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue................. $22,117 $15,533 $(1,728)(3) $35,922
Cost of revenue......... 15,032 8,623 (906)(3)(4) 22,749
------- ------- ------- -------
Gross profit............ 7,085 6,910 (822) 13,173
Selling, general and
administrative
expenses............... 2,242 1,048 765 (4) 4,055
------- ------- ------- -------
Income from operations.. 4,843 5,862 (1,587) 9,118
Interest expense........ (126) (262) (1,985)(5) (2,373)
Other income............ 188 252 -- 440
------- ------- ------- -------
Income before income
taxes.................. 4,905 5,852 (3,572) 7,185
Additional pro forma
data:
Pro forma provision
for income taxes
related to operations
as S corporation..... (1,815)(6) (2,048)(6) 1,322 (6) (2,541)
------- ------- ------- -------
Pro forma net income.. $ 3,090 $ 3,804 $(2,250) $ 4,644
======= ======= ======= =======
Pro forma net income per
common share:
Basic and diluted..... $ .58 $ .87
Pro forma weighted
average shares
outstanding:
Basic and diluted..... 5,342 (7) 5,342 (7)
</TABLE>
See notes to pro forma financial statements.
F-30
<PAGE>
CONRAD INDUSTRIES, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The adjustments reflected in the pro forma financial statements are as
follows:
(1) Prior to the Reorganization and the completion of the Offering,
Conrad will terminate its status as an S corporation and will become
subject to corporate income taxes. This adjustment reflects the estimated
deferred tax liability at March 31, 1998, primarily relating to the
difference in book and tax basis of property and equipment. The deferred
tax liability that will be recorded as a charge to operations in the second
quarter of 1998 will be recorded based on the book and tax differences on
the date of termination of S corporation status.
(2) Reflects distributions of cash and non-operating assets (including
borrowings of $10.0 million under the Revolving Credit Facility to fund
certain distributions) to be made to stockholders of Conrad prior to the
termination of its S corporation status and the Offering.
(3) Adjusts contracts in progress related to Orange Shipbuilding to
conform to the revenue recognition policy of Conrad for contracts in
progress. Conrad measures percentage of completion based on estimated labor
hours which management believes is a better measure of the effort expended
to complete their projects. Orange Shipbuilding utilized total estimated
contract costs primarily as a convenience to conform with the method
required for income tax purposes. Using total estimated contract costs to
measure percentage of completion will accelerate profit recognition on
contracts in progress, particularly on projects with significant material
costs.
(4) Reflects additional depreciation and amortization expense related to
assets acquired (including costs in excess of net assets acquired) relating
to the acquisition of Orange Shipbuilding.
(5) Reflects interest expense at an estimated average interest rate of
7.94% on the $25 million promissory note which was used to fund the
acquisition of Orange Shipbuilding.
(6) Reflects the adjustments to reflect the provision for income taxes
assuming the companies had operated as C corporations and the income tax
effects of the pro forma adjustments.
(7) Pro forma net income per share is based on the number of shares of
common stock of the Company outstanding after the Reorganization upon
exchange of shares of Conrad common stock by Conrad stockholders as of
December 31, 1997 (4,660,486 shares), excluding 539,514 shares issued to
certain executive officers upon exchange of shares of Conrad common stock
issued to them during the first quarter of 1998; increased to reflect
sufficient additional shares to pay a $10 million distribution of estimated
undistributed earnings to stockholders (681,199 shares) based on an assumed
offering price of $16.00 per share, net of offering expenses.
In connection with the issuance of shares of common stock of Conrad to
certain executive officers, the Company estimates that it will recognize
aggregate compensation expense of $8.6 million, of which $4.3 million was
recognized in the first quarter of 1998 and the remainder will be
recognized over a three-year vesting period.
F-31
<PAGE>
[INSIDE BACK COVER PAGE]
Conrad has available capacity at existing shipyards to significantly increase
construction, conversion and repair activities without significant additional
capital expenditures. The Company believes that opportunities exist to take
advantage of this capacity due to the age and condition of many vessels
currently operating in the Gulf of Mexico, the regulatory requirements for
periodic inspection and drydocking and demand for new vessel construction and
fabrication of modular components for offshore drilling rigs and FPSOs.
[AERIAL PHOTO OF FACILITY]
Conrad Shipyard - Amelia, Louisiana
[PHOTO OF SUPPLY VESSEL UNDER REPAIR]
Extensive Repair of 180 Foot Offshore Supply Vessel
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES
OF COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Corporate Reorganization.................................................. 16
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 29
Management................................................................ 47
Certain Transactions...................................................... 52
Principal Stockholders.................................................... 53
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 59
Underwriting.............................................................. 60
Legal Matters............................................................. 62
Experts................................................................... 62
Available Information..................................................... 63
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1998, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
LOGO
CONRAD INDUSTRIES, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 14,418
NASD Filing Fee................................................. 5,388
Nasdaq Listing Fee.............................................. 48,750
Accounting Fees and Expenses.................................... 160,000
Legal Fees and Expenses......................................... 150,000
Printing Expenses............................................... 100,000
Transfer Agent's Fees........................................... 3,500
Miscellaneous................................................... 17,944
--------
Total........................................................... $500,000
========
</TABLE>
- --------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted
in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
Section 145 in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
to which the indemnified party may be entitled; that indemnification provided
for by Section 145 shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of such person's heirs,
executors and administrators; and empowers the corporation to purchase and
maintain insurance on behalf of a director or officer of the corporation
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such whether or not the corporation
would have the power to indemnify him against such liabilities under Section
145.
II-1
<PAGE>
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
Article Ninth of the Company's Charter states that:
No director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty by such
director as a director; provided, however, that this Article Ninth shall not
eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware or
(iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article Ninth shall apply to, or
have any effect on, the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. If the General Corporation Law of
the State of Delaware is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended.
In addition, Article VI of the Company's Bylaws further provides that the
Company shall indemnify its officers, directors and employees to the fullest
extent permitted by law.
The Company has entered into indemnification agreements with each of its
executive officers and directors.
Under Section 6 of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under
certain conditions, the Company, its officers and directors, and persons who
control the Company within the meaning of the Securities Act of 1933, as
amended, against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The only securities issued by the Company during the past three years that
were not registered under the Securities Act of 1933 consist of (i) 1,000
shares of Common Stock issued to John P. Conrad, Jr. in connection with the
Company's organization (which shares were canceled pursuant to the
Reorganization), (ii) the 5,200,000 shares of Common Stock issued in
connection with the Reorganization and (iii) options to purchase an aggregate
of 130,000 shares of Common Stock granted pursuant to the Stock Plan. These
transactions were completed without registration under the Securities Act of
1933 in reliance on the exemption provided by Section 4(2) of the Securities
Act of 1933. The limited number of persons who received shares of Common Stock
of the Company in connection with the Reorganization all owned shares of
common stock of Conrad and were officers or directors of Conrad, or affiliates
controlled by such persons, immediately prior to the Reorganization. The
options were issued to a limited number of key employees of the Company for no
consideration.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
<C> <C> <S>
1.1+ -- Form of Underwriting Agreement.
3.1+ -- Form of Amended and Restated Certificate of Incorporation.
3.2+ -- Form of Amended and Restated Bylaws.
4.1 -- Specimen Common Stock Certificate (Incorporated herein to the
Company's registration statement on Form 8-A).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
<C> <C> <S>
4.2+ -- Form of Registration Rights Agreement by and among the Company, J.
Parker Conrad, John P. Conrad, Jr., Katherine C. Court, The John
P. Conrad, Jr. Trust, The Daniel T. Conrad Trust, The Glenn Alan
Conrad Trust, The Kenneth C. Conrad Trust, The Katherine C. Court
Trust, The James P. Court Trust, William H. Hidalgo, and Cecil A.
Hernandez.
4.3+ -- Form of Registration Rights Agreement between the Company and
Morgan Keegan & Company, Inc.
5.1+ -- Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered.
10.1+ -- Stock Purchase Agreement, dated as of December 12, 1997, by and
among Conrad, Orange Shipbuilding, Thomas E. Clary, Robert D.
Clary and George B. Clary.
10.2+ -- Loan Agreement, dated as of March 19, 1998, by and among Whitney
National Bank, Conrad and Orange Shipbuilding.
10.3* -- Loan Agreement (the Revolving Credit Facility), dated as of May
22, 1998, by and among Whitney National Bank, Conrad and Orange
Shipbuilding.
10.4+ -- Stock Exchange Agreement, dated as of March 31, 1998, by and among
the Company, Conrad, Orange Shipbuilding, John P. Conrad, Jr.,
Katherine C. Court, The John P. Conrad, Jr. Trust, The Daniel T.
Conrad Trust, The Glenn Alan Conrad Trust, The Kenneth C. Conrad
Trust, The Katherine C. Court Trust, The James P. Court Trust,
William H. Hidalgo and Cecil A. Hernandez.
10.5+ -- Conrad Industries, Inc. 1998 Stock Plan.
10.6+ -- Form of Officer and Director Indemnification Agreement.
10.7+ -- Form of Employment Agreement between Conrad and J. Parker Conrad.
10.8+ -- Form of Employment Agreement between Conrad and John P. Conrad,
Jr.
10.9+ -- Form of Employment Agreement between Conrad and William H.
Hidalgo.
10.10+ -- Form of Employment Agreement between Conrad and Cecil A.
Hernandez.
10.11+ -- Form of Employment Agreement between Orange and Ralph C. Thon.
10.12+ -- Form of Warrant Agreement between the Company and Morgan Keegan &
Company, Inc.
16.1+ -- Letter from Darnall, Sikes & Frederick CPAs re change in
accountants.
23.1* -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1).
23.2* -- Consent of Deloitte & Touche LLP.
23.3+ -- Consent of Michael J. Harris to be named as nominee.
23.4+ -- Consent of Louis J. Michot, Jr. to be named as nominee.
25.5+ -- Consent of Richard E. Roberson, Jr. to be named as nominee.
24.1+ -- Powers of Attorney (included on the signature page contained in
Part II of the Registration Statement).
27.1+ -- Financial Data Schedule
</TABLE>
- --------
+ Previously filed.
* Filed herewith.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
II-3
<PAGE>
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MORGAN CITY,
LOUISIANA, ON MAY 28, 1998.
CONRAD INDUSTRIES, INC.
By: /s/ William H. Hidalgo
----------------------------
William H. Hidalgo
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS RATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
* Co-Chairman of the May 28, 1998
-------------------------------- Board of Directors
J. Parker Conrad
* Co-Chairman of the May 28, 1998
- ----------------------------------- Board of Directors
John P. Conrad, Jr.
/s/ William H. Hidalgo President, Chief May 28, 1998
- ----------------------------------- Executive Officer and
William H. Hidalgo Director (Principal
Executive Officer)
/s/ Cecil A. Hernandez Vice President-- May 28, 1998
- ----------------------------------- Finance and
Cecil A. Hernandez Administration, Chief
Financial Officer and
Director (Principal
Financial and
Accounting Officer)
/s/ Cecil A. Hernandez
- -----------------------------------
Cecil A. Hernandez,
Attorney-in-Fact
II-5
<PAGE>
LOAN AGREEMENT
This Agreement is dated as of May 22, 1998 and is by and among Whitney
National Bank ("Lender"), a national banking association, and Conrad Industries,
Inc. ("Borrower"), a Louisiana corporation and Orange Shipbuilding Company,
Inc., a Texas corporation, ("Orange" or a "Guarantor", as applicable), a Texas
corporation.
WITNESSETH:
WHEREAS, Lender, Borrower and Orange entered into a Loan Agreement, dated
as of March 19, 1998, covering a term loan in the sum of Twenty-five Million and
No/100 ($25,000,000.00) Dollars (the "Initial Loan Agreement");
WHEREAS, the Borrower has requested Lender to make a Line of Credit in the
amount of $10,000,000 that may be used to fund (i) the working capital needs of
Borrower, (ii) the short term funding of capital expenditures and acquisitions
by Borrower on terms acceptable to Lender and /or (iii) a dividend to certain of
Borrower's shareholders and Lender has agreed to the Line of Credit upon the
terms and conditions set forth.
