<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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 APPLIED FOR
(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
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. [_]
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF
SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2)(3) REGISTRATION FEE
- -------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value $48,875,000 $14,418
</TABLE>
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- -------------------------------------------------------------------------------
(1) In accordance with Rule 457(o) under the Securities Act, the number of
shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Includes shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
----------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 APRIL 9, 1998
(LOGO) SHARES
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 $
and $ per share. See "Underwriting" for information relating to the factors
to be considered in determining the initial public offering price.
The Company will make 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)
- -------------------------------------------------------------------------------
<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 shares of Common Stock exercisable for
five years at the 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 $ .
(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 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>
[PHOTOS OF VESSELS AND FACILITIES]
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
<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). 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). 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 December 31, 1997, the
Company's backlog of new vessel construction and modular component fabrication
(excluding unexercised options held by customers) was approximately $24.6
million and was attributable to 17 projects, consisting of four lift boats,
five barges, four tugs and four modular component fabrication projects. Of this
backlog amount, approximately $12.1 million was attributable to contracts with
the U.S. Army and the U.S. Army Corps of Engineers (the "Corps of Engineers").
3
<PAGE>
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 employed
approximately 280 shipyard workers as of December 31, 1997 and has
increased its shipyard labor force to approximately 319 as of February 28,
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
4
<PAGE>
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........................... shares
Common Stock to be outstanding af-
ter the Offering (1).............. 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."
Proposed Nasdaq trading symbol..... CNRD
</TABLE>
- --------
(1) Excludes options granted to directors, officers and employees of the
Company to purchase 150,000 shares of Common Stock, all of which will have
an exercise price equal to the initial public offering price of this
Offering. Also excludes 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 includes the assets and liabilities 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 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
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997(1)
------- ------- ------- ------- ------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE AND INDUSTRY DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $10,482 $14,166 $20,914 $23,174 $22,117 $35,922
Cost of revenue........ 9,217 11,271 16,660 17,003 15,032 22,749
------- ------- ------- ------- ------- -------
Gross profit........... 1,265 2,895 4,254 6,171 7,085 13,173
Selling, general and
administrative
expenses.............. 1,132 1,621 1,497 1,847 2,242 4,055
------- ------- ------- ------- ------- -------
Income from operations. 133 1,274 2,757 4,324 4,843 9,118
Interest and other
income (expense), net. (29) (159) (112) (26) 62 (1,933)
------- ------- ------- ------- ------- -------
Net income............. $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185
======= ======= ======= ======= ======= =======
NET INCOME PER COMMON
SHARE:
Basic and diluted...... $ .02 $ .24 $ .57 $ .92 $ 1.05
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic and diluted...... 4,660 4,660 4,660 4,660 4,660
UNAUDITED PRO FORMA
DATA:
Net income as reported
above................. $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185
Pro forma provision for
income taxes(2)....... 38 413 979 1,590 1,815 2,541
------- ------- ------- ------- ------- -------
Pro forma net income
(2)................... $ 66 $ 702 $ 1,666 $ 2,708 $ 3,090 $ 4,644
======= ======= ======= ======= ======= =======
Pro forma net income
per share(2)(3)....... -- -- -- -- $ .58 $ .87
Common and equivalent
shares outstanding.... -- -- -- -- 5,342 5,342
STATEMENT OF CASH FLOWS
DATA:
Cash provided by
operating activities.. $ 711 $ 1,110 $ 3,604 $ 5,313 $ 6,114
Cash (used in)
investing
activities(4)......... (2,871) (287) (1,120) (1,961) (23,872)
Cash provided by (used
in) financing
activities............ 1,832 (516) (623) (2,619) 22,100
OTHER FINANCIAL DATA:
Depreciation and
amortization.......... $ 566 $ 676 $ 722 $ 798 $ 850 $ 2,166
Capital
expenditures(4)....... $ 2,871 $ 287 $ 1,120 $ 1,961 $23,872 $ 1,613
EBITDA(5).............. $ 699 $ 1,950 $ 3,479 $ 5,122 $ 5,693 $11,284
EBITDA margin(6)....... 6.7% 13.8% 16.6% 22.1% 25.7% 31.4%
Operating profit
margin(7)............. 1.3% 9.0% 13.2% 18.7% 21.9% 25.4%
OPERATING DATA:
Direct labor hours..... 261 292 347 354 350 501
GULF OF MEXICO INDUSTRY
DATA:
Active offshore supply
vessels(8)............ 216 235 249 263 286
Active offshore
drilling rigs(9)...... 163 170 181 212 233
Offshore supply vessel
dayrates(10).......... $ 3,508 $ 3,302 $ 3,185 $ 5,273 $ 8,048
Offshore drilling rig
utilization(11)....... 76.5% 76.2% 76.2% 88.0% 93.9%
Active inland drilling
barges(12)............ 69 74 75 80 92
Total blocks
leased(13)............ 336 560 835 1,508 1,778
U.S. SHIPBUILDING
INDUSTRY DATA:
Number of offshore
service vessels
constructed(14)....... 5 1 3 5 14
Number of mobile
offshore drilling rigs
constructed(15)....... 4 11 2 0 0
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(16) ADJUSTED(17)
------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 7,760 $(4,290) $7,410
Property, plant & equipment...................... 18,304 17,898 17,898
Total assets..................................... 48,945 48,539 48,539
Long term debt, including current maturities..... 25,338 35,338 338
Stockholders' equity............................. 15,279 2,173 38,873
</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) 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.
(3) 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 $ per share, net of estimated Offering expenses. See
"Corporate Reorganization."
(4) Includes acquisition expenditures of $22.8 million (net of cash acquired)
incurred in December 1997 in connection with the Orange Acquisition.
(5) 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.
(6) Represents EBITDA as a percentage of revenues.
(7) Represents income from operations as a percentage of revenues.
(8) Represents the average number of contracted anchor handling tug/supply and
platform supply vessels for the period presented. Information obtained
from Offshore Data Services.
(9) 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.
(10) Represents the average dayrates for platform supply vessels for the period
presented. Information obtained from Offshore Data Services.
(11) Represents the average mobile drilling rig utilization rate for the period
presented. Information obtained from Offshore Data Services.
(12) Represents the average number of active inland drilling barges in
Louisiana for the period presented. Information obtained from Offshore
Data Services.
(13) Represents the total blocks leased for the period presented. Information
obtained from Mineral Management Services.
(14) Information obtained from Clarkson Research Studies.
(15) Information obtained from Offshore Data Services.
(16) Gives effect to (i) an accrual of $12.1 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
$650,000 in connection with the termination of Conrad's S corporation
status and (iv) the Reorganization.
(17) 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 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.
Some of the Company's contracts for marine vessel construction require the
Company to pay liquidated damages if the Company fails to meet specified
performance deadlines. Any such payments could have a material adverse effect
on the Company's operating results.
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.
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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 $24.6 million at
December 31, 1997 was attributable to 17 projects, of which $12.1 million was
attributable to five 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 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
% of the outstanding shares of Common Stock ( % 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 % of all shares of Common Stock outstanding.
These holders of Common Stock will control in the aggregate % 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, shares of Common Stock will be
outstanding ( shares if the Underwriters' overallotment option is exercised
in full). The 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
150,000 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 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 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
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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. 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."
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 $
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 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 and will cause Conrad to distribute the shares of
common stock of Orange Shipbuilding to the Company prior to the closing of the
Offering (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 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 and 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 $650,000 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 $450,000 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."
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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 $42.2 million if the Underwriters exercise their
over-allotment option in full), assuming an initial public offering price of
$ 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, including $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 $450,000 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 December 31, 1997, (ii) the pro forma cash and
cash equivalents and capitalization of the Company at December 31, 1997 and
(iii) the pro forma cash and cash equivalents and capitalization of the
Company at December 31, 1997 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>
DECEMBER 31, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 7,551 $ 7,551 $ 9,251
======= ======= =======
Long-term obligations, including current matu-
rities:
Term Loan................................... $25,000 $25,000 $ 0
Revolving Credit Facility(2)................ 0 10,000 0
Other....................................... 338 338 338
------- ------- -------
Total long-term debt........................ 25,338 35,338 338
------- ------- -------
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; 4,660,486 shares issued
and outstanding, pro forma; and shares
issued and outstanding, pro forma as
adjusted(3)................................ 47 47
Additional paid-in capital.................... 156 156
Retained earnings............................. 15,076 1,970 1,970
------- ------- -------
Total stockholders' equity.................. 15,279 2,173 38,873
------- ------- -------
Total capitalization...................... $40,617 $37,511 $39,211
======= ======= =======
</TABLE>
- --------
(1) Gives effect to (i) an accrual of $12.1 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
$650,000 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 150,000 shares of Common Stock, all of which will have
an exercise price equal to the initial public offering price of this
Offering. Also excludes 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."
18
<PAGE>
DILUTION
As of December 31, 1997, the net tangible book value of the Company was
$(15,000), or $-0- 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 $ per share and after deducting underwriting discounts
and estimated offering expenses of $ ), the pro forma net tangible
book value of the Company at December 31, 1997 would have been $ or
$ per share. This represents an immediate increase in net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ 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............... $
Net tangible book value per share at December 31, 1997.......... $ -0-
Increase in net tangible book value per share attributable to
new investors..................................................
-----
Net tangible book value per share after the Offering..............
------
Dilution net tangible book value per share to new investors....... $
======
</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 $ per share):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
----------------- ---------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2).... 5,200,000 % $203,000 % $0.04
New investors..................
--------- ----- -------- -----
Total........................ 100.0% $ 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 150,000 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 shares of Common Stock issuable upon
exercise of warrants 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 includes the
assets and liabilities 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
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997(1)
------- ------- ------- ------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. $10,482 $14,166 $20,914 $23,174 $22,117 $35,922
Cost of revenue....... 9,217 11,271 16,660 17,003 15,032 22,749
------- ------- ------- ------- ------- -------
Gross profit.......... 1,265 2,895 4,254 6,171 7,085 13,173
Selling, general and
administrative
expenses............. 1,132 1,621 1,497 1,847 2,242 4,055
------- ------- ------- ------- ------- -------
Income from
operations........... 133 1,274 2,757 4,324 4,843 9,118
Interest and other
income (expense),
net.................. (29) (159) (112) (26) 62 (1,933)
------- ------- ------- ------- ------- -------
Net income............ $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185
======= ======= ======= ======= ======= =======
NET INCOME PER COMMON
SHARE:
Basic and diluted..... $ .02 $ .24 $ .57 $ .92 $ 1.05
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic and diluted..... 4,660 4,660 4,660 4,660 4,660
UNAUDITED PRO FORMA
DATA:
Net income as reported
above................ $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185
Pro forma provision
for income taxes(2).. 38 413 979 1,590 1,815 2,541
------- ------- ------- ------- ------- -------
Pro forma net
income(2)............ $ 66 $ 702 $ 1,666 $ 2,708 $ 3,090 $ 4,644
======= ======= ======= ======= ======= =======
Pro forma net income
per share(2)(3)...... -- -- -- -- $ .58 $ .87
Common and equivalent
shares outstanding... -- -- -- -- 5,342 5,342
STATEMENT OF CASH FLOWS
DATA:
Cash provided by
operating activities. $ 711 $ 1,110 $ 3,604 $ 5,313 $ 6,114
Cash provided by (used
in) investing
activities(4)........ (2,871) (287) (1,120) (1,961) (23,872)
Cash provided by (used
in) financing
activities........... 1,832 (516) (623) (2,619) 22,100
OTHER FINANCIAL DATA:
Depreciation and
amortization......... $ 566 $ 676 $ 722 $ 798 $ 850 $ 2,166
Capital
expenditures(4)...... $ 2,871 $ 287 $ 1,120 $ 1,961 $23,872 $ 1,613
EBITDA(5)............. $ 699 $ 1,950 $ 3,479 $ 5,122 $ 5,693 $11,284
EBITDA margin(6)...... 6.7% 13.8% 16.6% 22.1% 25.7% 31.4%
Operating profit
margin(7)............ 1.3% 9.0% 13.2% 18.7% 21.9% 25.4%
<CAPTION>
DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ (677) $ 2,497 $ 3,733 $ 4,402 $ 7,760
Property, plant &
equipment.............. 7,456 7,067 7,465 8,514 18,304
Total assets............ 9,813 10,395 13,895 15,236 48,945
Long term debt,
including current
portion................ 2,400 1,962 1,900 1,233 25,338
Stockholders' equity.... 6,798 7,948 10,032 12,379 15,279
</TABLE>
20
<PAGE>
- --------
(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) 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.
(3) 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 $ per share, net of estimated Offering expenses.
See "Corporate Reorganization."
(4) Includes acquisition expenditures of $22.8 million (net of cash acquired)
incurred in December 1997 in connection with the Orange Acquisition.
(5) 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.
(6) Represents EBITDA as a percentage of revenues.
(7) 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.
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 $650,000
in the second quarter of 1998 in connection with the termination of 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
23
<PAGE>
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 $97,579, 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 will be recognized in the first quarter of
1998 and the remainder will be recognized over a three-year vesting period
following the Offering.
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
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------- DECEMBER 31,
1995 1996 1997 1997
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <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%
Modular component
fabrication........ 0 0 0 0 0 0 11,413 31.8
Repair and
conversions........ 9,245 44.2 11,753 50.7 11,446 51.8 11,446 31.8
------- ----- ------- ----- ------- ----- ------- -----
Total revenues.... 20,914 100.0 23,174 100.0 22,117 100.0 35,922 100.0
------- ----- ------- ----- ------- ----- ------- -----
Cost of revenue....... 16,660 79.7 17,003 73.4 15,032 68.0 22,749 63.3
------- ----- ------- ----- ------- ----- ------- -----
Gross profit.......... 4,254 20.3 6,171 26.6 7,085 32.0 13,173 36.7
SG&A expenses......... 1,497 7.1 1,847 7.9 2,242 10.1 4,055 11.3
------- ----- ------- ----- ------- ----- ------- -----
Operating income...... $ 2,757 13.2% $ 4,324 18.7% $ 4,843 21.9% $ 9,118 25.4%
======= ===== ======= ===== ======= ===== ======= =====
Income before income
taxes................ $ 2,645 12.6% $ 4,298 18.5% $ 4,905 22.2% $ 7,185 20.0%
======= ===== ======= ===== ======= ===== ======= =====
EBITDA................ $ 3,479 16.6% $ 5,122 22.1% $ 5,693 25.7% $11,284 31.4%
======= ===== ======= ===== ======= ===== ======= =====
OPERATING DATA:
Direct labor hours.... 347 354 350 501
</TABLE>
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
24
<PAGE>
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.
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.
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 $250,000, 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.
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
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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 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. At December 31, 1997, the
Company's working capital position was $7.8 million.
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 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 restricts 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 be secured by a pledge of substantially all of
the Company's 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.
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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. 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.
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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). 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). 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 December 31, 1997, the
Company's backlog of new vessel construction and modular component fabrication
(excluding unexercised options held by customers) was approximately $24.6
million and was attributable to 17 projects, consisting of four lift boats,
five barges, four tugs and four modular component fabrication projects. Of
this backlog amount, approximately $12.1 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
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,
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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 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
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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
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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% and 97%,
respectively, in February 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 $29,000 in February 1996 to an average of $64,000 in February 1998.
Similarly, dayrates in the Gulf of Mexico for fourth generation
semisubmersibles have increased from an average of $97,000 in February 1996 to
an average of $169,000 in February 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
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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 1, 1998, the Company had
contracts to construct six pusher tugs for the U.S. Army and one barge for the
U.S. Coast Guard, 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.
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. 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 employed
approximately 280 shipyard workers as of December 31, 1997 and has
increased its shipyard labor force to approximately 319 as of February
28, 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.
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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 December 31, 1997 consisted of 13 vessels (including four lift
boats, five barges and four tugs) and four modular component fabrication
projects for the oil and gas industry with aggregate remaining contract
revenue of approximately $24.6 million (excluding unexercised options held by
customers) 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 $12.1 million was attributable to
contracts to build vessels for the U.S. Army and the Corps of Engineers. The
Company anticipates that approximately $23.0 million of the aggregate
remaining revenue from firm contracts as of December 31, 1997 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
December 31, 1997 as well as a description of conversion and repair projects
in progress at December 31, 1997 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 1 Private Fleet Operator
Deck Cargo Barge............. Morgan City 3 Private Fleet Operator
Steel River Service Barge.... Orange 1 Corps of Engineers
LIFT BOATS:
105(FT) x 70(FT) x 175(FT)
leg........................ Morgan City 2 Energy Service Companies
115(FT) x 70(FT) x 175(FT)
leg........................ Morgan City 2 Energy Service Companies
TUG BOATS:
ST (small tug) Tugs.......... Orange 4 U.S. Army
MODULAR COMPONENT FABRICATION:
Column Tops.................. Orange 1 Drilling Rig Fabricator
Stability Columns............ Orange 3 Drilling Rig Fabricator
---
Total Construction and
Fabrication............... 17
===
CONVERSION AND REPAIR:
Supply Vessel................ Morgan City 8 Energy Service Company
Utility Vessel............... Morgan City 3 Energy Service Company
Tow Boat..................... Morgan City 4 Energy Service Company
Barge........................ Morgan City 3 Energy Service Company
---
Total Conversion and
Repair.................... 18
===
</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
34
<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 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 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 employed 280 shipyard workers as of December 31, 1997 and
increased its labor force to 319 as of February 28, 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 February 28, 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 230 300
drydocks; repairs, conversions
Orange, TX.............. Construction of tug boats, barges, push 79 120
boats; fabrication of modular components
Amelia, LA (4).......... Repairs and conversions 10 100
--- ---
Total Employees................................................... 319 520
=== ===
</TABLE>
- --------
(1) Includes operations currently conducted and principal products produced at
the applicable facility.
(2) As of February 28, 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.
35
<PAGE>
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 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 December 31, 1997
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
36
<PAGE>
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 December 31, 1997
included four lift boats, consisting of contracts to construct hulls for two
lift boats 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.
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 December 31, 1997 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
37
<PAGE>
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 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
38
<PAGE>
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.
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.
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
39
<PAGE>
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 December 31, 1997, 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 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
40
<PAGE>
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
as salespersons to target relationships previously established and develop new
relationships with customers in the targeted markets. 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.
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 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
41
<PAGE>
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 February 28, 1998, the Company had 300 employees, of which 21 were
salaried, 279 were hourly and 46 were 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 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
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<PAGE>
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 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 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
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<PAGE>
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.
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
44
<PAGE>
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.
45
<PAGE>
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 prior to 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 and directors 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
</TABLE>
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 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
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<PAGE>
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.
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. Two of the independent
directors to be elected prior to the consummation of the Offering 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 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>
47
<PAGE>
- --------
(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
The Company has entered into employment and non-competition agreements with
each of J. Parker Conrad, John P. Conrad, Jr., William H. Hidalgo, Cecil A.
Hernandez and 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 with the
Company. 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 Company for "cause" upon
ten day's notice and without "cause" (i) by the employee upon 30 days' written
notice and (ii) by the Company upon approval by a majority of the Board of
Directors. The employment agreements provide that the Company 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 expenses incurred in connection with Company business and
that each executive officer shall be eligible to participate in all benefit
plans and programs as are maintained from time to time by the Company. Each
employment agreement provides that if the officer's employment is terminated
by the Company 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
48
<PAGE>
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
$97,579, 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 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 150,000 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
49
<PAGE>
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 after an employee
completes one year 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.
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<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
an 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 an 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 an 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 $97,579,
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.
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.
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<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% %
John P. Conrad, Jr.(1)............................. 1,749,403 33.6
Katherine C. Court(2).............................. 1,744,813 33.6
William H. Hidalgo(3).............................. 385,695 7.4
Cecil A. Hernandez(3).............................. 153,819 3.0
All executive officers and directors as a group(4)
(4 persons)....................................... 3,455,187 66.4
</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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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, 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 % of the issued and
outstanding Common Stock ( % 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 will be 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.
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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.
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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
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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 Delaware General Corporation Law, 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 Delaware General Corporation Law.
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
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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.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of Common
Stock outstanding (assuming no exercise of the Underwriters' over-allotment
option and excluding shares issuable upon the exercise of outstanding
options). The 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 150,000 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."
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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......................................................
=====
</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
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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 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 noted below,
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, except as noted below, 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 will make 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.
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
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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 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."
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 with Darnall, Sikes &
Frederick CPAs on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure at the time of the change
or 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.
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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.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent public
accountants.
62
<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......................... F-3
Statements of Operations for the Years Ended December 31, 1995, 1996 and
1997................................................................... F-4
Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1996 and 1997.................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997................................................................... 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................................................................... 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................................................................... 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 December 31, 1997............ 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>
The accompanying financial statements give effect to a corporate
reorganization which will take place prior to the effective date of the
Offering. The following report is in the form which will be furnished by
Deloitte & Touche LLP upon completion of the Reorganization described in Note
1 to the financial statements and assuming that from March 31, 1998 to the
date of such completion no other material events have occurred that would
affect the accompanying financial statements or require disclosure therein.
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.
March 31, 1998
New Orleans, Louisiana"
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
New Orleans, Louisiana
April 8, 1998
F-2
<PAGE>
CONRAD SHIPYARD, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PRO FORMA
1996 1997 1997 (NOTE 2)
----------- ----------- -------------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............. $ 3,209,000 $ 7,551,000 $ 7,551,000
Accounts receivable, net............... 2,496,000 4,467,000 4,467,000
Costs and estimated earnings in excess
of billings on uncompleted contracts.. 604,000 2,499,000 2,499,000
Inventories............................ 137,000 139,000 139,000
Other current assets................... 241,000 638,000 638,000
----------- ----------- -----------
Total current assets................. 6,687,000 15,294,000 15,294,000
PROPERTY, PLANT AND EQUIPMENT, net....... 8,514,000 18,304,000 17,898,000
COST IN EXCESS OF NET ASSETS ACQUIRED.... -- 15,294,000 15,294,000
OTHER ASSETS............................. 35,000 53,000 53,000
----------- ----------- -----------
TOTAL ASSETS............................. $15,236,000 $48,945,000 $48,539,000
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................... $ 641,000 $ 1,997,000 $ 1,997,000
Accrued employee costs................. 292,000 448,000 448,000
Accrued expenses....................... 226,000 725,000 725,000
Current maturities of long-term debt... 661,000 1,801,000 1,801,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 465,000 2,563,000 2,563,000
Accrued distributions to stockholders.. -- -- 2,050,000
Revolving credit facility.............. -- -- 10,000,000
----------- ----------- -----------
Total current liabilities............ 2,285,000 7,534,000 19,584,000
LONG-TERM DEBT, less current maturities.. 572,000 23,537,000 23,537,000
DEFERRED INCOME TAXES.................... -- 2,595,000 3,245,000
----------- ----------- -----------
Total liabilities.................... 2,857,000 33,666,000 46,366,000
----------- ----------- -----------
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.............................. 47,000 47,000 47,000
Additional paid-in capital............. 156,000 156,000 156,000
Retained earnings...................... 12,176,000 15,076,000 1,970,000
----------- ----------- -----------
Total stockholders' equity........... 12,379,000 15,279,000 2,173,000
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUI-
TY...................................... $15,236,000 $48,945,000 $48,539,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
CONRAD SHIPYARD, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE................................. $20,914,000 $23,174,000 $22,117,000
COST OF REVENUE......................... 16,660,000 17,003,000 15,032,000
----------- ----------- -----------
GROSS PROFIT............................ 4,254,000 6,171,000 7,085,000
SELLING, GENERAL AND ADMINISTRATIVE EX-
PENSES................................. 1,497,000 1,847,000 2,242,000
----------- ----------- -----------
INCOME FROM OPERATIONS.................. 2,757,000 4,324,000 4,843,000
INTEREST EXPENSE........................ (152,000) (96,000) (126,000)
OTHER INCOME............................ 40,000 70,000 188,000
----------- ----------- -----------
NET INCOME.............................. $ 2,645,000 $ 4,298,000 $ 4,905,000
=========== =========== ===========
Net income per common share:
Basic and diluted..................... $ .57 $ .92 $ 1.05
=========== =========== ===========
Weighted average common shares
outstanding:
Basic and diluted..................... 4,660,000 4,660,000 4,660,000
=========== =========== ===========
Unaudited pro forma data (Note 2):
Net income reported above............. $ 2,645,000 $ 4,298,000 $ 4,905,000
Pro forma provision for income taxes
related to operations as S
corporation.......................... 979,000 1,590,000 1,815,000
----------- ----------- -----------
Pro forma net income.................. $ 1,666,000 $ 2,708,000 $ 3,090,000
=========== =========== ===========
Unaudited pro forma per share data (Note
2):
Pro forma net income per share (using
5,342,000 shares).................... $ .58
===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
CONRAD SHIPYARD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
$0.01 PAR VALUE ADDITIONAL
----------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ---------- ----------- -----------
<S> <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
========= ======= ======== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
CONRAD SHIPYARD, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $2,645,000 $4,298,000 $ 4,905,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................... 722,000 798,000 850,000
Provision for bad debts................ 12,000 510,000 --
Other.................................. -- 115,000 --
Changes in assets and liabilities, net
of effect of acquisition:
Accounts receivable................... (678,000) (752,000) (1,086,000)
Net increase in billings related to
cost and estimated earnings on
uncompleted contracts................ 219,000 139,000 794,000
Inventory and other assets............ (122,000) 337,000 (35,000)
Accounts payable and accrued expenses. 806,000 (132,000) 686,000
---------- ---------- ------------
Net cash provided by operating
activities.......................... 3,604,000 5,313,000 6,114,000
---------- ---------- ------------
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)
---------- ---------- ------------
Net cash used in investing
activities.......................... (1,120,000) (1,961,000) (23,872,000)
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt.......... 322,000 1,229,000 25,338,000
Principal repayments of debt............ (384,000) (1,897,000) (1,233,000)
Distributions to stockholders........... (561,000) (1,951,000) (2,005,000)
---------- ---------- ------------
Net cash provided by (used in)
financing activities................ (623,000) (2,619,000) 22,100,000
---------- ---------- ------------
NET INCREASE IN CASH AND CASH EQUIVA-
LENTS................................... 1,861,000 733,000 4,342,000
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR.................................... 615,000 2,476,000 3,209,000
---------- ---------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR... $2,476,000 $3,209,000 $ 7,551,000
========== ========== ============
SUPPLEMENTAL DISCLOSURES CASH FLOWS
INFORMATION:
Interest paid........................... $ 156,000 $ 99,000 $ 20,000
========== ========== ============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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 proportionate 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 and 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).
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.
F-7
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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.
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.
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
F-8
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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 $650,000 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 $450,000 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 December 31, 1997 reflects a
deferred income tax liability of $650,000 resulting from the assumed
termination of the S Corporation status, the distribution of nonoperating
assets, an accrual of $2,050,000 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 $ 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 based on estimated fair values at the date of acquisition.
This 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.
F-9
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
In connection with the acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Fair value of assets acquired...................................... $29,737,000
Less liabilities assumed........................................... (3,920,000)
-----------
Cash paid.......................................................... 25,817,000
Less cash acquired................................................. (2,998,000)
-----------
Net cash paid for acquisitions..................................... $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
=========== ===========
</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 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>
F-10
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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>
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>
F-11
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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.
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.
F-12
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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.
As discussed in Note 6 to the financial statements, J. Parker Conrad has
guaranteed the indebtedness under the Term Loan up to $2 million.
F-13
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
New Orleans, Louisiana
March 31, 1998
F-15
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
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
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
REVENUE................................................ $7,268,000 $15,533,000
COST OF REVENUE........................................ 5,278,000 8,623,000
---------- -----------
GROSS PROFIT........................................... 1,990,000 6,910,000
GENERAL AND ADMINISTRATIVE EXPENSES.................... 665,000 1,048,000
---------- -----------
INCOME FROM OPERATIONS................................. 1,325,000 5,862,000
INTEREST EXPENSE....................................... (261,000) (262,000)
OTHER INCOME........................................... 154,000 252,000
---------- -----------
NET INCOME............................................. $1,218,000 $ 5,852,000
========== ===========
</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
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 1,218,000 $ 5,852,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 215,000 251,000
Changes in assets and liabilities:
Accounts receivable............................... 1,763,000 (1,463,000)
Other assets...................................... (22,000) (146,000)
Net decrease in billings related to costs and
estimated earnings on uncompleted contracts...... (1,112,000) (956,000)
Accounts payable and accrued expenses............. (88,000) 794,000
----------- -----------
Net cash provided by operating activities........ 1,974,000 4,332,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment........ (234,000) (560,000)
----------- -----------
Net cash used in investing activities............ (234,000) (560,000)
----------- -----------
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 IN CASH AND CASH EQUIVALENTS............ (256,000) (2,149,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR......... 2,699,000 2,443,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR............... $ 2,443,000 $ 294,000
=========== ===========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid....................................... $ 261,000 $ 262,000
=========== ===========
</TABLE>
See notes to financial statements.
F-19
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
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 $941,000.
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 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.
F-20
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
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>
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>
F-21
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
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.
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>
F-22
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
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.
/s/ Deloitte & Touche LLP
- ---------------------------
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 $650,000 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 $450,000 to its
F-26
<PAGE>
CONRAD INDUSTRIES, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
MARCH 31, 1998
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 December 31, 1997. 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)
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CONRAD ADJUSTMENTS FOR COMPANY
HISTORICAL CONVERSION FROM PRO FORMA
CONSOLIDATED S CORPORATION CONSOLIDATED
ASSETS BALANCE SHEET TO C CORPORATION BALANCE SHEET
------ ------------- ---------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..... $ 7,551 $ 7,551
Accounts receivable, net...... 4,467 4,467
Costs and estimated earnings
in excess of billings on
uncompleted contracts........ 2,499 2,499
Inventories................... 139 139
Other current assets.......... 638 638
------- -------
Total current assets........ 15,294 15,294
PROPERTY, PLANT AND EQUIPMENT,
NET............................ 18,304 $ (406)(2) 17,898
COST IN EXCESS OF NET ASSETS
ACQUIRED....................... 15,294 15,294
OTHER ASSETS.................... 53 53
------- ------- -------
TOTAL ASSETS.................... $48,945 $ (406) $48,539
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable.............. $ 1,997 $ 1,997
Accrued employee costs........ 448 448
Accrued expenses.............. 725 725
Current maturities of long-
term debt.................... 1,801 1,801
Billing in excess of costs and
estimated earnings on
uncompleted contracts........ 2,563 2,563
Accrued distributions to
stockholders................. -- $ 2,050 (2) 2,050
Revolving credit facility..... -- 10,000 (2) 10,000
------- ------- -------
Total current liabilities... 7,534 12,050 19,584
LONG-TERM DEBT, less current ma-
turities....................... 23,537 23,537
DEFERRED INCOME TAXES........... 2,595 650 (1) 3,245
------- ------- -------
Total liabilities........... 33,666 12,700 46,366
------- ------- -------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
4,660,486 shares outstanding
in 1997...................... 47 47
Additional paid-in capital.... 156 156
Retained earnings............. 15,076 (13,106)(1)(2) 1,970
------- ------- -------
Total stockholders' equity.. 15,279 (13,106) 2,173
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLD-
ERS' EQUITY.................... $48,945 $ (406) $48,539
======= ======= =======
</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
Provision for income
taxes.................. -- -- 1,322 (6) 1,322
------- ------- ------- -------
Net income.............. $ 4,905 $ 5,852 $(2,250) $ 8,507
------- ------- ------- -------
Additional pro forma
data:
Net income reported
above................ $ 4,905 $ 5,852 $ 8,507
Pro forma provision
for income taxes
related to operations
as S corporation..... (1,815)(6) (2,048)(6) (3,863)
------- ------- -------
Pro forma net income.. $ 3,090 $ 3,804 $ 4,644
======= ======= =======
Pro forma net income per
common share:
Basic and diluted..... $ .87
Pro forma weighted
average shares
outstanding:
Basic and diluted..... 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 December 31, 1997, 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 whereas Orange Shipbuilding utilized total estimated contract 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 pro forma adjustment to reflect the provision for income
taxes assuming the companies had operated as C corporations.
(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 $ 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 will
be recognized in the first quarter of 1998 and the remainder will be
recognized over a three-year vesting period.
F-31
<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.................................................................. 28
Management................................................................ 46
Certain Transactions...................................................... 51
Principal Stockholders.................................................... 52
Description of Capital Stock.............................................. 53
Shares Eligible for Future Sale........................................... 58
Underwriting.............................................................. 59
Legal Matters............................................................. 61
Experts................................................................... 61
Available Information..................................................... 62
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO OF CONRAD INDUSTRIES APPEARS HERE]
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............................................... *
Accounting Fees and Expenses..................................... *
Legal Fees and Expenses.......................................... *
Printing Expenses................................................ *
Transfer Agent's Fees............................................ *
Miscellaneous.................................................... *
-------
Total............................................................ $ *
=======
</TABLE>
- --------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
* To be completed by amendment.
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 Delaware General Corporation Law, 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 150,000 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.
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.
</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* -- Revolving Credit Facility, dated , 1998, by and among Whitney
National Bank and the Company.
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 the Company and J. Parker
Conrad.
10.8 -- Form of Employment Agreement between the Company and John P.
Conrad, Jr.
10.9 -- Form of Employment Agreement between the Company and William H.
Hidalgo.
10.10 -- Form of Employment Agreement between the Company and Cecil A.
Hernandez.
10.11* -- Form of Employment Agreement between the Company and Ralph C.
Thon.
10.12* -- Form of Warrant Agreement between the Company and Morgan Keegan &
Company, Inc.
23.1* -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1).
23.2 -- Consent of Deloitte & Touche LLP.
24.1 -- Powers of Attorney (included on the signature page contained in
Part II of the Registration Statement).
27.1 -- Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
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.
(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-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MORGAN CITY, LOUISIANA, ON APRIL 8,
1998.
CONRAD INDUSTRIES, INC.
/s/ William H. Hidalgo
By:__________________________________
William H. Hidalgo
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints William H. Hidalgo and Cecil A. Hernandez, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statements filed by the Registrant pursuant to Rule 462(b) of the Securities
Act of 1933, which relates to this Registration Statement, and to file same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ J. Parker Conrad Co-Chairman of the April 8, 1998
- ----------------------------------- Board of Directors
J. Parker Conrad
/s/ John P. Conrad, Jr. Co-Chairman of the April 8, 1998
- ----------------------------------- Board of Directors
John P. Conrad, Jr.
/s/ William H. Hidalgo President, Chief April 8, 1998
- ----------------------------------- Executive Officer and
William H. Hidalgo Director (Principal
Executive Officer)
/s/ Cecil A. Hernandez Vice President-- April 8, 1998
- ----------------------------------- Finance and
Cecil A. Hernandez Administration,
Chief Financial
Officer and Director
(Principal Financial
and Accounting
Officer)
II-4
<PAGE>
DRAFT OF 4/3/98
CONRAD INDUSTRIES, INC.
(A DELAWARE CORPORATION)
COMMON STOCK
UNDERWRITING AGREEMENT
DATED: ______________, 1998
<PAGE>
CONRAD INDUSTRIES, INC.
UNDERWRITING AGREEMENT
_________________, 1998
Morgan Keegan & Company, Inc.
Raymond James & Associates, Inc.
As Representatives of the Several
Underwriters Named in Schedule A hereto
c/o Morgan Keegan & Company, Inc.
50 Front Street
Memphis, Tennessee 38103
Ladies and Gentlemen:
Conrad Industries, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to the underwriters named in Schedule A (collectively, the
"Underwriters") an aggregate of __________ shares of Common Stock, $0.01 par
value per share (the "Common Stock"), of the Company (the "Firm Shares"). The
Firm Shares are to be sold to each Underwriter, acting severally and not
jointly, in such amounts as are set forth in Schedule A opposite the name of
such Underwriter. The Company also grants to the Underwriters, severally and
not jointly, the option described in Section 4 to purchase, on the same terms as
the Firm Shares, up to __________ additional shares of Common Stock (the "Option
Shares") solely to cover over-allotments. The Firm Shares, together with all or
any part of the Option Shares, are collectively herein called the "Shares."
Section 1. Representations and Warranties of the Company. The Company
represents and warrants to each of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-________) with
respect to the Shares, including a preliminary form of prospectus, has been
prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the applicable
rules and regulations (the "1933 Act Regulations") of the Securities and
Exchange Commission (the "Commission"), and has been filed with the
Commission; and such amendments to such registration statement as may have
been required prior to the date hereof have been filed with the Commission,
and such amendments have been similarly prepared. Copies of such
registration statement and amendment or amendments and of each related
preliminary prospectus, and the exhibits, financial statements and
schedules, as finally amended and revised, have been delivered to you. The
Company has prepared in the same manner, and proposes so to file with the
Commission, one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of
final prospectus, (ii) if the Company does not rely on Rule 434 of the 1933
Act Regulations, a
<PAGE>
final prospectus in accordance with Rules 430A and 424(b) of the 1933 Act
Regulations, or (iii) if the Company relies on Rule 434 of the 1933 Act
Regulations, a term sheet relating to the Shares that shall identify the
preliminary prospectus that it supplements containing such information as
is required or permitted by Rules 434, 430A and 424(b) of the 1933 Act
Regulations. The Company also may file a related registration statement
with the Commission pursuant to Rule 462(b) of the 1933 Act Regulations for
the purpose of registering certain additional shares of Common Stock, which
registration statement will be effective upon filing with the Commission.
As filed, such amendment, such final prospectus, any term sheet and form of
final prospectus and any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations, shall include all Rule 430A Information
(as defined below) and, except to the extent that you shall agree in
writing to a modification, shall be in all respects in the form furnished
to you prior to the date and time that this Agreement was executed and
delivered by the parties hereto, or, to the extent not completed at such
date and time, shall contain only such specific additional information and
other changes (beyond that contained in the latest preliminary prospectus
and in addition to the Rule 430A Information) as the Company shall have
previously advised you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
the registration statement referred to in the preceding paragraph at the
time such registration statement becomes effective and, in the event any
post-effective amendment thereto becomes effective prior to the Closing
Time (as hereinafter defined), shall also mean such registration statement
as so amended; provided, however, that such term shall also include all
Rule 430A Information contained in any Prospectus and any Term Sheet (as
hereinafter defined) and deemed to be included in such registration
statement at the time such registration statement becomes effective as
provided by Rule 430A of the 1933 Act Regulations. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the
preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall
mean (i) if the Company relies on Rule 434 of the 1933 Act Regulations, the
Term Sheet relating to the Shares that is first filed pursuant to Rule
424(b)(7) of the 1933 Act Regulations, together with the Preliminary
Prospectus identified therein that such Term Sheet supplements or (ii) if
the Company does not rely on Rule 434 of the 1933 Act Regulations, the
prospectus relating to the Shares in the form in which it is first filed
with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations or,
if no filing pursuant to Rule 424(b) of the 1933 Act Regulations is
required, shall mean the form of final prospectus included in the
Registration Statement at the time such Registration Statement becomes
effective. The term "Rule 430A Information" means information with respect
to the Shares and the offering thereof permitted pursuant to Rule 430A of
the 1933 Act Regulations to be omitted from the Registration Statement when
it becomes effective. The term "462(b) Registration Statement" means any
registration statement filed with the Commission pursuant to Rule 462(b) of
the 1933 Act Regulations (including the Registration Statement and any
Preliminary Prospectus or Prospectus incorporated therein at the time such
registration statement becomes effective). The term "Term Sheet" means any
term sheet that satisfies the requirements of Rule 434 of the 1933 Act
Regulations. Any
2
<PAGE>
reference to the "date" of a Prospectus that includes a Term Sheet
shall mean the date of such Term Sheet.
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and no proceedings for that
purpose have been instituted or threatened by the Commission or the state
securities or blue sky authority of any jurisdiction, and each Preliminary
Prospectus and any amendment or supplement thereto, at the time of filing
thereof, conformed in all material respects to the requirements of the 1933
Act and the 1933 Act Regulations, and did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter expressly
for use in the Registration Statement or any 462(b) Registration Statement.
(c) When the Registration Statement and any 462(b) Registration
Statement shall become effective, when any Term Sheet that is part of the
Prospectus is filed with the Commission pursuant to Rule 434, when the
Prospectus is first filed pursuant to Rule 424(b) of the 1933 Act
Regulations, when any amendment to the Registration Statement or any 462(b)
Registration Statement becomes effective, when any supplement to the
Prospectus or any Term Sheet is filed with the Commission and at the
Closing Time and Date of Delivery (as hereinafter defined), (i) the
Registration Statement, the 462(b) Registration Statement, the Prospectus,
the Term Sheet and any amendments thereof and supplements thereto will
conform in all material respects with the applicable requirements of the
1933 Act and the 1933 Act Regulations, and (ii) neither the Registration
Statement, the 462(b) Registration Statement, the Prospectus, any Term
Sheet nor any amendment or supplement thereto will contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter expressly for use in the Registration Statement or any 462(b)
Registration Statement.
(d) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the state of Delaware with
all requisite corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus. The Company is duly qualified to transact
business as a foreign corporation and is in good standing in each of the
jurisdictions in which the ownership or leasing of its properties or the
nature or conduct of its business as described in the Registration
Statement and the Prospectus, after giving effect to the transactions
contemplated by the Registration Statement and the Prospectus, requires
such qualification, except where the failure to do so would not materially
and adversely affect the business, prospects, properties, assets, results
of operations or condition (financial or otherwise) of the Company and its
Subsidiaries (as hereinafter defined) taken as a whole.
3
<PAGE>
(e) All of the Company's subsidiaries are named on an exhibit to the
Registration Statement (each a "Subsidiary" and collectively the
"Subsidiaries"). Each of the Subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
state of its incorporation with all requisite corporate power and authority
to own, lease and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus. Each such
entity is duly qualified to do business and is in good standing as a
foreign corporation in each other jurisdiction in which the ownership or
leasing of its properties or the nature or conduct of its business as
described in the Registration Statement and the Prospectus conducted
requires such qualification, except where the failure to do so would not
materially and adversely affect the business, prospects, properties,
assets, results of operations or condition (financial or otherwise) of the
Company or any of its Subsidiaries.
(f) The Company has full corporate right, power and authority to enter
into this Agreement, to issue, sell and deliver the Shares as provided
herein and to consummate the transactions contemplated herein. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding agreement of the Company, enforceable
in accordance with its terms, except to the extent that enforceability may
be limited by bankruptcy, insolvency, moratorium, reorganization or other
laws of general applicability relating to or affecting creditors' rights,
or by general principles of equity whether considered at law or at equity
and except to the extent enforcement of the indemnification provisions set
forth in Section 6 of this Agreement may be limited by federal or state
securities laws or the public policy underlying such laws.
(g) Each consent, approval, authorization, order, license,
certificate, permit, registration, designation or filing by or with any
governmental agency or body necessary for the valid authorization,
issuance, sale and delivery of the Shares, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby has been made or obtained and is in full force and
effect, except, with respect to this Agreement, as may be required under
applicable state securities laws.
(h) Neither the issuance, sale and delivery by the Company of the
Shares, nor the execution, delivery and performance of this Agreement, nor
the consummation of the transactions contemplated hereby will conflict with
or result in a breach or violation of any of the terms and provisions of,
or (with or without the giving of notice or the passage of time or both)
constitute a default under, the charter or bylaws of the Company or its
Subsidiaries, or any indenture, mortgage, deed of trust, loan agreement,
note, lease or other agreement or instrument to which the Company or its
Subsidiaries is a party or to which any of the respective properties or
other assets of the Company or its Subsidiaries is subject, or any
applicable statute, rule, regulation, judgment, or decree, or order of any
court or governmental agency or body applicable to any of the foregoing or
any of their respective properties, or result in the creation or imposition
of any lien, charge, claim or encumbrance upon any property or asset of the
Company or its Subsidiaries.
4
<PAGE>
(i) The Shares to be issued and sold to the Underwriters hereunder
have been validly authorized by the Company. When issued and delivered
against payment therefor as provided in this Agreement, the Shares will be
duly and validly issued, fully paid and nonassessable. No preemptive
rights of shareholders exist with respect to any of the Shares which have
not been satisfied or waived. No person or entity holds a right to require
or participate in the registration under the 1933 Act of the Shares
pursuant to the Registration Statement which has not been satisfied or
waived; and, except as set forth in the Prospectus, no person holds a right
to require registration under the 1933 Act of any shares of Common Stock of
the Company or shares of capital stock of any of the Subsidiaries at any
other time which has not been satisfied or waived.
(j) The Company's authorized, issued and outstanding capital stock is
as disclosed in the Prospectus. None of the issued shares of capital stock
of the Company has been issued or is owned or held in violation of any
preemptive rights of stockholders. All of the issued shares of capital
stock of the Company have been duly authorized and validly issued, fully
paid and nonassessable and conform to the description of the Company's
capital stock contained in the Prospectus.
(k) All of the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned directly by the Company free and clear of
all liens, security interests, pledges, charges, encumbrances, defects,
shareholders' agreements, voting trusts, equities or claims of any nature
whatsoever. None of the issued shares of capital stock of either of the
Subsidiaries has been issued or is owned or held in violation of any
preemptive rights of shareholders. Other than its Subsidiaries, the Company
does not own, directly or indirectly, any capital stock or other equity
securities of any other corporation or any ownership interest in any
partnership, joint venture or other association.
(l) Except as disclosed in the Prospectus, there are no outstanding
(i) securities or obligations of the Company or any of its Subsidiaries
convertible into or exchangeable for any capital stock of the Company or
any such Subsidiary, (ii) warrants, rights or options to subscribe for or
purchase from the Company or any such Subsidiary any such capital stock or
any such convertible or exchangeable securities or obligations, or (iii)
obligations of the Company or any such Subsidiary to issue any shares of
capital stock, any such convertible or exchangeable securities or
obligation, or any such warrants, rights or options.
