<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1998
REGISTRATION NO. 333-49773
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CONRAD INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 3730
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL 72-1416999
JURISDICTION OF (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
1501 FRONT STREET
P.O. BOX 790
MORGAN CITY, LA 70381
(504) 384-3060
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
WILLIAM H. HIDALGO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1501 FRONT STREET
P.O. BOX 790
MORGAN CITY, LA 70381
(504) 384-3060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
copies to:
THOMAS P. MASON L. R. MCMILLAN, II
ANDREWS & KURTH L.L.P. JONES, WALKER, WAECHTER,
600 TRAVIS, SUITE 4200 POITEVENT, CARRERE &
HOUSTON, TEXAS 77002 DENEGRE, L.L.P.
(713) 220-4200 201 ST. CHARLES AVENUE, 51ST
FLOOR
FAX: (713) 220-4285 NEW ORLEANS, LOUISIANA
70170-5100
----------------
(504) 582-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 18, 1998
2,500,000 SHARES
[LOGO OF CONRAD
INDUSTRIES INC.
APPEARS HERE]
CONRAD INDUSTRIES, INC.
COMMON STOCK
All of the shares of common stock, par value $0.01 per share (the "Common
Stock"), of Conrad Industries, Inc., a Delaware corporation (the "Company"),
offered hereby are being sold by the Company. Prior to this offering (the
"Offering"), there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price will be between
$15.00 and $17.00 per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price.
The Company has made an application to list the Common Stock on the Nasdaq
National Market under the symbol "CNRD."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------
Total(3).......................... $ $ $
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Does not include additional compensation to Morgan Keegan & Company, Inc.
of warrants to purchase up to 77,000 shares of Common Stock exercisable for
five years at the initial public offering price per share. The Company and
certain of its stockholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $500,000.
(3) The Company has granted to the several Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to an
additional 375,000 shares of Common Stock on the same terms and conditions
as set forth above. If all such shares are purchased by the Underwriters,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1998.
-----------
MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1998.
<PAGE>
Conrad Industries, Inc. specializes in the construction, conversion and repair
of a wide variety of marine vessels for the offshore oil and gas industry, other
commercial markets and the U.S. Government. The Company also fabricates modular
components of offshore drilling rigs and floating production, storage and
offloading vessels ("FPSOs").
Conrad's versatility and experience reduce its dependence on particular
types of products and markets. With this flexibility, the Company
selectively pursues opportunities for construction, conversion and
repair projects that it believes can generate attractive profit margins.
[PHOTO OF BARGE]
Launching of 150 Foot Spud Barge
[PHOTO OF BARGE}
250 Foot Pipe Laying Barge
[PHOTO OF TUG]
Artist Rendering of U.S. Army ST Tug
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
[LEFT SIDE OF FOLD-OUT PAGE]
[PHOTO OF LIFT BOAT]
175 Foot Class Lift Boat
[PHOTO OF MODULE]
60 Person Living Quarters - FPSO
[PHOTO OF STABILITY COLUMNS]
30 Foot Diameter Stability Columns - Deep Water Drilling Rig
[RIGHT SIDE OF FOLD-OUT PAGE]
Conrad's multiple shipyards provide it with significant flexibility and the
ability to more effectively manage its shipyard capacity through the allocation
of projects between shipyards. New construction is conducted in 220,000 square
feet of enclosed building space allowing the Company to avoid weather delays,
control costs and meet critical construction schedules.
[AERIAL PHOTO OF SHIPYARD]
Conrad Shipyard - Morgan City, Louisiana
[AERIAL PHOTO OF SHIPYARD]
Orange Shipbuilding - Orange, Texas
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, (i) the information
in this Prospectus assumes the Underwriters' over-allotment option is not
exercised and (ii) the pro forma information included in this Prospectus gives
effect to the acquisition of Orange Shipbuilding Company, Inc. ("Orange
Shipbuilding") in December 1997 (the "Orange Acquisition"). References herein
to the "Company" mean Conrad Industries, Inc., a Delaware corporation, and its
subsidiaries assuming the completion of a Reorganization (defined herein) prior
to the completion of the Offering, and references herein to "Conrad" mean
Conrad Shipyard, Inc., a Louisiana corporation, and its subsidiary for periods
prior to the completion of such Reorganization. See "Corporate Reorganization."
THE COMPANY
Conrad Industries, Inc. specializes in the construction, conversion and
repair of a wide variety of marine vessels for commercial and government
customers and the fabrication of modular components of offshore drilling rigs
and floating production, storage and offloading vessels ("FPSOs"). The Company
constructs a variety of marine vessels, including large and small deck barges,
single and double hull tank barges, lift boats, push boats, tow boats and
offshore tug boats. The Company fabricates components of offshore drilling rigs
and FPSOs, including sponsons, stability columns, blisters, pencil columns and
other modular components. The Company's conversion projects primarily consist
of lengthening the midbodies of vessels, modifying vessels to permit their use
for a different type of activity and other modifications to increase the
capacity or functionality of a vessel. The Company also derives a significant
amount of revenue from repairs made as a result of periodic inspections
required by the U.S. Coast Guard, the American Bureau of Shipping ("ABS") and
other regulatory agencies. Since 1948, the Company has built over 650 vessels
and completed over 21,000 conversion and repair jobs.
The Company serves a variety of customers and markets, including the offshore
oil and gas industry, other commercial markets and the U.S. government. The
Company believes that its ability to construct a variety of vessels on a cost-
effective basis allows it to selectively pursue vessel construction
opportunities that arise out of changing demands of the industries served by
the Company. The Company is experiencing significantly improved demand for its
products and services from energy-related customers as a result of several
factors affecting the offshore oil and gas industry, including an increase in
offshore oil and gas activity during the last two years, the recent increases
in dayrates for offshore support vessels and drilling rigs and the limited
construction of new vessels serving this industry since the mid-1980s. As a
result, the Company is currently constructing lift boats and barges for the
offshore oil and gas industry, fabricating modular components for offshore
drilling rigs and FPSOs and providing conversion and repair services for
vessels and barges employed in offshore energy-related activities. The Company
is also pursuing opportunities to construct other types of offshore support
vessels such as supply boats and utility vessels.
Due to the Orange Acquisition as well as increased demand for the Company's
products and services, Conrad's revenues grew from $10.5 million in 1993 to
$35.9 million in 1997 (on a pro forma basis for the Company) and EBITDA grew
from $0.7 million in 1993 to $11.3 million in 1997 (on a pro forma basis for
the Company). For the first quarter ended March 31, Conrad's revenues grew from
$5.5 million in 1997 to $11.6 million in 1998, and EBITDA increased from $1.5
million in 1997 to $3.1 million in 1998. Conrad's EBITDA margin (EBITDA as a
percentage of revenues) increased from 6.7% in 1993 to 31.4% in 1997 (on a pro
forma basis for the Company) and from 26.3% for the quarter ended March 31,
1997 to 26.7% for the quarter ended March 31, 1998. In addition, Conrad's net
income increased from $66,000 in 1993 to $4.6 million in 1997 (on a pro forma
basis for the Company) and its operating cash flow increased from $0.7 million
in 1993 to $10.4 million in 1997 (on a pro forma basis for the Company). For
the first quarter ended March 31, Conrad's net income decreased from $1.2
million in 1997 to $(2.5 million) in 1998, primarily as a result of a $4.3
million non-cash executive compensation expense, and operating cash flow
decreased from $1.4 million to $(0.4 million).
3
<PAGE>
During 1997, the construction of marine vessels accounted for approximately
36.4% of pro forma revenue, fabrication of modular components for the offshore
oil and gas industry accounted for approximately 31.8% of pro forma revenue and
the conversion and repair of marine vessels accounted for approximately 31.8%
of pro forma revenue. As of March 31, 1998, the Company's backlog of new vessel
construction and modular component fabrication (excluding unexercised options
held by customers) was approximately $23.6 million and was attributable to 15
projects, consisting of three lift boats, five barges, six tugs and one modular
component fabrication project. Of this backlog amount, approximately $13.7
million was attributable to contracts with the U.S. Army and the U.S. Army
Corps of Engineers (the "Corps of Engineers").
The Company currently operates three shipyards located along the Gulf Coast
in Morgan City, Louisiana, Orange, Texas and Amelia, Louisiana. The Company's
shipyard in Morgan City is located on approximately 11 acres on the Atchafalaya
River, approximately 30 miles from the Gulf of Mexico, and its Orange shipyard
is located on approximately 12 acres on the Sabine River, approximately 37
miles from the Gulf of Mexico. In February 1998, the Company commenced
operations at a conversion and repair facility in Amelia, Louisiana located on
approximately 16 acres on Bayou Boeuf, approximately five miles from Morgan
City. The Company conducts its marine vessel construction activities indoors at
its Morgan City and Orange shipyards in approximately 220,000 square feet of
enclosed building space designed specifically for the construction of marine
vessels up to 400 feet in length. The Company believes that its indoor work
environment is a competitive advantage in attracting and retaining skilled
workers and meeting critical construction schedules. The Company's shipyards
employ advanced construction techniques, including modular construction and
zone outfitting methods, in order to efficiently utilize its building space,
equipment and personnel. The Company believes that these factors, together with
its experienced management team and skilled work force, have enabled the
Company to construct a wide variety of marine vessels at attractive profit
margins, as evidenced by its operating profit margin of 25.4% in 1997 on a pro
forma basis.
BUSINESS STRATEGY
The Company's objective is to increase its revenues while maintaining
attractive profit margins. Key elements of the Company's business strategy are
as follows:
. PURSUE PROJECTS WITH ATTRACTIVE PROFIT MARGINS. The Company has extensive
experience in the construction, conversion and repair of a wide variety of
vessels and modular components used in diversified markets. The Company's
shipbuilding versatility and experience reduce its dependence on particular
types of products and markets, which the Company considers one of its
principal competitive strengths. As a result of this flexibility, the
Company selectively pursues opportunities for construction, conversion and
repair projects that it believes can generate attractive profit margins.
. CAPITALIZE ON INDOOR CONSTRUCTION CAPABILITIES AND MODERN CONSTRUCTION
TECHNIQUES. The Company believes that it is a unique Gulf Coast shipyard
due to the construction of substantially all of its new vessels and modular
components indoors. In this environment, construction is not hampered by
weather conditions. In addition, the Company's shipyards employ many
advanced construction techniques, including modular construction, zone
outfitting methods, computerized plasma arc metal cutting and automatic
shotblasting and painting. The Company believes that these factors allow it
to more effectively utilize its workforce and equipment, thereby allowing
it to control costs, meet critical construction schedules and achieve
attractive profit margins.
. UTILIZE AVAILABLE CAPACITY AT EXISTING SHIPYARDS. The Company believes that
it has the ability to significantly increase its capacity for vessel
construction, conversion and repair at its existing shipyards without any
significant additional capital expenditures. The Company had 280 shipyard
workers as of December 31, 1997 and has increased its shipyard labor force
to 303 as of March 31, 1998. The Company estimates that it could employ
approximately 200 additional shipyard workers, primarily for conversion and
repairs, without significant expansion of its facilities. The Company plans
to increase its construction, conversion and repair activity to the extent
it is able to secure additional projects at attractive margins and attract
qualified workers who can maintain the Company's quality standards.
4
<PAGE>
. TAKE ADVANTAGE OF NEW CONSTRUCTION OPPORTUNITIES. Due to increased activity
in the offshore oil and gas industry, the Company believes there will
continue to be significant demand from customers in this industry for
vessel construction, particularly with respect to offshore support vessels
such as lift boats, utility vessels and supply vessels, as well as for the
fabrication of modular components for offshore drilling rigs and FPSOs. In
addition, the Company believes that other commercial customers will
continue to create demand for its products and services due to continued
demand for marine transportation of bulk products and due to the aging of
the current fleet of barges, tug boats and other marine vessels used for
commercial shipping. The Company also believes that there will continue to
be opportunities to construct vessels for the U.S. Army, U.S. Navy, U.S.
Coast Guard and Corps of Engineers due to the aging fleet of barges, tug
boats, tow boats and push boats currently used by these customers.
. INCREASE CONVERSION AND REPAIR ACTIVITY. The Company has five drydocks, one
submersible barge, five slips and approximately 4,100 feet of bulkhead
available for conversion and repair activity. The Company has made
significant capital expenditures over the last several years to add
capacity and improve the efficiency of its shipyards for conversion and
repair work, including expenditures to modify one of its drydocks to
increase its lifting capacity and to add roll-on and roll-off capabilities.
These improvements will allow barges and other vessels to be moved from the
drydock to previously unused dockside land repair areas, thereby permitting
the drydock to be used for other repair activity. The Company believes
there are significant opportunities to take advantage of its increased
conversion and repair capacity due to the age and condition of many vessels
currently operating in the Gulf of Mexico and due to the requirements for
periodic inspection and drydocking by the U.S. Coast Guard, ABS and other
regulatory agencies.
. CAPTURE EFFICIENCIES FROM MULTIPLE SHIPYARDS. The Company's multiple
shipyards provide it with significant flexibility and efficiency in
constructing a wide variety of vessels. With the addition of the Orange and
Amelia shipyards, the Company has the ability to more effectively manage
its available shipyard capacity through the allocation of projects between
these shipyards. In addition, the Company has the ability to fabricate
various components of a project at one shipyard for use in the construction
of a vessel or fabrication of a steel structure at another of its
shipyards.
. PURSUE STRATEGIC ACQUISITIONS. The Company believes opportunities exist for
consolidation in the highly fragmented U.S. Gulf Coast marine vessel
construction, conversion and repair industry, which consists of more than
70 shipyard companies located in the Gulf Coast area. The Company
significantly expanded its construction capacity through the Orange
Acquisition in December 1997 at a purchase price of approximately $22.8
million (net of cash acquired). In addition, during February 1998, the
Company commenced operations at a conversion and repair facility in Amelia,
Louisiana that it acquired in 1996 at a purchase price of approximately
$1.0 million. The Company will evaluate strategic acquisitions of one or
more additional shipyards in the future depending on a variety of factors,
including demand for vessel construction, conversion and repair, the
advantages offered by the particular shipyard and the terms of the
acquisition. The Company anticipates that it will focus on profitable
acquisition candidates with operations that complement the Company's
existing operations.
The Company's executive offices are located at 1501 Front Street, P.O. Box
790, Morgan City, Louisiana 70381, and its telephone number is (504) 384-3060.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company........................... 2,500,000 shares
Common Stock to be outstanding af-
ter the Offering (1).............. 7,700,000 shares
Use of proceeds.................... To repay (i) approximately $25.0 million of
indebtedness incurred to fund the purchase
price of the Orange Acquisition and (ii)
approximately $10.0 million of indebtedness
incurred to fund distributions to the
Company's current stockholders in
connection with the termination of Conrad's
S corporation status. Any remaining net
proceeds will be used for working capital
and other general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol...... CNRD
</TABLE>
- --------
(1) Excludes options granted to directors, officers and employees of the
Company to purchase 130,000 shares of Common Stock, all of which will have
an exercise price equal to the initial public offering price of this
Offering. Also excludes 77,000 shares of Common Stock issuable upon
exercise of warrants that will be outstanding at the completion of the
Offering. See "Management--Stock Plan" and "Underwriting."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prior to making an investment decision, prospective purchasers of Common
Stock should consider all of the information set forth in this Prospectus and
should evaluate the considerations set forth in "Risk Factors."
6
<PAGE>
SUMMARY FINANCIAL, OPERATING AND INDUSTRY DATA
The following table sets forth certain historical consolidated financial and
operating data of Conrad, pro forma financial data of the Company and certain
industry information as of the dates and for the periods indicated. The
historical financial data have been derived from the historical financial
statements of Conrad. The historical financial statements of Conrad included
elsewhere in this Prospectus reflect only the assets and operations of Conrad
as of the dates and for each of the periods presented in such financial
statements and do not reflect the combined assets and operations of Conrad and
Orange Shipbuilding for any such date or period, except that the balance sheet
of Conrad at December 31, 1997 and the historical financial statements of
Conrad for the three-month period ended March 31, 1998 include the operations
of Orange Shipbuilding. The following table also sets forth pro forma statement
of operations data of the Company that give effect to certain transactions,
including the Orange Acquisition and the Reorganization. See "Corporate
Reorganization," the historical financial statements of each of Conrad and
Orange Shipbuilding and the related notes thereto included elsewhere in this
Prospectus and the unaudited pro forma statement of operations of the Company
and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED MARCH 31,
-------------------------------------------- DECEMBER 31, ----------------
1993 1994 1995 1996 1997 1997(1) 1997 1998
------- ------- ------- ------- -------- ------------ ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AND INDUSTRY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $10,482 $14,166 $20,914 $23,174 $ 22,117 $ 35,922 $ 5,546 $11,569
Cost of revenue........ 9,217 11,271 16,660 17,003 15,032 22,749 3,810 8,140
------- ------- ------- ------- -------- -------- ------- -------
Gross profit........... 1,265 2,895 4,254 6,171 7,085 13,173 1,736 3,429
Selling, general and
administrative
expenses.............. 1,132 1,621 1,497 1,847 2,242 4,055 493 888
Executive
compensation(2)....... -- -- -- -- -- -- -- 4,316
------- ------- ------- ------- -------- -------- ------- -------
Income (loss) from
operations............ 133 1,274 2,757 4,324 4,843 9,118 1,243 (1,775)
Interest and other
income (expense), net. (29) (159) (112) (26) 62 (1,933) (11) (410)
------- ------- ------- ------- -------- -------- ------- -------
Income (loss) before
income taxes.......... 104 1,115 2,645 4,298 4,905 7,185 1,232 (2,185)
Provision for income
taxes................. -- -- -- -- -- -- -- 293
------- ------- ------- ------- -------- -------- ------- -------
Net income (loss)...... $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185 $ 1,232 $(2,478)
======= ======= ======= ======= ======== ======== ======= =======
NET INCOME (LOSS) PER
COMMON SHARE:
Basic and diluted...... $ 0.02 $ 0.24 $ 0.57 $ 0.92 $ 1.05 -- $ 0.26 $ (0.53)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic and diluted...... 4,660 4,660 4,660 4,660 4,660 -- 4,660 4,666
UNAUDITED PRO FORMA
DATA:
Net income (loss) as
reported above........ $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185 $ 1,232 $(2,478)
Pro forma provision for
income taxes(3)....... 38 413 979 1,590 1,815 2,541 456 125
------- ------- ------- ------- -------- -------- ------- -------
Pro forma net income
(loss) (3)............ $ 66 $ 702 $ 1,666 $ 2,708 $ 3,090 $ 4,644 $ 776 $(2,603)
======= ======= ======= ======= ======== ======== ======= =======
Pro forma net income
(loss) per
share(3)(4)........... -- -- -- -- $ 0.58 $ 0.87 -- $ (0.49)
Common and equivalent
shares outstanding.... -- -- -- -- 5,342 5,342 -- 5,348
STATEMENT OF CASH FLOWS
DATA:
Cash provided by (used
in) operating
activities............ $ 711 $ 1,110 $ 3,604 $ 5,313 $ 6,114 $ 10,446 $ 1,431 $ (376)
Cash (used in)
investing
activities(5)......... (2,871) (287) (1,120) (1,961) (23,872) (24,432) (168) (1,073)
Cash provided by (used
in) financing
activities............ 1,832 (516) (623) (2,619) 22,100 16,179 (1,033) (310)
OTHER FINANCIAL DATA:
Depreciation and
amortization.......... $ 566 $ 676 $ 722 $ 798 $ 850 $ 2,166 $ 213 $ 547
Capital
expenditures(5)....... $ 2,871 $ 287 $ 1,120 $ 1,961 $ 23,872 $24, 432 $ 168 $ 1,073
EBITDA(6).............. $ 699 $ 1,950 $ 3,479 $ 5,122 $ 5,693 $ 11,284 $ 1,456 $ 3,088
EBITDA margin(7)....... 6.7% 13.8% 16.6% 22.1% 25.7% 31.4% 26.3% 26.7%
Operating profit
margin(8)............. 1.3% 9.0% 13.2% 18.7% 21.9% 25.4% 22.4% (15.3)%
OPERATING DATA:
Direct labor hours..... 261 292 347 354 350 501 88 136
GULF OF MEXICO INDUSTRY
DATA:
Active offshore supply
vessels(9)............ 216 235 249 263 286
Active offshore
drilling rigs(10)..... 163 170 181 212 233
Offshore supply vessel
dayrates(11).......... $ 3,508 $ 3,302 $ 3,185 $ 5,273 $ 8,048
Offshore drilling rig
utilization(12)....... 76.5% 76.2% 76.2% 88.0% 93.9%
Active inland drilling
barges(13)............ 69 74 75 80 92
Total blocks
leased(14)............ 336 560 835 1,508 1,778
U.S. SHIPBUILDING
INDUSTRY DATA:
Number of offshore
service vessels
constructed(15)....... 5 1 3 5 14
Number of mobile
offshore drilling rigs
constructed(16)....... 4 11 2 0 0
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(17) ADJUSTED(18)
------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 7,665 $(3,935) $ 9,849
Property, plant & equipment...................... 19,025 18,619 18,619
Total assets..................................... 49,400 47,394 49,094
Long term debt, including current maturities..... 25,534 35,534 534
Stockholders' equity............................. 16,611 3,975 40,675
</TABLE>
- --------
(1) Gives effect to (i) the Orange Acquisition as if it had occurred as of the
beginning of the period presented and (ii) the Reorganization. For
purposes of the pro forma statement of operations data, the results of
operations of Orange Shipbuilding for its fiscal year ended September 30,
1997 and the results of operations of Conrad for its fiscal year ended
December 31, 1997 were utilized. See Note 3 below and the pro forma
financial statements of the Company and the related notes thereto.
(2) Represents non-cash executive compensation expense related to the issuance
of shares of common stock by Conrad in the first quarter of 1998 to
William H. Hidalgo, the Company's President and Chief Executive Officer,
and Cecil A. Hernandez, the Company's Vice President-Finance and
Administration and Chief Financial Officer. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Recent
Events."
(3) Gives effect to the application of federal and state income taxes to the
Company as if it were a C corporation for tax purposes. For all periods
presented herein, Conrad operated as an S corporation for federal and
state income tax purposes. Prior to the completion of the Offering, the
stockholders of Conrad made an election terminating its S corporation
status. As a result, Conrad became subject to corporate level income
taxation following such election. See "Corporate Reorganization" and the
historical financial statements of Conrad and the related notes thereto
included elsewhere in this Prospectus.
(4) Calculated based on the number of shares of Common Stock to be outstanding
immediately after the Reorganization upon exchange of shares of Conrad
common stock by stockholders of Conrad as of December 31, 1997 (4,660,486
shares) as if such shares had been outstanding throughout each period
presented, as increased for each period to reflect such additional shares
as would have been required to be sold to pay the pro forma distribution
of estimated undistributed earnings to stockholders. The number of such
additional shares (681,199) is based on the assumed initial public
offering price of $16.00 per share, net of estimated Offering expenses.
See "Corporate Reorganization."
(5) Includes acquisition expenditures of $22.8 million (net of cash acquired)
incurred in December 1997 in connection with the Orange Acquisition.
(6) Represents income from operations before deduction of depreciation,
amortization and non-cash compensation expense related to the issuance of
stock and stock options to employees. EBITDA is not a measure of cash
flow, operating results or liquidity as determined by generally accepted
accounting principles. The Company has included information concerning
EBITDA as supplemental disclosure because management believes that EBITDA
provides meaningful information regarding a company's historical ability
to incur and service debt. EBITDA as defined and measured by the Company
may not be comparable to similarly titled measures reported by other
companies. EBITDA should not be considered in isolation or as an
alternative to, or more meaningful than, net income or cash flow provided
by operations as determined in accordance with generally accepted
accounting principles as an indicator of the Company's profitability or
liquidity.
(7) Represents EBITDA as a percentage of revenues.
(8) Represents income from operations as a percentage of revenues.
(9) Represents the average number of contracted anchor handling tug/supply and
platform supply vessels for the period presented. Information obtained
from Offshore Data Services.
(10) Represents the average number of mobile offshore drilling rigs and
platform drilling rigs under contract for the period presented.
Information obtained from Offshore Data Services.
(11) Represents the average dayrates for platform supply vessels for the period
presented. Information obtained from Offshore Data Services.
(12) Represents the average mobile drilling rig utilization rate for the period
presented. Information obtained from Offshore Data Services.
(13) Represents the average number of active inland drilling barges in
Louisiana for the period presented. Information obtained from Offshore
Data Services.
(14) Represents the total blocks leased for the period presented. Information
obtained from Mineral Management Services.
(15) Information obtained from Clarkson Research Studies.
(16) Information obtained from Offshore Data Services.
(17) Gives effect to (i) an accrual of $11.6 million for the cash portion of
the Shareholder Distributions (including $10.0 million of indebtedness
incurred to fund part of such distributions) to Conrad's shareholders in
connection with the termination of Conrad's S corporation status prior to
the completion of the Offering, (ii) the distribution of certain
nonoperating assets of Conrad to its shareholders prior to the completion
of the Offering with a fair market value of approximately $406,000, (iii)
the recognition of deferred tax liabilities in an amount of approximately
$630,000 in connection with the termination of Conrad's S corporation
status and (iv) the Reorganization.
(18) Gives effect to the Offering and the application of the net proceeds
therefrom. See "Use of Proceeds."
8
<PAGE>
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
9
<PAGE>
do not have the capacity to meet current demand. Therefore, any decrease in
demand for such fabrication services or increase in the capacity of such
primary contractors could have a material adverse effect on the ability of the
Company to secure similar work in the future.
GOVERNMENT CONTRACTING
The Company builds vessels for the U.S. Army, U.S. Navy, U.S. Coast Guard
and Corps of Engineers. The Company has also built vessels and performed
conversion or repair services for local, state and foreign governments in
recent years, either directly or as a subcontractor. Revenue derived from U.S.
government customers accounted for approximately 6.7% of the Company's total
pro forma revenue in 1997, and approximately 49.2% of the Company's backlog at
December 31, 1997 (approximately 57.9% at March 31, 1998) was attributable to
U.S. government contracts. U.S. government contracts are generally subject to
strict competitive bidding requirements. Purchases of vessels by the U.S.
government are generally subject to the uncertainties inherent in the
budgeting and appropriations process, which is affected by political events
over which the Company has no control. In addition, although the Company has
never been subject to suspension or debarment, the U.S. government has the
right to suspend or debar a contractor from government contracting for
significant violations of government procurement regulations. There can be no
assurance that the Company will be successful in obtaining new government
contracts. See "Business--Contract Procedure, Structure and Pricing."
The Company's principal U.S. government business is currently being
performed under fixed-price contracts that wholly or partially shift to the
Company the risk of construction costs that exceed the contract price. A
typical program begins with the award and an "established functional
baseline." Engineering changes may be proposed by the contractor or the U.S.
government throughout the design and development process. These changes, when
accepted by both parties, are formalized in engineering change proposals and
include either increased costs, no costs or decreased costs. In the event of
such changes, the Company and the U.S. government must agree on additional
compensation, if any; however, the Company is not required to accept changes
requested by the U.S. government that cause a cost impact without
remuneration.
CONTRACT PRICING RISKS
Most of the Company's contracts for marine vessel construction, whether
commercial or governmental, are fixed-price contracts under which the Company
retains all cost savings on completed contracts but is also liable for the
full amount of all cost overruns. Although the Company anticipates increased
costs of labor and materials in its bids, the revenue, cost and gross profit
realized on a fixed-price contract will often vary from the estimated amounts
because of many factors, including changes in job conditions, variations in
labor and equipment productivity over the term of the contract and unexpected
increases in costs of materials and labor. In addition, costs of labor may
differ from the Company's estimates in bidding on and building new vessels not
previously constructed by the Company due to unanticipated time to complete
such project. See "Business--Employees."
These variations and the risks generally inherent in the shipbuilding
industry may result in gross profits realized by the Company being different
from those originally estimated and may result in reduced profitability or
losses on these projects. Depending on the size of the project, variations
from estimated contract performance could have a significant adverse effect on
the Company's operating results for any particular fiscal quarter or year.
The Company's contracts for marine vessel construction may require the
Company to pay liquidated damages if the Company fails to meet specified
performance deadlines, the payment of which could have a material adverse
effect on the Company's operating results. At the present time, the Company
has two contracts that may require the Company to pay liquidated damages
calculated per day up to a maximum amount in the event of delay. Payments of
any maximum amount of liquidated damages for any vessel under these contracts
individually would not have a material adverse effect on the Company.
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.
10
<PAGE>
PERCENTAGE OF COMPLETION ACCOUNTING
The Company uses the percentage-of-completion method to account for its
construction contracts in process. Under this method, revenue and expenses
from construction contracts are based on the percentage of labor hours
incurred as compared to estimated total labor hours for each contract. As a
result, the timing of recognition of revenue and expenses for financial
reporting purposes may differ materially from the timing of actual contract
payments received and expenses paid. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. To the extent that such provisions result in a loss or a reduction
or elimination of previously reported profits with respect to a project, the
Company would recognize a charge against current earnings, which could be
material. As many of the Company's contracts are completed over a period of
several months, the timing of the recognition of revenue and expense for these
types of contracts could have a significant impact on quarter-to-quarter
operating results.
SHORTAGE OF TRAINED WORKERS
Shipyards located in the Gulf Coast area are experiencing shortages of
skilled labor as a result of recent demands for skilled workers brought about
by increases in offshore drilling activities, the construction of offshore
drilling rigs and production platforms and the crewing of offshore vessels. In
1997, this labor shortage resulted in increased costs of labor at the
Company's Morgan City and Orange shipyards and limited the Company's ability
to increase its skilled work force at its Morgan City shipyard. While the
Company believes that its shipyards are not currently experiencing severe
labor shortages, the Company's shipyards are faced with limitations on the
availability of skilled labor that could limit the Company's ability to
increase production at its shipyards to the extent the Company might otherwise
desire. No assurances can be given regarding whether severe labor shortages
will be experienced at the Company's shipyards in the future.
RELIANCE ON PRINCIPAL CUSTOMERS
A significant portion of the Company's revenue has historically been
generated by a few customers, although not necessarily the same customers from
year to year. For the years ended December 31, 1997 and December 31, 1996, the
Company's ten largest customers in such years collectively accounted for 75.8%
and 70.9% of revenue on a pro forma basis, respectively. The loss of a
significant customer for any reason could result in a substantial loss of
revenue and could have a material adverse effect on the Company's operating
performance. See "Business--Customers."
BACKLOG
The Company's backlog is based on unearned revenue with respect to those
projects on which a customer has authorized the Company to begin work or
purchase materials pursuant to written contracts or other forms of
authorization. Although the Company's contracts with its commercial customers
generally do not permit the customer to terminate the contract, certain
government projects currently included in the Company's backlog are subject to
change and/or termination at the option of the customer, either of which could
substantially change the amount of backlog currently reported. In the case of
a termination of a government project, the government is generally required to
pay the Company for work performed and materials purchased through the date of
termination and, in some cases, is required to pay the Company a termination
fee; however, due to the large dollar amounts of backlog estimated for each of
a small number of government projects, amounts included in the Company's
backlog could decrease substantially if one or more of these projects were to
be terminated by the government. The Company's backlog of $23.6 million at
March 31, 1998 was attributable to 15 projects, of which $13.7 million was
attributable to seven government projects. Termination of one or more of the
government projects could have a material adverse effect on the Company's
revenue, net income and cash flow for fiscal 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview" and "Business--Operations."
11
<PAGE>
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
12
<PAGE>
("OPA '90"), which requires a phased-in transition of single-hull tankers,
barges and other product carriers to double-hull vessels beginning January 1,
1995, and (iii) the 1993 amendments to Title XI of the Merchant Marine Act of
1936, which permit the U.S. government to guarantee loan obligations of
foreign vessel owners for foreign-flagged vessels built in U.S. shipyards. In
connection with U.S. efforts to implement a 1994 multilateral agreement
designed in part to eliminate government subsidies to commercial shipbuilders,
legislation has been introduced and is now pending in the U.S. Congress that
would eliminate certain competitive advantages afforded to U.S. shipyards
under the 1993 amendments to the Title XI guarantee program, although Congress
adjourned during 1996 and 1997 without adopting similar proposed legislation.
In addition, legislative bills seeking to rescind or substantially modify the
provisions of the Jones Act mandating the use of U.S.-built ships for
coastwise trade are introduced from time to time and are expected to be
introduced in the future. Although management believes that Congress is
unlikely to rescind or materially modify the Jones Act in the foreseeable
future, there can be no assurance to this effect with respect to the Jones Act
or any other law or regulation benefitting U.S. shipbuilders. Many foreign
shipyards are heavily subsidized by their governments and, as a result, there
can be no assurance that the Company would be able to compete effectively with
such shipyards if they were permitted to construct vessels for use in the U.S.
coastwise trade. The repeal of the Jones Act, or any amendment of the Jones
Act that would eliminate or adversely affect the competitive advantages
provided to U.S. shipbuilders, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Regulation."
In addition, the Company depends, in part, on the demand for its services
from the oil and gas industry and is affected by changing taxes and other laws
and regulations relating to the oil and gas industry generally. The adoption
of laws and regulations curtailing exploration and development drilling for
oil and gas in the Gulf of Mexico for economic, environmental and other policy
reasons would adversely affect the Company's operations by limiting demand for
its services. The Company cannot determine to what extent future operations
and earnings of the Company may be affected by new legislation, new
regulations or changes in existing regulations.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental
laws and regulations that impose limitations on the discharge of pollutants
into the environment and establish standards for the transportation, storage
and disposal of toxic and hazardous wastes. Significant fines and penalties
may be imposed for non-compliance and certain environmental laws impose joint
and several "strict liability" for remediation of spills and releases of oil
and hazardous substances, rendering a person liable for environmental damage
without regard to negligence or fault on the part of such person. Such laws
and regulations may expose the Company to liability for the conduct of or
conditions caused by others, or for acts of the Company that are or were in
compliance with all applicable laws at the time such acts were performed.
Compliance with environmental laws increases the Company's cost of doing
business. Additionally, environmental laws have been subject to frequent
change. The Company is unable to predict the future costs or other future
effects of environmental laws on its operations. There can be no assurance
that the Company will not incur material liability related to the Company's
operations and properties under environmental laws.
RELIANCE ON KEY PERSONNEL
The Company will be highly dependent on the continuing efforts of William H.
Hidalgo, the Company's President and Chief Executive Officer, and the
Company's other executive officers and key operating personnel. The Company
does not maintain key person life insurance for Mr. Hildalgo or any other
executive officers or key employees. The loss of the services of any of these
persons could have an adverse effect on the business or prospects of the
Company. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the consummation of this Offering, the Company's executive
officers and directors and persons and entities affiliated with them will
beneficially own approximately 5,200,000 shares of Common Stock representing
67.5% of the outstanding shares of Common Stock (64.4% if the Underwriters'
over-allotment
13
<PAGE>
option is exercised in full), of which J. Parker Conrad, John P. Conrad, Jr.
and Katherine Conrad Court will own or control through trusts 4,660,486 shares
of Common Stock, representing 60.5% of all shares of Common Stock outstanding.
These holders of Common Stock will control in the aggregate 60.5% of the votes
of all shares of Common Stock, and, if acting in concert, will be able to
exercise control over the Company's affairs, to elect the entire Board of
Directors and to control the outcome of substantially all of the matters
submitted to a vote of stockholders. See "Principal Stockholders."
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Stock. Therefore, the initial public offering price for the Common Stock will
be determined by negotiation between the Company and the Representatives of
the Underwriters and may bear no relationship to the price at which the Common
Stock will trade after the Offering. See "Underwriting" for the factors to be
considered in determining the initial public offering price. Application has
been made to list the Common Stock on the Nasdaq National Market. However,
there can be no assurance that an active trading market will develop
subsequent to this Offering or, if developed, that it will be sustained. After
this Offering, the market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including variations
in the Company's annual or quarterly financial results or those of its
competitors, the timing of the recognition of revenue and expenses under
percentage of completion accounting, changes by financial research analysts in
their recommendations or their estimates of the future earnings of the
Company, conditions in the economy in general or in the Company's industry in
particular, unfavorable publicity or changes in applicable laws and
regulations (or judicial or administrative interpretations thereof) affecting
the Company or the shipbuilding industry. From time to time, the stock market
experiences significant price and volume volatility, which may affect the
market price of the Common Stock for reasons unrelated to the Company's
performance.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Upon completion of the Offering, 7,700,000 shares of Common Stock will be
outstanding (8,075,000 shares if the Underwriters' overallotment option is
exercised in full). The 2,500,000 shares sold in this Offering (other than
shares that may be purchased by affiliates of the Company) will be freely
tradeable. The remaining outstanding shares may be resold publicly only
following their registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption from registration
(such as provided by Rule 144 following a one-year holding period from
issuance for previously unregistered shares). The Company has granted the
holders of these remaining shares certain registration rights exercisable not
earlier than 180 days following the completion of the Offering. The holders of
these remaining shares have agreed with the Company and the Underwriters that
they will not sell, transfer or otherwise dispose of any of their shares for
180 days following the completion of the Offering. On completion of the
Offering, the Company also will have outstanding options to purchase up to a
total of 130,000 shares of Common Stock granted to certain directors, officers
and employees of the Company. The Company intends to register all the shares
subject to these options under the Securities Act for public resale. These
shares generally will be freely tradeable after their issuance by persons not
affiliated with the Company unless the Company contractually restricts their
resale. Upon completion of the Offering, the Company will issue warrants to
purchase an aggregate of 77,000 shares of Common Stock at the initial public
offering price per share to Morgan Keegan & Company, Inc. The Company has also
granted to Morgan Keegan & Company, Inc. one demand registration right
exercisable not earlier than one year after the closing date of the Offering
and certain piggyback registration rights with respect to the shares of Common
Stock underlying the warrants. Sales, or the availability for sale, of
substantial amounts of the Common Stock in the public market could adversely
affect prevailing market prices and the future ability of the Company to raise
equity capital and complete any additional acquisitions for Common Stock. See
"Description of Capital Stock--Registration Rights" and "Shares Eligible for
Future Sale."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such
14
<PAGE>
preferences, powers and relative, participating, optional and other rights
(including preferences over the Common Stock respecting dividends and
distributions and voting rights) as the Board of Directors may determine. The
issuance of this "blank-check" preferred stock could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise and would have a dilutive effect on
stockholder equity. In addition, the Charter provides for a classified Board
of Directors, which may also have the effect of inhibiting or delaying a
change in control of the Company. Certain provisions of the Delaware General
Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Description of Capital Stock."
HOLDING COMPANY STRUCTURE
The Company, as a holding company whose principal assets are the shares of
capital stock of its operating subsidiaries, does not generate any operating
revenues of its own. Consequently, it depends on dividends, advances and
payments from its operating subsidiaries to fund its activities and meet its
cash needs, including its debt service requirements. The subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any dividends or to make funds available therefor. The
ability of the operating subsidiaries to pay dividends or make other payments
or advances to the Company will depend on their operating results and will be
subject to various business considerations and to applicable state laws.
Accordingly, there can be no assurance that the operating subsidiaries will
generate sufficient earnings and cash flows to pay dividends or distribute
funds to the Company to enable it to meet its obligations and pay its
expenses.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in this Offering will experience immediate,
substantial dilution in the net tangible book value of their stock of $11.36
per share and may experience further dilution in that value from issuances of
Common Stock in connection with future acquisitions. See "Dilution."