NOW THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Borrower, Orange and Lender agree to amend and restate Initial Loan Agreement as
follows:
SECTION I. DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
meanings specified below:
"Advance" shall mean a disbursement under the Line of Credit.
"Advance Request" shall mean the Borrower's request for an Advance.
"Agreement" shall mean this Loan Agreement, as it may be amended from time
to time.
"Base Rate" shall mean the Prime Rate minus the applicable margin of 50
basis points during any Interest Period. Prime Rate shall mean that rate of
interest as recorded by Whitney National Bank from time to time as its prime
lending rate with the rate of interest to change when and as said prime lending
rate changes. The Prime Rate is not necessarily the lowest interest rate charged
by Whitney National Bank. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Prime Rate shall take
effect at the time of such change in the Prime Rate.
"Business Day" shall mean any day on which banks are required to be open to
carry on their normal business in the State of Louisiana.
"Capital Expenditures" shall mean as to any Person, without duplication
and for any period, the cost attributed, in accordance with GAAP consistent with
those applied in preparation of the financial statements referred to in Section
5.2 hereof, to acquisitions during such period by such Person of any asset,
tangible or intangible, or replacements or substitutes therefor or additions
thereto which such
<PAGE>
Person treated as a noncurrent asset on such Person's financial statements,
including, without limitation, the acquisition or construction of assets having
a useful life of more than one (1) year, excluding the cost associated with the
purchase of the stock of Orange.
"Closing Date" shall mean the date this Agreement is duly executed by
Lender and the Borrower and Orange.
"Company Agent" shall mean William H. Hidalgo or Cecil A. Hernandez.
"Conrad Shipyard" shall mean the approximately 11 acres of immovable
property on the Atchafalya River, Morgan City , Louisiana, owned by Conrad and
which is the Borrower's shipyard in Morgan City, Louisiana, as described on
Exhibit A.
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the condition, liabilities, etc. of such
Person and its properly consolidated subsidiaries.
"Consolidated Funded Debt" shall mean all Debt or other obligations for
borrowed money or for the deferred purchase price of property or services,
whether as maker or endorser, of Borrower, its Parent Company and all of its
Subsidiaries (including without limitation, all notes, debentures, bonds or
similar instruments and all liabilities shown on a balance sheet or financial
statement of Borrower, its Parent Company and all of its Subsidiaries)
"Consolidated Funded Debt Payments" shall mean, at a particular date all
principal and interest payments of Consolidated Funded Debt as required by the
terms of the documents evidencing such Debt and excluding any prepayments of
principal or interest thereunder.
"Current Assets" means, at a particular date, all amounts which would, in
conformity with generally accepted accounting principles in the United States of
America in effect from time to time and applied on a consistent basis, be
included under current assets on a balance sheet of the Borrower, its Parent
Company and all of its Subsidiaries at such date.
"Current Liabilities" means, at a particular date, all amounts which would,
in conformity with generally accepted accounting principles in the United States
of America in effect from time to time and applied on a consistent basis, be
included under current liabilities on a balance sheet of the Borrower, its
Parent Company and all of its Subsidiaries as at such date.
"Debt" of a Person shall mean at a particular date, the sum (without
duplication and in conformity with GAAP of (i) all indebtedness or other
obligations for borrowed money or for the deferred purchase price of property or
services, whether as maker or endorser, (including without limitation, all
notes, debentures, bonds or similar instruments and all liabilities shown on a
balance sheet or financial statement of Borrower, its Parent Company and all of
its Subsidiaries), (ii) capitalized lease obligations of such Person or any
subsidiary thereof, (iii) obligations with respect to any installment sale or
conditional sale agreement or title retention agreement, (iv) indebtedness
arising under acceptance facilities, (v) reimbursement obligations arising in
connection with surety, or performance or other similar bonds and in connection
with letters of credit issued in lieu of such bonds, (vi) the outstanding
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amount of all other letters of credit and (vii) any withdrawal liability or
obligation of such Person or an ERISA affiliate to a multiemployer plan.
"Debt to Worth Ratio" shall mean the ratio for a given period of Debt to
Tangible Net Worth.
"Default" shall mean the occurrence of any of the events specified in
Section VI.
"EBITDA" shall mean the net income after taxes of Borrower, its Parent
Company and all of its Subsidiaries for each fiscal year of four consecutive
quarters, plus all amounts deducted in determining such net operating income
after taxes on account of (a) all interest paid or payable by Borrower, its
Parent Company and all of its Subsidiaries during such period, (b) all taxes
paid or accrued based on or measured by income and (c) all depreciation and
amortization expenses accrued during such period, all in accordance with GAAP.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eligible Income" shall mean EBITDA minus (i) Capital Expenditures and (ii)
state and federal income taxes for the applicable accounting period.
"Financial Covenants" shall mean all of the financial covenants to be met
by Borrower on a consolidated basis as described in Section 5.01.
"Fixed Charges Coverage Ratio" shall mean the ratio calculated on a rolling
four quarter basis over the life of the Loan of Eligible Income to Consolidated
Funded Debt Payments.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Authority" means any sovereign state or nation or government,
or any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including without limitation, the United States
Department of Defense, the United States Navy, the United States Coast Guard and
United States Army Corp of Engineers.
"Government Contracts" shall have the meaning as provided in Section 4.20.
"Guarantors" shall mean Orange and J. Parker Conrad (with each a
"Guarantor").
"Hazardous Materials" shall mean:
(a) any "hazardous waste" as defined by either the Resource Conservation
and Recovery Act of 1976 (42 U.S.C. (S)6901 et. seq.), as amended from
time to time, and regulations promulgated thereunder;
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(b) any "hazardous substance" as defined by either the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. (S)9601 et. seq.) ("CERCLA"), as amended from time to time, and
regulations promulgated thereunder;
(c) asbestos;
(d) polychlorinated biphenyls;
(e) any "regulated substance" as defined under Underground Storage Tank
Regulations, 53 Fed. Reg. 37196 (Sept. 23, 1988), codified as 40 C.F.R.
(S) 280.12, or La. Adm. Code 33:XI.103;
(f) any naturally occurring radioactive materials, the possession, use,
transfer, processing, distribution, or disposal of which is subject to
regulation by the Louisiana Department of Environmental Quality
pursuant to the provisions of La. Adm. Code 33:XV, Chapter 14, as
amended from time to time;
(g) any non-hazardous oil field wastes ("Now") defined and regulated by the
Commissioner of Conservation under La. R.S. 30:1, et seq., or the
Louisiana Abandoned Oil field Waste Site Law, La. R.S. 30:71 et seq.,
as amended from time to time, and regulations promulgated thereunder;
(h) any substance the presence of which on the Property is prohibited by
any lawful rules and regulations of legally constituted authorities
from time to time in force and effect relating to the Property,
including but not limited to any solid waste and underground storage
tanks subject to the regulations of the Louisiana Department of
Environmental Quality ; and
(i) any other substance which by any such rule or regulation requires
special handling in its collection, storage, treatment, or disposal.
"Hazardous Materials Contamination" shall mean (i) the contamination
(whether presently existing or hereafter occurring) of the Property, including
the improvements, facilities, soil, ground, water, air or other elements on, or
of, the Property by Hazardous Materials, (ii) the contamination of the Property,
including the buildings, facilities, soil, ground, water, air or other elements
on, or of, any other property as a result of Hazardous Materials at any time
(whether before or after the date of this Loan Agreement) emanating from the
Property or (iii) the existence of an underground storage tank which is out-of-
service or must be removed in accordance with La. Adm. Code 33:XI, et seq.
"Interest Period" shall mean at the time the Borrower gives a Notice of
Conversion (as defined in Section 2.03) in respect of the making of, or
converting the interest rate on the Loan to accrue at Libor Rate or Base Rate on
the last Business Day prior to the expiration of the then applicable Interest
Period, the Borrower shall have the right to elect, by having the Borrower Agent
give Lender notice thereof the interest period (each an "Interest Period")
applicable to Libor Rate or Base Rate, which Interest Period shall, at the
option of the Borrower, be one month, two month, three month or six month period
for Libor Rate or a thirty day for Base Rate; provided that:
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(i) the Loan shall at all times accrue interest at the rate chosen during
the applicable Interest Period;
(ii) the Interest Period for any Libor Rate or Base Rate shall commence on
the day on which the preceding Interest Period thereto expires;
(iii) if any Interest Period would otherwise expire on a day which is not a
Business Day, such Interest Period shall expire on the next succeeding
Business Day; provided, however, that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) no Interest Period may be selected nor the rate of interest be changed
at any time when a Default is then in existence; and
(v) no Interest Period shall be selected which extends beyond the
respective Maturity Date for the Loan.
If upon the expiration of any Interest Period, the Borrower have failed to
elect, or are not permitted to elect, a new Interest Period, the Borrower shall
be deemed to have elected to have the Loan accrue interest equal to the Base
Rate effective as of the expiration date of such current Interest Period.
"Libor Rate" shall mean, for any Interest Period, an interest rate per
annum (rounded upward to the nearest hundredths of a percent), as determined by
Lender, which is the offered quotation to Lender of the London interbank offered
rates for Dollar deposits of amounts in immediately available funds in the
London market for one month, two months, three months or six months as recorded
by the Dow Jones Telerate Service, as of the opening of business of Lender or as
soon thereafter as practicable, for a period to accrue equal to such Interest
Period, plus the applicable margin of 200 basis points (2.00% percent). As of
March 19 1998, the Libor Rate with a six month maturity was five and 68/10
(5.68%) percent plus the margin is a total rate of seven and 68/100 (7.68%)
percent per annum.
"Lien" shall mean any mortgage, pledge, hypothecation, security interest,
encumbrance, lien, judgment, garnishment, seizure, tax lien or levy (statutory
or otherwise) or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, or any
capitalized lease, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction).
"Line Note" shall mean the note evidencing the Line as described in
Article II.
"Line of Credit" shall mean the $10,000,000.00 line of credit as described
in Article II.
"Loan" shall mean collectively the Line of Credit and the Term Loan and
shall include all principal, interest, attorney's fees and costs owed thereon.
"Net Tangible Assets" of any Person shall mean, as of any date, the
aggregate book value of the assets which would be reflected on a balance sheet
of such Person prepared as of such date in accordance
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with GAAP, less the aggregate book value of such Person's intangible assets
(i.e., patents, copyrights, trademarks, trade names, goodwill, franchises and
other similar intangibles) as of such date.
"Note" shall mean collectively the Line Note and other notes evidencing the
Loan.
"Obligations" shall mean all obligations (monetary or otherwise, including,
but not limited to, all representations, warranties and covenants contained in
this Agreement) of the Borrower to Lender, whether direct or contingent, due or
to become due, now existing or hereafter arising, including future advances,
with interest, attorneys' fees, expenses of collection and costs arising under
or in connection with this Agreement, the Loan, the Note, the Collateral
Documents, promissory notes, checks, overdrafts, letter of credit agreements,
endorsements and continuing guaranties.
"Orange Shipyard" shall mean the approximately 12 acres of real property
on the Sabine River, Orange, Texas, owned by Orange Shipbuilding Company, Inc.
and which is Orange's shipyard, as described on Exhibit B.
"Parent Company" shall mean a Delaware corporation to be created with the
same name as Borrower which will own all of the capital stock of Borrower.