(m) The Company and its Subsidiaries have good and marketable title,
or a valid and renewable leasehold interest to all real property, if any,
and good title to all personal property owned by it, in each case free and
clear of all liens, security interests, pledges, charges, encumbrances,
mortgages and defects, except such as are disclosed in the Prospectus or
such as do not materially and adversely affect the value of such property
and do not interfere with the use made or proposed to be made of such
property by the Company and its Subsidiaries; and any real property and
buildings held under lease by the Company or any Subsidiaries are held
under valid, existing and enforceable leases, with such exceptions as are
disclosed in the Prospectus or are not material and do not interfere
5
<PAGE>
with the use made or proposed to be made of such property and buildings by
the Company or such Subsidiary.
(n) The balance sheet of the Company and its consolidated Subsidiaries
and the financial statements of each of the Subsidiaries, Orange
Shipbuilding Company, Inc., and Conrad Shipyard, Inc., included in the
Registration Statement and Prospectus present fairly the financial position
of such entities as of the dates indicated and the results of operations
and cash flows for such entities for the periods specified, all in
conformity with generally accepted accounting principles applied on a
consistent basis. The financial statement schedules included in the
Registration Statement and the amounts in the Prospectus under the captions
"Prospectus Summary -- Summary Selected Financial Data" and "Selected
Financial Data" fairly present the information shown therein and have been
compiled on a basis consistent with the financial statements included in
the Registration Statement and the Prospectus. The unaudited pro forma
financial information (including the related notes) included in the
Prospectus or any Preliminary Prospectus complies as to form in all
material respects to the applicable accounting requirements of the 1933 Act
and the 1933 Act Regulations, and management of the Company has a
reasonable basis for believing and does believe that the assumptions
underlying the pro forma adjustments are reasonable. Such pro forma
adjustments have been properly applied to the historical amounts in the
compilation of the information and such information fairly presents, with
respect to such entities, the financial position, results of operations and
other information purported to be shown therein at the respective dates and
for the respective periods specified.
(o) Deloitte & Touche LLP, who have examined and are reporting upon
the audited financial statements and schedules included in the Registration
Statement, are, and were during the periods covered by their reports
included in the Registration Statement and the Prospectus, independent
public accountants within the meaning of the 1933 Act and the 1933 Act
Regulations.
(p) Neither the Company nor any of its Subsidiaries has sustained,
since December 31, 1997, any material loss or interference with its
business from fire, explosion, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or
arbitrators' or court or governmental action, order or decree; and, since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, and except as otherwise stated in the
Registration Statement and Prospectus, there has not been (i) any material
change in the capital stock, long-term debt, obligations under capital
leases or short-term borrowings of the Company or its Subsidiaries, or (ii)
any material adverse change, or any development which could reasonably be
seen as involving a prospective material adverse change, in or affecting
the business, prospects, properties, assets, results of operations or
condition (financial or other) of the Company or its Subsidiaries.
(q) Neither the Company nor any of its Subsidiaries is in violation of
its charter, or by-laws, and no default exists, and no event has occurred,
nor state of facts exists, which, with notice or after the lapse of time to
cure or both, would constitute a
6
<PAGE>
default in the due performance and observance of any obligation, agreement,
term, covenant, consideration or condition contained in any indenture,
mortgage, deed of trust, loan agreement, note, lease or other agreement or
instrument to which any such entity is a party or to which any such entity
or any of its properties is subject. Neither the Company nor any of its
Subsidiaries is in violation of, or in default with respect to, any
statute, rule, regulation, order, judgment or decree, except as may be
properly described in the Prospectus or such as in the aggregate do not now
have and will not in the future materially and adversely affect the
business, prospects, properties, assets, results of operations or condition
(financial or otherwise) of the Company or any of its Subsidiaries.
(r) There is not pending or threatened, any action, suit, proceeding,
inquiry or investigation against the Company, its Subsidiaries or any of
the officers and directors of the Company or its Subsidiaries or to which
the properties, assets or rights of the Company or its Subsidiaries are
subject, before or brought by any court or governmental agency or body or
board of arbitrators that is required to be described in the Registration
Statement or the Prospectus but is not described as required.
(s) The descriptions in the Registration Statement and the Prospectus
of the contracts, leases and other legal documents therein described
present fairly the information required to be shown, and there are no
contracts, leases, or other documents of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(t) The Company and each of its Subsidiaries own, possess or have
obtained all material permits, licenses, franchises, certificates,
consents, orders, approvals and other authorizations of governmental or
regulatory authorities or other entities as are necessary to own or lease,
as the case may be, and to operate its properties and to carry on its
business as presently conducted, or as contemplated in the Prospectus to be
conducted, and neither the Company nor any of its Subsidiaries has received
any notice of proceedings relating to revocation or modification of any
such licenses, permits, franchises, certificates, consents, orders,
approvals or authorizations.
(u) Each of the Company and each of its Subsidiaries owns or possesses
adequate licenses or other rights to use all patents, trademarks, service
marks, trade names, copyrights, software and design licenses, trade
secrets, manufacturing processes, other intangible property rights and
know-how (collectively "Intangibles") necessary to entitle the Company and
each of its Subsidiaries to conduct its business as described in the
Prospectus, and neither the Company nor any of its Subsidiaries has
received notice of infringement of or conflict with (and knows of no such
infringement of or conflict with) asserted rights of others with respect to
any Intangibles which could materially and adversely affect the business,
prospects, properties, assets, results of operations or condition
(financial or otherwise) of the Company or any of its Subsidiaries.
(v) Each of the Company's and its Subsidiaries' respective systems of
internal accounting controls are sufficient to meet the broad objectives of
internal accounting
7
<PAGE>
control insofar as those objectives pertain to the prevention or detection
of errors or irregularities in amounts that would be material in relation
to the Company's or its Subsidiaries' financial statements; and neither the
Company, its Subsidiaries, nor any employee or agent thereof has made any
payment of funds of the Company or its Subsidiaries nor received or
retained any funds, and no funds of the Company or its Subsidiaries have
been set aside to be used for any payment, in each case in violation of any
law, rule or regulation.
(w) Each of the Company and its Subsidiaries have filed on a timely
basis all necessary federal, state, local and foreign income and franchise
tax returns required to be filed through the date hereof and have paid all
taxes shown as due thereon; and no tax deficiency has been asserted against
any such entity, nor does any such entity know of any tax deficiency which
is likely to be asserted against any such entity which if determined
adversely to any such entity, could materially adversely affect the
business, prospects, properties, assets, results of operations or condition
(financial or otherwise) of the Company and its Subsidiaries. All tax
liabilities are adequately provided for on the respective books of the
Company and its Subsidiaries.
(x) Each of the Company and its Subsidiaries maintain insurance
(issued by insurers of recognized financial responsibility) of the types
and in the amounts generally deemed adequate for its business and,
consistent with insurance coverage maintained by similar companies in
similar businesses, including, but not limited to, insurance covering real
and personal property owned or leased by the Company and its Subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect.
(y) Each of the Company, its Subsidiaries, and their officers,
directors or affiliates have not taken, and will not take, directly or
indirectly, any action that is designed to, or that might reasonably be
expected to, cause or result in or constitute the stabilization or
manipulation of any security of the Company or to facilitate the sale or
resale of the Shares.
(z) Neither the Company nor any of its Subsidiaries is, will become as
a result of the transactions contemplated hereby, or will conduct its
business in a manner which would cause it to become, "an investment
company,"or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
Section 2. Sale and Delivery of the Shares to the Underwriters; Closing.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the
Company agrees to issue and sell to each of the Underwriters the Firm
Shares and each Underwriter agrees, severally and not jointly, to purchase
from the Company the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule A (the proportion which each Underwriter's
share of the total number of the Firm Shares bears to the total number of
Firm Shares is
8
<PAGE>
hereinafter referred to as such Underwriter's "underwriting obligation
proportion"), at a purchase price of $__________ per share.
(b) In addition, on the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth,
the Company hereby grants an option to the Underwriters to purchase,
severally and not jointly, up to an additional __________ Option Shares at
the same purchase price as shall be applicable to the Firm Shares. The
option hereby granted will expire within the thirty (30) day period after
the date of the Prospectus if not exercised by giving written notice to the
Company. The option granted hereby may be exercised in whole or in part
(but not more than once) by you, as representatives of the Underwriters,
only for the purpose of covering over-allotments that may be made in
connection with the offering and distribution of the Firm Shares. The
notice of exercise shall set forth the number of Option Shares as to which
the several Underwriters are exercising the option, and the time and date
of payment and delivery thereof. Such time and date of delivery (the "Date
of Delivery") shall be determined by you but shall not be later than three
full business days after the exercise of such option, nor in any event
prior to the Closing Time. If the option is exercised as to all or any
portion of the Option Shares, the Option Shares as to which the option is
exercised shall be purchased by the Underwriters, severally and not
jointly, in their respective underwriting obligation proportions.
(c) Payment of the purchase price for and delivery of certificates in
definitive form representing the Firm Shares shall be made at the offices
of Morgan Keegan & Company, Inc., 50 Front Street, Memphis, Tennessee
38103, or at such other place as shall be agreed upon by the Company and
you, at 10:00 a.m., either (i) on the third full business day after the
execution of this Agreement, or (ii) at such other time not more than ten
full business days thereafter as you and the Company shall determine
(unless, in either case, postponed pursuant to the terms hereof), (such
date and time of payment and delivery being herein called the "Closing
Time"). In addition, in the event that any or all of the Option Shares are
purchased by the Underwriters, payment of the purchase price for and
delivery of certificates in definitive form representing the Option Shares
shall be made at the offices of Morgan Keegan & Company, Inc. in the manner
set forth above, or at such other place as the Company and you shall
determine, on the Date of Delivery as specified in the notice from you to
the Company. Payment for the Firm Shares and the Option Shares shall be
made to the Company by wire transfer in same-day funds to the accounts
designated to the Underwriters in writing by the Company (or in such other
manner as you and the Company shall agree) against delivery to you for the
respective accounts of the Underwriters of the Shares to be purchased by
them.
(d) The certificates representing the Shares to be purchased by the
Underwriters shall be in such denominations and registered in such names as
you may request in writing at least two full business days before the
Closing Time or the Date of Delivery, as the case may be. The certificates
representing the Shares will be made available at the offices of Morgan
Keegan & Company, Inc. or at such other place as Morgan Keegan & Company,
Inc. may designate for examination and packaging not later than 10:00 a.m.
at least one full business day prior to the Closing Time or the Date of
9
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Delivery as the case may be.
(e) After the Registration Statement becomes effective, you intend to
offer the Shares to the public as set forth in the Prospectus, but after
the initial public offering of such Shares you may in your discretion vary
the public offering price.
Section 3. Certain Covenants of the Company. The Company covenants and
agrees with each Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective (if not yet effective at the date and time
that this Agreement is executed and delivered by the parties hereto). If
the Company elects to rely upon Rule 430A of the 1933 Act Regulations or
the filing of the Prospectus is otherwise required under Rule 424(b) of the
1933 Act Regulations, the Company will comply with the requirements of Rule
430A and will file the Prospectus, properly completed, pursuant to the
applicable provisions of Rule 424(b), or a Term Sheet pursuant to and in
accordance with Rule 434, within the time period prescribed. If the
Company elects to rely upon Rule 462(b) of the 1933 Act Regulations, the
Company shall file a 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time on the
date of this Agreement, and the Company shall at the time of filing either
pay to the Commission the filing fee for the Rule 462(b) Registration
Statement or give irrevocable instructions for the payment of such fee.
The Company will notify you immediately, and confirm the notice in writing,
(i) when the Registration Statement, 462(b) Registration Statement or any
post-effective amendment to the Registration Statement, shall have become
effective, or any supplement to the Prospectus or any amended Prospectus
shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission to amend the
Registration Statement or 462(b) Registration Statement or amend or
supplement the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or any 462(b) Registration Statement or of
any order preventing or suspending the use of any Preliminary Prospectus or
the suspension of the qualification of the Shares for offering or sale in
any jurisdiction, or of the institution or threatening of any proceeding
for any such purposes. The Company will use every reasonable effort to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and, if any such order is issued, to obtain the
withdrawal thereof at the earliest possible moment.
(b) The Company will not at any time file any amendment or supplement
or make any amendment to (i) the Registration Statement, or (ii) to the
Prospectus, if the Company has not elected to rely upon Rule 430A, (iii) if
the Company has elected to rely upon Rule 430A, to either the Prospectus
included in the Registration Statement at the time it becomes effective or
to the Prospectus filed in accordance with Rule 424(b) or any Term Sheet
filed in accordance with Rule 434, or (iv) if the Company has elected to
rely upon Rule 462(b), to any 462(b) Registration Statement, in any case if
you shall not have previously been advised and furnished a copy thereof a
reasonable time prior to the proposed filing, or if you or counsel for the
Underwriters shall object to such amendment
10
<PAGE>
or supplement.
(c) The Company has furnished or will furnish to you, at its expense,
as soon as available, three copies of the Registration Statement as
originally filed and of all amendments thereto, whether filed before or
after the Registration Statement becomes effective, copies of all exhibits
and documents filed therewith and signed copies of all consents and
certificates of experts, as you may reasonably request, and has furnished
or will furnish to each Underwriter, one conformed copy of the Registration
Statement as originally filed and of each amendment thereto.
(d) The Company will deliver to each Underwriter, at the Company's
expense, from time to time, as many copies of each Preliminary Prospectus
as such Underwriter may reasonably request, and the Company hereby consents
to the use of such copies for purposes permitted by the 1933 Act. The
Company will deliver to each Underwriter, at the Company's expense, as soon
as the Registration Statement shall have become effective and thereafter
from time to time as requested during the period when the Prospectus is
required to be delivered under the 1933 Act, such number of copies of the
Prospectus (as supplemented or amended) as each Underwriter may reasonably
request. The Company will comply to the best of its ability with the 1933
Act and the 1933 Act Regulations so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and in the
Prospectus. If the delivery of a prospectus is required at any time prior
to the expiration of nine months after the time of issue of the Prospectus
or any Term Sheet in connection with the offering or sale of the Shares and
if at such time any events shall have occurred as a result of which the
Prospectus or any Term Sheet as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made when such Prospectus or any Term
Sheet is delivered not misleading, or, if for any reason it shall be
necessary during such same period to amend or supplement the Prospectus or
any Term Sheet in order to comply with the 1933 Act or the 1933 Act
Regulations, the Company will notify you and upon your request prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or any Term Sheet or a supplement to the Prospectus or
any Term Sheet or an amendment or supplement to any such incorporated
document which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus
in connection with sales of any of the Shares at any time nine months or
more after the time of issue of the Prospectus or any Term Sheet, upon your
request but at the expense of such Underwriter, the Company will prepare
and deliver to such Underwriter as many copies as you may request of an
amended or supplemented Prospectus or any Term Sheet complying with Section
10(a)(3) of the 1933 Act.
(e) The Company will use its best efforts to qualify the Shares for
offering and sale under the applicable securities laws of such states and
other jurisdictions as you may designate and to maintain such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares; provided, however, that the Company shall not
be
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obligated to file any general consent to service of process or to qualify
as a foreign corporation in any jurisdiction in which it is not so
qualified or to make any undertakings in respect of doing business in any
jurisdiction in which it is not otherwise so subject. The Company will file
such statements and reports as may be required by the laws of each
jurisdiction in which the Shares have been qualified as above provided.
(f) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than the end of the
fiscal quarter first occurring after the first anniversary of the
"effective date of the Registration Statement" (as defined in Rule 158(c)
of the 1933 Act Regulations), an earnings statement (in reasonable detail
but which need not be audited) complying with the provisions of Section
11(a) of the 1933 Act and Rule 158 thereunder and covering a period of at
least 12 months beginning after the effective date of the Registration
Statement.
(g) The Company will use the net proceeds received by it from the sale
of the Shares in the manner specified in the Prospectus under the caption
"Use of Proceeds."
(h) During a period of five years after the date hereof, the Company
will furnish to you: (i) if and at the time it furnishes such reports to
its securityholders, statements of operations of the Company for each of
the first three quarters of each fiscal year in the form furnished to the
Company's securityholders; (ii) concurrently with furnishing to its
securityholders, a balance sheet of the Company as of the end of such
fiscal year, together with statements of operations, of cash flows and of
stockholders' equity of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent public
accountants; (iii) as soon as they are available, copies of all reports
(financial or otherwise) mailed to securityholders; (iv) as soon as they
are available, copies of all reports and financial statements furnished to
or filed with the Commission, any securities exchange or the National
Association of Securities Dealers, Inc. (the "NASD"); (v) every material
press release in respect of the Company or its affairs which is released by
the Company; and (vi) any additional information of a public nature
concerning the Company or its business that you may reasonably request.
During such five-year period, the foregoing financial statements shall be
on a consolidated basis to the extent that the accounts of the Company are
consolidated with any subsidiaries, and shall be accompanied by similar
financial statements for any significant subsidiary that is not so
consolidated.
(i) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, the
Company will not, without the prior written consent of Morgan Keegan &
Company, Inc., (a) 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 (b)
enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of Common Stock
(regardless of whether any of the transactions described in clause (a) or
(b) is to be settled by the delivery of Common Stock or such other
securities, in cash or otherwise) except pursuant to the Company's 1998
Stock Plan (as specified in the Prospectus under the caption "Management")
or in connection with the acquisition of businesses or assets by the
Company or a subsidiary of the Company or in connection with the warrants
to be issued
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to Morgan Keegan & Company, Inc. as described in the Prospectus, and the
Company will obtain the undertaking of each person who is a shareholder of
the Company (individually, a "Shareholder" and collectively, the
"Shareholders") as of the date of this Agreement not to engage in any of
the aforementioned transactions on their own behalf except in connection
with any gift of Common Stock by a Shareholder to a donee who agrees in
writing for the benefit of the Underwriters to be bound by the foregoing
restrictions with respect to such Common Stock.
(j) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be
the same entity as the transfer agent) for its Common Stock.
(k) The Company will cause the Shares to be listed, subject to notice
of issuance, on the Nasdaq National Market and will use its best efforts to
maintain the listing of the Shares on the Nasdaq National Market.
(l) The Company is familiar with the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and will in the future conduct its affairs, in such
a manner so as to ensure that the Company was not and will not be an
"investment company" or an entity "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(m) The Company will not, and will use its best efforts to cause its
officers, directors and affiliates not to, in violation of Regulation M of
the Securities Exchange Act of 1934 (the "1934 Act") (i) take, directly or
indirectly prior to termination of the underwriting syndicate contemplated
by this Agreement, any action designed to stabilize or manipulate the price
of any security of the Company, or which may cause or result in, or which
might in the future reasonably be expected to cause or result in, the
stabilization or manipulation of the price of any security of the Company,
to facilitate the sale or resale of any of the Shares, (ii) sell, bid for,
purchase or pay anyone any compensation for soliciting purchases of the
Shares or (iii) pay or agree to pay to any person any compensation for
soliciting any order to purchase any other securities of the Company.
(n) If at any time during the 30-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus) and after
written notice from you advising the Company to the effect set forth above,
the Company agrees to consult with you concerning the substance and
dissemination of a press release or other public statement responding to or
commenting on such rumor, publication or event.
(o) The Company will timely complete all required filings and
otherwise fully comply in a timely manner with all provisions of the 1934
Act, and the rules and regulations of the Commission thereunder, in
connection with the registration of the Shares thereunder.
Section 4. Payment of Expenses. The Company will pay and bear all costs,
fees and expenses incident to the performance of its obligations under this
Agreement (excluding fees and expenses of counsel for the Underwriters, except
as specifically set forth below), including (a)
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the preparation, printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
Preliminary Prospectuses, the Prospectus and any Term Sheet and any amendments
or supplements thereto, and the cost of furnishing copies thereof to the
Underwriters, (b) the preparation, printing and distribution of this Agreement,
the certificates representing the Shares, the Blue Sky Memoranda and any
instruments relating to any of the foregoing, (c) the issuance and delivery of
the Shares to the Underwriters, including any transfer taxes payable upon the
sale of the Shares to the Underwriters (other than transfer taxes on resales by
the Underwriters), (d) the fees and disbursements of the Company's counsel and
accountants, (e) the qualification of the Shares under the applicable securities
laws in accordance with the terms of this Agreement, including filing fees and
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the preparation of the Blue Sky Memoranda, (f) all costs,
fees and expenses in connection with the notification to the Nasdaq National
Market of the proposed issuance of the Shares, (g) filing fees relating to the
review of the offering by the NASD, (h) the transfer agent's and registrar's
fees and all miscellaneous expenses referred to in Part II of the Registration
Statement, (i) costs related to travel and lodging incurred by the Company and
their representatives relating to meetings with and presentations to prospective
purchasers of the Shares reasonably determined by the Underwriters to be
necessary or desirable to effect the sale of the Shares to the public, and (j)
all other costs and expenses incident to the performance of the Company's
obligations hereunder (including costs incurred in closing the purchase of the
Option Shares, if any) that are not otherwise specifically provided for in this
section. The Company, upon your request, will provide funds in advance for
filing fees in connection with "blue sky" qualifications and the review of the
offering by the NASD.
Section 5. Conditions of Underwriters' Obligations. The obligations of
the Underwriters to purchase and pay for (i) the Firm Shares that they have
respectively agreed to purchase pursuant to this Agreement (and any Option
Shares as to which the option granted in Section 2 has been exercised and the
Date of Delivery determined by you is the same as the Closing Time) at the
Closing Time and (ii) the Option Shares at the Date of Delivery of the Option
Shares, are subject to the accuracy of the representations and warranties of the
Company contained herein as of the Closing Time or the Date of Delivery, as the
case may be, and to the accuracy of the representations and warranties of the
Company contained in certificates of any officer of the Company delivered
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m. on the date of this Agreement or, with your consent, at a
later time and date not later, however, than 5:30 p.m. on the first
business day following the date hereof, or at such later time or on such
later date as you may agree to in writing; if the Company has elected to
rely upon Rule 462(b), the 462(b) Registration Statement shall have become
effective by 10:00 p.m., Washington, D.C. time, on the date of this
Agreement; and at the Closing Time, no stop order suspending the
effectiveness of the Registration Statement or any 462(b) Registration
Statement shall have been issued under the 1933 Act, and no proceedings for
that purpose shall have been instituted or shall be pending or, to your
knowledge or the knowledge of the Company, shall be contemplated by the
Commission, and any request on the part of the Commission for additional
information shall have been
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complied with to the satisfaction of counsel for the Underwriters. If the
Company has elected to rely upon Rule 430A, a Prospectus or a Term Sheet
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A).
(b) At the Closing Time, you shall have received a favorable opinion
of Andrews & Kurth L.L.P., counsel for the Company, dated as of the Closing
Time, together with signed or reproduced copies of such opinion for each of
the other Underwriters, in form and substance satisfactory to counsel for
the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware with the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus. The Company is qualified
to transact business as a foreign corporation and is in good standing
in each of the jurisdictions in which the ownership or leasing of the
Company's properties or the nature or conduct of its business requires
such qualification, except where the failure to do so would not have a
material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the
Company and its Subsidiaries taken as a whole.
(ii) Each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the state of its incorporation. Each such entity has all requisite
corporate power and authority to own, lease and operate its properties
and conduct its business as described in the Registration Statement
and the Prospectus. Each such entity is duly qualified to do business
and is in good standing as a foreign corporation in each other
jurisdiction in which the ownership or leasing of its properties or
the nature or conduct of its business requires such qualification,
except where the failure to do so would not materially and adversely
affect the business, prospects, properties, assets, results of
operations or condition (financial or otherwise) of the Company or any
of its Subsidiaries.
(iii) The Company has the corporate power and authority to enter
into this Agreement, to issue, sell and deliver the Shares as provided
herein and to consummate the transactions contemplated herein. This
Agreement has been duly authorized, executed and delivered by the
Company and, assuming due authorization, execution and delivery by the
Underwriters, constitutes a valid and binding agreement of the
Company, enforceable in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other laws affecting creditors' rights
or by general principles of equity whether considered at law or in
equity and except to the extent that enforcement of the
indemnification provisions set forth in Section 6 of
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this Agreement may be limited by federal or state securities laws or
the public policy underlying such laws.
(iv) Each consent, approval, authorization, order, license,
certificate, permit, registration, designation or filing by or with
any governmental agency or body necessary for the valid authorization,
issuance, sale and delivery of the Shares, the execution, delivery and
performance of this Agreement, and the consummation by the Company of
the transactions contemplated hereby, has been made or obtained and is
in full force and effect, except such as may be necessary under state
securities laws or required by the NASD in connection with the
purchase and distribution of the Shares by the Underwriters, as to
which such counsel need express no opinion.
(v) Neither the issuance, sale and delivery by the Company of
the Shares, nor the execution, delivery and performance of this
Agreement, nor the consummation of the transactions contemplated
hereby, will conflict with or result in a breach or violation of any
of the terms and provisions of, or (with or without the giving of
notice or the passage of time or both) constitute a default under, the
charter or by-laws of the Company or its Subsidiaries, or any
indenture, mortgage, deed of trust, loan agreement, note, lease or
other agreement or instrument to which the Company or its
Subsidiaries, is a party or to which the Company or its Subsidiaries,
respectively, or any of its respective properties or other assets, is
subject; or, to such counsel's knowledge, any applicable statute,
rule, regulation, judgment, decree or order of any court or
governmental agency or body; or to such counsel's knowledge, result in
the creation or imposition of any lien, charge, claim or encumbrance
upon any property or asset of the Company or its Subsidiaries.
(vi) The Common Stock conforms in all material respects as to
legal matters to the description thereof contained in the Registration
Statement and the Prospectus under the heading "Description of Capital
Stock."
(vii) The Shares to be issued and sold to the Underwriters
hereunder have been validly authorized by the Company. When issued
and delivered against payment therefor as provided in this Agreement,
such shares will be validly issued, fully paid and nonassessable. To
such counsel's knowledge, no preemptive rights of shareholders exist
with respect to any of the Shares which have not been satisfied or
waived. To such counsel's knowledge, no person or entity holds a
right to require or participate in the registration under the 1933 Act
of the Shares pursuant to the Registration Statement which has not
been satisfied or waived; and, except as set forth in the Prospectus,
no person holds a right to require registration under the 1933 Act of
any shares of Common Stock of the Company at any other time which has
not been satisfied or waived. The form of certificates evidencing the
Shares complies with all applicable requirements of Delaware law.
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(viii) The Company has an authorized capitalization as set forth
in the Prospectus under the caption "Capitalization." All of the
issued shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable. None
of the issued shares of capital stock of the Company has been issued
or is owned or held in violation of any preemptive rights of
shareholders. All offers and sales of capital stock prior to the date
hereof were at all relevant times duly registered under the 1933 Act
or were exempt from the registration requirements of the 1933 Act by
reason of Sections 3(b), 4(2) or 4(6) thereof and were duly registered
or the subject of an available exemption from the registration
requirements of the applicable state securities or blue sky laws,
provided, however, that such counsel need not express any opinion with
respect to the registration or availability of an exemption under
applicable state securities or blue sky laws for shares of Common
Stock issued pursuant to an underwritten public offering.
(ix) All of the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are owned directly by the Company free and
clear of all liens, security interests, pledges, charges encumbrances,
defects, shareholders' agreements, voting trusts, equities or claims
of any nature whatsoever. Other than its Subsidiaries, the Company
does not own, directly or indirectly, any capital stock or other
equity securities of any other corporation or any ownership interest
in any partnership, joint venture or other association.
(x) Except as disclosed in the Prospectus, there are no
outstanding (i) securities or obligations of the Company or any of its
Subsidiaries convertible into or exchangeable for any capital stock of
the Company or any such Subsidiary, (ii) warrants, rights or options
to subscribe for or purchase from the Company or any such Subsidiary
any such capital stock or any such convertible or exchangeable
securities or obligations, or (iii) obligations of the Company or any
such Subsidiary to issue any shares of capital stock, any such
convertible or exchangeable securities or obligation, or any such
warrants, rights or options.
(xi) The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good title to all
personal property owned by them, in each case free and clear of all
liens, security interests, pledges, charges, encumbrances, mortgages
and defects, except such as are disclosed in the Prospectus or such as
do not materially and adversely affect the value of such property and
do not interfere with the use made or proposed to be made of such
property by the Company and its Subsidiaries.
(xii) Neither the Company nor any of its Subsidiaries is in
violation of its charter or by-laws, and no material default exists,
and no event has occurred nor state of facts exist which, with notice
or after the lapse of time to cure or both, would constitute a
material default in the due performance and observance of any
obligation, agreement, term, covenant, or condition contained in any
indenture,
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mortgage, deed of trust, loan agreement, note, lease or other
agreement or instrument to which the Company is a party or to which
the Company, any of its Subsidiaries, or any of their respective
properties is subject.
(xiii) To such counsel's knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation
against the Company, its Subsidiaries or any of the officers and
directors of the Company or its Subsidiaries or to which the
properties, assets or rights of the Company or its Subsidiaries are
subject, before or brought by any court or governmental agency or body
or board of arbitrators, that are required to be described in the
Registration Statement or the Prospectus but are not described as
required.
(xiv) The descriptions in the Registration Statement and the
Prospectus of the contracts, leases and other legal documents therein
described present fairly the information required to be shown and
there are no contracts, leases or other documents known to such
counsel of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement which are not described or filed as required.
(xv) The Common Stock has been approved for trading on the
Nasdaq National Market.
(xvi) The Registration Statement and any 462(b) Registration
Statement have become effective under the 1933 Act and, to the
knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement or any 462(b) Registration Statement has
been issued and no proceeding for that purpose has been instituted or
is pending or contemplated under the 1933 Act. Other than financial
statements and other financial and operating data and schedules
contained therein, as to which counsel need express no opinion, the
Registration Statement, any 462(b) Registration Statement, all
Preliminary Prospectuses, the Prospectus and any amendment or
supplement thereto, appear on their face to conform as to form in all
material respects with the requirements of the 1933 Act and the 1933
Act Regulations.
(xvii) The Company is not, or solely as a result of the
consummation of the transactions contemplated hereby will not become,
an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
(xviii)The descriptions in the Prospectus of statutes,
regulations, legal or governmental proceedings are accurate and
present fairly a summary of the information required to be shown under
the 1933 Act and the 1933 Act Regulations. The information in the
Prospectus under the caption "Shares Eligible for Future Sale," to the
extent that it constitutes matters of law or legal conclusions, has
been reviewed by such counsel, is correct and presents fairly the
information required to be disclosed therein under the 1933 Act
and the 1933 Act
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Regulations.
Such counsel also shall state that they have no reason to believe that
the Registration Statement, any 462(b) Registration Statement or any
further amendment thereto made prior to the Closing Time or the Date of
Delivery, as the case may be, on its effective date and as of the Closing
Time or the Date of Delivery, as the case may be, contained or contains any
untrue statement of a material fact or omitted or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, or any amendment
or supplement thereto made prior to the Closing Time or the Date of
Delivery, as the case may be, as of its issue date and as of the Closing
Time or the Date of Delivery, as the case may be, contained or contains any
untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading (provided that
such counsel need express no belief regarding the financial statements and
related schedules and other financial data contained in the Registration
Statement, any 462(b) Registration Statement, any amendment thereto, or the
Prospectus, or any amendment or supplement thereto).
(c) At the Closing Time, you shall have received a favorable opinion
from Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel
for the Underwriters, dated as of the Closing Time, with respect to the
incorporation of the Company, the issuance and sale of the Shares, the
Registration Statement, the Prospectus and other related matters as the
Underwriters may reasonably require, and the Company shall have furnished
to such counsel such documents as they may reasonably request for the
purpose of enabling them to pass on such matters.
(d) At the Closing Time, (i) the Registration Statement, any 462(b)
Registration Statement, and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the 1933 Act
Regulations; the Company shall have complied in all material respects with
Rule 430A (if it shall have elected to rely thereon) and neither the
Registration Statement, any 462(b) Registration Statement, nor the
Prospectus, as they may then be amended or supplemented, shall contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) there shall not have been, since the respective dates
as of which information is given in the Registration Statement, any
material adverse change in the business, prospects, properties, assets,
results of operations or condition
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(financial or otherwise) of the Company, whether or not arising in the
ordinary course of business, (iii) no action, suit or proceeding at law or
in equity shall be pending or, to the best of the Company's knowledge,
threatened against the Company that would be required to be set forth in
the Prospectus other than as set forth therein and no proceedings shall be
pending or, to the best knowledge of the Company, threatened against the
Company before or by any federal, state or other commission, board or
administrative agency wherein an unfavorable decision, ruling or finding
could materially adversely affect the business, prospects, assets, results
of operations or condition (financial or otherwise) of the Company, other
than as set forth in the Prospectus, (iv) the Company shall have complied
with all agreements and satisfied all conditions on their part to be
performed or satisfied at or prior to the Closing Time, and (v) the
representations and warranties of the Company set forth in Section 1 shall
be accurate as though expressly made at and as of the Closing Time. At the
Closing Time, you shall have received a certificate executed by the
President and Chief Financial Officer of the Company dated as of the
Closing Time, to such effect and with respect to the following additional
matters: (A) the Registration Statement has become effective under the 1933
Act, and no stop order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus has been
issued, and no proceedings for that purpose have been instituted or are
pending or, to the best of their knowledge, threatened under the 1933 Act;
and (B) they have reviewed the Registration Statement and the Prospectus
and, when the Registration Statement and any 462(b) Registration Statement
became effective and at all times subsequent thereto up to the delivery of
such certificate, the Registration Statement, any 462(b) Registration
Statement and the Prospectus and any amendments or supplements thereto
contained all statements and information required to be included therein or
necessary to make the statements therein not misleading and neither the
Registration Statement, any 462(b) Registration Statement, nor the
Prospectus nor any amendment or supplement thereto included any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and, since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amended or
supplemented Prospectus that has not been so set forth.
(e) You shall have received from Deloitte & Touche LLP letters dated,
respectively, the date hereof (or, if the Registration Statement has been
declared effective prior to the execution and delivery of this Agreement,
dated such effective date and the date of this Agreement) and the Closing
Time and the Date of Delivery, in form and substance satisfactory to you,
to the effect set forth in Annex I hereto. In the event that the letters
referred to in this subsection set forth any changes, decreases or
increases in the items specified in paragraphs iii and iv of Annex I, it
shall be a further condition to the obligations of the Underwriters that
(i) such letters shall be accompanied by a written explanation by the
Company as to the significance thereof, unless the Underwriters deem such
explanation unnecessary, and (ii) such changes, decreases or increases do
not, in your sole judgment, make it impracticable or inadvisable to proceed
with the purchase, sale and delivery of the Shares as contemplated by the
Registration Statement, as amended as of the date of such letter.
(f) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may
request for the purpose of enabling them to pass upon the issuance and sale
of the Shares as contemplated in this Agreement and the matters referred to
in Section 5(c) and in order to evidence the accuracy and completeness of
any of the representations, warranties or statements of the Company, the
performance of any of the covenants of the Company, or the fulfillment of
any of the conditions herein contained; and all proceedings taken by the
Company at or prior to the Closing Time in connection with the
authorization, issuance
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and sale of the Shares as contemplated in this Agreement shall be
reasonably satisfactory in form and substance to you and to counsel for the
Underwriters. The Company will furnish you with such number of conformed
copies of such opinions, certificates, letters and documents as you shall
reasonably request.
(g) The NASD, upon review of the terms of the public offering of the
Shares, shall not have objected to such offering, such terms or the
Underwriters' participation in the same.
(h) Subsequent to the date hereof, there shall not have occurred any
of the following: (i) there has occurred or accelerated any outbreak of
hostilities or other national or international calamity or crisis or change
in economic or political conditions the effect of which on the financial
markets of the United States is such as to make it, in your judgment,
impracticable to market the Shares or enforce contracts for the sale of the
Shares; (ii) trading in any securities of the Company has been suspended by
the Commission or by the Nasdaq National Market, or if trading generally on
the New York Stock Exchange or in the over-the-counter market has been
suspended, or limitations on prices for trading (other than limitations on
hours or numbers of days of trading) have been fixed, or maximum ranges for
prices for securities have been required, by such exchange or the NASD or
by order of the Commission or any other governmental authority; (iii) there
has been any downgrading in the rating of any of the Company's debt
securities or preferred stock by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the 1933
Act); (iv) a banking moratorium has been declared by federal or New York or
Tennessee authorities; (v) any federal or state statute, regulation, rule
or order of any court or other governmental authority has been enacted,
published, decreed or otherwise promulgated which in your reasonable
opinion materially adversely affects or will materially adversely affect
the business or operations of the Company; or (vi) any action has been
taken by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States.
If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by you on notice to the Company at any time at
or prior to the Closing Time, and such termination shall be without
liability of any party to any other party, except as provided in Section 4.
Notwithstanding any such termination, the provisions of Section 6 shall
remain in effect. The several obligations of the Underwriters to purchase
Option Shares hereunder are subject to the satisfaction on and as of any
Date of Delivery for Option Shares of the conditions set forth in this
Section 5, except that, if any Date of Delivery for Option Shares is other
than the Closing Time, the certificates, opinions and letters referred to
in paragraphs (b), (c), (d), (e) and (f) shall be revised to reflect the
sale of Option Shares.
Section 6. Indemnification and Contribution.
(a) The Company and each Shareholder, jointly and severally, shall
21
<PAGE>
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may
become subject under the 1933 Act, or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) (i) arise
out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in (A) any Preliminary Prospectus, the
Registration Statement, any 462(b) Registration Statement or the
Prospectus, or any amendment or supplement thereto, or (B) any application
or other document, or any amendment or supplement thereto, executed by the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify the Shares under the
securities or blue sky laws thereof or filed with the Commission or any
securities association or securities exchange (each an "Application"), or
(ii) arise out of or are based upon the omission or alleged omission to
state in any Preliminary Prospectus, the Registration Statement, any 462(b)
Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any Application a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
(i) neither the Company nor the Shareholders shall be liable in any such
case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement, any 462(b) Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter expressly for use therein; (ii) the liability of each
Shareholder to the Underwriters hereunder shall be limited to the
following amounts: J. Parker Conrad, $______; John P. Conrad, Jr.,
$______; Katherine Conrad Court, $______; The John Parker Conrad, Jr.
Trust, $______; The Glenn Alan Conrad Trust, $______; The Kenneth Charles
Conrad Trust, $______; The Daniel Thomas Conrad Trust, $______; The
Katherine Conrad Court Trust, $______; and The James Patrick Court Trust,
$______; and (iii) while notice of any claim under this Section 6(a) shall
be given by an indemnified party to each Shareholder in accordance with
Section 6(c), no such claim shall be pursued against any Shareholder so
long as each indemnified party has received the full benefit of compliance
by the Company with all of its obligations to each indemnified party
pursuant to this Section 6, including reimbursement for all losses, claims,
damages and liabilities of such indemnified party as they arise or are
incurred. The Company will also indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any breach of any representation, warranty
or covenant of the Company contained herein. In addition to its other
obligations under this Section 6(a), the Company agrees that, as an interim
measure during the pendency of any such claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section
6(a), it will reimburse the Underwriters on a monthly basis for all
reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations of
the Company to reimburse the Underwriters for such
22
<PAGE>
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction; provided, however, that
the obligation of the Company to make any such reimbursements shall be
subject to receipt from the Underwriters of an undertaking to return any
such reimbursements to the extent that it is determined by a court of
competent jurisdiction or an arbitrator appointed in accordance with
Section 6(d) that such indemnification of the Underwriters by the Company
is not permitted. Any such interim reimbursement payments that are not
made to an Underwriter within 30 days of receipt of a request for
reimbursement shall bear interest at the prime rate (or reference rate or
other commercial lending rate for borrowers of the highest credit standing)
published from time to time by The Wall Street Journal (the "Prime Rate")
from the date of such request. This indemnity agreement shall be in
addition to any liabilities that the Company may otherwise have. Neither
the Company, nor the Shareholders shall, without the prior written consent
of each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened action or claim or related cause of
action or portion of such cause of action in respect of which
indemnification may be sought hereunder (whether or not such Underwriter is
a party to such action or claim), unless such settlement, compromise or
consent includes an unconditional release of such Underwriter from all
liability arising out of such action or claim (or related cause of action
or portion thereof).
The indemnity agreement in this Section 6(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of each
person, if any, who controls any Underwriter within the meaning of the 1933
Act to the same extent such indemnity agreement applies to the
Underwriters.
(b) Each Underwriter, severally but not jointly, will indemnify and
hold harmless the Company and the Shareholders against any losses, claims,
damages or liabilities to which the Company and the Shareholders may become
subject, under the 1933 Act, or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any breach of any warranty or covenant by such Underwriter
herein contained or any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement, any 462(b) Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration
Statement, the 462(b) Registration Statement or the Prospectus or any such
amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by such Underwriter expressly
for use therein; and will reimburse the Company and the Shareholders for
any legal or other expenses reasonably incurred by either the Company or
the Shareholders in connection with investigating or defending any such
loss, claim, damage, liability or action. In addition to its other
obligations under this Section 6(b), the Underwriters agree that, as an
interim measure during the pendency of any such claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or
23
<PAGE>
any alleged statement or omission, described in this Section 6(b), they
will reimburse the Company or the Shareholders on a monthly basis for all
reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a determination by a
court of competent jurisdiction or an arbitrator appointed in accordance
with Section 6(d) as to the propriety and enforceability of their
obligation to reimburse either the Company or the Shareholders for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. Any such interim
reimbursement payments that are not made to the Company or the Shareholders
within 30 days of receipt of a request for reimbursement, and all
appropriate documentation, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement shall be in addition to any
liabilities that the Underwriters may otherwise have. No Underwriter will,
without the prior written consent of the Company and the Shareholders,
settle or compromise or consent to the entry of judgment in any pending or
threatened action or claim or related cause of action or portion of such
cause of action in respect of which indemnification may be sought hereunder
(whether or not the Company or the Shareholders are parties to such action
or claim), unless such settlement, compromise or consent includes an
unconditional release of the Company and the Shareholders from all
liability arising out of such action or claim (or related cause of action
or portion thereof).
The indemnity agreement in this Section 6(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
officer and director of the Company who signed the Registration Statement
and each person, if any, who controls the Company within the meaning of the
1933 Act to the same extent such indemnity agreement applies to the
Company.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; no
indemnification provided for in subsection (a) or (b) shall be available
to any party who shall fail to give notice as provided in this subsection
(c) if the party to whom notice was not given was unaware of the proceeding
to which such notice would have related and was prejudiced by the failure
to give such notice, but the omission so to notify the indemnifying party
will not relieve the indemnifying party from any liability that it may have
to any indemnified party otherwise than under Section 6. In case any such
action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party
(which consent shall not be unreasonably withheld), be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal or other expenses subsequently incurred by such
24
<PAGE>
indemnified party in connection with the defense thereof other than
reasonable costs of investigation, except that if the indemnified party has
been advised by counsel in writing that there are one or more defenses
available to the indemnified party which are different from or additional
to those available to the indemnifying party, then the indemnified party
shall have the right to employ separate counsel and in that event the
reasonable fees and expenses of such separate counsel for the indemnified
party shall be paid by the indemnifying party; provided, however, that the
indemnifying party shall only be obligated to pay the reasonable fees and
expenses of a single law firm (and any reasonably necessary local counsel)
employed by all of the indemnified parties. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Section 6(a) and (b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts
shall be apportioned among the indemnifying parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the
National Association of Securities Dealers, Inc. Any such arbitration must
be commenced by service of a written demand for arbitration or a written
notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 6(a) and (b) hereof and will not resolve
the ultimate propriety or enforceability of the obligation to indemnify for
expenses that is created by the provisions of Sections 6(a) and (b).
(e) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 6 is
for any reason judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the right of appeal) to be unenforceable by the
indemnified parties although applicable in accordance with its terms, the
Company and the Shareholders, on the one hand, and the Underwriters, on the
other hand, shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred
by the Company and the Shareholders, and one or more of the Underwriters,
as incurred, in such proportions that (a) the Underwriters are responsible
pro rata for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectus bears
to the aggregate public offering price (before deducting expenses)
appearing thereon, and (b) the Company and the Shareholders are responsible
for the balance; provided, however, that no person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation; provided, further, that if the
allocation provided above is not permitted by applicable law, the Company
and the
25
<PAGE>
Shareholders, on the one hand, and the Underwriters, on the other hand,
shall contribute to the aggregate losses in such proportion as is
appropriate to reflect not only the relative benefits referred to above but
also the relative fault of the Company and the Shareholders, on the one
hand, and the Underwriters, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company and the Shareholders, on the one hand,
or the Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Shareholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to
this Section 6(e) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Section 6(e). The amount paid or
payable by a party as a result of the losses, claims, damages or
liabilities referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending such action or claim. Notwithstanding the
provisions of this Section 6(e), (i) no Shareholder shall be required to
contribute any amount in excess of the aggregate amount of cash
distributions received by such Shareholder from the Company from and after
January 1, 1998 through and including the Closing Time and (ii) no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. The Underwriters' obligations in this Section 6(e) to contribute
are several in proportion to their respective underwriting obligations and
not joint. For purposes of this Section 6(e), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as such Underwriter, and each
officer and director of the Company who signed the Registration Statement,
and each person, if any, who controls the Company, within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as
the Company.
Section 7. Representations, Warranties and Agreements to Survive Delivery.