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. In addition, the Company's revolving credit
facility will restrict the payment of dividends. See "Dividend Policy."
15
<PAGE>
CORPORATE REORGANIZATION
The Company was incorporated in March 1998 to serve as the holding company
for Conrad and Orange Shipbuilding. The current shareholders of Conrad have
entered into an exchange agreement (the "Exchange Agreement") pursuant to
which they will exchange their shares of common stock of Conrad for shares of
Common Stock of the Company (the "Reorganization"). In accordance with the
terms of the Exchange Agreement, the shareholders of Conrad will receive a
number of shares of Common Stock in direct proportion to their relative
shareholdings in Conrad. The number of shares to be issued to each of the
shareholders is set forth in "Principal Stockholders." As a result of the
Reorganization, the Company will be a holding company whose only assets will
consist of all of the outstanding shares of capital stock of Conrad. Conrad
will continue to own all of the outstanding stock of Orange Shipbuilding.
Conrad has operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad currently pays no federal or
state income tax, and the entire earnings of Conrad are subject to tax only at
the shareholder level. Prior to the Reorganization and the completion of the
Offering, Conrad's current shareholders will make an election terminating
Conrad's S corporation status. Thereafter, Conrad will become subject to
corporate level income taxation. As a result of its conversion from an S
corporation to a C corporation, the Company estimates that it will be required
to record as a charge to earnings a one-time deferred tax liability in the
amount of approximately $630,000 in the second quarter of 1998. See the
historical financial statements of Conrad and notes thereto and the pro forma
financial statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
In the past, Conrad has made distributions to its shareholders in order to
provide a cash return to them and to fund their federal and state income tax
liabilities that resulted from Conrad's S corporation status. In accordance
with this practice, since January 1, 1998, Conrad has distributed
approximately $506,000 to its current shareholders and estimates that it will
distribute an additional $1.6 million prior to the completion of the Offering
to fund the shareholders' federal and state income tax liabilities through the
date of termination of its S corporation status. Conrad intends to make an
additional distribution to its current shareholders of approximately $10.0
million, which amount represents undistributed earnings of Conrad, estimated
through the date of the termination of Conrad's S corporation status, on which
Conrad's current shareholders will have incurred federal and state income
taxes. Conrad also expects to make a distribution of certain nonoperating
assets with a fair market value of approximately $406,000 to its shareholders
prior to the completion of the Offering. The distributions of cash and non-
operating assets (the "Shareholder Distributions") will be made prior to the
completion of the Offering, and Conrad intends to fund part of the cash
portion of the Shareholder Distributions with borrowings under its Revolving
Credit Facility (as hereinafter defined), which borrowings will be repaid with
proceeds of the Offering. See "Use of Proceeds," "Dividend Policy" and
"Certain Transactions."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting estimated underwriting discounts and estimated
Offering expenses payable by the Company, are estimated to be approximately
$36.7 million (approximately $42.3 million if the Underwriters exercise their
over-allotment option in full), assuming an initial public offering price of
$16.00 per share.
Approximately $35.0 million of the net proceeds will be used to repay
indebtedness of the Company outstanding at the time of the closing of the
Offering, consisting of $25.0 million of indebtedness under the Term Loan
(described below) incurred by Conrad in connection with the Orange Acquisition
and approximately $10.0 million of indebtedness to be incurred by the Company
under the Revolving Credit Facility (described below) to fund part of the cash
portion of the Shareholder Distributions. See "Corporate Reorganization." The
remaining net proceeds will be used for working capital and other general
corporate purposes. Pending such uses, the Company intends to invest the net
proceeds of the Offering in short-term, investment-grade, interest-bearing
instruments.
All of the $25.0 million of indebtedness under a term loan with Whitney
National Bank (the "Term Loan") bears interest at LIBOR plus 2.0% until
September 18, 1998, and thereafter at the option of the Company at the prime
rate of Whitney National Bank minus 0.5% or at LIBOR plus 2.0%. The Term Loan
requires the payment of interest only until May 1998 and thereafter the Term
Loan is payable in 70 monthly principal payments of $209,000 plus interest,
with a final payment due in April 2004. The Term Loan currently bears interest
at 7.68% per annum. The indebtedness under the Term Loan was incurred by
Conrad to fund the purchase price of the Orange Acquisition in December 1997,
and the Term Loan will be terminated upon the repayment of its outstanding
indebtedness with proceeds from the Offering.
The Company has received a commitment from Whitney National Bank to provide
the Company with a $10.0 million credit facility which may be used for working
capital and other general corporate purposes, including funding of
acquisitions (the "Revolving Credit Facility"). The Revolving Credit Facility
will bear interest on the same terms as the Term Loan and will mature April
30, 1999. A fee of 0.25% per annum on the unused portion of the credit
facility will be charged quarterly. The Company intends to borrow
approximately $10.0 million under the Revolving Credit Facility prior to the
completion of the Offering in order to fund part of the cash portion of the
Shareholder Distributions. The Company intends to use a portion of the net
proceeds of the Offering to repay the borrowings under the Revolving Credit
Facility.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company intends to retain all its earnings, if any, after the Offering
to meet its working capital requirements and to finance the expansion of its
business. Accordingly, the Company does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Any future dividends
will be at the discretion of the Board of Directors after taking into account
various factors, including, among others, the Company's financial condition,
results of operations, cash flows from operations, current and anticipated
cash needs and expansion plans, the income tax laws then in effect and the
requirements of Delaware law. In addition, the Revolving Credit Facility will
restrict or prohibit the payment of dividends by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Conrad has operated as an S corporation prior to the Offering and has made
cash distributions to its shareholders in order to provide a cash return to
them and to fund their federal and state income tax liability relating to
earnings of Conrad. In accordance with this practice, Conrad made aggregate
cash distributions of approximately $0.6 million, $2.0 million and $2.0
million for the calendar years ended December 31, 1995, 1996 and 1997,
respectively, and Conrad made a cash distribution of approximately $506,000 in
the first quarter of 1998. Conrad intends to distribute an additional $1.6
million in cash prior to the Reorganization to fund the shareholders' income
tax liabilities through the date of the termination of Conrad's S corporation
status. Conrad also intends to distribute to its stockholders prior to the
completion of the Offering $10.0 million of undistributed earnings as well as
certain nonoperating assets having a fair value of approximately $406,000. See
"Corporate Reorganization."
17
<PAGE>
CAPITALIZATION
The following table sets forth (i) the cash and cash equivalents and
capitalization of Conrad at March 31, 1998, (ii) the pro forma cash and cash
equivalents and capitalization of the Company at March 31, 1998 and (iii) the
pro forma cash and cash equivalents and capitalization of the Company at March
31, 1998 as adjusted to give effect to the Offering and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with the historical financial statements of Conrad and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 5,792 $ 4,192 $ 5,892
======= ======= =======
Long-term obligations, including current ma-
turities:
Term Loan.................................. $25,000 $25,000 $ 0
Revolving Credit Facility(2)............... 0 10,000 0
Other...................................... 534 534 534
------- ------- -------
Total long-term debt....................... 25,534 35,534 534
------- ------- -------
Stockholders' equity:
Preferred Stock: $0.01 par value, 5,000,000
shares, authorized; no shares issued and
outstanding............................... -- -- --
Common Stock: $0.01 par value, 20,000,000
shares authorized; 5,200,000 shares issued
and outstanding, pro forma; and 7,700,000
shares issued and outstanding, pro forma
as adjusted(3)............................ 52 52 77
Additional paid-in capital................... 8,783 8,239 44,914
Unearned stock compensation.................. (4,316) (4,316) (4,316)
Retained earnings............................ 12,092 -- --
------- ------- -------
Total stockholders' equity................. 16,611 3,975 40,675
------- ------- -------
Total capitalization..................... $42,145 $39,509 $41,209
======= ======= =======
</TABLE>
- --------
(1) Gives effect to (i) an accrual of $11.6 million for the cash portion of
the Shareholder Distributions (including $10.0 million of indebtedness
incurred to fund part of such distributions) to Conrad's shareholders in
connection with the termination of Conrad's S corporation status prior to
the completion of the Offering, (ii) the distribution of certain
nonoperating assets of Conrad to its shareholders prior to the completion
of the Offering with a fair market value of approximately $406,000, (iii)
the recognition of deferred tax liabilities in an amount of approximately
$630,000 in connection with the termination of Conrad's S corporation
status and (iv) the Reorganization.
(2) Represents approximately $10.0 million to be drawn under the Revolving
Credit Facility prior to the completion of the Offering to fund part of
the cash portion of the Shareholder Distributions.
(3) Excludes options granted to directors, officers and employees of the
Company to purchase 130,000 shares of Common Stock, all of which will have
an exercise price equal to the initial public offering price of this
Offering. Also excludes 77,000 shares of Common Stock issuable upon
exercise of warrants exercisable at the initial public offering price that
will be outstanding at the completion of the Offering. See "Management--
Stock Plan" and "Underwriting."
18
<PAGE>
DILUTION
As of March 31, 1998, the net tangible book value of the Company was
$1,512,000, or $0.29 per share. "Net tangible book value per share" is the
tangible net worth (total tangible assets less total liabilities) of the
Company divided by the number of shares of Common Stock outstanding after
giving pro forma effect to the Reorganization and assuming 5,200,000 shares of
Common Stock were outstanding as of such date. After giving effect to the sale
of the shares of Common Stock offered hereby (at an assumed initial public
offering price of $16.00 per share and after deducting underwriting discounts
and estimated offering expenses of $3.3 million), the pro forma net tangible
book value of the Company at March 31, 1998 would have been $25,576,000 or
$3.32 per share. This represents an immediate increase in net tangible book
value of $5.34 per share to existing stockholders and an immediate dilution of
$11.36 per share to the new investors purchasing the shares in this Offering.
See "Corporate Reorganization" and "Use of Proceeds." The following table
illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed net initial public offering price per share.............. $14.68
Net tangible book value per share at March 31, 1998............ $0.29
Decrease in net tangible book value per share attributable to
proposed Shareholder Distributions............................ (2.31)
Increase in net tangible book value per share attributable to
new investors................................................. 5.34
-----
Net tangible book value per share after the Offering............. 3.32
------
Dilution in net tangible book value per share to new investors... $11.36
======
</TABLE>
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by the new investors in this Offering, (assuming a
public offering price of $16.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)(2)........ 5,200,000 67.5% $ 3,975,000 9.0% $ 0.76
New investors.............. 2,500,000 32.5 40,000,000 91.0 16.00
--------- ----- ----------- -----
Total.................... 7,700,000 100.0% $43,975,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) The existing stockholders of the Company, after giving effect to the
Reorganization, will have acquired all of their shares of Common Stock in
exchange for the common stock of Conrad. Accordingly, the total
consideration paid by the existing stockholders for their shares of Common
Stock of the Company represents the total consideration paid by the
existing stockholders for their shares of common stock of Conrad.
(2) Excludes options to purchase an aggregate of 130,000 shares of Common
Stock to be held by directors, officers and employees of the Company upon
the closing of the Offering pursuant to the Company's 1998 Stock Plan.
None of such options will be immediately exercisable. See "Management--
Stock Plan." Also excludes 77,000 shares of Common Stock issuable upon
exercise of warrants exercisable at the initial public offering price that
will be outstanding at the completion of the Offering. See "Underwriting."
19
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of Conrad and pro forma financial data of the Company as of the dates and
for the periods indicated. The historical financial data have been derived
from the historical financial statements of Conrad. The historical financial
statements of Conrad included elsewhere in this Prospectus reflect only the
assets and operations of Conrad as of the dates and for each of the periods
presented in such financial statements and do not reflect the combined assets
and operations of Conrad and Orange Shipbuilding for any such date or period,
except that the balance sheet of Conrad at December 31, 1997 and the
historical financial statements of Conrad for the three-month period ended
March 31, 1998 include the operations of Orange Shipbuilding as of such date.
The following table also sets forth pro forma statement of operations data of
the Company that give effect to certain transactions, including the Orange
Acquisition and the Reorganization. See "Corporate Reorganization" the
historical financial statements of each of Conrad and Orange Shipbuilding and
related notes thereto included elsewhere in this Prospectus and the unaudited
pro forma statement of operations of the Company and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31,
------------------------------------------- DECEMBER 31, --------------------
1993 1994 1995 1996 1997 1997(1) 1997 1998
------- ------- ------- ------- ------- ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. $10,482 $14,166 $20,914 $23,174 $22,117 $ 35,922 $ 5,546 $11,569
Cost of revenue....... 9,217 11,271 16,660 17,003 15,032 22,749 3,810 8,140
------- ------- ------- ------- ------- -------- --------- ---------
Gross profit.......... 1,265 2,895 4,254 6,171 7,085 13,173 1,736 3,429
Selling, general and
administrative
expenses............. 1,132 1,621 1,497 1,847 2,242 4,055 493 888
Executive
compensation(2)...... -- -- -- -- -- -- -- 4,316
------- ------- ------- ------- ------- -------- --------- ---------
Income (loss) from
operations........... 133 1,274 2,757 4,324 4,843 9,118 1,243 (1,775)
Interest and other
income (expense),
net.................. (29) (159) (112) (26) 62 (1,933) (11) (410)
------- ------- ------- ------- ------- -------- --------- ---------
Income (loss) before
income taxes......... 104 1,115 2,645 4,298 4,905 7,185 1,232 (2,185)
Provision for income
taxes................ -- -- -- -- -- -- -- 293
------- ------- ------- ------- ------- -------- --------- ---------
Net income (loss)..... $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185 $ 1,232 $(2,478)
======= ======= ======= ======= ======= ======== ========= =========
NET INCOME (LOSS) PER
COMMON SHARE:
Basic and diluted..... $ 0.02 $ 0.24 $ 0.57 $ 0.92 $ 1.05 -- $ 0.26 $ (0.53)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic and diluted..... 4,660 4,660 4,660 4,660 4,660 -- 4,660 4,666
UNAUDITED PRO FORMA
DATA:
Net income (loss) as
reported above....... $ 104 $ 1,115 $ 2,645 $ 4,298 $ 4,905 $ 7,185 $ 1,232 $ (2,478)
Pro forma provision
for income taxes(3).. 38 413 979 1,590 1,815 2,541 456 125
------- ------- ------- ------- ------- -------- --------- ---------
Pro forma net income
(loss)(3)............ $ 66 $ 702 $ 1,666 $ 2,708 $ 3,090 $ 4,644 $ 776 $ (2,603)
======= ======= ======= ======= ======= ======== ========= =========
Pro forma net income
per share(3)(4)...... -- -- -- -- $ 0.58 $ 0.87 -- $ (0.49)
Common and equivalent
shares outstanding... -- -- -- -- 5,342 5,342 -- 5,348
STATEMENT OF CASH FLOWS
DATA:
Cash provided by (used
in) operating
activities........... $ 711 $ 1,110 $ 3,604 $ 5,313 $ 6,114 $ 10,446 $ 1,431 $ (376)
Cash provided by (used
in) investing
activities(5)........ (2,871) (287) (1,120) (1,961) (23,872) (24,432) (168) (1,073)
Cash provided by (used
in) financing
activities........... 1,832 (516) (623) (2,619) 22,100 16,179 (1,033) (310)
OTHER FINANCIAL DATA:
Depreciation and
amortization......... $ 566 $ 676 $ 722 $ 798 $ 850 $ 2,166 $ 213 $ 547
Capital
expenditures(5)...... $ 2,871 $ 287 $ 1,120 $ 1,961 $23,872 $ 24,432 $ 168 $ 1,073
EBITDA(6)............. $ 699 $ 1,950 $ 3,479 $ 5,122 $ 5,693 $ 11,284 $ 1,456 $ 3,088
EBITDA margin(7)...... 6.7% 13.8% 16.6% 22.1% 25.7% 31.4% 26.3% 26.7%
Operating profit
margin(8)............ 1.3% 9.0% 13.2% 18.7% 21.9% 25.4% 22.4% (15.3)%
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------ ------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ (677) $ 2,497 $ 3,733 $ 4,402 $ 7,760 $ 7,665
Property, plant &
equipment.............. 7,456 7,067 7,465 8,514 18,304 19,025
Total assets............ 9,813 10,395 13,895 15,236 48,945 49,400
Long term debt,
including current
portion................ 2,400 1,962 1,900 1,233 25,338 25,534
Stockholders' equity.... 6,798 7,948 10,032 12,379 15,279 16,611
</TABLE>
- --------
(1) Gives effect to (i) the Orange Acquisition as if it had occurred as of the
beginning of the period presented and (ii) the Reorganization. For
purposes of the pro forma statement of operations data, the results of
operations of Orange Shipbuilding for its fiscal year ended September 30,
1997 and the results of operations of Conrad for its fiscal year ended
December 31, 1997 were utilized. See Note 3 below and the pro forma
financial statements of the Company and the related notes thereto.
(2) Represents non-cash executive compensation expense related to the issuance
of shares of common stock by Conrad in the first quarter of 1998 to
William H. Hidalgo, the Company's President and Chief Executive Officer,
and Cecil A. Hernandez, the Company's Vice President-Finance and
Administration and Chief Financial Officer. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Recent
Events."
(3) Gives effect to the application of federal and state income taxes to the
Company as if it were a C corporation for tax purposes. For all periods
presented herein, Conrad operated as an S corporation for federal and
state income tax purposes. Prior to the completion of the Offering, the
stockholders of Conrad made an election terminating its S corporation
status. As a result, Conrad became subject to corporate level income
taxation following of such election. See "Corporate Reorganization" and
the historical financial statements of Conrad and the related notes
thereto included elsewhere in this Prospectus.
(4) Calculated based on the number of shares of Common Stock to be outstanding
immediately after the Reorganization upon exchange of shares of Conrad
common stock by stockholders of Conrad as of December 31, 1997 (4,660,486
shares) as if such shares had been outstanding throughout each period
presented, as increased for each period to reflect such additional shares
as would have been required to be sold to pay the pro forma distribution
of estimated undistributed earnings payable to stockholders. The number of
such additional shares (681,199) is based on the assumed initial public
offering price of $16.00 per share, net of estimated Offering expenses.
See "Corporate Reorganization."
(5) Includes acquisition expenditures of $22.8 million (net of cash acquired)
incurred in December 1997 in connection with the Orange Acquisition.
(6) Represents income from operations before deduction of depreciation,
amortization and non-cash compensation expense related to the issuance of
stock and stock options to employees. EBITDA is not a measure of cash
flow, operating results or liquidity as determined by generally accepted
accounting principles. The Company has included information concerning
EBITDA as supplemental disclosure because management believes that EBITDA
provides meaningful information regarding a company's historical ability
to incur and service debt. EBITDA as defined and measured by the Company
may not be comparable to similarly titled measures reported by other
companies. EBITDA should not be considered in isolation or as an
alternative to, or more meaningful than, net income or cash flow provided
by operations as determined in accordance with generally accepted
accounting principles as an indicator of the Company's profitability or
liquidity.
(7) Represents EBITDA as a percentage of revenues.
(8) Represents income from operations as a percentage of revenues.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of each of Conrad and Orange Shipbuilding and the related
notes thereto and the unaudited pro forma statement of operations of the
Company and the related notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
Conrad has operated since 1948 at its shipyard in Morgan City, Louisiana and
specializes in the construction, conversion and repair of large and small deck
barges, single and double hull tank barges, lift boats, push boats, tow boats
and offshore tug boats. In December 1997, Conrad acquired Orange Shipbuilding
to increase its capacity to serve Conrad's existing markets and to expand its
product capability into the construction of additional types of marine
vessels, including offshore tug boats, push boats and double hull barges, and
the fabrication of modular components for offshore drilling rigs and FPSOs. In
February 1998, Conrad commenced operations at a conversion and repair facility
in Amelia, Louisiana, thereby expanding its capacity to provide conversion and
repair services for marine vessels.
The demand for the Company's products and services is dependent upon a
number of factors, including the economic condition of the Company's customers
and markets, the age and state of repair of the vessels operated by the
Company's customers and the relative cost to construct a new vessel as
compared with repairing an older vessel. Demand for the Company's products and
services has been favorably impacted recently by increased activity in the
offshore oil and gas industry and by determinations by commercial and
government customers to construct new vessels to replace older vessels and
upgrade the capacity or functionality of existing vessels. In particular, the
Company is experiencing significant demand for the construction of lift boats
and barges employed in the offshore oil and gas industry and, as a result of
the Orange Acquisition, for the fabrication of modular components of offshore
drilling rigs and FPSOs. In addition, the Orange Acquisition has enabled the
Company to capitalize on the demand for new vessel construction by government
customers such as the U.S. Army, U.S. Navy, U.S. Coast Guard and Corps of
Engineers. The age of barges and other vessels operated by the Company's
customers has also led to an increase in repair activities. See "Business--
Industry Overview."
The Company is engaged in various types of construction under contracts that
generally range from one month to 24 months in duration. The Company uses the
percentage-of-completion method of accounting and, therefore, takes into
account the estimated cost, estimated earnings and revenue to date on fixed-
price contracts not yet completed. The amount of revenue recognized is equal
to the portion of the total contract price that the labor hours incurred to
date bears to the estimated total labor hours, based on current estimates to
complete. This method is used because management considers expended labor
hours to be the best available measure of progress on these contracts.
Revenues from cost-plus-fee contracts are recognized on the basis of cost
incurred during the period plus the fee earned.
Most of the contracts entered into by the Company for new vessel
construction, whether commercial or governmental, are fixed-price contracts
under which the Company retains all cost savings on completed contracts but is
liable for all cost overruns. The Company develops its bids for a fixed price
project by estimating the amount of labor hours and the cost of materials
necessary to complete the project and then bids such projects in order to
achieve a sufficient profit margin to justify the allocation of its resources
to such project. The Company's revenues therefore may fluctuate from period to
period based on, among other things, the aggregate amount of materials used in
projects during a period and whether the customer provides materials and
equipment. For projects in which the customer provides materials or equipment,
the Company generally charges material handling and warehousing fees,
resulting in higher profit margins than for projects in which the Company
provides the materials and equipment. The Company generally performs
conversion and repair services on the basis of cost-plus-fee arrangements
pursuant to which the customer pays a negotiated labor rate for labor hours
spent on the project as well as the cost of materials plus a margin on
materials purchased.
22
<PAGE>
Contracts with the U.S. government are subject to termination by the
government either for its convenience or upon default by the Company. If the
termination is for the government's convenience, the contracts provide for
payment upon termination for items delivered to and accepted by the
government, payment of the Company's costs incurred through the termination
date, and the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable profit.
Sales to three of Conrad's principal customers accounted for approximately
47% of Conrad's historical revenues for 1997 and sales to three other
customers accounted for 41% of Conrad's historical revenues during 1996. On a
pro forma basis, the Company derived approximately 42% of its revenues from
three of its principal customers during 1997 and approximately 24% of its
revenues from two other principal customers during 1996. The Company's
principal customers have differed substantially on a year-to-year basis due to
the size and limited number of new construction projects performed each year.
See "Business--Customers" and the Notes to the historical financial statements
of Conrad and Orange Shipbuilding.
RECENT EVENTS
On December 12, 1997, Conrad acquired all of the outstanding shares of
common stock of Orange Shipbuilding, a shipyard located in Orange, Texas, for
a cash purchase price and related acquisition costs of $25.8 million. The cash
purchase price and related acquisition costs were funded with $25.0 million of
borrowings and the remainder with existing cash. At the purchase date, Orange
Shipbuilding had $3.0 million in cash, resulting in a net purchase price of
$22.8 million. The Orange Acquisition has been accounted for under the
purchase method. The purchase price was allocated based on estimated fair
values at the date of acquisition. This resulted in an excess of purchase
price over fair value of assets acquired of approximately $15.3 million, which
excess amount will be amortized over 20 years on a straight-line basis. Due to
the close proximity of the acquisition date to Conrad's fiscal year end,
results of operations subsequent to the acquisition of Orange Shipbuilding are
not included in Conrad's operating results for the year ended December 31,
1997. The results of operations of Orange Shipbuilding for the two-week period
from the date of acquisition to the end of Conrad's fiscal year were
insignificant. Accordingly, the historical financial data presented herein
have been derived solely from the audited financial statements of Conrad. The
pro forma statement of operations data of the Company give effect to certain
transactions, including the Orange Acquisition and the Reorganization. See
"Corporate Reorganization."
Conrad anticipates that as a result of the Orange Acquisition it will
realize savings from the consolidation of insurance programs and other general
and administrative expenses. The Company expects that these savings will be
offset by the additional costs related to additional administrative and
personnel, costs associated with being a public company and integration costs
related to the Orange Acquisition.
Conrad has operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad currently pays no federal or
state income tax, and the entire earnings of Conrad are subject to tax
directly at the shareholder level. Prior to the completion of the Offering,
Conrad's current shareholders intend to make an election terminating Conrad's
S corporation status and thereafter Conrad will be subject to corporate level
income taxation. The Company estimates that it will be required to record a
one-time deferred tax liability charge to earnings of approximately $630,000
in the second quarter of 1998 in connection with the termination of 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
23
<PAGE>
to each such executive are subject to forfeiture in the event of the voluntary
termination of employment by such executive for other than "good reason" prior
to the expiration of the initial three-year term of employment specified in
the employment agreement of such executive, provided that such restriction
will lapse in the event of (i) the termination by the Company of such
executive's employment for reasons other than "cause" (as defined) or (ii) the
death, disability or retirement (at or after the age of 65) of such executive
and will also lapse with respect to 33 1/3% of such restricted shares on each
of the first three anniversaries of the completion of the Offering. The shares
of common stock of Conrad issued to Mr. Hidalgo and Mr. Hernandez will be
exchanged, respectively, for 385,695 and 153,819 shares of Common Stock of the
Company pursuant to the Reorganization. In connection with the issuance of
shares of Conrad common stock, Mr. Hidalgo and Mr. Hernandez executed
promissory notes in the amounts of $239,870 and $97,400, respectively,
representing their tax liabilities paid by the Company. These tax notes will
be repaid in full by Mr. Hidalgo and Mr. Hernandez upon the completion of this
Offering. In connection with the issuance of these shares to Messrs. Hidalgo
and Hernandez, the Company estimates that it will recognize aggregate
compensation expense of $8.6 million, of which $4.3 million was recognized in
the first quarter of 1998 and the remainder will be recognized over a three-
year vesting period.
RESULTS OF OPERATIONS
The following table sets forth certain historical data of Conrad, and pro
forma data of the Company, and the percentage of revenues for the periods
presented:
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, YEAR ENDED 31,
------------------------------------------- DECEMBER 31, ----------------------------
1995 1996 1997 1997 1997 1998
------------- ------------- ------------- ------------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues:
Vessel construction.... $11,669 55.8% $11,421 49.3% $10,671 48.2% $13,063 36.4% $2,987 53.9% $ 6,979 60.3%
Modular component
fabrication........... 0 0 0 0 0 0 11,413 31.8 0 0 1,625 14.1
Repair and conversions. 9,245 44.2 11,753 50.7 11,446 51.8 11,446 31.8 2,559 46.1 2,965 25.6
------- ----- ------- ----- ------- ----- ------- ----- ------ ----- ------- -----
Total revenues......... 20,914 100.0 23,174 100.0 22,117 100.0 35,922 100.0 5,546 100.0 11,569 100.0
------- ----- ------- ----- ------- ----- ------- ----- ------ ----- ------- -----
Cost of revenue......... 16,660 79.7 17,003 73.4 15,032 68.0 22,749 63.3 3,810 68.7 8,140 70.4
------- ----- ------- ----- ------- ----- ------- ----- ------ ----- ------- -----
Gross profit............ 4,254 20.3 6,171 26.6 7,085 32.0 13,173 36.7 1,736 31.3 3,429 29.6
SG&A expenses........... 1,497 7.1 1,847 7.9 2,242 10.1 4,055 11.3 493 8.9 888 7.7
Executive compensation.. 0 0 0 0 0 0 0 0 0 0 4,316 37.2
------- ----- ------- ----- ------- ----- ------- ----- ------ ----- ------- -----
Operating income (loss). $ 2,757 13.2% $ 4,324 18.7% $ 4,843 21.9% $ 9,118 25.4% $1,243 22.4% $(1,775) (15.3)%
======= ===== ======= ===== ======= ===== ======= ===== ====== ===== ======= =====
Income before income
taxes.................. $ 2,645 12.6% $ 4,298 18.5% $ 4,905 22.2% $ 7,185 20.0% $1,232 22.2% $(2,185) (18.9)%
======= ===== ======= ===== ======= ===== ======= ===== ====== ===== ======= =====
EBITDA.................. $ 3,479 16.6% $ 5,122 22.1% $ 5,693 25.7% $11,284 31.4% $1,456 26.3% $ 3,088 26.7%
======= ===== ======= ===== ======= ===== ======= ===== ====== ===== ======= =====
OPERATING DATA:
Direct labor hours..... 347 354 350 501 88 136
</TABLE>
Three Months Ended March 31, 1998 Compared with Three Months Ended March 31,
1997
The Company's results of operations for the three months ended March 31,
1997 do not include information relating to Orange Shipbuilding and thus only
present Conrad's results of operations for that period.
During the three months ended March 31, 1998, the Company generated revenue
of $11.6 million, an increase of $6.0 million, or 108.6%, compared to $5.5
million generated for the three months ended March 31, 1997. This increase was
due to a $4.0 million increase in vessel construction and a $1.6 million
increase in modular component fabrication attributable primarily to the
inclusion of the activities of Orange Shipbuilding in the results of
operations of the Company for the three months ended March 31, 1998 and to a
$400,000 increase in repair and conversion revenue at Conrad.
24
<PAGE>
Gross profit increased $1.7 million, or 97.5%, to $3.4 million (29.6% of
revenue) for the three months ended March 31, 1998 as compared to $1.7 million
(31.3% of revenue) for the three months ended March 31, 1997. The increase was
due primarily to the increase in revenue items described above.
Selling, general and administrative expenses increased $395,000 to $888,000
(7.7% of revenue) for the three months ended March 31, 1998 as compared to
$493,000 (8.9% of revenue) for the three months ended March 31, 1997 primarily
due to $195,000 increase in goodwill amortization in connection with the
Orange Acquisition and $100,000 increase in salary and wages primarily
attributable to additional personnel.
Income before income taxes decreased $3.4 million to a loss of $2.2 million
for the three months ended March 31, 1998 as compared to $1.2 million for the
three months ended March 31, 1997 primarily due to (i) the non-cash executive
compensation charge of $4.3 million described under the caption "--Recent
Events" above and (ii) interest expense of $503,000.
EBITDA increased $1.6 million or 112.1% to $3.1 million (26.7% of revenue)
for the three months ended March 31, 1998 as compared to $1.5 million (26.3%
of revenue) for the three months ended March 31, 1997 due primarily to the
addition of the activities of Orange Shipbuilding for the three months ended
March 31, 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
During the year ended December 31, 1997, Conrad generated revenue of $22.1
million, a decrease of approximately $1.1 million, or 4.6%, compared to $23.2
million generated in 1996. This decrease was due primarily to a $750,000, or
6.6%, decrease in new construction and a $307,000, or 2.6%, decrease in
conversions and repairs. The decrease in revenue from new vessel construction
during 1997 occurred primarily because the mix of jobs completed or in
progress during 1997 required less materials and equipment as compared to
projects completed or in progress in 1996. The decrease in conversion and
repair revenue was primarily attributable to (i) a slight decrease in the
availability of skilled laborers and (ii) downtime on one of Conrad's drydocks
while it was being modified to facilitate the movement of vessels from the
drydock to dockside land repair areas.
Gross profit as a percentage of revenue increased to 32.0% in 1997 as
compared to 26.6% in 1996. Gross profit increased $914,000, or 14.8%, to $7.1
million in 1997 as compared to $6.2 million in 1996. This increase was
primarily due to increases in negotiated prices for fixed price contracts,
increases in negotiated labor rates for conversion and repair services,
improved efficiencies resulting from multi-vessel contracts, the absence of a
charge of approximately $510,000 incurred in 1996 relating to the settlement
of a contract dispute and a decrease of approximately $360,000 in insurance
costs. The contract dispute settlement represented the amount of contract
retainage and billings for change orders for one job that the customer refused
to pay due to a delay in the delivery of the vessel. The delay in the delivery
of the vessel was caused by the change orders submitted by the customer. The
Company elected to settle this dispute in lieu of lengthly and costly
litigation. The Company realized a profit with respect to this project taking
into account this settlement.
Selling, general and administrative ("SG&A") expenses increased to $2.2
million (10.1% of revenue) in 1997 as compared to $1.8 million (7.9% of
revenue) in 1996 due to an increase in administrative wages, bonuses, payroll
taxes and 401(k) expenses in 1997 as compared to 1996.
Income before income taxes as a percentage of revenue increased to 22.2% in
1997 as compared to 18.5% in 1996. Income before income taxes increased
$607,000, or 14.1%, to $4.9 million in 1997 as compared to $4.3 million in
1996. This increase resulted primarily from the factors discussed above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
During the year ended December 31, 1996, Conrad generated revenue of $23.2
million, an increase of approximately $2.3 million, or 10.8%, compared to
$20.9 million in 1995. This increase was the result of an increase of $2.5
million, or 27.1%, in repairs and conversions that was offset partially by a
decrease of approximately $248,000, or 2.1%, in new vessel construction. The
increase in conversion and repair revenue was
25
<PAGE>
primarily attributable to the increased demand for those types of services as
offshore oil and gas activity increased. The decrease in revenue from vessel
construction was primarily due to the types of jobs completed or in progress
during 1996 requiring less materials and equipment as compared to projects
completed or in progress in 1995.
Gross profit as a percentage of revenue increased to 26.6% in 1996 as
compared to 20.3% in 1995. Gross profit increased $1.9 million, or 45.1%, to
$6.2 million in 1996 as compared to $4.3 million in 1995. This increase was
primarily due to price increases and improved performance on contracts that
was offset partially by an approximate $510,000 charge related to the
settlement of a dispute regarding a construction contract.
SG&A expenses increased approximately $350,000 to $1.8 million (7.9% of
revenue) in 1996 as compared to $1.5 million (7.1% of revenue) in 1995.
Approximately $300,000 of this amount was due to an increase in administrative
salaries and bonuses and $100,000 was due to an increase in charitable
contributions.
Income before income taxes as a percentage of revenue increased to 18.5% in
1996 as compared to 12.6% in 1995. Income before income taxes increased $1.7
million or 62.5% to $4.3 million as compared to $2.6 million in 1995. This
increase was primarily due to the factors discussed above.
Pro Forma Results of Operations
On a pro forma basis for 1997, giving effect to the Orange Acquisition as if
completed as of the beginning of the year, the Company's revenue would have
been $35.9 million, gross profit would have been $13.2 million (36.7% of
revenue), operating income would have been $9.1 million (25.4% of revenue),
income before income taxes would have been $7.2 million (20.0% of revenue),
income after income taxes would have been $4.6 million (12.9% of revenue), and
EBITDA would have been $11.3 million (31.4% of revenue). Gross profit,
operating income and EBITDA as a percentage of revenue increased on a pro
forma basis for the Company as compared to historical results for Conrad
primarily as a result of higher gross profit margins realized by Orange
Shipbuilding as compared to Conrad in 1997. Orange Shipbuilding realized
higher gross profit margins as compared to Conrad in 1997 primarily due to
favorable contract prices on four jobs for the fabrication of modular
components completed or in progress during the year . Orange Shipbuilding was
able to secure favorable pricing terms on these contracts due to Orange's
available capacity to meet the customers' immediate deadlines and needs.
The pro forma information includes $300,000 of additional depreciation in
cost of revenue to reflect the increase in the book value of the Orange
Shipbuilding property, plant and equipment purchased resulting from the
purchase method of accounting and $765,000 of additional SG&A expenses due to
the amortization of goodwill of $15.3 million, which will be amortized over 20
years on a straight-line basis. Interest expense of $2.0 million was recorded
assuming the debt of $25.0 million incurred to fund the purchase price of the
Orange Acquisition was outstanding from the beginning of the year. The Company
will use a portion of the net proceeds from the Offering to repay the debt
incurred to fund the Orange Acquisition. An assumed 37% income tax rate was
used for purposes of the pro forma results of operations. Although the Company
anticipates it will realize savings from the consolidation of insurance and
other general and administrative expenses, the Company also expects that these
savings will be offset by the additional costs related to additional
administrative and personnel, costs associated with being a public company and
integration costs related to the Orange Acquisition. None of these savings or
additional costs are reflected in the pro forma information.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Conrad has funded its business through funds generated from
operations. Net cash provided by operations was $3.6 million, $5.3 million and
$6.1 million for 1995, 1996, and 1997 respectively. Conrad has borrowed in the
past to expand its facilities and to fund the Orange Acquisition. Net
borrowings from all credit arrangements were $24.1 million during 1997,
primarily in connection with the Orange Acquisition. Conrad had net reduction
in debt of $668,000 in 1996 and $62,000 in 1995. The Company's working capital
position was $7.8 million at December 31, 1997 and $7.7 million at March 31,
1998.
26
<PAGE>
Conrad's capital requirements historically have been primarily for
improvements to its facilities and equipment. Capital expenditures for plant
and equipment were $1.1 million for the three months ended March 31, 1998,
primarily for major improvements to drydocks, $1.1 million in 1997, which
included major repairs to drydocks, purchases of equipment and additions to
facilities, $2.0 million in 1996, of which $1.0 million was for the purchase
of the Amelia property, and $1.1 million in 1995 primarily for the purchase
and refurbishment of drydocks and improvements to facilities. Other investing
activities in 1997 included the acquisition of Orange Shipbuilding for $22.8
million (net of cash acquired).
In December 1997, Conrad borrowed $25.0 million on a term loan basis to fund
the purchase price of the Orange Acquisition. Interest on the Term Loan
accrues at LIBOR plus 2.0% until September 18, 1998, and thereafter at the
option of the Company either at the lender's prime rate minus 0.5% or LIBOR
plus 2.0%. The Company is currently utilizing the prime rate option and the
interest rate at December 31, 1997 was 8.0% per annum. The Term Loan requires
the payment of interest only until May 1998 and thereafter the Term Loan is
payable in 70 monthly principal payments of $209,000 plus interest, with a
final payment due in April 2004. The Term Loan is secured by substantially all
of the Company's assets and is guaranteed up to $2 million by J. Parker
Conrad. The Term Loan prohibits Conrad from paying dividends without the
consent of the lender. The Company intends to repay all indebtedness under the
Term Loan with the net proceeds of the Offering.
The Company has received a commitment for the $10.0 million Revolving Credit
Facility with Whitney National Bank which may be used for working capital and
other general corporate purposes, including funding of acquisitions. The
Revolving Credit Facility will bear interest on the same terms as the Term
Loan and will mature on April 30, 1999. A fee of 0.25% per annum on the unused
portion of the credit facility will be charged quarterly. The Company intends
to borrow approximately $10.0 million under the Revolving Credit Facility
prior to the completion of the Offering in order to fund part of the cash
portion of the Shareholder Distributions. The Company intends to use a portion
of the net proceeds of the Offering to repay the borrowings under the
Revolving Credit Facility, which will remain available for future use. The
Revolving Credit Facility will prohibit Conrad from paying dividends without
the consent of the lender and will restrict the ability of Conrad to incur
additional indebtedness. The Revolving Credit Facility will be secured by a
pledge of substantially all of the Company's assets which, in the event of a
failure by Conrad to make payments of principal and interest when due under
the terms of the Revolving Credit Facility, would permit the lender to
foreclose on the pledged assets.