"Permitted Liens" shall mean those presently outstanding Liens of the
Borrower and (i) pledges or deposits by the Borrower under workmen's
compensation laws, unemployment insurance laws or similar legislation, or good
faith deposits in connection with bids, tenders, contracts (other than for the
payment of Debt of the Borrower) or leases (other than capitalized leases) to
which the Borrower is a party, or deposits to secure statutory obligations of
the Borrower or deposits of cash or U.S. Government Bonds to secure surety or
appeal bonds to which the Borrower is a party, or deposits as security for
contested taxes or import duties or for the payment of rent; (ii) Liens imposed
by law, such as carriers', warehousemen's, materialmen's and mechanics' liens,
incurred in the ordinary course of business for sums not overdue or being
contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside on the Borrower's books; (iii) judgment Liens
in existence less than 30 days after the entry thereof or with respect to which
execution has been stayed or the payment of which is covered in full (subject to
a customary deductible) by insurance; (iv) Liens for property taxes not yet
delinquent and Liens for property taxes the payment of which is being actively
contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside on the Borrower's books; and (v) minor survey
exceptions, minor encumbrances, easements or reservations of, or rights of
others for rights-of-way, highways and railroad crossings, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of real property or Liens incidental to the
conduct of the business of the Borrower or to the ownership of its property
which were not incurred in connection with Debt of the Borrower, which Liens do
not in the aggregate materially detract from the value of said properties or
materially impair their use in the operation of the business taken as a whole of
the Borrower.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation (including the Borrower), a trust, an unincorporated
organization, government or any department or agency thereof, each Affiliate and
each Subsidiary.
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"Plan" shall mean any employee benefit plan which is covered by ERISA and
in respect of which the Borrower is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Property" shall mean the Conrad Shipyard and the Orange Shipyard and any
other immovable or real property owned by the Borrower, its Parent Company or
any of its Subsidiaries.
"Subsidiary" shall mean, with respect to any Person, any corporation,
association, partnership, joint venture or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned 50% or more by such Person.
"Tangible Net Worth" means, at a particular date, all amounts which would
be included under shareholders' equity on the balance sheet of Borrower, its
Parent Company and all of its Subsidiaries in conformity with generally accepted
accounting principles in the United States of America in effect from time to
time and applied on a consistent basis excluding any amount attributable to
goodwill or other intangibles of Borrower, its Parent Company and all of its
Subsidiaries.
"Term Loan" shall mean Borrower's existing term loan described in
Section 2.02 (a).
"Unused Line of Credit" shall mean $10,000,000.00 minus the outstanding
principal balance of the Line of Credit.
SECTION II
THE CREDIT
SECTION 2.01. COMMITMENT TO LEND. Subject to and upon the terms and
conditions contained in this Agreement, and relying on the representations and
warranties contained in this Agreement, Lender agrees to make the Line of Credit
to the Borrower, said extension of credit being more particularly described
hereinafter.
SECTION 2.02. (a) TERM LOAN. On March 15, 1998, Lender lent to the
Borrower the principal sum of Twenty-five Million and No/100 ($25,000,000.00)
Dollars (the "Term Loan") which was evidenced by a promissory note payable to
the order of Lender in the amount of $25,000,000.00, with interest to accrue at
the Libor Rate or Base Rate in accordance with Section 2.03. The Term Loan was
initially payable interest only on the last day of each month commencing March
31, 1998 and thereafter on the last day of each month until May 31, 1998.
Thereafter, the Term Loan shall be payable in 70 equal monthly principal
payments of $209,000.00, plus accrued interest with a final payment of all
unpaid principal and interest then due payable on April 30, 2004. The first
installment of principal and interest on the Term Loan shall be payable on June
30, 1998 with the succeeding installments payable on the last day of each month
until the Term Loan has been paid in full. Borrower hereby acknowledges and
affirms the Term Loan.
(b) LINE OF CREDIT. Subject to and upon the terms and conditions
contained in this Agreement, and relying on the representations and warranties
contained in this Agreement, the Lender agrees to make Advances to Borrower
periodically during the Line of Credit Period in an aggregate principal amount
outstanding not to exceed the sum of TEN MILLION AND NO/100 ($10,000,000.00)
DOLLARS (the "Line of Credit"). On April 30, 1999, Lender's obligations to make
any Advance on the
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Line of Credit shall cease. The Line of Credit shall be evidenced by a
promissory note executed by the Borrower in a form acceptable to Lender, dated
the Closing Date, in the principal sum of $10,000,000.00, payable to the order
of the Lender on April 30, 1999. During the Line of Credit Period, the Advances
shall accrue interest at Libor Rate or Base Rate in accordance with Section 2.03
and shall be payable interest only monthly in arrears on the last day of each
month, beginning May 30, 1998, and continuing on the last day of each succeeding
month until April 30, 1999.
(c) ADVANCES. Upon the terms and subject to the conditions hereof,
Borrower may request an Advance under the Line of Credit during Lender's regular
business hours in accordance with the provisions of Section 2.03. Borrower
shall make a request for an Advance under the Line of Credit by delivering to
Lender by mail, hand-delivery, facsimile or by telephonic notice to Lender's
applicable officer specifying (i) the amount to be borrowed, and (ii) the date
the funds will be borrowed, and all Advance Requests shall be made by the
Borrower's Agent. Borrower hereby authorizes Company's Agent to borrow money
and contract obligations with Lender. Until Borrower notifies Lender in writing
of the withdrawal of Company's Agent's rights and powers, Lender shall be able
to rely conclusively upon the right of Company's Agent to make Advances on
behalf of Borrower. Borrower agrees that only its duly authorized Company's
Agent shall make an Advance under the Line of Credit.
All proceeds of any Advance shall be deposited to Borrower's account at
Lender.
(d) CREDIT ADVICE. After the borrowing of any Advance in accordance with
this Agreement, Lender will mail to Borrower at the most recent address shown on
Lender's records a credit advice showing the amount of the Advance and the
amount of funds credited into Borrower's Account. Within ten (10) days after
the date of such advices, Borrower shall notify Lender of any inaccuracy in the
credit advices or the lack of authority to borrow the Advance. Failure by
Borrower to notify Lender timely shall preclude the Borrower from asserting
against Lender the inaccuracy of such advices and/or the lack of authorization
of such Advance. Lender's failure to mail the credit advice shall not alter
Borrower's obligation to repay the Line of Credit or make Lender liable to
Borrower for failure to mail the credit advice.
(e) INTERNAL RECORDS SHALL CONTROL. The principal amount shown on the
face of the Line Note evidences the maximum aggregate principal amount that may
be outstanding on the Line of Credit. Borrower agrees that the internal records
of Lender shall constitute for all purposes prima facie evidence of (i) the
amount of principal and interest owing on the Loan from time to time, (ii) the
amount of each Advance made to Borrower under the Line of Credit and (iii) the
amount of each principal and/or interest payment received by Lender on the Loan,
unless such internal records of Lender are manifestly erroneous.
SECTION 2.03. CONVERSION. (a) The Borrower has previously determined that
the Term Loan shall accrue interest at Libor Rate with an Interest Period to
expire on September 18, 1998. On the date of the initial Advance, Borrower will
determine the Interest Period and whether the Advance will accrue interest at
Libor Rate or the Base Period. Upon the expiration of such Interest Period and
any Interest Period thereafter, the Borrower shall have the option to convert
the interest rate accruing on all (but not less than all) of the outstanding
principal balance of the Term Loan or the Line of Credit, as applicable, into a
Libor Rate or Base Rate; provided that (i) a Loan can not be converted when any
Default has occurred and is continuing and in such event the Loan shall continue
to accrue interest at the rate in
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effect as of the date of such Default, and (ii) no conversions of any Loan are
allowed until the expiration of the Interest Period applicable to the existing
rate of interest has expired.
(b) Each conversion shall be enacted by the Company Agent by giving
Lender at its main office prior to 11:00 a. m. (New Orleans time) on or before
the last Business Day of the applicable Interest Rate Period written or
telephone notice of the conversion (each a "Notice of Conversion") specifying if
the applicable Loan is to be converted into accruing interest at Libor Rate or
Base Rate and the Interest Period to be applicable thereto. In the absence of
any specific rate election by the Borrower or if Borrower fails to provide such
notice to the Lender in a timely manner, the Loan shall accrue interest at the
Base Rate. Borrower may prepay the Loan without payment of premium or penalty.
(c) Interest on the outstanding principal owed on the Loan shall be
computed and assessed on the basis of the actual number of days elapsed over a
year composed of 360 days.
SECTION 2.04. INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that
Lender shall have determined in good faith (which determination shall, absent
manifest error, be final and conclusive and binding upon all parties hereto):
(i) on any Interest Period or date of conversion that, by reason of
any changes arising after the date of this Agreement affecting the
London interbank market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Libor Rate; or
(ii) at any time, that Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with
respect to any Libor Rate because of any change since the date of this
Agreement in any applicable law or governmental rule, regulation,
order, guideline or request or in the interpretation or administration
thereof and including the introduction of any new law or governmental
rule, regulation, order, guideline or request, such as, for example,
but not limited to: (A) a change in the basis of taxation of payment
to Lender of the principal or interest on such Libor Rate (except for
changes in the rate of tax on, or determined by reference to, the net
income or profits of Lender) or (B) a change in official reserve
requirements; or
(iii) at any time, that the making or continuance of any Libor Rate
has been made (x) unlawful by any law or governmental rule, regulation
or order, (y) impossible by compliance by Lender in good faith with
any governmental request (whether or not having force of law) or (z)
impracticable as a result of a contingency occurring after the date of
this Agreement which materially and adversely affects the London
interbank market;
then, and in any such event, Lender shall promptly give notice (by telephone
confirmed in writing) to the Borrower. Thereafter (x) in the case of clause (i)
above, Libor Rate shall no longer be available until such time as Lender
notifies the Borrower that the circumstances giving rise to such notice no
longer exist, and any Notice of Conversion given by the Borrower with respect to
Libor Rate which have not yet been incurred (including by way of conversion)
shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above,
the Borrower agrees to pay to Lender, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or
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otherwise as agreed to by Lender and the Borrower) as shall be required to
compensate Lender for such increased costs or reductions in amounts received or
receivable hereunder (a written notice as to the additional amounts owed to
Lender, showing the basis for the calculation thereof, submitted to the Borrower
by Lender in good faith shall, absent manifest error, be final and conclusive
and binding on all the parties hereto) and (z) in the case of clause (iii)
above, the Loan shall accrue interest at the Base Rate. Lender agrees that if it
gives notice to the Borrower of any of the events described in clause (i) or
(iii) above, it shall promptly notify the Borrower and if such event ceases to
exist. If any such event described in clause (iii) above ceases to exist as to
Lender, Lender's obligations to convert the interest accruing on the Loan into
Libor Rate on the terms and conditions contained herein shall be reinstated.
(b) At any time that any Libor Rate Loan is affected by the circumstances
described in Section 2.04 (a)(ii) or (iii), the Loan shall accrue interest at
the Base Rate.
SECTION 2.05. USE OF PROCEEDS. Subject to the compliance with the terms
and conditions of this Agreement, Borrower may be able to use the Line of Credit
to fund a one time dividend (the "Dividend") not to exceed $10,000,000.00 to
certain shareholders of Borrower provided that the funding of any Dividend
occurs on or before May 30, 1998. Subject to the satisfaction of the Financial
Covenants by Borrower after June 30, 1998, the Line of Credit may be used to
fund the working capital needs of Borrower and/or the short term funding of
Borrower's capital expenditures and acquisitions on terms acceptable to Lender.
SECTION 2.06. PREPAYMENT. Borrower shall be entitled to prepay the Loan
in whole or in part, without payment of premium or penalty.
SECTION 2.07. COMMITMENT FEE. In consideration of Lender making the Line
of Credit, Borrower agrees to pay to Lender, in arrears, a fee within ten
calendar days of the last day of March, June, September and December in each
year and on the maturity day of the Line of Credit, a commitment fee per annum
equal to one quarter of one percent (1/4% or 25 basis points) of the average
Unused Line of Credit during the preceding fiscal quarter, or portion thereof.
The average Unused Line of Credit shall be determined by dividing the sum of the
Unused Line of Credit for each day of that quarter by 90.