The representations, warranties, indemnities, agreements and other statements of
the Company or its respective officers set forth in or made pursuant to this
Agreement will remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or controlling person, and
will survive delivery of and payment for the Shares or termination of this
Agreement.
Section 8. Effective Date of Agreement and Termination.
(a) This Agreement shall become effective immediately as to Sections 4
and 6 and, as to all other provisions, (i) if at the time of execution of
this Agreement the
26
<PAGE>
Registration Statement has not become effective, at 10:00 a.m. New York,
New York time, on the first full business day following the effectiveness
of the Registration Statement, or (ii) if at the time of execution of this
Agreement the Registration Statement has been declared effective, at 10:00
a.m. New York, New York time on the first full business day following the
date of execution of this Agreement; but this Agreement shall nevertheless
become effective at such earlier time after the Registration Statement
becomes effective as you may determine on and by notice to the Company or
by release of any of the Shares for sale to the public. For the purposes of
this Section 8, the Shares shall be deemed to have been so released upon
the release of publication of any newspaper advertisement relating to the
Shares or upon the release by you of telegrams (i) advising the
Underwriters that the Shares are released for public offering, or (ii)
offering the Shares for sale to securities dealers, whichever may occur
first. By giving notice before the time this Agreement becomes effective,
you, as representative of the several Underwriters, or the Company, may
prevent this Agreement from becoming effective, without liability of any
party to any other party, except that the Company shall remain obligated to
pay costs and expenses to the extent provided in Section 4 hereof.
(b) You may terminate this Agreement, by notice to the Company, at any
time at or prior to the Closing Time (i) in accordance with the final
paragraph of Section 5 of this Agreement; (ii) if there has been since the
respective dates as of which information is given in the Registration
Statement, any material adverse change, or any development involving a
prospective material adverse change, in or affecting the business,
prospects, management, properties, assets, results of operations or
condition (financial or otherwise) of the Company, whether or not arising
in the ordinary course of business; (iii) if there has occurred or
accelerated any outbreak of hostilities or other national or international
calamity or crisis or change in economic or political conditions the effect
of which on the financial markets of the United States is such as to make
it, in your judgment, impracticable to market the Shares or enforce
contracts for the sale of the Shares; (iv) if trading in any securities of
the Company has been suspended by the Commission or by the Nasdaq National
Market or if trading generally on the New York Stock Exchange or in the
over-the-counter market has been suspended, or limitations on prices for
trading (other than limitations on hours or numbers of days of trading)
have been fixed, or maximum ranges for prices for securities have been
required, by such exchange or the NASD or by order of the Commission or any
other governmental authority; (v) if there has been any downgrading in the
rating of any of the Company's debt securities; preferred stock by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) of the 1933 Act Regulations); (vi) if a banking
moratorium has been declared by federal or New York or Tennessee
authorities; (vii) any federal or state statute, regulation, rule or order
of any court or other governmental authority has been enacted, published,
decreed or otherwise promulgated which in your reasonable opinion
materially adversely affects or will materially adversely affect the
business or operations of the Company; or (viii) any action has been taken
by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States.
(c) If this Agreement is terminated pursuant to this Section 8, such
27
<PAGE>
termination shall be without liability of any party to any other party,
except to the extent provided in Section 4. Notwithstanding any such
termination, the provisions of Section 6 shall remain in effect.
Section 9. Default by One or More of the Underwriters. If one or more of
the Underwriters shall fail at the Closing Time to purchase the Shares that it
or they are obligated to purchase pursuant to this Agreement (the "Defaulted
Securities"), you shall have the right, within 36 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms set forth in
this Agreement; if, however, you have not completed such arrangements within
such 36-hour period, then:
(a) If the aggregate number of Firm Shares which are Defaulted
Securities does not exceed 10% of the aggregate number of Firm Shares to be
purchased pursuant to this Agreement, the non-defaulting Underwriters shall
be obligated to purchase the full amount thereof in the proportions that
their respective underwriting obligation proportions bear to the
underwriting obligations of all non-defaulting Underwriters; and
(b) If the aggregate number of Firm Shares which are Defaulted
Securities exceeds 10% of the aggregate number of Firm Shares to be
purchased pursuant to this Agreement, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section 9 shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default that does not result in a termination of
this Agreement, either you or the Company shall have the right to postpone the
Closing Time for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus that
may thereby be made necessary.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 9.
Section 10. Default by the Company. If the Company shall fail at the
Closing Time to sell and deliver the aggregate number of Firm Shares that it is
obligated to sell, then this Agreement shall terminate without any liability on
the part of any non-defaulting party, except to the extent provided in Section 4
and except that the provisions of Section 6 shall remain in effect.
No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect to such default.
Section 11. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or
28
<PAGE>
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed c/o Morgan Keegan & Company, Inc., 50 Front
Street, Memphis, Tennessee 38103, Attention: Mike Harris (with a copy sent in
the same manner to Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., 201 St. Charles Avenue, 51st Floor, New Orleans, Louisiana 70170,
Attention: L.R. McMillan, II; and notices to the Company shall be directed to it
at Post Office Box 790, Morgan City, Louisiana 70381, Attention William H.
Hidalgo, Sr. (with a copy sent in the same manner to Andrews & Kurth L.L.P.,
4200 Texas Commerce Tower, 600 Travis, Suite 4200, Houston, Texas 77002
Attention: Thomas P. Mason).
Section 12. Parties. This Agreement is made solely for the benefit of and
is binding upon the Underwriters, the Company and, to the extent provided in
Section 6, the Shareholders, any person controlling the Company or any of the
Underwriters, the officers and directors of the Company who have signed the
Registration Statement, and their respective executors, administrators,
successors and assigns. Subject to the provisions of Section 6, no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from any of the several Underwriters of the Shares.
All of the obligations of the Underwriters hereunder are several and not
joint.
Section 13. Governing Law and Time. This Agreement shall be governed by
the laws of the State of Tennessee. Specified time of the day refers to United
States Eastern Time. Time shall be of the essence of this Agreement.
Section 14. Counterparts. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
[LEFT BLANK INTENTIONALLY]
29
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, and upon the acceptance
hereof by Morgan Keegan & Company, Inc., on behalf of each of the Underwriters,
this instrument will become a binding agreement among the Company, and the
several Underwriters in accordance with its terms. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in the Master Agreement among Underwriters, a copy of
which shall be submitted to the Company for examination, upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
CONRAD INDUSTRIES, INC.
By:_____________________________
Name:___________________________
Title:__________________________
The undersigned Shareholders of Conrad Industries, Inc. do hereby join in
this Underwriting Agreement solely for the purposes of the agreements set forth
in Section 6 hereof.
SHAREHOLDERS:
-----------------------------
J. Parker Conrad
-----------------------------
John P. Conrad, Jr.
-----------------------------
Katherine Conrad Court
-----------------------------
Cecil A. Hernandez
30
<PAGE>
--------------------------------
William H. Hidalgo
THE JOHN PARKER CONRAD, JR. TRUST
--------------------------------
By: John P. Conrad, Jr., Trustee
THE GLENN ALAN CONRAD TRUST
--------------------------------
By: John P. Conrad, Jr., Trustee
THE KENNETH CHARLES CONRAD TRUST
--------------------------------
By: John P. Conrad, Jr., Trustee
THE DANIEL THOMAS CONRAD TRUST
--------------------------------
By: John P. Conrad, Jr., Trustee
THE KATHERINE CONRAD COURT TRUST
--------------------------------
By: Katherine Conrad Court, Trustee
31
<PAGE>
JAMES PATRICK COURT TRUST
-----------------------------------
By: Katherine Conrad Court, Trustee
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first written above:
Morgan Keegan & Company, Inc.
Raymond James & Associates, Inc.
By:____________________________
(Authorized Representative)
On behalf of the Underwriters
32
<PAGE>
SCHEDULE A
Number of
Firm Shares
Underwriter to be Purchased
- ----------- ---------------
Morgan Keegan & Company, Inc...........................
Raymond James & Associates, Inc........................
Total........................................
33
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CONRAD INDUSTRIES, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for the conduct of the business and promotion of the purposes
hereinafter stated, under the provisions of and subject to the requirements of
the laws of the State of Delaware, hereby certifies that:
FIRST: The name of the corporation is:
Conrad Industries, Inc.
SECOND: The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of the registered agent of the corporation at such address is
The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 25,000,000, of which 5,000,000
shares shall be Preferred Stock, par value $0.01 per share, and 20,000,000
shares shall be Common Stock, par value $0.01 per share.
A. Preferred Stock. (1) Preferred Stock may be issued from time to time
in one or more series and in such amounts as may be determined by the Board
of Directors. The voting powers, designations, preferences and relative,
participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if any, of the
Preferred Stock of each series shall be such as are fixed by the Board of
Directors, authority so to do being hereby expressly granted, and as are
stated and expressed in a resolution or resolutions adopted by the Board of
Directors providing for the issue of such series of Preferred Stock (herein
called the "Directors' Resolution"). The Directors' Resolution as to any
series shall (a) establish the number of shares constituting, and the
distinctive designation of, that series, (b) fix the dividend rate, if any,
of the shares of such series, the payment dates for dividends on shares of
such series and the date or dates, or the method of determining the date or
dates, if any, from which dividends on shares of such series shall be
cumulative, (c) fix the amount or amounts payable on shares of such series
upon voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, (d) state the price or prices or rate or rates,
and adjustments, if any, at which, the time or times and the terms and
conditions upon which, the shares of such series may be redeemed at the
option of the Corporation or at the option of the holder or holders of
shares of such series or upon the occurrence of a specified event, and
state whether such shares may be redeemed for cash, property or rights,
including securities of the Corporation or another entity; and such
Directors' Resolution may
<PAGE>
(i) limit the number of shares of such series that may be issued, (ii)
provide for a sinking fund for the purchase or redemption of shares of such
series and specify the terms and conditions governing the operations of any
such fund, (iii) grant voting rights to the holders of shares of such
series, provided that each share shall not have more than one vote per
share, (iv) impose conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issuance of additional
Preferred Stock or other capital stock ranking on a parity therewith, or
prior thereto, with respect to dividends or distribution of assets upon
liquidation, (v) impose conditions or restrictions upon the payment of
dividends upon, or the making of other distributions to, or the acquisition
of, shares ranking junior to the Preferred Stock or to any series thereof
with respect to dividends or distributions of assets upon liquidation, (vi)
state the time or times, the price or prices or the rate or rates of
exchange and other terms, conditions and adjustments upon which shares of
any such series may be made convertible into, or exchangeable for, at the
option of the holder or the Corporation or upon the occurrence of a
specified event, shares of any other class or classes or of any other
series of Preferred Stock or any other class or classes of stock or other
securities of the Corporation, and (vii) grant such other special rights
and impose such qualifications, limitations or restrictions thereon as
shall be fixed by the Board of Directors, to the extent not inconsistent
with this Article FOURTH and to the full extent now or hereafter permitted
by the laws of the State of Delaware.
(2) Except as expressly provided by law, or except as may be provided in
any Directors' Resolution, the Preferred Stock shall have no right or power
to vote on any question or in any proceeding or to be represented at, or to
receive notice of, any meeting of stockholders of the Corporation.
(3) Preferred Stock that is redeemed, purchased or retired by the
Corporation shall assume the status of authorized but unissued Preferred
Stock and may thereafter, subject to the provisions of any Directors'
Resolution providing for the issue of any particular series of Preferred
Stock, be reissued in the same manner as authorized but unissued Preferred
Stock.
B. Common Stock. All shares of the Common Stock of the Corporation shall
be identical and except as otherwise required by law or as otherwise
provided in the Directors' Resolution or Resolutions, if any, adopted by
the Board of Directors with respect to any series of Preferred Stock, the
holders of the Common Stock shall exclusively possess all voting power, and
each share of Common Stock shall have one vote.
FIFTH: The business and affairs of the Corporation shall be managed and
controlled by its Board of Directors. The number of directors constituting the
Board of Directors shall be fixed by the Board of Directors, but shall not be
less than three or more than 15. The directors shall be divided into three
classes, designated Class I, Class II and Class III. The initial term for
directors in Class I shall expire at the annual meeting of stockholders to be
held in 1999; the initial term for directors in Class II shall expire at the
annual meeting of stockholders to be held in 2000; and the
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initial term for directors in Class III shall expire at the annual meeting of
stockholders to be held in 2001.
At the expiration of the initial term of each class of directors, and of
each succeeding term of each class, each class of directors shall be elected to
serve until the annual meeting of stockholders held three years from such
expiration and until their successors are elected and qualified or until their
earlier death, resignation, removal or retirement. Any increase or decrease in
the number of directors constituting the Board shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly as
possible to one-third the whole number of directors as so adjusted. Any director
elected or appointed to fill a vacancy shall hold office for the remaining term
of the class to which such directorship is assigned. No decrease in the number
of directors constituting the Corporation's Board of Directors shall shorten the
term of any incumbent director. Any vacancy in the Board of Directors, whether
arising through death, resignation or removal of a director, or through an
increase in the number of directors of any class, shall be filled by the
majority vote of the remaining directors. The Bylaws may contain any provision
regarding classification of the Corporation's directors not inconsistent with
the terms hereof.
A director of the Corporation may be removed only for cause and only upon
the affirmative vote of the holders of a majority of the outstanding capital
stock of the Corporation entitled to vote at an election of directors, subject
to further restrictions on removal, not inconsistent with this Article FIFTH, as
may be contained in the Bylaws.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH unless expressly provided by such terms.
SIXTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The Board of Directors is authorized to alter, amend or repeal the
Bylaws or adopt new Bylaws of the Corporation. The stockholders shall not
repeal or change the Bylaws of the Corporation unless such repeal or change
is approved by the affirmative vote of the holders of not less than 80% of
the total voting power of all shares of stock of the Corporation entitled
to vote in the election of directors, considered for the purposes of this
paragraph A as a single class.
B. Election of directors need not be by written ballot unless the Bylaws
so provide.
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C. In addition to the powers herein or by statute expressly conferred upon
the Corporation's directors, the Corporation's directors are hereby
empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to the
provisions of the statutes of Delaware, this Certificate of Incorporation,
and any Bylaws adopted by the stockholders; provided, however, that no
Bylaws hereafter adopted shall invalidate any prior act of the directors
which would have been valid if such Bylaws had not been adopted.
D. Any vote or votes authorizing liquidation of the Corporation or
proceedings for its dissolution may provide, subject to (i) any agreements
among and between stockholders, (ii) the rights of creditors and (iii)
rights expressly provided for particular classes or series of stock, for
the distribution pro rata among the stockholders of the Corporation of
assets of the Corporation, wholly or in part in kind, whether such assets
be in cash or other property, and may authorize the Board of Directors of
the Corporation to determine the value of the different assets of the
Corporation for the purpose of such liquidation and may divide, or
authorize the Board of Directors of the Corporation to divide, such assets
or any part thereof among the stockholders of the Corporation in such
manner that every stockholder will receive a proportionate amount in value
(determined as aforesaid) of cash or property of the Corporation upon such
liquidation or dissolution even though each stockholder may not receive a
strictly proportionate part of each such asset.
E. Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon
liquidation to elect additional directors under specific circumstances:
(1) any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing of such stockholders;
(2) special meetings of the stockholders of the Corporation may
be called only by the Chairman of the Board of Directors and shall be
called within ten (10) days after the written request, or by
resolution adopted by the affirmative vote, of a majority of the Board
of Directors; and
(3) the business permitted to be conducted at any special meeting
of the stockholders is limited to the business brought before the
meeting by the Chairman or by the Secretary at the request of a
majority of the Board of Directors.
SEVENTH: The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
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<PAGE>
EIGHTH: The Board of Directors is hereby authorized to create and issue,
whether or not in connection with the issuance and sale of any of its stock or
other securities, rights (the "Rights") entitling the holders thereof to
purchase from shares of capital stock or other securities of the Corporation.
The times at which and the terms upon which the Rights are to be issued will be
determined by the Board of Directors and set forth in the contracts or
instruments that evidence the Rights. The authority of the Board of Directors
with respect to the Rights shall include, but not be limited to, determination
of the following:
(a) the initial purchase price per share of the capital stock or other
securities of the Corporation to be purchased upon exercise of the Rights;
(b) provisions relating to the times at which and the circumstances under
which the Rights may be exercised or sold or otherwise transferred, either
together with or separately from, any other securities of the Corporation.
(c) provisions that adjust the number or exercise price of the Rights or
amount or nature of the securities or other property receivable upon
exercise of the Rights in the event of a combination, split or
recapitalization of any capital stock of the Corporation, a change in
ownership of the Corporation's securities or a reorganization, merger,
consolidation, sale of assets or other occurrence relating to the
Corporation or any capital stock of the Corporation, and provisions
restricting the ability of the Corporation to enter into any such
transaction absent an assumption by the other party or parties thereto of
the obligations of the Corporation under such Rights.
(d) provisions that deny the holder of a specified percentage of the
outstanding securities of the Corporation the right to exercise the Rights
and/or cause the Rights held by such holder to become void;
(e) provisions that permit the Corporation to redeem the Rights;
(f) the appointment of one or more agents to take specified actions on
behalf of the Corporation with respect to the Rights; and
(g) such other provisions relating to the Rights as may be determined by
the Board of Directors.
NINTH: 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
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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.
TENTH: The provisions set forth in this Article TENTH and Articles FIFTH,
SIXTH, EIGHTH and NINTH hereof may not be amended, altered, changed, repealed or
rescinded in any respect unless such action is approved by the affirmative vote
of the holders of not less than 80 percent of the total voting power of all
shares of stock of the Corporation entitled to vote in the election of
directors, considered for purposes of this Article TENTH as a single class. The
voting requirements contained in this Article TENTH and in Article SIXTH hereof
shall be in addition to voting requirements imposed by law, other provisions of
this Certificate of Incorporation or any designation of preferences in favor of
certain classes or series of shares of capital stock of the Corporation.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
(S)291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
(S)279 of Title 8 of the Delaware Code order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
TWELFTH: The corporation is to have perpetual existence.
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<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been executed for and on behalf of the Corporation by its officers thereunto
duly authorized as of ___________, 1998.
-------------------------------------
William H. Hidalgo
President and Chief Executive Officer
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<PAGE>
AMENDED AND RESTATED
B Y L A W S
OF
CONRAD INDUSTRIES, INC.
DATED: ____________, 1998
<PAGE>
I N D E X
PAGE
ARTICLE 1 OFFICES
Section 1.1 Principal Office.......................................... 1
Section 1.2 Registered Office......................................... 1
Section 1.3 Other Offices............................................. 1
ARTICLE II STOCKHOLDERS' MEETINGS
Section 2.1 Annual Meeting............................................ 1
Section 2.2 Special Meetings.......................................... 2
Section 2.3 Notice of Meetings and Adjourned Meetings................. 2
Section 2.4 Voting Lists.............................................. 3
Section 2.5 Quorum.................................................... 4
Section 2.6 Organization.............................................. 4
Section 2.7 Voting.................................................... 5
Section 2.8 Authorization of Proxies.................................. 6
Section 2.9 Stockholders Entitled to Vote............................. 7
Section 2.10 Order of Business......................................... 7
Section 2.11 Action by Written Consent................................. 7
Section 2.12 Inspectors of Election.................................... 7
Section 2.13 Notice of Stockholder Nominees............................ 8
Section 2.14 Stockholder Proposals..................................... 10
ARTICLE III DIRECTORS
Section 3.1 Management................................................ 12
Section 3.2 Number and Term........................................... 12
Section 3.3 Quorum and Manner of Action............................... 13
Section 3.4 Vacancies................................................. 14
Section 3.5 Resignations.............................................. 14
Section 3.6 Removals.................................................. 15
Section 3.7 Annual Meetings........................................... 15
Section 3.8 Regular Meetings.......................................... 15
Section 3.9 Special Meetings.......................................... 15
Section 3.10 Organization of Meetings.................................. 16
Section 3.11 Place of Meetings......................................... 16
Section 3.12 Compensation of Directors................................. 16
Section 3.13 Action by Unanimous Written Consent....................... 17
Section 3.14 Participation in Meetings by Telephone.................... 17
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Section 3.15 Election of Directors by Class Vote of Holders
of Preferred Stock...................................... 17
ARTICLE IV COMMITTEES OF THE BOARD
Section 4.1 Membership and Authorities................................ 18
Section 4.2 Minutes................................................... 18
Section 4.3 Vacancies................................................. 19
Section 4.4 Telephone Meetings........................................ 19
Section 4.5 Action Without Meeting.................................... 19
ARTICLE V OFFICERS
Section 5.1 Number and Title.......................................... 20
Section 5.2 Term of Office; Vacancies................................. 20
Section 5.3 Removal of Elected Officers............................... 20
Section 5.4 Resignations.............................................. 20
Section 5.5 The Chairman of the Board................................. 21
Section 5.6 Chief Executive Officer................................... 21
Section 5.7 President................................................. 22
Section 5.8 Vice Presidents........................................... 23
Section 5.9 Secretary................................................. 24
Section 5.10 Assistant Secretaries..................................... 24
Section 5.11 Treasurer................................................. 25
Section 5.12 Assistant Treasurers...................................... 25
Section 5.13 Subordinate Officers; Agents.............................. 26
Section 5.14 Salaries and Compensation................................. 26
ARTICLE VI INDEMNIFICATION
Section 6.1 Indemnification of Directors and Officers................. 26
ARTICLE VII CAPITAL STOCK
Section 7.1 Certificates of Stock..................................... 31
Section 7.2 Lost Certificates......................................... 32
Section 7.3 Fixing Date for Determination of Stockholders
of Record for Certain Purposes.......................... 32
Section 7.4 Dividends................................................. 33
Section 7.5 Registered Stockholders................................... 33
Section 7.6 Transfer of Stock......................................... 33
Section 7.7 Stock Options, Warrants, Etc.............................. 34
ARTICLE VIII MISCELLANEOUS PROVISIONS
Section 8.1 Corporate Seal............................................ 34
Section 8.2 Fiscal Year............................................... 35
Section 8.3 Checks, Drafts, Notes..................................... 35
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Section 8.4 Corporate Contracts and Instruments....................... 35
Section 8.5 Notice and Waiver of Notice............................... 35
Section 8.6 Examination of Books and Records.......................... 36
Section 8.7 Voting Upon Shares Held by the Corporation................ 36
ARTICLE IX AMENDMENTS
Section 9.1 Amendment................................................. 37
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CONRAD INDUSTRIES, INC.
B Y L A W S
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the Corporation
shall be in Morgan City, Louisiana.
SECTION 1.2 REGISTERED OFFICE. The registered office and registered
agent of the Corporation required to be maintained in the State of Delaware by
the General Corporation Law of the State of Delaware (the "DGCL") shall be as
designated from time to time by the appropriate filing by the Corporation in the
office of the Secretary of State of the State of Delaware.
SECTION 1.3 OTHER OFFICES. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the holders of shares
of each class or series of stock as are entitled to notice thereof and to vote
thereat pursuant to applicable law and the Corporation's certificate of
incorporation, as amended and in effect from time to time (the "Certificate of
Incorporation") for the purpose of electing directors and transacting such other
proper
<PAGE>
business as may come before it shall be held at such time and at such place,
within or without the State of Delaware, as may be designated by the Board of
Directors.
SECTION 2.2 SPECIAL MEETINGS. In addition to such special meetings as are
provided by law or the Certificate of Incorporation, special meetings of the
holders of any class or series or of all classes or series of the Corporation's
stock for any purpose or purposes, may be called at any time by the Chairman of
the Board of Directors and shall be called by the Secretary within ten (10) days
after the written request, or by resolution adopted by the affirmative vote, of
a majority of the Board of Directors, which request shall fix the date, time and
place (within or without the State of Delaware), and state the purpose or
purposes of the proposed meeting. Except to the extent specified in the
Corporation's Certificate of Incorporation or the resolutions of the Board of
Directors creating any class or series of preferred stock of the Corporation,
Stockholders of the Corporation may not call a special meeting. The business
permitted to be conducted at any special meeting of the stockholders is limited
to the business brought before the meeting by the Chairman or by the Secretary
at the request of a majority of the Board of Directors
SECTION 2.3 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Except as
otherwise provided by law, written notice of any meeting of Stockholders shall
be given either by personal delivery or by mail to each Stockholder of record
entitled to vote thereat. Notice of each meeting shall be in such form as is
approved by the Board of Directors and shall state the date, place and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, such written
notice shall be given not less than 10 nor more than 60 days before the date of
the meeting. Except when a Stockholder attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business
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on the grounds that the meeting is not lawfully called or convened, presence in
person or by proxy of a Stockholder shall constitute a waiver of notice of such
meeting. Further, a written waiver of any notice required by law or by these
Bylaws, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Except as otherwise
provided by law, the business that may be transacted at any such meeting shall
be limited to and consist of the purpose or purposes stated in such notice. If a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each Stockholder of record entitled to vote at the meeting.
SECTION 2.4 VOTING LISTS. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least 10 days
before each meeting of the Stockholders, a complete list of Stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of each and the number of shares held by
each, which list, for a period of 10 days prior to such meeting, shall be kept
on file either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held, and such list shall be subject to
inspection by the Stockholders at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any Stockholder for the duration of
the meeting. The original stock transfer books shall be prima-facie evidence as
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to who are the Stockholders entitled to examine such list or transfer books or
to vote at any meeting of Stockholders.
SECTION 2.5 QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the Corporation's
stock issued and outstanding and entitled to vote at a meeting, present in
person or represented by proxy, without regard to class or series, shall
constitute a quorum at all meetings of the Stockholders for the transaction of
business. If, however, such quorum shall not be present or represented at any
meeting of the Stockholders, the Chairman of the Board of Directors or other
person presiding over such meeting or the holders of a majority of such shares
of stock, present in person or represented by proxy, may adjourn any meeting
from time to time without notice other than announcement at the meeting, except
as otherwise required by these Bylaws, until a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally called. A holder of a share of the Corporation's
capital stock shall be treated as being present or represented at a meeting if
such holder is (i) present in person at the meeting or (ii) represented at the
meeting by a valid proxy, regardless of whether the instrument granting the
proxy is marked as casting a vote or abstaining, is left blank or does not
empower such proxy to vote with respect to some or all matters to be voted upon
at the meeting.
SECTION 2.6 ORGANIZATION. Meetings of the Stockholders shall be presided
over by the Chairman of the Board of Directors, if one shall be elected, or in
his absence, by the Chief Executive Officer, the President or by any Senior Vice
President, or, in the absence of any of such officers, by a chairman to be
chosen by a majority of the Stockholders entitled to vote at the meeting who are
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<PAGE>
present in person or by proxy. The Secretary, or, in his absence, any Assistant
Secretary or any person appointed by the individual presiding over the meeting,
shall act as secretary at meetings of the Stockholders.
SECTION 2.7 VOTING. Each Stockholder of record, as determined pursuant to
Section 2.9, who is entitled to vote in accordance with the terms of the
Certificate of Incorporation and in accordance with the provisions of these
Bylaws, shall, except to the extent specified in the Certificate of
Incorporation or any resolution adopted by the Board of Directors to establish
any series of Preferred Stock of the Corporation, be entitled to one vote, in
person or by proxy, for each share of stock registered in his name on the books
of the Corporation. Every Stockholder entitled to vote at any Stockholders'
meeting may authorize another person or persons to act for him by proxy duly
appointed by instrument in writing subscribed by such Stockholder and executed
not more than three years prior to the meeting, unless the proxy provides for a
longer period. Each proxy shall be revocable unless it expressly states therein
that it is irrevocable and, only so long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A Stockholder's attendance
at any meeting, when such Stockholder has theretofore given a proxy, shall not
have the effect of revoking such proxy unless such Stockholder shall in writing
so notify the Secretary of the meeting prior to the voting of the proxy.
Unless otherwise provided by law, no vote on the election of directors or any
question brought before the meeting need be by ballot unless the chairman of the
meeting shall determine that it shall be by ballot or the holders of a majority
of the shares of stock present in person or by proxy and entitled to participate
in such vote shall so demand. In a vote by ballot, each ballot shall state the
number of shares voted and the name of the Stockholder or proxy voting. Except
as otherwise provided by law, by the Certificate of Incorporation or these
Bylaws, (i) action
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on a matter (other than the election of directors) shall be approved if the
votes cast by holders of shares of stock present and entitled to vote on the
matter at a meeting at which a quorum is present in favor of the matter exceed
the votes cast opposing the matter and (ii) directors shall be elected by a
plurality of the votes cast by the holders of shares present and entitled to
vote in the election at a meeting at which a quorum is present. In the election
of directors, votes may not be cumulated. In determining the number of votes
cast, shares abstaining from voting or not voted on a matter (including director
elections) will not be treated as votes cast.
SECTION 2.8 AUTHORIZATION OF PROXIES. Without limiting the manner in
which a Stockholder may authorize another person or persons to act for him as
proxy, the following are valid means of granting such authority. A Stockholder
may execute a writing authorizing another person or persons to act for him as
proxy. Execution may be accomplished by the Stockholder or his authorized
officer, director, employee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means including, but
not limited to, by facsimile signature. A Stockholder may also authorize
another person or persons to act for him as proxy by transmitting or authorizing
the transmission of a telegram, cablegram or other means of electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the Stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
writing or
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transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 2.9 STOCKHOLDERS ENTITLED TO VOTE. The Board of Directors may fix
a date not more than 60 days nor less than 10 days prior to the date of any
meeting of Stockholders as a record date for the determination of the
Stockholders entitled to notice of and to vote at such meeting and any
adjournment thereof, and in such case such Stockholders and only such
Stockholders as shall be Stockholders of record on the date so fixed shall be
entitled to notice of and to vote at, such meeting and any adjournment thereof
notwithstanding any transfer of any stock on the books of the Corporation after
such record date fixed as aforesaid.
SECTION 2.10 ORDER OF BUSINESS. The order of business at all meetings of
Stockholders shall be as determined by the chairman of the meeting or as is
otherwise determined by the vote of the holders of a majority of the shares of
stock present in person or by proxy and entitled to vote without regard to class
or series at the meeting.
SECTION 2.11 ACTION BY WRITTEN CONSENT. Any action required or permitted
to be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation and may not
be effected by any consent in writing of such stockholders.
SECTION 2.12 INSPECTORS OF ELECTION. Before any meeting of Stockholders,
the Board of Directors may, and if required by law shall, appoint one or more
persons to act as inspectors of election at such meeting or any adjournment
thereof. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and if required by law or
requested by any Stockholder entitled to vote or his proxy shall, appoint a
substitute inspector. If no inspectors
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are appointed by the Board of Directors, the chairman of the meeting may, and if
required by law or requested by any Stockholder entitled to vote or his proxy
shall, appoint one or more inspectors at the meeting. Notwithstanding the
foregoing, inspectors shall be appointed consistent with Section 231 of the
DGCL. Inspectors may include individuals who serve the Corporation in other
capacities (including as officers, employees, agents or representatives);
provided, however, that no director or candidate for the office of director
shall act as an inspector. Inspectors need not be Stockholders. The inspectors
shall (i) determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum and the validity and effect of proxies
and (ii) receive votes or ballots, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes and ballots, determine the results and do such acts as are proper to
conduct the election or vote with fairness to all Stockholders. On request of
the chairman of the meeting, the inspectors shall make a report in writing of
any challenge, request or matter determined by them and shall execute a
certificate of any fact found by them. The inspectors shall have such other
duties as may be prescribed by Section 231 of the DGCL.
SECTION 2.13 NOTICE OF STOCKHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 2.13 shall
be eligible for election as directors of the Corporation. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of the Corporation's Stockholders (a) by or at the direction of the
Board of Directors or (b) by any Stockholder of the Corporation entitled to vote
for the election of directors at such meeting who complies with the procedures
set forth in this Section 2.13. All nominations by Stockholders shall be made
pursuant to timely notice in proper written form submitted to the
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Secretary of the Corporation. To be timely, a Stockholders' notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the anniversary
of the annual meeting held for the immediately preceding year (provided,
however, that if no annual meeting was held in the previous year or the date of
the annual meeting of Stockholders has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, the notice must be received by the Corporation at least 45 days prior
to the date the Corporation intends to distribute its proxy statement with
respect to such meeting) or, in the case of a special meeting at which directors
are to be elected and for which less than 40 days' notice or prior public
disclosure of the date of the meeting is given or made to Stockholders, notice
by the Stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. To be in proper
written form, such Stockholder's notice to the Secretary shall set forth in
writing (a) as to each person whom such Stockholder proposes to nominate for
election or re-election as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected; and (b) as to such
Stockholder (i) the name and address, as they appear on the Corporation's books,
and principal occupation of such Stockholder, (ii) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
Stockholder and the dates upon which such Stockholder acquired such shares and
documentary support for any claims of beneficial ownership, and (iii) a
description
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of all agreements, arrangements or understandings between such Stockholder and
each such person that such Stockholder proposes to nominate as a director and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by such Stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a director shall furnish to the Secretary of the Corporation that
information required to be set forth in a Stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director unless nominated in accordance with the procedures set forth in these
Bylaws of the Company. The chairman of the Stockholder's meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the procedures prescribed by these Bylaws of the
Company, and if he shall so determine, he shall announce such determination to
the meeting and the defective nomination shall be disregarded.
SECTION 2.14 STOCKHOLDER PROPOSALS. At any special meeting of the
Corporation's Stockholders, only such business shall be conducted as shall have
been brought before the meeting by or at the direction of the Board of
Directors. At any annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (a) by or at the
direction of the Board of Directors or (b) by any Stockholder who complies with
the procedures set forth in this Section 2.14; provided, however, that nothing
in this Section 2.14 shall be deemed to preclude discussion by any Stockholder
of any business properly brought before any annual meeting of Stockholders in
accordance with such procedures. For business properly to be brought before an
annual meeting by a Stockholder, the Stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation. To be
timely, a Stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than
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60 days nor more than 90 days prior to the anniversary of the annual meeting
held for the immediately preceding year (provided, however, that if no annual
meeting was held in the previous year or the date of the annual meeting of
Stockholders has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, the notice must
be received by the Corporation at least 45 days prior to the date the
Corporation intends to distribute its proxy statement with respect to such
meeting). To be in proper written form, such Stockholder's notice to the
Secretary shall set forth in writing as to each matter such Stockholder proposes
to bring before the annual meeting (a) a brief description of the business
desired to be brought before the annual meeting, including the exact text of any
proposal to be presented for adoption and any supporting statement (which shall
not exceed 500 words in the aggregate), and such Stockholder's reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, and principal occupation of such
Stockholder, (c) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such Stockholder and the dates upon which
such Stockholder acquired such shares and documentary support for any claims of
beneficial ownership, and (d) any material interest of such Stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2.14 and the foregoing rights of a Stockholder to
propose business for consideration at an annual meeting of Stockholders shall be
subject to such conditions, restrictions and limitations as may be imposed by
the Certificate of Incorporation. The chairman of an annual stockholder's
meeting shall, if the facts warrant, determine and declare to the meeting that
business is not properly brought before the meeting in accordance with the
provisions of this Section 2.14, and, if he should so determine, he
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shall so announce such determination to the meeting and any such business not
properly brought before the meeting shall not be transacted. Notwithstanding any
other provision of these Bylaws, the Corporation shall be under no obligation to
include any Stockholder proposal in its proxy statement material or otherwise
present any such proposal to Stockholders at a meeting of Stockholders if the
Board of Directors reasonably believes that the proponents thereof have not
complied with Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, and the
Corporation shall not be required to include in its proxy statement material to
Stockholders any Stockholder proposal not required to be included in its proxy
statement to Stockholders in accordance with such act, rules or regulations.
ARTICLE III
DIRECTORS
SECTION 3.1 MANAGEMENT. The property, affairs and business of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all powers of the Corporation and do all lawful acts and
things as are not by law, by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the Stockholders.
SECTION 3.2 NUMBER AND TERM. The Board of Directors shall be classified
in accordance with the Certificate of Incorporation and the actual number of
directors constituting the entire Board of Directors shall be fixed from time to
time by resolution of the Board of Directors adopted by the affirmative vote of
a majority of the members of the entire Board of Directors, but shall consist of
not less than three nor more than 15 members, one-third of whom shall be elected
each year by the Stockholders except as provided in Section 3.4. The Board of
Directors shall have sole authority to determine the number of directors, within
the limits set forth above, and may increase or decrease
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the exact number of directors from time to time by resolution duly adopted by
the affirmative vote of a majority of the entire Board of Directors. Such
increases and decreases shall be apportioned among the classes of directors so
that all classes will be as nearly equal in number as possible. Directors need
not be Stockholders. No decrease in the number of directors shall have the
effect of shortening the term of office of any incumbent director.
SECTION 3.3 QUORUM AND MANNER OF ACTION. At all meetings of the Board of
Directors a majority of the total number of directors holding office shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
law, by the Certificate of Incorporation or by these Bylaws. When the Board of
Directors consists of one director, the one director shall constitute a majority
and a quorum. If at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum is obtained, and no further notice thereof need be
given other than by announcement at such adjourned meeting. Attendance by a
director at a meeting shall constitute a waiver of notice of such meeting except
where a director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened. A Director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to such action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as Secretary of the meeting before
the adjournment thereof or shall forward any dissent by certified or registered
mail
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to the Secretary immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any Director who voted in favor of such action.
SECTION 3.4 VACANCIES. Except as otherwise provided by law and the
Certificate of Incorporation, in the case of any increase in the authorized
number of directors or of any vacancy in the Board of Directors, however
created, the additional director or directors may be elected, or, as the case
may be, the vacancy or vacancies shall be filled by majority vote of the
directors remaining on the whole Board of Directors although less than a quorum,
or by a sole remaining director. In the event one or more directors shall
resign, effective at a future date, such vacancy or vacancies shall be filled by
a majority of the directors who will remain on the whole Board of Directors,
although less than a quorum, or by a sole remaining director. Any director
elected or chosen as provided herein shall serve until the sooner of (i) the
unexpired term of the directorship to which he is appointed; or (ii) until his
successor is elected and qualified; or (iii) until his earlier resignation or
removal. If, as a result of a disaster or emergency (as determined in good
faith by the then remaining Directors), it becomes impossible to ascertain
whether or not vacancies exist on the Board of Directors and a person is or
persons are elected by the Directors, who in good faith believe themselves to be
a majority of the remaining Directors, to fill a vacancy or vacancies that such
remaining Directors in good faith believe exists, then the acts of such person
or persons who are so elected as Directors shall be valid and binding upon the
Corporation and the Stockholders, although it may subsequently develop that at
the time of the election (i) there was in fact no vacancy or vacancies existing
on the Board of Directors or (ii) the directors who so elected such person or
persons did not in fact constitute a majority of the remaining Directors.
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SECTION 3.5 RESIGNATIONS. A director may resign at any time upon written
notice of resignation to the Corporation, delivered to the Secretary. Any
resignation shall be effective immediately unless a certain effective date is
specified therein, in which event it will be effective upon such date and
acceptance of any resignation shall not be necessary to make it effective.
SECTION 3.6 REMOVALS. Any director or the entire Board of Directors may
be removed before the expiration of such Director's term of office only for
cause, and another person or persons may be elected to serve for the remainder
of his or their term, and only upon the affirmative vote of the holders of a
majority of the shares of the Corporation entitled to vote in the election of
directors. Stockholders may not remove any director without cause. In case any
vacancy so created shall not be filled by the Stockholders at such meeting, such
vacancy may be filled by the directors as provided in Section 3.4.
SECTION 3.7 ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held, if a quorum be present, immediately following each annual meeting
of the Stockholders at the place such meeting of Stockholders took place, for
the purpose of organization and transaction of any other business that might be
transacted at a regular meeting thereof, and no notice of such meeting shall be
necessary. If a quorum is not present, such annual meeting may be held at any
other time or place that may be specified in a notice given in the manner
provided in Section 3.9 for special meetings of the Board of Directors or in a
waiver of notice thereof.
SECTION 3.8 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such places and times as shall be determined from
time to time by resolution of the Board of Directors. Except as otherwise
provided by law, any business may be transacted at any regular meeting of the
Board of Directors.
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SECTION 3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chief Executive Officer or by the Secretary on the written
request of one-third of the members of the whole Board of Directors stating the
purpose or purposes of such meeting. Notices of special meetings, if mailed,
shall be mailed to each director not later than two days before the day the
meeting is to be held or if otherwise given in the manner permitted by these
Bylaws, not later than the day before such meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in any
notice or written waiver of notice unless so required by the Certificate of
Incorporation or by the Bylaws. Unless limited by law, the Certificate of
Incorporation or by these Bylaws, any and all business may be transacted at a
special meeting.
SECTION 3.10 ORGANIZATION OF MEETINGS. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as such Board
of Directors may from time to time determine, and all matters shall be
determined by the vote of a majority of the directors present at any meeting at
which there is a quorum, except as otherwise provided by these Bylaws or
required by law.
SECTION 3.11 PLACE OF MEETINGS. The Board of Directors may hold their
meetings and have one or more offices, and keep the books of the Corporation,
inside or outside the State of Delaware, at any office or offices of the
Corporation, or at any other place as they may from time to time by resolution
determine.
SECTION 3.12 COMPENSATION OF DIRECTORS. The Board of Directors shall have
the authority to fix, and from time to time to change, the compensation of
Directors. Directors shall not receive any stated salary for their services as
directors, but by resolution of the Board of Directors a fixed honorarium or
fees and expenses, if any, of attendance may be paid by the Corporation for
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attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending such committee meetings.
SECTION 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT. Unless otherwise
restricted by law, the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
of Directors or of such committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board of Directors or the committee.
SECTION 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors or of any committee thereof may participate in a meeting of
such Board of Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
Section 3.14 shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
SECTION 3.15 ELECTION OF DIRECTORS BY CLASS VOTE OF HOLDERS OF PREFERRED
STOCK. Notwithstanding the foregoing provisions of this Article III, if the
resolutions of the Board of Directors creating any class or series of preferred
stock of the Corporation entitle the holders of such preferred stock, voting
separately by class or series, to elect additional Directors under specified
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circumstances, then all provisions of such resolutions relating to the
nomination, election, term of office, removal, filling of vacancies and other
features of such directorships shall, as to such directorships, govern and
control over any conflicting provisions of this Article III, and such Directors
so elected need not be divided into classes pursuant to this Article III unless
expressly provided by the provisions of such resolutions.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 4.1 MEMBERSHIP AND AUTHORITIES. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board of Directors,
designate one or more Directors to constitute an Executive Committee and such
other committees as the Board of Directors may determine, each of which
committees to the extent provided in said resolution or resolutions or in these
Bylaws, shall have and may exercise all the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except in those
cases where the authority of the Board of Directors is specifically denied to
the Executive Committee or such other committee or committees by law, the
Certificate of Incorporation or these Bylaws, and may authorize the seal of the
Corporation to be affixed to all papers that may require it. The designation of
an Executive Committee or other committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed upon it or him by law. Each member of a
committee of the Board of Directors shall serve as such until the earliest of
(i) his death, (ii) the expiration of his term as a Director, (iii) his
resignation as a member of such committee or as a Director and (iv) his removal
as a member of such committee or as a Director.
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SECTION 4.2 MINUTES. Each committee designated by the Board of Directors
shall keep regular minutes of its proceedings and shall provide a report of its
proceedings to the Board of Directors when required or requested by the Board of
Directors.
SECTION 4.3 VACANCIES. The Board of Directors may designate one or more
of its members as alternate members of any committee who may replace any absent
or disqualified member at any meeting of such committee. If no alternate
members have been appointed, the committee member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member. The Board of Directors shall have the power at any time to fill
vacancies in, to change the membership of, and to dissolve, any committee.
SECTION 4.4 TELEPHONE MEETINGS. Members of any committee designated by
the Board of Directors may participate in or hold a meeting by use of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this Section 4.4 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
SECTION 4.5 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of any committee designated by the Board of Directors may
be taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the members of the committee
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and filed with the minutes of the committee proceedings. Such consent shall have
the same force and effect as a unanimous vote at a meeting.
ARTICLE V
OFFICERS
SECTION 5.1 NUMBER AND TITLE. The elected officers of the Corporation
shall be chosen by the Board of Directors and shall be a Chief Executive
Officer, the President, a Vice President, a Secretary and a Treasurer. The
Board of Directors may also choose a Chairman of the Board, who must be a member
of the Board of Directors, and additional Vice Presidents (including one or more
Executive Vice Presidents and one or more Senior Vice Presidents), a Chief
Financial Officer, a General Counsel, one or more Assistant Secretaries and/or
one or more Assistant Treasurers. One person may hold any two or more of these
offices.
SECTION 5.2 TERM OF OFFICE; VACANCIES. So far as is practicable, all
elected officers shall be elected by the Board of Directors at the annual
meeting of the Board of Directors in each year, and except as otherwise provided
in this Article V, shall hold office until the next such meeting of the Board of
Directors in the subsequent year and until their respective successors are
elected and qualified or until their earlier resignation or removal. All
appointed officers shall hold office at the pleasure of the Board of Directors.
If any vacancy shall occur in any office, the Board of Directors may elect or
appoint a successor to fill such vacancy for the remainder of the term.
SECTION 5.3 REMOVAL OF ELECTED OFFICERS. Any elected officer may be
removed at any time, with or without cause, by affirmative vote of a majority of
the whole Board of Directors, at any regular meeting or at any special meeting
called for such purpose.
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SECTION 5.4 RESIGNATIONS. Any officer may resign at any time upon written
notice of resignation to the Chief Executive Officer, Secretary or Board of
Directors of the Corporation. Any resignation shall be effective immediately
unless a date certain is specified for it to take effect, in which event it
shall be effective upon such date, and acceptance of any resignation shall not
be necessary to make it effective, irrespective of whether the resignation is
tendered subject to such acceptance. Any such resignation is without prejudice
to the rights, if any, of the Corporation under any contract to which the
officer is a party.