Net cash used by operating activities was $376,000 for the three months
ended March 31, 1998 due to the increase in accounts receivable, costs and
estimated earnings on uncompleted contracts in excess of expenses and
increases in other assets.
Net cash provided by operating activities for 1996 and 1997 was $5.3 million
and $6.1 million, respectively. This increase was due principally to the
increases in net income, accounts payable and accrued expenses and billings
related to costs and estimated earnings on uncompleted contracts, offset by
changes in accounts receivable.
Net cash used in investing activities in 1996 was $2.0 million, all of
which was attributable to capital expenditures. Net cash used in investing
activities in 1997 was $23.9 million, of which $22.8 million was attributable
to the Orange Acquisition and $1.1 million was attributable to capital
expenditures.
Net cash provided by (used in) financing activities for 1996 and 1997 was
($2.6) million and $22.1 million, respectively. The increase was principally
due to the incurrence of the Term Loan in 1997 to fund the purchase price of
the Orange Acquisition.
Management believes that the remaining net proceeds from the Offering, the
Company's existing working capital, cash flows from operations and available
borrowing under the Revolving Credit Facility will be adequate to meet its
working capital needs and planned capital expenditures for property and
equipment through 1998.
27
<PAGE>
The Company may pursue attractive acquisition opportunities if and when such
opportunities arise. The timing, size or success of any acquisition effort and
the associated potential capital commitments cannot be predicted.
Due to the relatively low levels of inflation experienced in fiscal 1995,
1996 and 1997, inflation did not have a significant effect on the results of
the Company in those fiscal years.
YEAR 2000 COMPLIANCE
The Company has assessed both the cost of addressing and the costs or
consequences of incomplete or untimely resolution of the Year 2000 issue. The
Company has determined that its estimated costs related to the Year 2000 issue
are not anticipated to be material to the Company's business, operations or
financial condition. In addition, the Company is in the process of initiating
communications with its significant suppliers and large customers to determine
the extent to which the Company is vulnerable to those third parties failure
to remediate their own Year 2000 issues. The Company can give no guarantee
that the systems of other companies on which the Company's systems rely will
be converted on time or that a failure to convert by another company would not
have a material adverse effect on the Company.
QUARTERLY FLUCTUATIONS
The Company's results of operations are not materially affected by seasons.
However, the marine construction industry historically has been cyclical. As a
result, the Company's volume of business may be adversely affected by a
decline in projects as a result of a regional or national downturn in economic
conditions. The Company's quarterly results also may fluctuate and be
materially affected by the success of the Company in bidding for new projects,
the timing of the commencement of new projects, the timing of the recognition
of revenue and expense under the percentage-of-completion accounting method,
the aggregate amount of materials used in projects during a period and whether
customers provide materials and equipment during such period. See "--
Overview."
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 provides guidance for the presentation and display of
comprehensive income. SFAS 131 establishes standards for disclosure of
operating segments, products, services, geographic areas and major customers.
The Company is required to adopt both standards for its fiscal year ended
December 31, 1998. Management believes that the implementation of SFAS 130 and
SFAS 131 will not have a material impact on the presentation of the Company's
financial statements, but may require additional disclosure.
28
<PAGE>
BUSINESS
GENERAL
The Company specializes in the construction, conversion and repair of a wide
variety of marine vessels for commercial and government customers and the
fabrication of modular components of offshore drilling rigs and FPSOs. The
Company constructs a variety of marine vessels, including large and small deck
barges, single and double hull tank barges, lift boats, push boats, tow boats
and offshore tug boats. The Company fabricates components of offshore drilling
rigs and FPSOs, including sponsons, stability columns, blisters, pencil
columns and other modular components. The Company's conversion projects
primarily consist of lengthening the midbodies of vessels, modifying vessels
to permit their use for a different type of activity and other modifications
to increase the capacity or functionality of a vessel. The Company also
derives a significant amount of revenue from repairs made as a result of
periodic inspections required by the U.S. Coast Guard, the ABS and other
regulatory agencies. Since 1948, the Company has built over 650 vessels and
completed over 21,000 conversion and repair jobs.
The Company serves a variety of customers and markets, including the
offshore oil and gas industry, other commercial markets and the U.S.
government. The Company believes that its ability to construct a variety of
vessels on a cost-effective basis allows it to selectively pursue vessel
construction opportunities that arise out of changing demands of the
industries served by the Company. The Company is experiencing significantly
improved demand for its products and services from energy-related customers as
a result of several factors affecting the offshore oil and gas industry,
including an increase in offshore oil and gas activity during the last two
years, the recent increases in dayrates for offshore support vessels and
drilling rigs and the limited construction of new vessels serving this
industry since the mid-1980s. As a result, the Company is currently
constructing lift boats and barges for the offshore oil and gas industry,
fabricating modular components for offshore drilling rigs and FPSOs and
providing conversion and repair services for vessels and barges employed in
offshore energy-related activities. The Company is also pursuing opportunities
to construct other types of offshore support vessels such as supply boats and
utility vessels.
Due to the Orange Acquisition as well as increased demand for the Company's
products and services, Conrad's revenues grew from $10.5 million in 1993 to
$35.9 million in 1997 (on a pro forma basis for the Company) and EBITDA grew
from $0.7 million in 1993 to $11.3 million in 1997 (on a pro forma basis for
the Company). For the first quarter ended March 31, Conrad's net income
decreased from $1.2 million in 1997 to $(2.5 million) in 1998, primarily as a
result of a $4.3 million non-cash executive compensation expense, and
operating cash flow decreased from $1.4 million to $(0.4 million). Conrad's
EBITDA margin (EBITDA as a percentage of revenues) increased from 6.7% in 1993
to 31.4% in 1997 (on a pro forma basis for the Company) and from 26.3% for the
quarter ended March 31, 1997 to 26.7% for the quarter ended March 31, 1998. In
addition, Conrad's net income increased from $66,000 in 1993 to $4.6 million
in 1997 (on a pro forma basis for the Company) and its operating cash flow
increased from $0.7 million in 1993 to $10.4 million in 1997 (on a pro forma
basis for the Company). For the first quarter ended March 31, Conrad's
revenues grew from $5.5 million in 1997 to $11.6 million in 1998, and EBITDA
increased from $1.5 million in 1997 to $3.1 million in 1998.
During 1997, the construction of marine vessels accounted for approximately
36.4% of pro forma revenue, fabrication of modular components for the offshore
oil and gas industry accounted for approximately 31.8% of pro forma revenue
and the conversion and repair of marine vessels accounted for approximately
31.8% of pro forma revenue. As of March 31, 1998, the Company's backlog of new
vessel construction and modular component fabrication (excluding unexercised
options held by customers) was approximately $23.6 million and was
attributable to 15 projects, consisting of three lift boats, five barges, six
tugs and one modular component fabrication project. Of this backlog amount,
approximately $13.7 million was attributable to contracts with the U.S. Army
and the Corps of Engineers.
The Company currently operates three shipyards located along the Gulf Coast
in Morgan City, Louisiana, Orange, Texas and Amelia, Louisiana. The Company's
shipyard in Morgan City is located on approximately 11 acres on the
Atchafalaya River, approximately 30 miles from the Gulf of Mexico, and its
Orange shipyard is located on approximately 12 acres on the Sabine River,
approximately 37 miles from the Gulf of Mexico. In February 1998, the Company
commenced operations at a conversion and repair facility in Amelia, Louisiana
29
<PAGE>
located on approximately 16 acres on Bayou Boeuf, approximately five miles
from Morgan City. The Company conducts its marine vessel construction
activities indoors at its Morgan City and Orange shipyards in approximately
220,000 square feet of enclosed building space designed specifically for the
construction of marine vessels up to 400 feet in length. The Company believes
that its indoor work environment is a competitive advantage in attracting and
retaining skilled workers and meeting critical construction schedules. The
Company's shipyards employ advanced construction techniques, including modular
construction and zone outfitting methods, in order to efficiently utilize its
building space, equipment and personnel. The Company believes that these
factors, together with its experienced management team and skilled work force,
have enabled the Company to construct a wide variety of marine vessels at
attractive profit margins, as evidenced by its operating profit margin of
25.4% in 1997 on a pro forma basis.
HISTORICAL BACKGROUND
The Company was founded in 1948 by J. Parker Conrad and began operations at
its shipyard in Morgan City, Louisiana. In 1952, the Company expanded its
operations into the repair business through the acquisition of one of the
first drydocks on the Gulf Coast. In 1962, the Company began building steel
barges and other vessels for the offshore oil and gas industry. Due to adverse
conditions in the oil and gas industry, the Company refocused its operations
in 1984 on the construction and repair of vessels for other commercial and
foreign markets. During 1996, the Company acquired its conversion and repair
facility in Amelia, Louisiana, which commenced operations in the first quarter
of 1998.
In December 1997, Conrad purchased Orange Shipbuilding to expand its
construction capacity and to expand its production capabilities into
additional types of marine vessels, including the fabrication of modular
components for offshore drilling rigs and FPSOs. Orange Shipbuilding has been
engaged in shipbuilding since 1974. The Orange shipyard designed and built a
variety of vessels for use in offshore Gulf of Mexico oil and gas exploration
and production activities before that sector collapsed in 1983. Orange
Shipbuilding refocused its operations on small to medium sized vessels for the
U.S. government after this decline. During 1996 and 1997, in connection with
the upturn in offshore oil and gas exploration and production in the Gulf of
Mexico, Orange Shipbuilding capitalized on the demand for subcontractors that
could fabricate modular components for offshore drilling rigs and FPSOs on a
timely and cost effective basis. The Orange Acquisition is consistent with the
Company's strategy of considering acquisitions of businesses or operations
that are profitable and complimentary to the Company's business and
operations.
INDUSTRY OVERVIEW
The United States shipbuilding industry is generally classified into two
categories: (i) the six largest shipbuilders which are capable of building
large vessels for the U.S. government and commercial customers and (ii) other
shipyards that build small to medium sized vessels for governmental and
commercial markets consisting of several hundred companies engaged in
shipbuilding and repair activities located in various regions of the United
States. The Company is in the second category. Within the Gulf Coast region of
the United States, the Company believes there are approximately 70
shipbuilding and repair operators, most of which are smaller than the Company
in terms of total number of employees.
The Company constructs vessels and performs conversion and repair services
for a variety of customers and markets. Throughout the Company's 50 years of
operations, the Company has adapted its construction, conversion and repair
activity to changing industry conditions and changes in demand for different
types of products and services. As a result, the types of vessels constructed
and the types of conversion and repair services provided by the Company have
changed in response to these factors. The Company is currently focusing its
activity to respond to demand in three key markets: the offshore oil and gas
industry, other commercial markets, and the U.S. government.
Offshore Oil and Gas Market
The shipbuilding industry supports the offshore oil and gas industry through
the construction of (i) offshore support vessels, (ii) barges such as pipe
laying barges, oil and gas drilling barges and oil and gas production barges
and (iii) offshore drilling rigs. The demand for vessel construction,
conversion and repair for the offshore
30
<PAGE>
oil and gas market is substantially dependent upon various economic factors
affecting the offshore oil and gas industry. The shipbuilding industry has
been favorably impacted during the last two to three years by a number of
positive trends, including (i) the increasing percentage of worldwide oil and
gas supply being produced from offshore areas, (ii) the large increases in
cash flow experienced by many oil and gas companies, (iii) the increases in
capital expenditure budgets for offshore drilling activity by oil and gas
companies, (iv) technological advancements relating to exploration,
development and production techniques, including three-dimensional seismic
surveys, directional drilling and subsea completions, that have increased
drilling success rates and improved efficiencies of development and production
activities and (v) the increased focus on deep water exploration and projects,
particularly in the Gulf of Mexico, as evidenced by the prices paid for leases
during each of the last five years and the record $1.4 billion committed in
the two offshore lease sales in 1997. The following table illustrates the
impact of these trends in the Gulf of Mexico and the United States:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
GULF OF MEXICO INDUSTRY DATA:
Active offshore supply vessels(1).... 216 235 249 263 286
Active offshore drilling rigs(2)..... 163 170 181 212 233
Offshore supply vessel dayrates(3)... $3,508 $3,302 $3,185 $5,273 $8,048
Offshore drilling rig utilization(4). 76.5% 76.2% 76.2% 88.0% 93.9%
Active inland drilling barges(5)..... 69 74 75 80 92
Total blocks leased(6)............... 336 560 835 1,508 1,778
U.S. SHIPBUILDING INDUSTRY DATA:
Number of offshore service vessels
constructed(7)...................... 5 1 3 5 14
Number of mobile offshore drilling
rigs constructed(8)................. 4 11 2 0 0
</TABLE>
- --------
(1) Represents the average number of contracted anchor handling tug/supply and
platform supply vessels in the Gulf of Mexico for the period presented.
Information obtained from Offshore Data Services.
(2) Represents the average number of mobile offshore drilling rigs and
platform drilling rigs under contract in the Gulf of Mexico for the period
presented. Information obtained from Offshore Data Services.
(3) Represents the average dayrates for platform supply vessels in the Gulf of
Mexico for the period presented. Information obtained from Offshore Data
Services.
(4) Represents the average mobile drilling rig utilization rate in the Gulf of
Mexico for the period presented. Information obtained from Offshore Data
Services.
(5) Represents the average number of active inland drilling barges in
Louisiana for the period presented. Information obtained from Offshore
Data Services.
(6) Represents the total blocks leased in the Gulf of Mexico for the period
presented. Information obtained from Mineral Management Services.
(7) Information obtained from Clarkson Research Studies.
(8) Information obtained from Offshore Data Services.
These positive trends follow years in which the offshore oil and gas
industry was adversely affected by lower oil and gas prices and other factors
that resulted in minimal construction of offshore support vessels, barges for
the oil and gas industry and offshore drilling rigs.
Offshore Support Vessels. The primary role of offshore support vessels is to
support offshore oil and gas drilling and production operations, including
delivery of necessary equipment, personnel and supplies to offshore drilling
rigs and production facilities, assistance with the installation of offshore
production platforms, towing of offshore drilling rigs and conducting seismic
surveys. Offshore support vessels include lift boats, supply vessels, utility
vessels, crew vessels, offshore tugs, anchor handling tugs and seismic
vessels. As a result of the increase in offshore drilling activity, dayrates
for these vessels have increased substantially since 1995. Due to limited
construction of new offshore supply vessels since the mid-1980s, the average
age of the existing fleet of offshore supply vessels is increasing. According
to Offshore Marine Service Association ("OMSA"), the average age of the
offshore supply vessels currently in service in the Gulf of Mexico is
approximately 17 years. As these vessels
31
<PAGE>
age, maintenance, repair and vessel certification costs increase significantly
and eventually require replacement or remobilization outside of U.S. waters.
As a result of these factors, new construction of offshore support vessels
has recently increased. According to a November 1997 survey conducted by the
OMSA, since March 1995, U.S. shipbuilders had received firm orders for
approximately 72 offshore supply vessels, 42 crewboats, 20 utility boats, 14
lift boats and three offshore tugs, of which 14 of the ordered supply vessels,
15 of the crewboats and five of the lift boats had been completed and
delivered at the time of such survey. The Company's backlog at December 31,
1997 included four lift boats, and the Company is currently bidding on
projects to construct lift boats, utility vessels and supply vessels.
In addition to new construction opportunities, the Company believes that
current industry conditions and improved dayrates for offshore support vessels
will promote continued conversion and repair projects for offshore support
vessels. Because of the cost of constructing new offshore support vessels and
the 18-month to two-year lead-time necessary to construct new offshore support
vessels, the Company believes that offshore support vessel operators will
continue to upgrade and repair existing offshore support vessels. According to
the November 1997 OMSA survey, approximately 46 offshore support vessels,
having an average age of 17.5 years, have undergone major conversions or
modifications since March 1995 and an additional 42 vessels will undergo major
conversions or modifications prior to the end of 2002.
Barges. Barges are utilized in the offshore oil and gas industry to lay
underwater pipelines, to carry supplies to offshore locations, to support
offshore construction activities and to drill for and produce oil and gas in
shallow inland and coastal waters. Inland barges, such as posted drilling
barges, liquid mud barges and shale barges, are also utilized by the oil and
gas industry for drilling and workover activities in lakes, bays and sounds.
The Company has constructed numerous barges for use in the offshore oil and
gas industry during the last 10 years.
Offshore Drilling Rigs and FPSOs. The level of worldwide offshore drilling
activity has increased substantially over the last two years, resulting in
worldwide and Gulf of Mexico offshore drilling rig utilization of 96% in May
1998. Dayrates in the Gulf of Mexico for jackup rigs capable of drilling in
water depths of over 300 feet have increased from an average of $30,500 for
May 1996 to an average of $60,250 for May 1998. Similarly, dayrates in the
Gulf of Mexico for fourth generation semisubmersibles have increased from an
average of $107,000 for May 1996 to an average of $172,050 for May 1998. In
particular, the demand for deep water (deeper than 1,000 feet) drilling
services worldwide and in the Gulf of Mexico has increased substantially in
recent years as a result of reserve discoveries and technological advances
which have made development and production of reserves in deep water
economically viable.
As the demand for offshore drilling rigs is driven by the level of offshore
exploration and development activity, it is expected that there will be
continued demand for and construction of drilling rigs over the next several
years. It is currently estimated by OMSA that approximately 50 offshore
drilling rigs were being built as of November 1997. A December 1997 survey by
Marine Log magazine projects the construction of 100 offshore drilling rigs
(including semisubmersibles and jackups) in the U.S. over the next 10 years.
The Company believes that there will be continued opportunities for it to
fabricate modular components of offshore drilling rigs and FPSOs as shipyards
that specialize in constructing offshore drilling rigs and FPSOs are
experiencing difficulty meeting construction schedules caused by increased
demand for these products.
Barges for Other Commercial Markets
Barges are also used in a variety of commercial markets that are not related
to the offshore oil and gas industry, including the marine construction
industry, the petrochemical industry, the commodity grain industry and the
ocean shipping industry. Many of these industries utilize barges to ship bulk
products through inland waterways as well as offshore coastal waters and ocean
waters. Due to the general cost effectiveness of barges
32
<PAGE>
for transportation of these types of products, demand for barge transportation
of bulk products has remained relatively steady. Demand for barge
construction, conversion and repair services is affected by many factors,
including the volume of marine construction and shipping activity, shipping
rates, and the aging of the fleet. According to Corps of Engineers data, the
average ages of the domestic deck, single-hull tank and double-hull tank barge
fleets are approximately 24, 29 and 19 years, respectively. The Company
estimates that the average life of these barges is approximately 25 to 30
years. The Company believes that these factors have promoted the continued
demand for barge construction, conversion and repair projects.
Demand for new barge construction has also been favorably impacted by OPA
'90 which generally requires U.S. and foreign vessels carrying fuel and
certain other hazardous cargos and entering U.S. ports to have double hulls by
2015. Operators will be required either to retrofit existing barges or
construct new double hull barges in order to comply with the law's single hull
phase-out requirements that began January 1, 1995. As many barges are used in
both inland waterways and in offshore coastal waters, the Company believes
that many new barges are being constructed with double hulls in order to
provide flexibility for use in both inland waterways and offshore coastal
waters.
The Company has constructed numerous barges and provided conversion and
repair services for commercial markets other than the offshore oil and gas
industry during the last 10 years.
U.S. Government Market
Each of the U.S. Army, U.S. Navy, U.S. Coast Guard and Corps of Engineers
has a large fleet of small and medium size vessels, including barges, tow
boats and push boats that are used for a variety of purposes, including
transporting fuel, troops and supplies. The Company believes that the U.S.
Army, U.S. Navy, U.S. Coast Guard and Corps of Engineers are in the process of
replacing many of the older vessels of these types in their fleets due to the
age, condition and technological obsolescence of many of these vessels. In
addition, the Company believes that recent economic conditions have resulted
in the availability of government funding for the construction of vessels of
these types. The Company, through its Orange Shipbuilding subsidiary, has
constructed approximately 70 vessels for the U.S. Army, U.S. Navy, U.S. Coast
Guard and Corps of Engineers, including barges, tow boats and offshore
petroleum delivery system units. As of March 31, 1998, the Company had
contracts to construct six pusher tugs for the U.S. Army and one barge for the
Corps of Engineers, and the U.S. Army had the option to purchase six
additional pusher tugs.
BUSINESS STRATEGY
The Company's objective is to increase its revenues while maintaining
attractive profit margins. Key elements of the Company's business strategy are
as follows:
. PURSUE PROJECTS WITH ATTRACTIVE PROFIT MARGINS. The Company has extensive
experience in the construction, conversion and repair of a wide variety
of vessels and modular components used in diversified markets. The
Company's shipbuilding versatility and experience reduce its dependence
on particular types of products and markets, which the Company considers
one of its principal competitive strengths. As a result of this
flexibility, the Company selectively pursues opportunities for
construction, conversion and repair projects that it believes can
generate attractive profit margins.
. CAPITALIZE ON INDOOR CONSTRUCTION CAPABILITIES AND MODERN CONSTRUCTION
TECHNIQUES. The Company believes that it is a unique Gulf Coast shipyard
due to the construction of substantially all of its new vessel
construction and modular components indoors. In this environment,
construction is not hampered by weather conditions. In addition, the
Company's shipyards employ many advanced construction techniques,
including modular construction, zone outfitting methods, computerized
plasma arc metal cutting and automatic shotblasting and painting. The
Company believes that these factors allow it to more effectively utilize
its workforce and equipment, thereby allowing it to control costs, meet
critical construction schedules and achieve attractive profit margins.
33
<PAGE>
. UTILIZE AVAILABLE CAPACITY AT EXISTING SHIPYARDS. The Company believes
that it has the ability to significantly increase its capacity for vessel
construction, conversion and repair at its existing shipyards without any
significant additional capital expenditures. The Company had 280 shipyard
workers as of December 31, 1997 and has increased its shipyard labor
force to 303 as of March 31, 1998. The Company estimates that it could
employ approximately 200 additional shipyard workers, primarily for
conversion and repairs, without significant expansion of its facilities.
The Company plans to increase its construction, conversion and repair
activity to the extent it is able to secure additional projects at
attractive margins and attract qualified workers who can maintain the
Company's quality standards.
. TAKE ADVANTAGE OF NEW CONSTRUCTION OPPORTUNITIES. Due to increased
activity in the offshore oil and gas industry, the Company believes there
will continue to be significant demand from customers in this industry
for vessel construction, particularly with respect to offshore support
vessels such as lift boats, utility vessels and supply vessels, as well
as for the fabrication of modular components for offshore drilling rigs
and FPSOs. In addition, the Company believes that other commercial
customers will continue to create demand for its products and services
due to continued demand for marine transportation of bulk products and
due to the aging of the current fleet of barges, tug boats and other
marine vessels used for commercial shipping. The Company also believes
that there will continue to be opportunities to construct vessels for the
U.S. Army, U.S. Navy, U.S. Coast Guard and Corps of Engineers due to the
aging fleet of barges, tug boats, tow boats and push boats currently used
by these customers.
. INCREASE CONVERSION AND REPAIR ACTIVITY. The Company has five drydocks,
one submersible barge, five slips and approximately 4,100 feet of
bulkhead available for conversion and repair activity. The Company has
made significant capital expenditures over the last several years to add
capacity and improve the efficiency of its shipyards for conversion and
repair work, including expenditures to modify one of its drydocks to
increase its lifting capacity and to add roll-on and roll-off
capabilities. These improvements will allow barges and other vessels to
be moved from the drydock to previously unused dockside land repair
areas, thereby permitting the drydock to be used for other repair
activity. The Company believes there are significant opportunities to
take advantage of its increased conversion and repair capacity due to the
age and condition of many vessels currently operating in the Gulf of
Mexico and due to the requirements for periodic inspection and drydocking
by the U.S. Coast Guard, ABS and other regulatory agencies.
. CAPTURE EFFICIENCIES FROM MULTIPLE SHIPYARDS. The Company's multiple
shipyards provide it with significant flexibility and efficiency in
constructing a wide variety of vessels. With the addition of the Orange
and Amelia shipyards, the Company has the ability to more effectively
manage its available shipyard capacity through the allocation of projects
between these shipyards. In addition, the Company has the ability to
fabricate various components of a project at one shipyard for use in the
construction of a vessel or fabrication of a steel structure at another
shipyard.
. PURSUE STRATEGIC ACQUISITIONS. The Company believes opportunities exist
for consolidation in the highly fragmented U.S. Gulf Coast marine vessel
construction, conversion and repair industry, which consists of more than
70 shipyard companies located in the Gulf Coast area. The Company
significantly expanded its construction capacity through the Orange
Acquisition in December 1997 at a purchase price of approximately $22.8
million (net of cash acquired). In addition, during February 1998, the
Company commenced operations at a conversion and repair facility in
Amelia, Louisiana that it acquired in 1996 at a purchase price of
approximately $1.0 million. The Company will evaluate strategic
acquisitions of one or more additional shipyards in the future depending
on a variety of factors, including demand for vessel construction,
conversion and repair, the advantages offered by the particular shipyard
and the terms of the acquisition. The Company anticipates that it will
focus on profitable acquisition candidates with operations that
complement the Company's existing operations.
34
<PAGE>
OPERATIONS
The Company's principal operations consist of the construction of marine
vessels, the fabrication of modular components for offshore drilling rigs and
FPSOs and repair and conversion services. During the year ended December 31,
1997, the Company's pro forma revenues (pro forma utilizing Orange
Shipbuilding's fiscal year ended September 30, 1997) were derived
approximately 29.7% from new vessel construction for commercial customers,
approximately 6.7% from new vessel construction for government customers,
approximately 31.8% from modular component fabrication for offshore drilling
rig contractors, and approximately 31.8% from repair and conversions. During
the year ended December 31, 1996, the Company's pro forma revenues (pro forma
utilizing Orange Shipbuilding's fiscal year ended September 30, 1996) were
derived approximately 37.5% from new construction for commercial customers,
approximately 13.9% from new vessel construction for government customers,
approximately 10.0% from modular component fabrication for offshore drilling
rig contractors, and approximately 38.6% from repairs and conversions.
Current Projects. The Company's construction and fabrication projects in
progress as of March 31, 1998 consisted of 14 vessels (including three lift
boats, five barges and six tugs) and one modular component fabrication project
for the oil and gas industry with aggregate remaining contract revenue of
approximately $23.6 million (excluding unexercised options held by customers).
The Company's backlog as of December 31, 1997 was approximately $24.6 million
as compared to Conrad's backlog (exclusive of Orange Shipbuilding) of $3.6
million as of December 31, 1996 and Orange Shipbuilding's backlog of $11.5
million as of September 30, 1996 (its fiscal year end). Of this remaining
contract revenue, approximately $13.7 million was attributable to contracts to
build vessels for the U.S. Army and the Corps of Engineers. The Company
anticipates that approximately $22.0 million of the aggregate remaining
revenue from firm contracts as of March 31, 1998 will be realized during
fiscal 1998. The following chart includes a description of the marine vessel
construction and modular component fabrication projects scheduled as of March
31, 1998 as well as a description of conversion and repair projects in
progress at March 31, 1998 or scheduled to commence during 1998.
<TABLE>
<CAPTION>
NUMBER OF
VESSELS
TYPE OF VESSEL OR PROJECT SHIPYARD OR PROJECTS CUSTOMER
- ------------------------- ------------------ ----------- ------------------------
<S> <C> <C> <C>
VESSEL CONSTRUCTION:
OFFSHORE AND INLAND
BARGES:
Tank Barge............. Morgan City 2 Private Fleet Operator
Deck Cargo Barge....... Morgan City 2 Private Fleet Operator
Steel River Service
Barge................. Orange 1 Corps of Engineers
LIFT BOATS:
1058 x 708 x 1758 leg.. Morgan City 2 Energy Service Companies
1158 x 708 x 1758 leg.. Morgan City 1 Energy Service Companies
TUG BOATS:
ST (small tug) Tugs.... Orange 6 U.S. Army
MODULAR COMPONENT
FABRICATION:
Sponsons............... Orange 1 Drilling Rig Fabricator
---
Total Construction
and Fabrication..... 15
===
CONVERSION AND REPAIR:
Supply Vessel.......... Morgan City 15 Energy Service Company
Utility Vessel......... Morgan City 3 Energy Service Company
Tow Boat............... Morgan City/Amelia 10 Energy Service Company
Barge.................. Morgan City/Amelia 9 Energy Service Company
---
Total Conversion and
Repair.............. 37
===
</TABLE>
Shipyards. The Company conducts its marine vessel construction, conversion
and repair operations at shipyards in Morgan City and Amelia, Louisiana and
Orange, Texas. The Company has owned and operated the Morgan City shipyard
since 1948. The Company acquired an additional conversion and repair facility
in Amelia, Louisiana for approximately $1.0 million in 1996 and commenced
conversion and repair services at this facility
35
<PAGE>
during February 1998. In December 1997, the Company acquired Orange
Shipbuilding for a purchase price of approximately $22.8 million (net of cash
acquired). This acquisition significantly increased the shipbuilding capacity
of the Company.
During the past five fiscal years, the Company has made, in the aggregate,
approximately $10.0 million of capital expenditures to add capacity and
improve the efficiency of its Morgan City and Orange Shipbuilding shipyards.
Of this amount, Conrad spent approximately $7.0 million at the Morgan City
shipyard for improvements to its building and facilities, to purchase cranes
and other fabrication equipment and to purchase and modify a drydock and
launch barge. A portion of Conrad's expenditures in 1997 were incurred to
increase the heavy lifting and drydocking capabilities of one of its drydocks.
These shipyard improvements will allow barges and vessels to be moved from
drydock space to dockside land repair areas, thereby enabling the Company to
perform major modifications and repairs, such as lengthening of vessel
midbodies, on previously unused dockside land while freeing the drydock for
other projects. The Company's capital expenditures during the last five fiscal
years also included approximately $3.0 million incurred by Orange Shipbuilding
for improvements to its buildings and facilities and to purchase cranes and
other fabrication equipment.
All of the Company's new vessel construction is done indoors in well-lighted
space specifically designed to accommodate construction of marine vessels up
to 400 feet in length. As a result, marine vessel construction is not hampered
by weather conditions, and the Company is able to more effectively utilize its
workforce and equipment, thereby allowing it to control costs and meet
critical construction schedules. The Company employs modular construction
techniques and zone outfitting, which involve the installation of pipe,
electrical wiring and other systems at the modular stage, thereby reducing
construction time while at the same time simplifying systems integration and
improving quality. The Company also uses computerized plasma arc metal cutting
for close tolerances and automated shotblasting and painting processes for
efficiency and high quality.
The Company's shipyards provide it with significant flexibility and
efficiency in constructing a wide variety of vessels. With the addition of the
Orange shipyard, the Company has the ability to more effectively manage its
available shipyard capacity through the allocation of projects between
shipyards. In addition, the Company has the ability to fabricate various
components of a project at one shipyard for use in the construction of a
vessel or fabrication of a steel structure at another shipyard. The new Amelia
facility will increase the Company's capacity to perform conversion and repair
services and will allow the Company to allocate these projects efficiently
between the Amelia and Morgan City shipyards.
The Company's Morgan City and Orange shipyards have five construction bays
that can support 35 workers each and four construction bays that can support
15 workers each. The Company is not utilizing the facilities at this time to
this maximum staffing level. Additionally, the facilities are currently
working a single ten-hour shift and have the capability of adding a second
shift without increasing bays or support equipment. The Company could add
additional workers at this time without significant capital expenditures by
purchasing only a few welding machines and small tools since buildings and
overhead cranes already exist at these facilities.
36
<PAGE>
The Company had 280 shipyard workers as of December 31, 1997 and increased
its shipyard labor force to 303 as of March 31, 1998. The Company intends to
expand its work force to the extent that it is able to secure additional work
at attractive profit margins and attract qualified workers who can maintain
the Company's quality standards. The following chart contains certain
information as of March 31, 1998, regarding each of the Company's shipyards:
<TABLE>
<CAPTION>
MAXIMUM
NUMBER OF NUMBER OF
SHIPYARD SHIPYARD
FACILITY PRIMARY PRODUCTS/ OPERATIONS(1) WORKERS(2) WORKERS(2)(3)
- ------------------------ ------------------------------------------- ---------- -------------
<S> <C> <C> <C>
Morgan City, LA......... Construction of barges, lift boats and 220 300
drydocks; repairs, conversions
Orange, TX.............. Construction of tug boats, barges, push 73 120
boats; fabrication of modular components
Amelia, LA (4).......... Repairs and conversions 10 100
--- ---
Total Shipyard Workers............................................ 303 520
=== ===
</TABLE>
- --------
(1) Includes operations currently conducted and principal products produced at
the applicable facility.
(2) As of March 31, 1998.
(3) Represents management's estimate of the maximum number of persons that
could be employed without significant capital expenditures on the existing
buildings or equipment. See "Risk Factors--Shortage of Trained Workers."
(4) Initial operations commenced during February 1998.
Morgan City. The Company's Morgan City, Louisiana shipyard is located on the
Atchafalaya River approximately 18 miles from the Gulf of Mexico on
approximately 11 acres. The shipyard has 14 buildings containing approximately
110,000 square feet of enclosed building area and nine overhead cranes. In
addition, the shipyard has five drydocks, one submersible launch barge, 1,700
feet of steel bulkhead, six rolling cranes and two slips. The buildings
include the Company's headquarters as well as three large fabrication
warehouses specifically designed to accommodate marine vessel construction.
The drydocks consist of two 120-foot by 52-foot drydocks, two 200-foot by 70-
foot drydocks and one 200-foot by 95-foot drydock with lifting capacities of
900, 2,400 and 3,000 tons, respectively.
Orange. The Company's Orange, Texas shipyard is located on the Sabine River
approximately 37 miles from the Gulf of Mexico on approximately 12 acres. The
shipyard has six construction bays under approximately 110,000 square feet of
enclosed building area with 14 overhead cranes. The site also has 300 feet of
steel bulkhead and one slip. The Company's Orange shipyard equipment includes
a Wheelabrator(TM), a "gantry" type NC plasma burner with a 21-foot by 90-foot
table, over 60 automatic and semi-automatic welding machines, three rolling
cranes, 600, 800 and 1,600-ton transfer/load-out systems and a marine railway
with side transfer system.
Amelia. The Company's Amelia, Louisiana conversion and repair facility is
located on Bayou Boeuf approximately 30 miles from the Gulf of Mexico on
approximately 16 acres. This facility has six buildings containing
approximately 30,000 square feet of enclosed building area. The site also has
2,100 feet of bulkhead and two slips. The Company commenced marine repair and
conversion operations at this shipyard during February 1998.
PRODUCTS AND SERVICES
Construction of Vessels
The Company manufactures a variety of small and medium sized vessels
principally for commercial and governmental customers. This activity accounted
for 36.4% of pro forma revenue during 1997. The principal types of vessels
manufactured by the Company are described below.
Offshore and Inland Barges. The Company builds a variety of offshore barges,
including tank, container and deck barges for commercial customers and YCs
(yard carrier barges) and YONs (yard oil Navy barges) for
37
<PAGE>
the U.S. Navy. The Company also builds a variety of inland barges, including
deck and tank barges. Contract prices for barges constructed by the Company
have recently ranged from $150,000 to $5 million. The Company has constructed
a variety of barges used in the offshore oil and gas industry, including shale
barges, pipe laying barges, oil and gas drilling barges, and oil and gas
production barges. The Company's barges are also used in marine construction
and are used by operators to carry liquid cargoes such as petroleum and
drilling fluids, dry bulk cargoes such as aggregate, coal and wood products,
deck cargoes such as machinery and equipment, and other large item cargoes
such as containers and rail cars. Other barges function as cement unloaders
and split-hull dump scows. The Company has built barges ranging from 50 feet
to 400 feet in length, with as many cargo tanks, decks and support systems as
necessary for the barges' intended functions. The Company is in a position to
benefit from the continued demand for offshore and inland tank barge
construction and conversion due to OPA '90 as well as the aging of the
worldwide fleet of offshore tank barges, and the Company is currently bidding
on a number of barge construction projects. The Company's backlog at March 31,
1998 included five barges. See "--Industry Overview" and "--Regulation--OPA
'90."
Lift Boats. Lift boats are used primarily to furnish a stable work platform
for drilling rigs, to house personnel, equipment and supplies for such
operations and to support construction and ongoing operation of offshore oil
and gas production platforms. Lift boats are self-propelled, self-elevating
and self-contained vessels that can efficiently assist offshore platform
construction and well servicing tasks that traditionally have required the use
of larger, more expensive mobile offshore drilling units or derrick barges.
Lift boats have different water depth capacities and have legs, ranging from
65 to 200 feet, that are used to elevate the deck of the boat in order to
perform required procedures on a platform at different heights above the
water. For example, lift boats can dismantle offshore rigs, set production
facilities and provide a work platform for operations such as diving and
salvage, and have been used as an adjacent support platform for applications
ranging from crew accommodations to full workovers on existing platforms.
Because of worldwide overcapacity in the marine service support industry,
there was no significant construction of lift boats from 1983 through 1997.
The Company's backlog at March 31, 1998 included three lift boats, consisting
of contracts to construct a hull for one lift boat and to construct two lift
boats for which the Company will subcontract with third parties for the
construction of legs and other components.
Tug Boats. The Company builds tug boats for towing and pushing, anchor
handling, mooring and positioning, dredging assistance, tanker escort, port
management, shipping, piloting, fire fighting and salvage. For each offshore
barge that is built in the United States pursuant to OPA '90, a tug boat is
generally added to the purchaser's fleet. Tug boats are built with two or
three engines, standard propellers, controllable pitch propellers, azimuthing
Z-drives, cycloidal propulsion and with or without steerable or fixed nozzles.
Tug boats range from 85 feet to 155 feet in length and range in price from $2
million to $12 million. The Company has constructed several tug boats for the
U.S. government, and the Company believes that it has the capability to
construct tug boats for commercial customers without any significant
modification to its facilities.
Other Offshore Support Vessels. In addition to lift boats and tug boats, the
Company is capable of building other types of offshore support vessels that
serve exploration and production facilities and support offshore construction
and maintenance activities. These offshore support vessels include supply
vessels, utility vessels and anchor handling vessels. Supply vessels are
generally 150 feet to 250 feet in length and are differentiated from other
vessel types by cargo flexibility and capacity. In addition to transporting
deck cargo, such as drill pipe and heavy equipment, supply boats transport
liquid mud, potable and drilling water, diesel fuel, dry bulk cement and dry
bulk mud. These vessels range in price from $7 to $10 million. Utility vessels
(also called standby vessels) are smaller than supply vessels, usually 85 feet
to 140 feet, and are utilized primarily to transport light cargo including
food and supplies and to standby as a rescue vessel at production platforms,
rigs and other offshore installations. These vessels range in price from $2 to
$4 million. Anchor handling vessels, which include anchor handling tug/supply
vessels are more powerful than supply vessels and are capable of towing and
positioning drilling rigs, production facilities, and construction barges.
Some are specially equipped to assist tankers while they are loading from
single-point buoy mooring systems. These vessels range in price from $10 to
$25 million.