ARTICLE III
SECURITY FOR THE OBLIGATIONS
SECTION 3.01. COLLATERAL. The Loan and the Obligations shall be secured
by a first Lien in favor of Lender on the following collateral (the
"Collateral") to be documented upon terms and conditions satisfactory to Lender
(the "Collateral Documents"):
(a) Continuing Guaranties previously executed by Guarantors whereby
Orange solidarily agrees to repay all of the Obligations and J. Parker Conrad
agrees to solidarily repay $2,000,000.00 of the Loan;
CONRAD INDUSTRIES SHIPYARD
(b) A Collateral Note by Borrower in amount of $50,000,000.00 secured
by and paraphed for identification with a first, valid and enforceable
collateral mortgage mortgaging the Conrad
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Shipyard and all improvements and component parts located thereon, which
mortgage shall include an assignment of leases and rents;
(c) A Security Agreement executed by Borrower granting a security
interest in the Collateral Note;
(d) A Security Agreement and Financing Statements by Borrower granting
a first lien and security interest in all furniture, equipment, inventory,
fixtures, accounts, documents and general intangibles, including without
limitation, franchise agreements, operating agreements, contract rights,
licenses, permits and parish and city ordinances and approvals relating to or
usable in connection with the use, occupancy, operation, ownership or
maintenance of the Conrad Shipyard;
ORANGE SHIPYARD
(e) A deed of trust by Orange mortgaging the Orange Shipyard and all
improvements and component parts located thereon, which deed of trust shall
include an assignment of leases and rents; and
(f) A Security Agreement and Financing Statements by Orange granting a
first lien and security interest in all furniture, equipment, inventory,
fixtures, accounts, documents and general intangibles, including without
limitation, franchise agreements, operating agreements, contract rights,
licenses, permits and parish and city ordinances and approvals relating to or
usable in connection with the use, occupancy, operation, ownership or
maintenance of the Orange Shipyard.
SECTION 3.02. GUARANTY. The Continuing Guaranty of J. Parker Conrad
shall be released if the after the date of this Agreement, the ratio of
Borrower's total Debt to Tangible Net Worth reduces to 2.5 or less as shown by
the annual audited financial records of Borrower and as reasonably determined by
Lender.
SECTION IV
REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement, the Borrower
represents and warrants to Lender as follows:
SECTION 4.01. CORPORATE EXISTENCE. (a) Borrower is a validly organized
corporation duly existing and in good standing under the laws of the State of
Louisiana and is duly qualified as a foreign corporation in all jurisdictions
wherein the property owned or the business transacted by it make such
qualifications necessary. Orange is a validly organized corporation duly
existing and in good standing under the laws of the State of Texas and is duly
qualified as a foreign corporation in all jurisdictions wherein the property
owned or the business transacted by it make such qualifications necessary.
(b) Borrower has never done business under any name other than the
name of the Borrower set forth above. Borrower's tax identification number is
72-0456758 and its principal place of business is 1501 Front Street, Morgan
City, Louisiana 70380.
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(c) Orange has never done business under any name other than the
name of the Orange set forth above and as Clary Industries, Inc. Orange's tax
identification number is 74-1789273 and its principal place of business is 710
Market Street, Orange, Texas 77630.
SECTION 4.02. CORPORATE POWER AND AUTHORIZATION. The making and
performance by the Borrower of this Agreement, the borrowing by the Borrower and
the issuance of the Note and Collateral Documents by it hereunder, have been
duly authorized by all necessary corporate action and will not (i) violate any
provision of law or of the articles of incorporation or by-laws of the Borrower,
or (ii) result in a breach of, or constitute a default under, any agreement,
indenture or other instrument to which the Borrower is a party or by which it is
bound, the result of which would be to have material and adverse effect on the
business or property of the Borrower. The making and performance by Orange of
this Agreement, the issuance of the Continuing Guaranty and the Collateral
Documents by it hereunder have been duly authorized by all necessary corporate
action and will not (i) violate any provision of law or of the articles of
incorporation or by-laws of Orange, or (ii) result in a breach of, or constitute
a default under, any agreement, indenture or other instrument to which Orange is
a party or by which it is bound, the result of which would be to have material
and adverse effect on the business or property of Orange.
SECTION 4.03. NO CONSENT. No consent or approval of any governmental
agency or authority is required in connection with the execution, delivery and
performance by Borrower or Orange of this Agreement, the Note, the Collateral
Documents and all other documents required hereunder.
SECTION 4.04. ENFORCEABLE OBLIGATIONS. This Agreement, the Collateral
Documents and the Note to which the Borrower and/or Orange, as applicable is a
party, when duly executed and delivered for value will be legal, valid and
binding obligations of the Borrower and/or Orange, as applicable, enforceable
against the Borrower and/or Orange, as applicable in accordance with their
respective terms.
SECTION 4.05. NO MATERIAL LIABILITIES OR LITIGATION. Except for
liabilities incurred in the normal course of business, the Borrower does not
have any material (individually or in the aggregate) liabilities, direct or
contingent. In addition, there are no pending or threatened actions or
proceedings before any court or administrative agency which may materially and
adversely affect the Borrower's business, operations, assets conditions or
property, financial or otherwise.
SECTION 4.06. FINANCIAL CONDITION. The financial statements of Borrower as
heretofore furnished to Lender have been prepared in accordance with the
generally accepted accounting principles applied on a consistent basis and
fairly present the financial condition of Borrower as of those dates. To the
best of Borrower's knowledge and belief, Borrower does not have any contingent
obligation or liability for taxes not disclosed by or reserved against in said
financial statements, and there have been no material adverse changes in the
financial condition of Borrower from that set forth in said financial
statements. The financial statements of each Guarantor as heretofore furnished
to Lender fairly present the financial condition of such Guarantor as of the
date hereof. To the best of Guarantors' knowledge and belief, no Guarantor has
contingent obligation or liability for taxes not disclosed by or reserved
against in said financial statements, and there have been no material adverse
changes in the financial condition of such Guarantor from that set forth in said
financial statements. Since the close of the period covered by the latest
financial statement delivered to Lender with respect to the Borrower and
Guarantors, there has been no material adverse change in the assets, liabilities
or financial condition of the Borrower or any Guarantor. No event has occurred
(including, without limitation, any litigation or administrative proceedings)
and no condition exists or, to the knowledge of Borrower or any Guarantor,
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is threatened, which (i) might render Borrower or any Guarantor unable to
perform its obligations under this Agreement, the Note or the Collateral
Documents, or (ii) would constitute a Default hereunder, or (iii) might
adversely affect the financial condition of the Borrower or any Guarantor or the
validity or priority of the lien of the Collateral Documents. All parties
acknowledge that Lender is relying upon said financial statements in entering
into this Agreement and the Loan.
SECTION 4.07. LIABILITIES AND LITIGATION. There is no litigation, legal
or administrative proceeding, investigation or other action of any nature
pending or, to the knowledge of Borrower and/or Guarantors, threatened against
or affecting Borrower or Guarantors which involves the possibility of any
judgment or liability not fully covered by insurance, and which may materially
and adversely affect the business or assets of the Borrower or Guarantors or
their respective ability to carry on business as now conducted.
SECTION 4.08. TAXES AND GOVERNMENTAL CHARGES. Borrower and Orange have
filed all tax returns and reports required to be filed by all applicable
jurisdictions and have paid all taxes, assessments, fees and other governmental
charges levied upon it or upon any property owned by them or upon their income,
which are due and payable, including interest and penalties, or has provided
adequate reserves for the payment thereof.
SECTION 4.09. TITLE TO PROPERTY. Borrower and Orange, as applicable, have
good, valid and merchantable title to the Property, free of all Liens except (i)
those created by the Collateral Documents, or (ii) those disclosed to Lender in
writing prior to date hereof, including those reflected on the title commitment
covering portions of the Property. Furthermore, neither Borrower nor Orange has
heretofore conveyed or agreed to convey or encumber any Collateral in any way,
except in favor of the Lender or as disclosed to Lender in writing prior to date
hereof.
SECTION 4.10. DEFAULT. Neither Borrower nor any Guarantor is in default
(in any respect which materially and adversely affects its business, property,
operations or condition, financial or otherwise) under any indenture, mortgage,
deed of trust, agreement or other instrument to which Borrower and/or any
Guarantor is a party or by which either is bound or subject to any charter or
other corporate restriction which materially and adversely affects its
business, properties or assets, operation or condition, whether financial or
otherwise, except as disclosed to the Lender in writing. No Default hereunder
has occurred and is continuing.
SECTION 4.11. NO CONSENT. Borrower's and Orange's execution, delivery and
performance of this Agreement, the Note and the Collateral Documents, as
applicable, do not require the consent or approval of any other Person,
including without limitation any regulatory authority or governmental body of
the United States or any state thereof or any political subdivision of the
United States or any state thereof.
SECTION 4.12. COMPLIANCE WITH THE LAW. Borrower and/or Orange (i) is not
in violation of any law, judgment, decree, order, ordinance or governmental rule
or regulation to which the Borrower or any of its property are subject; and (ii)
has not failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of any of its property or the conduct
of its business; in each case, which violation or failure could reasonably be
anticipated to materially and adversely affect the business, prospects, profits,
property or condition (financial or otherwise) of the Borrower.
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SECTION 4.13. OTHER INFORMATION. All information, reports, papers and
data given to Lender by the Borrower and each Guarantor pursuant to this
Agreement and in connection with the Borrower's application for the Loan are
accurate and correct in all material respects. All financial projections given
to Lender were prepared in good faith based on facts and circumstances existing
at the time of preparation and were believed by the Borrower to be accurate in
all material respects. No information, exhibit or report furnished by the
Borrower to Lender in connection with the negotiation of this Agreement contains
any material misstatement of fact or fails to state a material fact or any fact
necessary to make the statement contained therein not materially misleading.
SECTION 4.14. ENVIRONMENTAL MATTERS. (a) To the best of the Borrower's
knowledge, all operating facilities and property owned, leased, used, or
operated by the Borrower and/or Orange have been, and will continue to be,
owned, leased, used, or operated by the Borrower and/or Orange in substantial
compliance with applicable environmental laws, regulations, and guidelines.
There has been no claim, complaint, or notice received by the Borrower with
respect to a violation of environmental laws which remains unsettled or
unresolved as of the date hereof, including but not limited to, any unsettled or
unresolved liabilities relating to, arising out of or resulting from (i) any
emission, discharge or release of any pollutant, contaminant, Hazardous
Material, toxic material or other similar waste or (ii) any processing,
distribution, use, treatment, transport, removal, storage and/or disposal of
materials or wastes into or upon the ambient air, surface water, ground water or
land owned by the Borrower or any alleged violation of any federal, state, or
local statute, regulation, or ordinance relating to the environment. There has
been no complaint or notice received by the Borrower or Orange regarding
potential liability under the Comprehensive Environmental Response Compensation
and Liability Act, as amended, the Resource Conservation and Recovery Act, as
amended, or any comparable state or local law which is unsettled or remains
unresolved as of the date hereof. To the Borrower's knowledge, there has been
no release of a Hazardous Material at any facility or property owned, leased,
used, or operated by the Borrower or Orange which caused or could have cause a
material adverse change in the Borrower's financial condition, business or
ability to pay or perform its Obligations. For purposes of the last sentence of
this Section III (k), "release" shall have the meaning assigned to it under the
Comprehensive Environmental Response Compensation and Liability Act.
(b) Borrower has obtained all permits, licenses or similar
authorizations to construct, occupy, operate or use any buildings, improvements,
fixtures and equipment forming a part of the Property by reason of any Hazardous
Materials. The use which the Borrower makes and intends to make of the Property
will not result in any Hazardous Materials Contamination.
SECTION 4.15. GOVERNMENTAL REQUIREMENTS. The Property is in compliance
with all current Governmental Requirements affecting the Property, including,
without limitation, all current zoning and land use regulations, building codes
and all restrictions and requirements imposed by applicable governmental
authorities with respect to the construction of any improvements on the Property
and the contemplated use of the Property.