SECTION 5.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
shall be elected, shall preside at all meetings of the Stockholders and Board of
Directors. In addition, the Chairman of the Board shall perform whatever duties
and shall exercise all powers that are given to him by the Board of Directors.
SECTION 5.6 CHIEF EXECUTIVE OFFICER. (a) The Chief Executive Officer shall
be the chief executive officer of the Corporation and, subject to the
supervision, direction and control of the Board of Directors and the Chairman of
the Board (if any), shall have general supervision, direction and control of the
business and officers of the Corporation with all such powers as may be
reasonably incident to such responsibilities. The Chief Executive Officer shall
implement the general directives, plans and policies formulated by the Board of
Directors and shall further have such duties, responsibilities and authorities
as may be assigned to him by the Board of Directors. The Chief Executive Officer
shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation. The Chief Executive Officer may sign,
with any other proper officer, certificates for shares of the Corporation and
any deeds, bonds, mortgages, contracts and other documents which the Board of
Directors has authorized to be executed, except where
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required by law to be otherwise signed and executed and except where the signing
and execution thereof shall be expressly delegated by the Board or Directors or
these Bylaws to some other officer or agent of the Corporation.
(b) During the time of any vacancy in the office of Chairman of the
Board or in the event of the absence or disability of the Chairman of the Board,
the Chief Executive Officer shall have the duties and powers of the Chairman of
the Board unless otherwise determined by the Board of Directors. In the absence
of the Chairman of the Board, if one be elected, the Chief Executive Officer
shall preside at meetings of the Stockholders and Board of Directors and shall
be ex officio a member of all standing committees. During the time of any
vacancy in the office of President or in the event of the absence or disability
of the President, the Chief Executive Officer shall have the duties and powers
of the President unless otherwise determined by the Board of Directors. In no
event shall any third party having any dealings with the Corporation be bound to
inquire as to any facts required by the terms of this Section 5.6 for the
exercise by the Chief Executive Officer of the powers of the Chairman of the
Board or the President.
SECTION 5.7 PRESIDENT. (a) The President shall be the chief operating
officer of the Corporation and, subject to the supervision, direction and
control of the Chief Executive Officer and the Board of Directors, shall manage
the day-to-day operations of the Corporation. He shall have the general powers
and duties of management usually vested in the chief operating officer of a
corporation and such other powers and duties as may be assigned to him by the
Board of Directors, the Chief Executive Officer or these Bylaws. The President
may sign, with any other proper officer, certificates for shares of the
Corporation and any deeds, bonds, mortgages, contracts and other documents which
the Board of Directors has authorized to be executed, except where required by
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law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board or Directors or
these Bylaws to some other officer or agent of the Corporation. In the absence
of the President, his duties shall be performed and his authority may be
exercised by the Chief Executive Officer or a Vice President of the Corporation
as may have been designated by the President with the right reserved to the
Board of Directors to designate or supersede any designation so made.
(b) During the time of any vacancy in the offices of the Chairman of
the Board and Chief Executive Officer or in the event of the absence or
disability of the Chairman of the Board and the Chief Executive Officer, the
President shall have the duties and powers of the Chief Executive Officer unless
otherwise determined by the Board of Directors. In no event shall any third
party having any dealings with the Corporation be bound to inquire as to any
facts required by the terms of this Section 5.7 for the exercise by the
President of the powers of the Chief Executive Officer.
SECTION 5.8 VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors, or if not ranked, the Vice President designated by the
President, shall perform all the duties of the President as chief operating
officer of the Corporation, and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the President as chief operating
officer of the Corporation. In no event shall any third party having dealings
with the Corporation be bound to inquire as to any facts required by the terms
of this Section 5.8 for the exercise by any Vice President of the powers of the
President as chief operating officer of the Corporation. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be assigned to them by these Bylaws and as may
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from time to time be assigned to them by the Board of Directors, the Chief
Executive Officer or the President, and may sign, with any other proper officer,
certificates for shares of the Corporation.
SECTION 5.9 SECRETARY. The Secretary shall keep or cause to be kept, at
the principal office of the Corporation or such other place as the Board of
Directors may order, a book of minutes of all meetings and actions of the Board
of Directors, committees of the Board of Directors and Stockholders, with the
time and place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present at meetings of
the Board of Directors and committees thereof, the number of shares present or
represented at Stockholders' meetings and the proceedings thereof. The
Secretary, if available, shall attend all meetings of the Board of Directors and
all meetings of the Stockholders and record the proceedings of the meetings in a
book to be kept for that purpose and shall perform like duties for any committee
of the Board of Directors as the Board of Directors or such committee shall
designate him to serve. The Secretary shall give, or cause to be given, notice
of all meetings of the Stockholders and meetings of the Board of Directors and
committees thereof and shall perform such other duties incident to the office of
secretary or as may be prescribed by the Board of Directors or the President,
under whose supervision he shall be. The Secretary shall have custody of the
corporate seal of the Corporation, if one be adopted pursuant to Section 8.1,
and he, or any Assistant Secretary, or any other person whom the Board of
Directors may designate, shall have authority to affix the same to any
instrument requiring it, and when so affixed it may be attested by his signature
or by the signature of any Assistant Secretary or by the signature of such other
person so affixing such seal.
SECTION 5.10 ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned
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to him by the Board of Directors, the Chief Executive Officer, the President or
the Secretary. The Assistant Secretary or such other person as may be designated
by the Chief Executive Officer shall exercise the powers of the Secretary during
that officer's absence or inability to act.
SECTION 5.11 TREASURER. The Treasurer shall have the custody of and be
responsible for the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in the books belonging to the Corporation
and shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the President and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation and
he shall perform all other duties incident to the position of Treasurer, or as
may be prescribed by the Board of Directors or the Chief Executive Officer. If
required by the Board of Directors, he shall give the Corporation a bond in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 5.12 ASSISTANT TREASURERS. Each Assistant Treasurer shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Board of Directors, the
President or the Treasurer. The Assistant Treasurer or such
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other person designated by the Chief Executive Officer shall exercise the power
of the Treasurer during that officer's absence or inability to act.
SECTION 5.13 SUBORDINATE OFFICERS; AGENTS. The Board of Directors may (a)
appoint such other officers subordinate to the Chief Executive Officer and
President (including a Chief Financial Officer and/or a General Counsel) as it
shall deem necessary or desirable who shall hold their offices for such terms,
have such authority and perform such duties as the Board of Directors may from
time to time determine, or (b) delegate to any committee or officer the power to
appoint any such subordinate officers. The Board of Directors may also appoint
one or more agents as it shall deem necessary or desirable who shall have such
authority and perform such duties as the Board of Directors may from time to
time determine. Any agent may be removed at any time, with or without cause, by
affirmative vote of a majority of the whole Board of Directors, at any regular
meeting or at any special meeting called for such purpose.
SECTION 5.14 SALARIES AND COMPENSATION. The salary or other compensation
of officers shall be fixed from time to time by the Board of Directors. The
Board of Directors may delegate to any committee or officer the power to fix
from time to time the salary or other compensation of officers and agents.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) The
Corporation (i) shall 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
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such person is or was, at any time prior to or during which this Article VI is
in effect, a director or officer of the Corporation, or is or was, at any time
prior to or during which this Article VI is in effect, serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust, other enterprise or employee benefit plan and (ii) upon a
determination by the Board of Directors that indemnification is appropriate, the
Corporation may 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 such
person is or was, at any time prior to or during which this Article VI is in
effect, an employee or agent of the Corporation or at the request of the
Corporation was serving as an employee or agent of any other corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan, in
the case of (i) and (ii) against reasonable expenses (including attorneys'
fees), judgments, fines, penalties, amounts paid in settlement and other
liabilities actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person 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 that his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which 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
reasonable cause to believe that his conduct was unlawful.
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(b) The Corporation (i) shall 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 is or was, at any time prior to or during
which this Article VI is in effect, a director or officer of the Corporation, or
is or was, at any time prior to or during which this Article VI is in effect,
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and (ii) upon a determination by the Board of Directors that
indemnification is appropriate, the Corporation may 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 is or was, at any
time prior to or during which this Article VI is in effect, an employee or agent
of the Corporation or at the request of the Corporation was serving as an
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, in the case of (i) and (ii) against
expenses (including attorneys' fees), actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation; provided, that no
indemnification shall be made under this sub-section (b) in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery, or other court of appropriate jurisdiction, 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
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indemnity of such expenses which the Delaware Court of Chancery, or other court
of appropriate jurisdiction, shall deem proper.
(c) Any indemnification under sub-sections (a) or (b) (unless ordered by
the Delaware Court of Chancery or other court of appropriate jurisdiction) shall
be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of such person is proper in the circumstances
because he has met the applicable standard of conduct set forth in sub-sections
(a) and (b). Such determination shall be made (1) by the Board of Directors by
a majority vote of a quorum consisting of directors not parties to such action,
suit or proceeding; or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel, in written opinion, selected by the Board of Directors; or (3) by the
Stockholders. In the event a determination is made under this sub-section (c)
that the director, officer, employee or agent has met the applicable standard of
conduct as to some matters but not as to others, amounts to be indemnified may
be reasonably prorated.
(d) Expenses incurred by a person who is or was a director or officer of
the Corporation in appearing at, participating in or defending any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, shall be paid by the Corporation at reasonable
intervals in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the director or officer to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized by this Article VI. In
addition, the Corporation shall pay or reimburse expenses incurred by any person
who is or was a director or officer of the Corporation in connection with such
person's appearance as a witness or other participant in a proceeding in which
such person or the Corporation
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is not a named party to such proceeding, provided that such appearance or
participation is on behalf of the Corporation or by reason of his capacity as a
director or officer, or former director or officer of the Corporation.
(e) If in a suit or proceeding for indemnification required under this
Article VI of a director or officer, or former director or officer, of the
Corporation or any of its affiliates, a court of competent jurisdiction
determines that such person is entitled to indemnification under this Article
VI, the court shall award, and the Corporation shall pay, to such person the
expenses incurred in securing such judicial determination.
(f) It is the intention of the Corporation to indemnify the persons
referred to in this Article VI to the fullest extent permitted by law and with
respect to any action, suit or proceeding arising from events which occur at any
time prior to or during which this Article VI is in effect. The indemnification
and advancement of expenses provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be or become entitled under any law, the Certificate
of Incorporation, these Bylaws, agreement, the vote of Stockholders or
disinterested directors or otherwise, or under any policy or policies of
insurance purchased and maintained by the Corporation on behalf of any such
person, both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
(g) The indemnification provided by this Article VI shall be subject to all
valid and applicable laws, and, in the event this Article VI or any of the
provisions hereof or the indemnification contemplated hereby are found to be
inconsistent with or contrary to any such valid
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laws, the latter shall be deemed to control and this Article VI shall be
regarded as modified accordingly, and, as so modified, to continue in full force
and effect.
ARTICLE VII
CAPITAL STOCK
SECTION 7.1 CERTIFICATES OF STOCK. Certificates of stock shall be issued
to each Stockholder certifying the number of shares owned by him in the
Corporation and shall be in a form not inconsistent with the Certificate of
Incorporation and as approved by the Board of Directors. The certificates shall
be signed by the Chairman of the Board, the Chief Executive Officer, the
President or a Vice President and by the Secretary or an Assistant Secretary, or
the Treasurer or an Assistant Treasurer and may be sealed with the seal of the
Corporation or a facsimile thereof. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
If the Corporation shall be authorized to issue more than one (1) class of
stock or more than one (1) series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided by statute, in lieu of the foregoing requirements, there
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may be set forth on the face or back of the certificate which the Corporation
shall issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each Stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. The Board of
Directors shall have the power and authority to provide that certificates
representing shares of stock of the Corporation bear such legends and statements
as the Board of Directors deems appropriate in connection with the requirements
of federal or state securities laws or other applicable laws.
SECTION 7.2 LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the owner of such certificate, or his legal
representative. When authorizing the issuance of a new certificate, the Board of
Directors may in its discretion, as a condition precedent to the issuance
thereof, require the owner, or his legal representative, to give a bond in such
form and substance with such surety as it may direct, to indemnify the
Corporation against any claim that may be made on account of the alleged loss,
theft or destruction of such certificate or the issuance of such new
certificate.
SECTION 7.3 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD FOR
CERTAIN PURPOSES. (a) In order that the Corporation may determine the
Stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of capital stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than 60 days prior to the date of payment of such dividend or
other distribution or allotment
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of such rights or the date when any such rights in respect of any change,
conversion or exchange of stock may be exercised or the date of such other
action. In such a case, only Stockholders of record on the date so fixed shall
be entitled to receive any such dividend or other distribution or allotment of
rights or to exercise such rights or for any other purpose, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
(b) If no record date is fixed, the record date for determining
Stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 7.4 DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, if any, and except as otherwise provided by law, the directors
may declare dividends upon the capital stock of the Corporation as and when they
deem it to be expedient. Such dividends may be paid in cash, in property or in
shares of the Corporation's capital stock. Before declaring any dividend the
Directors may set apart out of the funds of the Corporation available for
dividend such sum or sums as the directors from time to time in their discretion
think proper for working capital or as a reserve fund to meet contingencies or
for equalizing dividends, or for such other purposes as the directors shall
determine to be conducive to the interests of the Corporation and the directors
may modify or abolish any such reserve in the manner in which it was created.
SECTION 7.5 REGISTERED STOCKHOLDERS. Except as expressly provided by law,
the Certificate of Incorporation and these Bylaws, the Corporation shall be
entitled to treat registered Stockholders as the only holders and owners in fact
of the shares standing in their respective names and the Corporation shall not
be bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, regardless of whether it shall have express or
other notice thereof.
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SECTION 7.6 TRANSFER OF STOCK. Transfers of shares of the capital stock
of the Corporation shall be made only on the books of the Corporation by the
registered owners thereof, or by their legal representatives or their duly
authorized attorneys. Upon any such transfers the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock transfer books and ledgers, by whom they shall be canceled and new
certificates shall thereupon be issued.
SECTION 7.7 STOCK OPTIONS, WARRANTS, ETC. Unless otherwise expressly
prohibited in the resolutions of the Board of Directors creating any class or
series of preferred stock of the Corporation, the Board of Directors shall have
the power and authority to create and issue (whether or not in connection with
the issue and sale of any stock or other securities of the Corporation),
warrants, rights or options entitling the holders thereof to purchase from the
Corporation any shares of capital stock of the Corporation of any class or
series or any other securities of the Corporation for such consideration and to
such persons, firms or Corporations as the Board of Directors, in its sole
discretion, may determine setting aside from the authorized but unissued stock
of the Corporation the requisite number of shares for issuance upon the exercise
of such warrants, rights or options. Such warrants, rights and options shall be
evidenced by one or more instruments approved by the Board of Directors. The
Board of Directors shall be empowered to set the exercise price, duration, time
for exercise and other terms of such warrants, rights and operations; provided,
however, that the consideration to be received for any shares of capital stock
subject thereto shall not be less than the par value thereof.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
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SECTION 8.1 CORPORATE SEAL. If one be adopted, the corporate seal shall
have inscribed thereon the name of the Corporation and shall be in such form as
may be approved by the Board of Directors. Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or in any manner reproduced.
SECTION 8.2 FISCAL YEAR. The fiscal year of the Corporation shall be the
calendar year unless changed by resolution of the Board of Directors.
SECTION 8.3 CHECKS, DRAFTS, NOTES. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner as shall from time to time be
determined by resolution (whether general or special) of the Board of Directors
or may be prescribed by any officer or officers, or any officer and agent
jointly, thereunto duly authorized by the Board of Directors.
SECTION 8.4 CORPORATE CONTRACTS AND INSTRUMENTS. Subject always to the
specific directions of the Board of Directors, the Chairman of the Board (if
any), the Chief Executive Officer, the President, any Vice President, the
Secretary or the Treasurer may enter into contracts and execute instruments in
the name and on behalf of the Corporation. The Board of Directors and, subject
to the specific directions of the Board of Directors, the Chairman of the Board
(if any), the Chief Executive Officer or the President may authorize one or more
officers, employees or agents of the Corporation to enter into any contact or
execute any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 8.5 NOTICE AND WAIVER OF NOTICE. Whenever notice is required to
be given to any director or Stockholder under the provisions of applicable law,
the Certificate of Incorporation or
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of these Bylaws it shall not be construed to only mean personal notice, rather,
such notice may also be given in writing, by mail, addressed to such director or
Stockholder at his address as it appears on the records of the Corporation, with
postage thereon prepaid (unless prior to the mailing of such notice he shall
have filed with the Secretary of the Corporation a written request that notices
intended for him be mailed to some other address in which case, such notice
shall be mailed to the address designated in the request), and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram, cable or other
form of recorded communication, by personal delivery or by telephone. Whenever
notice is required to be given under any provision of law, the Certificate of
Incorporation or these Bylaws, a waiver thereof in writing, by telegraph, cable
or other form of recorded communication, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting, to
the transaction of any business on the ground that the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Stockholders, directors, or members of
a committee of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or these Bylaws.
SECTION 8.6 EXAMINATION OF BOOKS AND RECORDS. The Board of Directors
shall determine from time to time whether, and if allowed, when and under what
conditions and regulations the accounts and books of the Corporation (except
such as may by statute be specifically opened to
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inspection) or any of them shall be open to inspection by the Stockholders, and
the Stockholders' rights in this respect are and shall be restricted and limited
accordingly.
SECTION 8.7 VOTING UPON SHARES HELD BY THE CORPORATION. Unless otherwise
provided by law or by the Board of Directors, the Chairman of the Board of
Directors, if one shall be elected, or the Chief Executive Officer, if a
Chairman of the Board of Directors shall not be elected, acting on behalf of the
Corporation, shall have full power and authority to attend and to act and to
vote at any meeting of Stockholders of any corporation in which the Corporation
may hold stock and, at any such meeting, shall possess and may exercise any and
all of the rights and powers incident to the ownership of such stock which, as
the owner thereof, the Corporation might have possessed and exercised, if
present. The Board of Directors by resolution from time to time may confer like
powers upon any person or persons.
ARTICLE IX
AMENDMENTS
SECTION 9.1 AMENDMENT. Except as otherwise expressly provided in the
Certificate of Incorporation, the directors, by the affirmative vote of a
majority of the entire Board of Directors and without the assent or vote of the
Stockholders, may at any meeting, provided the substance of the proposed
amendment shall have been stated in the notice of the meeting, make, repeal,
alter, amend or rescind any of these Bylaws. The Stockholders shall not make,
repeal, alter, amend or rescind any of the provisions of these Bylaws except by
the holders of not less than 80% of the total voting power of all shares of
stock of the Corporation entitled to vote in the election of directors,
considered for purposes of this Article IX as one class.
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
, 1998, is by and among John Parker Conrad; John Parker Conrad, Jr., appearing
herein individually and as trustee of The John Parker Conrad, Jr. Trust, as
trustee of The Glenn Alan Conrad Trust, as trustee of The Kenneth Charles Conrad
Trust, and as trustee of The Daniel Thomas Conrad Trust; Katherine Conrad Court,
appearing herein individually and as trustee of The Katherine Conrad Court Trust
and as trustee of The James Patrick Court Trust; William H. Hidalgo; and Cecil
Hernandez (collectively, the "Holders"); and Conrad Industries, Inc., a Delaware
corporation (the "Company").
R E C I T A L S:
----------------
WHEREAS, the Company intends to sell up to ____________________ shares of
its common stock (the "Common Stock") through an initial public offering (the
"IPO"); and in connection with such IPO, the Company has filed a registration
statement with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"); and
WHEREAS, following the IPO, the Common Stock will be registered under
Section 12 of the Securities and Exchange Act of 1934 (the "Exchange Act"); and
under the provisions of the Securities Act and the rules and regulations
promulgated thereunder, the Holders are or may be limited in the manner of the
sale of the shares of Common Stock owned by them, absent registration under the
Securities Act of the sale of such Common Stock or the availability of exemption
from the registration requirements of the Securities Act; and
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
<PAGE>
1. Demand Registration.
(A) Request for Registration. As used in this Agreement, "Restricted
Stock" shall mean all shares of Common Stock received by the Holders pursuant to
the Stock Exchange Agreement, dated as of March 31, 1998, by and among the
Company, Conrad Shipyard, Inc. (formerly Conrad Industries, Inc.), a Louisiana
corporation ("Conrad LA"), and each of the Holders, together with any securities
issued or issuable with respect to any such Common Stock by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
As to any particular issued Restricted Stock, such securities shall cease to be
Restricted Stock when (i) a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (ii) such securities shall have been distributed by the Holders to
the public pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise transferred by
the Holders, new certificates representing the transferred securities not
bearing a legend restricting further transfer shall have been delivered by the
Company to the transferees thereof and subsequent disposition of such securities
shall not require registration or qualification of such securities under the
Securities Act or any similar state law then in force, (iv) such securities
shall have ceased to be outstanding, or (v) the Holders thereof shall agree in
writing that such Restricted Stock shall no longer be Restricted Stock. The
Holders and any permitted assignee of any of the Holder's rights and duties
hereunder are referred to herein as the "Holders" and a Holder selling or
distributing Restricted Stock pursuant hereto is referred to herein as a
"selling Holder." Subject to the conditions and limitations set forth in
Section 4 of this Agreement, at any time and from time to time after 180 days
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after the date of the IPO, the Holder or Holders of Restricted Stock holding in
the aggregate Twenty Percent (20%) of the number of shares of Restricted Stock
then outstanding may make a written request for registration under the
Securities Act of all or part of its or their Restricted Stock pursuant to this
Section 1 ("Demand Registration"), provided that the number of shares of
Restricted Stock proposed to be sold or distributed shall be (i) at least Ten
Percent (10%) of the aggregate number of initial shares of Restricted Stock
(520,000 shares) or (ii) all remaining shares of Restricted Stock then
outstanding. Such request will specify the aggregate number of shares of
Restricted Stock proposed to be sold or distributed and will also specify the
intended method of disposition thereof. Within ten (10) business days after
receipt of such request, the Company will give written notice of such
registration request to all other Holders of Restricted Stock and include in
such registration all Restricted Stock with respect to which the Company has
received written requests for inclusion therein within fifteen (15) business
days after the receipt by the applicable Holder of the Company's notice. Each
such request will also specify the aggregate number of shares of Restricted
Stock to be registered and the intended method of disposition thereof. No other
party, including the Company (but excluding another Holder of Restricted Stock),
shall be permitted to offer securities under any such Demand Registration unless
the Holder or Holders requesting the Demand Registration shall consent thereto
in writing.
(B) Priority on Demand Registrations. If the Holders of a majority in
number of shares of the Restricted Stock to be registered in a Demand
Registration so elect, the offering of such Restricted Stock pursuant to such
Demand Registration shall be in the form of an underwritten offering. In such
event, if the managing underwriter or underwriters of such offering advise the
Company and the Holders in writing that in their opinion the aggregate amount of
Restricted Stock
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requested to be included in such offering is so large that it will materially
and adversely affect the success of such offering, the Company will include in
such registration only the aggregate number of shares of Restricted Stock which
in the opinion of such managing underwriter or underwriters can be sold without
any such material adverse effect, and such number of shares shall be allocated
pro rata among the Holders of Restricted Stock on the basis of the number of
shares of Restricted Stock requested by such Holders to be included in such
registration. To the extent Restricted Stock so requested to be registered is
excluded from the offering based on the provisions of the foregoing sentence,
then the Holders of such Restricted Stock shall have the right to one additional
Demand Registration under this Section with respect to such Restricted Stock.
(C) Selection of Underwriters and Counsel. If any Demand Registration
is in the form of an underwritten offering, the Holders of a majority in number
of shares of Restricted Stock to be registered will select and obtain the
services of the investment banker or investment bankers and manager or managers
that will administer the offering and the counsel to such investment bankers and
managers; provided that such investment bankers, managers and counsel are
approved by the Company, which approval shall not be unreasonably withheld.
2. Piggyback Registration. If the Company proposes to file a registration
statement under the Securities Act with respect to an offering for its own
account or for the account of any of its respective security holders of any
class of its equity securities (other than a registration statement on Form S-8
(or any successor form) or any other registration statement relating solely to
an employee benefit plan or filed in connection with an exchange offer, a
transaction to which Rule 145 under the Securities Act applies or an offering of
securities solely to the Company's existing stockholders), then the Company
shall in each case give written notice of such proposed filing to the
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Holders of Restricted Stock as soon as practicable (but no later than ten (10)
business days) before the anticipated filing date, and such notice shall offer
such Holders the opportunity to register such number of shares of Restricted
Stock as each such Holder may request; provided, however, that no such notice
need be given to the Holders, and the Holders shall have no rights under this
Section 2, if the Holders have therefore disposed of the Restricted Stock. Each
Holder desiring to have Restricted Stock included in such registration statement
shall so advise the Company in writing within ten (10) business days after the
date of the Company's notice, setting forth the amount of such Holder's
Restricted Stock for which registration is requested. If the Company's offering
is to be an underwritten offering, the Company shall, subject to the further
provisions of this Agreement, use its reasonable efforts to cause the managing
underwriter or underwriters to permit the Holders of the Restricted Stock
requested to be included in the registration for such offering to include such
securities in such offering on the same terms and conditions as any similar
securities of the Company included therein. The right of each Holder to
registration pursuant to this Section 2 shall, unless the Company otherwise
assents, be conditioned upon such Holder's participation as a seller in such
underwriting and its execution of an underwriting agreement with the managing
underwriter or underwriters selected by the Company. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering deliver
a written opinion to the Holders of Restricted Stock that either because of (A)
the kind of securities which the Holders, the Company and any other persons or
entities intend to include in such offering or (B) the size of the offering
which the Holders, the Company and other persons intend to make, the success of
the offering would be materially and adversely affected by inclusion of the
Restricted Stock requested to be included, then (i) in the event that the size
of the offering is the basis of such managing underwriter's opinion, the number
of
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<PAGE>
shares to be offered for the accounts of Holders of Restricted Stock shall be
reduced pro rata on the basis of the number of securities requested by such
Holders to be offered to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters; provided that if securities are being
offered for the account of other persons or entities as well as the Company,
such reduction shall not represent a greater fraction of the number of
securities intended to be offered by Holders of Restricted Stock than the
fraction of similar reductions imposed on such other persons or entities over
the amount of securities they intended to offer; and (ii) in the event that the
kind of securities to be offered is the basis of such managing underwriter's
opinion, (x) the Restricted Stock to be included in such offering shall be
reduced as described in clause (i) above (subject to the proviso in clause (i))
or, (y) if such actions would, in the judgment of the managing underwriter, be
insufficient to substantially eliminate the adverse effect that inclusion of the
Restricted Stock requested to be included would have on such offering, such
Restricted Stock will be excluded entirely from such offering. Any Restricted
Stock excluded from an underwriting shall be withdrawn from registration and
shall not, without the consent of the Company and the managing underwriter, be
transferred in a public distribution or a sale into the public trading markets
prior to the earlier of 120 days (or such other shorter period of time as the
managing underwriter may require) after the effective date of the registration
statement or 180 days after the date the Holders of such Restricted Stock are
notified of such exclusion.
3. Registration Procedures. Whenever, pursuant to Section 1 or 2, the
Holders of Restricted Stock have requested that any Restricted Stock be
registered, the Company will, subject to the provisions of Section 4, use all
reasonable efforts to effect the registration and the sale or
6
<PAGE>
distribution of such Restricted Stock in accordance with the intended method of
disposition thereof as promptly as practicable, and in connection with any such
request, the Company shall:
(A) in connection with a request pursuant to Section 1, prepare and
file with the SEC, not later than forty-five (45) days after receipt of such a
request, a registration statement on any form for which the Company then
qualifies and which counsel for the Company shall deem appropriate and which
form shall be available for the sale or distribution of such Restricted Stock in
accordance with the intended method of distribution thereof, and use its
reasonable efforts to cause such registration statement to become effective;
provided that if the Board of Directors of the Company has determined in its
good faith judgment that the filing of such registration statement would
materially adversely affect a pending or proposed public offering of the
Company's securities or would otherwise be significantly disadvantageous to the
Company and the Company shall furnish to Holders making such a request a
certificate signed by either the chief executive officer or the chief financial
officer of the Company stating that the Board of Directors has made such
determination, the Company shall have an additional period of not more than 180
days within which to file such registration statement (provided that the Company
shall be entitled to furnish such a certificate only once in any 12-month
period); and provided further, (i) that before filing a registration statement
or prospectus or any amendments or supplements thereto, the Company will furnish
to one counsel selected by the Holders of a majority in number of shares of the
Restricted Stock covered by such registration statement copies of all such
documents proposed to be filed, which documents will be subject to the review
and comment of such counsel, and (ii) that after the filing of the registration
statement, the Company will promptly notify each selling Holder of Restricted
Stock of any stop
7
<PAGE>
order issued or, to the knowledge of the Company, threatened by the SEC and take
all reasonable actions to prevent the entry of such stop order or to remove it
if entered;
(B) in connection with a registration pursuant to Section 1, prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not less than 180
days or such shorter period as shall terminate when the distribution of all
Restricted Stock covered by such registration statement shall have terminated
(but in no event prior to the expiration of the applicable period referred to in
Section 4(3) of the Securities Act and Rule 174 thereunder), and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the selling Holders
thereof set forth in such registration statement;
(C) as soon as reasonably practicable, furnish to such selling
Holders, prior to filing a registration statement, copies of such registration
statement as proposed to be filed, and thereafter furnish to such selling
Holders such number of copies of such registration statement, each amendment and
supplement thereto (in each case, if specified by such Holders, including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such selling
Holders may reasonably request in order to facilitate the disposition of the
Restricted Stock owned by such selling Holders;
(D) with reasonable promptness, use its reasonable efforts to register
or qualify such Restricted Stock under such other securities or blue sky laws of
such jurisdictions within the United States and Canada as any selling Holder
reasonably (in light of such selling Holder's
8
<PAGE>
intended plan of distribution) requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such selling Holder to
consummate the disposition in such jurisdictions of the Restricted Stock owned
by such selling Holder; provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection (D), or (ii) subject
itself to taxation in any such jurisdiction;
(E) with reasonable promptness, use reasonable efforts to cause the
Restricted Stock covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable the selling
Holders thereto to consummate the disposition of such Restricted Stock;
(F) promptly notify each selling Holder of such Restricted Stock, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of any event known to the Company
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers or recipients of such Restricted
Stock, such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and promptly make available to each
selling Holder any such supplement or amendment;
(G) in connection with a request pursuant to Section 1, enter into an
underwriting agreement in customary form, the form and substance of such
underwriting agreement being subject to the reasonable satisfaction of the
Company and the Holders;
9
<PAGE>
(H) with reasonable promptness make available for inspection by any
selling Holder, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such selling Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and the properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers and employees to supply all
information reasonably requested for such purpose by any such Inspector in
connection with such registration statement. Each Inspector that actually
reviews Records supplied by the Company that include information that the
Company identifies, in good faith, to be confidential ("Confidential
Information") shall be required, prior to any such review, to execute an
agreement with the Company providing that such Inspector shall not publicly
disclose any Confidential Information unless such disclosure is required by
applicable law or legal process. Each selling Holder of Restricted Stock agrees
that Confidential Information obtained by it as a result of such inspections
shall not be used by it as the basis for any transactions in securities of the
Company unless and until such information is made generally available to the
public. Each selling Holder of Restricted Stock further agrees that it will,
upon learning that disclosure of Confidential Information is sought in a court
of competent jurisdiction, give notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of the
Confidential Information. Each selling Holder also agrees that the due diligence
investigation made by the Inspectors shall be conducted in a manner which shall
not unreasonably disrupt the operations of the Company or the work performed by
the Company's officers and employees;
10
<PAGE>
(I) in the event such sale is pursuant to an underwritten offering,
use its reasonable efforts to obtain a comfort letter or letters from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters as the managing
underwriter reasonably requests;
(J) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering a period of
twelve months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(K) with reasonable promptness, use its reasonable efforts to cause
all such Restricted Stock to be listed on each securities exchange on which the
Common Stock of the Company is then listed, provided that the applicable listing
requirements are satisfied.
Each selling Holder of Restricted Stock agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in subsection (F) hereof, such selling Holder will forthwith discontinue
disposition of Restricted Stock pursuant to the registration statement covering
such Restricted Stock until such selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subsection (F) hereof. In
the event the Company shall give any such notice, the Company shall extend the
period during which such registration statement shall be maintained effective
pursuant to this Agreement (including the period referred to in subsection (B))
by the number of days during the period from and including the date of the
giving of such notice pursuant to subsection (F) hereof to and including the
date when each selling Holder of Restricted Stock covered by such registration
statement shall have received the
11
<PAGE>
copies of the supplemented or amended prospectus contemplated by subsection (F)
hereof. Each selling Holder also agrees to notify the Company if any event
relating to such selling Holder occurs which would require the preparation of a
supplement or amendment to the prospectus so that such prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
4. Conditions and Limitations.
(A) The Company's obligations under Section 1 shall be
subject to the following limitations:
(i) the Company need not file a registration statement either (x)
during the period starting with the date sixty (60) days prior to the
Company's estimated date of filing of, and ending ninety (90) days after
the effective date of, any registration statement pertaining to securities
of the Company (other than a registration statement on Form S-8 (or any
successor form) or any other registration statement relating solely to
employee benefit plans or filed in connection with an exchange offer, a
transaction to which Rule 145 under the Securities Act applies or an
offering of securities solely to the Company's existing stockholders),
provided that if such Company registration statement is not filed within
ninety (90) days after the first date on which the Company notifies a
Holder of Restricted Stock that it will delay a Demand Registration
pursuant to this clause (x), the Company may not further postpone such
Demand Registration pursuant to this clause; or (y) during the period
specified in the first proviso of subparagraph (A) of Section 3;
(ii) except as provided in Section 1(B), the Company shall not be
required to file more than three Demand Registrations. A registration
statement will not count as a
12
<PAGE>
Demand Registration until it has become effective and the Holder or Holders
have sold or distributed Restricted Stock thereunder; and
(iii) the Company shall have received the information and
documents specified in Section 5 and each selling Holder shall have
observed or performed its other covenants and conditions contained in such
Section and Section 7.
(B) The Company's obligation under Section 2 shall be subject to the
limitations and conditions specified in such Section and in clause (iii) of
subsection (A) of this Section 4, and to the condition that the Company may at
any time terminate its proposal to register its shares and discontinue its
efforts to cause a registration statement to become or remain effective.
5. Information From and Certain Covenants of Holders of Restricted Stock.
Notices and requests delivered to the Company by Holders for whom Restricted
Stock is to be registered pursuant to this Agreement shall contain such
information regarding the Restricted Stock to be so registered, the Holder and
the intended method of disposition of such Restricted Stock as shall reasonably
be required in connection with the action to be taken. Any Holder whose
Restricted Stock is included in a registration statement pursuant to this
Agreement shall execute all consents, powers of attorney, registration
statements and other documents reasonably required to be signed by it in order
to cause such registration statement to become effective. Each selling Holder
covenants that, in disposing of such Holder's shares, such Holder shall comply
with Rules 10b-2, 10b-5 and Regulation M of the SEC adopted pursuant to the
Exchange Act (and any successor rules thereto).
6. Registration Expenses. All Registration Expenses (as defined herein)
will be borne by the Company. Underwriting discounts and commissions applicable
to the sale of Restricted Stock
13
<PAGE>
shall be borne by the Holder of the Restricted Stock to which such discount or
commission relates, and each selling Holder shall be responsible for the fees
and expenses of any legal counsel, accountants or other agents retained by such
selling Holder and all other out-of-pocket expenses incurred by such selling
Holder in connection with any registration under this Agreement.
As used herein, the term Registration Expenses means all expenses incident
to the Company's performance of or compliance with this Agreement (whether or
not the registration in connection with which such expenses are incurred
ultimately becomes effective), including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Restricted Stock), rating agency fees, printing
expenses, messenger and delivery expenses incurred by the Company, internal
expenses incurred by the Company (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, NASD fees (including filing
fees and reasonable fees and disbursements of counsel in connection with
compliance with NASD rules and regulations), and fees and disbursements of
counsel for the Company and its independent certified public accountants
(including the expenses of any special audit or comfort letters required by or
incident to such performance), securities act liability insurance (if the
Company elects to obtain such insurance), the reasonable fees and expenses of
any special experts retained by the Company in connection with such registration
and the fees and expenses of other persons retained by the Company in connection
with such registration.
14
<PAGE>
7. Indemnification; Contribution.
(A) Indemnification by the Company. The Company agrees to indemnify
and hold harmless each selling Holder of Restricted Stock from and against any
and all losses, claims, damages, liabilities and expenses (including reasonable
costs of counsel) (i) arising out of or based upon (1) any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Restricted Stock or in any amendment or
supplement thereto or in any preliminary prospectus relating to the Restricted
Stock, or (2) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of, or are based upon, any such untrue statement or omission
or allegation thereof based upon information furnished in writing to the Company
by such selling Holder, or (ii) arising out of or based upon any violation of
any Federal or state securities laws or rules or regulations thereunder
committed by the Company in connection with the performance of its obligations
hereunder. The Company also agrees to include in any underwriting agreement
with any underwriters of the Restricted Stock provisions indemnifying and
providing for contribution to such underwriters and their officers and directors
and each person who controls such underwriters on substantially the same basis
as the provisions of this Section 7 indemnifying and providing for contribution
to the selling Holders.
(B) Indemnification by Holders of Restricted Stock. Each selling
Holder agrees to indemnify and hold harmless the Company, its officers,
directors and agents and each person (other than a selling Holder), if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against any and all
15
<PAGE>
losses, claims, damages, liabilities and expenses (including reasonable costs of
counsel) (i) arising out of or based upon (1) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Restricted Stock or in any amendment or supplement
thereto or in any preliminary prospectus relating to the Restricted Stock, or
(2) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or (ii) arising out of or based upon any violation of any Federal or state
securities laws or rules or regulations thereunder committed by such Holder in
connection with the disposition of such Holder's Restricted Stock, provided (x)
that such losses, claims, damages, liabilities or expenses arise out of or are
based upon any such untrue statement or omission or allegation thereof based
upon information furnished in writing to the Company by such selling Holder or
upon such selling Holder's behalf expressly for use therein, and (y) that no
selling Holder shall be liable for any indemnification under this Section 7 in
an aggregate amount which exceeds the total net proceeds received by such
selling Holder from the offering. Each selling Holder also agrees to include in
any underwriting agreement with underwriters of the Restricted Stock provisions
indemnifying and providing for contribution to such underwriters, their officers
and directors and each person who controls such underwriters on substantially
the same basis as the provisions of this Section 7 indemnifying and providing
for contribution to the Company.
(C) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or any
claim shall be asserted against any indemnified party in respect of which
indemnity may be sought from an indemnifying party, the indemnifying party shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party, and shall assume the payment of all
expenses
16
<PAGE>
incurred in connection with the defense thereof; provided, that the indemnifying
party may require such indemnified party to undertake to reimburse all such fees
and expenses if it is ultimately determined that such indemnified party is not
entitled to indemnification or advancement of expenses hereunder. Such
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses, (ii) the
indemnifying party shall have failed to promptly assume the defense of such
action, claim or proceeding and to employ counsel reasonably satisfactory to
such indemnified party, or (iii) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such indemnified party
and such indemnifying party, and such indemnified party shall have been advised
in writing by counsel that there may be one or more legal defenses available to
such indemnified party which are different from or additional to those available
to the indemnifying party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of
such indemnified party; it being understood, however, that the indemnifying
party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel, subject to the indemnifying
party's approval of counsel, which approval shall not be unreasonably withheld)
at any time for such indemnified party.) The indemnifying party shall not be
liable for any settlement of any such action, claim or proceeding
17
<PAGE>
effected without its written consent (such consent which shall not be
unreasonably withheld), but if settled with its written consent, or if there is
a final judgment for the plaintiff in any such action or proceeding, the
indemnifying party agrees to indemnify and hold harmless such indemnified party
from and against any loss or liability (to the extent stated above) by reason of
such settlement or judgment.
(D) Contribution. If the indemnification provided for in this Section
7 is unavailable to the Company or the selling Holders in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments, in such proportion
as is appropriate to reflect the relative fault of each such party in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative fault of each such party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission.
The Company and the selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7(D) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding
18
<PAGE>
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claims.
Notwithstanding the provisions of this Section 7(D), no selling Holder shall be
required to contribute an amount in excess of the amount by which the total
price at which the Restricted Stock of such selling Holder was offered to the
public exceeds the amount of any damages which such selling Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. Amendments. This Agreement may be amended or modified upon the
written consent thereto of the Company and the Holders of a majority in number
of shares of Restricted Stock.
9. Assignments. This Agreement shall be binding on and inure to the
benefit of the respective successors and assigns of the parties hereto. Without
the written consent of the Company, a Holder may not assign any rights hereunder
except to a transferee of such Holder of Restricted Stock aggregating Ten
Percent (10%) or more of the Restricted Stock then outstanding, provided that
the foregoing will not prevent any successor by merger, consolidation or
transfer of substantially all the assets of such Holder from succeeding to a
Holder's rights hereunder.
10. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE,
WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW.
19
<PAGE>
11. Notices. Any notice, request, instruction, correspondence or other
documents to be given hereunder by either party to the other (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed, postage prepaid, or by telecopier, as follows:
If to the Company:
Conrad Industries, Inc.
1501 Front Street
P.O. Box 790
Morgan City, Louisiana, 70381
Attention: William H. Hidalgo
Telephone.: (504) 384-3060
If to J. Parker Conrad:
[address
telephone no.]
If to John P. Conrad, Jr.:
[address
telephone no.]
If to Katherine Conrad Court:
[address
telephone no.]
If to William H. Hidalgo:
[address
telephone no.]
If to Cecil A. Hernandez:
[address
telephone no.]
Notice given by personal delivery or mail shall be effective upon actual
receipt. Notice given by telecopier shall be effective upon actual receipt if
received during the recipient's normal business hours, or at the beginning of
the recipient's next business day after receipt if not received during the
20
<PAGE>
recipient's normal business hours. Any party may change any address to which
Notice is to be given to it by giving Notice as provided above of such change of
address.
12. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
13. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
14. Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover reasonable attorneys' fees in addition to its costs and
expenses and any other available remedy.
21
<PAGE>
IN WITNESS WHEREOF, the Holders and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized.
CONRAD INDUSTRIES, INC.
By:
-------------------------------
WILLIAM H. HIDALGO
PRESIDENT
-------------------------------
J. PARKER CONRAD
-------------------------------
JOHN P. CONRAD, JR.
-------------------------------
KATHERINE CONRAD COURT
-------------------------------
CECIL A. HERNANDEZ
-------------------------------
WILLIAM H. HIDALGO
JOHN PARKER CONRAD, JR. TRUST
----------------------------------
BY: JOHN P. CONRAD, JR., TRUSTEE
22
<PAGE>
GLENN ALAN CONRAD TRUST
----------------------------------
BY: JOHN P. CONRAD, JR., TRUSTEE
KENNETH CHARLES CONRAD TRUST
----------------------------------
BY: JOHN P. CONRAD, JR., TRUSTEE
DANIEL THOMAS CONRAD TRUST
----------------------------------
BY: JOHN PARKER CONRAD, JR.
KATHERINE CONRAD COURT TRUST
----------------------------------
BY: KATHERINE CONRAD COURT
JAMES PATRICK COURT TRUST
----------------------------------
BY: KATHERINE CONRAD COURT
23
<PAGE>
SPOUSAL CONSENT
I, the undersigned, spouse of J. Parker Conrad, a party to that
certain agreement entitled "Registration Rights Agreement" dated as of
___________, 1998, acknowledge that I have read said agreement and do fully
understand it, and, in consideration of the provisions and benefits thereof, I
agree and consent thereto and to any disposition made thereunder of an interest
I may have or may come to have in the shares of common stock of Conrad
Industries, Inc., a Delaware corporation, whether as community or separate
property, dower rights or otherwise, pursuant to the terms and conditions stated
therein, effective as of ____________, 1998, at Morgan City, Louisiana.
-----------------------
Shirley Conrad
24
<PAGE>
SPOUSAL CONSENT
I, the undersigned, spouse of John P. Conrad, Jr., a party to that
certain agreement entitled "Registration Rights Agreement" dated as of
___________, 1998, acknowledge that I have read said agreement and do fully
understand it, and, in consideration of the provisions and benefits thereof, I
agree and consent thereto and to any disposition made thereunder of an interest
I may have or may come to have in the shares of common stock of Conrad
Industries, Inc., a Delaware corporation, whether as community or separate
property, dower rights or otherwise, pursuant to the terms and conditions stated
therein, effective as of ____________, 1998, at Morgan City, Louisiana.
-----------------------
Mary Lou Brunson Conrad
25
<PAGE>
SPOUSAL CONSENT
I, the undersigned, spouse of Katherine Conrad Court, a party to that
certain agreement entitled "Registration Rights Agreement" dated as of
____________, 1998, acknowledge that I have read said agreement and do fully
understand it, and, in consideration of the provisions and benefits thereof, I
agree and consent thereto and to any disposition made thereunder of an interest
I may have or may come to have in the shares of common stock of Conrad
Industries, Inc., a Delaware corporation, whether as community or separate
property, dower rights or otherwise, pursuant to the terms and conditions stated
therein, effective as of ____________, 1998, at Morgan City, Louisiana.