38
<PAGE>
The Company believes that there will be increased demand for new offshore
support vessels in the next several years due to the need for larger vessels
to service deep water oil and gas exploration and production activities and
the aging of the remaining fleet. See "--Industry Overview." Although the
Company has not previously constructed offshore supply or anchor handling
vessels and has not constructed any utility vessels since 1980, the Company
believes that its extensive experience in manufacturing vessels and its
ability to expand its production at its shipyards without significant
modifications to its existing facilities makes it well positioned to take
advantage of the demand for new construction of these offshore support
vessels. Other than lift boats, the Company's backlog at March 31, 1998 did
not include any offshore support vessels, and the Company has not entered into
any contracts to construct offshore support vessels since that date.
Push Boats/Tow Boats. Push boats, also known as tow boats, are used by
inland waterway operators to push barges. These vessels range in size from 55
feet to 200 feet in length and range in price from $750,000 to over $5 million
depending on horsepower and service. The Company has built 18 push boats
ranging in size from 55 feet to 85 feet for commercial and government
customers and expects to continue to build this type of vessel in the future.
Drydocks. Drydocks are used to lift marine vessels from the water in order
to facilitate the inspection and/or repair of the vessels' underwater areas. A
drydock is composed of a floodable pontoon with wing walls and its designated
capacity identifies the number of tons it is capable of safely lifting from
the water. The drydock is submerged by opening valves to flood compartments,
the vessel is placed over the submerged deck of the drydock, and the vessel is
lifted from the water by closing the valves and pumping the water out of the
flooded compartments.
The Company has built 16 drydocks which, after construction, were towed to
various permanent locations around the world for use in conversion and repair
activities. Although the Company has not built a drydock in the last few
years, it estimates that a new drydock would range in price from $1 to $4
million.
Fabrication of Modular Components
The Company has been involved in the fabrication of modular components for
offshore drilling rigs and FPSOs for the offshore oil and gas industry since
1996. This activity accounted for approximately 31.8% of the Company's pro
forma revenue during 1997. The Company's Orange shipyard has performed this
fabrication work as a subcontractor for other marine construction companies
that specialize in these types of rigs and vessels. These fabrication projects
include sponsons, stability columns, blisters, pencil columns, a 350-ton flare
buoy and a 66-man quarters house. The Company's transfer system, consisting of
dollies, turntables and roll-on, roll-off equipment, allows the movement of
modules of up to 1,600 tons without the need for large capacity cranes.
Modules move from the covered fabrication bays on track systems to turntables
and finally onto dockside barges. The Company believes that this system allows
it to move large modular components efficiently and safely.
Conversion and Repair Services
Since 1952, the Company's Morgan City facility has been involved in the
repair of vessels and barges. The Company has completed over 21,000 repair and
conversion jobs since that time. Conversion and repair services accounted for
approximately 31.8% of the Company's pro forma revenue during 1997. The
Company has five drydocks and dockside space capable of accommodating vessels
and barges up to 300 feet long. The Company's marine repair activities include
shotblasting, painting, electrical system and piping repairs, propeller and
shaft reconditioning and ABS certified welding. The Company's conversion
projects primarily consist of lengthening the midbodies of vessels, modifying
vessels to permit their use for a different type of activity and other
modifications to increase the capacity or functionality of a vessel.
All U.S. Coast Guard inspected vessels and ABS classed vessels are required
to undergo periodic inspections and surveys which require drydock examination
at least twice during any five year period. Non-U.S. flag vessels are subject
to similar regulations. The inspection of vessels generally results in repair
work being
39
<PAGE>
required in order to pass inspection. In addition, vessel owners often elect
to make other repairs or modifications to vessels while in drydock undergoing
required repairs. While the Company is not aware of any proposals to reduce
the frequency or scope of such inspections, any such reduction could adversely
affect the Company's results of operations.
Demand for vessel repair and conversion services has increased in recent
years as vessel owners have attempted to extend the useful lives of barges and
support vessels, a significant portion of which are approaching the end of
their useful lives. Management believes that the Company is well positioned to
benefit from these trends and expects these trends to continue for the next
several years.
CUSTOMERS
The Company services a wide variety of customers domestically and
internationally. Customers include marine service companies, offshore support
companies, rig fabricators, offshore and inland barge and support vessel
operators, offshore construction and drilling contractors, diving companies,
energy companies, the U.S. Army, U.S. Navy, U.S. Coast Guard and Corps of
Engineers, many of whom have been customers of the Company on a recurring and
long-term basis. The Company has also provided and continues to provide repair
and conversion services to many of the major offshore support vessel companies
and barge operators. The Company's principal customers may differ
substantially on a year-to-year basis due to the size and limited number of
new construction projects performed each year.
During fiscal 1997 on a pro forma basis (utilizing Orange Shipbuilding's
fiscal year ended September 30, 1997), the Company derived 18.7% of its
revenues from AMFELS, Inc. for the construction of sponsons, blisters and
columns which are used as components of offshore drilling rigs and FPSOs,
12.2% from Tidewater Inc. for repair and conversion services and 10.7% from
Oceaneering Production Systems for construction of a flare buoy and a
deckhouse. Another 54.1% of revenues was attributable to 20 other customers.
During fiscal 1996 on a pro forma basis (utilizing Orange Shipbuilding's
fiscal year ended September 30, 1996), the Company derived 12.3% of its
revenues from British Petroleum Venezuela for the construction of a 400 foot
barge and 11.2% from Fletcher General Incorporated for a 300-foot deck barge.
Another 70.2% of revenues was attributable to 24 other customers.
CONTRACT PROCEDURE, STRUCTURE AND PRICING
The Company's contracts for new construction projects generally are obtained
through a competitive bidding process. A potential buyer ordinarily provides
specifications and performance criteria for a proposed project and invites
numerous shipyards to submit bids for the construction of the projects. After
being invited to place a bid, the Company generally assigns members of its
estimating and engineering departments to project the costs of and schedule
for completion. Management then determines the applicable profit margin and
finalizes the bid. Contracts for the construction and conversion of vessels
for the U.S. government are generally subject to competitive bidding. As a
safeguard to anti-competitive bidding practices, the U.S. Army, the U.S. Navy,
the U.S. Coast Guard and the Corps of Engineers have recently employed the
concept of "cost realism," which requires that each bidder submit information
on pricing, estimated costs of completion and anticipated profit margins. The
government agencies use this and other data to determine an estimated cost for
each bidder. They then conduct a cost comparison of the bidders' estimates
against an independent estimate to arrive at a close approximation of the real
cost. The award is then made on the basis of the expected cost to build, which
often results in an award to a higher bid.
The Company submits a large number of bids to commercial customers. However,
in the case of U.S. government contracts for which the bidding process is
significantly more detailed and costly, the Company tends to be more selective
regarding the projects on which it bids.
40
<PAGE>
Most of the contracts entered into by the Company, whether commercial or
governmental, are fixed-price contracts under which the Company retains all
cost savings on completed contracts but is liable for all cost overruns. The
Company's contracts for marine vessel construction may require the Company to
pay liquidated damages if the Company fails to meet specified performance
deadlines. Provisions for liquidated damages under these contracts are
generally capped at a maximum amount.
Contracts with the U.S. government are subject to termination by the
government either for its convenience or upon default by the Company. If the
termination is for the government's convenience, the contracts provide for
payment upon termination for items delivered to and accepted by the
government, payment of the Company's costs incurred through the termination
date, and the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable profit. Under the
Truth in Negotiations Act, the U.S. government has a right for three years
after final payment on substantially all negotiated U.S. government contracts
to examine all of the Company's cost records with respect to such contracts to
determine whether the Company used and made available to the U.S. government,
or to the prime contractor in the case of a subcontract, accurate, complete
and current cost or pricing information in preparing bids and conducting
negotiations on the contracts or any amendments thereto.
Although varying contract terms may be negotiated on a case-by-case basis,
the Company's commercial and government contracts ordinarily provide for a
downpayment, with progress payments at specified stages of construction and a
final payment upon delivery. Final payment under U.S. government contracts may
be subject to deductions if the vessel fails to meet certain performance
specifications based on tests conducted by the Company prior to delivery.
Under commercial contracts, the Company generally provides a six-month
warranty with respect to workmanship. In the majority of commercial contracts,
the Company passes through the suppliers' warranties to the customer and does
not warrant materials acquired from its suppliers. The Company's government
contracts typically contain one-year warranties covering both materials and
workmanship. Expenses of the Company to fulfill warranty obligations have not
been material in the aggregate.
BONDING AND GUARANTEE REQUIREMENTS
Although the Company generally meets financial criteria that exempt it from
bonding and guarantee requirements for most contracts, certain contracts with
federal, state or local governments require contract performance bonds, and
foreign governmental contracts generally require bank letters of credit or
similar obligations. Commercial contracts also may require contract bid and
performance bonds if requested by the customer. As of March 31, 1998, the
Company had outstanding one government contract performance bond issued by a
third party with an aggregate face amount of approximately $3.7 million.
Although the Company believes that it will be able to obtain contract bid and
performance bonds, letters of credit and similar obligations on terms it
regards as acceptable, there can be no assurance it will be successful in
doing so. In addition, the cost of obtaining such bonds, letters of credit and
similar obligations may increase.
ENGINEERING
The Company generally builds vessels or fabricates modular components based
on its customers' drawings and specifications. The Company also develops in-
house custom designs for customers' special requirements using its computer
aided design (CAD) capabilities and has designed and built numerous barges,
pusher tugs and other vessels. The process of computer drafting, preparation
of construction drawings and development of cut tapes for numerically
controlled plasma cutting of steel with the latest 3-D software programs
allows the Company to prevent engineering mistakes and costly rework, thereby
ensuring the vessel's intended function while meeting budget estimates.
MATERIALS AND SUPPLIES
The principal materials used by the Company in its marine vessel
construction, conversion and repair and modular component fabrication
businesses are standard steel shapes, steel plate and paint. Other materials
used
41
<PAGE>
in large quantities include aluminum, steel pipe, electrical cable and
fittings. The Company also purchases component parts such as propulsion
systems, hydraulic systems, generators, auxiliary machinery and electronic
equipment. All these materials and parts are currently available in adequate
supply from domestic and foreign sources. All of the Company's shipyards
obtain materials and supplies by truck or barge, and the Company's Orange
shipyard is located on a railroad service line and receives much of its steel
by rail. The Company has not engaged, and currently does not intend to engage,
in hedging transactions with respect to its purchase requirements for
materials.
VESSEL CONSTRUCTION PROCESS
Once a contract has been awarded to the Company, a project manager is
assigned to supervise all aspects of the project from the date the contract is
signed through delivery of the vessel. The project manager oversees the
engineering department's completion of the vessel's drawings and supervises
the planning of the vessel's construction. The project manager also oversees
the purchasing of all supplies and equipment needed to construct the vessel,
as well as the actual construction of the vessel.
The Company constructs each vessel from raw materials, which are fabricated
by shipyard workers into the necessary shapes to construct the hull and vessel
superstructure. Component parts, such as propulsion systems, hydraulic systems
and generators, auxiliary machinery and electronic equipment, are purchased
separately by the Company and installed in the vessel. The Company uses job
scheduling and costing systems to track progress of the construction of the
vessel, allowing the customer and the Company to remain apprised of the status
of the vessel's construction.
With the assistance of computers, construction drawings and bills of
materials are prepared for each module to be fabricated. Modules are built
separately, and penetrations for piping, electrical and ventilation systems
for each module are positioned and cut during the plasma cutting operation.
Piping, raceways and ducting are also installed prior to the final assembly of
modules. After the modules are assembled to form the vessel, piping,
electrical, ventilation and other systems, as well as machinery, are installed
prior to launching, testing and final outfitting and delivery of the vessel.
SALES AND MARKETING
The Company believes that its reputation and experience facilitate the
Company's marketing efforts. The Company believes that its customer-driven
philosophy of quality, service and integrity leads to close customer
relationships that provide the Company with on-going opportunities to be
invited to bid for customer projects.
The Company's marketing and sales strategy includes utilizing key employees,
including its President and its project managers, as salespersons to target
relationships previously established and develop new relationships with
customers in the targeted markets. The Company also employs one full-time
salesperson. The Company's personnel identify future projects by contacting
customers and potential customers on a regular basis in order to anticipate
projects that will be competitively bid or negotiated exclusively with the
Company. The Company's personnel also keep its customers advised of available
capacity for drydocking, conversion and repair activity.
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
42
<PAGE>
conversion project. The Company also seeks to anticipate the current and
future needs of its customers as well as broader industry trends through these
relationships.
COMPETITION
U.S. shipbuilders are generally classified in two categories: (i) the six
largest shipbuilders, which are capable of building large scale vessels for
the U.S. Navy and commercial customers; and (ii) other shipyards that build
small to medium sized vessels for governmental and commercial markets. The
Company does not compete for large vessel construction projects. The Company
competes for U.S. government contracts to build small to medium sized vessels
principally with 10 to 15 U.S. shipbuilders, which may include one or more of
the six largest shipbuilders. The Company competes for domestic commercial
shipbuilding contracts principally with approximately 15 U.S. shipbuilders.
The number and identity of competitors on particular projects vary greatly
depending on the type of vessel and size of the project, but the Company
generally competes with only three or four companies with respect to a
particular project. The Company competes with over 70 shipyards for its
conversion and repair business.
Competition is based primarily on price, available capacity, service,
quality, and geographic proximity. The Company competes with a large number of
shipbuilders on a national, regional and local basis, some of which have
substantially greater financial resources than the Company and some of which
are public companies or divisions of public companies. The Company may also
face competition for acquisition candidates from these companies, some of
which have acquired shipbuilding and ship repair businesses during the past
decade. Other smaller shipbuilding and ship repair businesses may also seek
acquisitions from time to time.
The Company believes that it competes effectively because of its hands-on,
team management approach to design, project management and construction, its
indoor vessel construction capabilities, its specialized equipment, its
advanced construction techniques and its skilled work force. The Company seeks
to differentiate itself from its competition in terms of service and quality
(i) by investing in enclosed work spaces, modern systems and equipment, (ii)
by offering a broad range of products and services, including modular
component fabrication, (iii) through its hands-on team management, (iv) by
targeting of profitable niche products and (v) by maintaining close customer
relationships.
The shipbuilding industry is highly competitive, and competition by U.S.
shipbuilders for domestic commercial projects increased significantly during
the 1990s due to a number of factors, including (i) substantial excess
capacity because of the significant decline in spending by the U.S. Navy for
the construction of new vessels and (ii) difficulties experienced by U.S.
shipbuilders in competing successfully for commercial projects against foreign
shipyards, many of which are heavily subsidized by their governments.
EMPLOYEES
At March 31, 1998, the Company's labor force consisted of 23 salaried
employees, 258 hourly employees and 51 contract workers. The Company's
shipyard labor force of 303 workers consisted of 252 of the hourly employees
and all of the contract workers. The Company is not a party to any collective
bargaining agreements. The Company's ability to remain productive and
profitable depends substantially on its ability to attract and retain skilled
construction workers (primarily welders, fitters and equipment operators). In
addition, the Company's ability to expand its operations depends primarily on
its ability to increase its skilled labor force. The Company, along with other
Gulf Coast shipyards, has experienced shortages of skilled labor in recent
years. See "Risk Factors--Shortage of Trained Workers."
To address the shortage of skilled labor, the Company has implemented in-
house training programs and participates in training programs through local
vocational-technical and high schools. In December 1997, the Company received
an award from the State of Louisiana Economic Development Department that will
allow the Company to be reimbursed for certain costs related to the training
of new and existing employees, not to exceed a specified amount. The Texas
Employment Commission (TEC) supplies the Orange shipyard with applications
43
<PAGE>
for employment and promptly filled ten job requests in a period of one week in
early 1998. The Louisiana State Department of Labor has also formed an
Advisory Committee with shipyards and is helping to attract skilled labor to
the Louisiana Gulf Coast and working on the availability of limited duration
visas for foreign workers as a temporary method to bring more labor to the
area. Additionally, the Company is working closely with several contract labor
companies that have assisted the Company in attracting many skilled Native
American workers to the area from the western states of the United States.
While the Company believes that its relationship with its skilled labor
force is good, a significant increase in the wages paid by competing employers
or an increase in hiring activity by those employers could result in a
reduction of the Company's skilled labor force, increases in the wage rate
paid by the Company, or both. If either of these occurred, in the near term
the profits expected by the Company from work in progress could be reduced or
eliminated, and in the long term the production capacity of the Company could
be diminished and the growth potential of the Company could be impaired.
INSURANCE
The Company maintains insurance against property damage caused by fire,
flood, explosion and similar catastrophic events that may result in physical
damage or destruction to the Company's facilities and equipment. All policies
are subject to deductibles and other coverage limitations. The Company also
maintains commercial general liability insurance, including builders' risk
coverage. The Company currently maintains excess and umbrella policies. Other
coverages currently in place include workers compensation, water pollution,
automobile and hull/P&I. The Company also maintains a type of business
interruption insurance that would compensate the Company for the loss of
business income and would reimburse the Company for additional expenses
resulting from certain specified events such as floods, hurricanes and fire.
These policies are subject to deductibles, maximum coverage amounts and
various exclusions. Although the Company maintains insurance protection that
it considers economically prudent, there can be no assurance that the Company
will be able to maintain adequate insurance at rates which management
considers commercially reasonable, nor can there be any assurance such
coverage will be adequate to cover all claims that may arise.
REGULATION
Environmental Regulation
The Company is subject to extensive and changing federal, state and local
laws (including common law) and regulations designed to protect the
environment ("Environmental Laws"), including laws and regulations that relate
to air and water quality, impose limitations on the discharge of pollutants
into the environment and establish standards for the treatment, storage and
disposal, of toxic and hazardous wastes. Stringent fines and penalties may be
imposed for non-compliance with these Environmental Laws. Additionally, these
laws require the acquisition of permits or other governmental authorizations
before undertaking certain activities, limit or prohibit other activities
because of protected areas or species and impose substantial liabilities for
pollution related to Company operations or properties. The cost of compliance
with Environmental Laws has not had, and the Company does not believe that the
cost of compliance with existing Environmental Laws will have, any material
effect on the expenditures, earnings and competitive position of the Company;
however the Company cannot predict how existing laws and regulations may be
interpreted by enforcement agencies or court rulings, whether additional laws
and regulations will be adopted, or the effect such changes may have on the
Company's business, financial condition or results of operations.
The Company's operations are potentially affected by the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). CERCLA (also known as the "Superfund" law) imposes
liability (without regard to fault) on certain categories of persons for
particular costs related to releases of hazardous substances at a facility
into the environment and for liability for natural resource damages.
Categories of responsible persons under CERCLA include certain owners and
operators of industrial facilities and certain other persons who generate or
transport hazardous substances. Liability under CERCLA is strict and
44
<PAGE>
generally is joint and several. Persons potentially liable under CERCLA may
also bring a cause of action against certain other parties for contribution.
In addition to CERCLA, similar state or other Environmental Laws may impose
the same or even broader liability for the discharge, release or the mere
presence of certain substances into and in the environment.
Because industrial operations have been conducted at some of the Company's
properties by the Company and previous owners and operators for many years,
various materials from these operations might have been disposed of at such
properties. This could result in obligations under Environmental Laws, such as
requirements to remediate environmental impacts. There could be additional
environmental impact from historical operations at the Company's properties
that require remediation under Environmental Laws in the future. However, the
Company currently is not aware of any such circumstances that are likely to
result in any such impact under Environmental Laws.
In order to comply with a relatively recent requirement of the Environmental
Protection Agency, the Company has recently applied to the Louisiana
Department of Environmental Quality ("DEQ") for an air quality permit for its
Morgan City shipyard and is in the process of applying for an air quality
permit for its Amelia facility. The Company is also in the process of applying
to the DEQ for a storm water permit at its Morgan City shipyard. The Company
believes that it will obtain these permits in the ordinary course without any
significant adverse effect on its operations and without the need for any
significant capital expenditures.
Although no assurances can be given, management believes that the Company
and its operations are in compliance in all material respects with all
Environmental Laws. However, stricter interpretation and enforcement of
Environmental Laws and compliance with potentially more stringent future
Environmental Laws could materially and adversely affect the Company's
operations.
Health and Safety Matters
The Company's facilities and operations are governed by laws and
regulations, including the federal Occupational Safety and Health Act,
relating to worker health and workplace safety. The Company believes that
appropriate precautions are taken to protect employees and others from
workplace injuries and harmful exposure to materials handled and managed at
its facilities. While it is not anticipated that the Company will be required
in the near future to expend material amounts by reason of such health and
safety laws and regulations, the Company is unable to predict the ultimate
cost of compliance with these changing regulations.
Jones Act
The Jones Act requires that all vessels transporting products between U.S.
ports must be constructed in U.S. shipyards, owned and crewed by U.S. citizens
and registered under U.S. law, thereby eliminating competition from foreign
shipbuilders with respect to vessels to be constructed for the U.S. coastwise
trade. Many customers elect to have vessels constructed at U.S. shipyards,
even if such vessels are intended for international use, in order to maintain
flexibility to use such vessel in the U.S. coastwise trade in the future.
Bills seeking to substantially modify the provisions of the Jones Act
mandating the use of ships constructed in the United States for U.S. coastwise
trade have been introduced in Congress. Similar bills seeking to rescind or
substantially modify the Jones Act and eliminate or adversely affect the
competitive advantages it affords to U.S. shipbuilders have been introduced in
Congress from time to time and are expected to be introduced in the future.
Although management believes it is unlikely that the Jones Act requirements
will be rescinded or materially modified in the foreseeable future, there can
be no assurance that such rescission or modification will not occur. Many
foreign shipyards are heavily subsidized by their governments and, as a
result, there can be no assurance that Company would be able to effectively
compete with such shipyards if they were permitted to construct vessels for
use in the U.S. coastwise trade.
45
<PAGE>
OPA '90
Demand for double hull carriers has been created by OPA '90, which generally
requires U.S. and foreign vessels carrying fuel and certain other hazardous
cargos and entering U.S. ports to have double hulls by 2015. OPA '90
establishes a phase-out schedule that began January 1, 1995 for all existing
single hull vessels based on the vessel's age and gross tonnage. OPA '90's
single hull phase-out requirements do not apply to offshore supply vessels
less than 6,000 gross tons.
Title XI Amendments and the OECD Accord
In late 1993, Congress amended Title XI of the Merchant Marine Act of 1936
to permit the Secretary of Transportation to provide a U.S. government
guarantee for certain types of financing for the construction, reconstruction,
or reconditioning of U.S.-built vessels. As a result of these amendments, the
Secretary of Transportation was authorized to guarantee loan obligations of
foreign owners for foreign-flagged vessels that are built in U.S. shipyards on
terms generally more advantageous than available under guarantee or subsidy
programs of foreign countries. Additionally, Title XI includes tax and subsidy
programs that provide benefits limited to vessels constructed in the United
States. If the U.S. Congress adopts the Agreement Respecting Normal
Competitive Conditions in the Commercial Shipbuilding and Repair Industry (the
"OECD Accord"), which was signed in December 1994, among the United States,
the European Union (on behalf of the twelve European member countries), Japan,
Korea and Norway (which collectively control over a significant portion of the
market for worldwide vessel construction), the Title XI guarantee program will
be required to be amended to eliminate the competitive advantages provided by
the 1993 amendments to Title XI. During the 104th Congress, legislation
providing for the implementation of the OECD Accord and the elimination of
competitive advantages provided by the 1993 amendments to Title XI passed the
U.S. House of Representatives but was not acted upon by the U.S. Senate. In
the 105th Congress, the legislation has been introduced and is now pending.
The OECD Accord, when implemented, would provide the same treatment to
signatory countries under the tax and subsidy programs as is currently
accorded to U.S.-built vessels. Despite the fact that the OECD Accord will
require the elimination of certain competitive advantages provided to U.S.
shipbuilders by the 1993 amendments to Title XI, management believes that the
OECD Accord should significantly improve the ability of U.S. shipbuilders to
compete successfully for international commercial contracts with foreign
shipbuilders, many of which currently are heavily subsidized by their
governments.
LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings primarily
involving commercial claims and workers' compensation claims. While the
outcome of these claims and legal proceedings cannot be predicted with
certainty, management believes that the outcome of all such proceedings, even
if determined adversely, would not have a material adverse effect on the
Company's business or financial condition.
46
<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 effective upon
the consummation of the Offering. In accordance with the Charter, the members
of the Board of Directors are divided into three classes and are elected for a
three-year term of office or until a successor is duly elected and qualified,
except that the initial terms of office of the Class I, Class I and Class III
directors expire at the annual meetings of stockholders to be held in 1999,
2000 and 2001, respectively. The Charter also provides that such classes shall
be as nearly equal in number as possible.
The following table sets forth certain information regarding each of the
executive officers, key employees, directors and nominees for director of the
Company.
<TABLE>
<CAPTION>
DIRECTOR'S
NAME AGE POSITION WITH THE COMPANY TERM EXPIRING
---- --- ------------------------- -------------
<S> <C> <C> <C>
J. Parker Conrad........ 82 Co-Chairman of the Board 2001
John P. Conrad, Jr...... 55 Co-Chairman of the Board 2001
William H. Hidalgo...... 58 President, Chief Executive Officer and 2000
Director
Cecil A. Hernandez...... 41 Vice President--Finance and Administration, 1999
Chief Financial Officer and Director
Ralph C. Thon........... 55 General Manager--Orange Shipbuilding
Michael J. Harris....... 49 Nominee for Director(1) 2000
Louis J. Michot, Jr..... 75 Nominee for Director(1) 1999
Richard E. Roberson, 60 Nominee for Director(1) 2001
Jr.....................
</TABLE>
- --------
(1)To be named as director upon completion of the Offering.
Set forth below are descriptions of the backgrounds of the executive
officers, key employees and directors of the Company and their principal
occupations for the past five years.
J. Parker Conrad founded Conrad and has served as Chairman of the Board of
Conrad from its inception in 1948 and as President of Conrad from 1948 until
1994. Mr. Conrad has served as Co-Chairman of the Board of the Company since
March 1998. Mr. Conrad is the father of John P. Conrad, Jr.
John P. Conrad, Jr. has been with Conrad since 1962, serving as Vice
President of Conrad since 1982. Mr. Conrad has served as Co-Chairman of the
Board of the Company since March 1998. Mr. Conrad founded Johnny's Propeller
Shop in 1963, a marine-related service company, and has been Chairman of the
Board of this company since its inception. Mr. Conrad is also the Chairman and
President of Bay Star, a Houston-based paging company which Mr. Conrad founded
in 1986. Additionally, Mr. Conrad is a founder of Venture Transport, Inc., a
specialized carrier in oilfield and energy equipment, and has served on its
Board of Directors since its inception in 1987.
William H. Hidalgo has served as President and Chief Executive Officer of
Conrad since May 1994. Mr. Hidalgo has served as President, Chief Executive
Officer and Director of the Company since March 1998. Prior to joining Conrad,
Mr. Hidalgo was employed by Oil & Gas Marine Service, Inc., a marine-related
service company, from 1977 to 1994, and from 1988 to 1994 was responsible for
all marine operations as Vice President and General Manager. Mr. Hidalgo has
35 years experience in the marine business and has been actively involved in
the design, construction, repair, conversion, modification, and operation of
marine vessels throughout his career. Mr. Hidalgo is a licensed professional
Civil Engineer with extensive experience in the design and construction of
energy related marine structures.
Cecil A. Hernandez joined Conrad in January 1998 as Vice President--Finance
and Administration and Chief Financial Officer. Mr. Hernandez has served as
Vice President--Finance and Administration, Chief
47
<PAGE>
Financial Officer and Director of the Company since March 1998. Mr. Hernandez
founded Hernandez & Blackwell CPAs in 1983 and served as its Managing Partner
until December 1997. Hernandez & Blackwell CPAs merged with Darnall, Sikes &
Frederick CPAs in 1996. Additionally, Mr. Hernandez provided accounting and
consulting services for Conrad as the outside Certified Public Accountant from
1993 until 1997. From 1982 to 1983, Mr. Hernandez served as Assistant
Controller for Oceaneering International, a publicly traded diving company.
Mr. Hernandez was employed at Deloitte Haskins & Sells, an international
accounting firm, from 1979 to 1982.
Ralph C. Thon has been employed by Orange Shipbuilding as Chief Engineer
from 1980 until 1997 and as General Manager since 1997. Mr. Thon has 36 years
of experience in shipbuilding management.
Michael J. Harris has been nominated as a Director of the Company effective
as of the consummation of the Offering. Mr. Harris is a Managing Director of
Morgan Keegan & Company, Inc., where he has been employed since 1986. Morgan
Keegan & Company, Inc. is a subsidiary of Morgan Keegan, Inc., a publicly
traded firm providing securities brokerage, investment banking and other
financial services. Mr. Harris has headed the Energy Investment Banking Group
of Morgan Keegan since 1994 and prior to 1994 was the senior energy securities
analyst.
Louis J. Michot, Jr. has been nominated as a Director of the Company
effective as of the consummation of the Offering. Since 1991, Mr. Michot has
been Chairman of the Board of Louis J. Michot & Associates, Inc., a family-
owned holding company which at present deals principally in real estate sales,
development and rentals. From 1952 to 1991, Mr. Michot served as its President
and CEO, during which time he developed a chain of 45 fast food restaurants in
Louisiana, Mississippi and Texas and became actively engaged in other business
ventures. Mr. Michot was one of the organizers of the Bank of Lafayette and
served on its Board of Directors from 1975 to 1980. He served in the Louisiana
Legislature from 1960 to 1964, on the State Board of Education from 1968 to
1972 and as the State Superintendent of Education from 1972 to 1976. Mr.
Michot's wife is a first cousin of J. Parker Conrad.
Richard E. Roberson, Jr. has been nominated as a Director of the Company
effective as of the consummation of the Offering. Mr. Roberson served as Vice
President, Chief Financial Officer, Treasurer and a director of Global
Industries, Ltd. from December 1992 to May 1996, when he retired. From March
1986 until September 1991, Mr. Roberson served as Vice President--Finance for
Ocean Drilling & Exploration Company. Mr. Roberson has over 30 years of
experience in the oil and gas and oil service industry, including over 20
years as an accounting and financial officer. Mr. Roberson also currently
serves as a director of UNIFAB International, Inc.
The Charter provides that the number of directors constituting the Company's
Board of Directors shall be fixed by the Board of Directors, but shall not be
less than three nor more than 15. Vacancies in unexpired terms and any
additional positions created are filled by the Board of Directors. See
"Description of Capital Stock --Certain Provisions of the Company's Charter
and Bylaws and Delaware Law." All officers serve at the discretion of the
Board of Directors, subject to terms of their employment agreement terms. See
"--Employment Agreements."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee recommends the appointment of auditors and
oversees the accounting and audit functions of the Company. The Compensation
Committee determines executive officers' and key employees' salaries and
bonuses and administers the Company's 1998 Stock Plan. Messrs. Harris and
Roberson will serve as members of the Company's Compensation Committee and
Audit Committee.
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Following the completion of the
Offering, each director who is not an employee of the Company will
48
<PAGE>
receive a fee of $12,000 annually, $1,000 for attendance at each Board of
Directors meeting and $500 for each committee meeting attended (unless held on
the same day as a Board of Directors meeting). Directors of the Company are
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or committees thereof, and for other expenses incurred in
their capacity as directors of the Company. Under the Company's 1998 Stock
Plan, each non-employee director will receive stock options to purchase 1,000
shares of Common Stock upon election to the Board of Directors and an annual
grant of 1,000 options. See "--Stock Plan."
EXECUTIVE COMPENSATION
The following table sets forth the compensation of the Company's Chief
Executive Officer and each of the Company's most highly compensated executive
officers for 1997. No other executive officer of the Company earned total
annual salary and bonus in excess of $100,000 during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION (1) YEAR SALARY BONUS COMPENSATION (2) COMPENSATION
------------------ ---- -------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
J. Parker Conrad......... 1997 $210,000 $ 0 $ 0 $ 0
Co-Chairman of the Board
John P. Conrad, Jr....... 1997 150,000 50,000 0 0
Co-Chairman of the Board
William H. Hidalgo....... 1997 185,990 200,000 0 2,375(3)
President and Chief
Executive Officer
</TABLE>
- --------
(1) Cecil A. Hernandez was not an employee of the Company in 1997 but will
have a salary in excess of $100,000 for 1998. See "--Employment
Agreements."
(2) None of the executive officers has received perquisites, the value of
which exceeded the lesser of $50,000 or 10% of the salary of such
executive officer.
(3) Consists of payments made by the Company under the Company's 401(k) plan
of $2,375 for the benefit of Mr. Hidalgo.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to April 1998, the Board of Directors had no Compensation Committee,
and J. Parker Conrad, John P. Conrad, Jr., William H. Hidalgo and Cecil A.
Hernandez participated in deliberations of the Company's Board of Directors
concerning executive officer compensation.
EMPLOYMENT AGREEMENTS
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
49
<PAGE>
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 aggregate present value of the parachute payments to certain
individuals, including officers, equals or exceeds three times that
individual's "base amount" (generally, the individual's average annual
compensation from the Company for the five calendar years ending before the
date of the change in control), then all parachute amounts in excess of the
base amount are "excess" parachute payments. An individual will be subject to
a 20% excise tax on excess parachute amounts and the Company will not be
entitled to a tax deduction for such payments.
STOCK ISSUANCE TO EXECUTIVE OFFICERS
In the first quarter of 1998, Conrad issued shares of common stock to
William H. Hidalgo, President and Chief Executive Officer, and Cecil A.
Hernandez, Vice President--Finance and Administration and Chief Financial
Officer, in consideration of past services rendered. Fifty percent of the
shares of common stock issued to each such executive are subject to forfeiture
in the event of the voluntary termination of employment by such executive for
other than "good reason" prior to the expiration of the initial three-year
term of employment specified in the employment agreement of such executive,
provided that such restriction will lapse in the event of (i) the termination
by the Company of such executive's employment for reasons other than "cause"
(as defined) or (ii) the death, disability or retirement (at or after the age
of 65) of such executive and will also lapse with respect to 33 1/3% of such
restricted shares on each of the first three anniversaries of the completion
of the Offering. The shares of common stock of Conrad issued to Mr. Hidalgo
and Mr. Hernandez will be exchanged, respectively, for 385,695 and 153,819
shares of Common Stock of the Company pursuant to the Reorganization. In
connection with the issuance of shares of Conrad common stock, Mr. Hidalgo and
Mr. Hernandez executed promissory notes in the amounts of $239,870 and
$97,400, respectively, representing their tax liabilities paid by the Company.
These tax notes will be repaid in full by Mr. Hidalgo and Mr. Hernandez upon
the completion of this Offering.
INDEMNIFICATION AGREEMENTS
The Company intends to enter into indemnification agreements with certain of
its directors and officers pursuant to which it will indemnify such persons
against expenses (including attorneys' fees), judgments, fines
50
<PAGE>
and amounts paid in settlement incurred as a result of the fact that such
person, in his or her capacity as a director or officer, is made or threatened
to be made a party to any suit or proceeding. Such persons will be indemnified
to the fullest extent now or hereafter permitted by the General Corporation
Law of the State of Delaware. The indemnification agreements will also provide
for the advancement of certain expenses to such directors and officers in
connection with any such suit or proceeding.
STOCK PLAN
The Conrad Industries, Inc. 1998 Stock Plan (the "Stock Plan") was adopted
by the Board of Directors of the Company and approved by the Company's
stockholders in March 1998. The Stock Plan permits the granting of any or all
of the following types of awards ("Awards"): stock appreciation rights, stock
options, restricted stock, dividend equivalents, performance units, automatic
director options, phantom shares, limited stock appreciation rights ("LSARs"),
bonus stock and cash tax rights. All officers and employees of, and any
consultants to, the Company or any affiliate of the Company will be eligible
for participation in all Awards under the Stock Plan other than director
options with tandem LSARs. The non-employee directors of the Company will only
receive automatic grants of Director options with tandem LSARs.
An aggregate of 700,000 shares of Common Stock have been authorized and
reserved for issuance pursuant to the Stock Plan. As of the date of this
Prospectus, options to purchase an aggregate of 130,000 shares of Common Stock
have been granted under the Stock Plan, all of which have an exercise price
equal to the initial public offering price for shares of Common Stock sold in
the Offering. The Stock Plan is administered by the Compensation Committee of
the Company's Board of Directors. The Compensation Committee will select the
participants who will receive Awards, determine the type and terms of Awards
to be granted and interpret and administer the Stock Plan. No Awards may be
granted under the Stock Plan after March 31, 2008.
401(K) PLAN
The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan") for
its employees. Under the 401(k) Plan, eligible employees are permitted to
defer receipt of up to 15% of their compensation (subject to certain
limitations imposed under the Internal Revenue Code). The 401(k) Plan provides
that a discretionary match of employee deferrals may be made by the Company in
cash. Pursuant to the 401(k) Plan, the Company currently has elected to match
$.25 for each $1.00 of employee deferral, not to exceed 5% of an employee's
salary, subject to certain limitations imposed by the Internal Revenue
Service. The amounts held under the 401(k) Plan are invested among various
investment funds maintained under the 401(k) Plan in accordance with the
directions of each participant. Salary deferral contributions under the 401(k)
Plan are 100% vested. Matching contributions vest 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.
51
<PAGE>
CERTAIN TRANSACTIONS
During 1995, 1996 and 1997, the Company purchased in its ordinary course of
business certain components from Johnny's Propeller Shop, Inc., a company
wholly owned by John P. Conrad, Jr., Co-Chairman of the Board of Directors, in
the aggregate amount of approximately $140,000, $121,000 and $164,000. The
Company believes that such transactions were made on a competitive basis at
market prices.
Prior to the Offering, the Company distributed certain non-operating assets
to certain stockholders with an aggregate fair market value of approximately
$406,000. These assets included certain vehicles and boats.
In 1991, Conrad and J. Parker Conrad, Co-Chairman of the Board of Directors,
entered into a Key Executive Insurance Agreement pursuant to which each year
Conrad has paid $20,000 of the annual premium due under an insurance policy on
Mr. Conrad's life and Conrad was the beneficiary of $650,000 of the death
benefit under the policy. Conrad and Mr. Conrad have agreed to terminate this
agreement, thereby allowing Mr. Conrad to select the beneficiary of the death
benefit, prior to the completion of the Offering.
J. Parker Conrad has guaranteed the indebtedness under the Term Loan up to
$2 million for which he has not received any compensation. Mr. Conrad has also
guaranteed indebtedness of the Company from time to time for which he has not
received any compensation.
Certain members of the immediate families of the Company's executive
officers, directors and principal stockholders are employees of the Company or
its subsidiaries. William A. Hidalgo, Jr., the son of William A. Hidalgo, the
President and Chief Executive Officer, is an employee of Conrad and was paid
aggregate compensation of $62,000 and $66,550 during 1996 and 1997,
respectively. James Court, the husband of Katherine Court, is an employee of
Conrad and was paid aggregate compensation of $61,200, $85,800 and $89,350
during 1995, 1996 and 1997, respectively. Katherine Court is a principal
stockholder of the Company, the daughter of J. Parker Conrad and the sister of
John P. Conrad, Jr. Daniel Conrad, the son of John P. Conrad, Jr., is an
employee of Conrad and was paid aggregate compensation of $70,750 during 1997.
Messrs. Hidalgo and Hernandez executed promissory notes payable to the
Company bearing interest at 9.0% in the amounts of $239,870 and $97,400,
respectively, representing their tax liabilities paid by the Company in
connection with the issuance of shares of common stock of Conrad to them.
These notes will be repaid in full by Messrs. Hidalgo and Hernandez upon the
completion of the Offering.