SECTION 4.16. CONTINUING ACCURACY. All of the representations and
warranties contained in this article or elsewhere in this Agreement shall be
true through and until the Obligations are fully satisfied, and Borrower shall
promptly notify Lender of any event which would render any of said
representations and warranties untrue or misleading.
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SECTION 4.17. AMERICANS WITH DISABILITIES ACT. The Property shall be
readily accessible to individuals with disabilities, and complies with all
terms and conditions of the Americans With Disabilities Act, 42 U.S.C. (S)1210,
et seq. and all regulations and orders promulgated thereunder.
SECTION 4.18. CLEAN AIR ACT. The Property now complies with and upon
completion of the Improvements shall continue to comply with all terms and
conditions of 42 U.S.C. (S) 7401, et seq. and all regulations and orders
promulgated thereunder.
SECTION 4.19. LICENSES, PERMITS. The Borrower and Orange have all
permits, certificates, licenses (including patent and copyright licenses)
approvals and other authorizations required in connection with the operation of
their business.
SECTION 4.20. GOVERNMENT CONTRACTS. Neither Borrower nor Orange has ever
been debarred or suspended from contracting (as a first tier or any other level
of subcontractor) for or bidding on any Governmental Contract (as such term is
defined below). Neither Borrower nor Orange is currently debarred or suspended
from (or has received notice that it is under investigation with respect to a
possible debarment or suspension from) bidding on or entering into any contract
with or for any Governmental Authority (a "Government Contract"). Neither
Borrower nor Orange has been given notice (i) that any Government Contract may
be or will be terminated for the convenience of a Governmental Authority or a
default by Borrower or Orange, as the case may be, (ii) that a major program or
contract of Borrower or Orange will be eliminated or substantially reduced or
suspended, (iii) requiring or resulting in, loss of use or substantial
impairment or interference of use by Borrower or Orange, as the case may be, of
any facilities owned by a Governmental Authority, or (iv) that any relevant
budget authority or contract authority has been exceeded with respect to any
material Government Contract. Neither the Borrower or Orange anticipates
incurring cost overruns on any Government Contracts which would have a material
adverse effect on the financial condition of Borrower or Orange.
SECTION 4.21. FEDERAL REGULATIONS. No part of the proceeds of the Loan
will be used as "purpose credit" within the meaning of such term under
Regulations U or G of the Board of Governors of the Federal Reserve System as
now and from time to time hereafter in effect, if such use would violate the
provisions of Regulations U or G.
SECTION 4.22. SUBSIDIARIES. At the Effective Date, the Borrower has no
Subsidiaries except Orange, and the Borrower owns all of the capital stock of
Orange.
SECTION 4.23. GOVERNMENT CONTRACTS. Borrower and Orange have the right
under their Government Contracts to grant a security interest to the proceeds
therefrom under the Collateral Documents and the Collateral Documents create a
non-perfected security interest in the Government Contracts. To the best of
Borrower's and Orange's respective knowledge, there are no offsets, and there
are not currently threatened or pending any claims or offsets against Borrower
or Orange by any Governmental Authority.
SECTION 4.24. ASSETS MORTGAGED TO LENDER. All drydocks, barges and other
vessels and equipment of Borrower and Orange are not documented vessels with the
United States Coast Guard and are free and clear of any Liens, except the
Collateral Documents or Permitted Liens. In the event any asset of Borrower or
Orange becomes a documented vessel with the United States Coast Guard,
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Borrower agrees to notify Lender and to execute a preferred maritime ship
mortgage encumbering such asset in favor of Lender upon terms and conditions
reasonably acceptable to Lender. All immovable and real property of Borrower and
Orange are mortgaged to Lender under the Collateral Documents, except the
shipyard owned by Borrower in Amelia, Louisiana. All equipment of Borrower and
Orange are subject to a perfected security interest in favor of Lender in
accordance with the terms of the Collateral Documents.
SECTION V
AFFIRMATIVE COVENANTS
The Borrower agrees that, so long the Loan remains unpaid, or any other
amount or any Obligations are owing to Lender hereunder, the Borrower, its
Parent Company and all of its Subsidiaries, as applicable, shall comply with the
covenants in this Section.
SECTION 5.01. FINANCIAL COVENANTS. Borrower shall comply with the
following Financial Covenants until the Loan has been paid in full, except as
provided herein:
(a) DEBT TO TANGIBLE NET WORTH. The Borrower on a consolidated basis with
its Parent Company and all of its Subsidiaries when combined with the Parent
Company and each Subsidiary shall maintain a Debt to Net Worth Ratio of no
greater than 6.5 until December 30, 1998. Thereafter the Borrower when combined
with the Parent Company and each Subsidiary shall maintain a Debt to Net Worth
ratio of no greater than the following ratios at the end of the referenced
fiscal year:
Date Debt to Net Worth Ratio
---- -----------------------
December 31, 1998 3.5
December 31, 1999 2.5
December 31, 2000, until 1.5
the Loan is paid in full.
(b) CONSOLIDATED FUNDED DEBT TO EBITDA RATIO. Borrower on a consolidated
basis with its Parent Company and all of its Subsidiaries shall maintain at all
times during the existence of the Loan a maximum ratio of Consolidated Funded
Debt to EBITDA that shall not exceed 3.0 during the fiscal year ending December
31, 1998 and 2.5 during each fiscal quarter thereafter (on a rolling four
quarter basis).
(c) FIXED CHARGE COVERAGE RATIO. Borrower on a consolidated basis with
its Parent Company and all of its Subsidiaries shall maintain at all times
during the existence of the Loan a Fixed Charge Coverage Ratio of at least 1.5
as of the fiscal year ending December 31, 1998 and each fiscal quarter
thereafter.
(d) CURRENT RATIO. Borrower on a consolidated basis with its Parent
Company and all of its Subsidiaries shall maintain at all times during the
existence of the Loan a ratio of Current Assets (minus any Prepayments) to
Current Liabilities of 1.5 to 1.0 or greater.
During the period from the date of the Advance of the Dividend until June
30, 1998, Borrower shall not be required to comply with the Financial Covenants
listed in Subsection (a) through (c).
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Commencing on June 30, 1998 and thereafter, Borrower shall comply with all of
the Financial Covenants.
SECTION 5.02. FINANCIAL STATEMENTS. (a) Borrower shall, from time to
time, promptly furnish to Lender as soon as available, but in any event within
ninety (90) days after the close of Borrower's fiscal year a copy of the audited
financial statements of Borrower, its Parent Company and all of its Subsidiaries
of a consolidated basis, as of the close of such fiscal year prepared in
reasonable detail and in accordance with generally accepted accounting
principles in the United States in effect from time to time and applied
consistently throughout the period reflected therein, with such financial
statements to include a balance sheet of the Borrower and Orange as of the end
of such year and the related statement of operations, of stockholder's equity
and of cash flow prepared in reasonable detail and in conformity with generally
accepted accounting principles in the United States in effect from time to time
and applied on a basis consistent with that of the preceding fiscal year, and
prepared by independent certified public accountants selected by Borrower and
satisfactory to Lender.
(b) Borrower shall, from time to time, promptly furnish Lender as soon as
available, but in any event within forty-five (45) days after the end of each
quarter of each fiscal year of Borrower, the unaudited balance sheet of
Borrower, its Parent Company and all of its Subsidiaries as of the end of each
such quarter and the related unaudited statements of operations, of
shareholder's equity and of cash flow for such quarter and the portion of the
fiscal year throughout such date, all prepared in reasonable detail and in
conformity with good accounting practices in the United States in effect from
time to time and applied consistently throughout the period reflected therein
and certified by the chief financial officer of Borrower.
(c) Immediately upon becoming aware of the occurrence of any event which
constitutes a Default or which could constitute a Default with the passage of
time or the giving of notice, or both, Borrower shall give written notice to
Lender describing such occurrence together with a detailed statement by the
Company Agent of the steps being taken by Borrower to cure the effect of such
event.
(d) Borrower shall furnish to Lender concurrently with the delivery of the
financial statements referred to in subsections (a) and (b) above, a certificate
of the chief financial officer of Borrower (i) stating that such officer has no
knowledge of any Default, or any other event with which the passage of time
would become a Default under this Agreement or the Collateral Documents, except
as specified in such certificate and (ii) showing in detail the calculations
supporting such statements in respect to Section 5.01. The Borrower shall
furnish to Lender with reasonable promptness, such additional financial and
other information as Lender may from time to time reasonably request.
SECTION 5.03. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Borrower
and Orange shall continue to engage principally in the business of the same
general type now conducted by it and preserve, renew and keep in full force and
effect its corporate existence and take all reasonable action to maintain all
rights, privileges and franchises necessary in the normal conduct of its
business and comply with all laws.
SECTION 5.04. INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The
Borrower, its Parent Company and its Subsidiaries shall keep proper books and
records in conformity in all material respects of GAAP and permit
representatives of Lender to visit and inspect any of its properties and examine
the books and records of the Borrower at any reasonable time during normal
business hours and
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as often as may reasonably be necessary, and to discuss the business,
operations, properties and financial and other condition of the Borrower, its
Parent Company and its Subsidiaries with officers of the Borrower, its Parent
Company and its Subsidiaries and with its independent certified public
accountants.
SECTION 5.05. NOTICE OF CERTAIN EVENTS. (a) The Borrower shall promptly
notify Lender if the Borrower learns of the occurrence of any event which
constitutes a Default, together with a detailed statement by the Company Agent
of the steps being taken to cure the effect of such Default.
(b) The Borrower shall promptly notify Lender of any change in
location of the Borrower's and/or Orange' principal places of business or the
office where Borrower and/or Orange keeps its records concerning accounts and
contract rights.
(c) The Borrower shall promptly notify Lender of the arising of any
litigation or dispute threatened against or affecting the Borrower, its Parent
Company and/or any of its Subsidiaries or the Property which, if adversely
determined, would have a material adverse effect upon the financial condition or
business of the Borrower and/or Orange. In the event of such litigation, the
Borrower will cause such proceedings to be vigorously contested in good faith
and, in the event of any adverse ruling or decision, the Borrower shall
prosecute all allowable appeals. Lender may (but shall not be obligated to),
without prior notice to Borrower, commence, appear in or defend any action or
proceeding purporting to affect the Loan, or the respective rights and
obligations of Lender or Borrower pursuant to this Agreement. Lender may (but
shall not be obligated to) pay all necessary expenses, including reasonable
attorneys' fees and expenses incurred in connection with such proceedings or
actions, which Borrower agrees to repay to Lender upon demand.
SECTION 5.06. ENVIRONMENTAL INDEMNITY. (a) Borrower and Orange agree to
(i) give notice to Lender immediately upon its acquiring knowledge of the
violation of any Governmental Requirement regarding the presence of any
Hazardous Materials on the Property and/or of any Hazardous Materials
Contamination with a full description thereof; and (ii) promptly comply with any
Governmental Requirement requiring removal, treatment or disposal of such
Hazardous Materials or Hazardous Materials Contamination and provide Lender with
satisfactory evidence of such compliance. Upon the discovery of any Hazardous
Materials Contamination, or upon the occurrence of a Default and the expiration
of the cure period provided in Section 7.02, Lender shall have the right to
cause an environmental audit or review of the Property to be performed by a firm
acceptable to Lender at the sole cost and expense of Borrower.
(b) Borrower and Orange shall solidarily defend, indemnify and hold
Lender, its directors, officers, agents and employees harmless from any and all
liabilities (including strict liability), actions, demands, penalties, losses,
costs or expenses (including, without limitation, reasonable attorneys' fees and
remedial costs), suits, costs of any settlement or judgment and claims of any
and every kind whatsoever which may now or in the future be paid, incurred, or
suffered by, or asserted against Lender by any person or entity or governmental
agency for, with respect to, or as a direct or indirect result of, the presence
on or under, or the escape, seepage, leakage, spillage, discharge, emission,
discharging or release from or onto the Property of any Hazardous Materials or
any Hazardous Materials Contamination, or arise out of, or result from, the
environmental condition of the Property or the applicability of any Governmental
Requirement relating to Hazardous Materials (including, without limitation,
CERCLA or any so called federal, state or local "super fund" or "super lien"
laws, statute, ordinance, code, rule, regulation, order or decree) regardless of
whether or not caused by or within the
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control of Borrower and/or Orange. These representations, covenants and
warranties contained in this Section 5.07 shall survive the termination of this
Agreement.