----------------------
James K. Court
26
<PAGE>
STOCK PURCHASE AGREEMENT
DATED
DECEMBER 12, 1997
AMONG
CONRAD INDUSTRIES, INC.,
ORANGE SHIPBUILDING COMPANY, INC.
AND
THOMAS E. CLARY, ROBERT D. CLARY AND GEORGE B. CLARY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 DEFINITIONS 2
SECTION 2 SALE AND PURCHASE OF STOCK 2
(a) Sale and Purchase 2
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2
(a) Organization 2
(b) Power and Authority; Enforceability 2
(c) Corporate Existence and Qualification of the Company 3
(d) Capitalization and Ownership 3
(e) No Conflicts 4
(f) Financial Statements 4
(g) Applicable Laws 6
(h) Title to Assets 6
(i) Intellectual Property 9
(j) Prepayments; Accounts Receivable; Backlog, Bid Bonds 10
(k) Insurance 11
(l) Tax Matters 11
(m) Contractual Rights 12
(n) Employee Matters 13
(o) Warranties 14
(p) Absence of Certain Changes or Events 14
(q) Environmental Matters 14
(r) Litigation, Judgments, etc 15
(s) Absence of Certain Business Practices 16
(t) Minute Book and Charter Documents 16
(u) Disclosure of Facts 16
(v) No Brokers or Finders 17
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE SELLERS 17
(a) Power and Authority; Enforceability 17
(b) No Conflicts 18
(c) Good and Valid Title 18
(d) No Brokers or Finders 19
SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 19
(a) Organization 19
(b) Power and Authority; Enforceability 19
(c) No Conflicts 20
SECTION 6 COVENANTS OF PARTIES 20
(a) Access 20
(b) Operation of Business and Consents 21
(c) Regulatory Compliance 22
(d) Continued Operation of Business 22
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(e) Press Releases 22
(f) Confidential Nature of Information 23
SECTION 7 CONDITIONS TO THE CLOSING 23
(a) The Sellers 23
(b) The Purchaser 26
SECTION 8 CLOSING 29
(a) Stock Certificates; Payment of Purchase Price 30
(b) Consulting Agreement 30
(c) Resignations of Directors of the Company 30
SECTION 9 POST-CLOSING INDEMNITY 30
SECTION 10 LIMITATION OF LIABILITY 35
SECTION 11 POST-CLOSING TAX COOPERATION AND ACCESS 35
SECTION 12 TERMINATION OF AGREEMENT 36
(a) Mutual Consent 36
(b) Expiration Date 36
SECTION 13 EXPENSES 36
SECTION 14 NOTICE 37
SECTION 15 NO SOLICITATION 38
SECTION 16 GOVERNING LAW 39
SECTION 17 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS 39
SECTION 18 SEVERABILITY 40
SECTION 19 HEADINGS AND SCHEDULES 40
SECTION 20 ASSIGNMENT; SUCCESSORS BOUND 40
SECTION 21 EXECUTION IN COUNTERPARTS 40
SECTION 22 RALPH THON PATENT; APPLICABILITY 40
ii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of this 12th day of December, 1997, by and between Conrad Industries, Inc., a
Louisiana corporation (the "Purchaser"), Orange Shipbuilding Company, Inc., a
Texas corporation (the "Company"), and Thomas E. Clary, Robert D. Clary and
George B. Clary (each, a "Seller" and collectively, the "Sellers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has 533,332 shares of common stock, par value $1.00 per
share (the "Common Stock"), issued and outstanding and no other shares of
capital stock outstanding;
WHEREAS, all the outstanding Common Stock of the Company is owned directly by
the Sellers;
WHEREAS, the Sellers propose to sell all of the shares of Common Stock to the
Purchaser and the Purchaser proposes to purchase such shares of Common Stock
from the Sellers, as herein provided;
WHEREAS, the Purchaser requires, as a condition to the closing of the
transactions contemplated by this Agreement, that each of the Sellers execute
and deliver a Consulting Agreement between such Seller, the Purchaser and the
Company in the form attached hereto as Exhibit A (each, a "Consulting
Agreement);
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
<PAGE>
1. Definitions. For purposes of this Agreement:
(a) "Closing" and "Closing Date" have the meanings specified in Section 8.
(b) "Parties" means the parties to this Agreement.
(c) "Person" means an individual, partnership, joint venture, corporation,
limited liability company, bank, trust or unincorporated organization.
2. Sale and Purchase of Stock.
(a) Sale and Purchase. Subject to the terms and conditions contained in
this Agreement and in reliance upon the representations, warranties, covenants
and agreements contained in this Agreement, at the Closing, the Sellers shall
sell to the Purchaser, and the Purchaser shall purchase from the Sellers, all of
the shares of Common Stock owned by the Sellers for an aggregate purchase price
equal to $25,392,000 (the "Purchase Price"), payable at Closing by wire transfer
of immediately available funds to the accounts designated by each Seller, with
such aggregate amount to be paid to the Sellers based on their proportionate
ownership of shares of Common Stock of the Company as specified in Schedule 3(d)
attached hereto.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows:
(a) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas with
corporate power to carry on its business as now being conducted. The Company
has no subsidiaries and has no ownership or equity interest in any Person.
(b) Power and Authority; Enforceability. The Company has all requisite
corporate power to enter into this Agreement and to perform its obligations
hereunder. This
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<PAGE>
Agreement has been duly authorized, executed and delivered on behalf of the
Company, and, assuming due authorization, execution and delivery by the
Purchaser and the Sellers, constitutes a legal, valid and binding obligation of
the Company enforceable in accordance with its terms, except that (i) such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors' rights generally and (ii)
the remedy of specific performance and injunction and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) Corporate Existence and Qualification of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, there being no other jurisdictions where the character of
its properties or the nature of its business requires it to be so qualified, and
has the corporate power to own, operate and lease its properties and to carry on
its business as presently conducted.
(d) Capitalization and Ownership. The authorized capital stock of the
Company consists of 5,000,000 shares of Common Stock, and no other shares of
capital stock are authorized or outstanding. The Company has 533,332 shares of
Common Stock outstanding. All of such 533,332 shares of Common Stock are duly
authorized, validly issued, fully paid and non-assessable and were not issued in
violation of any preemptive or other rights of any person to acquire securities
of the Company. Schedule 3(d) sets forth a complete and accurate list of the
holders of record of the issued and outstanding shares of Common Stock of the
Company, specifying the ownership thereof by each Seller. Except for this
Agreement, there are no outstanding options, convertible securities, rights
(preemptive or other), warrants, calls or agreements relating to the Company's
capital stock. The Sellers are, and immediately prior to the Closing will be,
the lawful owner of all the outstanding
3
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Common Stock of the Company, with full right, power and authority to sell and
transfer the Common Stock, free and clear of any and all security interests,
proxies, shareholder agreements, voting agreements, voting trusts, encumbrances
and adverse claims, to the Purchaser pursuant to the provisions of this
Agreement. The Company has no other commitment, plan or arrangement to issue or
sell any share of its capital stock or to issue or sell any options, warrants or
other securities that are convertible or exchangeable for shares of capital
stock of the Company.
(e) No Conflicts. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated herein (i) will conflict with
or result in a breach, default or violation of (A) any of the terms, provisions
or conditions of the Articles of Incorporation or By-Laws of the Company or (B)
any material agreement, document, instrument, judgment, decree, order,
governmental permit, certificate or license to which the Company is a party or
to which it is subject or by which its property is bound, or (ii) will result in
the creation of any lien, charge or other encumbrance on any material property
or asset of the Company, or (iii) will require the Company to obtain the consent
of any private nongovernmental third party. No consent, action, approval or
authorization of, or registration, declaration or filing with any governmental
department, commission, agency or other instrumentality having jurisdiction over
the Company is required by the Company to authorize the execution and delivery
of this Agreement by the Company or the performance of its terms by the Company.
(f) Financial Statements. (i) Schedule 3(f) attached hereto contains the
balance sheets of the Company at September 30, 1997, 1996 and 1995 and the
related statements of income and retained earnings and cash flows for the years
then ended (collectively, the "Financial Statements"). All fixed or contingent
obligations, liabilities, or commitments of the Company as
4
<PAGE>
of September 30, 1997 are reserved against or disclosed in the Company's balance
sheet as of September 30, 1997 contained in the Financial Statements (the "1997
Balance Sheet") to the extent required to be reserved against or disclosed
therein by generally accepted accounting principles ("GAAP"). The Financial
Statements fairly present, in accordance with GAAP applied on a consistent basis
throughout the periods involved, the financial position and results of
operations of the Company at September 30, 1997, 1996 and 1995 and for the years
then ended.
(ii) The trade accounts and other receivables of the Company which are
classified as current assets on the 1997 Balance Sheet are bona fide
receivables, were acquired in the ordinary course of business, are stated in
accordance with GAAP and, except to the extent of the amount of the reserve for
doubtful accounts reflected on the 1997 Balance Sheet need not be written-off as
uncollectible in accordance with GAAP.
(iii) The inventories of the Company reflected on the 1997 Balance
Sheet have been valued in accordance with GAAP, and the value of obsolete
materials and materials of below-standard quality has been written down or
reserved against in accordance with GAAP. There have been no write-ups of
inventories or other assets of the Company reflected in the Financial
Statements.
(iv) The books of account and other financial records from which the
Financial Statements were prepared have been kept in the ordinary course of
business and in accordance with the Company's customary internal bookkeeping and
accounting policies and practices, and are complete and correct in all material
respects. The Company (i) makes and keeps books and records which, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets of the Company, and (ii) has in place a system of
internal accounting controls
5
<PAGE>
sufficient to provide reasonable assurances that (A) transactions are executed
only in accordance with management's authorization, (B) transactions are
recorded so as to permit proper accounting and maintain accountability for
assets, (C) access to assets is only in accordance with management's
authorization, and (D) recorded accountability for assets is compared with
existing assets at reasonable intervals and corrective action is taken if
appropriate.
(g) Applicable Laws. The Company is in compliance with all federal, state
and local laws, rules, regulations, ordinances, decrees and orders, including,
but not limited to, building, zoning, environmental, pollution, wage, working
conditions, labor, political contribution, antitrust or related laws, rules and
regulations ("Laws"), and possesses all currently required governmental
approvals, authorizations, consents, licenses and permits ("Permits") applicable
to the operation of its business. The list of Permits set forth in Schedule
3(g) attached hereto is a complete and accurate list of all Permits in effect
with respect to the assets, business and operations of the Company as of the
date of this Agreement. The Company has not received any written notification
of any asserted present or past unremedied failure by the Company to comply with
any of such Laws or Permits.
(h) Title to Assets. (i) The Company has good title to all of the assets
reflected in the 1997 Balance Sheet, other than those sold or disposed of in the
ordinary course of business subsequent to September 30, 1997, in each case free
and clear of any lien, encumbrance, mortgage, deed of trust, pledge or other
similar security interest ("Lien") except (i) Liens for property and ad valorem
taxes, assessments and other applicable governmental charges, if such taxes,
assessments and charges shall not be due and payable, or if currently payable,
if the Company shall concurrently be contesting the validity thereof in good
faith and (ii) Liens specifically identified on Schedule 3(h)(I) attached
hereto.
6
<PAGE>
(ii) Schedule 3(h)(ii) attached hereto sets forth an accurate list of
inventory as of the date of this Agreement. All items of finished inventory of
the Company are of a quality usable or saleable in the ordinary course of the
Company's business, and all inventory consisting of raw materials and work-in-
progress is of a quality usable in the manufacture or production of finished
inventory that is saleable in the ordinary course of the Company's business.
(iii) Schedule 3(h)(iii)(1) contains a complete and accurate list or
description of all real property owned by the Company, or as to which the
Company has an option to purchase, as of the date of this Agreement (the "Owned
Real Property"). All of the Company's current operations are located on the
Owned Real Property. Schedule 3(h)(iii)(2) includes a complete and accurate
list or description of all real property which the Company leases or has agreed
(or has an option) to lease as of the date hereof (the "Leased Real Property")
and all leasehold improvements thereto (the Leased Real Property and all
leasehold improvements thereto referred to herein as the "Leasehold
Facilities"). Each of Schedule 3(h)(iii)(1) and Schedule 3(h)(iii)(2) includes
a list of any guaranty policies, zoning and special permits with respect to the
Owned Real Property or the Leased Real Property, as the case may be. The
description in Schedule 3(h)(iii)(2) includes the name of the lessor, the
location of the property covered by the lease, the current annual rent and the
amount of any security deposits. True and complete copies of all leases
described in Schedule 3(h)(iii)(2) have been delivered or made available to
Purchaser by the Company. The leases described in Schedule 3(h)(iii)(2) are in
full force and effect and there are no material defaults thereunder by the
Company. There are no underground storage tanks (i) existing on any of the
Owned Real Property or Leased Real Property (collectively, the "Real Property")
or (ii) of which the Company is or was the owner or operator. To the Company's
knowledge, each lessor of any
7
<PAGE>
Leased Real Property is in compliance with all Laws and has received all Permits
applicable to such real property leased by the Company. No improvement or
structure on any Real Property encroaches on any adjacent property. No
improvement or structure on any Real Property has been damaged by any casualty
or act of God, or been subject to any condemnation proceedings.
(iv) Schedule 3(h)(iv)(1) attached hereto lists, by various groupings,
a complete and accurate list of all machinery and equipment, material handling
equipment, vehicles, furniture, office equipment, computer equipment and
hardware, business machines and other tangible personal property ("Personal
Property") owned by the Company as of the date of this Agreement (the "Owned
Personal Property") and shows, by various groupings, the original acquisition
price and date, method of depreciation used and current book and tax value (if
different). Schedule 3(h)(iv)(2) includes a complete and accurate list of all
leased Personal Property leased by the Company from third parties as of the date
hereof (the "Leased Personal Property"). For Leased Personal Property for which
the annual lease payment is more than $10,000, Schedule 3(h)(iv)(2) indicates
the name of the lessor, the date of the lease, the initial term of the lease and
the annual payments made thereunder. The Personal Property owned or leased by
the Company (i) is in good operating condition, order and repair, subject to
ordinary wear and tear, and have been maintained in accordance with standard
industry practice, (ii) is adequate for the purposes for which they are being
used and are capable of being used in the Company's business as presently being
conducted without present need for repair or replacement except in the ordinary
course of the Company's business, (iii) conforms in all material respects with
all applicable licensing and other legal requirements, and (iv) in the aggregate
provides the capacity to enable the Company to engage in
8
<PAGE>
commercial operation on a continuous basis (subject to normal maintenance and
repair outages in the ordinary course).
(v) All of the plants, facilities, machinery and equipment are
adequate and sufficient for all operations conducted by the Company in
substantially the same manner as conducted prior to the Closing Date. No
condition exists with respect to any Real Property or Personal Property
(collectively, the "Property") that would prevent, or require repair or
modification thereof as a prerequisite to, Purchaser using such Property in the
conduct of the Company's business except with respect to ordinary wear and tear
and scheduled maintenance and repair. The Company enjoys peaceful and
undisturbed possession of all Leased Real Property and Leased Personal Property.
(vi) Since the date of the 1997 Balance Sheet, the Company has not
sold, transferred, leased, distributed or otherwise disposed of any of its
assets, or agreed to do so, except for sales of products and services in the
ordinary course of business or the disposition of immaterial assets in the
ordinary course of business or which in the reasonable judgment of management of
the Company are not necessary or advisable to the efficient operations of the
Company's business.
(i) Intellectual Property. The Company owns or possesses adequate licenses
or other rights to use (without making any payment or granting rights to any
person in exchange) all patents, patent applications, trademarks, copyrights,
service marks and trade names (collectively, the "Intellectual Property")
necessary to conduct its business as currently conducted. Neither the validity
of the Intellectual Property nor the title thereto or use thereof by the Company
is being questioned in any pending litigation, and the conduct of the Company's
business, as currently conducted, does not conflict with licenses, copyrights,
uncopyrighted works, trade marks, service marks, trade names, trade name rights,
patents, patent rights, unpatented inventions or trade secrets of others.
Neither the validity of the Intellectual Property nor the title thereto or use
thereof by the Company is being questioned in any pending or, to the knowledge
of the Company, threatened infringement claims or litigation, and the conduct of
the Company's business, as now conducted, does not conflict with licenses,
copyrights, uncopyrighted works, trade marks, service
9
<PAGE>
marks, trade names, trade name rights, patents, patent rights, unpatented
inventions or trade secrets of others. The Intellectual Property will afford
Purchaser at all times after the Closing Date the rights to use all technology,
proprietary information, know-how or patented ideas, designs, inventions,
trademarks, copyrights, tradenames and servicemarks owned by the Company or
others necessary for the conduct of the Company's business as presently being
conducted. After the Closing Date, no person or business entity other than the
Company will be authorized directly or indirectly to use the corporate name of
the Company or any name deceptively or confusingly similar thereto.
(j) Prepayments; Accounts Receivable; Backlog, Bid Bonds. Schedule 3(j)(1)
attached hereto sets forth a complete and accurate list of all lease, security,
insurance, utility, permit, tax or other bonds or deposits cash advances and
similar prepayments made by the Company (collectively, "Prepayments") in
existence as of the date of this Agreement. Schedule 3(j)(2) attached hereto
sets forth a complete and accurate list of accounts receivable, notes receivable
and other receivables, foreign and domestic, of the Company, whether billed or
unbilled, including any and all accrued interest thereon (collectively the
"Accounts Receivable") in existence as of the date of this Agreement and sets
forth the name and invoice number relating to each Account Receivable. Schedule
3(j)(3) attached hereto sets forth a complete and accurate list of order backlog
of the Company as of September 30, 1997, consisting only of orders that have not
been cancelled, altered
10
<PAGE>
or reduced as of such date. Schedule 3(j)(4) attached hereto sets forth a
complete and accurate list of all performance guaranties, letters of credit,
performance and bid bonds and similar arrangements of the Company ("Bid Bonds")
in effect as of the date of this Agreement.
(k) Insurance. The Company maintains fire and casualty, product and other
liability insurance providing coverage for its assets, business and operations
that is reasonable in light of the nature and scope of the Company's assets,
business and operations and that is consistent with insurance coverage in the
industry in which the Company operates. The Company shall use reasonable
efforts to continue such coverage (or obtain insurance providing substantially
similar coverage) through the Closing Date. Schedule 3(k) attached hereto sets
forth a complete and accurate summary of all insurance policies maintained by
the Company in respect of the business and assets of the Company, including,
without limitation, insurance providing benefits for employees, in effect as of
the date of this Agreement. The Company has not received any notice from any
insurance carrier of the intention of such carrier to discontinue any insurance
coverage afforded to the Company.
(l) Tax Matters. All federal, state and other tax returns and reports
required to be filed by or on behalf of the Company and its predecessors have
been duly filed, except those for which extensions have been obtained. All
taxes and other assessments and levies (including all interest and penalties)
and all installments of estimated taxes required to be paid, withheld or
collected by the Company with respect to any period ending on or before
September 30, 1997 have been duly paid, withheld or collected, as the case may
be, and the same have been paid over to the property governmental agencies or
segregated and set aside for such payment as required by law. The Company has
not received any notice of an assessment, deficiency notice, 30-day letter, or
11
<PAGE>
similar notice with respect to income tax, sales tax or other taxes from the
Internal Revenue Service or any other taxing authority with respect to any
taxable period ending on or before the Closing Date, the Company has not
executed or filed with the Internal Revenue Service or any other taxing
authority any agreement extending the period for assessment or collection of any
income or other taxes, and the Company is not a party to any pending action or
proceeding by any governmental authority for assessment or collection of taxes
and no claim for assessment or collection of taxes has been asserted against it.
(m) Contractual Rights. Schedule 3(m) attached hereto sets forth a
complete and accurate list of all executory purchase and sales orders and
similar forward commitments, distribution agreements, and all other executory
contracts, agreements and undertakings to which the Company is a party
(collectively, the "Contracts") in effect as of the date of this Agreement which
either (I) extend for a period longer than one year after the Closing Date
(unless the same may be terminated at the option of the Company without penalty,
on notice of 30 days or less), (ii) require future payment by the Company of
more than $5,000, including future commitments such as purchase orders, or (iii)
are otherwise material to the Company's business. All leases relating to Leased
Real Property and Leased Personal Property (collectively, the "Leases") and
Contracts and other material agreements, commitments and obligations, including,
without limitation, licenses, royalties, assignments and similar agreements with
respect to Intellectual Property (collectively, the "Instruments") are valid,
binding and in full force and effect, have not been amended or supplemented in
any manner or respect, and are enforceable by the Company in accordance with
their respective terms. The Company is not in default, and no notice of alleged
default has been received by the Company, under the terms of any such
Instrument, and the Company does not have
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<PAGE>
any knowledge of a default or alleged default by the other party to any such
Instrument. The Company (a) has not received payment under any Contract for the
sale of products which requires material delivery in the future of any products,
(b) the Company has not delivered under any Contract materially more products
than any other party thereto is obligated to acquire, (C) there exists no
material requirement on the part of the Company to "make-up" any deliveries of
products to any third party under any Contract and (d) there have not been
delivered by the Company under any Contract materially less products than any
other party thereto paid for. To the Company's knowledge, no event has occurred
that with the lapse of time or action or inaction by any party thereto would
result in a violation thereof or a default thereunder. Subject to any required
third party consents, none of the rights under the Instruments will be impaired
by the consummation of the transactions contemplated by this Agreement, and all
such rights will inure to and be enforceable by the Company after the Closing
Date without the authorization, consent, approval, permit or licenses of, or
filing with, any other person.
(n) Employee Matters. As of the date of this Agreement, (i) there is no
unfair labor practice complaint against the Company threatened in writing or
pending before the National Labor Relations Board or any state or local
governmental agency, (ii) there is no charge of discrimination against the
Company, threatened in writing or pending, with the Equal Employment Opportunity
Commission or any other state or federal anti-discrimination agency, (iii) there
is no strike or similar labor action actually pending or threatened against the
Company, and (iv) there is no collective bargaining agreement between the
Company and any labor organization or other employee group. Schedule 3(n)(1)
attached hereto is a complete and accurate list of each material employee
benefit plan or program that the Company maintains, contributes to, or is
required to
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contribute to or with respect to which the Company has any obligation or
liability (whether or not current, contingent or secondary) on behalf of any of
its current or former employees (or any beneficiary thereof) providing current
or deferred compensation or health, life insurance, disability, severance or
similar benefits (other than workers' compensation) to such persons
(collectively, "Employee Plans"). No such plan is a multiemployer plan described
in Section 3(37) and Section 4001(a)(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or an employee pension benefit plan
within the meaning of Section 3(2) of ERISA. Except as described on Schedule
3(n)(2), the Company is not a party to any written employment agreement,
termination agreement, severance agreement or similar agreement.
(o) Warranties. The Company does not have any warranties to third parties
with respect to any services performed or products sold by it, other than
warranties imposed by law or pursuant to written contracts between the Company
and its customers. The Company does not have any liability, contingent, fixed
or otherwise, based on or arising from the manufacture or sale of any products
pursuant to warranties or otherwise.
(p) Absence of Certain Changes or Events. Except as set forth in Schedule
3(p), the Company has not, between September 30, 1997 and the date of this
Agreement, taken any action of the type described in clauses (i) through (ix) of
Section 6(b) hereof. Since September 30, 1997, there has not occurred any
material adverse change in the operations, assets, financial condition or
results of operations of the Company.
(q) Environmental Matters. There are no present or past environmental
conditions relating to the assets or operations of the Company resulting from a
past or present spill, discharge, leak, emission, injection, escape, dumping or
"release" (as defined in Section 101(14) of
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the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA")), whether accidental or intentional, of (i) any
"hazardous substance" (as defined in Section 101(14) of CERCLA) that would be
reportable pursuant to Section 103(a) of CERCLA (regardless of whether such
section of CERCLA was in effect at the time of any such spill, discharge, leak,
emission, injection, escape, dumping or release), (ii) any petroleum products or
other hydrocarbons in violation of applicable law, from or onto any property
covered by any Lease to any medium, including but not limited to, air, land,
surface waters or underground waters, including, without limitation, releases of
such substances that constitute raw materials, intermediates or products of the
Company's business, or (iii) any "hazardous substance," petroleum products or
other hydrocarbons which are present and require remediation under applicable
law. No material citations, fines or penalties have been assessed, threatened in
writing or asserted in connection with the conduct of the Company's business
under any applicable Laws relating to noise or to air, water or land pollution
or other environmental protection matters or to occupational safety or health
matters. The Company has not received any written notice from a Governmental
Agency of any material violation of any environmental protection Law or Permit.
(r) Litigation, Judgments, etc. Except as described on Schedule 3(r)
attached hereto, there are no actions, suits, investigations or proceedings to
which the Company is a party pending in any court or before or by any federal,
state or other governmental department, commission, agency or other
instrumentality (excluding any rule making, investigation, or similar proceeding
of general applicability and any appeal or petition for review relating
thereto), or before any arbitrator, and the Company has not received written
notice threatening any such matter. The Company is not in default with respect
to any judgment, order, writ, injunction, decree or award
15
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applicable to it of any court or other governmental instrumentality or
arbitrator having jurisdiction over it.
(s) Absence of Certain Business Practices. Neither the Company nor any
officer, employee or agent of the Company nor any other person acting on its
behalf, has, directly or indirectly, within the past five years, given or agreed
to give any gift or similar benefit to any customer, supplier, government
employee or other person who is or may be in a position to help or hinder the
business of the Company (or to assist the Company in connection with any actual
or proposed transaction) which (1) might subject the Company to any damage or
penalty in any civil, criminal or governmental litigation or proceeding, (2) if
not given in the past, might have had a material adverse effect on the assets,
business or operations of the Company as reflected in the Financial Statements,
or (3) if not continued in the future, might materially adversely effect the
assets, business operations or prospects of the Company or which might subject
the Company to suit or penalty in a private or governmental litigation or
proceeding.
(t) Minute Book and Charter Documents. The minute book of the Company that
has been made available to the Purchaser for its review constitutes the sole
minute book of the Company and contains a complete and accurate record of all
actions of the stockholders and Board of Directors (and any committees thereof)
of the Company. The Company has delivered to the Purchaser true and correct
copies of the Articles of Incorporation and By-Laws of the Company as currently
in effect.
(u) Disclosure of Facts. There are no facts peculiar to the Company that
the Company has not disclosed to Purchaser that materially adversely affect, or
insofar as the Company
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can reasonably foresee, will materially adversely affect, the business,
financial condition, assets or results of operations or prospects of the
Company.
(v) No Brokers or Finders. The Company has not entered into any agreement,
understanding or arrangement with any broker or finder, and has not incurred any
brokerage or finder's fees or agent's commissions or other similar charges to
any person or entity with respect to the transactions contemplated by this
Agreement.
4. Representations and Warranties of the Sellers. Each of the Sellers,
severally and not jointly, represent and warrant to the Purchaser as follows:
(a) Power and Authority; Enforceability. This Agreement has been duly
executed and delivered by such Seller and, assuming the due authorization,
execution and delivery of this Agreement by the other parties hereto, this
Agreement constitutes a legal, valid and binding obligation of such Seller
enforceable in accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors, rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought. When executed and
delivered by such Seller at the Closing, the Consulting Agreement to which such
Seller is a party will be duly executed and delivered by such Seller and,
assuming the due authorization, execution and delivery thereof by the Company
and the Purchaser, will constitute a legal, valid and binding obligation of such
Seller, enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific
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performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
(b) No Conflicts. Neither the execution, delivery and performance of this
Agreement or Consulting Agreement to which such Seller will be a party at the
Closing nor the consummation of the transactions contemplated hereby or thereby
will (i) result in any breach or constitute a default with or without notice or
lapse of time, or both) under, or give rise in others to any rights of
termination, cancellation or acceleration under, any indenture, contract,
instrument, or loan agreement pursuant to which such Seller is a borrower, or
any license, franchise, permit, order, decree, concession, lease, judgment,
statute, law, ordinance, rule or regulation applicable to such Seller or his
assets. No filing or registration with, or authorization, consent or approval
of, any governmental or regulatory body or authority is necessary for the
consummation by such Seller of the transactions contemplated by this Agreement
or the Consulting Agreement to which such Seller will be a party at the Closing.
(c) Good and Valid Title. Such Seller holds of record and owns
beneficially the number of shares of Common Stock specified with respect to such
Seller on Schedule 3(d), free and clear of any Lien, option, warrant, purchase
right or other encumbrances (except for encumbrances created by this Agreement
and restrictions on sales of securities under applicable securities laws). By
the purchase of the shares of Common Stock owned by such Seller pursuant to this
Agreement, the Purchaser will obtain good and valid title to all of such shares,
free and clear of all liens, options, warrants, purchase rights, or other
encumbrances (other than those created by, through or under the Purchaser
pursuant to this Agreement and restrictions on sales of securities under
applicable securities laws). Such Seller is not a party to any option, warrant,
purchase right, or other contract
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or commitment (other than this Agreement) that could require such Seller to
sell, transfer, or otherwise dispose of any shares of Common Stock. Such Seller
is not a party to any voting trust, proxy, or other agreement or understanding
with respect to the voting of any shares of Common Stock.
(d) No Brokers or Finders. Such Seller has not made any arrangements with
any broker, finder or investment banker that would require the Company to pay
any fee or commission if the transactions contemplated by this Agreement are not
consummated.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Sellers as follows:
(a) Organization. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of Louisiana, with corporate power
to carry on its business as now being conducted.
(b) Power and Authority; Enforceability. The Purchaser has all requisite
corporate power to enter into this Agreement and to perform its obligations
hereunder and thereunder. This Agreement has been duly authorized, executed and
delivered on behalf of the Purchaser and, assuming due authorization, execution
and delivery by the other parties hereto, constitutes a legal, valid and binding
obligation of the Purchaser, enforceable in accordance with its terms, except
that (i) such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally and (ii) the remedy of specific performance and injunction and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Each of the Consulting Agreements has been duly authorized and, when executed
and delivered on
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behalf of the Purchaser at the Closing, will be duly executed and delivered and,
assuming due authorization, execution and delivery by the other parties thereto,
will constitute a legal, valid and binding obligation of the Purchaser,
enforceable in accordance with its terms, except that (i) such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally and (ii) the remedy of
specific performance and injunction and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(c) No Conflicts. Neither the execution and delivery of this Agreement or
the Consulting Agreements nor the consummation of the transactions contemplated
herein or therein (i) will conflict with or result in a breach, default or
violation of (A) any of the terms, provisions or conditions of the Articles of
Incorporation or By-Laws of the Purchaser or (B) any material agreement,
document, instrument, judgment, decree, order, governmental permit, certificate
or license to which the Purchaser is a party or to which it is subject or by
which its property is bound, or (ii) will result in the creation of any Lien on
any material property or asset of the Purchaser, or (iii) will require the
Purchaser to obtain the consent of any private non-governmental third party. No
consent, action, approval or authorization of, or registration, declaration or
filing with, any governmental department, commission, agency or other
instrumentality having jurisdiction over the Purchaser is required by the
Purchaser to authorize the execution, delivery or performance of this Agreement
or the Consulting Agreements by the Purchaser.
6. Covenants of Parties. The Parties hereby covenant and agree as follows:
(a) Access. The Company will permit the Purchaser and its authorized
employees, agents, accountants, legal counsel and other representatives to have
access to the books,
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records, facilities, properties, personnel and officers of the Company;
provided, however, that such investigation shall be conducted in a manner that
does not interfere with normal operations of the Company and its employees or
its relationships with suppliers and customers. The Company will cause the
employees, legal counsel, accountants, engineers and other representatives of
the Company to be available to the Purchaser at all reasonable times for such
purposes.
(b) Operation of Business and Consents. Prior to the Closing and except as
otherwise contemplated in this Agreement, the Company will not, without the
consent of the Purchaser:
(i) increase the rate or form of compensation payable to any employee
or increase any employee benefits, except increases in compensation and benefit
changes made in the ordinary course of business in accordance with established
policies and past practice and except for the payment of bonuses to employees in
the aggregate amount of $310,000 prior to the Closing;
(ii) dispose of any properties or assets, except in the ordinary
course of business consistent with past practice and except for those assets and
properties identified on Schedule 6(b)(ii) attached hereto which will be
transferred to the Sellers prior to the Closing;
(iii) engage in any one or more activities or transactions outside the
ordinary course of business;
(iv) amend its Articles of Incorporation or By-Laws;
(v) create, incur, assume, guarantee or otherwise become liable or
obligated with respect to any indebtedness, or make any loan or advance to, or
any investment in, any person or entity, except in each case in the ordinary
course of business consistent with past practice;
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(vi) file any motions, orders, briefs, settlement agreements or other
papers in any proceeding before any court or any federal, state or other
governmental department, commission or agency or any arbitrator except with
respect to pending proceedings where positions advanced are substantially
consistent with previous positions;
(vii) issue any securities relating to its capital stock or grant, or
enter into any agreement to grant, any options, convertibility rights, other
rights, warrants, calls or agreements relating to its capital stock; or redeem,
repurchase or otherwise reacquire any of its capital stock;
(viii) maintain its books of account other than in the usual, regular
and ordinary manner in accordance with generally accepted accounting principles
and on a basis consistent with prior periods or make any change in any of its
accounting methods or practices; or
(ix) pay any dividend on or make any distribution with respect to, or
purchase or redeem, any of its capital stock.
(c) Regulatory Compliance. Prior to the Closing, the Company will comply
in all material respects with all applicable local, state and federal laws,
rules and regulations, judgments, decrees, orders, governmental permits,
certificates and licenses, including, without limitation, those relating to the
filing of reports and the payment of income, franchise and other taxes due to be
paid prior to the Closing.
(d) Continued Operation of Business. Prior to the Closing, the Company
will use commercially reasonable efforts (i) to preserve substantially intact
the business organization of the Company, (ii) to keep available the services of
the employees of the Company and (ii) to preserve the present relationships of
the Company with persons having significant business relations therewith.
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(e) Press Releases. None of the Purchaser, the Company or any of the
Sellers shall issue or cause publication of any press release or other
announcement or public communication with respect to this Agreement or the
transactions contemplated hereby without the consent of the other parties
hereto, which consent shall not unreasonably be withheld; provided that nothing
herein shall prohibit either Party from issuing or causing publication of any
such press release, announcement or public communication to the extent that such
Party reasonably determines that such action is required by law.
(f) Confidential Nature of Information. The Purchaser shall treat in
confidence all documents, materials and other information which it shall have
obtained regarding the Company during the course of the negotiations leading to
the execution of this Agreement, in the investigation of the Company, and in the
preparation of agreements and other documents relating to the consummation of
the transactions contemplated by this Agreement, provided, however, that from
and after the Closing Date, the foregoing prohibition shall not apply to the
Purchaser. In the event the transactions contemplated hereby are not
consummated, the Purchaser shall return to the Company all originals and copies
of non-public documents and materials relating to the Company which have been
furnished or acquired in any manner in connection therewith.
(g) Continuance of Health Insurance Benefits. From and after the Closing,
the Purchaser shall either (i) include each of the Sellers and Robert M. Clary
and Laura H. Clary (the "Covered Persons") under the health insurance coverage
of the Purchaser as in existence with respect to the Purchaser's employees, as
such coverage changes from time to time, or (ii) cause the Company to continue
to include each of the Covered Persons under the health insurance coverage of
the Company as in existence with respect to the Company's employees, as such
coverage changes from
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time to time, in each case for so long as (x) either the Purchaser or the
Company maintains health insurance coverage for their respective employees and
(y) each of the Covered Persons pays the applicable premium with respect to such
coverage.
7. Conditions to the Closing.
(a) The Sellers. The obligations of the Sellers to consummate the
transactions contemplated by this Agreement are subject, at the option of the
Sellers, to the satisfaction or waiver of the following conditions:
(i) The Purchaser shall have furnished the Sellers with certified
copies of resolutions duty adopted by the Board of Directors of the Purchaser
authorizing the execution, delivery and performance of this Agreement and the
Consulting Agreements;
(ii) The representations and warranties of the Purchaser contained
herein will be accurate in all material respects at and as of the Closing Date
as though such representations and warranties had been made at and as of such
date; all terms, covenants and conditions of this Agreement to be complied with
and performed by the Purchaser at or prior to the Closing will have been duly
complied with and performed; and the Purchaser will have delivered to the
Sellers a certificate dated as of the Closing Date and signed on behalf of the
Purchaser by the President or any Vice President thereof to the foregoing
effect;
(iii) All statutory requirements for the valid consummation of the
transactions contemplated herein shall have been fulfilled and all governmental
consents, approvals or authorizations necessary for the valid consummation of
the transactions contemplated herein shall have been obtained;
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(iv) As of the Closing, no order, writ, injunction or decree shall
have been entered into and be in effect that restrains, enjoins or invalidates
any of the transactions contemplated hereby, and no action, suit or other
proceeding shall be pending (irrespective of whether instituted by the U.S.
government or any agency thereof or by any private party) or threatened by the
U.S. government or any agency thereof that has a reasonable likelihood of
resulting in (A) an award of substantial damages by reason of any of the
transactions contemplated hereby payable by the Company or (B) the divestiture
of any material assets by the Company by reason of any of the transactions
contemplated hereby; and
(v) The Sellers will have received an opinion from Andrews & Kurth
L.L.P., counsel for the Purchaser, dated the Closing Date, in form and substance
satisfactory to counsel for the Sellers, that:
(A) the Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Louisiana with corporate power to carry on its business as now being
conducted;
(B) the Purchaser has full corporate power, authority and
legal right to enter into this Agreement and the Consulting Agreements
and to consummate the transactions contemplated hereby and thereby;
and this Agreement and the Consulting Agreements have been duly
authorized and approved by proper corporate action of the Purchaser,
have been duly executed by the Purchaser and, assuming due
authorization, execution and delivery by the other parties thereto,
constitute legal, valid and binding agreements of the Purchaser,
enforceable in accordance with their terms, except that (i) such
enforcement may be limited by bankruptcy, insolvency,
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reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally and (ii) the remedy of specific
performance and injunction and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought; and
(C) To the best of such counsel's knowledge, the
consummation of the transactions contemplated by this Agreement and
the Consulting Agreements will not result in the breach of any term or
provisions of or constitute a default under any indenture, mortgage,
deed of trust or other loan agreement or debt instrument to which the
Purchaser is a party or by which the Purchaser or the properties of
the Purchaser may be bound and will not conflict with any provision of
the Articles of Incorporation or By-Laws of the Purchaser.
(b) The Purchaser. The obligations of the Purchaser to consummate the
transactions contemplated by this Agreement are subject, at the option of the
Purchaser, to the satisfaction or waiver of the following conditions:
(i) The Company shall have furnished the Purchaser with certified
copies of resolutions duly adopted by the Board of Directors of the Company
authorizing the execution, delivery and performance by the Company of this
Agreement and the Consulting Agreements;
(ii) The representations and warranties of the Company contained
herein will be accurate in all material respects at and as of the Closing Date
as though such representations and warranties had been made at and as of such
date; all terms, covenants and conditions of this Agreement to be complied with
and performed by the Company at or prior to the Closing will have been duly
complied with and performed; and the Company will have delivered to the
Purchaser a
26
<PAGE>
certificate dated as of the Closing Date and signed on behalf of the Company by
the President or any Vice President thereof to the foregoing effect;
(iii) The representations and warranties of the Sellers contained
herein will be accurate in all material respects at and as of the Closing Date
as though such representations and warranties had been made at and as of such
date; and all terms, covenants and conditions of this Agreement to be complied
with and performed by the Sellers at or prior to the Closing will have been duly
complied with and performed.
(iv) All statutory requirements for the valid consummation of the
transactions contemplated herein shall have been fulfilled and all governmental
consents, approvals or authorizations necessary for the valid consummation of
the transactions contemplated herein;
(v) As of the Closing, no order, writ, injunction or decree shall have
been entered and be in effect that restrains, enjoins or invalidates any of the
transactions contemplated hereby, and no action, suit or other proceeding shall
be pending (irrespective of whether instituted by the U.S. government or any
agency thereof or by any private party) or threatened by the U.S. government or
any agency thereof that has a reasonable likelihood of resulting in (A) an award
of substantial damages by reason of any of the transactions contemplated hereby
payable by the Purchaser or the Company or (B) the divestiture of any material
assets by the Purchaser or the Company or any direct or indirect subsidiary
thereof by reason of any of the transactions contemplated hereby;
(vi) Each of the Sellers shall have execute and delivered a Consulting
Agreement;
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(vii) The Purchaser shall have obtained bank financing for the full
amount of the Purchase Price on terms satisfactory to the Purchaser in its sole
discretion; and
(viii) The Purchaser will have received an opinion of Sanders
& Sanders, L.L.P., counsel for the Company and the Sellers, dated the Closing
Date, in form and substance satisfactory to counsel for the Purchaser, that:
(A) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of Texas, with corporate
power to carry on its business as now being conducted;
(B) The Company has full corporate power, authority and
legal right to enter into this Agreement and each of the Consulting
Agreements; and this Agreement and each of the Consulting Agreements
have been duly authorized and approved by the proper corporate action
of the Company, have been duly executed by the Company and, assuming
due authorization, execution and delivery by the other parties
thereto, constitute legal, valid and binding agreements of the
Company, enforceable in accordance with its terms, except that (i)
such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally and (ii) the remedy of specific
performance and injunction and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought;
(C) To the best of such counsel's knowledge, neither the
execution and delivery of this Agreement and the Consulting
Agreements, nor the
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consummation of the transactions contemplated by this Agreement and
the Consulting Agreements, will result in the breach of any term or
provision of or constitute a default under any indenture, mortgage,
deed of trust or other loan agreement or debt instrument to which the
Company is a party or by which the Company or the respective
properties of the Company may be bound or conflict with the Articles
of Incorporation or By-Laws of the Company; and
(D) Each of the Consulting Agreements have been duly
executed and delivered by the Seller who is a party thereto and each
Consulting Agreement constitutes a legal, valid and binding agreement
of the Seller who is a party thereto, enforceable in accordance with
its terms, except that (i) such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally and (ii) the
remedy of specific performance and injunction and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
8. Closing. Subject to the conditions stated in Section 7 of this
Agreement, the consummation of the transactions contemplated by this Agreement
(the "Closing") shall be held at the offices of the Company in Orange, Texas on
December 12, 1997, or at such other date, time or place as the parties may agree
in writing (the date upon which the Closing takes place being referred to herein
as the "Closing Date"). At the Closing, the following events shall occur, each
such event under the control of one Party hereto being a condition precedent to
the events under the control of
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<PAGE>
the other Party, and each such event being deemed to have occurred
simultaneously with the other events:
(a) Stock Certificates; Payment of Purchase Price. The Sellers shall
deliver to the Purchaser one or more stock certificates representing all of the
shares of outstanding Common Stock, with stock powers attached thereto duly
executed in blank. The Purchase Price shall be paid in
United States dollars and, unless the Sellers shall agree otherwise, shall be
made by wire or intrabank transfer of immediately available funds by 11:00 a.m.
Houston time on the Closing Date to such account as the Sellers may designate at
least two business days prior to the Closing Date.
(b) Consulting Agreement. Each of the Sellers and the Purchaser
shall execute and deliver a Consulting Agreement.
(c) Resignations of Directors of the Company. The Company will
deliver to the Purchaser resignations of all directors and officers of the
Company.
9. Post-Closing Indemnity. (a) Subject to the provisions of Section
10, from and after the Closing, (i) the Sellers shall, jointly and severally,
indemnify and hold harmless the Purchaser from and against any claim, liability,
loss, cost, damage or expense (including, without limitation, court costs and
reasonable attorneys' fees) (collectively, "Loss") arising out of, resulting
from or in any way related to the breach of, or the failure to perform or
satisfy any of, the representations, warranties and covenants made by the
Company in this Agreement, provided that Sellers shall not have any liability
under this clause (i) with respect to the breach of any representation set forth
in subsections (g) through (k) and subsections (m) through (v) of Section 3 to
the extent that none of the Sellers had actual knowledge of the fact, matter or
event that gives rise to or results in such breach, and (ii) each Seller shall,
severally and not jointly, indemnify and hold harmless the
30
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Purchaser from and against any Loss arising out of, resulting from or in any way
related to the breach of, or the failure to perform or satisfy any of, the
representations, warranties or covenants made by such Seller in this Agreement.
Subject to the provisions of Section 10, from and after the Closing, the
Purchaser shall indemnify and hold harmless the Sellers from and against any
claim, liability, loss, cost, damage or expense (including, without limitation,
court costs and reasonable attorneys' fees) arising out of, resulting from or in
any way related to a breach of, or the failure to perform or satisfy any of, the
representations, warranties and covenants made by the Purchaser in this
Agreement.
(b) All claims for indemnification under Section 9(a) of this
Agreement shall be asserted and resolved as follows:
(i) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party claim or
claims asserted against the Indemnified Party ("Third Party Claim") which could
give rise to a right of indemnification under this Agreement and (ii) transmit
to the Indemnifying Party a written notice ("Claim Notice") describing in
reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to such claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim and the basis of the Indemnified Party's
request for indemnification under this Agreement. Within 30 days after receipt
of any Claim Notice (the "Election Period"), the Indemnifying Party shall notify
the Indemnified Party (i) whether the Indemnifying Party disputes its potential
liability to the Indemnified Party under this Section 9 with respect to such
Third Party Claim and (ii) whether the Indemnifying Party
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<PAGE>
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claims.