Michael J. Harris, a nominee for director of the Company, is a Managing
Director of Morgan Keegan & Company, Inc. Morgan Keegan is the lead managing
underwriter of the Offering and has provided and may in the future provide
financial advisory services to the Company. See "Underwriting."
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates of
the Company are anticipated to be minimal, and must be approved in advance by
a majority of disinterested members of the Board of Directors.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock before and after giving
effect to the Offering, by (i) all persons known to the Company to be the
beneficial owner of 5% or more thereof, (ii) each director and nominee for
director, (iii) each executive officer and (iv) all executive officers and
directors as a group. Unless otherwise indicated, the address of each such
person is c/o Conrad, 150 Front Street, Post Office Box 790, Morgan City,
Louisiana 70381. All persons listed have sole voting and investment power with
respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
-----------------
BEFORE AFTER
SHARES OFFERING OFFERING
--------- -------- --------
<S> <C> <C> <C>
J. Parker Conrad................................... 1,166,270 22.4% 15.2%
John P. Conrad, Jr.(1)............................. 1,749,403 33.6 22.7
Katherine C. Court(2).............................. 1,744,813 33.6 22.7
William H. Hidalgo(3).............................. 385,695 7.4 5.0
Cecil A. Hernandez(3).............................. 153,819 3.0 2.0
All executive officers and directors as a group(4)
(4 persons)....................................... 3,455,187 66.4 44.9
</TABLE>
- --------
* Less than one percent.
(1) Includes 374,216 shares held by The John P. Conrad, Jr. Trust, 268,609
shares held by The Daniel T. Conrad Trust, 268,609 shares held by The
Glenn Alan Conrad Trust and 268,609 shares held by The Kenneth C. Conrad
Trust. Mr. Conrad, Jr. exercises voting and investment control over these
shares as Trustee for each of these Trusts.
(2) Includes 459,161 shares held by The Katherine C. Court Trust and 275,497
shares held by The James P. Court Trust. Ms. Court exercises voting and
investment control over these shares as Trustee for each of these trusts.
(3) Includes 385,695 shares of Common Stock issued to Mr. Hidalgo and 153,819
shares of Common Stock issued to Mr. Hernandez prior to the Offering.
192,847 and 76,909 shares of Common Stock owned by Messrs. Hidalgo and
Hernandez, respectively, will be restricted shares subject to forfeiture
by such officers under certain circumstances. See "Management--Employment
Agreements."
(4) Excludes shares beneficially owned by Katherine Court, who is the daughter
of J. Parker Conrad and the sister of John P. Conrad, Jr.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"). After the completion
of the Reorganization and prior to the completion of the Offering, there will
be 5,200,000 shares of Common Stock outstanding held of record by eleven
stockholders, and no shares of Preferred Stock outstanding. After the
consummation of the Offering, 7,700,000 shares of Common Stock will be issued
and outstanding, assuming no exercise of the Underwriters' over-allotment
option, and 700,000 shares of Common Stock will be reserved for issuance
pursuant to the Company's Stock Plan. The following summary of the terms and
provisions of the Company's capital stock does not purport to be complete and
is qualified in its entirety by reference to the Company's Charter and Bylaws,
which have been filed as exhibits to the Company's registration statement, of
which this Prospectus is a part, and applicable law.
COMMON STOCK
Voting Rights. Each share of Common Stock entitles the holder to one vote on
each matter submitted to a vote of the Company's stockholders, including the
election of directors. There is no cumulative voting. After the Offering, the
executive officers and directors of the Company and persons and entities
affiliated with them will hold approximately 67.5% of the issued and
outstanding Common Stock (64.4% if the Underwriters' over-allotment option is
exercised in full) and will hold the voting power to determine the outcome of
all matters upon which a majority vote of the stockholders of the Company is
required for approval. The Charter prohibits the taking of any action by
written stockholder consent in lieu of a meeting.
Dividends. The holders of Common Stock are entitled to receive dividends if,
as and when such dividends are declared by the Board of Directors of the
Company out of assets legally available therefor after payment of dividends
required to be paid on shares of Preferred Stock, if any.
Liquidation or Dissolution. Upon liquidation or dissolution, holders of
Common Stock are entitled to share ratably in all net assets available for
distribution to stockholders after payment of any liquidation preferences to
holders of Preferred Stock, if any.
Other Provisions. The Common Stock carries no conversion or preemptive
rights. All outstanding shares of Common Stock are, and the shares of Common
Stock to be sold by the Company in the Offering when issued will be, duly
authorized, validly issued, fully paid and nonassessable.
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Common Stock is American Stock Transfer & Trust Company.
Listing. Application has been made to list the Common Stock on the Nasdaq
National Market under the trading symbol "CNRD."
PREFERRED STOCK
Preferred Stock may be issued from time to time by the Board of Directors as
shares of one or more series. Subject to the provisions of the Company's
Charter and certain limitations prescribed by law, the Board of Directors is
expressly authorized to adopt resolutions to issue the shares, to fix the
number of shares constituting any series, and to provide for the voting
powers, designations, preferences and relative, participating, optional or
other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),
redemption prices, conversion rights and liquidation preferences of the shares
constituting any series of the Preferred Stock, in each case without any
further action or vote by the stockholders. The Company has no current plans
to issue any shares of Preferred Stock of any series.
54
<PAGE>
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. If, in the exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal was not in the Company's
best interest, such shares could be issued by the Board of Directors without
stockholder approval in one or more transactions that might prevent or make
more difficult or costly the completion of the takeover transaction by
diluting the voting or other rights of the proposed acquiror or insurgent
stockholder group, by creating a substantial voting block in institutional or
other hands that might undertake to support the position of the incumbent
Board of Directors, by effecting an acquisition that might complicate or
preclude the takeover, or otherwise. In this regard, the Company's Charter
grants the Board of Directors broad power to establish the rights and
preferences of the authorized and unissued Preferred Stock, one or more series
of which could be issued that would entitle holders (i) to vote separately as
a class on any proposed merger or consolidation, (ii) to cast a
proportionately larger vote together with the Common Stock on any such
transaction or for all purposes, (iii) to elect directors having terms of
office or voting rights greater than those of other directors, (iv) to convert
Preferred Stock into a greater number of shares of Common Stock or other
securities, (v) to demand redemption at a specified price under prescribed
circumstances related to a change of control or (vi) to exercise other rights
designated to impede a takeover. Accordingly, the issuance of shares of
Preferred Stock may discourage bids for the Common Stock at a premium or may
otherwise adversely affect the market price of the Common Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS AND DELAWARE LAW
Certain provisions of the Charter and Bylaws are intended to enhance the
likelihood of continuity and stability in the Board of Directors of the
Company and in its policies, but might have the effect of delaying or
preventing a change in control of the Company and may make more difficult the
removal of incumbent management even if such transactions could be beneficial
to the interests of stockholders. Set forth below is a summary description of
such provisions:
Number of Directors; Filling Vacancies; Removal. The Charter provides that
the number of directors constituting the Company's Board of Directors shall be
fixed by the Board of Directors, but shall not be less than three nor more
than 15. The Charter further provides that the directors shall be divided into
three classes, each class serving staggered three-year terms. The Board of
Directors of the Company, through a majority vote of the directors then in
office, may fill any vacancy, whether arising by death, resignation or removal
of a director, or through an increase in the number of directors of any class.
Advance Notice of Intention to Nominate a Director. The Charter and Bylaws
permit a stockholder to nominate a person for election as a director only if
written notice of such stockholder's intent to make a nomination has been
given to the Secretary of the Company not less than 60 days or more than 90
days prior to the anniversary of the annual meeting held for the immediately
preceding year (subject to certain adjustments if the annual meeting date is
changed by more than 30 days from the date of the prior annual meeting) or, in
the case of a special meeting at which directors are to be elected, not less
than 40 days notice or prior public disclosure of the date of the meeting is
given, in which case notice by the stockholder must be received no later than
the 10th day following the day notice of the meeting was mailed or prior
public disclosure of the date of the meeting was given. This provision also
requires that the stockholder's notice set forth, among other things, a
description of all arrangements or understandings between the nominee and the
stockholder pursuant to which the nomination is to be made or the nominee is
to be elected and such other information regarding the nominee as would be
required to be included in a proxy statement filed pursuant to the proxy rules
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), had the nominee been nominated by the Board of Directors of
the Company. Any nomination that fails to comply with these requirements may
be disqualified.
55
<PAGE>
Stockholder Proposals. The Bylaws provide that only the Board of Directors
may bring business before a special meeting of the Company's stockholders. The
Bylaws further provide that at any annual meeting of stockholders, any
business to be conducted must be brought either by the Board of Directors or
by a stockholder who has complied with the procedures set forth in the Bylaws.
These procedures include notice in writing to the Company not less than 60
days nor more than 90 days prior to the anniversary of the annual meeting held
for the immediately preceding year.
Stockholders' Right to Call Special Meeting. The Charter and Bylaws provide
that a special stockholders' meeting may not be called by stockholders.
Removal of Directors; Filling Vacancies on Board of Directors. The Bylaws
provide that any director or the entire Board of Directors may be removed at
any time for cause by a vote of the holders of not less than a majority of the
shares of the Company entitled to vote in the election of directors. The
Bylaws also provide that any vacancies on the Board of Directors (including
any resulting from an increase in the authorized number of directors) may be
filled by the affirmative vote of a majority of the remaining directors.
Adoption and Amendment of Bylaws. The Bylaws provide that they may be
amended or repealed by either a majority vote of the Board of Directors or the
holders of at least 80% of the total voting power of all shares of stock of
the Company entitled to vote in the election of directors voting as one class.
Any provisions amended or repealed by the stockholders may be re-amended or
re-adopted by the Board of Directors.
Amendment of Certain Provisions of the Charter; Other Corporate Action.
Under Delaware law, unless a corporation's certificate of incorporation
specify otherwise, a corporation's certificate of incorporation may be amended
by the affirmative vote of the holders of a majority of the voting power of
each class of stock entitled to vote thereon. The Charter requires the
affirmative vote of not less than 80% of the total voting power of the Company
to amend, alter or repeal certain provisions of the Company's Charter with
respect to (i) the classification, filling of vacancies and removal of the
Board of Directors, (ii) amendments to the Bylaws, (iii) limitation of
liability of directors, (iv) the authority of the Board of Directors to create
and issue rights entitling holders thereof to purchase shares of capital stock
of the Company or other securities and (v) any amendments to the provisions
relating to this requirement in the Charter.
Anti-takeover Provisions. Delaware law permits a corporation's board of
directors to adopt certain anti-takeover measures in response to proposals to
acquire the corporation, its assets or its outstanding capital stock. Measures
to be adopted could include a stockholder rights plan or bylaw provisions
requiring supermajority stockholder approval of acquisition proposals.
Limitation on Personal Liability of Directors. Delaware law authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for breach of
director's fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors must exercise an informed business
judgment based on all material information reasonably available to them.
Absent the limitations authorized by Delaware law, directors are accountable
to corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such
as injunction or rescission. The Charter limits the liability of directors of
the Company to the Company or its stockholders (in their capacity as directors
but not in their capacity as officers) to the fullest extent permitted by
Delaware law. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit.
The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit
56
<PAGE>
against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders.
Indemnification Arrangements. The Charter and Bylaws provide that, to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, the directors and officers of the Company shall be indemnified and
shall be advanced expenses in connection with actual or threatened proceedings
and claims arising out of their status as such. The Company has entered into
indemnification agreements with each of its directors and executive officers
that provide for indemnification and expense advancement to the fullest extent
permitted under the General Corporation Law of the State of Delaware.
No Action by Written Consent. The Charter prohibits the taking of any action
by written stockholder consent in lieu of a meeting. Such provisions may not
be amended or repealed without the affirmative vote of the holders of at least
80% of the capital stock of the Company entitled to vote on such matters.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware ("Section 203"). Section 203
provides, with certain exceptions, that a Delaware corporation may not engage
in any of a broad range of business combinations with a person or an
affiliate, or associate of such person, who is an "interested stockholder" for
a period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the Board
of Directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
such person an interested stockholder (excluding shares owned by persons who
are both officers and directors of the corporation, and shares held by certain
employee stock ownership plans), or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15%
or more of the outstanding voting stock of the corporation or (ii) an
affiliate or associate of the corporation and who was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by including in its certificate of incorporation or bylaws by
action of its stockholders to exempt itself from coverage. The Company has not
adopted such a provision in its Charter or Bylaws.
REGISTRATION RIGHTS
Pursuant to the terms of a Registration Rights Agreement among the Company
and each of the stockholders of the Company immediately prior to the Offering
(the "Registration Agreement"), the Company will provide such stockholders
with certain registration rights, including a maximum of three demand
registration rights that may be exercised by the stockholder group or certain
members of the group and certain piggyback registration rights, with respect
to Common Stock owned by such stockholders. The Company's obligation is
subject to certain limitations relating to a minimum amount of Common Stock
required for registration, the timing of registration and other similar
matters. For example, the Company will not be obligated to register the Common
Stock when, in the good faith judgment of its Board of Directors, such
registration would materially adversely affect a pending or proposed public
offering of the Company's securities, provided that such delay may not extend
for more than 180 days. The Company will indemnify such stockholders for
certain liabilities in connection with any such offering, other than
liabilities resulting or arising from untrue statements or omissions made in
conformity with information furnished to the Company in writing by any such
stockholder. The
57
<PAGE>
Company is obligated to pay all expenses incidental to any such registration,
excluding underwriters' discounts and commissions and certain legal fees and
expenses of such stockholders.
Pursuant to the Warrant Agreement and related Registration Rights Agreement
with Morgan Keegan & Company, Inc., the Company has also granted to Morgan
Keegan & Company, Inc. one demand registration right exercisable not earlier
than one year after the closing date of the Offering and certain piggyback
registration rights with respect to the shares of Common Stock underlying the
warrants. The obligations and limitations of the Company with respect to these
registration rights are otherwise similar to those provided to the
stockholders under the Registration Agreement described above.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 7,700,000 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option and excluding 375,000 shares issuable upon the exercise of
outstanding options). The 2,500,000 shares sold in the Offering plus any
additional shares sold upon the Underwriters' exercise of their over-allotment
option, except for shares acquired by affiliates of the Company, will be
freely tradeable without restriction under the Securities Act by persons who
are not deemed to be affiliates of the Company or acting as underwriters, as
those terms are defined in the Securities Act. The remaining 5,200,000 shares
of Common Stock held by existing stockholders were acquired in transactions
not requiring registration under the Securities Act, and, accordingly, will be
"restricted" stock within the meaning of Rule 144. Consequently, such shares
may not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration, including the exemption contained
in Rule 144 under the Securities Act.
In general, under Rule 144, as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned his or her shares for
at least one year, or a person who may be deemed an "affiliate" of the Company
who has beneficially owned shares for at least one year, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock or the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the proposed sale is sent to the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person who is not deemed to
have been an affiliate of the Company at any time for 90 days preceding a sale
and who has beneficially owned his shares for at least two years would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements or the
availability of current public information about the Company.
The Company has authorized the issuance of 700,000 shares of its Common
Stock in accordance with the terms of the Stock Plan. As of the date of this
Prospectus, options to purchase an aggregate of 130,000 shares of Common Stock
have been granted under the Stock Plan. See "Management--Stock Plan." The
Company intends to file a registration statement on Form S-8 under the
Securities Act registering the issuance of shares upon exercise of options
granted under the Stock Plan. As a result, such shares will be eligible for
resale in the public market.
The Company and each of its directors, executive officers and other
stockholders have agreed that they will not, with certain limited exceptions,
issue, offer for sale, sell, transfer, grant options to purchase or otherwise
dispose of any shares of Common Stock (other than stock issued or options
granted pursuant to the Company's Stock Plan) without the prior written
consent of the Underwriters for a period of 180 days from the date of this
Prospectus.
Prior to this Offering, there has been no established trading market for the
Common Stock, and there can be no assurance that a significant public market
for the Common Stock will develop or be sustained after the Offering. Any
future sale of substantial amounts of Common Stock in the open market may
adversely effect the market price of the Common Stock offered hereby.
All of the Company's existing stockholders, whose holdings immediately
following the closing of this Offering will aggregate 5,200,000 shares of
Common Stock, are entitled to certain rights with respect to the registration
of their shares of Common Stock under the Securities Act. In addition, the
Company has granted holders of the warrants to be issued to Morgan Keegan &
Company, Inc. upon completion of the Offering and the holders of the
underlying Common Stock certain registration rights with respect to the Common
Stock underlying the warrants. See "Description of Capital Stock--Registration
Rights."
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company and the Underwriters named below (the "Underwriting Agreement"), the
Underwriters named below, who are represented by Morgan Keegan & Company, Inc.
and Raymond James & Associates, Inc. (the "Representatives"), have severally
agreed to purchase from the Company, and the Company has agreed to sell to
each Underwriter, the respective numbers of shares of Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
------------ ------------
<S> <C>
Morgan Keegan & Company, Inc.................................
Raymond James & Associates, Inc..............................
---------
Total...................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligation of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby is subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all such shares, excluding shares
covered by the over-allotment option, if any are purchased. The Underwriters
have informed the Company that they do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The Company has been advised by the Underwriters that they propose initially
to offer the shares of Common Stock in part directly to the public at the
initial public offering price set forth on the cover page of this Prospectus
and in part to certain securities dealers at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain brokers and
dealers. After the shares of the Common Stock are released for sale to the
public, the offering price and other selling terms may be varied by the
Representatives at any time without notice.
The Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described below.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a
60
<PAGE>
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Company has granted to the Underwriters an option, exercisable at any
time within 30 days after the date of this Prospectus, to purchase, in whole
or in part, up to an aggregate of 375,000 additional shares of Common Stock at
the initial public offering price less underwriting discounts and commissions.
The Underwriters may exercise such option solely to cover over-allotments, if
any, made in connection with the Offering. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to
certain conditions, to purchase its pro rata portion of such additional shares
based on such Underwriter's percentage underwriting commitment as indicated in
the preceding table.
Each of the Company, its executive officers and directors and the other
stockholders of the Company, who beneficially own an aggregate of 5,200,000
shares of Common Stock, has agreed, subject to certain exceptions, not to (i)
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any
of the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise) for
a period of 180 days after the date of this Prospectus without the prior
written consent of Morgan Keegan & Company, Inc. In addition, during such
period the Company has also agreed not to file any registration statement with
respect to, and each of its executive officers, directors and other
stockholders of the Company has agreed, subject to certain exceptions, not to
make any demand for, or exercise any right with respect to, the registration
of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without the prior written consent
of Morgan Keegan & Company, Inc.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the shares of Common Stock offered
hereby has been negotiated between the Company and the Representatives. Among
the factors to be considered in determining the initial public offering price
will be the history of and the prospects for the industry in which the Company
competes, the past and present operations of the Company, the prospects for
future earnings of the Company, the recent market prices of securities of
generally comparable companies and the general condition of the securities
markets at the time of the Offering. There can be no assurance, however, that
the prices at which the Common Stock will sell in the public market after the
Offering will not be lower than the initial public offering price.
The Company has made an application to list the Common Stock on the Nasdaq
National Market under the symbol "CNRD." The Company has been advised by the
Representatives that each of the Representatives presently intends to make a
market in the Common Stock offered hereby; the Representatives are not obliged
to do so, however, and any market making activity may be discontinued at any
time. There can be no assurance that an active public market for the Common
Stock will develop and continue after the Offering.
The Company and certain of its stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
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
61
<PAGE>
Keegan & Company, Inc. provided financial advisory services to the Company
prior to the Offering, including financial advice in connection with the
Orange Acquisition, for which it has been paid fees of approximately $270,000
and will be issued, upon completion of the Offering, warrants to purchase up
to 77,000 shares of Common Stock exercisable for five years at the initial
public offering price per share. The warrants, or Common Stock purchased upon
the exercise thereof, may not be sold, transferred, assigned, pledged or
hypothecated (except by operation of law or by reason of reorganization of the
Company) for one year following the effective date of the registration
statement of which this Prospectus is a part, except to members of the
National Association of Securities Dealers, Inc. participating in the Offering
and the officers and partners thereof. The warrants contain anti-dilution
provisions providing for the adjustment of the number of shares of Common
Stock and exercise price under certain circumstances. The warrants also grant
to the holders thereof and the holders of the underlying Common Stock certain
registration rights with respect to the Common Stock underlying the warrants.
See "Description of Capital Stock--Registration Rights."
Michael J. Harris, a nominee for director of the Company, is a Managing
Director of Morgan Keegan & Company, Inc.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock being
offered hereby will be passed upon for the Company by Andrews & Kurth L.L.P.,
and for the Underwriters by Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P.
EXPERTS
The balance sheet of the Company as of March 31, 1998, the financial
statements of Conrad as of December 31, 1996 and 1997 and for each of the
three years in the period ended December 31, 1997, and the financial
statements of Orange Shipbuilding as of September 30, 1996 and 1997 and for
each of the two years in the period ended September 30, 1997 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as indicated in their reports appearing herein, and have been so included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
In November 1997, Conrad's Board of Directors replaced Darnall, Sikes &
Frederick CPAs with Deloitte & Touche LLP, independent public accountants. The
report of Darnall, Sikes & Frederick CPAs on Conrad's financial statements as
of and for the year ended December 31, 1996 did not contain an adverse opinion
or disclaimer of opinion and was not modified as to uncertainty, audit scope
or accounting principles. There were no disagreements or reportable events
with Darnall, Sikes & Frederick CPAs on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure
during the year ended December 31, 1996 or during the subsequent interim
period through the date of dismissal with respect to Conrad's financial
statements as of and for the year ended December 31, 1996. Prior to retaining
Deloitte & Touche LLP, neither the Company nor Conrad had consulted with
Deloitte & Touche LLP regarding accounting principles.
62
<PAGE>
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements of
the Exchange Act. The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (together
with all amendments, schedules and exhibits thereto the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which is included as part of the Registration
Statement, does not contain all the information contained in the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Statements made
in the Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected, without charge, at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Room 1400, Chicago, IL 60661, and 7 World
Trade Center, Suite 1300, New York, NY 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission at http://www.sec.gov. The Company has made an application to list
the Common Stock for quotation on the Nasdaq National Market and, if approved
for listing, the Company will be required to file with The Nasdaq Stock Market
copies of certain documents and information filed with the Commission if such
documents are not filed electronically with the Commission, and any such
documents and information may be inspected at the offices of The Nasdaq Stock
Market at 1735 K Street, Washington, D.C. 20006.
Upon completion of this Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith, will file periodic reports,
proxy statements and other information with the Commission. The Company
intends to furnish its stockholders with annual reports containing audited
financial statements certified by independent public accountants.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF CONRAD SHIPYARD, INC.
Independent Auditors' Report............................................ F-2
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998
(unaudited)............................................................ F-3
Statements of Operations for the Years Ended December 31, 1995, 1996 and
1997 and the Three Months Ended March 31, 1997 and 1998 (unaudited).... F-4
Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March 31, 1998
(unaudited)............................................................ F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997 and the Three Months Ended March 31, 1997 and 1998 (unaudited).... F-6
Notes to Financial Statements........................................... F-7
FINANCIAL STATEMENTS OF ORANGE SHIPBUILDING COMPANY, INC.
Independent Auditors' Report............................................ F-15
Balance Sheets as of September 30, 1996 and 1997........................ F-16
Statements of Operations for the Years Ended September 30, 1996 and 1997
and the Three Months Ended December 31, 1997 (unaudited)............... F-17
Statements of Stockholders' Equity for the Years Ended September 30,
1996 and 1997.......................................................... F-18
Statements of Cash Flows for the Years Ended September 30, 1996 and 1997
and the Three Months Ended December 31, 1997 (unaudited)............... F-19
Notes to Financial Statements........................................... F-20
FINANCIAL STATEMENT OF CONRAD INDUSTRIES, INC.
Independent Auditors' Report............................................ F-24
Balance Sheet as of March 31, 1998...................................... F-25
Notes to Balance Sheet.................................................. F-26
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Balance Sheet as of March 31, 1998............... F-29
Pro Forma Combined Statement of Operations for the Year Ended December
31, 1997............................................................... F-30
Notes to Pro Forma Financial Statements................................. F-31
</TABLE>
F-1
<PAGE>
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"
Deloitte & Touche LLP
New Orleans, Louisiana
May 15, 1998
F-2
<PAGE>
CONRAD SHIPYARD, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
PRO FORMA
MARCH 31,
MARCH 31, 1998 (NOTE
1996 1997 1998 2)
----------- ----------- ----------- -----------
ASSETS (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents........... $ 3,209,000 $ 7,551,000 $ 5,792,000 $ 4,192,000
Accounts receivable,
net................... 2,496,000 4,467,000 5,407,000 5,407,000
Costs and estimated
earnings in excess of
billings on
uncompleted
contracts............. 604,000 2,499,000 2,511,000 2,511,000
Inventories............ 137,000 139,000 178,000 178,000
Other current assets... 241,000 638,000 1,078,000 1,078,000
----------- ----------- ----------- -----------
Total current
assets.............. 6,687,000 15,294,000 14,966,000 13,366,000
PROPERTY, PLANT AND
EQUIPMENT, net.......... 8,514,000 18,304,000 19,025,000 18,619,000
COST IN EXCESS OF NET
ASSETS ACQUIRED......... -- 15,294,000 15,099,000 15,099,000
OTHER ASSETS............. 35,000 53,000 310,000 310,000
----------- ----------- ----------- -----------
TOTAL ASSETS............. $15,236,000 $48,945,000 $49,400,000 $47,394,000
=========== =========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....... $ 641,000 $ 1,997,000 $ 1,633,000 $ 1,633,000
Accrued employee
costs................. 292,000 448,000 744,000 744,000
Accrued expenses....... 226,000 725,000 681,000 681,000
Current maturities of
long-term debt........ 661,000 1,801,000 2,618,000 2,618,000
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts............. 465,000 2,563,000 1,625,000 1,625,000
Revolving credit
facility.............. -- -- -- 10,000,000
----------- ----------- ----------- -----------
Total current
liabilities......... 2,285,000 7,534,000 7,301,000 17,301,000
LONG-TERM DEBT, less cur-
rent maturities......... 572,000 23,537,000 22,916,000 22,916,000
DEFERRED INCOME TAXES.... -- 2,595,000 2,572,000 3,202,000
----------- ----------- ----------- -----------
Total liabilities.... 2,857,000 33,666,000 32,789,000 43,419,000
----------- ----------- ----------- -----------
COMMITMENTS AND CONTIN-
GENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par
value, 20,000,000
shares authorized,
4,660,486 shares
outstanding in 1996
and 1997 and 5,200,000
shares outstanding in
1998.................. 47,000 47,000 52,000 52,000
Additional paid-in
capital............... 156,000 156,000 8,783,000 8,239,000
Unearned stock
compensation.......... -- -- (4,316,000) (4,316,000)
Retained earnings...... 12,176,000 15,076,000 12,092,000 --
----------- ----------- ----------- -----------
Total stockholders'
equity.............. 12,379,000 15,279,000 16,611,000 3,975,000
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.... $15,236,000 $48,945,000 $49,400,000 $47,394,000
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
CONRAD SHIPYARD, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE................. $20,914,000 $23,174,000 $22,117,000 $5,546,000 $11,569,000
COST OF REVENUE......... 16,660,000 17,003,000 15,032,000 3,810,000 8,140,000
----------- ----------- ----------- ---------- -----------
GROSS PROFIT............ 4,254,000 6,171,000 7,085,000 1,736,000 3,429,000
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 1,497,000 1,847,000 2,242,000 493,000 888,000
EXECUTIVE COMPENSATION
EXPENSE................ -- -- -- -- 4,316,000
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) FROM
OPERATIONS............. 2,757,000 4,324,000 4,843,000 1,243,000 (1,775,000)
INTEREST EXPENSE........ (152,000) (96,000) (126,000) (11,000) (503,000)
OTHER INCOME............ 40,000 70,000 188,000 -- 93,000
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES........... 2,645,000 4,298,000 4,905,000 1,232,000 (2,185,000)
PROVISION FOR INCOME
TAXES.................. -- -- -- -- 293,000
----------- ----------- ----------- ---------- -----------
NET INCOME (LOSS)....... $ 2,645,000 $ 4,298,000 $ 4,905,000 $1,232,000 $(2,478,000)
=========== =========== =========== ========== ===========
Net income (loss) per
common share:
Basic and diluted..... $ 0.57 $ 0.92 $ 1.05 $ 0.26 $ (0.53)
=========== =========== =========== ========== ===========
Weighted average common
shares outstanding:
Basic and diluted..... 4,660,000 4,660,000 4,660,000 4,660,000 4,666,000
=========== =========== =========== ========== ===========
Unaudited pro forma data
(Note 2):
Net income (loss)
reported above....... $ 2,645,000 $ 4,298,000 $ 4,905,000 $1,232,000 $(2,478,000)
Pro forma provision
for income taxes
related to operations
as S corporation..... 979,000 1,590,000 1,815,000 456,000 125,000
----------- ----------- ----------- ---------- -----------
Pro forma net income
(loss)............... $ 1,666,000 $ 2,708,000 $ 3,090,000 $ 776,000 $(2,603,000)
=========== =========== =========== ========== ===========
Unaudited pro forma per
share data (Note 2):
Pro forma net income
(loss) per share
(using 5,342,000
shares in 1997 and
5,348,000 shares in
1998)................ $ 0.58 $ (0.49)
=========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
CONRAD SHIPYARD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
$0.01 PAR VALUE ADDITIONAL UNEARNED
----------------- PAID-IN STOCK RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
--------- ------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1995................... 4,660,000 $47,000 $ 156,000 $ -- $ 7,745,000 $ 7,948,000
Distributions........... -- -- -- -- (561,000) (561,000)
Net income.............. -- -- -- -- 2,645,000 2,645,000
--------- ------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1995................... 4,660,000 47,000 156,000 -- 9,829,000 10,032,000
Distributions........... -- -- -- -- (1,951,000) (1,951,000)
Net income.............. -- -- -- -- 4,298,000 4,298,000
--------- ------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1996................... 4,660,000 47,000 156,000 -- 12,176,000 12,379,000
Distributions........... -- -- -- -- (2,005,000) (2,005,000)
Net income.............. -- -- -- -- 4,905,000 4,905,000
--------- ------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1997................... 4,660,000 47,000 156,000 -- 15,076,000 15,279,000
Distributions........... -- -- -- -- (506,000) (506,000)
Stock issued to
executives............. 540,000 5,000 8,627,000 (4,316,000) -- 4,316,000
Net loss................ -- -- -- -- (2,478,000) (2,478,000)
--------- ------- ---------- ----------- ----------- -----------
BALANCE, MARCH 31, 1998
(UNAUDITED)............ 5,200,000 $52,000 $8,783,000 $(4,316,000) $12,092,000 $16,611,000
========= ======= ========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
CONRAD SHIPYARD, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $2,645,000 $4,298,000 $ 4,905,000 $1,232,000 $(2,478,000)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization......... 722,000 798,000 850,000 213,000 547,000
Deferred income tax
benefit.............. -- -- -- -- (84,000)
Provision for bad
debts................ 12,000 510,000 -- -- --
Executive compensation
expense.............. -- -- -- -- 4,316,000
Other................. -- 115,000 -- -- --
Changes in assets and
liabilities, net of
effect of
acquisition:
Accounts receivable.. (678,000) (752,000) (1,086,000) 723,000 (940,000)
Net change in
billings related to
cost and estimated
earnings on
uncompleted
contracts........... 219,000 139,000 794,000 (624,000) (950,000)
Inventory and other
assets.............. (122,000) 337,000 (35,000) (255,000) (736,000)
Accounts payable and
accrued expenses.... 806,000 (132,000) 686,000 142,000 (51,000)
---------- ---------- ------------ ---------- -----------
Net cash provided by
(used in) operating
activities......... 3,604,000 5,313,000 6,114,000 1,431,000 (376,000)
---------- ---------- ------------ ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of
subsidiary, net of
cash acquired........ -- -- (22,819,000) -- --
Capital expenditures
for plant and
equipment............ (1,120,000) (1,961,000) (1,053,000) (168,000) (1,073,000)
---------- ---------- ------------ ---------- -----------
Net cash used in
investing
activities......... (1,120,000) (1,961,000) (23,872,000) (168,000) (1,073,000)
---------- ---------- ------------ ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of debt.............. 322,000 1,229,000 25,338,000 -- 524,000
Principal repayments
of debt.............. (384,000) (1,897,000) (1,233,000) (637,000) (328,000)
Distributions to
stockholders......... (561,000) (1,951,000) (2,005,000) (396,000) (506,000)
---------- ---------- ------------ ---------- -----------
Net cash provided by
(used in) financing
activities......... (623,000) (2,619,000) 22,100,000 (1,033,000) (310,000)
---------- ---------- ------------ ---------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 1,861,000 733,000 4,342,000 230,000 (1,759,000)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF YEAR............... 615,000 2,476,000 3,209,000 3,209,000 7,551,000
---------- ---------- ------------ ---------- -----------
CASH AND CASH
EQUIVALENTS, END OF
YEAR.................. $2,476,000 $3,209,000 $ 7,551,000 $3,439,000 $ 5,792,000
========== ========== ============ ========== ===========
SUPPLEMENTAL
DISCLOSURES CASH FLOWS
INFORMATION:
Interest paid......... $ 156,000 $ 99,000 $ 20,000 $ 11,000 $ 608,000
========== ========== ============ ========== ===========
NONCASH ACTIVITIES:
Issuance of stock to
executives........... $ -- $ -- $ -- $ -- $ 4,316,000
========== ========== ============ ========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation--Conrad Shipyard, Inc. ("Conrad"), a
Louisiana corporation, is engaged in the construction, conversion and repair
of a variety of marine vessels for commercial and government customers. New
construction work and the majority of repair work is performed on a fixed-
price basis, but Conrad also performs some repair work under cost-plus-fee
agreements.
On December 12, 1997, Conrad acquired all of the outstanding shares of
Orange Shipbuilding Company, Inc. ("Orange Shipbuilding") for $25,817,000 (see
Note 3). The accompanying balance sheet of Conrad as of December 31, 1997
includes the assets acquired and liabilities assumed of Orange Shipbuilding
based upon preliminary estimates of fair values. Conrad does not believe that
the final purchase price allocation will differ significantly from the
preliminary purchase price allocation. Due to the close proximity of the
acquisition date to Conrad's fiscal year end, results of operations subsequent
to the acquisition for Orange Shipbuilding are not included in Conrad's
accompanying statement of operations for the year ended December 31, 1997. The
results of operations of Orange Shipbuilding from the date of acquisition to
the end of Conrad's 1997 fiscal year were not significant.
In anticipation of an initial public offering of equity securities during
1998 (the "Offering"), Conrad Industries, Inc. (the "Company"), a newly formed
Delaware corporation was incorporated in March 1998 to serve as the holding
company for Conrad and Orange Shipbuilding. The current stockholders of Conrad
have entered into an exchange agreement (the "Exchange Agreement") pursuant to
which they will exchange their shares of common stock of Conrad for shares of
common stock of the Company (the "Reorganization"). In accordance with the
terms of the Exchange Agreement, the stockholders of Conrad will receive a
number of shares of common stock of the Company 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).
Unaudited Interim Financial Statements--The unaudited financial statements
at March 31, 1998 and for the three months ended March 31, 1997 and 1998 have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (such adjustments consisting only
of a normal recurring nature) considered necessary for a fair presentation
have been included.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
At March 31, 1998, Conrad is in compliance with all covenants of the Term
Loan discussed in Note 6, except as waived by the lender.
F-7
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition--Conrad is engaged in various types of construction
under long-term construction contracts. The accompanying financial statements
have been prepared using the percentage-of-completion method of accounting
and, therefore, take into account the estimated cost, estimated earnings and
revenue to date on contracts not yet completed. The amount of revenue
recognized is equal to the portion of the total contract price that the labor
hours incurred to date bears to the estimated total labor hours, based on
current estimates to complete. This method is used because management
considers expended labor hours to be the best available measure of progress on
these contracts. Revenues from cost-plus-fee contracts are recognized on the
basis of cost incurred during the period plus the fee earned.
Contract costs include all direct material, labor, and subcontracting costs,
and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs, depreciation, and insurance costs. Revisions
in estimates of costs and earnings during the course of the work are reflected
in the accounting period in which the facts which require the revision become
known. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
Indirect costs are allocated to contracts and to self-constructed equipment
and improvements on the basis of direct labor charges.
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
on deposit and short-term investments with original maturities of three months
or less.
Property, Plant and Equipment--Property, plant and equipment is stated at
cost. Depreciation is recorded using the straight-line method over the
estimated useful lives of the individual assets which range from three to
forty years. Ordinary maintenance and repairs which do not extend the physical
or economic lives of the plant or equipment are charged to expense as
incurred. Management reviews property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the related carrying
amount may not be recoverable. When required, impairment losses are recognized
based on the excess of the asset's carrying amount over its fair value.
Cost in Excess of Net Assets Acquired--Cost in excess of net assets acquired
is amortized on a straight-line basis over twenty years. Management of Conrad
periodically reviews the carrying value of the excess cost in relation to the
current and expected undiscounted cash flows of the business which benefits
therefrom in order to assess whether there has been a permanent impairment of
the excess cost of the net purchased assets.
Inventories--Inventories consist primarily of excess job cost items and
supplies. They are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis.
Income Per Share--In 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 requires the replacement of previously reported primary
and fully diluted earnings per share required by Accounting Principles Board
Opinion No. 15 with basic earnings per share and diluted earnings per share.
The calculation of basic earnings per share excludes any dilutive effect of
stock options, while diluted earnings per share includes the dilutive effect
of stock options. Per share and weighted average share amounts for all years
presented have been restated to conform to the requirements of SFAS 128.
F-8
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes--Conrad's stockholders have elected to have Conrad taxed as an
S corporation for federal income tax purposes whereby stockholders are liable
for individual federal income taxes on their allocated portions of Conrad's
taxable income. Accordingly, the historical financial statements do not
include any provision for income taxes.
Shortly before the closing of the proposed Offering, Conrad's stockholders
will elect to terminate Conrad's status as an S corporation, and Conrad will
become subject to federal and state income taxes. This will result in the
establishment of a net deferred tax liability calculated at applicable federal
and state income tax rates (see Note 2).
Fair Value of Financial Instruments--The carrying amounts of Conrad's
financial instruments including cash and cash equivalents, receivables,
payables and long-term debt closely approximates fair value at December 31,
1997 and 1996.
New Accounting Pronouncements--During 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 provides guidance for the
presentation and display of comprehensive income. SFAS 131 establishes
standards for disclosure of operating segments, products, services, geographic
areas and major customers. Conrad is required to adopt both standards for its
fiscal year ended December 31, 1998. Management believes that the
implementation of SFAS 130 and SFAS 131 will not have a material impact on the
presentation of Conrad's financial statements, but may require additional
disclosure.
2. TERMINATION OF S CORPORATION STATUS (UNAUDITED)
Conrad has operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad currently pays no federal or
state income tax, and the entire earnings of Conrad are subject to tax only at
the stockholder level. Prior to the Reorganization and the completion of the
Offering, Conrad's current stockholders will make an election terminating
Conrad's S corporation status. Thereafter, Conrad will become subject to
corporate level income taxation. As a result of its conversion from an S
corporation to a C corporation, Conrad estimates that it will be required to
record as a one-time charge to earnings a deferred tax liability in the amount
of approximately $630,000 in the second quarter of 1998.