SECTION 5.07. INDEMNIFICATION. (a) Borrower and Orange shall solidarily
defend, indemnify Lender and hold Lender harmless from claims of brokers with
whom the Borrower and/or Orange has dealt in the execution hereof or the
consummation of the transactions contemplated hereby.
(b) The Borrower and Orange shall solidarily defend, indemnify Lender
and hold Lender harmless from any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits, costs and expenses of whatever kind
or nature which may be imposed on, incurred by or asserted at any time against
Lender in any way relating to, or arising in connection with, the use or
occupancy of any of the Property.
(c) Borrower and Orange solidarily agree to defend, indemnify, hold
harmless and fully protect Lender from any allegation or charge whatsoever of
negligence, misfeasance or nonfeasance of Lender in whole or in part, pertaining
to any defect in the Property, and particularly, any failure of Lender or any
agent, officer, employee or representative of Lender, to note any defect in
materials or workmanship or of physical conditions or failure to comply with any
ordinances, statutes or other governmental requirements, or to call to the
attention of any person whatsoever, or take any action, or to demand that any
action be taken, with regard to any such defect or failure or lack of
compliance.
SECTION 5.08. MAINTENANCE OF THE PROPERTY. Borrower shall cause the
Property to be maintained in good condition and repair and will not commit or
suffer to be committed any waste of the Property. The Property shall not be
removed, demolished or materially altered (except for normal replacement),
without the prior written consent of Lender. Borrower shall promptly comply
with all laws, orders, and ordinances affecting the Property or the use thereof,
and shall promptly repair, replace or rebuild any part of the Property which may
be damaged or destroyed by any casualty (including any casualty for which
insurance was not obtained or obtainable) and shall complete and pay for, within
a reasonable time, any structure at any time in the process of construction or
repair on the Property. Except with regard to normal and customary utility
servitudes, the Borrower will not, without obtaining the prior written consent
of Lender, initiate, join in, or consent to any private restrictive covenant,
zoning ordinance, or other public or private restrictions, limiting or defining
the uses which may be made of the Property or any part thereof.
SECTION 5.09. AMERICANS WITH DISABILITIES ACT. (a) Borrower and Orange
shall (i) maintain the Property to be readily accessible to individuals with
disabilities, (ii) provide goods, services, accommodations, access and
facilities without discrimination on the basis of disability, and (iii) comply
with all terms and conditions of the Americans With Disabilities Act, 42 U.S.C.
(S)1210, et seq. and all regulations and orders promulgated thereunder.
(b) Borrower and Orange shall defend, indemnify and hold Lender harmless
from any and all liabilities (including strict liability), actions, demands,
penalties, losses, costs or expenses (including, without limitation, reasonable
attorneys' fees and remedial costs), suits, costs of any settlement or judgment
and claims of any and every kind whatsoever which may now or in the future be
paid, incurred, or suffered by, or asserted against Lender by any person or
entity or governmental agency for, with respect to, or as a direct or indirect
result of, any violations of the Americans With Disabilities Act or
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any regulations or orders promulgated thereunder resulting from the operation,
maintenance or renovation of the Property.
SECTION 5.10. CLEAN AIR ACT. (a) Borrower and Orange shall maintain the
Property in full compliance with all terms and conditions of the Clean Air Act
42 U.S.C. (S)7401, et seq. and all regulations and orders promulgated
thereunder.
(b) Borrower and Orange shall defend, indemnify and hold Lender harmless
from any and all liabilities (including strict liability), actions, demands,
penalties, losses, costs or expenses (including, without limitation, reasonable
attorneys' fees and remedial costs), suits, costs of any settlement or judgment
and claims of any and every kind whatsoever which may now or in the future be
paid, incurred, or suffered by, or asserted against Lender by any person or
entity or governmental agency for, with respect to, or as a direct or indirect
result of, any violations of the Clean Air Act or any regulations or orders
promulgated thereunder resulting from the operation, maintenance or renovation
of the Property.
SECTION 5.11. ERISA. Borrower shall fulfill its obligations under the
minimum funding standards of ERISA and the Internal Revenue Code of 1986, as
amended, with respect to each Plan, and neither the Borrower nor any Affiliate
or Subsidiary shall take any action that would result in the termination of a
Plan by the Pension Benefit Guaranty Corporation.
SECTION 5.12. TAXES AND OTHER LIENS. Borrower and Orange will pay and
discharge promptly when due all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon the Property as well as all
claims of any kind (including claims for labor, materials, supplies and rent)
which, if unpaid, might become a Lien upon any or all of the Property; provided,
however, the Borrower and/or Orange shall not be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted and if Borrower and/or Orange have set up reserves therefor
adequate under generally accepted accounting principles or if the claim is
covered by insurance or the payment or performance bonds. Borrower shall
furnish Lender with proof of payment of all taxes, assessments, charges, levies
or claims not later than the date on which penalties might attach thereto, or in
the event that the Borrower and/or Orange contests any such taxes, assessments,
charges, levies or claims in accordance with this section, Borrower and/or
Orange shall furnish Lender with a description of the contested matter and all
actions taken by Borrower and/or Orange in connection with such contest.
SECTION 5.13. MAINTENANCE OF BORROWER'S AND ITS SUBSIDIARIES' EXISTENCE.
Borrower and its Subsidiaries will (i) maintain their respective corporate
existence and rights; (ii) observe and comply (to the extent necessary so that
any failure will not materially and adversely affect the business of the
Borrower and/or its Subsidiaries) with all applicable Governmental Requirements
applicable to Borrower and/or its Subsidiaries or the Property (including
without limitation applicable statutes, regulations, orders and restrictions
relating to environmental standards or controls or to energy regulations); and
(iii) maintain the Property in generally good and workable condition at all
times and make all repairs, replacements, additions, betterments and
improvements to the Property to the extent necessary so that any failure will
not materially and adversely affect the business of the Borrower and/or its
Subsidiaries.
SECTION 5.14. FURTHER ASSURANCES. Borrower will promptly (and in no event
later than 30 days after written notice from Lender is received) cure any
defects in the creation, execution and delivery of this Agreement, the Note or
the Collateral Documents. Borrower and/or Orange at Borrower's expense
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will promptly execute and deliver to Lender upon request all such other and
further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrower and/or Orange in
this Agreement, the Note or in the Collateral Documents or to further evidence
and more fully describe the Collateral, or to correct any omissions in the
Collateral Documents, or more fully state the security obligations set out
herein or in any of the Collateral Documents, or to perfect, protect or preserve
any Liens created pursuant to any of the Collateral Documents, or to make any
recordings, to file any notices, or obtain any consents as may be necessary or
appropriate in connection with the transactions contemplated by this Agreement.
SECTION 5.15. REIMBURSEMENT OF EXPENSES. Borrower will pay all reasonable
legal fees incurred by Lender in connection with the preparation of this
Agreement, the Note and the Collateral Documents. Borrower will, upon request,
promptly reimburse Lender for all amounts expended, advanced or incurred by
Lender to satisfy any obligation of the Borrower under this Agreement, or to
protect the Property or business of the Borrower or to collect the Obligations,
or to enforce the rights of Lender under this Agreement, which amounts will
include all court costs, attorneys fees, fees of auditors and accountants and
investigation expenses reasonably incurred by Lender in connection with any such
matters, together with interest at the interest rate set forth in the Note on
each such amount from the date that the same is expended, advanced or incurred
by Lender until the date of reimbursement to Lender.
SECTION 5.16. INSURANCE. (a) The Borrower shall procure and maintain for
the benefit of Lender original paid-up insurance policies from companies
satisfactory to Lender, in amounts, in form and substance, and with expiration
dates acceptable to Lender and containing a noncontributory standard mortgagee
clause or its equivalent in a form satisfactory to Lender, or the statutory
mortgagee clause, if any, required in the state where the Property is located,
or a mortgagee's loss payable endorsement, in favor of Lender, providing the
following types of insurance on the Property:
(i) Multi-Peril Hazard Insurance. For the Property, multi-peril
hazard insurance. In each case, the policies will afford insurance against loss
or damage by fire, lightning, explosion, earthquake, collapse, theft, sprinkler
leakage, vandalism and malicious mischief and such other perils as are included
in so-called "all-risks" or "extended coverage" and against such other insurable
perils as, under good insurance practices, from time to time are insured against
for properties of similar character and location; such insurance to be not less
than 100% of the full replacement cost of the improvements located on the
Property, without deduction for depreciation; said policies to contain
replacement costs and stipulated value endorsements.
(ii) Comprehensive General Liability Insurance. Comprehensive public
liability insurance with respect to the Property and the operations related
thereto, whether conducted on or off the Property, against liability for
personal injury (including bodily injury and death) and property damage, of not
less than a total of $5,000,000.00 combined single limit bodily injury and
property damage; such comprehensive public liability insurance to be on a per
occurrence basis and to specifically include but not limited to water damage
liability, products liability, motor vehicle liability for all owned and
nonowned vehicles, including rented and leased vehicles, and contractual
indemnification.
(iii) Workers' Compensation and General Liability. Workers'
compensation and general liability insurance against loss, damage or injury to
employees, agents or representatives of the Borrower and/or its Subsidiaries or
of any contractor and subcontractor, or insurance against loss,
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damage or injury caused by any employees, agents or representatives of the
Borrower and/or its Subsidiaries or of any contractor or subcontractor.
(iv) Flood Insurance. Flood Insurance Policy in the amount of the
Loan or the maximum amount obtainable, whichever is less, if the property is
located in a Flood Hazard Area as defined by the Federal Emergency Management
Agency.
(v) Other Insurance. Such other insurance on the Property or any
replacements or substitutions therefor and in such amounts as may from time to
time be reasonably required by Lender against other insurable casualties which
at the time are commonly insured against in the case of premises similarly
situated, due regard being given to the height and type of the improvements on
the Property, its construction, location, use and occupancy, or any replacements
or substitutions therefor.
(b) All of the foregoing policies shall contain an agreement by the
insurer not to cancel or amend the policies without giving Lender at least
thirty (30) days' prior written notice of its intention to do so and shall
provide that the policies shall be payable not withstanding the acts of Borrower
or its Subsidiaries, as applicable.
(c) At or before Closing, Borrower shall deliver original binders
evidencing the insurance and within 15 days of closing the original or certified
policies to Lender, and Borrower shall deliver original or certified renewal
policies with satisfactory evidence of payment not less than fifteen (15) days
in advance of the expiration date of the existing policy or policies. In the
event Borrower and/or its Subsidiaries should, for any reason whatsoever, fail
to keep the Property or any part thereof so insured, or to keep said policies so
payable, or fail to deliver to Lender the original or certified policies of
insurance and the renewals thereof upon demand, then Lender after giving written
notice to Borrower of that deficiency and if after 15 days after delivery of
such notice, there is still no insurance coverage, then Lender, if it so elects,
may itself have such insurance effected in such amounts and in such companies as
it may deem proper and may pay the premiums therefor. The Borrower shall
reimburse Lender upon demand for the amount of premium paid, together with
interest thereon at 15% percent per annum from date until paid.
(d) Borrower and Orange agree to notify Lender immediately in writing
of any material fire or other casualty to or accident involving any of the
Property, whether or not such fire, casualty or accident is covered by
insurance. Borrower and Orange further agree to notify promptly Borrower's
and/or Orange insurance company and to submit an appropriate claim and proof of
claim to the respective insurance company if any of the Property is damaged or
destroyed by fire or other casualty.