(ii) If the Indemnifying Party notifies the Indemnified Party within
the Election Period that the Indemnifying Party does not dispute its potential
liability to the Indemnified Party under this Section 9 and that the
Indemnifying Party elects to assume the defense of the Third Party Claim, then
the Indemnifying Party shall have the right to defend, at its sole cost and
expense, such Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying Party in accordance
with this Section 9(b)(ii). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof.
The Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is actually entitled to
indemnification hereunder or if the Indemnifying Party assumes the defense with
respect to the Third Party Claim), to file, during the Election Period, any
motion, answer or other pleadings which the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party (it being understood and
agreed that if an Indemnified Party takes any such action which is prejudicial
and conclusively causes a final adjudication which is adverse to the
Indemnifying Party, the Indemnifying Party shall be relieved of its obligations
hereunder with respect to such Third Party Claim). If requested by the
Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Party, to cooperate with the Indemnifying Party and its
counsel in contesting any Third Party Claim which the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person
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<PAGE>
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 9(b) and shall bear its own costs and expenses with respect to such
participation.
(iii) If the Indemnifying Party fails to notify the Indemnified Party
within the Election Period that the Indemnifying Party elects to defend the
Indemnified Party pursuant to Section 9(b)(ii), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 9(b)(2) but fails to
diligently and promptly prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party, the Third Party Claim by all appropriate proceedings,
which proceedings shall be promptly and vigorously prosecuted by the Indemnified
Party to a final conclusion or settled. The Indemnified Party shall have full
control of such defense and proceedings, provided, however, that the Indemnified
Party may not enter into, without the Indemnifying Party's consent, which shall
not be unreasonably withheld, any compromise or settlement of such Third Party
Claim. Notwithstanding the foregoing, if the Indemnifying Party has delivered a
written notice to the Indemnified Party to the effect that the Indemnifying
Party disputes its potential liability to the Indemnified Party under this
Section 9 and if such dispute is resolved in favor of the Indemnifying Party by
final, nonappealable order of a court of competent jurisdiction, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 9 or of the Indemnifying
Party's participation therein at the Indemnified Party's request and the
Indemnified Party shall reimburse the Indemnifying Party in full for all costs
and expenses of such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement
33
<PAGE>
controlled by the Indemnified Party pursuant to this Section 9, and the
Indemnifying Party shall bear its own costs and expenses with respect to such
participation.
(iv) In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder which does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of damages attributable to such claim and the basis of
the Indemnified Party's request for indemnification under this Agreement. If the
Indemnifying Party does not notify the Indemnified Party within 60 days from its
receipt of the Indemnity Notice that the Indemnifying Party disputes such claim,
the claim specified by the Indemnified Party in the Indemnity Notice shall be
deemed a liability of the Indemnifying Party hereunder. If the Indemnifying
Party has timely disputes such claim, as provided above, such dispute shall be
resolved by litigation in an appropriate court of competent jurisdiction.
(v) Payments of all amounts owing by the Indemnifying Party pursuant
to this Section 9 shall be made within 60 days after the latest of (i) the
settlement of the Third Party Claim, (ii) the expiration of the period for
appeal of a final adjudication of such Third Party Claim or (iii) the expiration
of the period for appeal of a final adjudication of the Indemnifying Party's
liability to the Indemnified Party under this Agreement. Payments of all
amounts owing by the Indemnifying Party pursuant to Section 9(b)(iv) shall be
made within 60 days after the later of (i) the expiration of the 60-day
Indemnity Notice period or (ii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement.
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<PAGE>
(c) In determining the amount of any loss, liability or expense for
which any party is entitled to indemnification under this Agreement, the gross
amount thereof will be reduced by any correlative tax benefit or insurance
proceeds realized or to be realized by such party (or, in the case of the
Purchaser, by the Company or any subsidiary of the Purchaser or the Company) and
such correlative insurance benefit shall be net of any insurance premium which
becomes due as a result of such claim.
(d) The representations, warranties and covenants of the Company, the
Sellers and the Purchaser set forth in this Agreement shall survive the Closing;
provided, however, that (i) the rights of the parties hereto to initiate any
action for breach of any representation, warranty or covenant made by the
Company, the Sellers or the Purchaser hereunder shall survive only until the
close of business on the first anniversary of the Closing Date and (ii) any
claim asserted in the manner specified in this Section 9 on or prior to the
first anniversary of the Closing Date shall survive until such claim is resolved
in the manner set forth in this Section 9.
10. Limitation of Liability. Notwithstanding any other provision
hereof, (a) the liability of the Purchaser and the Sellers under this Agreement
for any breach of any representation, warranty or covenant herein shall be
limited to actual damages only and shall not include incidental, consequential
or indirect damages and (b) the Sellers shall not have any liability for any
such breaches unless the aggregate liabilities for all breaches exceeds $50,000.
11. Post-Closing Tax Cooperation and Access. From and after the
Closing, the Purchaser shall make available to the Sellers, and to any Federal,
state, municipal or local government, governmental authority, regulatory or
administrative agency, governmental commission, department, board, agency,
governmental commission, department, board, agency or instrumentality, court,
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<PAGE>
tribunal, arbitrator or arbitral body responsible for the imposition or
collection of any taxes ("Taxing Authority") as reasonably requested by the
Sellers, all information, records or documents relating to tax liabilities or
potential tax liabilities of or relating to the Company for all periods prior to
or including the Closing Date and shall preserve all such information, records
and documents until the expiration of any applicable statute of limitations or
extensions thereof. Purchaser shall prepare and provide to the Sellers any
federal, state, local or foreign tax data and other information, including such
information required by any of the Seller's customary tax and accounting
questionnaires, requested by any of the Sellers for such Seller's use in
preparing its tax returns for any period prior to or including the Closing Date.
Such tax data and other information shall be prepared by Purchaser
and provided to Sellers within 60 days after any request for such data or other
information. Each party shall bear its own expenses in complying with the
foregoing provisions.
12. Termination of Agreement. Anything herein to the contrary
notwithstanding, this Agreement shall terminate upon the occurrence of any of
the following events:
(a) Mutual Consent. By mutual consent of the Purchaser, the Company
and the Sellers evidenced in writing; or
(b) Expiration Date. The written notice from the Sellers to the
Purchaser, or from the Purchaser to the Sellers, if the Closing has not occurred
on or before January 1, 1998, or such later date as such Parties shall have
agreed to in writing; provided, however, that any termination pursuant to this
Section 12(b) shall not relieve any Party of any liabilities to the other
Parties for its willful breach of the provisions hereof occurring before such
termination, it being understood and agreed that, if all of the conditions to a
Party's obligations set forth in Section 7(a) or 7(b) have been satisfied or
waived by the date scheduled for the Closing pursuant to Section 8, the failure
of such
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Party to perform its obligations under Section 8 on such date shall be deemed to
be a willful breach by such Party.
In the event of termination of this Agreement as provided in this
Section 12, this Agreement shall forthwith become void and there shall be no
liability on the part of any Party hereto with respect thereto, except as
provided in Section 12(b) and in the next sentence. The provisions of Section
13 shall survive any termination of this Agreement.
13. Expenses. Regardless of whether the transactions contemplated
herein occur, each of the Parties will be responsible for its own expenses and
fees incurred in connection with the transaction contemplated herein.
14. Notice. Any notice, request, instruction, correspondence or other
document to be given hereunder by any Party to another (herein collectively
called "Notice") shall be in writing and delivered personally or mailed by
certified mail, postage prepaid and return receipt requested, or by telegram or
telecopier, as follows:
To the Company: Orange Shipbuilding Co., Inc.
P. O. Box 1670
Orange, Texas 77630
Attention: Thomas E. Clary
Telecopier: (409) 882-0609
with a copy to:
Sanders & Sanders
719 Front Street
Orange, Texas 77630
Attention: Mr. Alan Sanders
Telecopier: (409) 883-4024
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To the Purchaser: Conrad Industries, Inc.
150 Front Street
P. O. Box 790
Morgan City, Louisiana 70381
Attention: William H. Hidalgo
Telecopier: (504) 385-4090
with a copy to: Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: Thomas P. Mason
Telecopier: (713) 220-4285
To the Sellers: Thomas E. Clary
12 Pin Oak Circle
Orange, Texas 77632
Robert D. Clary
4840 Beagle
Orange, Texas 77630
George B. Clary
902 Dawnwood
Orange, Texas 77630
Notice given by personal delivery or mail shall be effective upon actual
receipt. Notice given by telegram or telecopier shall be effective upon actual
receipt if received during the recipient's normal business hours, or at the
beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. All Notices by telegram or
telecopier shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any Party may change any address to which
Notice is to be given to it by giving Notice as provided above of such change of
address.
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15. No Solicitation. Neither the Company nor the Sellers shall
encourage, solicit, initiate, engage or participate in discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group other than the Purchaser or its affiliates and
representatives (a "Third Party") concerning the Company or concerning the
business of the Company in connection with any merger, consolidation, sale of
all or any substantial amount of assets, sale of securities, liquidation,
dissolution or similar transactions involving the Company (any such proposal,
announcement or transaction being referred to herein as a "Acquisition
Proposal"). The Company and the Sellers shall promptly inform the Purchaser of
any inquiry (including the terms thereof and the identity of the Third Party
making such inquiry) which it may receive in respect of an Acquisition Proposal
and furnish to the Purchaser a copy of any such written inquiry within three
days after receipt thereof.
16. Governing Law. The provisions of this Agreement and the documents
delivered pursuant hereto shall be governed by and construed in accordance with
the laws of the State of Texas (excluding any conflicts-of-law rule or principle
that might refer same to the laws of another jurisdiction), except to the extent
that same are mandatorily subject to the laws of another jurisdiction pursuant
to the laws of such other jurisdiction.
17. Entire Agreement; Amendments and Waivers. This Agreement, together
with all Exhibits and Schedules attached hereto, constitutes the entire
agreement among the Parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties, and there are no warranties,
representations or other agreements among the Parties in connection with the
subject matter hereof except as set forth specifically herein or contemplated
hereby. No supplement, modification or waiver of this
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Agreement shall be binding unless executed in writing by the Party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (regardless of whether
similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly provided.
18. Severability. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the party for whose benefit the provision exists,
be in any way impaired.
19. Headings and Schedules. The headings of the several Sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement. The Exhibits
and Schedules referred to herein are attached hereto and incorporated herein by
this reference.
20. Assignment; Successors Bound. This Agreement may not be assigned by
any Party without the consent of the other Party, except that the Purchaser may
assign to a wholly owned subsidiary its right to purchase the Common Stock so
long as the Purchaser will not be relieved of any of its obligations hereunder.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns.
21. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute a full and complete Agreement.
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<PAGE>
22. Ralph Thon Patent; Applicability. The parties agree that the barge
connector and pontoon devices developed by Ralph Thon, or future modifications
or enhancements thereon, and for which an application or applications by Ralph
Thon for one or more patents is or are pending, are excluded from the scope of
this Agreement and the Consulting Agreements.
IN WITNESS WHEREOF, the Purchaser, the Company and the Sellers have caused
this Agreement to be signed in multiple originals by their respective officers
thereunto duly authorized, all as of the date first above written.
CONRAD INDUSTRIES, INC.
By: /s/ William H. Hidalgo
---------------------------------
Name: William H. Hidalgo
Title: President
ORANGE SHIPBUILDING CO., INC.
By: /s/ Thomas E. Clary
---------------------------------
Name: Thomas E. Clary
Title: President
/s/ Thomas E. Clary
-------------------------------------
Thomas E. Clary
/s/ Robert D. Clary
-------------------------------------
Robert D. Clary
/s/ George B. Clary
-------------------------------------
George B. Clary
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<PAGE>
LOAN AGREEMENT
This Agreement is dated as of March 19, 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, the Borrower has requested Lender to make an extension of credit
to the Borrower and Lender has agreed, upon the terms and conditions set forth
herein, to lend such amounts to the Borrower.
NOW THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Borrower and Lender hereby agree as follows:
SECTION I. DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
meanings specified below:
"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 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.
<PAGE>
"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 indebtedness or other obligations
for borrowed money or for the deferred purchase price of property or services,
whether as maker or endorser, of Borrower 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 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 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 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 generally accepted accounting principles in
the United States of America in effect from time to time and applied on a
consistent basis) 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 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 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 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 and all of its Subsidiaries during such
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<PAGE>
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.
"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;
(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;
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(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.
"Indebtedness" of any Person shall mean and include all obligations of such
Person which in accordance with GAAP shall be classified upon a balance sheet of
such Person as liabilities of such Person and, in any event shall include
(without duplication):
(a) any obligation payable more than one year from the date of
creation thereof which, under generally accepted accounting principles, is shown
on the balance sheet as a liability (including capitalized lease obligations but
excluding reserves for deferred income taxes and other reserves to the extent
that such reserves do not constitute an obligation);
(b) any obligation payable on demand or within a period of one year
from the date of the creation thereof for borrowed money (and any notes payable
and drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money);
(c) indebtedness which is secured by any Lien on property owned by
such Person, whether or not the indebtedness secured thereby shall have been
assumed by such Person;
(d) guarantees, endorsements (other than endorsements of negotiable
instruments for collection in the ordinary course of business) and other
contingent liabilities (whether direct or indirect) in connection with the
obligations, stock or dividends of any Person;
(e) obligations under any contract providing for the making of loans,
advances or capital contributions to any Person, or for the purchase of any
property from any Person, in each case in order to enable such Person primarily
to maintain working capital, net worth or any other balance sheet condition or
to pay debts, dividends or expenses;
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(f) obligations under any contract for the Purchase of materials,
supplies or other property or services if such contract (or any related
document) requires that payment for such materials, supplies or other property
or services shall be made regardless of whether or not delivery of such
materials, supplies or other property or services is ever made or tendered;
(g) obligations under any contract to relet or lease (as lessee) any
real or personal property if such contract (or any related document) provides
that the obligation to make payments thereunder is absolute and unconditional
under conditions not customarily found in commercial leases then in general use
or requires that the lessee purchase or otherwise acquire securities or
obligations of the lessor (provided, that in any event, the foregoing is not
intended to include a normal operating lease or preclude a sublease or an
assignment of a lease in the normal course);
(h) obligations under any contract for the sale or use of materials,
supplies or other property or services if such contract (or any related
document) requires that payment for such materials, supplies or other property
or services, or the use thereof, shall be subordinated to any indebtedness (of
the purchaser or user of such materials, supplies or other property or the
Person entitled to the benefit of such services) owed or to be owed to any
Person;
(i) obligations under any other contract which, in economic effect, is
substantially equivalent to a guarantee; and
(j) liabilities in respect of unfunded vested benefits under plans
covered by Title IV of ERISA.
"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:
(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
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<PAGE>
(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).
"Loan" shall mean the Loan to Borrower described in Article II, with each
being a Loan, as applicable and shall include all principal, interest,
attorney's fees and costs owed thereon.
"Maturity Date" shall mean the maturity date for the Loan, which is April
30, 2004.
"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 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 the note 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.
"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
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<PAGE>
legislation, or good faith deposits in connection with bids, tenders, contracts
(other than for the payment of Indebtedness 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
Indebtedness 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.
"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 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 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 and all of its Subsidiaries.
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
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agrees to make an extension of credit to the Borrower, said extension of credit
being more particularly described hereinafter.
SECTION 2.02. LOAN. On the Closing Date, Lender agrees to lend to the
Borrower the principal sum of Twenty-five Million and No/100 ($25,000,000.00)
Dollars (the "Loan") which shall be evidenced by a promissory note in a form
acceptable to 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 Loan shall
initially be payable interest only payable 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 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 Loan shall be payable on June 30,
1998 with the succeeding installments payable on the last day of each month
until the Loan has been paid in full. Borrower shall be entitled to prepay the
Loan in whole or in part, without payment of premium or penalty. 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 2.03. CONVERSION. (a) At Closing, the Borrower has determined that
the Loan shall accrue interest at Libor Rate with an Interest Period to expire
on September 18, 1998. 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 Loan into a Libor Rate or Base Rate; provided that (i)
the 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
effect as of the date of such Default, and (ii) no conversions 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 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) The 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, and (ii) the amount of each
principal and/or interest payment received by Lender on the Loan.
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
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(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 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. The Borrower shall use the proceeds of the
Loan for the purpose of repaying the Lender loan facility having a present
principal balance of $25,000,000.00.
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"):
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(a) Continuing Guaranties 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 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 the Loan, 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
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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.
(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
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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, 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. The 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. The 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. The 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
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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.
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
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Borrower shall promptly notify Lender of any event which would render any of
said representations and warranties untrue or misleading.
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
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or Orange becomes a documented vessel with the United States Coast Guard,
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
shall comply with the covenants in this Section.
SECTION 5.01. FINANCIAL COVENANTS.
(a) DEBT TO TANGIBLE NET WORTH. The Borrower on a consolidated basis
with all of its Subsidiaries when combined with 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 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 all of its Subsidiaries shall maintain at all times
during the existence of the Loan a maximum ratio of Consolidated Funded Debt to
EBITDA (on a rolling four quarter basis) that shall not exceed 3.0 during the
fiscal year ending December 31, 1998 and 2.5 during each fiscal year thereafter.
(c) FIXED CHARGE COVERAGE RATIO. Borrower on a consolidated basis
with 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.
(d) CURRENT RATIO. Borrower on a consolidated basis with 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.
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 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
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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
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. The
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 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 as often as
may reasonably be necessary, and to discuss the business, operations, properties
and financial and other condition of the Borrower and its Subsidiaries with
officers of the Borrower 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.
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(c) The Borrower shall promptly notify Lender of the arising of any
litigation or dispute threatened against or affecting the Borrower 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 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
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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. The 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. The 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 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. The 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
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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. The 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. The
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. The 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. The 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. The Borrower and/or Orange at Borrower's expense
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. The Borrower will pay all
reasonable legal fees incurred by Lender in connection with the preparation of
this Agreement, the Note and the Collateral Documents. The 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,
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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, 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.
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(c) At 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 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.
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(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. In the event 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 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 April 19, 1998. Borrower agrees that all
mortgages and deeds of trust on the Property, other than the Collateral
Documents, will be canceled on or before March 25, 1998.
SECTION VI
NEGATIVE COVENANTS
The Borrower agrees that, so long as the Loan remain unpaid, or any
other amount or any Obligations are owing to Lender hereunder, the Borrower
shall comply with the applicable covenants contained in this Section.
SECTION 6.01. LIMITATIONS ON LIENS. The Borrower and/or Orange 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 Orange
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. The Borrower and/or any of its
Subsidiaries will 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.
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SECTION 6.04. CONSOLIDATION/MERGER. Neither the Borrower nor a
Subsidiary shall merge or consolidate with any other Person without the written
consent of Lender, except that the Borrower 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 or the Subsidiary 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. Neither the Borrower nor a 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 the Borrower 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 the Borrower
or any Subsidiary as would be obtained in a comparable arm's length transaction
with a non-Affiliate.
SECTION VII
EVENTS OF DEFAULT
SECTION 7.01. 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;
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(f) any material discrepancy between any financial statement
submitted to Lender by Borrower and/or any Guarantor and its actual financial
condition;
(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.
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.
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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 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
27
<PAGE>
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.
[Intentionally Deleted]
28
<PAGE>
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/ WILLIAM H. HIDALGO
------------------------------
WILLIAM H. HIDALGO
ITS: PRESIDENT
ORANGE SHIPBUILDING COMPANY, INC.
BY: /s/ WILLIAM H. HIDALGO
--------------------------------
WILLIAM H. HIDALGO
ITS: PRESIDENT
WHITNEY NATIONAL BANK
BY: /s/ EDGAR W. SANTA CRUZ, III
---------------------------------
EDGAR W. SANTA CRUZ, III
ITS: ASSISTANT VICE PRESIDENT
(WNBFILE #13839/m)Car. #11683
APPROVED AS TO FORM BY
CARVER, DARDEN, KORETZKY,
TESSIER, FINN, BLOSSMAN & AREAUX, L.L.C.
29
<PAGE>
STOCK EXCHANGE AGREEMENT
This Stock Exchange Agreement (the "Agreement") is made and entered
into as of March 31, 1998 by and among Conrad Industries, Inc., a Delaware
corporation ("Conrad DE"), Conrad Industries, Inc., a Louisiana corporation
("Conrad LA"), John Parker Conrad ("Parker Conrad"); John Parker Conrad, Jr.
("John Conrad, Jr."), appearing herein individually and as trustee of The John
Parker Conrad, Jr. Trust ("John Conrad, Jr. Trust"), as trustee of The Glenn
Alan Conrad Trust ("Glenn Conrad Trust"), as trustee of The Kenneth Charles
Conrad Trust ("Kenneth Conrad Trust"), and as trustee of The Daniel Thomas
Conrad Trust ("Daniel Conrad Trust"); Katherine Conrad Court ("Katherine
Court"), appearing herein individually and as trustee of The Katherine Conrad
Court Trust ("Katherine Court Trust") and as trustee of The James Patrick Court
Trust ("Patrick Court Trust"); William H. Hidalgo; and Cecil A. Hernandez.
WITNESSETH:
----------
WHEREAS, Conrad DE has been organized to serve as a holding company
for Conrad LA;
WHEREAS, Parker Conrad, John Conrad, Jr., John Conrad, Jr. Trust,
Glenn Conrad Trust, Kenneth Conrad Trust, Daniel Conrad Trust, Katherine Court,
Katherine Court Trust, Patrick Court Trust, William H. Hidalgo and Cecil A.
Hernandez (the "Participants") are the sole owners of the $.01 par value common
stock of Conrad LA (the "Conrad LA Common Stock");
WHEREAS, pursuant to Section 351 of the Internal Revenue Code of 1986,
as amended (the "Code"), each of the Participants desires to exchange all of
their shares of Conrad LA Common Stock for shares of common stock, par value
$0.01 per share, of Conrad DE (the "Conrad DE Common Stock"), it being the
intent of Conrad DE and each Participant that such exchange of shares pursuant
to this Agreement (the "Stock Exchange") shall satisfy the requirements of such
section;
WHEREAS, as part of the transaction qualifying under Section 351 of
the Code, it is contemplated that following the Stock Exchange, Conrad DE will
make a public offering of Conrad DE Common Stock (the "Public Offering")
pursuant to the Securities Act of 1933, as amended (the "Securities Act");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
<PAGE>
ARTICLE I
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 1.1. Representation of Conrad DE. (a) Conrad DE hereby
represents and warrants to each of the Participants that it is a corporation
duly incorporated under the laws of Delaware and that it has 1,000 shares of its
capital stock issued and outstanding consisting of 1,000 shares of Conrad DE
Common Stock issued to John Conrad, Jr.
(b) Conrad DE hereby represents and warrants to each of the
Participants that the shares of Conrad DE Common Stock to be issued pursuant to
the Stock Exchange, when issued in exchange for the shares of Conrad LA Common
Stock as set forth in this Agreement, will be duly issued, fully paid and
nonassessable.
Section 1.2. Representations of Conrad LA and the Participants.
Conrad LA represents and warrants to Conrad DE that Conrad LA is a corporation
duly incorporated under the laws of Louisiana. Conrad LA and each of the
Participants represent and warrant to Conrad DE that the only shares of the
capital stock issued and outstanding consist of 2,265 shares of Conrad LA Common
Stock issued to the following persons in the amounts set forth opposite their
names:
Number of Shares
Shareholders Issued and Outstanding
J. Parker Conrad 508
John P. Conrad, Jr. 248
John Conrad, Jr. Trust 163
Glenn Conrad Trust 117
Kenneth Conrad Trust 117
Daniel Conrad Trust 117
Katherine Conrad Court 440
Katherine Court Trust 200
Patrick Court Trust 120
William H. Hidalgo 168
Cecil A. Hernandez 67
-----
Total 2,265
=====
Each of the Participants represents and warrants to Conrad DE that the
shares set forth opposite his name are owned by such Participant and upon the
consummation of the Stock Exchange shall be free and clear of all liens,
encumbrances, options, calls, voting trusts and other charges ("Encumbrances")
(other than shares owned by William H. Hidalgo and Cecil A. Hernandez, which
2
<PAGE>
shares are currently pledged as collateral in connection with notes payable by
such Participants to Conrad LA), and no other person has any ownership interest
in such shares.
Section 1.3. Representations of Participants. (a) Each Participant
represents and warrants that such Participant (i) has the requisite authority to
enter into this Agreement and to perform his obligations under this Agreement,
(ii) he has duly executed and delivered this Agreement, (iii) all filings,
approvals and consents necessary for the execution, delivery and performance of
this Agreement by such Participant have been made or obtained or shall have been
made or obtained prior to the Closing (as defined in Section 4.1 hereof), (iv)
this Agreement, when executed and delivered by such Participant, will be a valid
and binding agreement of such Participant, (v) the execution, delivery and
performance of this Agreement by such Participant and the consummation of the
transactions contemplated hereby by such Participant will not (A) conflict with
or result in a breach of any of the terms and provisions of, or constitute a
default (or an event which with notice or lapse of time, or both, would
constitute a default) or require consent under the terms of any agreement,
instrument, franchise, license or permit to which such Participant is a party or
by which such Participant may be bound or (B) violate or conflict with any
provision of any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over such Participant, and (vi) no consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with any court or any public governmental or regulatory agency or body having
jurisdiction over such Participant is required for the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, except such as have been obtained or will be obtained by
such Participant prior to the Closing (as defined herein).
(b) Each Participant acknowledges receipt of (i) a copy of the
Certificate of Incorporation and Bylaws of Conrad DE, (ii) the historical
financial statements of Conrad LA for the three years ended December 31, 1995,
1996 and 1997, (iii) the historical financial statements of Orange Shipbuilding
Company, Inc., a Texas corporation ("Orange"), for the twelve-month period ended
December 31, 1997, (iv) the pro forma financial statements of Conrad DE for the
year ended December 31, 1997 that give effect to the Stock Exchange as if it had
occurred on January 1, 1997 and (v) certain other information concerning Conrad
DE and the Stock Exchange, and each Participant acknowledges that he received
all information necessary in order to make an informed decision concerning his
participation in the Stock Exchange.
(c) Each Participant acknowledges that such Participant has such
knowledge and experience in financial and business matters so that such
Participant is capable of evaluating the merits and risks of an investment in
Conrad DE. Based upon such Participant's own knowledge, such Participant
recognizes the speculative nature of such an investment.
(d) Each Participant hereby acknowledges that the issuance of the
shares of Conrad DE Common Stock being acquired or received by such Participant
hereunder is not and will not be registered under the Securities Act. Each
Participant represents that the shares of Conrad DE Common Stock being acquired
or received hereunder is being acquired or received for such
3
<PAGE>
Participant's own account, for investment purposes only and not with a view for
distribution or resale to others, except as set forth in paragraph (e) below.
Each Participant agrees that such Participant will not sell or otherwise
transfer any shares of Conrad DE Common Stock being acquired or received
hereunder unless such shares of Conrad DE Common Stock are registered under the
Securities Act or unless an exemption from such registration is available.
(e) Each Participant has no present plan, intention, arrangement or
understanding to dispose of any of the shares of Conrad DE Common Stock to be
received pursuant to the transactions described in Article III hereof.
(f) Each Participant agrees not to sell, transfer, convey, pledge,
encumber or otherwise dispose of such Participant's shares of Conrad LA Common
Stock from the date hereof until the Closing, except with the written consent of
Conrad DE or as contemplated by this Agreement.
(g) Each Participant consents to the placement of a legend on any
certificate or other document evidencing the shares of Conrad DE Common Stock to
be received hereunder stating that such shares of Conrad DE Common Stock have
not been registered under the Securities Act and setting forth or referring to
the restrictions on transferability and sale hereof.
ARTICLE II
WAIVER OF RIGHTS UNDER
CONRAD LA ARTICLES OF INCORPORATION
Section 2.1. Conrad LA Articles of Incorporation. Each of the
Participants hereby acknowledge notice of the offer, exchange and transfer
provided for herein, and hereby waive any preemptive rights to purchase shares
of Conrad LA Common Stock provided for in Article V of the Restated Articles of
Incorporation of Conrad LA (the "Conrad LA Articles of Incorporation") with
respect to such offer, exchange and transfer of the shares of Conrad LA Common
Stock, and further waive any preemptive rights to purchase shares of Conrad LA
Common Stock pursuant to Article V of the Conrad LA Articles of Incorporation in
connection with any and all prior sales, encumbrances, pledges, donations or
other dispositions of the shares of Conrad LA Common Stock prior to the
consummation of the Stock Exchange. Each of the Participants understands and
agrees that the waiver of preemptive rights to purchase shares of Conrad LA
Common Stock under Article V of the Restated Articles of Incorporation involves
a waiver of a valuable right that, if not waived, may otherwise entitle such
Conrad LA Shareholder the right to acquire Conrad LA Common Stock previously
distributed from certain of the Conrad LA Shareholders to other Participants and
that the preemptive right purchase price for such shares may be substantially
lower than the fair market value of such shares as of the date hereof.
4
<PAGE>
ARTICLE III
TERMINATION OF STOCK PURCHASE
AND SALE AGREEMENT
Section 3.1. Participants - Conrad LA Stock Purchase and Sale
Agreement. Effective immediately prior to the consummation of the Stock
Exchange, each of the Participants who are party thereto and Conrad LA (i)
hereby terminates the Stock Purchase and Sale Agreement dated March __, 1991, by
and among the Participants named therein and Conrad LA and (ii) hereby waives
any rights and remedies pursuant to the Conrad LA Stock Purchase and Sale
Agreement becomming executory or accruing prior to the effective date of its
termination in connection with any and all sales, conveyances, assignments,
exchanges, pledges, donations or other transfers or encumbrances of shares of
Conrad LA Common Stock.
ARTICLE IV
STOCK EXCHANGE
Section 4.1. Stock Exchange. Effective immediately prior to the
consummation of the Public Offering, each of the Participants shall exchange all
of his shares of Conrad LA Common Stock for the number of shares of Conrad DE
Common Stock set forth opposite his name (collectively, the "Exchange Stock"):
Stockholders Number of Shares
------------ ----------------
J. Parker Conrad 1,166,270
John P. Conrad, Jr. 569,360
John Conrad, Jr. Trust 374,216
Glenn Conrad Trust 268,609
Kenneth Conrad Trust 268,609
Daniel Conrad Trust 268,609
Katherine Conrad Court 1,010,155
Katherine Court Trust 459,161
Patrick Court Trust 275,497
William H. Hidalgo 385,695
Cecil A. Hernandez 153,819
---------
Total 5,200,000
=========
Certificates representing the number of shares of Conrad DE Common Stock set
forth above will be issued to the Participants upon the presentation of
certificates representing the shares of Conrad LA Common Stock to be exchanged
therefor. The exchange of shares of Conrad DE Common Stock
5
<PAGE>
for shares of Conrad LA Common Stock shall all occur simultaneously.
Restrictions applicable to shares of Conrad LA Common Stock owned by William H.
Hidalgo and Cecil A. Hernandez shall continue with respect to shares of Conrad
DE Common Stock issued in exchange for such restricted shares.
Section 4.2. Cancellation of Previously Issued Conrad DE Common Stock.
Simultaneously with the Stock Exchange specified in Section 3.1 of this
Agreement, all of the 1,000 shares of Conrad DE Common Stock issued to John
Conrad, Jr. in connection with the original organization of Conrad DE shall be
canceled.
ARTICLE V
CLOSING
Section 5.1. Closing. The consummation of the transactions contemplated by
Article III and Article IV shall occur in the order set forth herein
substantially concurrently and shall close immediately prior to the closing of
the Public Offering at the offices of the Company, unless another place or time
is agreed upon in writing by the Company (the consummation of such transactions
is herein called the "Closing").
Section 5.2. Conditions. The Closing shall be contingent upon satisfaction
of the following conditions:
(a) An underwriting agreement relating to the Public Offering shall have been
entered into among Conrad DE and a group of underwriters and all conditions
precedent to the consummation of the transactions contemplated thereby shall
have been satisfied.
(b) All consents and approvals by, or filings with, any governmental
authority, agency or official, or any other person required in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby shall have been received or made and
shall be in full force and effect.
Section 5.3. Termination. In the event that the Closing does not occur by
June 30, 1998 by reason of the failure of any of the conditions set forth in
Section 4.2 hereof to be satisfied, this Agreement shall thereafter become null
and void and have no effect, and no party hereto shall have any liability to the
other parties hereto.
6
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Further Assurances. At any time, and from time to time,
each party will execute such additional instruments and take such action as may
be reasonably requested by any other party to confirm or perfect title to any
shares of Conrad LA Common Stock to be transferred hereunder or otherwise to
carry out the intent and purposes of this Agreement, including, without
limitation, giving any consents required under any applicable agreements
affecting the parties necessary to consummate the transactions specified in this
Agreement.
Section 6.2. Waivers. Any failure on the part of any party hereto to
comply with any of its obligations, agreements, or conditions hereunder may be
waived in writing by the party to whom such compliance is owed.
Section 6.3. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any other agreement,
representation, or communication, whether oral or written, between the parties
hereto relating to the transactions contemplated herein or the subject matter
hereof.
Section 6.4. Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 6.5. Governing Law. This Agreement shall be construed under
and in accordance with the laws of the State of Delaware without giving effect
to the principles of conflict of laws thereof.
Section 6.6. Amendment. No amendment of this Agreement shall be
effective without the written consent of any party affected adversely thereby.
Section 6.7. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Section 6.8. Notice. Any notice or other communication given
hereunder shall be deemed sufficient in writing and sent by registered or
certified mail, return receipt requested, or hand delivered and addressed to any
party at Conrad DE's offices at 1501 Front Street, P.O. Box 790, Morgan City,
Louisiana 70381, or such other address as may be specified by a party by like
notice. Notices shall be deemed to have been given on the date of mailing,
except notices of change of address, which shall be deemed to have been given
when received.
7
<PAGE>
Section 6.9. Successors and Assigns. This Agreement shall be binding
on the parties hereto and their permitted successors and assigns. None of the
parties hereto shall assign their rights under this Agreement without the prior
written consent of Conrad DE.
Section 6.10. Unenforceable Provisions. If any provision of this
Agreement is held to be invalid or unenforceable by a court of competent
jurisdiction, in lieu of such invalid provision there shall be added a provision
which is as similar in terms as possible to such invalid provision and which is
valid and enforceable; such invalid provision shall not affect any other
provision of this Agreement, and, as so modified, this Agreement shall remain in
full force and effect.
Section 6.11. Expenses. Conrad DE shall pay its own and each of the
parties' pre-approved expenses incurred in connection with the transactions
specified herein, other than separate legal, accounting or investment banking
counsel independently retained by a Participant, which shall be for the
Participant's own account.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
CONRAD INDUSTRIES, INC.,
A DELAWARE CORPORATION
By: /s/ William H. Hidalgo
-------------------------------
Name: William H. Hidalgo
Title: President
CONRAD INDUSTRIES, INC.,
A LOUISIANA CORPORATION
By: /s/ William H. Hidalgo
-------------------------------
Name: William H. Hidalgo
Title: President
8
<PAGE>
/s/ J. PARKER CONRAD
--------------------------------
J. PARKER CONRAD
/s/ JOHN P. CONRAD, JR.
--------------------------------
JOHN P. CONRAD, JR.
/s/ KATHERINE CONRAD COURT
--------------------------------
KATHERINE CONRAD COURT
9
<PAGE>
JOHN PARKER CONRAD, JR. TRUST
/s/ John P. Conrad, Jr.
------------------------------------
By: John P. Conrad, Jr., Trustee
GLENN ALAN CONRAD TRUST
/s/ John P. Conrad, Jr.
------------------------------------
By: John P. Conrad, Jr., Trustee
KENNETH CHARLES CONRAD TRUST
/s/ John P. Conrad, Jr.
------------------------------------
By: John P. Conrad, Jr., Trustee
DANIEL THOMAS CONRAD TRUST
/s/ John P. Conrad, Jr.
------------------------------------
By: John P. Conrad, Jr., Trustee
KATHERINE CONRAD COURT TRUST
/s/ Katherine Conrad Court
------------------------------------
By: Katherine Conrad Court, Trustee
JAMES PATRICK COURT TRUST
/s/ Katherine Conrad Court
------------------------------------
By: Katherine Conrad Court, Trustee
10
<PAGE>
SPOUSAL CONSENT
I, the undersigned, spouse of J. Parker Conrad, a party to that certain
agreement entitled "Stock Exchange Agreement" dated as of March 31, 1998,
acknowledge that I have read said agreement and do fully understand it, and, in
consideration of the provisions and benefits thereof, I agree and consent
thereto and to any disposition made thereunder of an interest I may have or may
come to have in the shares of common stock of either Conrad Industries, Inc., a
Delaware corporation, or Conrad Industries, Inc., a Louisiana corporation,
whether as community or separate property, dower rights or otherwise, pursuant
to the terms and conditions stated therein, effective as of March 31, 1998, at
Morgan City, Louisiana.
/s/ Shirley Conrad
-----------------------------
Shirley Conrad
<PAGE>
SPOUSAL CONSENT
I, the undersigned, spouse of John P. Conrad, Jr., a party to that
certain agreement entitled "Stock Exchange Agreement" dated as of March 31,
1998, acknowledge that I have read said agreement and do fully understand it,
and, in consideration of the provisions and benefits thereof, I agree and
consent thereto and to any disposition made thereunder of an interest I may have
or may come to have in the shares of common stock of either Conrad Industries,
Inc., a Delaware corporation, or Conrad Industries, Inc., a Louisiana
corporation, whether as community or separate property, dower rights or
otherwise, pursuant to the terms and conditions stated therein, effective as of
March 31, 1998, at Morgan City, Louisiana.
/s/ Mary Lou Brunson Conrad
-----------------------------
Mary Lou Brunson Conrad
<PAGE>
SPOUSAL CONSENT
I, the undersigned, spouse of Katherine Conrad Court, a party to that
certain agreement entitled "Stock Exchange Agreement" dated as of March 31,
1998, acknowledge that I have read said agreement and do fully understand it,
and, in consideration of the provisions and benefits thereof, I agree and
consent thereto and to any disposition made thereunder of an interest I may have
or may come to have in the shares of common stock of either Conrad Industries,
Inc., a Delaware corporation, or Conrad Industries, Inc., a Louisiana
corporation, whether as community or separate property, dower rights or
otherwise, pursuant to the terms and conditions stated therein, effective as of
March 31, 1998, at Morgan City, Louisiana.
/s/ James K. Court
-----------------------------
James K. Court
<PAGE>
CONRAD INDUSTRIES, INC.
1998 STOCK PLAN
SECTION 1. Purpose of the Plan.
The Conrad Industries, Inc. 1998 Stock Plan (the "Plan") is intended to
promote the interests of Conrad Industries, Inc., a Delaware corporation (the
"Company"), by encouraging officers, employees, directors and consultants of the
Company, its subsidiaries and affiliated entities to acquire or increase their
equity interest in the Company and to provide a means whereby they may develop a
sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company thereby advancing the
interests of the Company and its stockholders. The Plan is also contemplated to
enhance the ability of the Company, its subsidiaries and affiliated entities to
attract and retain the services of individuals who are essential for the growth
and profitability of the Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
"Affiliate" shall mean (i) any entity that, directly or through one or more
intermediaries, is controlled by the Company and (ii) any entity in which the
Company has a significant equity interest, as determined by the Committee.
"Award" shall mean any Option, Restricted Stock, Performance Award, Phantom
Shares, Bonus Shares or Other Stock-Based Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Bonus Shares" shall mean an award of Shares granted pursuant to Section
6(e) of the Plan.
"Change in Control" shall mean, and shall be deemed to have occurred if:
(i) any person, other than (1) the Company or an Affiliate, (2)
any benefit plan of the Company or an Affiliate, or (3) any
stockholders of the Company or any affiliates thereof (as defined in
the Exchange Act) as of the effective date of the Plan,
<PAGE>
acquires, directly or indirectly, the beneficial ownership (as defined
in Section 13(d) of the Exchange Act) of any voting security of the
Company and immediately after such acquisition such person is,
directly or indirectly, the beneficial owner of voting securities
representing 30% or more of the total voting power of all of the then-
outstanding voting securities of the Company; or
(ii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization or reorganization of the Company, or a
reverse stock split of outstanding voting securities, or consummation
of any such transaction if stockholder approval is not obtained, other
than any such transaction which would result in at least 75% of the
total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction being
beneficially owned by at least 75% of the holders of outstanding
voting securities of the Company immediately prior to the transactions
with the voting power of each such continuing holder relative to other
such continuing holders not substantially altered in the transaction;
or
(iii) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the
Company); or
(iv) the individuals who constitute the Board as of the effective
date of the Plan (the "Incumbent Board") shall cease for any reason to
constitute at least a majority of the members of the Board, provided
that any person becoming a director the effective date of the Plan
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than any
individual whose nomination for election to Board membership was not
endorsed by the Company's management prior to, or at the time of, such
individual's initial nomination for election) shall be, for purposes
of this Plan, considered as though such person were a member of the
Incumbent Board; or
(v) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) that a change in control of
the Company has or may have occurred or will or may occur in the
future pursuant to any then-existing contract or transaction.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations thereunder.
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"Committee" shall mean the Board or any committee of the Board designated,
from time to time, by the Board to act as the Committee under the Plan.
"Consultant" shall mean any individual who renders consulting services or
advice to the Company or an Affiliate for a fee, excluding any individual who is
a Director.
"Director" shall mean each individual who is a member of the Board, other
than an Employee.
"Director Option" shall mean an NQO granted under Section 6(b) of the Plan.
"Employee" shall mean any employee of the Company or an Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean, with respect to Shares, at any date, the
closing sale price of a Share on that date as quoted on the Composite Tape, or
if the Shares are not listed on the New York Stock Exchange, on the principal
United States securities exchange registered under the Exchange Act on which
such stock is listed, or if the Shares are not listed on any such stock
exchange, the last sale price, or if none is reported, the highest closing bid
quotation on the Nasdaq Stock Market or any successor system then in use on the
date of grant, or if none are available on such day, on the next preceding day
for which such reports or quotations are available, or if no such reports or
quotations are available, the fair market value on the date of grant of a Share
as determined in good faith by the Committee. In the event the Shares are not
publicly traded at the time a determination of its fair market value is required
to be made hereunder, the determination of fair market value shall be made in
good faith by the Committee.
"Incentive Stock Option" or "ISO" shall mean an option granted under
Section 6(a) of the Plan that is intended to qualify as an "incentive stock
option" under Section 422 of the Code or any successor provision thereto.
"Non-Qualified Stock Option" or "NQO" shall mean an option granted under
Sections 6(a) or 6(b) of the Plan that is not intended to be an Incentive Stock
Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean an award granted pursuant to Section
6(g) of the Plan that is not otherwise specifically provided for, the value of
which is based in whole or in part upon the value of a Share.
"Participant" shall mean any Employee, Consultant or Director granted an
Award under the Plan.
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"Performance Award" shall mean any right granted under Section 6(d) of the
Plan.
"Person" shall mean individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Phantom Shares" shall mean an Award of the right to receive Shares issued
at the end of a Restricted Period which is granted pursuant to Section 6(f) of
the Plan.
"Restricted Period" shall mean the period established by the Committee with
respect to an Award during which the Award either remains subject to forfeiture
or is not exercisable by the Participant.
"Restricted Stock" shall mean any Share, prior to the lapse of restrictions
thereon, granted under Section 6(c) of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect from time
to time.
"SEC" shall mean the Securities and Exchange Commission, or any successor
thereto.
"Shares" or "Common Shares" or "Common Stock" shall mean the common stock
of the Company, $0.01 par value, and such other securities or property as may
become the subject of Awards of the Plan.
"Substitute Award" shall mean Awards granted pursuant to Section 6(h) of
the Plan in assumption of, or in substitution for, outstanding awards previously
granted by (i) a company acquired by the Company or one or more of its
Affiliates, or (ii) a company with which the Company or one or more of its
Affiliates combines.
SECTION 3. Administration.
The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee. Subject to the following, the Committee, in its
sole discretion, may delegate any or all of its powers and duties under the
Plan, including the power to grant Awards under the Plan, to the Chief Executive
Officer of the Company, subject to such limitations on such delegated powers and
duties as the Committee may impose. Upon any such delegation all references in
the Plan to the "Committee", other than in Section 7, shall be deemed to include
the Chief Executive Officer; provided, however, that such delegation shall not
limit the Chief Executive Officer's right to receive Awards under the Plan.
Notwithstanding the foregoing, the Chief Executive Officer may not grant Awards
to, or take any action with respect to any Award previously granted to, a person
who is subject to Rule 16b-3. Subject to the terms of the Plan and
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applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to a Participant; (iii) determine the number of Shares to
be covered by, or with respect to which payments, rights, or other matters are
to be calculated in connection with, Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or suspended
and the method or methods by which Awards may be settled, exercised canceled,
forfeited, or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property, and
other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to an Award made under the Plan; (viii) establish, amend, suspend, or waive such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (ix) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan,
all designations, determinations, interpretations, and other decisions under or
with respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive, and binding
upon all Persons, including the Company, any Affiliate, any Participant, any
holder or beneficiary of any Award, any stockholder and any Employee.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section
4(c), the number of Shares with respect to which Awards may be granted
under the Plan shall be 700,000. If any Award is forfeited or otherwise
terminates or is canceled without the delivery of Shares or other
consideration, then the Shares covered by such Award, to the extent of such
forfeiture, termination or cancellation, shall again be Shares with respect
to which Awards may be granted.