In the past, Conrad has made distributions to its stockholders in order to
provide a cash return to them and to fund their federal and state income tax
liabilities that resulted from Conrad's S corporation status. In accordance
with this practice, since January 1, 1998, Conrad has distributed
approximately $506,000 to its current stockholders and estimates that it will
distribute an additional $1.6 million prior to the completion of the Offering
to fund the stockholders' federal and state income tax liabilities through the
date of termination of its S corporation status. Conrad intends to make an
additional distribution to its current stockholders of approximately $10.0
million, which amount represents undistributed earnings of Conrad, estimated
through the date of the termination of Conrad's S corporation status, on which
Conrad's current stockholders will have incurred federal and state income
taxes. Conrad also expects to make a distribution of certain nonoperating
assets with a fair market value of approximately $406,000 (which approximates
book value) to certain of its stockholders prior to the completion of the
Offering. The distributions of cash and non-operating assets (the "Shareholder
Distributions") will be made prior to the completion of the Offering, and
Conrad intends to fund part of the cash portion of the Shareholder
Distributions with borrowings under its Revolving Credit Facility, which
borrowings will be repaid with proceeds of the Offering.
The pro forma balance sheet of Conrad as of March 31, 1998 reflects a
deferred income tax liability of $630,000 resulting from the assumed
termination of the S Corporation status, the distribution of nonoperating
F-9
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
assets, an accrual of $1,600,000 for the current tax distributions to
stockholders, and borrowings of $10.0 million under the Revolving Credit
Facility to fund the additional distribution of undistributed earnings to
stockholders.
Pro forma net income per share consists of Conrad's historical income as an
S corporation, adjusted for income taxes that would have been recorded had
Conrad operated as a C corporation. This amount is divided by the weighted
average shares of common stock outstanding which are increased to reflect
sufficient additional shares to pay the $10.0 million distribution of
estimated undistributed earnings to shareholders (681,199 shares). All such
additional shares are based on an assumed offering price of $16.00 per share,
net of offering expenses.
3. ACQUISITION
On December 12, 1997, Conrad acquired all of the outstanding shares of
common stock of Orange Shipbuilding, a shipyard in Orange, Texas, for
$25,817,000, which includes the costs of acquisition. The acquisition was
funded with a $25,000,000 promissory note (see Note 6) and existing cash. The
acquisition has been accounted for under the purchase method. The purchase
price was allocated to the net assets acquired (net book value of $4,170,000)
based on their estimated fair values at the date of acquisition, as follows:
<TABLE>
<S> <C>
Current assets, other than cash.................................... $ 1,857,000
Property, plant and equipment...................................... 9,588,000
Liabilities assumed................................................ (3,920,000)
Cost in excess of net assets acquired.............................. 15,294,000
-----------
Purchase price, net of cash acquired ($2,998,000).................. $22,819,000
===========
</TABLE>
Prior to the sale of its common stock to Conrad, the former stockholders of
Orange Shipbuilding elected to terminate its status as an S corporation for
federal income tax purposes. Accordingly, it became liable for federal income
taxes beginning October 1, 1997. The liabilities assumed by Conrad include a
current income tax liability of approximately $515,000 related to the
operations of Orange Shipbuilding from October 1, 1997 until the acquisition
date and a deferred income tax liability of $2,595,000 primarily relating to
the difference in the book and tax basis of property and equipment at the
acquisition date.
The following unaudited pro forma summary presents the consolidated results
of operations of Conrad as if the acquisition had occurred on January 1, 1996
and includes the financial information of Orange Shipbuilding for its fiscal
years ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenues............................................... $29,636,000 $35,922,000
=========== ===========
Net income............................................. $ 2,201,000 $ 7,185,000
=========== ===========
Net income per common share:
Basic and diluted.................................... $ 0.47 $ 1.54
=========== ===========
Pro forma net income adjusted for income taxes related
to operations as
S corporation......................................... $4,644,000
===========
Pro forma net income per share......................... $ 0.87
===========
</TABLE>
The above unaudited pro forma amounts have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill, additional depreciation expense for assets
recorded at fair market value at the date of acquisition, additional interest
expense for borrowings, and an adjustment to conform the revenue recognition
policy for contracts in progress. They do not
F-10
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
purport to be indicative of the results of operations which actually would
have resulted had the combination been in effect on January 1, 1996, or of
future results of operations of the consolidated entities.
4. RECEIVABLES
Receivables consisted of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
U.S. Government:
Amounts billed......................................... $ -- $ 26,000
Unbilled costs and estimated earnings on uncompleted
contracts............................................. -- 542,000
---------- ----------
-- 568,000
Commercial:
Amounts billed......................................... 2,496,000 4,441,000
Unbilled costs and estimated earnings on uncompleted
contracts............................................. 604,000 1,957,000
---------- ----------
Total.................................................... $3,100,000 $6,966,000
========== ==========
</TABLE>
Included above in amounts billed is an allowance for doubtful accounts of
$25,000 and $16,000 at December 31, 1996 and 1997, respectively. During 1996
the allowance included $510,000 charged to expense relating to the resolution
of a contract dispute. During 1995 and 1997 there were no significant
transactions recorded in the allowance for doubtful accounts.
Unbilled costs and estimated earnings on uncompleted contracts were not
billable to customers at the balance sheet dates under terms of the respective
contracts. Of the unbilled costs and estimated earnings at December 31, 1997,
substantially all is expected to be collected within the next twelve months.
Information with respect to uncompleted contracts as of December 31, 1996
and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts................ $2,607,000 $11,040,000
Estimated earnings..................................... 898,000 4,633,000
---------- -----------
3,505,000 15,673,000
Less billings to date.................................. 3,366,000 15,737,000
---------- -----------
$ 139,000 $ (64,000)
========== ===========
</TABLE>
The above amounts are included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... $604,000 $2,499,000
Billings in excess of cost and estimated earnings on
uncompleted contracts.................................... 465,000 2,563,000
-------- ----------
Total..................................................... $139,000 $ (64,000)
======== ==========
</TABLE>
F-11
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Land.................................................. $ 1,883,000 $ 2,459,000
Buildings and improvements............................ 3,857,000 10,469,000
Machinery and equipment............................... 2,636,000 4,982,000
Drydocks and bulkheads................................ 5,578,000 5,578,000
Barges and boat....................................... 914,000 933,000
Office and automotive................................. 375,000 626,000
Construction in progress.............................. -- 810,000
----------- -----------
15,243,000 25,857,000
Less accumulated depreciation......................... (6,729,000) (7,553,000)
----------- -----------
$ 8,514,000 $18,304,000
=========== ===========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Term loan--Bank, variable interest rate (8.00% at
December 31, 1997), due
April 30, 2004....................................... $ -- $25,000,000
Note payable--Bank, variable interest rate (6.00% at
December 31, 1996), due
July 17, 2001........................................ 1,004,000 --
Short-term financing agreement, 8.29% interest rate,
due September 1, 1998................................ 229,000 338,000
---------- -----------
1,233,000 25,338,000
Less current maturities............................... (661,000) (1,801,000)
---------- -----------
$ 572,000 $23,537,000
========== ===========
</TABLE>
In December 1997, Conrad entered into a $25 million promissory note with a
commercial bank to fund the acquisition of Orange Shipbuilding Company, Inc.
(see Note 3). Principal and interest at an 8.0% annual rate were payable
monthly. Subsequent to December 31, 1997, Conrad refinanced this short-term
obligation into a term loan. Interest accrues at the LIBOR rate plus 2.0%
until September 18, 1998. Conrad will then have the option to convert the
interest rate to either the lender's prime rate less 0.5% or LIBOR rate plus
2.0% at the expiration of any Interest Period. At Conrad's option an Interest
Period may be from one to six months. Interest only is payable monthly until
May 1998. Thereafter, the term loan will be payable in 70 monthly principal
payments of $209,000 plus interest with a final payment due in April 2004. The
term loan is secured by substantially all of Conrad's assets, and is
guaranteed up to $2 million by J. Parker Conrad, Co-Chairman of the Board of
Directors. The term loan is conditioned upon Conrad remaining in compliance
with the covenants of the loan agreement and maintaining certain financial
ratios.
Conrad has also received a commitment from the same commercial bank to
provide it with a $10.0 million revolving credit facility which may be used
for working capital and other general corporate purposes, including the
funding of acquisitions. The Revolving Credit Facility will bear interest on
the same terms as the Term Loan and will mature April 30, 1999. A fee of 0.25%
per annum on the unused portion of the line of credit will be charged
quarterly.
F-12
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Conrad enters into short-term notes payable to finance certain of its
insurance premiums. At December 31, 1996 and 1997 the amounts outstanding
related to these notes payable were $229,000 and $338,000, respectively. The
notes are secured by Conrad's insurance policies and provide for annual
interest rates of 7.75% and 8.29% at December 31, 1996 and 1997, respectively.
Annual maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
1998................................................................ $ 1,801,000
1999................................................................ 2,508,000
2000................................................................ 2,508,000
2001................................................................ 2,508,000
2002................................................................ 2,508,000
Thereafter.......................................................... 13,505,000
-----------
$25,338,000
===========
</TABLE>
7. EMPLOYEE BENEFITS
In August 1997, Conrad established a 401(k) plan that covers all employees
who meet certain eligibility requirements. Contributions to the plan by Conrad
are made at the discretion of the Board of Directors. Contribution expense was
$42,000 for the year ended December 31, 1997.
8. SALES TO MAJOR CUSTOMERS
Sales to various customers, which amount to 10% or more of Conrad's total
revenues for the three years ended December 31, 1995, 1996 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
AMOUNT % AMOUNT % AMOUNT %
---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Customer A......................... $4,604,000 21%
Customer B......................... 3,395,000 15%
Customer C......................... 2,351,000 11%
Customer D......................... $3,735,000 16%
Customer E......................... 3,407,000 15%
Customer F......................... 2,351,000 10%
Customer G......................... $5,130,000 25%
Customer H......................... 2,434,000 12%
</TABLE>
9. RELATED PARTY TRANSACTIONS
Conrad purchases in its ordinary course of business certain components from
Johnny's Propeller Shop, Inc., a company wholly owned by John P. Conrad, Jr.,
Co-Chairman of the Board of Directors. Total purchases for the three years
ended December 31, 1995, 1996 and 1997 were $140,000, $121,000 and $164,000,
respectively. Conrad believes that such transactions were made on a
competitive basis at market prices.
In 1991, Conrad and J. Parker Conrad, Co-Chairman of the Board of Directors,
entered into a Key Executive Insurance Agreement pursuant to which each year
Conrad has paid $20,000 of the annual premium due under an insurance policy on
Mr. Conrad's life and it was the beneficiary of $650,000 of the death benefit
under the policy. Conrad and Mr. Conrad have agreed to terminate this
agreement, allowing Mr. Conrad to select the beneficiary of the death benefit,
prior to the completion of the Offering.
F-13
<PAGE>
CONRAD SHIPYARD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As discussed in Note 6 to the financial statements, J. Parker Conrad has
guaranteed the indebtedness under the Term Loan up to $2 million.
10. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, Conrad had outstanding a contract performance bond
issued by a third party in the amount of $3,660,000.
Conrad has employment agreements with certain of its executive officers
which generally provide for an initial term of three years and minimum annual
total compensation of $851,000.
Conrad is a party to various legal proceedings primarily involving
commercial claims and workers' compensation claims. While the outcome of these
claims and legal proceedings cannot be predicted with certainty, management
believes that the outcome of all such proceedings, even if determined
adversely, would not have a material adverse effect on Conrad's financial
statements.
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Orange Shipbuilding Company, Inc.
We have audited the accompanying balance sheets of Orange Shipbuilding
Company, Inc. as of September 30, 1996 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the management of Orange
Shipbuilding Company, Inc. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Orange Shipbuilding Company, Inc. at
September 30, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New Orleans, Louisiana
March 31, 1998
F-15
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
ASSETS 1996 1997
------ ---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $2,443,000 $ 294,000
Investments.......................................... 198,000 201,000
Accounts receivable.................................. 193,000 1,656,000
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 848,000 1,442,000
Other current assets................................. 87,000 85,000
---------- ----------
Total current assets............................... 3,769,000 3,678,000
PROPERTY, PLANT AND EQUIPMENT, NET..................... 3,414,000 3,723,000
OTHER ASSETS........................................... 208,000 353,000
---------- ----------
TOTAL ASSETS........................................... $7,391,000 $7,754,000
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable..................................... $ 25,000 $ 539,000
Accrued employee costs............................... 2,000 310,000
Accrued expenses..................................... 226,000 198,000
Current maturities of notes payable--stockholders.... 64,000 --
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 362,000 --
---------- ----------
Total current liabilities.......................... 679,000 1,047,000
NOTES PAYABLE--STOCKHOLDERS, less current maturities... 4,071,000 --
---------- ----------
Total liabilities.................................. 4,750,000 1,047,000
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 5,000,000 shares
authorized, 800,000 shares issued and 533,332 shares
outstanding (266,668 shares held in treasury)....... 800,000 800,000
Additional paid-in capital........................... 22,000 22,000
Retained earnings.................................... 2,219,000 6,285,000
Less: cost of treasury stock......................... (400,000) (400,000)
---------- ----------
Total stockholders' equity......................... 2,641,000 6,707,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $7,391,000 $7,754,000
========== ==========
</TABLE>
See notes to financial statements.
F-16
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER THREE MONTHS
30, ENDED
----------------------- DECEMBER 31,
1996 1997 1997
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE.................................. $7,268,000 $15,533,000 $5,207,000
COST OF REVENUE.......................... 5,278,000 8,623,000 2,998,000
---------- ----------- ----------
GROSS PROFIT............................. 1,990,000 6,910,000 2,209,000
GENERAL AND ADMINISTRATIVE EXPENSES...... 665,000 1,048,000 399,000
---------- ----------- ----------
INCOME FROM OPERATIONS................... 1,325,000 5,862,000 1,810,000
INTEREST EXPENSE......................... (261,000) (262,000) --
OTHER INCOME............................. 154,000 252,000 --
---------- ----------- ----------
INCOME BEFORE INCOME TAXES............... 1,218,000 5,852,000 1,810,000
PROVISION FOR INCOME TAXES............... -- -- 830,000
---------- ----------- ----------
NET INCOME............................... $1,218,000 $ 5,852,000 $ 980,000
========== =========== ==========
Unaudited pro forma data:
Net income reported above.............. $1,218,000 $ 5,852,000
Pro forma provision for income taxes
related to operations as
S corporation......................... 426,000 2,048,000
---------- -----------
Pro forma net income................... $ 792,000 $ 3,804,000
========== ===========
</TABLE>
See notes to financial statements.
F-17
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
$1.00 PAR VALUE $1.00 PAR VALUE ADDITIONAL
---------------- ----------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- -------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1,
1995................... 800,000 $800,000 266,668 $(400,000) $22,000 $ 1,532,000 $ 1,954,000
Distributions........... (531,000) (531,000)
Net income.............. 1,218,000 1,218,000
------- -------- ------- --------- ------- ----------- -----------
BALANCE, SEPTEMBER 30,
1996................... 800,000 800,000 266,668 (400,000) 22,000 2,219,000 2,641,000
Distributions........... (1,786,000) (1,786,000)
Net income.............. 5,852,000 5,852,000
------- -------- ------- --------- ------- ----------- -----------
BALANCE, SEPTEMBER 30,
1997................... 800,000 $800,000 266,668 $(400,000) $22,000 $ 6,285,000 $ 6,707,000
======= ======== ======= ========= ======= =========== ===========
</TABLE>
See notes to financial statements.
F-18
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER THREE MONTHS
30, ENDED
------------------------ DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 1,218,000 $ 5,852,000 $ 980,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation.......................... 215,000 251,000 88,000
Provision for deferred income taxes... -- -- 315,000
Changes in assets and liabilities:
Accounts receivable.................. 1,763,000 (1,463,000) 771,000
Other assets......................... (22,000) (146,000) 12,000
Net change in billings related to
costs and estimated earnings on
uncompleted contracts............... (1,112,000) (956,000) 196,000
Accounts payable and accrued
expenses............................ (88,000) 794,000 491,000
----------- ----------- ----------
Net cash provided by operating
activities......................... 1,974,000 4,332,000 2,853,000
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and
equipment............................. (234,000) (560,000) (149,000)
----------- ----------- ----------
Net cash used in investing
activities......................... (234,000) (560,000) (149,000)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable--
stockholders.......................... (1,465,000) (4,135,000) --
Distributions to stockholders.......... (531,000) (1,786,000) --
----------- ----------- ----------
Net cash used in financing
activities......................... (1,996,000) (5,921,000) --
----------- ----------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................ (256,000) (2,149,000) 2,704,000
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR................................... 2,699,000 2,443,000 294,000
----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR.. $ 2,443,000 $ 294,000 $2,998,000
=========== =========== ==========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid.......................... $ 261,000 $ 262,000 $ --
=========== =========== ==========
NONCASH ACTIVITIES:
Distributions of excluded assets of
the sale to stockholders............. $ -- $ -- $ 929,000
=========== =========== ==========
</TABLE>
See notes to financial statements.
F-19
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation--Orange Shipbuilding Company, Inc.
("Orange Shipbuilding") is engaged in the construction of a variety of marine
vessels for commercial and government customers and the fabrication of modular
components of offshore drilling rigs and floating production, storage and
offloading vessels at a shipyard located in Orange, Texas. New construction
work is generally performed on a fixed-price basis.
For the year ended September 30, 1997, Orange Shipbuilding was owned by
various management personnel. Effective December 12, 1997, all outstanding
shares of common stock were sold to Conrad Shipyard, Inc. ("Conrad"). Prior to
the closing of this transaction, Orange Shipbuilding made a distribution to
its current stockholders representing excluded assets of the sale consisting
primarily of land, personal vehicles and certain life insurance policies with
a net book value of approximately $929,000.
Unaudited Interim Financial Information--The financial information presented
for the three months ended December 31, 1997 is unaudited. In the opinion of
management, all adjustments (such adjustments consisting only of a normal
recurring nature) considered necessary for a fair presentation have been
included.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition--Orange Shipbuilding is engaged in various types of
construction under long-term construction contracts. The accompanying
financial statements have been prepared using the percentage-of-completion
method of accounting and, therefore, take into account the cost, estimated
earnings and revenue to date on contracts not yet completed. The amount of
revenue recognized at statement date is the portion of the total contract
price that the cost expended to date bears to the anticipated final total
cost, based on current estimates of cost to complete. This method is used
because management considers cost to be the best available measure of progress
on these contracts.
Contract cost includes all direct labor, materials, subcontract costs, and
allocated indirect construction costs. Indirect costs are allocated to
contracts on the basis of direct labor charges. Revisions in estimates of cost
and earnings during the course of the work are reflected in the accounting
period in which the facts which require the revision become known. Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
on deposit and short-term investments with original maturities of three months
or less.
Investments--Orange Shipbuilding's investments in tax exempt bonds and money
market funds are classified as securities held-to-maturity and, accordingly,
are reported at amortized cost, which approximates fair value.
Property, Plant and Equipment--Property, plant and equipment is stated at
cost. Depreciation is recorded using the straight-line method over the
estimated useful lives of the individual assets which range from three to
forty years. Ordinary maintenance and repairs which do not extend the physical
or economic lives of the plant or equipment are charged to expense as
incurred. Management reviews property, plant and equipment for
F-20
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
impairment whenever events or changes in circumstances indicate that the
related carrying amount may not be recoverable. When required, impairment
losses are recognized based on the excess of the asset's carrying amount over
its fair value.
Income Taxes--Orange Shipbuilding's stockholders elected to have the company
taxed as an S corporation for federal income tax purposes whereby stockholders
are liable for individual federal income taxes on their allocated portions of
Orange Shipbuilding's taxable income. Accordingly, the historical financial
statements do not include any provision for income taxes.
Prior to the sale of its outstanding stock to Conrad on December 12, 1997,
Orange Shipbuilding's stockholders elected to change its status from a S
corporation to a C corporation for federal income tax purposes. Accordingly,
Orange Shipbuilding became liable for all future federal income taxes
beginning October 1, 1997.
Fair Value of Financial Instruments--The carrying amount of Orange
Shipbuilding's financial instruments including cash and cash equivalents,
investments, accounts receivable, and accounts payable approximates fair value
at September 30, 1996 and 1997. Due to the related party nature of Orange
Shipbuilding's notes payable--stockholders, determination of fair value is not
considered practicable.
2. RECEIVABLES
Receivables consisted of the following at September 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
U.S. Government:
Amounts billed......................................... $ 69,000 $ 364,000
Unbilled costs and estimated earnings on uncompleted
contracts............................................. 436,000 1,249,000
---------- ----------
505,000 1,613,000
Commercial:
Amounts billed......................................... 124,000 1,292,000
Unbilled costs and estimated earnings on uncompleted
contracts............................................. 412,000 193,000
---------- ----------
Total.................................................... $1,041,000 $3,098,000
========== ==========
</TABLE>
Unbilled costs and estimated earnings on uncompleted contracts were not
billable to customers at the balance sheet dates under terms of the respective
contracts. Of the unbilled costs and estimated earnings at September 30, 1997,
substantially all is expected to be collected within the next twelve months.
Information with respect to uncompleted contracts as of September 30, 1996
and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts.................. $1,199,000 $3,980,000
Estimated earnings....................................... 280,000 1,903,000
---------- ----------
1,479,000 5,883,000
Less: Billings to date................................... 993,000 4,441,000
---------- ----------
$ 486,000 $1,442,000
========== ==========
</TABLE>
F-21
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The above amounts are included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on un-
completed contracts...................................... $ 848,000 $1,442,000
Billings in excess of costs and estimated earnings on un-
completed contracts...................................... 362,000 --
--------- ----------
$ 486,000 $1,442,000
========= ==========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following at September 30,
1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Land.................................................. $ 602,000 $ 602,000
Buildings and improvements............................ 2,194,000 2,196,000
Machinery and equipment............................... 2,576,000 2,951,000
Office furniture, fixtures and equipment.............. 175,000 191,000
Automobiles and light trucks.......................... 170,000 192,000
Construction in progress.............................. -- 118,000
----------- -----------
5,717,000 6,250,000
Less accumulated depreciation......................... (2,303,000) (2,527,000)
----------- -----------
$ 3,414,000 $ 3,723,000
=========== ===========
</TABLE>
4. LINE OF CREDIT
Orange Shipbuilding had a line of credit of $1,000,000 with an interest rate
of 1.0% over the bank's prime rate. The line of credit had a zero balance at
September 30, 1996. The line of credit was allowed to lapse during the year
ended September 30, 1997.
5. RELATED PARTY TRANSACTIONS
Notes payable-stockholders consisted of various notes payable to Orange
Shipbuilding stockholders and former stockholders. The notes, which were paid
during 1997, consisted of the following at September 30, 1996:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
6%, Unsecured, 10 year.............................................. $ 335,000
6%, Unsecured, 10 year.............................................. 243,000
6%, Unsecured, 10 year.............................................. 47,000
5%, Unsecured....................................................... 1,793,000
5%, Unsecured....................................................... 858,000
5%, Unsecured....................................................... 859,000
-----------
$ 4,135,000
===========
</TABLE>
Interest paid on the above notes was $261,000 and $262,000 for the years
ended September 30, 1996 and 1997, respectively.
F-22
<PAGE>
ORANGE SHIPBUILDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. SALES TO MAJOR CUSTOMERS
Sales to various customers which amount to 10% or more of Orange
Shipbuilding's total revenues for the years ended September 30, 1996 and 1997
are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
AMOUNT % AMOUNT %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Customer A........................................ $4,234,000 58% $3,346,000 22%
Customer B........................................ -- --% 7,054,000 45%
Customer C........................................ -- --% 4,039,000 26%
Customer D........................................ 2,892,000 40% -- --%
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Orange Shipbuilding is a party to various legal proceedings primarily
involving commercial claims and workers' compensation claims. While the outcome
of these claims and legal proceedings cannot be predicted with certainty,
management believes that the outcome of all such proceedings, even if
determined adversely, would not have a material adverse effect on Orange
Shipbuilding's financial statements.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Conrad Industries, Inc.
We have audited the accompanying balance sheet of Conrad Industries, Inc. (a
recently formed Delaware corporation) as of March 31, 1998. This financial
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluting the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Conrad Industries, Inc. at March
31, 1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New Orleans, Louisiana
April 8, 1998
F-24
<PAGE>
CONRAD INDUSTRIES, INC.
(A RECENTLY FORMED DELAWARE CORPORATION)
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash.................................................................. $1,000
------
TOTAL ASSETS............................................................ $1,000
======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
LIABILITIES............................................................. $ --
------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none
issued or outstanding................................................ --
Common stock, $0.01 par value, 20,000,000 shares authorized; 1,000
shares issued and outstanding........................................ 10
Additional paid-in capital............................................ 990
------
Total stockholders' equity.......................................... 1,000
------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $1,000
======
</TABLE>
See notes to balance sheet.
F-25
<PAGE>
CONRAD INDUSTRIES, INC.
NOTES TO BALANCE SHEET
MARCH 31, 1998
1. ORGANIZATION AND NATURE OF BUSINESS
Conrad Industries, Inc. (the "Company") was incorporated under the laws of
the State of Delaware in March 1998 to serve as the holding company for Conrad
Shipyard, Inc. ("Conrad") and Orange Shipbuilding Company, Inc. ("Orange
Shipbuilding"). Through April 8, 1998, the Company has had no operations other
than receipt of initial capital.
Management of the Company have indicated their intention to undertake an
initial public offering of the Company's equity securities during 1998 (the
"Offering"). In anticipation of the Company's proposed Offering, the current
stockholders of Conrad have entered into an exchange agreement (the "Exchange
Agreement") pursuant to which they will exchange their shares of common stock
of Conrad for shares of common stock of the Company, (the "Reorganization").
In accordance with the terms of the Exchange Agreement, the stockholders of
Conrad will receive a number of shares of common stock proportionate to their
relative stockholdings in Conrad. As a result of the Reorganization, the
Company will be a holding company whose only assets will consist of all of the
outstanding shares of capital stock of Conrad and Orange Shipbuilding.
The Company's certificate of incorporation established authority to issue
1,000 shares of $0.01 par value preferred stock and 2,000 shares of $0.01 par
value common stock. On March 31, 1998, in conjunction with the Company's
proposed Offering, the Company authorized an increase in the amount of
authorized shares to 5,000,000 shares of $0.01 par value preferred stock and
20,000,000 shares of $0.01 par value common stock. Preferred stock may be
issued in one or more series and in such amounts as may be determined by the
Company's board of directors. The voting powers, designations, preferences and
relative, participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions, if any, of each preferred stock
issue shall be fixed by resolution of the board of directors providing for the
issue. All shares of common stock of the Company shall be identical, and,
except as otherwise provided in a resolution of the board of directors with
respect to preferred stock, the holders of common stock shall exclusively
possess all voting power with each share of common stock having one vote.
Conrad was formed in 1953 under the laws of the State of Louisiana. Conrad
specializes in the construction, conversion and repair of a wide variety of
marine vessels for commercial and government customers and the fabrication of
modular components of offshore drilling rigs and floating production, storage
and offloading vessels. Conrad serves a variety of customers and markets,
including the offshore oil and gas industry, other commercial markets and the
U.S. government. Substantially all of Conrad's services are conducted at a
shipyard located in Morgan City, Louisiana. On December 12, 1997, Conrad
acquired all of the outstanding shares of common stock of Orange Shipbuilding,
a shipyard in Orange, Texas for $25,817,000. The acquisition was funded with a
$25 million promissory note and existing cash.
Conrad has operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad currently pays no federal or
state income tax, and the entire earnings of Conrad are subject to tax only at
the stockholder level. Prior to the Reorganization and the completion of the
Offering, Conrad's current stockholders will make an election terminating
Conrad's S corporation status. Thereafter, Conrad will become subject to
corporate level income taxation. As a result of its conversion from an S
corporation to a C corporation, the Company estimates that it will be required
to record as a charge to earnings a one-time deferred tax liability in the
amount of approximately $630,000 in the second quarter of 1998.
In the past, Conrad has made distributions to its stockholders in order to
provide a cash return to them and to fund their federal and state income tax
liabilities that resulted from Conrad's S corporation status. In accordance
with this practice, since January 1, 1998, Conrad has distributed
approximately $506,000 to its
F-26
<PAGE>
CONRAD INDUSTRIES, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
current stockholders and estimates that it will distribute an additional $1.6
million prior to the completion of the Offering to fund the stockholders'
federal and state income tax liabilities through the date of termination of
its S corporation status. Conrad intends to make an additional distribution to
its current stockholders of approximately $10.0 million, which amount
represents undistributed earnings of Conrad, estimated through the date of the
termination of Conrad's S corporation status, on which Conrad's current
stockholders will have incurred federal and state income taxes. Conrad also
expects to make a distribution of certain nonoperating assets with a fair
market value of approximately $406,000 to certain of its stockholders prior to
the completion of the Offering. The distributions of cash and non-operating
assets (the "Shareholder Distributions") will be made prior to the completion
of the Offering, and Conrad intends to fund part of the cash portion of the
Shareholder Distributions with borrowings under a revolving credit facility.
Proceeds from the Offering to the Company are intended to be used to repay
indebtedness of the Company, including the $25 million term loan incurred by
Conrad in connection with the Orange Shipbuilding acquisition and
approximately $10 million of indebtedness to be incurred by Conrad under a
revolving credit facility to fund part of the cash portion of the Shareholder
Distributions. The remaining proceeds will be used for working capital and
other general corporate purposes. There can be no assurance, however, that the
Offering will occur or that the proceeds, if any, will be sufficient for their
intended use.
F-27
<PAGE>
CONRAD INDUSTRIES, INC.
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma financial statements give effect to (1)
the termination of Conrad Shipyard, Inc.'s ("Conrad") status as an S
corporation; (2) the acquisition by Conrad of Orange Shipbuilding Company,
Inc. ("Orange Shipbuilding"), using the purchase method of accounting; and (3)
the formation of Conrad Industries, Inc. (the "Company") in March 1998 to
serve as the holding company for Conrad and Orange Shipbuilding (the
"Reorganization"). The pro forma financial statements do not give effect to
the proposed initial public offering (the "Offering").
The pro forma consolidated balance sheet reflects the Company's pro forma
balance sheet, as adjusted for the Reorganization and the termination of
Conrad's status as an S corporation, assuming that such termination occurred
on March 31, 1998. The accompanying consolidated historical balance sheet of
Conrad includes the assets acquired and liabilities assumed of Orange
Shipbuilding based upon preliminary estimates of fair values. The Company does
not believe that the final purchase price allocation will differ significantly
from the preliminary purchase price allocation. Conrad acquired all of the
outstanding shares of Orange Shipbuilding on December 12, 1997 for
$25,817,000, which was funded with a $25 million promissory note and existing
cash. This acquisition resulted in an excess of purchase price over net assets
acquired of $15,294,000 which will be amortized over twenty years on a
straight line basis.
The pro forma combined statement of operations combines the historical
statements of Conrad and Orange Shipbuilding assuming the acquisition had
occurred on January 1, 1997 and further reflects a pro forma provision for
income taxes that would have been recorded had the combined Company operated
as a C corporation during the year ended December 31, 1997. The pro forma
combined statement of operations for the year ended December 31, 1997 includes
Orange Shipbuilding's audited financial information for its fiscal year ended
September 30, 1997. Due to the close proximity of Conrad's fiscal year end,
results of operations subsequent to the acquisition of Orange Shipbuilding are
not included in the accompanying historical statement of operations of Conrad.
The results of operations of Orange Shipbuilding from the date of acquisition
(December 12, 1997) to the end of Conrad's 1997 fiscal year end (December 31,
1997) were not significant.
The unaudited pro forma financial statements do not purport to present the
actual financial condition or results of operations of the Company as if the
termination of Conrad's S corporation status and the acquisition of Orange
Shipbuilding had occurred on the dates specified, nor is it necessarily
indicative of future results. The unaudited pro forma financial statements
should be read in conjunction with the historical financial statements of the
Company, Conrad and Orange Shipbuilding included elsewhere in this Prospectus.
F-28
<PAGE>
CONRAD INDUSTRIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------
PRO FORMA
CONRAD ADJUSTMENTS FOR COMPANY
HISTORICAL CONVERSION FROM PRO FORMA
CONSOLIDATED S CORPORATION CONSOLIDATED
ASSETS BALANCE SHEET TO C CORPORATION BALANCE SHEET
------ ------------- ---------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.... $ 5,792 $ (1,600)(2) $ 4,192
Accounts receivable, net..... 5,407 5,407
Costs and estimated earnings
in excess of billings on
uncompleted contracts....... 2,511 2,511
Inventories.................. 178 178
Other current assets......... 1,078 1,078
------- -------- -------
Total current assets....... 14,966 (1,600) 13,366
PROPERTY, PLANT AND EQUIPMENT,
NET........................... 19,025 (406)(2) 18,619
COST IN EXCESS OF NET ASSETS
ACQUIRED...................... 15,099 15,099
OTHER ASSETS................... 310 310
------- -------- -------
TOTAL ASSETS................... $49,400 $ (2,006) $47,394
======= ======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable............. $ 1,633 $ 1,633
Accrued employee costs....... 744 744
Accrued expenses............. 681 681
Current maturities of long-
term debt................... 2,618 2,618
Billing in excess of costs
and estimated earnings on
uncompleted contracts....... 1,625 1,625
Revolving credit facility.... -- 10,000 (2) 10,000
------- -------- -------
Total current liabilities.. 7,301 10,000 17,301
LONG-TERM DEBT, less current
maturities.................... 22,916 22,916
DEFERRED INCOME TAXES.......... 2,572 630 (1) 3,202
------- -------- -------
Total liabilities.......... 32,789 10,630 43,419
------- -------- -------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par
value, 20,000,000 shares
authorized, 5,200,000 shares
outstanding in 1998......... 52 52
Additional paid-in capital... 8,783 (544)(1)(2) 8,239
Unearned stock compensation.. (4,316) (4,316)
Retained earnings............ 12,092 (12,092)(1)(2) --
------- -------- -------
Total stockholders'
equity.................... 16,611 (12,636) 3,975
------- -------- -------
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY............... $49,400 $ (2,006) $47,394
======= ======== =======
</TABLE>
See notes to pro forma financial statements.
F-29
<PAGE>
CONRAD INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ -------------------------
ORANGE COMPANY
CONRAD SHIPBUILDING ADJUSTMENTS COMBINED
------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue................. $22,117 $15,533 $(1,728)(3) $35,922
Cost of revenue......... 15,032 8,623 (906)(3)(4) 22,749
------- ------- ------- -------
Gross profit............ 7,085 6,910 (822) 13,173
Selling, general and
administrative
expenses............... 2,242 1,048 765 (4) 4,055
------- ------- ------- -------
Income from operations.. 4,843 5,862 (1,587) 9,118
Interest expense........ (126) (262) (1,985)(5) (2,373)
Other income............ 188 252 -- 440
------- ------- ------- -------
Income before income
taxes.................. 4,905 5,852 (3,572) 7,185
Additional pro forma
data:
Pro forma provision
for income taxes
related to operations
as S corporation..... (1,815)(6) (2,048)(6) 1,322 (6) (2,541)
------- ------- ------- -------
Pro forma net income.. $ 3,090 $ 3,804 $(2,250) $ 4,644
======= ======= ======= =======
Pro forma net income per
common share:
Basic and diluted..... $ .58 $ .87
Pro forma weighted
average shares
outstanding:
Basic and diluted..... 5,342 (7) 5,342 (7)
</TABLE>
See notes to pro forma financial statements.
F-30
<PAGE>
CONRAD INDUSTRIES, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The adjustments reflected in the pro forma financial statements are as
follows:
(1) Prior to the Reorganization and the completion of the Offering,
Conrad will terminate its status as an S corporation and will become
subject to corporate income taxes. This adjustment reflects the estimated
deferred tax liability at March 31, 1998, primarily relating to the
difference in book and tax basis of property and equipment. The deferred
tax liability that will be recorded as a charge to operations in the second
quarter of 1998 will be recorded based on the book and tax differences on
the date of termination of S corporation status.
(2) Reflects distributions of cash and non-operating assets (including
borrowings of $10.0 million under the Revolving Credit Facility to fund
certain distributions) to be made to stockholders of Conrad prior to the
termination of its S corporation status and the Offering.
(3) Adjusts contracts in progress related to Orange Shipbuilding to
conform to the revenue recognition policy of Conrad for contracts in
progress. Conrad measures percentage of completion based on estimated labor
hours 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 adjustments to reflect the provision for income taxes
assuming the companies had operated as C corporations and the income tax
effects of the pro forma adjustments.
(7) Pro forma net income per share is based on the number of shares of
common stock of the Company outstanding after the Reorganization upon
exchange of shares of Conrad common stock by Conrad stockholders as of
December 31, 1997 (4,660,486 shares), excluding 539,514 shares issued to
certain executive officers upon exchange of shares of Conrad common stock
issued to them during the first quarter of 1998; increased to reflect
sufficient additional shares to pay a $10 million distribution of estimated
undistributed earnings to stockholders (681,199 shares) based on an assumed
offering price of $16.00 per share, net of offering expenses.
In connection with the issuance of shares of common stock of Conrad to
certain executive officers, the Company estimates that it will recognize
aggregate compensation expense of $8.6 million, of which $4.3 million was
recognized in the first quarter of 1998 and the remainder will be
recognized over a three-year vesting period.
F-31
<PAGE>
[INSIDE BACK COVER PAGE]
Conrad has available capacity at existing shipyards to significantly increase
construction, conversion and repair activities without significant additional
capital expenditures. The Company believes that opportunities exist to take
advantage of this capacity due to the age and condition of many vessels
currently operating in the Gulf of Mexico, the regulatory requirements for
periodic inspection and drydocking and demand for new vessel construction and
fabrication of modular components for offshore drilling rigs and FPSOs.
[AERIAL PHOTO OF FACILITY]
Conrad Shipyard - Amelia, Louisiana
[PHOTO OF SUPPLY VESSEL UNDER REPAIR]
Extensive Repair of 180 Foot Offshore Supply Vessel
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES
OF COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Corporate Reorganization.................................................. 16
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 29
Management................................................................ 47
Certain Transactions...................................................... 52
Principal Stockholders.................................................... 53
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 59
Underwriting.............................................................. 60
Legal Matters............................................................. 62
Experts................................................................... 62
Available Information..................................................... 63
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1998, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
[LOGO OF CONRAD INDUSTRIES, INC. 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.............................................. 48,750
Accounting Fees and Expenses.................................... 160,000
Legal Fees and Expenses......................................... 150,000
Printing Expenses............................................... 100,000
Transfer Agent's Fees........................................... 3,500
Miscellaneous................................................... 17,944
--------
Total........................................................... $500,000
========
</TABLE>
- --------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted
in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
Section 145 in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
to which the indemnified party may be entitled; that indemnification provided
for by Section 145 shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of such person's heirs,
executors and administrators; and empowers the corporation to purchase and
maintain insurance on behalf of a director or officer of the corporation
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such whether or not the corporation
would have the power to indemnify him against such liabilities under Section
145.