(e) Lender is hereby authorized and empowered, at its option, to
collect and receive the proceeds from any policy or policies of insurance, and
each insurance company is hereby authorized and directed to make payment of all
such losses directly to Lender instead of to the Borrower and/or Orange and
Lender jointly. Lender shall apply the net proceeds thereof, in accordance with
Subsections (f), (g) and/or (h) hereof.
(f) If there is a fire or casualty loss which damages a portion (but
not all) of the improvements on any of the Property and as long as no Default
has occurred and is continuing, then the Proceeds of the insurance shall be
deposited into a cash collateral account and such proceeds will be applied to
the payment of the cost of restoration of the improvements upon such terms and
conditions as
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Lender may deem necessary or appropriate in its reasonable discretion; provided,
however, that (i) such insurance proceeds must be adequate to cover the cost of
restoration of the improvements, or if the proceeds are insufficient, then the
Borrower shall give Lender such adequate protection and assurance as Lender may,
in its reasonable discretion require, that additional funds will be provided by
the Borrower in order to complete the restoration of the Improvements (ii) the
Borrower shall have provided Lender with such adequate protection and assurance
as Lender may, in its reasonable discretion require, that the Borrower has
sufficient funds on hand to pay interest and principal on the Loan during the
restoration period, and (iii) the first priority of the Collateral Documents in
the Property is not impaired. In connection with any restoration of any of the
improvements, the Borrower and/or Orange shall provide Lender with a detailed
cost breakdown showing by line item all costs projected for such restoration and
a revised and updated cost breakdown shall be furnished by the Borrower and/or
Orange to Lender on a monthly basis.
(g) If there is a fire or casualty loss which constitutes a total
loss or a constructive total loss of any of the Property, or if not all of the
conditions set forth in subclause (i) through (iv) of Subsection (f) above are
satisfied, then the insurance proceeds shall be applied to the payment of the
Obligations. If such insurance proceeds are not sufficient to pay the
Obligations in full, Lender shall have a right to accelerate the maturity of the
Obligations and proceed against the Borrower or the remainder of the Property;
and if the proceeds exceed the amount necessary to pay the Obligations in full,
then such excess shall be paid to Borrower.
(h) Upon demand of Lender and after the occurrence of a Default, the
Borrower shall pay to Lender, together with, at the same time as and in addition
to the payments of principal and/or interest due on the Note, a pro rata portion
of the property taxes, assessments, governmental charges, levies and insurance
premiums relating to the Property next to become due, as estimated by Lender, so
that Lender will have sufficient funds on hand to pay such taxes, assessments,
governmental charges, levies and premiums not less than thirty (30) days prior
to the due date thereof. All such amounts shall be held by Lender (not in
trust) without interest as further security for the Obligations. Lender may
apply all or a portion of the amounts so paid at such time and in such order as
Lender, in its uncontrolled discretion shall determine, to the payment of the
taxes, assessments, governmental charges, levies and insurance premiums, as the
case may be.
SECTION 5.17. INITIAL PUBLIC OFFERING. It is contemplated that all of the
shareholders of Borrower will be exchanging the stock of the Borrower in return
for the stock of the Parent Company so that the Parent Company will own all of
the capital stock of Borrower. In the event Borrower or the Parent Company or
any other entity which owns all or substantially all of the capital stock of
Borrower offers its stock to be sold in a public offering within the meaning of
the Securities Act of 1933, the net proceeds from such sale shall be used to
prepay in whole or part the principal balance then owed on the Line of Credit
and then to the Term Loan, unless otherwise agreed to in writing by the Lender.
SECTION 5.18. SURVEY AND POST CLOSING ITEMS. Borrower agrees to furnish a
perimeter survey of the Conrad Shipyard, showing any encroachments and access to
the property and to cure all title defects of the Property, as shown on Lender's
title commitments covering the Property, to the satisfaction of Lender's counsel
on or prior to June 15, 1998.
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SECTION VI
NEGATIVE COVENANTS
Borrower agrees that, so long as the Loan remain unpaid, or any other
amount or any Obligations are owing to Lender hereunder, the Borrower, its
Parent Company and all of its Subsidiaries, as applicable, shall comply with the
applicable covenants contained in this Section.
SECTION 6.01. LIMITATIONS ON LIENS. Borrower and/or any of its
Subsidiaries shall not create, encumber or suffer any Lien, other than the
Collateral Documents and Permitted Liens, to exist on the Property or any other
Collateral without the prior written consent of Lender.
SECTION 6.02. ENVIRONMENTAL LIABILITIES. Borrower and/or any of its
Subsidiaries shall not violate any Governmental Requirement regarding Hazardous
Materials and shall not create or allow any Hazardous Materials Contamination;
and, without limiting the foregoing, or otherwise dispose of (or permit any
Person to dispose of) any Hazardous Material (except in accordance with
applicable law) into or onto or from, the Property, nor allow any Lien imposed
pursuant to any Governmental Requirement relating to Hazardous Materials or the
disposal thereof to be imposed or to remain on the Property.
SECTION 6.03. ERISA COMPLIANCE. Borrower and/or any of its Subsidiaries
shall not at any time permit any Plan maintained by it to engage in any
"prohibited transaction" as such term is defined in Section 4975 of the Code;
incur any "accumulated funding deficiency" as such term is defined in Section
302 of ERISA; or terminate any such Plan in a manner which could result in the
imposition of a Lien on the property of the Borrower and/or Orange pursuant to
Section 4068 of ERISA.
SECTION 6.04. CONSOLIDATION/MERGER. Neither Borrower, its Parent Company
nor a Subsidiary shall merge or consolidate with any other Person without the
written consent of Lender, except that Borrower, its Parent Company or a
Subsidiary may merge or consolidate with another corporation, provided that:
(a) the "surviving corporation" is organized under the laws of the
United States or a jurisdiction thereof, and
(b) the "surviving corporation" shall be engaged in substantially the
same line of business conducted by the Borrower on the Closing
Date, and
(c) the "surviving corporation" expressly assumes the Obligations and
executes such collateral documents and other agreements all upon
terms and conditions as reasonably requested by Lender.
SECTION 6.05. RESTRICTED PAYMENTS. Other than the Dividend, neither
Borrower, its Parent nor any Subsidiary shall declare or pay any dividend on, or
declare or make any other distribution on account of, any shares of any class of
its stock now or hereafter outstanding, or set apart any sum for such purpose
without the Lender's prior written consent.
SECTION 6.06. TRANSACTION WITH AFFILIATES. Neither Borrower, its Parent
nor any Subsidiary shall enter into any transaction (including the purchase,
sale or exchange of property or the rendering of any service) with any Affiliate
except upon fair and reasonable terms which are at least as favorable to
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the Borrower, its Parent or any Subsidiary as would be obtained in a comparable
arm's length transaction with a non-Affiliate.
SECTION 6.07. TRANSFER OF BORROWER'S OR ORANGE'S STOCK. Other than a
transfer of its capital stock to the Parent Company to facilitate a public
offering within the meaning of the Securities Act of 1933 of the Parent
Company's capital stock, neither the capital stock of Borrower nor the capital
stock of Orange shall be sold, transferred, exchange, pledged or encumbered to
or in favor of a third Person without the prior written consent of Lender.
SECTION 6.08. PARENT COMPANY. Without the prior written consent of
Lender, the Parent Company shall not ever have any employees, assets or
liabilities (other than the assets and liabilities of Borrower and its
Subsidiaries on a consolidated basis) and shall not ever create or incur any
Debt.
ARTICLE VII
CONDITIONS OF LENDING
SECTION 7.01. CONDITIONS OF INITIAL ADVANCE. The obligation of the Lender
to make the initial Advance is subject to the accuracy of each and every
representation and warranty of the Borrower contained in this Agreement, and to
the receipt of the following on or before the Closing Date:
(a) Agreement. A duly executed counterpart of this Agreement signed
by all the parties thereto.
(b) Note. The duly executed Line Note signed by the Borrower.
(c) Corporate Authorization. Such authorization by the Board of
Directors of Borrower's in form and substance satisfactory to the Lender with
respect to the authorization of this Agreement, the Note and the Collateral
Documents, as the case may be and the individuals authorized to sign such
instruments.
(d) Fees. Pay all fees and expenses of Lender's counsel, appraisers,
inspectors and related experts.
(e) Collateral Documents. Duly executed counterparts or originals of
the Collateral Documents and receipt of the Collateral.
(f) Opinion. A legal opinion from counsel of Borrower addressed to
Lender in a form acceptable to Lender opining that this Agreement, the Note and
the Collateral Documents are the valid, legal and binding obligation of Borrower
enforceable in accordance with their terms, that the execution of this
Agreement, the Note, and the Collateral Documents are in conformity with and do
not violate any Governmental Requirements and that this Agreement, the Note and
the Collateral Documents were duly authorized and executed by the Borrower.
(g) Representations. Each of the representations and warranties of
the Borrower contained in this Agreement shall be true and correct on and as of
the date of the initial advance, except as such representations and warranties
relate to matters that are permitted by this Agreement.
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SECTION 7.02. EACH ADDITIONAL ADVANCE. The obligation of the Lender to
make additional advances on the Line of Credit is subject to the satisfaction of
each of the following conditions:
(a) Each of the representations and warranties of the Borrower
contained in this Agreement shall be true and correct on and as of the date of
such subsequent advance, except as such representations and warranties relate to
matters that are permitted by this Agreement.
(b) At the time of each subsequent advance, no Default shall have
occurred and be continuing and no event with the passage of time or notice (or
both) would be a Default shall have occurred and be continuing.
(c) There shall have occurred no material adverse charges, either
individually or in the aggregate, in the assets, liabilities, financial
conditions, business operations, affairs or circumstances of the Borrower and/or
Guarantor from those reflected in the most recent financial statements furnished
to the Lender prior to the Closing Date, except to the extent that such changes
are permitted by this Agreement; and
(d) The satisfaction with any documentation or other conditions as
required herein.