(b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
(c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all
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of (i) the number and type of Shares (or other securities or property) with
respect to which Awards may be granted, (ii) the number and type of Shares
(or other securities or property) subject to outstanding Awards, and (iii)
the grant or exercise price with respect to any Award or, if deemed
appropriate, make provision for a cash payment to the holder of an
outstanding Award; provided, in each case, that with respect to Awards of
Incentive Stock Options and Awards intended to qualify as performance based
compensation under Section 162(m)(4)(C) of the Code, no such adjustment
shall be authorized to the extent that such authority would cause the Plan
to violate Section 422(b)(1) of the Code or would cause such Award to fail
to so qualify under Section 162(m) of the Code, as the case may be, or any
successor provisions thereto; and provided, further, that the number of
Shares subject to any Award denominated in Shares shall always be a whole
number.
SECTION 5. Eligibility.
Any Employee or Consultant shall be eligible to be designated a
Participant; a Director shall automatically be a Participant pursuant to Section
6(b).
SECTION 6. Awards.
(a) Options. Subject to the provisions of the Plan, the Committee
shall have the authority to determine the Participants (other than
Directors) to whom Options shall be granted, the number of Shares to be
covered by each Option (no Employee or Consultant may receive Options with
respect to more than 250,000 Shares during any calendar year), the purchase
price therefor and the conditions and limitations applicable to the
exercise of the Option, including the following terms and conditions and
such additional terms and conditions, as the Committee shall determine,
that are not inconsistent with the provisions of the Plan.
(i) Exercise Price. The purchase price per Share purchasable
under an Option shall be determined by the Committee at the time the
Option is granted, but, except for an Option that is a Substitute
Award, shall not be less than the Fair Market Value per Share on such
date.
(ii) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in
part, and the method or methods by which, and the form or forms (which
may include, without limitation, cash, check acceptable to the
Company, Shares already-owned for more than six months, a "cashless-
broker" exercise (through procedures approved by the Company), other
securities or other property, or any combination thereof, having a
Fair Market Value on the exercise date equal to the relevant exercise
price) in which payment of the exercise price with respect thereto may
be made or deemed to have been made.
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(iii) Incentive Stock Options. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision, and
any regulations promulgated thereunder. Incentive Stock Options may be
granted only to employees of the Company and its "parent corporation"
and "subsidiary corporations", as defined in Section 424 of the Code.
(b) Director Options. Each Director automatically shall be a
Participant and receive Options as provided below. A Director shall not be
eligible to receive any Award under the Plan other than Options granted
pursuant to this Section 6(b).
(i) Initial Grants. Each Director who serves in such capacity
immediately following the closing of the initial public offering of
the Shares (the "IPO Date") shall automatically receive, on such date,
an NQO for 1,000 Shares. Each individual who is elected or appointed
as a Director for the first time after the IPO Date shall
automatically receive, on the date of his or her election or
appointment, an NQO for 1,000 Shares.
(ii) Annual Grants. Each Director who serves in such capacity on
the day following the Annual Meeting of the Stockholders of the
Company in each year that this Plan is in effect, beginning with the
1999 Annual Meeting (other than a Director who received a grant
pursuant to Section 6(b)(i) on the preceding day), shall automatically
receive on such day an NQO for 1,000 Shares.
(iii) Exercise Price. Subject to adjustment pursuant to Section
4(c), the purchase price per Share purchasable under a Director Option
shall be the Fair Market Value per Share on the date the Director
Option is granted.
(iv) Vesting. Each Director Option shall be 100% vested
(exercisable) on the date of grant of such Director Option.
(v) Method of Exercise. A Director Option may be exercised in
whole or in part by cash, check acceptable to the Company, Shares
already owned for more than six months, a "cashless-broker" exercise
(through procedures approved by the Company), or any combination
thereof, having a Fair Market Value on the exercise date equal to the
relevant exercise price.
(vi) Term. Each Director Option shall expire 10 years from its
date of grant, but shall be subject to earlier termination as follows:
Director Options must be exercised within three months of the date the
Participant ceases to serve as a member of the Board, unless such
termination results from the Participant's death or disability (as
determined by the Committee), in which case the Participant's Director
Options may be exercised by the Participant's legal representative or
the person to whom the
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Participant's rights shall pass by will or the laws of descent and
distribution, as the case may be, within one year from the date of
termination; provided, however, that such event shall not extend the
normal expiration date of such Director Options.
(vii) Automatic Limits. In the event that the number of Shares
available for grants under this Plan is insufficient to make all
automatic grants provided for in paragraphs (i) or (ii) above on the
applicable date, then all Directors who are entitled to a grant on
such date shall share ratably in the number of Shares then available
for grant under this Plan, and shall have no right to receive a grant
with respect to the deficiencies in the number of available Shares and
all future grants under this Section 6(b) shall terminate.
(c) Restricted Stock. Subject to the provisions of the Plan, the
Committee shall have the authority to determine the Participants (other
than Directors) to whom Restricted Stock shall be granted, the number of
Shares of Restricted Stock to be granted to each such Participant, the
duration of the Restricted Period during which, and the conditions,
including the performance criteria, if any, under which, the Restricted
Stock may be forfeited to the Company, and the other terms and conditions
of such Awards.
(i) Dividends. Dividends paid on Restricted Stock may be paid
directly to the Participant, may be subject to risk of forfeiture
and/or transfer restrictions during any period established by the
Committee or sequestered and held in a bookkeeping cash account (with
or without interest) or reinvested on an immediate or deferred basis
in additional shares of Common Stock, which credit or shares may be
subject to the same restrictions as the underlying Award or such other
restrictions, all as determined by the Committee in its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in such
manner as the Committee shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate
or certificates. In the event any stock certificate is issued in
respect of Restricted Stock granted under the Plan, such certificate
shall be registered in the name of the Participant and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock.
(iii) Forfeiture and Restrictions Lapse. Except as otherwise
determined by the Committee or the terms of the agreement that granted
the Restricted Stock, upon termination of a Participant's employment
(as determined under criteria established by the Committee) for any
reason during the applicable Restricted Period (other than a Change in
Control), all Restricted Stock shall be forfeited by the Participant
and re-acquired by the Company. The Committee may, when it finds that
a waiver would be in the best interests of the Company and not cause
such Award, if it is intended to qualify as performance based
compensation under Section 162(m)
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of the Code, to fail to so qualify under Section 162(m) of the Code,
waive in whole or in part any or all remaining restrictions with
respect to such Participant's Restricted Stock. Unrestricted Shares,
evidenced in such manner as the Committee shall deem appropriate,
shall be issued to the holder of Restricted Stock promptly after the
applicable restrictions have lapsed or otherwise been satisfied.
(iv) Transfer Restrictions. During the Restricted Period,
Restricted Stock will be subject to the limitations on transfer as
provided in Section 6(i)(iii).
(v) Limit. The maximum number of Shares of Restricted Stock that
may be granted to any Participant during any year shall not exceed
250,000 Shares.
(d) Performance Awards. The Committee shall have the authority to
determine the Participants (other than Directors) who shall receive a
Performance Award, which shall be denominated as a cash amount at the time
of grant and confer on the Participant the right to receive payment of such
Award, in whole or in part, upon the achievement of such performance goals
during such performance periods as the Committee shall establish with
respect to the Award.
(i) Terms and Conditions. Subject to the terms of the Plan and
any applicable Award Agreement, the Committee shall determine the
performance goals to be achieved during any performance period, the
length of any performance period, the amount of any Performance Award
and the amount of any payment or transfer to be made pursuant to any
Performance Award.
(ii) Payment of Performance Awards. Performance Awards may be
paid (in cash and/or in Shares, in the sole discretion of the
Committee) in a lump sum or in installments following the close of the
performance period, in accordance with procedures established by the
Committee with respect to such Award.
(iii) Limit. The maximum number of Performance Awards that may
be granted to any Participant during any year shall not exceed $2
million.
(e) Bonus Shares. The Committee shall have the authority, in its
discretion, to grant Bonus Shares to Participants (other than Directors).
Each Bonus Share shall constitute a transfer of an unrestricted Share to
the Participant, without other payment therefor.
(f) Phantom Shares. The Committee shall have the authority to grant
Awards of Phantom Shares to Participants (other than Directors) upon such
terms and conditions as the Committee may determine.
(i) Terms and Conditions. Each Phantom Share Award shall
constitute an agreement by the Company to issue or transfer a
specified number of Shares or
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pay an amount of cash equal to a specified number of Shares, or a
combination thereof to the Participant in the future, subject to the
fulfillment during the Restricted Period of such conditions, including
performance objectives, if any, as the Committee may specify at the
date of grant. During the Restricted Period, the Participant shall
not have any right to transfer any rights under the subject Award,
shall not have any rights of ownership in the Phantom Shares and shall
not have any right to vote such shares.
(ii) Dividends. Any Phantom Share award may provide that any or
all dividends or other distributions paid on Shares during the
Restricted Period be credited in a cash bookkeeping account (without
interest) or that equivalent additional Phantom Shares be awarded,
which account or shares may be subject to the same restrictions as the
underlying Award or such other restrictions as the Committee may
determine.
(iii) Limit. The maximum number of Phantom Shares that may be
awarded to any Participant during any year shall not exceed 250,000
Phantom Shares.
(g) Other Stock-Based Awards. The Committee may also grant to
Participants (other than Directors) an Other Stock-Based Award, which shall
consist of a right which is an Award denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to,
Shares as is deemed by the Committee to be consistent with the purposes of
the Plan. Subject to the terms of the Plan, the Committee shall determine
the terms and conditions of any such Other Stock-Based Award. A
Participant may not receive an Other Stock-Based Award in any calendar year
with respect to more than 250,000 Shares.
(h) Substitute Awards. Awards may be granted from time to time in
substitution for similar awards held by employees of other corporations who
become Participants as the result of a merger or consolidation of the
employing corporation with the Company or any subsidiary, or the
acquisition by the Company or any subsidiary of the assets of the employing
corporation, or the acquisition by the Company or any subsidiary or an
affiliate of stock of the employing corporation. The terms and conditions
of Substitute Awards granted may vary from the terms and conditions set
forth in the Plan, to the extent the Committee, at the time of grant, deems
it appropriate to conform, in whole or in part, to the provisions of awards
in substitution for which they are granted. To the extent reasonably
practical, as determined by the Committee, a Substitute Award shall not
change the intended benefit of the award it replaces.
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(i) General.
(i) Awards May Be Granted Separately or Together. Awards may, in
the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for any other Award
granted under the Plan or any award granted under any other plan of
the Company or any Affiliate. Awards granted in addition to or in
tandem with other Awards or awards granted under any other plan of the
Company or any Affiliate may be granted either at the same time as or
at a different time from the grant of such other Awards or awards.
(ii) Forms of Payment by Company Under Awards. Subject to the
terms of the Plan and of any applicable Award Agreement, payments or
transfers to be made by the Company or an Affiliate upon the grant,
exercise or payment of an Award may be made in such form or forms as
the Committee shall determine, including, without limitation, cash,
Shares, other securities, other Awards or other property, or any
combination thereof, and may be made in a single payment or transfer,
in installments, or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. Such rules
and procedures may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred
payments.
(iii) Limits on Transfer of Awards.
(A) Except as provided in (C) below, each Award, and each
right under any Award, shall be exercisable only by the
Participant during the Participant's lifetime, or, if permissible
under applicable law, by the Participant's guardian or legal
representative as determined by the Committee.
(B) Except as provided in (C) below, no Award and no right
under any such Award may be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by a
Participant otherwise than (i) by will or by the laws of descent
and distribution or (ii) pursuant to a qualified domestic
relations order (or, in the case of Restricted Stock, to the
Company), and any such purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or any Affiliate.
(C) Notwithstanding anything in the Plan to the contrary, to
the extent specifically provided by the Committee with respect to
a grant, a Nonqualified Stock Option may be transferred to
immediate family members or related family trusts, limited
partnerships or similar entities or Persons or on such terms and
conditions as the Committee may establish.
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(iv) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee; provided, that in no
event shall the term of any Award exceed a period of 10 years from the
date of its grant.
(v) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such
stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Shares or
other securities are then listed, and any applicable Federal or state
laws, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(vi) Consideration for Grants. Awards may be granted for no cash
consideration or for such consideration as the Committee determines
including, without limitation, such minimal cash consideration as may
be required by applicable law.
(vii) Delivery of Shares or other Securities and Payment by
Participant of Consideration. No Shares or other securities shall be
delivered pursuant to any Award until payment in full of any amount
required to be paid pursuant to the Plan or the applicable Award
Agreement (including, without limitation, any exercise price, tax
payment or tax withholding) is received by the Company. Such payment
may be made by such method or methods and in such form or forms as the
Committee shall determine, including, without limitation, cash,
Shares, other securities, other Awards or other property, withholding
of Shares, cashless exercise with simultaneous sale, or any
combination thereof; provided that the combined value, as determined
by the Committee, of all cash and cash equivalents and the Fair Market
Value of any such Shares or other property so tendered to the Company,
as of the date of such tender, is at least equal to the full amount
required to be paid pursuant to the Plan or the applicable Award
Agreement to the Company.
(viii) Performance Criteria. The Committee shall establish
performance goals applicable to those Awards (other than Options) the
payment of which is intended by the Committee to qualify as
"performance-based compensation" as described in Section 162(m)(4)(C)
of the Code. The performance goals shall be based upon the attainment
of such target levels of net income, cash flows, earnings before
deduction of interest, taxes, depreciation, amortization and non-cash
compensation expense related to the issuance of stock and stock
options to employees, return on equity, profit margin, sales, stock
price, return on assets, economic value added, and/or earnings per
share as may be specified by the Committee. Which factor or factors
to be used with respect to any grant, and the weight to be accorded
thereto if more than one factor is used, shall be determined by
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the Committee at the time of grant. A performance objective need not
be based on an increase or a positive result and may include, for
example, maintaining the status quo or limiting economic losses. The
Committee, in its sole discretion and without the consent of the
Participant, may amend (i) any stock-based Award to reflect (1) a
change in corporate capitalization, such as a stock split or dividend,
(2) a corporate transaction, such as a corporate merger, a corporate
consolidation, any corporate separation (including a spinoff or other
distribution of stock or property by a corporation), any corporate
reorganization (whether or not such reorganization comes within the
definition of such term in Section 368 of the Code), (3) any partial
or complete corporate liquidation, or (4) a change in accounting rules
required by the Financial Accounting Standards Board and (ii) any
Award that is not intended to meet the requirements of Section 162(m)
of the Code, to reflect a significant event that the Committee, in its
sole discretion, believes to be appropriate to reflect the original
intent in the grant of the Award.
SECTION 7. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board or the Committee may amend,
alter, suspend, discontinue, or terminate the Plan without the consent of
any stockholder, Participant, other holder or beneficiary of an Award, or
other Person; provided, however, notwithstanding any other provision of the
Plan or any Award Agreement, without the approval of the stockholders of
the Company no such amendment, alteration, suspension, discontinuation, or
termination shall be made that would increase the total number of Shares
available for Awards under the Plan, except as provided in Section 4(c) of
the Plan.
(b) Amendments to Awards. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Award theretofore granted,
provided no change in any Award shall reduce the benefit to Participant
without the consent of such Participant. Notwithstanding the foregoing,
with respect to any Award intended to qualify as performance-based
compensation under Section 162(m) of the Code, no adjustment shall be
authorized to the extent such adjustment would cause the Award to fail to
so qualify.
SECTION 8. Change in Control.
In the event of a Change in Control, except as provided below, all
outstanding Awards automatically shall become fully vested immediately prior to
such Change in Control (or such earlier time as set by the Committee), all
restrictions, if any, with respect to such Awards shall lapse, including,
without limitation, any service, longevity or year-end employment requirements,
and all performance criteria, if any, with respect to such Awards shall be
deemed to have been met in full to the maximum extent without regard to any
proration provisions in such Award or Award
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Agreement; provided, however, notwithstanding the foregoing, the Board may
provide that any such accelerations or lapse of restrictions shall not occur if
it would render unavailable "pooling of interest" accounting treatment for any
reorganization, merger or consolidation of the Company.
SECTION 9. General Provisions.
(a) No Rights to Awards. Except as provided in Section 6(b), no
Participant or other Person shall have any claim to be granted any Award,
there is no obligation for uniformity of treatment of Participants, or
holders or beneficiaries of Awards and the terms and conditions of Awards
need not be the same with respect to each recipient.
(b) Withholding. The Company or any Affiliate is authorized to
withhold from any Award, from any payment due or transfer made under any
Award or under the Plan or from any compensation or other amount owing to a
Participant the amount (in cash, Shares, other securities, Shares that
would otherwise be issued pursuant to such Award, other Awards or other
property) of any applicable taxes payable in respect of an Award, its
exercise, the lapse of restrictions thereon, or any payment or transfer
under an Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. In addition, the Committee may provide, in an Award
Agreement, that the Participant may direct the Company to satisfy such
Participant's tax obligation through the withholding of Shares otherwise to
be acquired upon the exercise or payment of such Award.
(c) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate or to remain on the Board, as the case may be.
Further, the Company or an Affiliate may at any time dismiss a Participant
from employment, free from any liability or any claim under the Plan,
unless otherwise expressly provided in the Plan or in any Award Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable federal
law.
(e) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or
if it cannot be construed or deemed amended without , in the determination
of the Committee, materially altering the intent of the Plan or the Award,
such provision shall be stricken as to such jurisdiction, Person or Award
and the remainder of the Plan and any such Award shall remain in full force
and effect.
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(f) Other Laws. The Committee may refuse to issue or transfer any
Shares or other consideration under an Award if, acting in its sole
discretion, it determines that the issuance of transfer or such Shares or
such other consideration might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the Exchange
Act, and any payment tendered to the Company by a Participant, other holder
or beneficiary in connection with the exercise of such Award shall be
promptly refunded to the relevant Participant, holder or beneficiary.
(g) No Trust or Fund Created. Neither the Plan nor the Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Award, such right shall be no greater than the right of any general
unsecured creditor of the Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid
or transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
(i) Headings. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(j) Parachute Tax Gross-Up. To the extent that the grant, payment, or
acceleration of vesting or payment, whether in cash or stock, of any Award
made to a Participant under the Plan (a "Benefit") is subject to an excise
tax under Section 4999(a) of the Code (a "Parachute Tax"), the Company
shall pay such person an amount of cash (the "Gross-up Amount") such that
the "net" Benefit received by the person under this Plan, after paying all
applicable Parachute Taxes (including those on the Gross-up Amount) and any
taxes on the Gross-up Amount, shall be equal to the Benefit that such
person would have received if such Parachute Tax had not been applicable.
SECTION 10. Effective Date of the Plan.
The Plan shall be effective as of the date of its approval by the Board.
SECTION 11. Term of the Plan.
No Award shall be granted under the Plan after the 10th anniversary of the
effective date of the Plan. However, unless otherwise expressly provided in the
Plan or in an applicable Award
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<PAGE>
Agreement, any Award granted prior to such termination, and the authority of the
Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under such Award,
shall extend beyond such termination date.
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INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made as of March , 1998, and is
entered into by and between Conrad Industries, Inc., a Delaware corporation (the
"Company"), and __________________________ ("Indemnitee").
R E C I T A L S:
WHEREAS, the certificate of incorporation and bylaws of the Company
provide for the indemnification of its directors and executive officers to the
maximum extent permitted from time to time under applicable law and, along with
the Delaware General Corporation Law, contemplate that the Company may enter
into agreements with respect to such indemnification; and
WHEREAS, the Board of Directors of the Company has concluded that it is
reasonable, prudent and in the best interests of the Company's stockholders for
the Company to contractually obligate itself to indemnify certain of its
Authorized Representatives (defined below) so that they will serve or continue
to serve with greater certainty that they will be adequately protected.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Indemnitee hereby agree as follows:
1. Definitions. For purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, the following terms
shall have the following respective meanings:
"Authorized Representative" means (i) a director, officer, employee,
agent or fiduciary of the Company or any Subsidiary and (ii) a person
serving at the request of the Company or any Subsidiary as a director,
officer, employee, fiduciary or other representative of another Enterprise.
"Enterprise" means any corporation, partnership, limited liability
company, association, joint venture, trust, employee benefit plan or other
entity.
"Expenses" means all expenses, including (without limitation) reasonable
fees and expenses of counsel.
"Liabilities" means all liabilities, including (without limitation) the
amounts of any judgments, fines, penalties, excise taxes and amounts paid in
settlement.
<PAGE>
"Proceeding" means any threatened, pending or completed claim, action
(including any action by or in the right of the Company), suit or proceeding
(whether formal or informal, or civil, criminal, administrative,
legislative, arbitrative or investigative) in respect of which Indemnitee
is, was or at any time becomes, or is threatened to be made, a party,
witness, subject or target, by reason of the fact that Indemnitee is or was
an Authorized Representative or a prospective Authorized Representative.
"Subsidiary" means, at any time, (i) any corporation of which at least a
majority of the outstanding voting stock is owned by the Company at such
time, directly or indirectly through subsidiaries, and (ii) any other
Enterprise in which the Company, directly or indirectly, owns more than a
50% equity interest at such time.
2. Interpretation. (a) In this Agreement, unless a clear contrary
intention appears:
(i) the singular number includes the plural number and vice versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Section or other subdivision;
(iv) unless the context indicates otherwise, reference to any Section
means such Section hereof; and
(v) the words "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term.
(b) The Section headings herein are for convenience only and shall not
affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
(d) In the event of any ambiguity, vagueness or other similar matter
involving the interpretation or meaning of this Agreement, this Agreement shall
be liberally construed so as to provide to Indemnitee the full benefits
contemplated hereby.
(e) If the indemnification to which Indemnitee is entitled as respects
any aspect of any claim varies between two or more provisions of this Agreement,
that provision providing the most comprehensive indemnification shall apply.
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<PAGE>
3. Limitation on Personal Liability. To the fullest extent permitted
by applicable law, Indemnitee shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a director
of the Company, provided that the foregoing shall not eliminate or limit the
liability of Indemnitee (i) for any breach of Indemnitee'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) under
Section 174 of the Delaware General Corporation Law relating to unlawful
dividend payments and unlawful stock purchases or redemptions or (iv) for any
transaction from which Indemnitee derived an improper personal benefit.
4. Indemnity. (a) Subject to the following provisions of this
Agreement, the Company shall hold harmless and indemnify Indemnitee against all
Expenses and Liabilities actually incurred by Indemnitee in connection with any
Proceeding; provided, however, that no indemnity shall be paid by the Company
pursuant to this Agreement:
(i) for amounts actually paid to Indemnitee pursuant to one or more
policies of directors and officers liability insurance maintained by the
Company or pursuant to a trust fund, letter of credit or other security or
funding arrangement provided by the Company; provided, however, that if it
should subsequently be determined that Indemnitee is not entitled to retain
any such amount, this clause (i) shall no longer apply to such amount;
(ii) in respect of remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that payment of
such remuneration was in violation of applicable law;
(iii) on account of Indemnitee's conduct which is finally adjudged to
constitute willful misconduct or to have been knowingly fraudulent,
deliberately dishonest or from which the Indemnitee derives an improper
personal benefit; or
(iv) on account of any suit in which final judgment is rendered against
Indemnitee for an accounting of profits made from the sale or purchase by
Indemnitee of securities of the Company pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended.
(b) If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for only a portion (but not, however, for the
total amount) of any Expenses or Liabilities actually incurred by Indemnitee in
connection with any Proceeding, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses and Liabilities to which Indemnitee
is entitled. If the indemnification provided for herein in respect of any
Expenses or Liabilities actually incurred by Indemnitee in connection with any
Proceeding is finally determined by a court of competent jurisdiction to be
prohibited by applicable law, then the Company, in lieu of indemnifying
Indemnitee, shall contribute to the amount paid or payable by Indemnitee as a
result of such Expenses and Liabilities in such proportion as is appropriate to
reflect (i) the relative benefits
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<PAGE>
received by the Company on the one hand and Indemnitee on the other hand from
the events, circumstances, conditions, happenings, actions or transactions from
which such Proceeding arose, (ii) the relative fault of the Company (including
its other Authorized Representatives) on the one hand and of Indemnitee on the
other hand in connection with the events, circumstances and happenings which
resulted in such Expenses and Liabilities, such relative fault to be determined
by reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the events,
circumstances and/or happenings resulting in such Expenses and Liabilities, and
(iii) any other relevant equitable considerations, it being agreed that it would
not be just and equitable if such contribution were determined by pro rata or
other method of allocation which does not take into account the foregoing
equitable considerations.
(c) The indemnification provided herein shall be applicable only to
Proceedings commenced after the date hereof, regardless, however, of whether
they arise from acts, omissions, facts or circumstances occurring before or
after the date hereof.
(d) The indemnification provided herein shall be applicable whether or
not negligence of Indemnitee is alleged or proved, and regardless of whether
such negligence be contributory or sole.
(e) Amounts paid by the Company to Indemnitee under this Section 4 are
subject to refund by Indemnitee as provided in Section 8.
5. Notification and Defense of Claims. (a) Promptly after the receipt
by Indemnitee of notice of the commencement of any Proceeding, Indemnitee will,
if a claim in respect thereof is to be made against the Company under this
Agreement, notify the Company of the commencement of such Proceeding; provided,
however, that the omission to so notify the Company will not relieve the Company
(i) from any liability which it may have to Indemnitee under this Agreement
unless, and then only to the extent that, such omission results in insufficient
time being available to permit the Company or its counsel to effectively defend
against or make timely response to any loss, claim, damage, liability or expense
resulting from such Proceeding or otherwise has a material adverse effect on the
Company's ability to promptly deal with such loss, claim, damage, liability or
expense or (ii) from any liability which it may have to Indemnitee otherwise
than under this Agreement.
(b) The following provisions shall apply with respect to any such
Proceeding as to which Indemnitee notifies the Company of the commencement
thereof:
(i) The Company shall be entitled to participate therein at its own
expense.
(ii) Except as otherwise provided below, to the extent it may elect to
do so, the Company (jointly with any other indemnifying party similarly
notified) will be entitled to assume the defense thereof, with counsel of
its own selection reasonably satisfactory to Indemnitee. After notice from
the Company to Indemnitee of its election so to assume the defense thereof,
the Company will not be liable to Indemnitee under this Agreement for any
4
<PAGE>
Expenses subsequently incurred by Indemnitee in connection with the defense
of such Proceeding other than reasonable costs of investigation or as
otherwise provided below. Indemnitee shall have the right to employ separate
counsel in such Proceeding but the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense
thereof shall be at the expense of Indemnitee unless (1) the employment of
separate counsel by Indemnitee has been authorized by the Company; (2)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of the defense of
such Proceeding; or (3) the Company shall not in fact have employed counsel
to assume the defense of such Proceeding, in each of which cases the
reasonable fees and expenses of Indemnitee's counsel shall be borne by the
Company. The Company shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of the Company or as to which Indemnitee
shall have made the conclusion provided for in (2) above. Nothing in this
subparagraph (ii) shall affect the obligation of the Company to indemnify
Indemnitee against Expenses and Liabilities paid in settlement for which it
is otherwise obligated hereunder.
(iii) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any Proceedings or
claims effected without its prior written consent. The Company shall not
settle any Proceeding or claim in any manner which would impose any penalty
or limitation on Indemnitee without Indemnitee's prior written consent.
Neither the Company nor Indemnitee will unreasonably withhold or delay its
consent to any proposed settlement.
6. Advancement of Expenses, etc. If requested to do so by Indemnitee
with respect to any Proceeding, the Company shall advance to or for the benefit
of Indemnitee, in reasonable intervals prior to the final disposition of such
Proceeding, the Expenses actually incurred by Indemnitee in investigating,
defending or appealing such Proceeding. Any judgments, fines or amounts to be
paid in settlement of any Proceeding shall also be advanced by the Company upon
request by Indemnitee. Advances made by the Company under this Section 6 are
subject to refund by Indemnitee as provided in Section 8.
7. Right of Indemnitee to Bring Suit. (a) If a claim for
indemnification or a claim for an advance under this Agreement is not paid in
full by the Company within 30 days after receipt by the Company from Indemnitee
of a written request or demand therefor, Indemnitee may bring suit against the
Company to recover the unpaid amount of the claim. If, in any such action,
Indemnitee makes a prima facie showing of entitlement to indemnification under
this Agreement, the Company shall have the burden of proving that
indemnification is not required under this Agreement. The only defense to any
such action shall be that indemnification is not required by this Agreement.
(b) In the event that any action is instituted by Indemnitee to enforce
Indemnitee's rights or to collect monies due to Indemnitee under this Agreement
and if Indemnitee is successful in such action, the Company shall reimburse
Indemnitee for all Expenses incurred by Indemnitee with respect to such action.
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<PAGE>
8. Repayment Obligation of Indemnitee. If the Company advances or pays
any amount to Indemnitee under Section 4, 6 or 7 and if it shall thereafter be
finally adjudicated that Indemnitee was not entitled to be indemnified hereunder
for all or any portion of such amount, Indemnitee shall promptly repay such
amount or such portion thereof, as the case may be, to the Company. If the
Company advances or pays any amount to Indemnitee under Section 4, 6 or 7 and if
Indemnitee shall thereafter receive all or a portion of such amount under one or
more policies of directors and officers liability insurance maintained by the
Company or pursuant to a trust fund, letter of credit or other security or
funding arrangement provided by the Company, Indemnitee shall promptly repay
such amount or such portion thereof, as the case may be, to the Company.
9. Changes in Law. If any change after the date of this Agreement in
any applicable law, statute or rule expands the power of the Company to
indemnify Authorized Representatives, such change shall be within the purview of
Indemnitee's rights and the Company's obligations under this Agreement. If any
change after the date of this Agreement in any applicable law, statute or rule
narrows the right of the Company to indemnify an Authorized Representative, such
change shall, to the fullest extent permitted by applicable law, leave this
Agreement and the parties' rights and obligations hereunder unaffected.
10. Continuation of Indemnity. All agreements and obligations of the
Company hereunder shall continue during the period Indemnitee is an Authorized
Representative, and shall continue after Indemnitee has ceased to occupy such
position or have such relationship so long as Indemnitee shall be subject to any
possible Proceeding.
11. Maintenance of Insurance. (a) The Company represents that it
presently maintains in force and effect the following directors and officers
liability insurance ("D&O Insurance") policies (the "Insurance Policies"):
Insurer Policy No. Coverage
------- ---------- --------
Subject only to the provisions of Section 11(b) hereof, the Company hereby
agrees that, so long as Indemnitee shall continue to serve as an Authorized
Representative and thereafter so long as Indemnitee shall be subject to any
possible Proceeding, the Company shall use its best efforts to purchase and
maintain in effect for the benefit of Indemnitee one or more valid and
enforceable policy or policies of D&O Insurance providing, in all respects,
coverage at least comparable to that currently provided pursuant to the
Insurance Policies, provided that the Company shall have no obligation to
provide primary coverage in excess of $_____ million or excess coverage in
excess of $______ million.
(b) The Company shall not be required to purchase and maintain the
Insurance Policies in effect if D&O Insurance is not reasonably available or if,
in the reasonable business judgement of the then directors of the Company,
either (i) the premium cost for such insurance is excessive in light of the
amount of coverage or (ii) the coverage provided by such insurance is so
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<PAGE>
limited by exclusions, retentions, deductibles or otherwise that there is
insufficient benefit from such insurance.
12. Nonexclusivity. The indemnification and other rights provided by
any provision of this Agreement shall not be deemed exclusive of any other
rights to which Indemnitee may be entitled under (i) any statutory or common
law, (ii) the Company's certificate of incorporation, (iii) the Company's
bylaws, (iv) any other agreement or (v) any vote of stockholders or
disinterested directors or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while occupying any of the
positions or having any of the relationships referred to in this Agreement.
Nothing in this Agreement shall in any manner affect, impair or compromise any
indemnification Indemnitee has or may have by virtue of any agreement previously
entered into between Indemnitee and the Company.
13. Severability. If any provision of this Agreement shall be held to
be invalid, illegal or unenforceable (i) the validity, legality or
enforceability of the remaining provisions of this Agreement shall not be in any
way affected or impaired thereby and (ii) to the fullest extent possible, the
provisions of this Agreement shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable. Each
provision of this Agreement is a separate and independent portion of this
Agreement.
14. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties. No waiver of any of the provisions of this Agreement shall be binding
unless executed in writing by the person making the waiver nor shall such waiver
constitute a continuing waiver.
15. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed (i) if to the Company, at
its principal office address as shown on the signature page hereof or such other
address as it may have designated by written notice to Indemnitee for purposes
hereof, directed to the attention of the Secretary and (ii) if to Indemnitee, at
Indemnitee's address as shown on the signature page hereof or to such other
address as Indemnitee may have designated by written notice to the Company for
purposes hereof. Each such notice or other communication shall be deemed to
have been duly given if (a) delivered by hand and receipted for by the party to
whom said notice or other communication shall have been directed, (b)
transmitted by facsimile transmission, at the time that receipt of such
transmission is confirmed, or (c) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed.
16. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER, AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
17. Heirs, Successors and Assigns. (a) This Agreement shall be binding
upon, inure to the benefit of and be enforceable by (i) Indemnitee and
Indemnitee's personal or legal
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representatives, executors, administrators, heirs, devisees and legatees and
(ii) the Company and its successors and assigns. This Agreement shall not inure
to the benefit of any other person or Enterprise.
(b) The Company agrees to require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used herein, the term "Company" shall include any successor
to its business and/or assets as aforesaid which executes and delivers the
assumption and agreement provided for in this Section 17 or which otherwise
becomes bound by all terms and provisions of this Agreement by operation of law.
8
<PAGE>
ENTERED into on the day and year first above written.
CONRAD INDUSTRIES, INC.
By:
-------------------------------
Name:
Title:
Address:
Telecopier:
INDEMNITEE:
----------------------------------
[OFFICER/DIRECTOR]
Address:
Telecopier:
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Conrad
Industries, Inc. (to be renamed Conrad Shipyard, Inc.), a Louisiana
corporation (the "Company"), and J. Parker Conrad ("Executive") is hereby
entered into effective as of March 31, 1998 (the "Effective Date").
RECITALS
WHEREAS, the Company desires to continue Executive's employment, and
Executive desires to continue his employment with the Company, all on the terms
and conditions set forth in this Agreement; and
WHEREAS, a Delaware corporation to be named Conrad Industries, Inc.
("Conrad") has been formed to become the parent corporation of the Company and
the stockholders of the Company will exchange their stock in the Company for
stock of Conrad following such formation;
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein and the performance of each, it is
hereby agreed as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as Co-Chairman of the Board
of Directors of the Company. As such, Executive shall have
responsibilities, duties and authority reasonably accorded to, expected of
and consistent with Executive's position as Co-Chairman of the Board of
Directors of the Company. Executive hereby accepts this employment upon
the terms and conditions herein contained and, subject to paragraph 1(c),
agrees to devote substantially all of his time, attention and efforts to
promote and further the business and interests of the Company and its
affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder,
engage in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect
with Executive's duties and responsibilities
<PAGE>
hereunder. The foregoing limitations shall not be construed as prohibiting
Executive from making personal investments in such form or manner as will
neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during the term
shall be $220,500 per year, payable in accordance with the Company's
payroll procedures for executives, but not less frequently than monthly.
Such base salary may be increased from time to time, at the discretion of
the Board of Directors of the Company (the "Board"), in light of the
Executive's position, responsibilities and performance, and, as increased
from time to time, may not be reduced.
(b) Executive Perquisites, Benefits and Other Compensation. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Executive shall be promptly reimbursed for all business
travel and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his duties pursuant to this Agreement
and in accordance with the Company's policy for executives of the
Company. All such expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the
Company's expense reporting policy;
(ii) Executive shall, subject to the satisfaction of any general
eligibility criteria, be eligible to participate in all compensation
and benefit plans and programs as are maintained from time to time for
executives of the Company;
(iii) Executive shall be entitled to vacation in accordance with
the policies of the Company; and
(iv) The Company shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the Board.
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3. Non-Competition Agreement.
(a) Executive recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's agreement to the
provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage the Company.
Subject to the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of two
years immediately following the termination of such for any reason
whatsoever, either for Cause or in the event Executive terminates his
employment without Good Reason, except as may be set forth herein, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the
construction, conversion or repair of marine vessels or the
fabrication of modular components for offshore drilling rigs and
floating production, storage and offloading vessels (collectively, the
"Businesses") of the Company, Conrad, or any subsidiary or affiliate
of Conrad (collectively, the "Companies") in any area in which any of
the Companies conduct one or more of the Businesses, including any
territory serviced by any of the Companies during the term of
Executive's employment (the "Territory");
(ii) call upon any person who is, at that time, an employee of
any of the Companies for the purpose or with the intent of enticing
such employee away from or out of the employ of any of the Companies;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of any
of the Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with any of the
Companies within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's knowledge after due inquiry, either called upon by
any of the Companies or for which any of the Companies made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
any of the Companies to any person, firm, partnership, corporation or
business for any reason
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<PAGE>
or purpose whatsoever except to the extent that any of the Companies
has in the past disclosed such information to the public for valid
business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Executive from acquiring as an investment (i) not more than 1%
of the capital stock of a competing business, whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or similar market or
(ii) not more than 5% of the capital stock of a competing business whose
stock is not publicly traded unless the Board consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by the Company, in the event of breach
by him, by injunctions and restraining orders. Executive further agrees to
waive any requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Companies on the date of the execution of
this Agreement and the current plans of the Companies; but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations
of the Companies throughout the term of this covenant, whether before or
after the date of termination of the employment of Executive, unless
Executive was conducting such new business prior to any Company conducting
such new business.
(d) It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed by the Company and shall enter into a
business or pursue other activities not in competition with the Businesses
of the Companies or similar activities or businesses in locations the
operation of which, under such circumstances, does not violate clause
(a)(i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the Companies shall
thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of
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the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and the Agreement shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the further
provisions of this Agreement) following termination of employment stated at
the beginning of this paragraph 3, during which the agreements and
covenants of Executive made in this paragraph 3 shall be effective, shall
be computed by excluding from such computation any time during which
Executive is in violation of any provision of this paragraph 3.
(g) The Company and Executive hereby agree that this covenant is a
material and substantial part of this Agreement.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue
thereafter at Executive's and Company's mutual election on a year-to-year basis
on the same terms and conditions contained herein in effect as of the time of
renewal (the "Extended Term"); provided, however, upon a Change in Control of
the Company, the term of this Agreement shall automatically continue following
such Change in Control for a period equal to the then remaining term or two
years, whichever period is longer, unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's estate; provided,
however, all Nonvested Shares, if any, shall immediately vest in full.
(b) Disability. If Executive becomes entitled to receive benefits
under an insured long-term disability plan of the Company that includes its
officers, the Company may terminate Executive's employment hereunder with
no severance compensation due Executive; provided, however, all Nonvested
Shares, if any, shall immediately vest in full.
(c) Cause. The Company may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause", which
shall be: (1) Executive's willful, material and irreparable breach of this
Agreement (which remains uncured 10 days after receipt of written notice);
(2) Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 10 days after receipt of
written notice of need to cure) of any of Executive's material duties and
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responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of the Company which
materially and adversely affects the Company (monetarily or otherwise); or
(4) Executive's conviction of a felony crime involving moral turpitude. In
the event of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause. Executive may, without Good Reason (as hereinafter
defined), terminate this Agreement and Executive's employment effective 30
days after written notice is provided to the Company. Executive may only
be terminated without Cause by the Company during either the Initial Term
or Extended Term if such termination is approved by at least 51% of the
members of the Board. Should Executive be terminated by the Company
without Cause during the Initial Term or should Executive terminate with
Good Reason during the Initial Term, then, Executive shall receive from the
Company, in a lump sum payment due on the effective date of such
termination, the equivalent of the base salary (at the rate then in effect)
for whatever time period is remaining under the Initial Term or for one
year, whichever amount is greater. Should Executive be terminated by the
Company without Cause during the Extended Term or should Executive
terminate with Good Reason during the Extended Term, Executive shall
receive from the Company, in a lump sum payment due on the effective date
of such termination, the equivalent to one year of base salary at the rate
then in effect. Further, any termination without Cause by the Company or
by Executive for Good Reason shall operate to shorten the period set forth
in paragraph 3(a) and during which the terms of paragraph 3 apply to one
year from the date of termination of employment. If Executive resigns or
otherwise terminates his employment without Good Reason, rather than the
Company terminating his employment pursuant to this paragraph 4(d),
Executive shall receive no severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless such
event is agreed to in writing by Executive: (a) Executive is demoted by
means of a material reduction in authority, responsibilities or duties to a
position of less stature or importance within the Company than the position
described in Section 1(a) hereof; (b) Executive's annual base salary as
then in effect is reduced; or (c) the relocation of the Company's principal
executive offices to a location outside the Morgan City, Louisiana area or
the Company's requiring Executive to relocate anywhere other than the
Company's principal executive offices.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce
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his rights hereunder. Further, none of the provisions of paragraph 3 shall apply
in the event this Agreement is terminated as a result of a breach by the
Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date. All other rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination, except that the
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein shall survive
such termination in accordance with their terms.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company or any of
the Companies or their representatives, vendors or customers which pertain to
the business of the Company or any of the Companies shall be and remain the
property of the Company or the Companies, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or the
Companies which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company. Executive
hereby assigns and agrees to assign all his interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments that the
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
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8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the Company an
advantage over its actual and potential, current and future competitors.
Executive further acknowledges and agrees that Executive owes the Company a
fiduciary duty to preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Company's Confidential
Information would irreparably injure the Company.
(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential Information in strict
confidence, and shall not use any Confidential Information except for the
benefit of the Company, in accordance with the duties assigned to
Executive. Executive shall not, at any time (either during or after the
term of Executive's employment), disclose any Confidential Information to
any person or entity (except other employees of the Company who have a need
to know the information in connection with the performance of their
employment duties), or copy, reproduce, modify, decompile or reverse
engineer any Confidential Information, or remove any Confidential
Information from the Company's premises, without the prior written consent
of the President of the Company, or permit any other person to do so.
Executive shall take reasonable precautions to protect the physical
security of all documents and other material containing Confidential
Information (regardless of the medium on which the Confidential Information
is stored). This Agreement applies to all Confidential Information,
whether now known or later to become known to Executive.
(c) Upon the termination of Executive's employment with the Company
for any reason, and upon request of the Company at any other time,
Executive shall promptly surrender and deliver to the Company all documents
and other written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or other
material. Within five days of any such request, Executive shall certify to
the Company in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or for the
Company (whether or not owned or developed by the Companies and whether or
not developed by Executive) that is not generally known to persons in the
Business. Confidential Information includes, but is not limited to, the
following: all trade secrets of the Companies; all information that the
Companies have marked as confidential or has otherwise described to
Executive (either in writing or orally) as confidential; all nonpublic
information concerning the Companies'
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products, services, prospective products or services, research, product
designs, prices, discounts, costs, marketing plans, marketing techniques,
market studies, test data, customers, customer lists and records, suppliers
and contracts; all business records and plans; all personnel files; all
financial information of or concerning the Companies'; all information
relating to operating system software, application software, software and
system methodology, hardware platforms, technical information, inventions,
computer programs and listings, source codes, object codes, copyrights and
other intellectual property; all technical specifications; any proprietary
information belonging to the Companies; all computer hardware or software
manuals; all training or instruction manuals; and all data and all computer
system passwords and user codes.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive, his employment by the
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, reasonable attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or may
hereafter come to have against the Company based upon or arising out of any non-
competition agreement, invention or secrecy agreement between Executive and such
third party which was in existence as of the date of this Agreement.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. The
parties hereby acknowledge that, upon the formation of Conrad and the related
transactions, the term "Company" as used in this Agreement and shall include
Conrad, except (i) with respect to the definition of "Change in Control", where
the term "Company" shall mean Conrad, and (ii) references to the Board shall
mean the Board of Directors of Conrad. The Company will require any successor,
other than Conrad, by agreement in form and substance reasonably acceptable to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Subject to the preceding, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
11. Change in Control.
(a) In the event a Change in Control is initiated or occurs during the
Initial Term or Extended Term, then the provisions of this paragraph 11
shall be applicable.
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(b) If, on or within two years following the effective date of a
Change in Control, the Company terminates Executive's employment other than
for Cause or Executive terminates his employment for Good Reason, or if
Executive's employment with the Company is terminated by the Company within
six months before the effective date of a Change in Control and it is
reasonably demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably calculated to
effect a Change in Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall receive from
Company, in a lump sum payment due on the later of the effective date of
Executive's termination or the Change in Control, as the case may be, the
equivalent of three years' base salary at the rate in effect on Executive's
termination date.
(c) Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11(b) shall operate to automatically
waive in full the noncompetition restrictions imposed on Executive pursuant
to paragraph 3(a).
(d) If it shall be determined that any payment made or benefit (a
"Payment") provided to Executive, whether or not made or provided pursuant
to this Agreement and whether or not upon a Change in Control as defined
herein, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto, the
Company shall pay Executive an amount of cash (the "Additional Amount")
such that the net after tax benefit received by Executive after paying all
applicable taxes on such Payment and the Additional Amount shall be equal
to the net after-tax amount that Executive would have received with respect
to the Payment if Section 4999 had not been applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate
the amount of any Company payment provided for in this Agreement by seeking
other employment or otherwise. The amount of any payment required to be paid to
Executive by the Company pursuant to this Agreement shall not be reduced by any
amounts that are owed to the Company by Executive, or by any setoff,
counterclaim, recoupment, defense or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any payments pursuant to this
Agreement unless Executive has executed a general release of all claims
Executive may have against the Company and its affiliates in a form of such
release reasonably acceptable to the Company and such release has become final.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Executive against all
expenses
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(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Executive in connection therewith. In the
event that both Executive and the Company are made a party to the same third-
party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company.