II-1
<PAGE>
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
Article Ninth of the Company's Charter states that:
No director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty by such
director as a director; provided, however, that this Article Ninth shall not
eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware or
(iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article Ninth shall apply to, or
have any effect on, the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. If the General Corporation Law of
the State of Delaware is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended.
In addition, Article VI of the Company's Bylaws further provides that the
Company shall indemnify its officers, directors and employees to the fullest
extent permitted by law.
The Company has entered into indemnification agreements with each of its
executive officers and directors.
Under Section 6 of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under
certain conditions, the Company, its officers and directors, and persons who
control the Company within the meaning of the Securities Act of 1933, as
amended, against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The only securities issued by the Company during the past three years that
were not registered under the Securities Act of 1933 consist of (i) 1,000
shares of Common Stock issued to John P. Conrad, Jr. in connection with the
Company's organization (which shares were canceled pursuant to the
Reorganization), (ii) the 5,200,000 shares of Common Stock issued in
connection with the Reorganization and (iii) options to purchase an aggregate
of 130,000 shares of Common Stock granted pursuant to the Stock Plan. These
transactions were completed without registration under the Securities Act of
1933 in reliance on the exemption provided by Section 4(2) of the Securities
Act of 1933. The limited number of persons who received shares of Common Stock
of the Company in connection with the Reorganization all owned shares of
common stock of Conrad and were officers or directors of Conrad, or affiliates
controlled by such persons, immediately prior to the Reorganization. The
options were issued to a limited number of key employees of the Company for no
consideration.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
<C> <C> <S>
1.1+ -- Form of Underwriting Agreement.
3.1+ -- Form of Amended and Restated Certificate of Incorporation.
3.2+ -- Form of Amended and Restated Bylaws.
4.1 -- Specimen Common Stock Certificate (Incorporated herein to the
Company's registration statement on Form 8-A).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
<C> <C> <S>
4.2+ -- Form of Registration Rights Agreement by and among the Company, J.
Parker Conrad, John P. Conrad, Jr., Katherine C. Court, The John
P. Conrad, Jr. Trust, The Daniel T. Conrad Trust, The Glenn Alan
Conrad Trust, The Kenneth C. Conrad Trust, The Katherine C. Court
Trust, The James P. Court Trust, William H. Hidalgo, and Cecil A.
Hernandez.
4.3* -- Form of Registration Rights Agreement between the Company and
Morgan Keegan & Company, Inc.
5.1* -- Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered.
10.1+ -- Stock Purchase Agreement, dated as of December 12, 1997, by and
among Conrad, Orange Shipbuilding, Thomas E. Clary, Robert D.
Clary and George B. Clary.
10.2+ -- Loan Agreement, dated as of March 19, 1998, by and among Whitney
National Bank, Conrad and Orange Shipbuilding.
10.3** -- Revolving Credit Facility, dated May , 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.
16.1* -- Letter from Darnall, Sikes & Frederick CPAs re change in
accountants.
23.1* -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1).
23.2* -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Michael J. Harris to be named as nominee.
23.4* -- Consent of Louis J. Michot, Jr. to be named as nominee.
23.5* -- Consent of Richard E. Roberson, Jr. to be named as nominee.
24.1+ -- Powers of Attorney (included on the signature page contained in
Part II of the Registration Statement).
27.1+ -- Financial Data Schedule
</TABLE>
- --------
+ Previously filed.
* Filed herewith.
** 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.
II-3
<PAGE>
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MORGAN CITY,
LOUISIANA, ON MAY 18, 1998.
CONRAD INDUSTRIES, INC.
By: /s/William H. Hidalgo
----------------------------------
William H. Hidalgo
President and Chief Executive
Officer
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.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
*
Co-Chairman of the May 18, 1998
Board of Directors
- -----------------------------------
J. Parker Conrad
*
Co-Chairman of the May 18, 1998
Board of Directors
- -----------------------------------
John P. Conrad, Jr.
/s/ William H. Hidalgo President, Chief May 18, 1998
Executive Officer and
- ----------------------------------- Director (Principal
William H. Hidalgo Executive Officer)
/s/ Cecil A. Hernandez Vice President-- May 18, 1998
Finance and
- ----------------------------------- Administration, Chief
Cecil A. Hernandez Financial Officer and
Director (Principal
Financial and
Accounting Officer)
* /s/ Cecil A. Hernandez
- -----------------------------------
Cecil A. Hernandez,
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May ___,
1998, is by and between Conrad Industries, Inc., a Delaware corporation (the
"Company"), and Morgan Keegan & Company, Inc., a Tennessee corporation ("Morgan
Keegan").
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, pursuant to the terms of the Warrant Agreement, dated as of
May __, 1998, by and between the Company and Morgan Keegan (the "Warrant
Agreement"), at the closing of the IPO the Company will issue Warrants (as
defined in the Warrant Agreement) to Morgan Keegan;
WHEREAS, following the IPO, the Common Stock issuable upon exercise of the
Warrants 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 (as defined in the
Warrant Agreement) 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;
<PAGE>
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:
1. Demand Registration.
(A) Definition. As used in this Agreement, "Restricted Stock" shall
mean all shares of Common Stock issued or issuable to the Holders pursuant to
the Warrant Agreement and 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."
-2-
<PAGE>
(B) Request for Registration. Subject to the conditions and
limitations set forth in Section 4 of this Agreement, at any time and from time
to time after the first anniversary of the closing of the IPO and before the
fifth anniversary of the effective date of the registration statement related to
the IPO, the Holder or Holders of Restricted Stock holding in the aggregate
Fifty Percent (50%) of the aggregate number of initial shares of Restricted
Stock (____ shares) 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"). 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. Other than Holders of Restricted Stock, no other party, including the
Company and the parties to the Registration Rights Agreement dated ________,
1998 between the Company and its stockholders as of such date (the "Stockholder
Registration Rights Agreement"), shall be permitted to offer securities under
any such Demand Registration unless the Holder of Holders requesting the Demand
Registration shall consent thereto in writing. A registration statement will
not count as a Demand Registration until it has become effective and until the
earlier of (i) the Holder or Holders have sold or distributed the Restricted
Stock thereunder or (ii) the fifth anniversary of the closing of the IPO.
-3-
<PAGE>
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 and other than a
Registration Statement pursuant to a "Demand Registration" under the Stockholder
Registration Rights Agreement), then the Company shall in each case give written
notice of such proposed filing to the 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
theretofor disposed of the Restricted Stock and provided further, however, that
the rights of the Holders under this Section 2 shall expire on the seventh
anniversary of the effective date of the registration statement related to the
IPO. 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
-4-
<PAGE>
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 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
-5-
<PAGE>
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 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 resale of such Restricted Stock pursuant to Rule
415 of the General Rules and Regulations of the SEC promulgated under the
Securities Act, and use its reasonable efforts to cause such registration
statement to become effective; provided that (i) the Company shall not be
required to file a registration statement pursuant to this subsection (A) other
than on Form S-3 or a similar form that permits the incorporation by reference
from reports filed pursuant to the Exchange Act and (ii) 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
-6-
<PAGE>
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); and provided further 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;
(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 270
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
-7-
<PAGE>
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 as any selling Holder reasonably (in
light of such selling Holder's 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
-8-
<PAGE>
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) promptly notify each selling Holder of Restricted Stock of any
stop 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;
(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
-9-
<PAGE>
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;
(I) in the event such sale is pursuant to an underwritten offering of
Restricted Stock related to a request pursuant to Section 2, 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
-10-
<PAGE>
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 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
-11-
<PAGE>
(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 clause (ii)
of the first proviso of subparagraph (A) of Section 3; and
(ii) 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 (ii) 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).
-12-
<PAGE>
6. Registration Expenses. All Registration Expenses (as defined herein)
related to the offering and sale of Restricted Stock pursuant to Section 1 will
be borne and paid by the Holders in direct proportion to the number of shares of
Restricted Stock sold by a Holder pursuant to the registration statement filed
pursuant to Section 1 bears to the total number of shares of Restricted Stock
sold by all Holders pursuant to the Registration Statement, and any other
expenses incurred by the Company shall be borne and paid by the Company. All
Registration Expenses and any other expenses incurred by the Company related to
the offering and sale of Restricted Stock pursuant to Section 2 will be borne
and paid by the Company. Underwriting discounts and commissions applicable to
the sale of Restricted Stock 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 only the following
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): 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), printing expenses, 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), fees and
-13-
<PAGE>
disbursements of counsel for the Company, and fees and expenses of the Company's
independent certified public accountants (including the expenses of any special
audit or comfort letters required by or incident to such performance).
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.
-14-
<PAGE>
(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 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.
-15-
<PAGE>
(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 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
-16-
<PAGE>
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 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.
-17-
<PAGE>
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 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
-18-
<PAGE>
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.
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 Morgan Keegan:
50 Front Street
Memphis, Tennessee 38103
Attention: Michael J. Harris
Telephone: (901) 524-4100
With a copy 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
Telephone: (504) 582-8000
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
-19-
<PAGE>
hours, or at the beginning of the recipient's next business day after receipt if
not received during the 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.
-20-
<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 AND CHIEF EXECUTIVE OFFICER
MORGAN KEEGAN & COMPANY, INC.
By: _____________________________________
MICHAEL J. HARRIS, MANAGING DIRECTOR
-21-
<PAGE>
Exhibit 5.1
[ANDREWS & KURTH LETTERHEAD]
May 18, 1998
Conrad Industries, Inc.
1501 Front Street
P.O. Box 790
Morgan City, Louisiana 70381
Ladies and Gentlemen:
We have acted as counsel for Conrad Industries, Inc., a Delaware
corporation (the "Company"), in connection with the Company's Registration
Statement on Form S-1 (the "Registration Statement"), relating to the
registration under the Securities Act of 1933, as amended, of the offering and
sale of up to an aggregate of 2,875,000 shares (the "Shares") of common stock,
$0.01 par value per share (the "Common Stock"). The Shares include 375,000
shares of Common Stock being offered by the Company which may be sold pursuant
to an over-allotment option granted to the Underwriters named in the
Registration Statement.
As the basis for the opinion hereinafter expressed, we have examined such
statutes, regulations, corporate records and documents, certificates of
corporate and public officials, and other instruments as we have deemed
necessary or advisable for the purposes of this opinion. In such examination we
have assumed the authenticity of all documents submitted to us as originals and
the conformity with the original documents of all documents submitted to us as
copies.
Based upon the foregoing and having due regard for such legal
considerations as we deem relevant, we are of the opinion that the Shares have
been duly authorized and, when sold in the manner described in the Registration
Statement and the Underwriting Agreement described therein, will be legally
issued and constitute fully paid and nonassessable shares of Common Stock.
This opinion is limited in all respects to the General Corporation Law of
the State of Delaware and the laws of the United States of America insofar as
such laws are applicable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus without admitting that we are "experts" under
the Securities Act of 1933, as amended, or the rules and regulations of the
Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
ANDREWS & KURTH L.L.P.
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Orange
Shipbuilding Company, Inc., a Texas corporation (the "Company"), and Ralph C.
Thon ("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, the Company is currently a subsidiary of Conrad Industries,
Inc., a Louisiana corporation (to be renamed Conrad Shipyard, Inc.), and a
Delaware corporation to be named Conrad Industries, Inc. ("Conrad") has been
formed to become the parent corporation of the Company;
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 General Manager of the
Company. As such, Executive shall have responsibilities, duties and
authority reasonably accorded to, expected of and consistent with
Executive's position as the General Manager 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 $85,000 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 eligibility 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.
-2-
<PAGE>
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
-3-
<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
-4-
<PAGE>
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
-5-
<PAGE>
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
-6-
<PAGE>
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.
-7-
<PAGE>
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'
-8-
<PAGE>
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.
-9-
<PAGE>
(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.
(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
-10-
<PAGE>
(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: Orange Shipbuilding Company, Inc.
c/o Conrad Industries, Inc.
150 Front St.
P.O. Box 790
Morgan City, Louisiana 70381
Attn: Chairman of the Board
To Executive: Ralph C. Thon
c/o Orange Shipbuilding Company, Inc.
P. O. Box 1670
Orange, Texas 77630
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,
-11-
<PAGE>
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.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
ORANGE SHIPBUILDING COMPANY, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
EXECUTIVE
_________________________________
Ralph C. Thon
-13-
<PAGE>
EXHIBIT 10.12
================================================================================
WARRANT AGREEMENT
BETWEEN
CONRAD INDUSTRIES, INC.
AND
MORGAN KEEGAN & COMPANY, INC.
___________________________________
DATED AS OF MAY ___, 1998
___________________________________
Warrants to Purchase ________ Common Shares
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
AGREEMENT 1
1. DEFINITIONS.............................................................. 1
2. WARRANT CERTIFICATES..................................................... 5
2.1 Issuance of Warrant................................................. 5
2.2 Form, Denomination and Date of Warrants............................. 5
2.3 Execution and Delivery of Warrant Certificates...................... 5
2.4 Transfer and Exchange; Restrictions on Transfer; Legend............. 6
3. EXERCISE AND EXPIRATION OF WARRANTS...................................... 8
3.1 Right to Acquire Warrant Shares Upon Exercise....................... 8
3.2 Exercise and Expiration of Warrants................................. 8
(a) Exercise of Warrants............................................ 8
(b) Expiration of Warrants.......................................... 8
(c) Method of Exercise.............................................. 8
(d) Partial Exercise................................................ 9
(e) Issuance of Warrant Shares...................................... 9
(f) Time of Exercise................................................ 9
3.3 Payment of Taxes....................................................10
3.4 Surrender of Certificates...........................................10
3.5 Shares Issuable.....................................................10
4. DISSOLUTION, LIQUIDATION OR WINDING UP...................................10
5. ADJUSTMENTS..............................................................11
5.1 Adjustments.........................................................11
(a) Stock Dividends, Subdivisions and Combinations..................11
(b) Certain Other Dividends and Distributions.......................12
(c) Reclassifications...............................................12
(d) Distribution of Warrants or Other Rights to Holders of
Common Shares...................................................13
(e) Superseding Adjustment of Number of Warrant Shares into
Which Each Warrant is Exercisable...............................13
(f) Other Provisions Applicable to Adjustments under this Section...13
(g) Warrant Price Adjustment........................................14
(h) Merger, Consolidation or Combination............................15
(i) Compliance with Governmental Requirements.......................15
<PAGE>
(j) Optional Tax Adjustment.........................................15
(k) Warrants Deemed Exercisable.....................................15
(l) Limitations on Certain Non-Stock Dividends......................15
5.2 Notice of Adjustment................................................16
5.3 Statement on Warrant Certificates...................................16
5.4 Fractional Interest.................................................16
6. LOSS OR MUTILATION.......................................................16
7. RESERVATION AND AUTHORIZATION OF WARRANT SHARES..........................17
8. WARRANT TRANSFER BOOKS...................................................17
9. WARRANT HOLDERS..........................................................18
9.1 Voting or Dividend Rights............................................18
9.2 Rights of Action.....................................................19
9.3 Treatment of Holders of Warrant Certificates.........................19
9.4 Communications to Holders............................................19
10. NOTICES..................................................................19
10.1 Notices Generally...................................................19
10.2 Required Notices to Holders.........................................21
11. APPLICABLE LAW...........................................................21
12. PERSONS BENEFITING.......................................................22
13. COUNTERPARTS.............................................................22
14. AMENDMENTS...............................................................22
15. INSPECTION...............................................................22
16. SUCCESSOR TO THE COMPANY.................................................22
17. ENTIRE AGREEMENT.........................................................23
18. HEADINGS.................................................................23
-ii-
<PAGE>
EXHIBITS
A. Form of Warrant Certificate.............................................A-1
-iii-
<PAGE>
WARRANT AGREEMENT
This WARRANT AGREEMENT, dated as of May ___, 1998, is entered into between
CONRAD INDUSTRIES, INC., a Delaware corporation (the "Company"), and MORGAN
KEEGAN & COMPANY, INC., a Tennessee corporation ("Morgan Keegan").
R E C I T A L S:
- - - - - - - -
A. This Agreement is entered into in connection with a letter agreement,
dated October 28, 1997 between Conrad Industries, Inc., a Louisiana corporation
("Conrad"), and Morgan Keegan (the "Engagement Agreement").
B. Pursuant to the Engagement Agreement and in connection with the
Company's proposed initial public offering of its Common Shares (as defined
below), the Company, as the successor of Conrad pursuant to a corporate
reorganization involving the Company and Conrad, proposes to issue to Morgan
Keegan _________ Warrants, as hereinafter described, each to purchase from time
to time at the Warrant Price (as defined below) one Common Share (as defined
below) of the Company on and after the Issue Date (as defined below) and on or
prior to the Expiration Date (as defined below).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. DEFINITIONS
"Additional Common Shares" shall mean all Common Shares issued or issuable
by the Company after the date of this Agreement, other than the Warrant Shares.
"Affiliate" shall mean, as to any Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control of such Person. For purposes of this definition, "control" when used
with respect to any Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" shall mean this Warrant Agreement, as the same may be amended,
modified or supplemented from time to time.
"Business Day" shall mean a day which in New York, New York is neither a
legal holiday nor a day on which banking institutions are authorized by law or
regulation to close.
<PAGE>
"Capital Stock" of any Person shall mean any and all shares, interests,
participations, or other equivalents (however designated) of such Person's
capital stock, and any warrants, options or similar rights to acquire such
capital stock.
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Common Shares" shall mean (i) the common stock, par value $.01 per share,
of the Company, as constituted on the original issuance of the Warrants, (ii)
any Capital Stock into which such Common Shares may thereafter be changed and
(iii) except as provided in Section 5.1(c), any share of the Company of any
other class issued to holders of such Common Shares upon any reclassification
thereof.
"Company" shall mean the company identified in the preamble hereof and its
successors and assigns.
"Corporate Office" shall mean the executive offices of the Company located
at 1501 Front Street, P. O. Box 790, Morgan City, Louisiana 70381 or such other
place as the Company shall locate its executive offices.
"Current Market Price" shall mean, with respect to any security on any date
the average of the daily Market Prices of such security for each Business Day
during the period commencing thirty (30) Business Days before such date and
ending on the date one day prior to such date provided, however, that in the
event that the Current Market Price per share of a security is determined during
a period following the announcement by the Company of (A) a dividend or
distribution on such a security payable in shares of such a security or
securities convertible into shares of such a security, or (B) any subdivision,
combination or reclassification of such security, and prior to the expiration of
such thirty (30) Business Day period before such date (or, if applicable, such
lesser number of Business Days before such date for which daily Market Prices
are available) the ex-dividend date for such dividend or distribution, or the
record date for such subdivision, combination or reclassification, occurs, then,
in each such case, the Current Market Price shall be properly adjusted to take
into account ex-dividend trading.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Expiration Date" shall mean May ___, 2003 (five years from the effective
date of the Registration Statement) or such earlier date as determined in
accordance with Section 4.
"Holder" or "Warrantholder" shall mean any Person in whose name at the time
any Warrant Certificate is registered upon the Warrant Register.
"Independent" shall mean a nationally recognized investment banking firm or
Person (as the case may be) (i) that does not then have, and for the ten years
immediately preceding such time has
-2-
<PAGE>
not had (and, in the case of a nationally recognized investment banking firm,
whose directors, officers, employees and Affiliates do not then have, and for
the ten years immediately preceding such time have not had) a direct or indirect
interest in the Company or any of its Subsidiaries or Affiliates or any
successor to any of them and (ii) that is not then, and for the ten years
immediately preceding such time was not (and, in the case of a nationally
recognized investment banking firm, whose directors, officers, employees or
Affiliates are not then, and for the ten years immediately preceding such time
were not) an employee, consultant, advisor, director, officer or Affiliate (it
being understood that the term "Independent" when applied to a director of the
Company, means a non-employee director of the Company whose only relationship
with the Company during the relevant period has been as a director of the
Company) of the Company, any of its Subsidiaries or Affiliates or any successor
to any of them.
"Independent Financial Expert" shall mean an Independent nationally
recognized investment banking firm with assets in excess of $1.0 billion
selected by a majority of the members of the Board of Directors (and by a
majority of the Independent members of the board, if any) of the Company.
"Issue Date" shall mean the Closing Date, as such term is defined in the
underwriting agreement for the Company's initial public offering of Common
Shares.
"Market Price" at any date shall be deemed to be the last reported sale
price, or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three trading days, in either case as
officially reported by the principal securities exchange on which the securities
are listed or admitted to trading or by the NNM, or, if the securities are not
listed or admitted to trading on any national securities exchange or quoted by
NNM, the average closing bid price as furnished by the NASD through NNM or
similar organization if NNM is no longer reporting such information, or if the
securities are not quoted on NNM, as determined in good faith by resolution of
the Board of Directors of the Company.
"Morgan Keegan" shall mean the company identified in the preamble hereof
and its successors.
"NASD" shall mean National Association of Securities Dealers, Inc.
"NNM" shall mean Nasdaq National Market.
"Non-Stock Dividend" shall mean any payment by the Company to all holders
of its Common Shares of any dividend, or any other distribution by the Company
to such holders, of any shares of Capital Stock of the Company, evidences of
indebtedness of the Company, cash or other assets (including rights, warrants or
other securities (of the Company or any other Person)), other than any dividend
or distribution (i) upon a merger or consolidation or sale to which Section
5.1(h) applies, (ii) of any Common Shares referred to in Section 5.1(a) or (iii)
of cash not in liquidation of the Company.
-3-
<PAGE>
"Non-Surviving Combination" shall mean any merger, consolidation or other
business combination by the Company with one or more other entities in a
transaction in which the Company is not the surviving entity or becomes a
wholly-owned subsidiary of another entity.
"outstanding" shall mean, as of the time of determination, when used with
respect of any Warrants, all Warrants originally issued under this Agreement
except (i) Warrants that have been exercised pursuant to Section 3.2(a), (ii)
Warrants that have expired pursuant to Sections 3.2(b), 4 or 6 and (iii)
Warrants that have otherwise been acquired by the Company; provided, however,
that in determining whether the Holders of the requisite amount of the
outstanding Warrants have given any request, demand, authorization, direction,
notice, consent or waiver under the provisions of this Agreement, Warrants owned
by the Company or any Subsidiary or Affiliate of the Company or any Person that
is at such time a party to a merger or acquisition agreement with the Company
shall be disregarded and deemed not to be outstanding.
"Person" shall mean any individual, corporation (including a business
trust), partnership, joint venture, association, joint-stock company, trust,
estate, limited liability company, unincorporated association, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
"Recipient" shall have the meaning given such term in Section 3.2(e).
"Registration Statement" shall mean the registration statement under the
Act relating to the Company's initial public offering of Common Shares.
"Restricted Warrant Legend" shall mean the legend set forth in Section
2.4(b).
"Rule 144" shall mean Rule 144 promulgated under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" shall mean, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof.
"Trigger Date" shall mean the first anniversary of the Issue Date.
"Warrant Certificates" shall mean those certain warrant certificates
evidencing the Warrants, substantially in the form of Exhibit A attached hereto.
-4-
<PAGE>
"Warrant Price" shall mean the exercise price per Warrant Share, initially
set at $_____ (the initial public offering price per share of the Common Shares
issued in the Company's initial public offering), subject to adjustment as
provided in Section 5.1(g).
"Warrant Register" shall have the meaning given such term in Section 8.
"Warrant Shares" shall mean the Common Shares issuable upon exercise of the
Warrants, the number and nature of which are subject to adjustment from time to
time in accordance with Section 5.
"Warrants" shall mean those warrants issued hereunder to purchase initially
up to an aggregate of __________ Warrant Shares at the Warrant Price, subject to
adjustment pursuant to Section 5.
2. WARRANT CERTIFICATES
2.1 Issuance of Warrant. An aggregate of __________ Warrants shall be
issued on the Issue Date to Morgan Keegan. The Company shall issue to Morgan
Keegan Warrant Certificates evidencing such Warrants. Each Warrant Certificate
issued pursuant to this Section 2.1 shall evidence the number of Warrants
specified therein and each Warrant evidenced thereby shall represent the right,
subject to the provisions contained herein and therein, to purchase one Warrant
Share, subject to adjustment as provided in Section 5.
2.2 Form, Denomination and Date of Warrants.
(a) Warrant Certificates shall be substantially in the form of
Exhibit A hereto. The Warrants shall be numbered, lettered or otherwise
distinguished in such manner or in accordance with such plans as the officers of
the Company executing the same may determine. Each Warrant shall be dated the
date of its authentication. Any of the Warrants may be issued with appropriate
insertions, omissions, substitutions and variations, and may have imprinted or
otherwise reproduced thereon such legend or legends, not inconsistent with the
provisions of this Agreement, as may be required to comply with any law or with
any rules or regulations pursuant thereto, or with the rules of any securities
market in which the Warrants are admitted to trading, or to conform to general
usage. All Warrants shall be otherwise substantially identical except as to
denomination and as provided herein.
(b) Each Warrant Certificate issued pursuant to this Agreement will
bear the Restricted Warrant Legend unless removed in accordance with Section
2.4.
2.3 Execution and Delivery of Warrant Certificates.
(a) Warrant Certificates evidencing the Warrants which may be
delivered under this Agreement are limited to Warrant Certificates evidencing
________ Warrants, except for
-5-
<PAGE>
Warrant Certificates delivered pursuant to Sections 2.4, 3.2(d), 6 and 8 upon
registration of transfer of, or in exchange for, or in lieu of, one or more
previously issued Warrant Certificates and as may be necessary to reflect the
adjustments required by Section 5.
(b) At any time and from time to time on or after the date of this
Agreement, Warrant Certificates evidencing the Warrants may be executed and
delivered by the Company for issuance upon transfer of Warrants pursuant to the
provisions of Section 2.4.
(c) The Warrant Certificates shall be executed in the corporate name
and on behalf of the Company by the Chairman (or any Co-Chairman) of the Board,
the Chief Executive Officer, the President or any one of the Vice Presidents of
the Company under corporate seal reproduced thereon and attested to by the
Secretary or one of the Assistant Secretaries of the Company, either manually or
by facsimile signature printed thereon. In case any officer of the Company
whose signature shall have been placed upon any of the Warrant Certificates
shall cease to be such officer of the Company before and delivery thereof, such
Warrant Certificates may, nevertheless, be issued and delivered with the same
force and effect as though such person had not ceased to be such officer of the
Company, and any Warrant Certificate may be signed on behalf of the Company by
such person as, at the actual date of the execution of such Warrant Certificate,
shall be a proper officer of the Company, although at the date of the execution
of this Agreement any such person was not such an officer.
2.4 Transfer and Exchange; Restrictions on Transfer; Legend.
(a) The Holder of a Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrants are being acquired as an investment and
not with a view to the distribution thereof, and that, notwithstanding anything
in this Agreement to the contrary, the Warrants and underlying Warrant Shares
may not be sold, transferred, assigned, hypothecated or otherwise disposed of,
in whole or in part, for a period of one year from the effective date of the
Registration Statement (except by operation of law or by reason of
reorganization of the Company); provided, however, that during such restricted
period (A) the Warrants and Warrant Shares may be transferred to any member of
the NASD participating in the Company's initial public offering (and to their
successors) and to the bona fide officers or partners thereof (and pursuant to
any such individual's last will and testament or the laws of descent and
distribution), and (B) the Warrants may be exercised, but the Warrant Shares
received upon such exercise shall remain subject to the foregoing restriction on
transferability for the remainder of the initially applicable time period.
(b) Except as provided in Section 2.4(d), each Warrant Certificate and
each certificate representing Warrant Shares shall bear the following legend
(the "Restricted Warrant Legend"):
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR
-6-
<PAGE>
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO COUNSEL FOR THE ISSUER THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT AND SUCH LAWS IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE AND
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF IS RESTRICTED IN ACCORDANCE
WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
(c) If a Holder of a Warrant wishes at any time to transfer such
Warrant to a Person who wishes to take delivery thereof, such Holder may,
subject to the restrictions on transfer set forth herein and in such Warrant,
cause the exchange of such Warrants for one or more Warrants exercisable for the
same aggregate number of Warrant Shares. Upon receipt by the Company at its
Corporate Office of (1) such Warrant, duly endorsed as provided herein, (2)
instructions from such Holder directing the Company to authenticate and deliver
one or more Warrants exercisable for the same aggregate number of Warrant Shares
as the Warrant to be exchanged, such instructions to contain the name or names
of the designated transferee or transferees, the authorized denomination or
denominations of the Warrants to be so issued and appropriate delivery
instructions, and (3) if required pursuant to Section 2.4(d), an opinion of
counsel to the transferor of such Warrant, reasonably satisfactory to the
Company, to the effect that the transfer of such Warrant has been registered
under the Securities Act or is exempt from registration thereunder pursuant to
an applicable exemption therefrom, then the Company shall cancel or cause to be
canceled such Warrant and, concurrently therewith, the Company shall execute and
deliver, one or more Warrants to the effect set forth therein, in accordance
with the instructions referred to above.
(d) If Warrants or Warrant Shares are issued upon the transfer,
exchange or replacement of Warrants or Warrant Shares bearing the Restricted
Warrant Legend, or if a request is made to remove such Restricted Warrant
Legend, the Warrants or Warrant Shares so issued shall bear the Restricted
Warrant Legend, or the Restricted Warrant Legend shall not be removed, as the
case may be, unless there is delivered to the Company satisfactory evidence,
which may include an opinion of counsel as may be reasonably required by the
Company to the effect that neither the Restricted Warrant Legend nor the
restrictions on transfer set forth therein are required to ensure that transfers
thereof comply with the provisions of the Securities Act or, with respect to
Warrants or Warrant Shares, that such Warrants or Warrant Shares are not
"restricted" within the meaning of Rule 144 under the Securities Act. Upon
provision of such satisfactory evidence the Company shall authenticate and
deliver Warrant Certificates that do not bear the Restricted Warrant Legend.
(e) No service charge shall be made to a Warrantholder for any
registration of transfer or exchange; provided, however, that the Company may
require payment of a sum sufficient
-7-
<PAGE>
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Warrant Certificates.
3. EXERCISE AND EXPIRATION OF WARRANTS
3.1 Right to Acquire Warrant Shares Upon Exercise.
Each Warrant Certificate shall entitle the Holder thereof, subject to the
provisions thereof and of this Agreement, to acquire from the Company, for each
Warrant evidenced thereby, one Warrant Share at the Warrant Price, subject to
adjustment as provided in this Agreement. The Warrant Price shall be adjusted
from time to time as required by Section 5.1. The Warrants are exercisable at
any time on and after the Issue Date and on or prior to the Expiration Date.
3.2 Exercise and Expiration of Warrants.
(a) Exercise of Warrants. Subject to the terms and conditions set
forth herein, including, without limitation, the exercise procedure described in
Section 3.2(c), a Holder of a Warrant Certificate may exercise all or any whole
number of the Warrants evidenced thereby, on any Business Day on and after the
Issue Date until 5:00 p.m., Morgan City, Louisiana time, on the Expiration Date
(subject to earlier expiration pursuant to Section 4) for the Warrant Shares
purchasable thereunder.
(b) Expiration of Warrants. The Warrants shall terminate and become
void as of 5:00 p.m., Morgan City, Louisiana time, on the Expiration Date,
subject to earlier expiration in accordance with Section 4. In the event that
the Warrants are to expire by reason of Section 4, the term "Expiration Date"
shall mean such earlier date for all purposes of this Agreement.
(c) Method of Exercise. The Holder may exercise all or any of the
Warrants by either of the following methods:
(i) The Holder may deliver to the Company at the Corporate Office
(A) a written notice of such Holder's election to exercise Warrants, duly
executed by such Holder in the form set forth on the reverse of, or
attached to, such Warrant Certificate, which notice shall specify the
number of Warrant Shares to be purchased, (B) the Warrant Certificate
evidencing such Warrants and (C) a sum equal to the aggregate Warrant Price
for the Warrant Shares into which such Warrants are being exercised, which
sum shall be paid in any combination elected by such Holder of (x) a
certified or official bank check in New York Clearing House funds payable
to the order of the Company and delivered to the Company at the Corporate
Office, or (y) wire transfers in immediately available funds to the account
of the Company at such banking institution as the Company shall have given
notice to the Holders in accordance with Section 10.1(b); or
-8-
<PAGE>
(ii) The Holder may also exercise all or any of the Warrants in a
"cashless" or "net-issue" exercise by delivering to the Company at the
Corporate Office (A) a written notice of such Holder's election to exercise
Warrants, duly executed by such Holder in the form set forth on the reverse
of, or attached to, such Warrant Certificate, which notice shall specify
the number of Warrant Shares to be delivered to such Holder and the number
of Warrant Shares with respect to which such Warrants are being surrendered
in payment of the aggregate Warrant Price for the Warrant Shares to be
delivered to the Holder, and (B) the Warrant Certificate evidencing such
Warrants. For purposes of this subparagraph (ii), each Warrant Share as to
which such Warrants are surrendered in payment of the aggregate Warrant
Price will be attributed a value equal to (x) the Market Price per share of
Common Shares minus (y) the then-current Warrant Price. Solely for the
purposes of this paragraph, the Market Price shall be calculated either (A)
on the date which the form of election is deemed to have been sent to the
Company or (B) as the average of the Market Prices for each of the five
trading days preceding such date, whichever of (A) or (B) is greater.
(d) Partial Exercise. If fewer than all the Warrants represented by a
Warrant Certificate are exercised, such Warrant Certificate shall be surrendered
and a new Warrant Certificate of the same tenor and for the number of Warrants
which were not exercised shall be executed by the Company. The Company, subject
to the provisions of Section 8, as may be directed in writing by the Holder,
shall deliver the new Warrant Certificate to the Person or Persons in whose name
such new Warrant Certificate is so registered.
(e) Issuance of Warrant Shares. Upon surrender of a Warrant
Certificate evidencing Warrants in conformity with the foregoing provisions and
payment of the Warrant Price in respect of the exercise of one or more Warrants
evidenced thereby, when such payment is received, the Company shall thereupon,
as promptly as practicable, and in any event within three Business Days after
receipt by the Company of such notice of exercise, execute or cause to be
executed and deliver or cause to be delivered to the Recipient (as defined
below) a certificate or certificates representing the aggregate number of
Warrant Shares issuable upon such exercise (based upon the aggregate number of
Warrants so exercised), determined in accordance with Section 3.5, together with
an amount in cash in lieu of any fractional share(s) determined in accordance
with Section 5.4. The certificate or certificates so delivered shall be, to the
extent possible, in such denomination or denominations as such Holder shall
request in such notice of exercise and shall be registered or otherwise placed
in the name of, and delivered to, the Holder or, subject to Section 2.2 and
Section 3.3, such other Person as shall be designated by the Holder in such
notice (the Holder or such other Person being referred to herein as the
"Recipient").
(f) Time of Exercise. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date on which all
requirements set forth in Section 3.2(c) applicable to such exercise have been
satisfied. Subject to Section 5.1(f)(iv), certificate(s) evidencing the Warrant
Shares issued upon the exercise of such Warrant shall be
-9-
<PAGE>
deemed to have been issued and, for all purposes of this Agreement, the
Recipient shall, as between such Person and the Company, be deemed to be and
entitled to all rights of the holder of record of such Warrant Shares as of such
time.
3.3 Payment of Taxes.
The Company shall pay any and all taxes (other than income taxes) and other
charges that may be payable in respect of the issue or delivery of Warrant
Shares on exercise of Warrants pursuant hereto. The Company shall not be
required, however, to pay any tax or other charge imposed in respect of any
transfer involved in the issue and delivery of any certificates for Warrant
Shares or payment of cash to any Recipient other than the Holder of the Warrant
Certificate surrendered upon the exercise of a Warrant, and in case of such
transfer or payment, the Company shall not be required to issue or deliver any
certificate or pay any cash until (a) such tax or charge has been paid or an
amount sufficient for the payment thereof has been delivered to the Company or
(b) it has been established to the Company's satisfaction that any such tax or
other charge that is or may become due has been paid.
3.4 Surrender of Certificates.
Any Warrant Certificate surrendered for exercise shall be promptly canceled
by the Company and shall not be reissued by the Company.
3.5 Shares Issuable.
The number of Warrant Shares "issuable upon exercise" of Warrants at any
time shall be the number of Warrant Shares into which such Warrants are then
exercisable. The number of Warrant Shares "into which each Warrant is
exercisable" initially shall be one share, subject to adjustment as provided in
Section 5.1.
4. DISSOLUTION, LIQUIDATION OR WINDING UP
If, on or prior to the Expiration Date, the Company (or any other Person
controlling the Company) shall propose a voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, each Warrantholder
shall receive the securities, money or other property which such Warrantholder
would have been entitled to receive had such Warrantholder been the holder of
record of the Warrant Shares into which the Warrants were exercisable
immediately prior to such dissolution, liquidation or winding up (net of the
then applicable Warrant Price), and the rights to exercise such Warrants shall
terminate.
If, on or prior to the Expiration Date, the Company (or any other Person
controlling the Company) shall propose a voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, the Company shall give
written notice thereof to all Holders of Warrant Certificates in the manner
provided in Section 10 prior to the date on which such transaction is
-10-
<PAGE>
expected to become effective or, if earlier, the record date for such
transaction. Such notice shall also specify the date as of which the holders of
record of the Common Shares shall be entitled to exchange their shares for
moneys, securities or other property deliverable upon such dissolution,
liquidation or winding up, as the case may be, the date on which each Holder of
Warrant Certificates shall be entitled to receive the moneys, securities or
other property which such Holder would have been entitled to receive had such
Holder been the holder of record of the Warrant Shares into which the Warrants
were exercisable immediately prior to such dissolution, liquidation or winding
up (net of the then applicable Warrant Price) and the date on which the rights
to exercise the Warrants shall terminate.
In case of any such voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company shall retain any moneys, securities or
other property which the Holders are entitled to receive under this Agreement.
After any Holder has surrendered a Warrant Certificate to the Company, the
Company shall make payment in the appropriate amount to such Person or Persons
as it may be directed in writing by the Holder surrendering such Warrant
Certificate. The Company shall not be required to pay interest on any money
deposited pursuant to the provisions of this Section 4.
5. ADJUSTMENTS
5.1 Adjustments.
The number of Warrant Shares into which each Warrant is exercisable and the
Warrant Price shall be subject to adjustment from time to time after the date
hereof in accordance (and only in accordance) with the provisions of this
Section 5:
(a) Stock Dividends, Subdivisions and Combinations. In case at any
time or from time to time after the date hereof the Company shall:
(i) pay to the holders of its Common Shares a dividend payable
in, or make any other distribution on any class of its capital stock in,
Common Shares (other than a dividend or distribution upon a merger or
consolidation or sale to which Section 5.1(h) applies);
(ii) subdivide its outstanding Common Shares into a larger number
of Common Shares (other than a subdivision upon a merger or consolidation
or sale to which Section 5.1(h) applies); or
(iii) combine its outstanding Common Shares into a smaller number
of Common Shares (other than a combination upon a merger or consolidation
or sale to which Section 5.1(h) applies);
-11-
<PAGE>
then, (x) in the case of any such dividend or distribution, effective
immediately after the opening of business on the day after the date for the
determination of the holders of Common Shares entitled to receive such dividend
or distribution or (y) in the case of any subdivision or combination, effective
immediately after the opening of business on the day after the day upon which
such subdivision or combination becomes effective, the number of Warrant Shares
into which each Warrant is exercisable shall be adjusted to that number of
Warrant Shares determined by (A) in the case of any such dividend or
distribution, multiplying the number of Warrant Shares into which each Warrant
is exercisable at the opening of business on the day after the day for
determination by a fraction (not to be less than one), (1) the numerator of
which shall be equal to the sum of the number of Common Shares outstanding at
the close of business on such date for determination and the total number of
shares constituting such dividend or distribution and (2) the denominator of
which shall be equal to the number of Common Shares outstanding at the close of
business on such date for determination, or (B) in the case of any such
combination, by proportionately reducing, or, in the case of any such
subdivision, by proportionately increasing, the number of Warrant Shares into
which each Warrant is exercisable at the opening of business on the day after
the day upon which such subdivision or combination becomes effective.