SECTION VIII
EVENTS OF DEFAULT
SECTION 8.01. DEFAULTS. The occurrence of any one or more of the following
events shall constitute a default (a "Default") under this Agreement:
(a) the failure of Borrower to pay promptly when due any interest or
principal on any of the Obligations, including but not limited to the Loan;
(b) the failure of Borrower, Orange and/or any Guarantor to observe
or perform promptly when due any covenant, agreement, or obligation due to the
Lender;
(c) the failure to pay on demand any amounts advanced by Lender for
the payment of taxes and assessments or the cost of obtaining the release of any
Collateral from any seizure, Lien, or attachment;
(d) the inaccuracy at any time of any warranty, representation, or
statement made to Lender by Borrower, Orange and/or any Guarantor, whether such
warranty, representation, or statement is made (i) in this Agreement, the Note,
or the Collateral Documents, or (ii) in any other agreement, document, or
writing;
(e) any default on or in connection with any Obligation;
(f) any material discrepancy between any financial statement
submitted to Lender by Borrower and/or any Guarantor and its actual financial
condition;
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(g) any garnishment, seizure, or attachment of, or any tax lien or
tax levy against, any assets of Borrower, Orange and/or any Guarantor,
including, without limitation, those assets that are Collateral, unless the same
is being contested in good faith and is secured by adequate reserves in an
amount sufficient to satisfy same;
(h) one or more judgments, decrees, arbitration award, rulings or
decisions shall be entered against Borrower, Orange and/or any Guarantor
involving in the aggregate a liability (not paid or fully covered by insurance
including self-insurance or the payment or performance bonds) of $100,000 or
more and all such judgments, decrees, awards and rulings shall not have been
vacated, paid, discharged, stayed or bonded pending appeal within 60 days from
the entry thereof;
(i) Borrower shall default in any payment of principal of or interest
on any Debt other than the Loan in the aggregate principal amount of more than
$100,000, in each instance, beyond the period of grace, if any, provided in the
instrument or agreement under which such Debt or observance or performance of
any other agreement or condition relating to any such Debt or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such Debt or
beneficiary or beneficiaries of such (or a trustee, agent or other Person acting
on behalf of such holder or holders or beneficiary or beneficiaries) to cause,
with the giving of notice if required, such Debt to become due prior to its
stated maturity;
(j) a receiver, conservator, liquidator or trustee of the Borrower,
Orange and/or any Guarantor, or of any of their property (including the
Property) is appointed by order or decree of any court or agency or supervisory
authority having jurisdiction; or an order for relief is entered against the
Borrower, Orange and/or any Guarantor under the Federal Bankruptcy Code; or the
Borrower, Orange and/or any Guarantor is adjudicated bankrupt or insolvent; or
any material portion of any property of any of the Borrower, Orange and/or any
Guarantor (including the Property) is sequestered by court order and such order
remains in effect for more than thirty (30) days after such party obtains
knowledge thereof; or a petition is filed against the Borrower, Orange and/or
any Guarantor under any state, reorganization, arrangement, insolvency,
readjustment of debt, dissolution, liquidation or receivership law of any
jurisdiction, whether now or hereafter in effect, and such petition is not
dismissed within sixty (60) days;
(k) the Borrower, Orange and/or any Guarantor files a case under the
Federal Bankruptcy Code or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any case or petition against it under any such law;
(l) the Borrower, Orange and/or any Guarantor makes an assignment for
the benefit of its creditors, or admits in writing its inability to pay its
debts generally as they become due, or consents to the appointment of a
receiver, trustee or liquidator of the Borrower, Orange and/or any Guarantor or
of all or any part of its property;
(m) the entry of a final court order that enjoins or restrains
Borrower's and/or Orange conduct of its business activities;
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(n) the existence or future enactment of any law, by any federal,
state, parish, county, municipal, or other taxing authority, requiring or
permitting Borrower to deduct any amount from any payments to be made on the
Loan or any other Obligation;
(o) the failure of Borrower and/or Orange to pay any federal, state,
or local tax, fee, or duty, unless the same is being contested in good faith and
is secured by an adequate reserve in an amount sufficient to satisfy same and
enforcement proceedings have not begun;
(p) any material adverse change in Borrower's financial condition,
business, or ability to pay or perform its obligations to Lender; or
(q) the Collateral, or any material portion thereof, is condemned or
expropriated under power of eminent domain by any legally constituted
governmental authority.
SECTION 7.02. NOTICE OF DEFAULT AND REMEDIES. Upon the happening of any
event of Default and such Default continues for a period of ten (10) days for a
payment default under the Loan or the Obligations or thirty (30) days for any
other type of default, after Lender has mailed or sent written notice of such
Default to the Borrower (but with no notice required in the event of a Default
under paragraphs (j), (k), or (l) of Section 7.01), Lender may declare the
entire principal amount of all Obligations then outstanding, including the Loan
and interest accrued thereon, to be immediately due and payable without
presentment, demand, protest, notice of protest or dishonor or other notice of
default of any kind, all of which are hereby expressly waived by the Borrower
and Lender is then authorized to exercise any and all of its rights and remedies
under the Collateral Documents and/or the Obligations.
SECTION 7.03. RIGHT OF SET-OFF AND COMPENSATION. Upon the occurrence and
continuance of a Default and expiration of the notice provided in Section 7.02,
Lender is hereby authorized at any time and from time to time, without notice to
Borrower (any such notice being expressly waived by the Borrower) to set-off,
compensate and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held, and other indebtedness at any time owing
by the Lender to or for the credit or the account of the Borrower against any
and all of the Obligations of the Borrower, irrespective of whether or not the
Lender shall have made any demand under this Agreement or the Note and although
such Obligations may be unmatured. The Lender agrees promptly to notify the
Borrower after any such set-off, compensation and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section are in addition to
other rights of set-off and compensation which the Lender may have under the
Collateral Documents or otherwise. Lender shall have the right to impute all
payments on the Obligations in any order as Lender may desire.
SECTION VIII
MISCELLANEOUS
SECTION 8.01. NOTICES. All notices and other communications given
hereunder or in connection herewith shall be in writing, shall be sent by
registered or certified mail, return receipt requested, postage prepaid, or by
hand delivery with acknowledged receipt of delivery, shall be deemed given on
the date of acceptance or refusal of acceptance shown on such receipt; and shall
be addressed to the party to receive such notice at the following applicable
addresses:
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If to the Borrower: Conrad Industries, Inc.
1501 Front Street
Morgan City, Louisiana 70380
Attn: William H. Hidalgo
If to Lender: Whitney National Bank
228 St. Charles Avenue
New Orleans, Louisiana 70130
Attn: Edgar W. Santa Cruz, III
Assistant Vice President
Any party may, by notice given as aforesaid, change its address for all
subsequent notices.
SECTION 8.02. AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement or of the Note shall be effective unless the same shall be in
writing and signed by Lender and the Borrower. No waiver of Borrower's
Obligations shall be effective unless in writing and signed by Lender, and then
such waiver shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 8.03. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and
no delay in exercising, on the part of Lender, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
SECTION 8.04. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement, the Collateral Documents and the
Note.
SECTION 8.05. HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation hereof in any respect.
SECTION 8.06. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of Lender, the Borrower and their respective
successors and assigns.
SECTION 8.07. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable under applicable law shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
SECTION 8.08. GOVERNING LAW. This Agreement, the Note and the rights and
obligations of the parties under this Agreement and the Note shall be governed
by, and construed and interpreted in accordance with, the law of the State of
Louisiana.
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SECTION 8.09. TIME OF THE ESSENCE. Time shall be deemed of the essence
with respect to the performance of all of the terms, provisions and conditions
on the part of the Borrower and the Lender to be performed hereunder.
SECTION 8.10. SUCCESSORS AND ASSIGNS; PARTICIPANTS. (a) All covenants
and agreements contained by or on behalf of the Borrower in this Agreement, the
Note and the Collateral Documents shall bind its successors and assigns and
shall inure to the benefit of the Lender and its successors and assigns.
(b) This Agreement is for the benefit of the Lender and for such other
Person or Persons as may from time to time become or be the holders of any of
the Obligations, and this Agreement shall be transferable and negotiable, with
the same force and effect and to the same extent as the Obligations may be
transferable, it being understood that, upon the transfer or assignment by the
Lender of any of the Obligations, the legal holder of such Obligations shall
have all of the rights granted to the Lender under this Agreement.
(c) Borrower hereby recognizes and agrees that the Lender may, from time
to time, one or more times, transfer all or any portion of the Obligations to
one or more third parties. Such transfers may include, but are not limited to,
sales of participation interests in such Obligations in favor of one or more
third-party lenders. Borrower specifically (i) consents to all such transfers
and assignments, waives any subsequent notice of and right to consent to any
such transfers and assignments as may be provided under applicable Louisiana
law; (ii) agrees that the purchaser of a participation interest in the
Obligations will be considered as the absolute owner of a percentage interest of
such Obligations and that such a purchaser will have all of the rights granted
to the purchaser under any participation agreement governing the sale of such a
participation interest; (iii) waives any right of off-set that Borrower may have
against the Lender, and/or any purchaser of such a participation interest in the
Obligations and unconditionally agrees that either the Lender or such a
purchaser may enforce Borrower's Obligations under this Agreement, irrespective
of the failure or insolvency of the Lender or any such purchaser; (iv) agrees
that any purchaser of a participation interest in the Obligations may exercise
any and all rights of counterclaim, set-off, banker's lien and other liens with
respect to any and all monies owing to the Borrower in accordance with the terms
of the Obligations, including but not limited to this Agreement; and (v) agrees
that, upon any transfer of all or any portion of the Obligations, the Lender may
transfer and deliver any and all collateral securing repayment of such
Obligations to the transferee of such Obligations and such collateral shall
secure any and all of the Obligations in favor of such a transferee, and after
any such transfer has taken place, the Lender shall be fully discharged from any
and all future liability and responsibility to Borrower with respect to such
collateral, and the transferee thereafter shall be vested with all the powers,
rights and duties with respect to such collateral.
SECTION 8.11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and it shall not be necessary that the signatures of all parties
hereto be contained on any one counterpart hereof; each counterpart shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
SECTION 8.12. PAYMENT OF EXPENSES AND INDEMNITY.
(a) The Borrower agrees (i) to promptly pay or reimburse Lender for all of
Lender's reasonable out-of-pocket costs, expenses and attorneys' fees incurred
in connection with the preparation, execution and delivery of this Agreement,
the Note, the Collateral Documents and any other documents prepared in
connection herewith, and (ii) to promptly pay or reimburse Lender for all of
Lender's reasonable
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out-of-pocket costs and expenses incurred in connection with the preparation,
execution and delivery of any amendment, supplement or modification to this
Agreement, the Note, the Collateral Documents and any other documents prepared
in connection herewith, together with the reasonable fees and disbursements of
counsel to Lender and the reasonable costs and expenses incurred in connection
with the enforcement or preservation of any rights under this Agreement, the
Note, the Collateral Documents and any such other documents.
(b) In consideration of the execution and delivery of this Agreement by
Lender, the Borrower hereby indemnifies, exonerates and holds Lender and its
respective officers, directors, employees, and agents, (herein collectively
called the "Bank Parties" and individually called a "Bank Party") free and
harmless from and against any and all actions, causes of action, suits, losses,
costs, liabilities and damages, and expenses actually incurred in connection
therewith (irrespective of whether such Bank Party is a party to the action for
which indemnification hereunder is sought), including reasonable attorneys' fees
and disbursements (collectively, the "Indemnification Liabilities"), incurred by
the Bank Parties or any of them as a result of, or arising out of, or relating
to:
(i) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the Loan; or
(ii) any investigation, litigation, or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or all or
substantially all of the assets of any Person, regardless of whether
any Bank Party is a party thereto; or
(iii) the presence on or under, or the escape, seepage leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrower or any Subsidiary of any
Hazardous Material (including, without limitation, any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or
arising under the Comprehensive Environmental Response. Compensation
and Liability Act, any so-called "Superfund" or "Superlien" law, or
any other federal, state, local or other statute, law, ordinance,
code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards on conduct concerning, any Hazardous
Material), regardless of whether caused by, or within the control of,
the Borrower or any Subsidiary;
except for any such Indemnification Liabilities arising for the account of a
particular Bank Party which a court of competent jurisdiction shall have
determined in a final proceeding to have arisen by reason of the relevant Bank
Party's gross negligence, bad faith, willful misconduct or breach of contractual
obligation arising under this Agreement and owed to the Borrower (which shall be
the sole responsibility of such Bank Party). The agreements in this Section
shall survive payment of the Loan and the Obligations and all other amounts
payable hereunder.
SECTION 8.13. ENTIRE AGREEMENT. This Agreement, the Note, the Collateral
Documents and the other documents executed in connection herewith constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof. To the extent the terms of the Collateral Documents conflict with the
terms of this Agreement, the terms of this Agreement shall control.
31
<PAGE>
[Intentionally Deleted]
32
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
CONRAD INDUSTRIES, INC.
BY: /s/ JOHN P. CONRAD, JR.
------------------------------------------
John P. Conrad, Jr.
Its: Vice President
ORANGE SHIPBUILDING COMPANY, INC.
BY: /s/ JOHN P. CONRAD, JR.
-----------------------------------------
John P. Conrad, Jr.
Its: Vice President
WHITNEY NATIONAL BANK
BY: /s/ EDGAR W. SANTA CRUZ, III
-----------------------------------------
Edgar W. Santa Cruz, III
ITS: Assistant Vice President
33
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement
(No. 333-49773) of Conrad Industries, Inc. of (i) our report dated April 8, 1998
related to the balance sheet of Conrad Industries, Inc. as of March 31, 1998;
(ii) our report dated March 31, 1998 related to the financial statements of
Orange Shipbuilding Company, Inc. as of September 30, 1996 and 1997 and for each
of the years then ended; and (iii) our report dated March 31, 1998 related to
the financial statements of Conrad Shipyard, Inc. as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997, each
appearing in the Prospectus, which is part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
May 28, 1998