15. Complete Agreement. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. This written Agreement
may not be later modified except by a further writing signed by a duly
authorized officer of the Company and Executive, and no term of this Agreement
may be waived except by writing signed by the party waiving the benefit of such
term. Without limiting the generality of the foregoing, either party's failure
to insist on strict compliance with this Agreement shall not be deemed a waiver
thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Conrad Industries, Inc.
150 Front St.
P.O. Box 790
Morgan City, Louisiana 70381
Attn: Chairman of the Board
To Executive: J. Parker Conrad
c/o Conrad Industries, Inc.
P. O. Box 790
Morgan City, Louisiana 70381
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested,
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or when actually received. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties
shall request the Association of Attorney Mediators in Louisiana (or similar
association) to appoint a mediator. If the mediator is unable to facilitate a
settlement of the dispute within a reasonable period of time, as determined by
the mediator, the mediator shall issue a written statement to the parties to
that effect and any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Morgan City, Louisiana, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Executive was terminated without disability or Cause, as defined in paragraphs
4(b) and 4(c), respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel
shall be final and binding. Judgment may be entered on the arbitrators' award
in any court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Louisiana without regard to its conflicts
of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
CONRAD INDUSTRIES, INC.
By:____________________________
Name:__________________________
Title:_________________________
EXECUTIVE
_______________________________
J. Parker Conrad
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Conrad
Industries, Inc. (to be renamed Conrad Shipyard, Inc.), a Louisiana
corporation (the "Company"), and John P. Conrad, Jr. ("Executive") is hereby
entered into effective as of March 31, 1998 (the "Effective Date").
RECITALS
WHEREAS, the Company desires to continue Executive's employment, and
Executive desires to continue his employment with the Company, all on the terms
and conditions set forth in this Agreement; and
WHEREAS, a Delaware corporation to be named Conrad Industries, Inc.
("Conrad") has been formed to become the parent corporation of the Company and
the stockholders of the Company will exchange their stock in the Company for
stock of Conrad following such formation;
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein and the performance of each, it is
hereby agreed as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as Co-Chairman of the Board
of Directors of the Company. As such, Executive shall have
responsibilities, duties and authority reasonably accorded to, expected of
and consistent with Executive's position as Co-Chairman of the Board of
Directors of the Company. Executive hereby accepts this employment upon
the terms and conditions herein contained and, subject to paragraph 1(c),
agrees to devote substantially all of his time, attention and efforts to
promote and further the business and interests of the Company and its
affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder,
engage in any other business activity pursued for gain, profit or other
pecuniary advantage if such
<PAGE>
activity interferes in any material respect with Executive's duties and
responsibilities hereunder. The foregoing limitations shall not be
construed as prohibiting Executive from making personal investments in such
form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made
nor violate the terms of paragraph 3 hereof.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during the term
shall be $200,000 per year, payable in accordance with the Company's
payroll procedures for executives, but not less frequently than monthly.
Such base salary may be increased from time to time, at the discretion of
the Board of Directors of the Company (the "Board"), in light of the
Executive's position, responsibilities and performance, and, as increased
from time to time, may not be reduced.
(b) Executive Perquisites, Benefits and Other Compensation. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Executive shall be promptly reimbursed for all business
travel and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his duties pursuant to this Agreement
and in accordance with the Company's policy for executives of the
Company. All such expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the
Company's expense reporting policy;
(ii) Executive shall, subject to the satisfaction of any general
eligibility criteria, be eligible to participate in all compensation
and benefit plans and programs as are maintained from time to time for
executives of the Company;
(iii) Executive shall be entitled to vacation in accordance with
the policies of the Company; and
(iv) The Company shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the Board.
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3. Non-Competition Agreement.
(a) Executive recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's agreement to the
provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage the Company.
Subject to the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of two
years immediately following the termination of such for any reason
whatsoever, either for Cause or in the event Executive terminates his
employment without Good Reason, except as may be set forth herein, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the
construction, conversion or repair of marine vessels or the
fabrication of modular components for offshore drilling rigs or
floating production, storage and offloading vessels (collectively, the
"Businesses") of the Company, Conrad, or any subsidiary or affiliate
of Conrad (collectively, the "Companies") in any area in which any of
the Companies conduct one or more of the Businesses, including any
territory serviced by any of the Companies during the term of
Executive's employment (the "Territory");
(ii) call upon any person who is, at that time, an employee of
any of the Companies for the purpose or with the intent of enticing
such employee away from or out of the employ of any of the Companies;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of any
of the Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with any of the
Companies within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's knowledge after due inquiry, either called upon by
any of the Companies or for which any of the Companies made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
any of the Companies to any person, firm, partnership, corporation or
business for any reason
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or purpose whatsoever except to the extent that any of the Companies
has in the past disclosed such information to the public for valid
business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Executive from acquiring as an investment (i) not more than 1%
of the capital stock of a competing business, whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or similar market or
(ii) not more than 5% of the capital stock of a competing business whose
stock is not publicly traded unless the Board consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by the Company, in the event of breach
by him, by injunctions and restraining orders. Executive further agrees to
waive any requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Companies on the date of the execution of
this Agreement and the current plans of the Companies; but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations
of the Companies throughout the term of this covenant, whether before or
after the date of termination of the employment of Executive, unless
Executive was conducting such new business prior to any Company conducting
such new business.
(d) It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed by the Company and shall enter into a
business or pursue other activities not in competition with the Businesses
of the Companies or similar activities or businesses in locations the
operation of which, under such circumstances, does not violate clause
(a)(i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the Companies shall
thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of
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the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and the Agreement shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the further
provisions of this Agreement) following termination of employment stated at
the beginning of this paragraph 3, during which the agreements and
covenants of Executive made in this paragraph 3 shall be effective, shall
be computed by excluding from such computation any time during which
Executive is in violation of any provision of this paragraph 3.
(g) The Company and Executive hereby agree that this covenant is a
material and substantial part of this Agreement.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue
thereafter at Executive's and Company's mutual election on a year-to-year basis
on the same terms and conditions contained herein in effect as of the time of
renewal (the "Extended Term"); provided, however, upon a Change in Control of
the Company, the term of this Agreement shall automatically continue following
such Change in Control for a period equal to the then remaining term or two
years, whichever period is longer, unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's estate; provided,
however, all Nonvested Shares, if any, shall immediately vest in full.
(b) Disability. If Executive becomes entitled to receive benefits
under an insured long-term disability plan of the Company that includes its
officers, the Company may terminate Executive's employment hereunder with
no severance compensation due Executive; provided, however, all Nonvested
Shares, if any, shall immediately vest in full.
(c) Cause. The Company may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause", which
shall be: (1) Executive's willful, material and irreparable breach of this
Agreement (which remains uncured 10 days after receipt of written notice);
(2) Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 10 days after receipt of
written notice of need to cure) of any of Executive's material duties and
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responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of the Company which
materially and adversely affects the Company (monetarily or otherwise); or
(4) Executive's conviction of a felony crime involving moral turpitude. In
the event of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause. Executive may, without Good Reason (as hereinafter
defined), terminate this Agreement and Executive's employment effective 30
days after written notice is provided to the Company. Executive may only
be terminated without Cause by the Company during either the Initial Term
or Extended Term if such termination is approved by at least 51% of the
members of the Board. Should Executive be terminated by the Company
without Cause during the Initial Term or should Executive terminate with
Good Reason during the Initial Term, then, Executive shall receive from the
Company, in a lump sum payment due on the effective date of such
termination, the equivalent of the base salary (at the rate then in effect)
for whatever time period is remaining under the Initial Term or for one
year, whichever amount is greater. Should Executive be terminated by the
Company without Cause during the Extended Term or should Executive
terminate with Good Reason during the Extended Term, Executive shall
receive from the Company, in a lump sum payment due on the effective date
of such termination, the equivalent to one year of base salary at the rate
then in effect. Further, any termination without Cause by the Company or
by Executive for Good Reason shall operate to shorten the period set forth
in paragraph 3(a) and during which the terms of paragraph 3 apply to one
year from the date of termination of employment. If Executive resigns or
otherwise terminates his employment without Good Reason, rather than the
Company terminating his employment pursuant to this paragraph 4(d),
Executive shall receive no severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless such
event is agreed to in writing by Executive: (a) Executive is demoted by
means of a material reduction in authority, responsibilities or duties to a
position of less stature or importance within the Company than the position
described in Section 1(a) hereof; (b) Executive's annual base salary as
then in effect is reduced; or (c) the relocation of the Company's principal
executive offices to a location outside the Morgan City, Louisiana area or
the Company's requiring Executive to relocate anywhere other than the
Company's principal executive offices.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce
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his rights hereunder. Further, none of the provisions of paragraph 3 shall apply
in the event this Agreement is terminated as a result of a breach by the
Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date. All other rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination, except that the
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein shall survive
such termination in accordance with their terms.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company or any of
the Companies or their representatives, vendors or customers which pertain to
the business of the Company or any of the Companies shall be and remain the
property of the Company or the Companies, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or the
Companies which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company. Executive
hereby assigns and agrees to assign all his interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments that the
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
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8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the Company an
advantage over its actual and potential, current and future competitors.
Executive further acknowledges and agrees that Executive owes the Company a
fiduciary duty to preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Company's Confidential
Information would irreparably injure the Company.
(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential Information in strict
confidence, and shall not use any Confidential Information except for the
benefit of the Company, in accordance with the duties assigned to
Executive. Executive shall not, at any time (either during or after the
term of Executive's employment), disclose any Confidential Information to
any person or entity (except other employees of the Company who have a need
to know the information in connection with the performance of their
employment duties), or copy, reproduce, modify, decompile or reverse
engineer any Confidential Information, or remove any Confidential
Information from the Company's premises, without the prior written consent
of the President of the Company, or permit any other person to do so.
Executive shall take reasonable precautions to protect the physical
security of all documents and other material containing Confidential
Information (regardless of the medium on which the Confidential Information
is stored). This Agreement applies to all Confidential Information,
whether now known or later to become known to Executive.
(c) Upon the termination of Executive's employment with the Company
for any reason, and upon request of the Company at any other time,
Executive shall promptly surrender and deliver to the Company all documents
and other written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or other
material. Within five days of any such request, Executive shall certify to
the Company in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or for the
Company (whether or not owned or developed by the Companies and whether or
not developed by Executive) that is not generally known to persons in the
Business. Confidential Information includes, but is not limited to, the
following: all trade secrets of the Companies; all information that the
Companies have marked as confidential or has otherwise described to
Executive (either in writing or orally) as confidential; all nonpublic
information concerning the Companies'
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products, services, prospective products or services, research, product
designs, prices, discounts, costs, marketing plans, marketing techniques,
market studies, test data, customers, customer lists and records, suppliers
and contracts; all business records and plans; all personnel files; all
financial information of or concerning the Companies'; all information
relating to operating system software, application software, software and
system methodology, hardware platforms, technical information, inventions,
computer programs and listings, source codes, object codes, copyrights and
other intellectual property; all technical specifications; any proprietary
information belonging to the Companies; all computer hardware or software
manuals; all training or instruction manuals; and all data and all computer
system passwords and user codes.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive, his employment by the
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, reasonable attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or may
hereafter come to have against the Company based upon or arising out of any non-
competition agreement, invention or secrecy agreement between Executive and such
third party which was in existence as of the date of this Agreement.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. The
parties hereby acknowledge that, upon the formation of Conrad and the related
transactions, the term "Company" as used in this Agreement and shall include
Conrad, except (i) with respect to the definition of "Change in Control", where
the term "Company" shall mean Conrad, and (ii) references to the Board shall
mean the Board of Directors of Conrad. The Company will require any successor,
other than Conrad, by agreement in form and substance reasonably acceptable to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Subject to the preceding, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
11. Change in Control.
(a) In the event a Change in Control is initiated or occurs during the
Initial Term or Extended Term, then the provisions of this paragraph 11
shall be applicable.
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(b) If, on or within two years following the effective date of a
Change in Control, the Company terminates Executive's employment other than
for Cause or Executive terminates his employment for Good Reason, or if
Executive's employment with the Company is terminated by the Company within
six months before the effective date of a Change in Control and it is
reasonably demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably calculated to
effect a Change in Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall receive from
Company, in a lump sum payment due on the later of the effective date of
Executive's termination or the Change in Control, as the case may be, the
equivalent of three years' base salary at the rate in effect on Executive's
termination date.
(c) Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11(b) shall operate to automatically
waive in full the noncompetition restrictions imposed on Executive pursuant
to paragraph 3(a).
(d) If it shall be determined that any payment made or benefit (a
"Payment") provided to Executive, whether or not made or provided pursuant
to this Agreement and whether or not upon a Change in Control as defined
herein, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto, the
Company shall pay Executive an amount of cash (the "Additional Amount")
such that the net after tax benefit received by Executive after paying all
applicable taxes on such Payment and the Additional Amount shall be equal
to the net after-tax amount that Executive would have received with respect
to the Payment if Section 4999 had not been applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate
the amount of any Company payment provided for in this Agreement by seeking
other employment or otherwise. The amount of any payment required to be paid to
Executive by the Company pursuant to this Agreement shall not be reduced by any
amounts that are owed to the Company by Executive, or by any setoff,
counterclaim, recoupment, defense or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any payments pursuant to this
Agreement unless Executive has executed a general release of all claims
Executive may have against the Company and its affiliates in a form of such
release reasonably acceptable to the Company and such release has become final.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Executive against all
expenses
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(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Executive in connection therewith. In the
event that both Executive and the Company are made a party to the same third-
party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company.
15. Complete Agreement. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. This written Agreement
may not be later modified except by a further writing signed by a duly
authorized officer of the Company and Executive, and no term of this Agreement
may be waived except by writing signed by the party waiving the benefit of such
term. Without limiting the generality of the foregoing, either party's failure
to insist on strict compliance with this Agreement shall not be deemed a waiver
thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Conrad Industries, Inc.
150 Front St.
P.O. Box 790
Morgan City, Louisiana 70381
Attn: Chairman of the Board
To Executive: John P. Conrad, Jr.
c/o Conrad Industries, Inc.
P. O. Box 790
Morgan City, Louisiana 70381
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested,
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or when actually received. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties
shall request the Association of Attorney Mediators in Louisiana (or similar
association) to appoint a mediator. If the mediator is unable to facilitate a
settlement of the dispute within a reasonable period of time, as determined by
the mediator, the mediator shall issue a written statement to the parties to
that effect and any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Morgan City, Louisiana, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Executive was terminated without disability or Cause, as defined in paragraphs
4(b) and 4(c), respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel
shall be final and binding. Judgment may be entered on the arbitrators' award
in any court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Louisiana without regard to its conflicts
of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
CONRAD INDUSTRIES, INC.
By:__________________________
Name:________________________
Title:_______________________
EXECUTIVE
_____________________________
John P. Conrad, Jr.
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Conrad
Industries, Inc. (to be renamed Conrad Shipyard, Inc.), a Louisiana
corporation (the "Company"), and William H. Hidalgo ("Executive") is hereby
entered into effective as of March 31, 1998 (the "Effective Date").
RECITALS
WHEREAS, the Company desires to continue Executive's employment, and
Executive desires to continue his employment with the Company, all on the terms
and conditions set forth in this Agreement; and
WHEREAS, a Delaware corporation to be named Conrad Industries, Inc.
("Conrad") has been formed to become the parent corporation of the Company and
the stockholders of the Company will exchange their stock in the Company for
stock of Conrad following such formation;
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein and the performance of each, it is
hereby agreed as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as the Chief Executive
Officer and President of the Company. As such, Executive shall have
responsibilities, duties and authority reasonably accorded to, expected of
and consistent with Executive's positions as the Chief Executive Officer
and President of the Company. Executive hereby accepts this employment
upon the terms and conditions herein contained and, subject to paragraph
1(c), agrees to devote substantially all of his time, attention and efforts
to promote and further the business and interests of the Company and its
affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder,
engage in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect
with Executive's duties and responsibilities
<PAGE>
hereunder. The foregoing limitations shall not be construed as prohibiting
Executive from making personal investments in such form or manner as will
neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during the term
shall be $195,290 per year, payable in accordance with the Company's
payroll procedures for executives, but not less frequently than monthly.
Such base salary may be increased from time to time, at the discretion of
the Board of Directors of the Company (the "Board"), in light of the
Executive's position, responsibilities and performance, and, as increased
from time to time, may not be reduced.
(b) Company Stock. The Company hereby grants to Executive 168 shares
of common stock of the Company ("Company Stock"), subject to the following
terms:
(i) Executive shall be immediately vested in 50% of the shares
of Company Stock on the Effective Date;
(ii) Executive shall vest in the remaining 50% of the shares of
Company Stock (the "Nonvested Shares") at the rate of 33 1/3% on each
anniversary of the Effective Date (rounded up to the nearest whole
share) on which Executive continues to be an employee of the Company,
subject to the further provisions of this Agreement;
(iii) Executive shall become automatically 100% vested in the
Nonvested Shares immediately prior to a "Change in Control" of the
Company, as such term is defined in the Conrad Industries, Inc. 1998
Stock Plan;
(iv) prior to becoming vested, the Nonvested Shares may not be
transferred (except by will or the laws of descent and distribution),
pledged or encumbered in any manner by Executive;
(v) all distributions made by the Company with respect to the
Nonvested Shares (cash, stock or other property), and any shares
issued upon a stock split or stock dividend or by Conrad in exchange
for the Nonvested Shares shall be subject to the same restrictions
applicable to the Nonvested Shares as set forth in this Agreement; and
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(vi) the Company may place such legends on the certificate for
the Nonvested Shares evidencing the restrictions provided herein as it
deems appropriate.
Executive hereby covenants that he shall enter into that certain Stock
Exchange Agreement between the Company, Conrad and the stockholders of the
same.
(c) Executive Perquisites, Benefits and Other Compensation. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Executive shall be promptly reimbursed for all business
travel and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his duties pursuant to this Agreement
and in accordance with the Company's policy for executives of the
Company. All such expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the
Company's expense reporting policy;
(ii) Executive shall, subject to the satisfaction of any general
eligibility criteria, be eligible to participate in all compensation
and benefit plans and programs as are maintained from time to time for
executives of the Company;
(iii) Executive shall be entitled to vacation in accordance with
the policies of the Company; and
(iv) The Company shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the Board.
3. Non-Competition Agreement.
(a) Executive recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's agreement to the
provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage the Company.
Subject to the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of two
years immediately following the termination of such for any reason
whatsoever, either for Cause or in the event Executive terminates his
employment without Good Reason, except as may be set forth herein, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the
construction, conversion or repair of marine vessels or the
fabrication of modular components for offshore drilling rigs or
floating production, storage and offloading vessels (collectively, the
"Businesses") of the Company, Conrad, or any subsidiary or affiliate
of Conrad (collectively, the "Companies") in any area in which any of
the Companies conduct one or more of the Businesses, including any
territory serviced by any of the Companies during the term of
Executive's employment (the "Territory");
(ii) call upon any person who is, at that time, an employee of
any of the Companies for the purpose or with the intent of enticing
such employee away from or out of the employ of any of the Companies;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of any
of the Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with any of the
Companies within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's knowledge after due inquiry, either called upon by
any of the Companies or for which any of the Companies made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
any of the Companies to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that any of the Companies has in the past disclosed such information
to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Executive from acquiring as an investment (i) not more than 1%
of the capital stock of a competing business, whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or similar market or
(ii) not more than 5% of the capital stock of a competing business whose
stock is not publicly traded unless the Board consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by the Company, in the
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event of breach by him, by injunctions and restraining orders. Executive
further agrees to waive any requirement for the Company's securing or
posting of any bond in connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Companies on the date of the execution of
this Agreement and the current plans of the Companies; but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations
of the Companies throughout the term of this covenant, whether before or
after the date of termination of the employment of Executive, unless
Executive was conducting such new business prior to any Company conducting
such new business.
(d) It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed by the Company and shall enter into a
business or pursue other activities not in competition with the Businesses
of the Companies or similar activities or businesses in locations the
operation of which, under such circumstances, does not violate clause
(a)(i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the Companies shall
thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of the
parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the further
provisions of this Agreement) following termination of employment stated at
the beginning of this paragraph 3, during which the agreements and
covenants of Executive made in this paragraph 3 shall be effective, shall
be computed by excluding from such computation any time during which
Executive is in violation of any provision of this paragraph 3.
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(g) The Company and Executive hereby agree that this covenant is a
material and substantial part of this Agreement.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue
thereafter at Executive's and Company's mutual election on a year-to-year basis
on the same terms and conditions contained herein in effect as of the time of
renewal (the "Extended Term"); provided, however, upon a Change in Control of
the Company, the term of this Agreement shall automatically continue following
such Change in Control for a period equal to the then remaining term or two
years, whichever period is longer, unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's estate; provided,
however, all Nonvested Shares, if any, shall immediately vest in full.
(b) Disability. If Executive becomes entitled to receive benefits
under an insured long-term disability plan of the Company that includes its
officers, the Company may terminate Executive's employment hereunder with
no severance compensation due Executive; provided, however, all Nonvested
Shares, if any, shall immediately vest in full.
(c) Cause. The Company may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause", which
shall be: (1) Executive's willful, material and irreparable breach of this
Agreement (which remains uncured 10 days after receipt of written notice);
(2) Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 10 days after receipt of
written notice of need to cure) of any of Executive's material duties and
responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of the Company which
materially and adversely affects the Company (monetarily or otherwise); or
(4) Executive's conviction of a felony crime involving moral turpitude. In
the event of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause. Executive may, without Good Reason (as hereinafter
defined), terminate this Agreement and Executive's employment effective 30
days after written notice is provided to the Company. Executive may only
be terminated without Cause by the Company during either the Initial Term
or Extended Term if such termination is approved by at least 51% of the
members of the Board. Should Executive be terminated by the Company
without Cause during the Initial Term or should Executive terminate with
Good Reason during the Initial Term, then, (i) Executive shall receive from
the Company,
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in a lump sum payment due on the effective date of such termination, the
equivalent of the base salary (at the rate then in effect) for whatever
time period is remaining under the Initial Term or for one year, whichever
amount is greater, and (ii) all Nonvested Shares immediately shall be
vested in full. Should Executive be terminated by the Company without Cause
during the Extended Term or should Executive terminate with Good Reason
during the Extended Term, Executive shall receive from the Company, in a
lump sum payment due on the effective date of such termination, the
equivalent to one year of base salary at the rate then in effect. Further,
any termination without Cause by the Company or by Executive for Good
Reason shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without Good Reason, rather than the Company terminating his
employment pursuant to this paragraph 4(d), Executive shall receive no
severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless such
event is agreed to in writing by Executive: (a) Executive is demoted by
means of a material reduction in authority, responsibilities or duties to a
position of less stature or importance within the Company than the position
described in Section 1(a) hereof; (b) Executive's annual base salary as
then in effect is reduced; or (c) the relocation of the Company's principal
executive offices to a location outside the Morgan City, Louisiana area or
the Company's requiring Executive to relocate anywhere other than the
Company's principal executive offices.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date. All other rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination, except that the
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein shall survive
such termination in accordance with their terms.
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5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company or any of
the Companies or their representatives, vendors or customers which pertain to
the business of the Company or any of the Companies shall be and remain the
property of the Company or the Companies, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or the
Companies which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company. Executive
hereby assigns and agrees to assign all his interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments that the
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the Company an
advantage over its actual and potential, current and future competitors.
Executive further acknowledges and agrees that Executive owes the Company a
fiduciary duty to preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Company's Confidential
Information would irreparably injure the Company.
(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential Information in strict
confidence, and shall not use any Confidential
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Information except for the benefit of the Company, in accordance with the
duties assigned to Executive. Executive shall not, at any time (either
during or after the term of Executive's employment), disclose any
Confidential Information to any person or entity (except other employees of
the Company who have a need to know the information in connection with the
performance of their employment duties), or copy, reproduce, modify,
decompile or reverse engineer any Confidential Information, or remove any
Confidential Information from the Company's premises, without the prior
written consent of the President of the Company, or permit any other person
to do so. Executive shall take reasonable precautions to protect the
physical security of all documents and other material containing
Confidential Information (regardless of the medium on which the
Confidential Information is stored). This Agreement applies to all
Confidential Information, whether now known or later to become known to
Executive.
(c) Upon the termination of Executive's employment with the Company
for any reason, and upon request of the Company at any other time,
Executive shall promptly surrender and deliver to the Company all documents
and other written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or other
material. Within five days of any such request, Executive shall certify to
the Company in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or for the
Company (whether or not owned or developed by the Companies and whether or
not developed by Executive) that is not generally known to persons in the
Business. Confidential Information includes, but is not limited to, the
following: all trade secrets of the Companies; all information that the
Companies have marked as confidential or has otherwise described to
Executive (either in writing or orally) as confidential; all nonpublic
information concerning the Companies' products, services, prospective
products or services, research, product designs, prices, discounts, costs,
marketing plans, marketing techniques, market studies, test data,
customers, customer lists and records, suppliers and contracts; all
business records and plans; all personnel files; all financial information
of or concerning the Companies'; all information relating to operating
system software, application software, software and system methodology,
hardware platforms, technical information, inventions, computer programs
and listings, source codes, object codes, copyrights and other intellectual
property; all technical specifications; any proprietary information
belonging to the Companies; all computer hardware or software manuals; all
training or instruction manuals; and all data and all computer system
passwords and user codes.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive, his employment by the
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former
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employer, client or any other person or entity. Further, Executive agrees to
indemnify the Company for any claim, including, but not limited to, reasonable
attorneys' fees and expenses of investigation, by any such third party that such
third party may now have or may hereafter come to have against the Company based
upon or arising out of any non-competition agreement, invention or secrecy
agreement between Executive and such third party which was in existence as of
the date of this Agreement.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. The
parties hereby acknowledge that, upon the formation of Conrad and the related
transactions, the term "Company" as used in this Agreement and shall include
Conrad, except (i) with respect to the definition of "Change in Control", where
the term "Company" shall mean Conrad, and (ii) references to the Board shall
mean the Board of Directors of Conrad. The Company will require any successor,
other than Conrad, by agreement in form and substance reasonably acceptable to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Subject to the preceding, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
11. Change in Control.
(a) In the event a Change in Control is initiated or occurs during the
Initial Term or Extended Term, then the provisions of this paragraph 11
shall be applicable.
(b) If, on or within two years following the effective date of a
Change in Control, the Company terminates Executive's employment other than
for Cause or Executive terminates his employment for Good Reason, or if
Executive's employment with the Company is terminated by the Company within
six months before the effective date of a Change in Control and it is
reasonably demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably calculated to
effect a Change in Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall receive from
Company, in a lump sum payment due on the later of the effective date of
Executive's termination or the Change in Control, as the case may be, the
equivalent of three years' base salary at the rate in effect on Executive's
termination date.
(c) Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11(b) shall operate to automatically
waive in full the noncompetition restrictions imposed on Executive pursuant
to paragraph 3(a).
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(d) If it shall be determined that any payment made or benefit (a
"Payment") provided to Executive, whether or not made or provided pursuant
to this Agreement and whether or not upon a Change in Control as defined
herein, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto, the
Company shall pay Executive an amount of cash (the "Additional Amount")
such that the net after tax benefit received by Executive after paying all
applicable taxes on such Payment and the Additional Amount shall be equal
to the net after-tax amount that Executive would have received with respect
to the Payment if Section 4999 had not been applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate
the amount of any Company payment provided for in this Agreement by seeking
other employment or otherwise. The amount of any payment required to be paid to
Executive by the Company pursuant to this Agreement shall not be reduced by any
amounts that are owed to the Company by Executive, or by any setoff,
counterclaim, recoupment, defense or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any payments pursuant to this
Agreement unless Executive has executed a general release of all claims
Executive may have against the Company and its affiliates in a form of such
release reasonably acceptable to the Company and such release has become final.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company.
15. Complete Agreement. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive
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statement and expression of the agreement between the Company and Executive and
of all the terms of this Agreement, and it cannot be varied, contradicted or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Executive, and no
term of this Agreement may be waived except by writing signed by the party
waiving the benefit of such term. Without limiting the generality of the
foregoing, either party's failure to insist on strict compliance with this
Agreement shall not be deemed a waiver thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Conrad Industries, Inc.
150 Front St.
P.O. Box 790
Morgan City, Louisiana 70381
Attn: Chairman of the Board
To Executive: William H. Hidalgo
c/o Conrad Industries, Inc.
P. O. Box 790
Morgan City, Louisiana 70381
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties
shall request the Association of Attorney Mediators in Louisiana (or similar
association) to appoint a mediator. If the mediator is unable to
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facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Morgan City,
Louisiana, in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall have the authority to order back-pay,
severance compensation, vesting of options (or cash compensation in lieu of
vesting of options), reimbursement of costs, including those incurred to enforce
this Agreement, and interest thereon in the event the arbitrators determine that
Executive was terminated without disability or Cause, as defined in paragraphs
4(b) and 4(c), respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Louisiana without regard to its conflicts
of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
CONRAD INDUSTRIES, INC.
By:_________________________
Name:_______________________
Title:______________________
EXECUTIVE
____________________________
William H. Hidalgo
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Conrad
Industries, Inc. (to be renamed Conrad Shipyard, Inc.), a Louisiana
corporation (the "Company"), and Cecil A. Hernandez ("Executive") is hereby
entered into effective as of March 31, 1998 (the "Effective Date").
RECITALS
WHEREAS, the Company desires to continue Executive's employment, and
Executive desires to continue his employment with the Company, all on the terms
and conditions set forth in this Agreement; and
WHEREAS, a Delaware corporation to be named Conrad Industries, Inc.
("Conrad") has been formed to become the parent corporation of the Company and
the stockholders of the Company will exchange their stock in the Company for
stock of Conrad following such formation;
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein and the performance of each, it is
hereby agreed as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as the Vice President-Finance
and Administration and Chief Financial Officer of the Company. As such,
Executive shall have responsibilities, duties and authority reasonably
accorded to, expected of and consistent with Executive's positions as the
Vice President-Finance and Administration and Chief Financial Officer of
the Company. Executive hereby accepts this employment upon the terms and
conditions herein contained and, subject to paragraph 1(c), agrees to
devote substantially all of his time, attention and efforts to promote and
further the business and interests of the Company and its affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company.
<PAGE>
(c) Executive shall not, during the term of his employment hereunder,
engage in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect
with Executive's duties and responsibilities hereunder. The foregoing
limitations shall not be construed as prohibiting Executive from making
personal investments in such form or manner as will neither require his
services in the operation or affairs of the companies or enterprises in
which such investments are made nor violate the terms of paragraph 3
hereof.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during the term
shall be $150,000 per year, payable in accordance with the Company's
payroll procedures for executives, but not less frequently than monthly.
Such base salary may be increased from time to time, at the discretion of
the Board of Directors of the Company (the "Board"), in light of the
Executive's position, responsibilities and performance, and, as increased
from time to time, may not be reduced.
(b) Company Stock. The Company hereby grants to Executive 67 shares
of common stock of the Company ("Company Stock"), subject to the following
terms:
(i) Executive shall be immediately vested in 50% of the shares
of Company Stock on the Effective Date;
(ii) Executive shall vest in the remaining 50% of the shares of
Company Stock (the "Nonvested Shares") at the rate of 33 1/3% on each
anniversary of the Effective Date (rounded up to the nearest whole
share) on which Executive continues to be an employee of the Company,
subject to the further provisions of this Agreement;
(iii) Executive shall become automatically 100% vested in the
Nonvested Shares immediately prior to a "Change in Control" of the
Company, as such term is defined in the Conrad Industries, Inc. 1998
Stock Plan;
(iv) prior to becoming vested, the Nonvested Shares may not be
transferred (except by will or the laws of descent and distribution),
pledged or encumbered in any manner by Executive;
(v) all distributions made by the Company with respect to the
Nonvested Shares (cash, stock or other property), and any shares
issued upon a stock split or stock dividend or by Conrad in exchange
for the Nonvested Shares shall be subject
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to the same restrictions applicable to the Nonvested Shares as set
forth in this Agreement; and
(vi) the Company may place such legends on the certificate for
the Nonvested Shares evidencing the restrictions provided herein as it
deems appropriate.
Executive hereby covenants that he shall enter into that certain Stock
Exchange Agreement between the Company, Conrad and the stockholders of the
same.
(c) Executive Perquisites, Benefits and Other Compensation. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Executive shall be promptly reimbursed for all business
travel and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his duties pursuant to this Agreement
and in accordance with the Company's policy for executives of the
Company. All such expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the
Company's expense reporting policy;
(ii) Executive shall, subject to the satisfaction of any general
eligibility criteria, be eligible to participate in all compensation
and benefit plans and programs as are maintained from time to time for
executives of the Company;
(iii) Executive shall be entitled to vacation in accordance with
the policies of the Company; and
(iv) The Company shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the Board.
3. Non-Competition Agreement.
(a) Executive recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's agreement to the
provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage the Company.
Subject to the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of two
years immediately following the termination of such for any reason
whatsoever, either for Cause or in the event Executive terminates his
employment without Good Reason, except
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as may be set forth herein, directly or indirectly, for himself or on
behalf of or in conjunction with any other person, company, partnership,
corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the
construction, conversion or repair of marine vessels or the
fabrication of modular components for offshore drilling rigs or
floating production, storage and offloading vessels (collectively, the
"Businesses") of the Company, Conrad, or any subsidiary or affiliate
of Conrad (collectively, the "Companies") in any area in which any of
the Companies conduct one or more of the Businesses, including any
territory serviced by any of the Companies during the term of
Executive's employment (the "Territory");
(ii) call upon any person who is, at that time, an employee of
any of the Companies for the purpose or with the intent of enticing
such employee away from or out of the employ of any of the Companies;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of any
of the Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with any of the
Companies within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's knowledge after due inquiry, either called upon by
any of the Companies or for which any of the Companies made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
any of the Companies to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that any of the Companies has in the past disclosed such information
to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Executive from acquiring as an investment (i) not more than 1%
of the capital stock of a competing business, whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or similar market or
(ii) not more than 5% of the capital stock of a competing business whose
stock is not publicly traded unless the Board consents to such acquisition.
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<PAGE>
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by the Company, in the event of breach
by him, by injunctions and restraining orders. Executive further agrees to
waive any requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Companies on the date of the execution of
this Agreement and the current plans of the Companies; but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations
of the Companies throughout the term of this covenant, whether before or
after the date of termination of the employment of Executive, unless
Executive was conducting such new business prior to any Company conducting
such new business.
(d) It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed by the Company and shall enter into a
business or pursue other activities not in competition with the Businesses
of the Companies or similar activities or businesses in locations the
operation of which, under such circumstances, does not violate clause
(a)(i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the Companies shall
thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of the
parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the further
provisions of this Agreement) following termination of employment stated at
the beginning of this paragraph 3, during which the agreements and
covenants of Executive made in this
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paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Executive is in violation of any
provision of this paragraph 3.
(g) The Company and Executive hereby agree that this covenant is a
material and substantial part of this Agreement.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue
thereafter at Executive's and Company's mutual election on a year-to-year basis
on the same terms and conditions contained herein in effect as of the time of
renewal (the "Extended Term"); provided, however, upon a Change in Control of
the Company, the term of this Agreement shall automatically continue following
such Change in Control for a period equal to the then remaining term or two
years, whichever period is longer, unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's estate; provided,
however, all Nonvested Shares, if any, shall immediately vest in full.
(b) Disability. If Executive becomes entitled to receive benefits
under an insured long-term disability plan of the Company that includes its
officers, the Company may terminate Executive's employment hereunder with
no severance compensation due Executive; provided, however, all Nonvested
Shares, if any, shall immediately vest in full.
(c) Cause. The Company may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause", which
shall be: (1) Executive's willful, material and irreparable breach of this
Agreement (which remains uncured 10 days after receipt of written notice);
(2) Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 10 days after receipt of
written notice of need to cure) of any of Executive's material duties and
responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of the Company which
materially and adversely affects the Company (monetarily or otherwise); or
(4) Executive's conviction of a felony crime involving moral turpitude. In
the event of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause. Executive may, without Good Reason (as hereinafter
defined), terminate this Agreement and Executive's employment effective 30
days after written notice is provided to the Company. Executive may only
be terminated without Cause by the Company during either the Initial Term
or Extended Term if such termination is
-6-
<PAGE>
approved by at least 51% of the members of the Board. Should Executive be
terminated by the Company without Cause during the Initial Term or should
Executive terminate with Good Reason during the Initial Term, then, (i)
Executive shall receive from the Company, in a lump sum payment due on the
effective date of such termination, the equivalent of the base salary (at
the rate then in effect) for whatever time period is remaining under the
Initial Term or for one year, whichever amount is greater, and (ii) all
Nonvested Shares immediately shall be vested in full. Should Executive be
terminated by the Company without Cause during the Extended Term or should
Executive terminate with Good Reason during the Extended Term, Executive
shall receive from the Company, in a lump sum payment due on the effective
date of such termination, the equivalent to one year of base salary at the
rate then in effect. Further, any termination without Cause by the Company
or by Executive for Good Reason shall operate to shorten the period set
forth in paragraph 3(a) and during which the terms of paragraph 3 apply to
one year from the date of termination of employment. If Executive resigns
or otherwise terminates his employment without Good Reason, rather than the
Company terminating his employment pursuant to this paragraph 4(d),
Executive shall receive no severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless such
event is agreed to in writing by Executive: (a) Executive is demoted by
means of a material reduction in authority, responsibilities or duties to a
position of less stature or importance within the Company than the position
described in Section 1(a) hereof; (b) Executive's annual base salary as
then in effect is reduced; or (c) the relocation of the Company's principal
executive offices to a location outside the Morgan City, Louisiana area or
the Company's requiring Executive to relocate anywhere other than the
Company's principal executive offices.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date. All other rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination, except that the
Executive's obligations
-7-
<PAGE>
under paragraphs 3, 5, 6, 7, and 8 herein shall survive such termination in
accordance with their terms.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company or any of
the Companies or their representatives, vendors or customers which pertain to
the business of the Company or any of the Companies shall be and remain the
property of the Company or the Companies, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or the
Companies which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company. Executive
hereby assigns and agrees to assign all his interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments that the
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the Company an
advantage over its actual and potential, current and future competitors.
Executive further acknowledges and agrees that Executive owes the Company a
fiduciary duty to preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Company's Confidential
Information would irreparably injure the Company.
-8-
<PAGE>
(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential Information in strict
confidence, and shall not use any Confidential Information except for the
benefit of the Company, in accordance with the duties assigned to
Executive. Executive shall not, at any time (either during or after the
term of Executive's employment), disclose any Confidential Information to
any person or entity (except other employees of the Company who have a need
to know the information in connection with the performance of their
employment duties), or copy, reproduce, modify, decompile or reverse
engineer any Confidential Information, or remove any Confidential
Information from the Company's premises, without the prior written consent
of the President of the Company, or permit any other person to do so.
Executive shall take reasonable precautions to protect the physical
security of all documents and other material containing Confidential
Information (regardless of the medium on which the Confidential Information
is stored). This Agreement applies to all Confidential Information,
whether now known or later to become known to Executive.
(c) Upon the termination of Executive's employment with the Company
for any reason, and upon request of the Company at any other time,
Executive shall promptly surrender and deliver to the Company all documents
and other written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or other
material. Within five days of any such request, Executive shall certify to
the Company in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or for the
Company (whether or not owned or developed by the Companies and whether or
not developed by Executive) that is not generally known to persons in the
Business. Confidential Information includes, but is not limited to, the
following: all trade secrets of the Companies; all information that the
Companies have marked as confidential or has otherwise described to
Executive (either in writing or orally) as confidential; all nonpublic
information concerning the Companies' products, services, prospective
products or services, research, product designs, prices, discounts, costs,
marketing plans, marketing techniques, market studies, test data,
customers, customer lists and records, suppliers and contracts; all
business records and plans; all personnel files; all financial information
of or concerning the Companies'; all information relating to operating
system software, application software, software and system methodology,
hardware platforms, technical information, inventions, computer programs
and listings, source codes, object codes, copyrights and other intellectual
property; all technical specifications; any proprietary information
belonging to the Companies; all computer hardware or software manuals; all
training or instruction manuals; and all data and all computer system
passwords and user codes.
-9-
<PAGE>
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive, his employment by the
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, reasonable attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or may
hereafter come to have against the Company based upon or arising out of any non-
competition agreement, invention or secrecy agreement between Executive and such
third party which was in existence as of the date of this Agreement.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. The
parties hereby acknowledge that, upon the formation of Conrad and the related
transactions, the term "Company" as used in this Agreement and shall include
Conrad, except (i) with respect to the definition of "Change in Control", where
the term "Company" shall mean Conrad, and (ii) references to the Board shall
mean the Board of Directors of Conrad. The Company will require any successor,
other than Conrad, by agreement in form and substance reasonably acceptable to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Subject to the preceding, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
11. Change in Control.
(a) In the event a Change in Control is initiated or occurs during the
Initial Term or Extended Term, then the provisions of this paragraph 11
shall be applicable.
(b) If, on or within two years following the effective date of a
Change in Control, the Company terminates Executive's employment other than
for Cause or Executive terminates his employment for Good Reason, or if
Executive's employment with the Company is terminated by the Company within
six months before the effective date of a Change in Control and it is
reasonably demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably calculated to
effect a Change in Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall receive from
Company, in a lump sum payment due on the later of the effective date of
Executive's termination or the Change in Control, as the case may be, the
equivalent of two years' base salary at the rate in effect on Executive's
termination date.
-10-
<PAGE>
(c) Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11(b) shall operate to automatically
waive in full the noncompetition restrictions imposed on Executive pursuant
to paragraph 3(a).
(d) If it shall be determined that any payment made or benefit (a
"Payment") provided to Executive, whether or not made or provided pursuant
to this Agreement and whether or not upon a Change in Control as defined
herein, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto, the
Company shall pay Executive an amount of cash (the "Additional Amount")
such that the net after tax benefit received by Executive after paying all
applicable taxes on such Payment and the Additional Amount shall be equal
to the net after-tax amount that Executive would have received with respect
to the Payment if Section 4999 had not been applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate
the amount of any Company payment provided for in this Agreement by seeking
other employment or otherwise. The amount of any payment required to be paid to
Executive by the Company pursuant to this Agreement shall not be reduced by any
amounts that are owed to the Company by Executive, or by any setoff,
counterclaim, recoupment, defense or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any payments pursuant to this
Agreement unless Executive has executed a general release of all claims
Executive may have against the Company and its affiliates in a form of such
release reasonably acceptable to the Company and such release has become final.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company.
-11-
<PAGE>
15. Complete Agreement. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. This written Agreement
may not be later modified except by a further writing signed by a duly
authorized officer of the Company and Executive, and no term of this Agreement
may be waived except by writing signed by the party waiving the benefit of such
term. Without limiting the generality of the foregoing, either party's failure
to insist on strict compliance with this Agreement shall not be deemed a waiver
thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Conrad Industries, Inc.
150 Front St.
P.O. Box 790
Morgan City, Louisiana 70381
Attn: Chairman of the Board
To Executive: Cecil A. Hernandez
c/o Conrad Industries, Inc.
P. O. Box 790
Morgan City, Louisiana 70381
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a
-12-
<PAGE>
demand for direct negotiation, the parties shall attempt to resolve the dispute
through mediation. If the parties do not promptly agree on a mediator, the
parties shall request the Association of Attorney Mediators in Louisiana (or
similar association) to appoint a mediator. If the mediator is unable to
facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Morgan City,
Louisiana, in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall have the authority to order back-pay,
severance compensation, vesting of options (or cash compensation in lieu of
vesting of options), reimbursement of costs, including those incurred to enforce
this Agreement, and interest thereon in the event the arbitrators determine that
Executive was terminated without disability or Cause, as defined in paragraphs
4(b) and 4(c), respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Louisiana without regard to its conflicts
of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
CONRAD INDUSTRIES, INC.
By:______________________________
Name:____________________________
Title:___________________________
EXECUTIVE
_________________________________
Cecil A. Hernandez
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<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Conrad Industries,
Inc. on Form S-1 of (i) our report dated April 8, 1998 related to the balance
sheet of Conrad Industries, Inc. as of March 31, 1998; and (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, each appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
- --------------------------
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
April 8, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONRAD
SHIPYARD, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<CASH> 0 3,209 7,551
<SECURITIES> 0 0 0
<RECEIVABLES> 0 3,125 6,982
<ALLOWANCES> 0 25 16
<INVENTORY> 0 137 139
<CURRENT-ASSETS> 0 6,687 15,294
<PP&E> 0 15,243 25,857
<DEPRECIATION> 0 6,729 7,553
<TOTAL-ASSETS> 0 15,236 48,945
<CURRENT-LIABILITIES> 0 2,285 7,534
<BONDS> 0 572 23,537
0 0 0
0 0 0
<COMMON> 0 47 47
<OTHER-SE> 0 12,332 15,232
<TOTAL-LIABILITY-AND-EQUITY> 0 15,236 48,945
<SALES> 20,914 23,174 22,117
<TOTAL-REVENUES> 20,914 23,174 22,117
<CGS> 16,660 17,003 15,032
<TOTAL-COSTS> 16,660 17,003 15,032
<OTHER-EXPENSES> 1,457 1,777 2,054
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 152 96 126
<INCOME-PRETAX> 2,645 4,298 4,905
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 2,645 4,298 4,905
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,645 4,298 4,905
<EPS-PRIMARY> .57 .92 1.05
<EPS-DILUTED> .57 .92 1.05
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