(b) Certain Other Dividends and Distributions. In case at any time or
from time to time after the date hereof the Company shall effect a Non-Stock
Dividend (other than any dividend or distribution of any warrants, options or
rights referred to in Section 5.1(d)), then, and in each such case, effective
immediately after the opening of business on the day after the date for the
determination of the holders of Common Shares entitled to receive such
distribution, the number of Warrant Shares into which each Warrant is
exercisable shall be adjusted to that number determined by multiplying the
number of Warrant Shares into which each Warrant is exercisable immediately
prior to the close of business on the date of determination by a fraction, (i)
the numerator of which shall be the Current Market Price per Common Share on
such date of determination and (ii) the denominator of which shall be such
Current Market Price per Common Share minus the portion applicable to one Common
Share of the fair market value (as determined in good faith by an Independent
Financial Expert) of such securities or other assets so distributed pursuant to
such Non-Stock Dividend.
(c) Reclassifications. A reclassification of the Common Shares (other
than any such reclassification in connection with a merger or consolidation or
sale to which Section 5.1(h) applies) into Common Shares and shares of any other
class of stock shall be deemed a distribution by the Company to the holders of
its Common Shares of such shares of such other class of stock for the purposes
and within the meaning of Section 5.1(b) (and the effective date of such
reclassification shall be deemed to be "the date for the determination of the
holders of Common Shares entitled to receive such distribution" for the purposes
and within the meaning of Section 5.1(b)) and, if the outstanding number of
Common Shares shall be changed into a larger or smaller number of Common Shares
as a part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding Common Shares for the
purposes and within the meaning of Section 5.1(a) (and the effective date of
such reclassification shall be deemed to be "the
-12-
<PAGE>
day upon which such subdivision or combination becomes effective" for the
purposes and within the meaning of Section 5.1(a)).
(d) Distribution of Warrants or Other Rights to Holders of Common
Shares In case at any time or from time to time after the date hereof the
Company shall make a distribution to all holders of outstanding Common Shares of
any warrants, options or other rights to subscribe for or purchase any
Additional Common Shares or securities convertible into or exchangeable for
Additional Common Shares (other than a distribution of such warrants, options or
rights upon a merger or consolidation or sale to which Section 5.1(h) applies),
whether or not the rights to subscribe or purchase thereunder are immediately
exercisable, and the consideration per share for which Additional Common Shares
may at any time thereafter be issuable pursuant to such warrants or other rights
shall be less than the Current Market Price per Common Share on the date fixed
for determination of the holders of Common Shares entitled to receive such
distribution, then, and for each such case, effective immediately after the
opening of business on the day after the date for determination, the number of
Warrant Shares into which each Warrant is exercisable shall be adjusted to that
number determined by multiplying the number of Warrant Shares into which each
Warrant is exercisable at the opening of business on the day after such date for
determination by a fraction (not less than one), (i) the numerator of which
shall be the number of Common Shares outstanding at the close of business on
such date for determination plus the maximum number of Additional Common Shares
issuable pursuant to all such warrants or other rights and (ii) the denominator
of which shall be the number of Common Shares outstanding at the close of
business on such date for determination plus the number of Common Shares that
the minimum consideration received and receivable by the Company for the
issuance of such maximum number of Additional Common Shares pursuant to the
terms of such warrants or other rights would purchase at such Current Market
Price.
(e) Superseding Adjustment of Number of Warrant Shares into Which Each
Warrant is Exercisable. In case at any time after any adjustment of the number
of Warrant Shares into which each Warrant is exercisable shall have been made
pursuant to Section 5.1(d) on the basis of the distribution of warrants or other
rights or after any new adjustment of the number of Warrant Shares into which
each Warrant is exercisable shall have been made pursuant to this Section
5.1(e), such warrants or rights shall expire, and all or a portion of such
warrants or rights shall not have been exercised, then, and in each such case,
upon the election of the Company such previous adjustment in respect of such
warrants or rights which have expired without exercise shall be rescinded and
annulled as to any then outstanding Warrants, and the Additional Common Shares
that were deemed for purposes of the computations set forth in Section 5.1(d) to
have been issued or sold by virtue of such adjustment in respect of such
warrants or rights shall no longer be deemed to have been distributed.
(f) Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of the
number of Warrant Shares into which each Warrant is exercisable and to the
Warrant Price under this Section 5.1:
-13-
<PAGE>
(i) Treasury Stock. The sale or other disposition of any issued
Common Shares owned or held by or for the account of the Company shall be
deemed an issuance or sale of Additional Common Shares for purposes of this
Section 5. The Company shall not pay any dividend on or make any
distribution on Common Shares held in the treasury of the Company. For the
purposes of this Section 5.1, the number of Common Shares at any time
outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued
in lieu of fractions of Common Shares.
(ii) When Adjustments Are to be Made. The adjustments required
by Sections 5.1(a), 5.1(b), 5.1(c) and 5.1(d) shall be made whenever and as
often as any specified event requiring an adjustment shall occur, except
that no adjustment of the Warrant Shares into which each Warrant is
exercisable that would otherwise be required shall be made unless and until
such adjustment either by itself or with other adjustments not previously
made increases or decreases the Warrant Shares into which each Warrant is
exercisable immediately prior to the making of such adjustment by at least
1%. Any adjustment representing a change of less than such minimum amount
(except as aforesaid) shall be carried forward and made as soon as such
adjustment, together with other adjustments required by Sections 5.1(a),
5.1(b), 5.1(c) and 5.1(d) and not previously made, would result in such
minimum adjustment.
(iii) Fractional Interests. In computing adjustments under this
Section 5, fractional interests in Common Shares shall be taken into
account to the nearest one-thousandth of a share.
(iv) Deferral of Issuance upon Exercise. In any case in which
this Section 5 shall require that an adjustment to the Warrant Shares into
which each Warrant is exercisable be made effective pursuant to Section
5.1(a)(i), 5.1(b) or 5.1(d) prior to the occurrence of a specified event
and any Warrant is exercised after the time at which the adjustment became
effective but prior to the occurrence of such specified event, the Company
may elect to defer until the occurrence of such specified event the issuing
to the Holder of the Warrant Certificate evidencing such Warrant (or other
Person entitled thereto) of, and may delay registering such Holder or other
Person as the recordholder of, the Warrant Shares over and above the
Warrant Shares issuable upon such exercise determined in accordance with
Section 3.5 on the basis of the Warrant Shares into which each Warrant is
exercisable prior to such adjustment determined in accordance with Section
3.5; provided, however, that the Company shall deliver to such Holder or
other person a due bill or other appropriate instrument evidencing the
right of such Holder or other Person to receive, and to become the record
holder of, such Additional Common Shares, upon the occurrence of the event
requiring such adjustment.
(g) Warrant Price Adjustment. Whenever the number of Warrant Shares
into which a Warrant is exercisable is adjusted as provided in this Section 5.1,
the Warrant Price payable upon exercise of the Warrant shall simultaneously be
adjusted by multiplying such Warrant Price immediately prior to such adjustment
by a fraction, the numerator of which shall be the number of
-14-
<PAGE>
Warrant Shares into which such Warrant was exercisable immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
into which such Warrant was exercisable immediately thereafter.
(h) Merger, Consolidation or Combination. In the event the Company
merges, consolidates or otherwise combines with or into any Person, then, as a
condition of such merger, consolidation or combination, lawful and adequate
provisions shall be made whereby Warrantholders shall, in addition to their
other rights hereunder, thereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified in this Agreement upon
exercise of the Warrants and in lieu of the Warrant Shares immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding Common
Shares equal to the number of Warrant Shares immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, and in any
such case appropriate provision shall be made (including the execution by the
Person formed by consolidation, merger or combination of a supplemental Warrant
Agreement) with respect to the rights and interests of the Warrantholders to the
end that the provisions hereof (including, without limitation, provisions for
adjustments of the number of Warrant Shares) shall thereafter be applicable, as
nearly as may be practicable, in relation to any shares of stock, securities or
assets thereafter deliverable upon the exercise hereof. This Section 5.1(b)
shall similarly apply to successive consolidations, mergers or combinations.
(i) Compliance with Governmental Requirements. Before taking any
action that would cause an adjustment reducing the Warrant Price below the then
par value of any of the Warrant Shares into which the Warrants are exercisable,
the Company will take any corporate action that may be necessary in order that
the Company may validly and legally issue fully paid and nonassessable Warrant
Shares at such adjusted Warrant Price.
(j) Optional Tax Adjustment. The Company may at its option, at any
time during the term of the Warrants, increase the number of Warrant Shares into
which each Warrant is exercisable, or decrease the Warrant Price, in addition to
those changes required by Section 5.1(a), 5.1(b), 5.1(c), 5.1(d) or 5.1(g), as
deemed advisable by the Board of Directors of the Company, in order that any
event treated for Federal income tax purposes as a dividend of stock or stock
rights shall not be taxable to the Recipients.
(k) Warrants Deemed Exercisable. For purposes solely of this Section
5, the number of Warrant Shares which the holder of any Warrant would have been
entitled to receive had such Warrant been exercised in full at any time or into
which any Warrant was exercisable at any time shall be determined assuming such
Warrant was exercisable in full at such time, although such Warrant may not be
exercisable in full at such time pursuant to Section 3.2(a).
(l) Limitations on Certain Non-Stock Dividends. The Company agrees
that it will not declare or pay any Non-Stock Dividend subject to Section 5.1(b)
hereof to the extent that the fair
-15-
<PAGE>
market value of the property or other assets to be distributed in respect of one
Common Share equals or exceeds the Current Market Price per Common Share at the
date of determination.
5.2 Notice of Adjustment.
Whenever the number of Warrant Shares into which a Warrant is exercisable
is to be adjusted, or the Warrant Price is to be adjusted, in either case as
herein provided, the Company shall compute the adjustment in accordance with
Section 5.1, and shall, promptly after such adjustment becomes effective, cause
a notice of such adjustment or adjustments to be given to all Holders in
accordance with Section 10.1(b).
5.3 Statement on Warrant Certificates.
Irrespective of any adjustment in the number or kind of shares into which
the Warrants are exercisable, Warrant Certificates theretofore or thereafter
issued may continue to express the same price and number and kind of shares
initially issuable pursuant to this Agreement.
5.4 Fractional Interest.
The Company shall not issue fractional Warrant Shares on the exercise of
Warrants. If Warrant Certificates evidencing more than one Warrant shall be
presented for exercise at the same time by the same Holder, the number of full
Warrant Shares which shall be issuable upon such exercise thereof shall be
computed on the basis of the aggregate number of Warrants so to be exercised.
If any fraction of a Warrant Share would, except for the provisions of this
Section 5.4, be issuable on the exercise of any Warrant (or specified portion
thereof), the Company shall, in lieu of issuing any fractional Warrant Shares,
pay an amount in cash calculated by it to be equal to the then Current Market
Price per Common Share on the date of such exercise multiplied by such fraction
computed to the nearest whole cent. The Holders, by their acceptance of the
Warrant Certificates, expressly waive their right to receive any fraction of a
Warrant Share or a stock certificate representing a fraction of a Warrant Share.
6. LOSS OR MUTILATION
Upon (i) receipt by the Company of evidence reasonably satisfactory to the
Company of the ownership of and the loss, theft, destruction or mutilation of
any Warrant Certificate and such reasonable and customary security or indemnity
as may be required by the Company to save the Company harmless and (ii)
surrender, in the case of mutilation, of the mutilated Warrant Certificate to
the Company and cancellation thereof, then, in the absence of notice to the
Company that the Warrants evidenced thereby have been acquired by a bona fide
purchaser, the Company shall execute and deliver to the registered Holder of the
lost, stolen, destroyed or mutilated Warrant Certificate, in exchange therefor
or in lieu thereof, a new Warrant Certificate of the same tenor and for a like
aggregate number of Warrants. At the written request of such registered Holder,
the new Warrant Certificate so issued shall be retained by the Company as having
been surrendered for exercise, in
-16-
<PAGE>
lieu of delivery thereof to such Holder, and shall be deemed for purposes of
Section 3.2 to have been surrendered for exercise on the date the conditions
specified in clauses (i) and (ii) of the preceding sentence were first
satisfied.
Upon the issuance of any new Warrant Certificate under this Section 6, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto.
Every new Warrant Certificate executed and delivered pursuant to this
Section 6 in lieu of any lost, stolen or destroyed Warrant Certificate shall
constitute an additional contractual obligation of the Company, whether or not
the allegedly lost, stolen or destroyed Warrant Certificate shall be at any time
enforceable by anyone, and shall be entitled to the benefits of this Agreement
equally and proportionately with any and all other Warrant Certificates duly
executed and delivered hereunder.
The provisions of this Section 6 are exclusive and shall preclude (to the
extent lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen, or destroyed Warrant Certificates.
7. RESERVATION AND AUTHORIZATION OF WARRANT SHARES
The Company shall at all times reserve and keep available, free from
preemptive rights, solely for issue upon the exercise of Warrants as herein
provided, such number of its authorized but unissued Warrant Shares deliverable
upon the exercise of Warrants as will be sufficient to permit the exercise in
full of all outstanding Warrants. The Company covenants that all Warrant Shares
will, at all times that Warrants are exercisable, be duly approved for listing
subject to official notice of issuance on each securities exchange, if any, or
Nasdaq, if applicable, on which the Common Shares are then listed or traded.
The Company covenants that (i) all Warrant Shares that may be issued upon
exercise of Warrants shall upon issuance be duly and validly authorized, issued
and fully paid and nonassessable and free of preemptive or similar rights and
(ii) the stock certificates issued to evidence any such Warrant Shares will
comply with Section 158 of the Delaware General Corporation Law (or its
successor) and any other applicable law.
The Company hereby authorizes and directs its current and future transfer
agents for the Common Shares at all times to reserve stock certificates for such
number of authorized shares as shall be requisite for such purpose. The Company
will supply such transfer agents with duly executed stock certificates for such
purposes.
8. WARRANT TRANSFER BOOKS
The Company will maintain a Corporate Office where Warrant Certificates may
be surrendered for registration of transfer or exchange and where Warrant
Certificates may be
-17-
<PAGE>
surrendered for exercise of Warrants evidenced thereby. The Company will give
prompt written notice to all Holders of Warrant Certificates of any change in
the location of the Corporate Office.
The Warrant Certificates evidencing the Warrants shall be issued in
registered form only. The Company shall cause to be kept at the Corporate
Office a warrant register (the "Warrant Register") in which, subject to such
reasonable regulations as the Company may prescribe and such regulations as may
be prescribed by law, the Company shall provide for the registration of Warrant
Certificates and of transfers or exchanges of Warrant Certificates as herein
provided.
Subject to Section 2.4, upon surrender for registration of transfer of any
Warrant Certificate at the Corporate Office, the Company shall execute and
deliver, in the name of the designated transferee or transferees, one or more
new Warrant Certificates evidencing a like aggregate number of Warrants.
Subject to Section 2.4, (i) at the option of the Holder, Warrant
Certificates may be exchanged at the Corporate Office upon payment of the
charges herein provided for other Warrant Certificates evidencing a like
aggregate number of Warrants and (ii) whenever any Warrant Certificates are so
surrendered for exchange, the Company shall execute and deliver the Warrant
Certificates of the same tenor and evidencing the same number of Warrants as
evidenced by the Warrant Certificates surrendered by the Holder making the
exchange.
All Warrant Certificates issued upon any registration of transfer or
exchange of Warrant Certificates shall be the valid obligations of the Company,
evidencing the same obligations, and entitled to the same benefits under this
Agreement, as the Warrant Certificates surrendered for such registration of
transfer or exchange.
Subject to Section 2.4, every Warrant Certificate surrendered for
registration of transfer or exchange shall (if so required by the Company) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company, duly executed by the Holder thereof or his attorney
duly authorized in writing.
9. WARRANT HOLDERS
9.1 Voting or Dividend Rights.
Prior to the exercise of the Warrants, except as may be specifically
provided for herein, (i) no Holder of a Warrant Certificate, as such, shall be
entitled to any of the rights of a holder of Common Shares, including, without
limitation, the right to vote at or to receive any notice of any meetings of
stockholders; (ii) the consent of any Holder shall not be required with respect
to any action or proceeding of the Company; (iii) except as provided in Section
4, no Holder, by reason of the ownership or possession of a Warrant or the
Warrant Certificate representing the same, shall have any right to receive any
stock dividends, allotments or rights or other distributions paid, allotted or
distributed or distributable to the stockholders of the Company prior to, or for
which the relevant
-18-
<PAGE>
record date preceded, the date of the exercise of such Warrant; and (iv) no
Holder shall have any right not expressly conferred by this Agreement or Warrant
Certificate held by such Holder.
9.2 Rights of Action.
All rights of action against the Company in respect of this Agreement are
vested in the Holders of the Warrant Certificates, and any Holder of any Warrant
Certificate, without the consent of the Holder of any other Warrant Certificate,
may, on such Holder's own behalf and for such Holder's own benefit, enforce and
may institute and maintain any suit, action or proceeding against the Company
suitable to enforce, or otherwise in respect of, such Holder's right to
exercise, exchange or tender for purchase such Holder's Warrants in the manner
provided in this Agreement.
9.3 Treatment of Holders of Warrant Certificates.
Every Holder of a Warrant Certificate, by accepting the same, consents and
agrees with the Company and with every subsequent holder of such Warrant
Certificate that, prior to due presentment of such Warrant Certificate for
registration of transfer, the Company may treat the Person in whose name the
Warrant Certificate is registered as the owner thereof for all purposes and as
the Person entitled to exercise the rights granted under the Warrants, and
neither the Company nor any agent of the Company shall be affected by any notice
to the contrary.
9.4 Communications to Holders.
(a) If any Holder of a Warrant Certificate applies in writing to the
Company and such application states that the applicant desires to communicate
with other Holders with respect to its rights under this Agreement or under the
Warrants, then the Company shall, within five (5) Business Days after the
receipt of such application, and upon payment to the Company by such applicant
of the reasonable expenses of preparing such list, provide to such applicant a
list of the names and addresses of all Holders of Warrant Certificates as of the
most recent practicable date.
(b) Every Holder of Warrant Certificates, by receiving and holding the
same, agrees with the Company that neither the Company nor any agent of the
Company shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with
Section 9.4(a).
10. NOTICES
10. Notices Generally.
(a) Any request, notice, direction, authorization, consent, waiver,
demand or other communication permitted or authorized by this Agreement to be
made upon, given or furnished to or filed with the Company by the other party
hereto or by any Holder shall be sufficient for every
-19-
<PAGE>
purpose hereunder if in writing (including telecopy communication) and
telecopied or delivered by hand (including by courier service) as follows:
If to the Company, to it at:
Conrad Industries, Inc.
1501 Front Street
P. O. Box 790
Morgan City, Louisiana 70381
Attention: Chief Executive Officer
Telecopy No.: (504) 385-4090
If to a Holder, to it at:
to the address provided
to Company upon issuance
of the Warrants
or, in either case, such other address as shall have been set forth in a notice
delivered in accordance with this Section 10.1(a).
All such communications shall, when so telecopied or delivered by hand, be
effective when telecopied with confirmation of receipt or received by the
addressee, respectively.
Any Person that telecopies any communication hereunder to any Person shall,
on the same date as such telecopy is transmitted, also send, by first class
mail, postage prepaid and addressed to such Person as specified above, an
original copy of the communication so transmitted.
(b) Where this Agreement provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each Holder
affected by such event, at the address of such Holder as it appears in the
Warrant Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Agreement
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made by a
-20-
<PAGE>
method reasonably approved in good faith by the Company as one which would be
most reliable under the circumstances for successfully delivering the notice to
the addressees shall constitute a sufficient notification for every purpose
hereunder.
10.2 Required Notices to Holders.
In case the Company shall propose (i) to pay any dividend payable in stock
of any class to the holders of its Common Shares, to pay a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings or other
extraordinary cash dividend, or to make any other distribution to the holders of
its Common Shares for which an adjustment is required to be made pursuant to
Section 5, (ii) to distribute to the holders of its Common Shares rights to
subscribe for or to purchase any Additional Common Shares or shares of stock of
any class or any other securities, rights or options, (iii) to effect any
reclassification of its Common Shares, (iv) to effect any transaction described
in Section 5.1(h) or (v) to effect the liquidation, dissolution or winding up of
the Company or a sale of all or substantially all of its assets, then, and in
each such case, the Company shall give to each Holder of a Warrant Certificate,
in accordance with Section 10.1(b), a notice of such proposed action or event.
Such notice shall specify (x) the date on which a record is to be taken for the
purposes of such dividend or distribution; and (y) the date on which such
reclassification, transaction, event, liquidation, dissolution or winding up is
expected to become effective and the date as of which it is expected that
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities, cash or other property deliverable upon such
reclassification, transaction, event, liquidation, dissolution or winding up.
Such notice shall be given, in the case of any action covered by clause (i) or
(ii) above, at least fifteen (15) days prior to the record date for determining
holders of the Common Shares for purposes of such action or, in the case of any
action covered by clauses (iii) through (v), at least twenty (20) days prior to
the applicable effective or expiration date specified above or, in any such
case, prior to such earlier time as notice thereof shall be required to be given
pursuant to Rule 10b-17 under the Exchange Act, if applicable.
If at any time the Company shall cancel any of the proposed transactions
for which notice has been given under this Section 10.2 prior to the
consummation thereof, the Company shall give each Holder prompt notice of such
cancellation in accordance with Section 10.1(b) hereof.
11. APPLICABLE LAW
THIS AGREEMENT, EACH WARRANT CERTIFICATE ISSUED HEREUNDER, EACH WARRANT
EVIDENCED THEREBY AND ALL RIGHTS ARISING HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS TO THE EXTENT THE APPLICATION OF THE
LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
-21-
<PAGE>
12. PERSONS BENEFITING
This Agreement shall be binding upon and inure to the benefit of the
Company and Morgan Keegan, and their respective successors and assigns and the
Holders from time to time of the Warrant Certificates. Nothing in this
Agreement is intended or shall be construed to confer upon any Person, other
than the Company, Morgan Keegan and the Holders of the Warrant Certificates, any
right, remedy or claim under or by reason of this Agreement or any part hereof.
Each Holder, by acceptance of a Warrant Certificate, agrees to all of the terms
and provisions of this Agreement applicable thereto.
13. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall for all purposes be deemed to be an original, and all such counterparts
shall together constitute but one and the same instrument.
14. AMENDMENTS
This Agreement may be amended by the Company only with the consent of the
Holders of a majority of the then outstanding Warrants. Notwithstanding the
foregoing, the consent of each Holder of a Warrant affected shall be required
for any amendment pursuant to which the Warrant Price would be increased or the
number of Warrant Shares purchasable upon exercise of Warrants would be
decreased (other than pursuant to adjustments provided herein).
Upon execution and delivery of any amendment pursuant to this Section 14,
such amendment shall be considered a part of this Agreement for all purposes and
every Holder of a Warrant Certificate theretofore or thereafter delivered
hereunder shall be bound thereby.
Promptly after the execution by the Company of any such amendment, the
Company shall give notice to the Holders of Warrant Certificates, setting forth
in general terms the substance of such amendment, in accordance with the
provisions of Section 10.1(b). Any failure of the Company to mail such notice
or any defect therein, shall not, however, in any way impair or affect the
validity of any such amendment.
15. INSPECTION
The Company may require such Holder to submit his Warrant Certificate for
inspection by it.
16. SUCCESSOR TO THE COMPANY
So long as Warrants remain outstanding, the Company will not enter into any
Non-Surviving Combination unless the acquirer (or its parent company under any
triangular acquisition) shall
-22-
<PAGE>
expressly assume by a supplemental agreement, executed and delivered to the
Company, in form reasonably satisfactory to the Company, the due and punctual
performance of every covenant of this Agreement on the part of the Company to be
performed and observed and shall have provided for exercise rights in accordance
with Section 5.1(h). Upon the consummation of such Non-Surviving Combination,
the acquirer (or its parent company under any triangular acquisition) shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Agreement with the same effect as if such acquirer (or
its parent company under any triangular acquisition) had been named as the
Company herein.
17. ENTIRE AGREEMENT
This Agreement sets forth the entire agreement of the parties hereto as to
the subject matter hereof and supersedes all previous agreements among all or
some of the parties hereto with respect thereto, whether written, oral or
otherwise.
18. HEADINGS
The descriptive headings of the several Sections of this Agreement are
inserted for convenience and shall not control or affect the meaning or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
CONRAD INDUSTRIES, INC.
By: ____________________________________
William H. Hidalgo, President and
Chief Executive Officer
MORGAN KEEGAN & COMPANY, INC.
By: ____________________________________
Michael J. Harris, Managing Director
-23-
<PAGE>
EXHIBIT A
FORM OF FACE OF WARRANT CERTIFICATE
-----------------------------------
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND
SUCH LAWS IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE AND
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF IS RESTRICTED IN ACCORDANCE WITH
THE WARRANT AGREEMENT REFERRED TO HEREIN.
CONRAD INDUSTRIES, INC.
WARRANT CERTIFICATE
EVIDENCING
WARRANTS TO PURCHASE COMMON SHARES
EXERCISABLE ON OR BEFORE
5:00 P.M. MORGAN CITY,
LOUISIANA TIME,
ON
MAY __, 2003
No.____________ ____________ Warrants
THIS CERTIFIES THAT, for value received, _______________________
___________________________, or registered assigns, is the registered owner of
______________________ Warrants to Purchase Common Shares of Conrad Industries,
Inc., a Delaware corporation (the "Company," which term includes any successor
thereto under the Warrant Agreement), and is entitled, subject to and upon
compliance with the provisions hereof and of the Warrant Agreement, at such
Holder's option, at any time when the Warrants evidenced hereby are exercisable,
to purchase from the Company one Warrant Share for each Warrant evidenced
hereby, at the purchase price of $_______ per share (as adjusted from time to
time, the "Warrant Price"),
A-1
<PAGE>
payable in full at the time of purchase, the number and nature of Warrant Shares
into which and the Warrant Price at which each Warrant shall be exercisable,
each being subject to adjustment as provided in Section 5 of the Warrant
Agreement.
The Holder of this Warrant Certificate may exercise all or any whole number
of the Warrants evidenced hereby, on any Business Day on and after the Issue
Date until 5:00 p.m., Morgan City, Louisiana time, on May ___, 2003 (subject to
earlier expiration pursuant to Section 4 of the Warrant Agreement, the
"Expiration Date") for the Warrant Shares purchasable hereunder.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this certificate to be duly
executed under its corporate seal.
CONRAD INDUSTRIES, INC.
[SEAL] By: ___________________________________
William H. Hidalgo, President and
Chief Executive Officer
ATTEST:
Dated:
A-2
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
CONRAD INDUSTRIES, INC.
WARRANT CERTIFICATE
EVIDENCING
WARRANTS TO PURCHASE COMMON SHARES
1. General.
The Warrants evidenced hereby are one of a duly authorized issue of
Warrants of the Company designated as its Warrants to Purchase Common Shares
("Warrants"), limited in aggregate number to ________________ Warrants (subject
to adjustment pursuant to Section 5 of the Warrant Agreement) issued under and
in accordance with the Warrant Agreement, dated as of May __, 1998 (the "Warrant
Agreement"), between the Company and Morgan Keegan & Company, Inc., a Tennessee
corporation ("Morgan Keegan"), to which Warrant Agreement and all amendments
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, Morgan
Keegan, the Holders of Warrant Certificates and the owners of the Warrants
evidenced thereby and of the terms upon which the Warrant Certificates are, and
are to be, delivered. A copy of the Warrant Agreement shall be available at all
reasonable times at the Corporate Office for inspection by the Holder hereof.
In the event of the exercise of less than all of the Warrants evidenced
hereby, a new Warrant Certificate of the same tenor and for the number of
Warrants which are not exercised shall be issued by the Company in the name or
upon the written order of the Holder of this Warrant Certificate upon the
cancellation hereof.
All Warrant Shares issuable by the Company upon the exercise of Warrants
shall, upon such issuance, be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive or similar rights. The Company shall pay
any and all taxes (other than income taxes) that may be payable in respect of
the issue or delivery of Warrant Shares on exercise of Warrants. The Company
shall not be required, however, to pay any tax or other charge imposed in
respect of any transfer involved in the issue and delivery of any certificates
for Warrant Shares or payment of cash to any Person other than the Holder of the
Warrant Certificate surrendered upon the exercise of a Warrant, and in case of
such transfer or payment, the Company shall not be required to issue or deliver
any certificate or pay any cash until (a) such tax or charge has been paid or an
amount sufficient for the payment thereof has been delivered to the Company or
(b) it has been established to the Company's satisfaction that any such tax or
other charge that is or may become due has been paid.
The Warrant Certificates are issuable only in registered form in
denominations of whole numbers of Warrants. Upon surrender at the Corporate
Office and payment of the charges specified herein and in the Warrant Agreement,
this Warrant Certificate may be exchanged for Warrant Certificates in other
authorized denominations or the transfer hereof may be registered in whole or
A-3
<PAGE>
in part in authorized denominations to one or more designated transferees,
subject to the restrictions on transfer set forth herein and in the Warrant
Agreement; provided, however, that such other Warrant Certificates issued upon
exchange or registration of transfer shall evidence the same aggregate number of
Warrants as this Warrant Certificate. The Company shall cause to be kept at the
Corporate Office the Warrant Register in which, subject to such reasonable
regulations as the Company may prescribe and such regulations as may be
prescribed by law, the Company shall provide for the registration of Warrant
Certificates and of transfers or exchanges of Warrant Certificates.
2. Expiration.
Except as provided in Section 4 of the Warrant Agreement and Section 3 of
this Warrant Certificate, all outstanding Warrants shall expire and all rights
of the Holders of Warrant Certificates evidencing such Warrants shall terminate
and cease to exist, as of 5:00 p.m., Morgan City, Louisiana time, on the
Expiration Date. "Expiration Date" shall mean May _____, 2003, or such earlier
date as determined in accordance with Section 4 of the Warrant Agreement and
Section 3 of this Warrant Certificate.
3. Liquidation of the Company.
If, on or prior to the Expiration Date, the Company (or any other Person
controlling the Company) shall propose a voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, each Warrantholder
shall receive the securities, money or other property which such Warrantholder
would have been entitled to receive had such Warrantholder been the holder of
record of the Warrant Shares into which the Warrants were exercisable
immediately prior to such dissolution, liquidation or winding up (net of the
then applicable Warrant Price), and the rights to exercise such Warrants shall
terminate.
4. Anti-Dilution Adjustments.
The number and nature of Warrant Shares issuable upon exercise of a Warrant
and the Warrant Price shall be adjusted on occurrence of certain events as
provided in the Warrant Agreement, including, without limitation, the payment of
certain dividends on, or the making of certain distributions in respect of, the
Common Shares, including the distribution of rights to purchase Common Shares
(or securities convertible into or exchangeable for Common Shares) at a price
below the Current Market Price. An adjustment shall also be made in the event of
a combination, subdivision or reclassification of the Common Shares. Adjustments
will be made whenever and as often as any specified event requires an adjustment
to occur in accordance with the Warrant Agreement.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Warrant Price and the
number and/or nature of securities or property issuable upon the exercise of the
Warrants; provided however, that the failure of the
A-4
<PAGE>
Company to issue such new Warrant Certificates shall not in any way change,
alter, or otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
5. Procedure for Exercising Warrant.
Subject to the provisions hereof and of the Warrant Agreement, the Holder
of this Warrant Certificate may exercise all or any whole number of the Warrants
evidenced hereby by either of the following methods:
(A) The Holder may deliver to the Corporate Office (i) a written
notice of such Holder's election to exercise all or a portion of the
Warrants evidenced hereby, duly executed by such Holder in the form set
forth below, which notice shall specify the number of Warrant Shares to be
purchased, (ii) this Warrant Certificate and (iii) a sum equal to the
aggregate Warrant Price for the Warrant Shares into which the Warrants
represented by this Warrant Certificate are being exercised, which sum
shall be paid in any combination elected by such Holder of (x) certified or
official bank checks in New York Clearing House funds payable to the order
of the Company and delivered to the Corporate Office, or (y) wire transfers
in immediately available funds to the account of the Company at such
banking institution as the Company shall have given notice to the Holders
in accordance with the Warrant Agreement; or
(B) The Holder may also exercise all or any of the Warrants in a
"cashless" or "net-issue" exercise by delivering to the Company at the
Corporate Office (i) a written notice of such Holder's election to exercise
all or a portion of the Warrants evidenced hereby, duly executed by such
Holder in the form set forth below, which notice shall specify the number
of Warrant Shares to be delivered to such Holder and the number of Warrant
Shares with respect to which Warrants represented by this Warrant
Certificate are being surrendered in payment of the aggregate Warrant Price
for the Warrant Shares to be delivered to the Holder, and (ii) this Warrant
Certificate. For purposes of this subparagraph (B), each Warrant Share as
to which such Warrants are surrendered in payment of the aggregate Warrant
Price will be attributed a value equal to (x) the Market Price per share of
Common Shares minus (y) the then-current Warrant Price. Solely for the
purpose of this paragraph, the Market Price shall be calculated either (A)
on the date which the form of election is deemed to have been sent to the
Company or (B) as the average of the Market Prices for each of the five
trading days preceding such date, whichever of (A) or (B) is greater.
6. Registered Holder.
Prior to due presentment of this Warrant Certificate for registration of
transfer, the Company and any agent of the Company may treat the Person in whose
name this Warrant Certificate is registered as the owner hereof for all
purposes, and neither the Company nor any agent of the Company shall be affected
by notice to the contrary.
A-5
<PAGE>
7. Amendment.
The Warrant Agreement permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of Warrant Certificates under the Warrant
Agreement at any time by the Company with the consent of the Holders of a
majority of the then outstanding Warrants.
8. Status as Warrantholder.
Prior to the exercise of the Warrants, except as may be specifically
provided for in the Warrant Agreement, (i) no Holder of a Warrant Certificate,
as such, shall be entitled to any of the rights of a holder of Common Shares of
the Company, including, without limitation, the right to vote at, or to receive
any notice of, any meetings of stockholders of the Company; (ii) the consent of
any Holder shall not be required with respect to any action or proceeding of the
Company; (iii) except as provided in the Warrant Agreement with respect to the
dissolution, liquidation or winding up of the Company, no Holder, by reason of
the ownership or possession of a Warrant or the Warrant Certificate representing
the same, shall have any right to receive any stock dividends, allotments or
rights or other distributions (except as specifically provided in the Warrant
Agreement), paid, allotted or distributed or distributable to the stockholders
of the Company prior to or for which the relevant record date preceded the date
of the exercise of such Warrant; and (iv) no Holder shall have any right not
expressly conferred by the Warrant Agreement or Warrant Certificate held by such
Holder.
9. Governing Law.
THIS WARRANT CERTIFICATE, EACH WARRANT EVIDENCED THEREBY AND THE WARRANT
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS TO
THE EXTENT THAT APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
10. Definitions.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
A-6
<PAGE>
FORM OF EXERCISE
----------------
In accordance with and subject to the terms and conditions hereof and of
the Warrant Agreement, the undersigned registered Holder of this Warrant
Certificate hereby irrevocably elects to exercise ____________________ Warrants
evidenced by this Warrant Certificate and represents that such Holder has
tendered the Warrant Price for each of the Warrants evidenced hereby being
exercised in the aggregate amount of $_________ in the indicated combination of:
(i) cash ($____________);
(ii) certified bank check in New York Clearing House funds
payable to the order of the Company ($________);
(iii) official bank check in New York Clearing House funds payable
to the order of the Company ($_________);
(iv) or wire transfer in immediately available funds to the
account designated by the Company for such purpose ($________); or
(v) "cashless" or "net-issue" exercise with respect to ________
Warrants pursuant to Section 3.2(c)(ii) of the Warrant Agreement and
Section 5(B) of this Warrant Certificate.
The undersigned requests that the Warrant Shares issuable upon exercise be
in fully registered form in such denominations and registered in such names and
delivered, together with any other property receivable upon exercise, in such
manner as is specified in the instructions set forth below.
If the number of Warrants exercised is less than all of the Warrants
evidenced hereby, the undersigned requests that a new Warrant Certificate
representing the remaining Warrants evidenced hereby be issued and delivered to
the undersigned unless otherwise specified in the instructions below.
A-7
<PAGE>
Dated: __________________________ Name: ________________________________
(Insert Social Security or Other (Please Print)
Identifying Number of Holder) Address: _____________________________
______________________________________
______________________________________
Signature
Signature Guaranteed:
_________________________
Instructions (i) as to denominations and names of Warrant Shares issuable
upon exercise and as to delivery of such securities and any other property
issuable upon exercise and (ii) if applicable, as to Warrant Certificates
evidencing unexercised Warrants:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
A-8
<PAGE>
Assignment
----------
(Form of Assignment To Be Executed If Holder Desires To Transfer
Warrant Certificate)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto
Please insert social security
or other identifying number
______________________________
__________________________________________________
(Please print name and address including zip code)
__________________________________________________
the Warrants represented by the within Warrant Certificate and does hereby
irrevocably constitute and appoint _________________ Attorney, to transfer said
Warrant Certificate on the books of the within-named Company with full power of
substitution in the premises.
Dated:
_______________________________
Signature
Signature Guaranteed:
________________________
A-9
<PAGE>
EXHIBIT 16.1
[LETTERHEAD OF DARNALL, SIKES & FREDERICK]
May 18, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Conrad Industries, Inc. (the "Company")
Ladies and Gentlemen:
We have read and agree with the statement made by the Company in its Amendment
No. 1 to Registration Statement No. 333-49773 on Form S-1, dated May 18, 1998,
in response to Item 304 of Regulation S-K.
Sincerely yours,
/s/ Darnall, Sikes & Frederick
- -------------------------------
DARNALL, SIKES & FREDERICK
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
(No. 333-49773) of Conrad Industries, Inc. of (i) our report dated April 8, 1998
related to the balance sheet of Conrad Industries, Inc. as of March 31, 1998;
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 such
Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
May 15, 1998
<PAGE>
EXHIBIT 23.3
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Conrad Industries, Inc.
(the "Company") as a director to be appointed after consummation of the initial
public offering of the Company.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as
of the 18th day of May, 1998.
/s/ MICHAEL J. HARRIS
By: __________________________
Michael J. Harris
<PAGE>
EXHIBIT 23.4
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Conrad Industries, Inc.
(the "Company") as a director to be appointed after consummation of the initial
public offering of the Company.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as
of the 18th day of May, 1998.
/s/ LOUIS J. MICHOT, JR.
By: _____________________________
Louis J. Michot, Jr.
<PAGE>
EXHIBIT 23.5
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Conrad Industries, Inc.
(the "Company") as a director to be appointed after consummation of the initial
public offering of the Company.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as
of the 18th day of May, 1998.
/s/ RICHARD E. ROBERSON, JR.
By: _____________________________
Richard E. Roberson, Jr.
