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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to Commission File No. 000-24263
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CONRAD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
72-1416999
Delaware (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
70381
1501 Front Street (Zip Code)
Morgan City, Louisiana
(Address of principal executive
offices)
(504) 384-3060
(Registrant's telephone number, including area code)
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Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $8.5 million as of March 29, 1999, based on the
closing sales price of the registrant's common stock on the NASDAQ on such
date of $4 per share. For purposes of the preceding sentence only, all
directors, executive officers and beneficial owners of ten percent or more of
the common stock are assumed to be affiliates. As of March 29, 1999, 7,077,723
shares of common stock of Conrad Industries, Inc. were outstanding.
INCORPORATION OF DOCUMENTS BY REFERENCE
Portions of Conrad Industries Inc.'s definitive proxy statement relating to
the registrant's 1999 annual meeting of stockholders, which proxy statement
will be filed under the Securities Exchange Act of 1934 within 120 days of the
end of the registrant's fiscal year ended December 31, 1998, are incorporated
by reference into Part III of this Form 10-K.
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Part 1
Items 1: Business
BUSINESS
General
Conrad Industries, Inc. (the "Company") was incorporated in March 1998 to
serve as the holding company for Conrad Shipyard, Inc. ("Conrad") and Orange
Shipbuilding Company, Inc. ("Orange Shipbuilding"). Conrad has operated since
1948 at its shipyard in Morgan City, Louisiana. 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. 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 Company completed its initial public offering of common stock
(the "Offering") on June 15, 1998.
The Company specializes in the construction, conversion and repair of a wide
variety of marine vessels for commercial and governmental 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.
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 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.
Historical Background
The Company was founded in 1948 by J. Parker Conrad, the Company's Co-
Chairman of the Board of Directors, 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.
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In December 1997, Conrad purchased Orange Shipbuilding (the "Orange
Acquisition") 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.
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.
Current Projects. The Company's construction and fabrication projects in
progress as of December 31, 1998 consisted of 13 vessels (including one lift
boat, two barges, seven tugs and three offshore supply vessels) and two
modular component fabrication projects for the oil and gas industry with
aggregate remaining contract revenue of approximately $21.5 million (excluding
unexercised options held by customers). The Company's backlog (including such
remaining contract revenue for projects currently in progress) as of December
31, 1998 was approximately $21.5 million as compared to the Company's backlog
of $24.6 million as of December 31, 1997. Of this remaining contract revenue,
approximately $13.0 million was attributable to contracts to build vessels for
the U.S. Army and the Corps of Engineers. The Company anticipates that
approximately $20.0 million of the aggregate remaining revenue from firm
contracts as of December 31, 1998 will be realized during fiscal 1999.
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 60.6% of revenue during 1998. The following is a description of the types
of vessels manufactured by the Company:
Offshore and Inland Barges. The Company builds a variety of offshore barges,
including tank, container and deck barges for commercial customers and YCs
(yard carrier barges) and YONs (yard oil Navy barges) for the U.S. Navy. The
Company also builds a variety of inland barges, including deck and tank
barges. 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.
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.
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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.
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.
Push Boats/Tow Boats. Push boats, also known as tow boats, are used by
inland waterway operators to push barges.
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.
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 8.0% of the Company's revenue
during 1998. 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.
Conversion and Repair Services
Since 1952, the Company's Morgan City facility has been involved in the
repair of vessels and barges. Conversion and repair services accounted for
approximately 31.4% of the Company's revenue during 1998. The Company has five
drydocks and dockside space capable of accommodating vessels and barges up to
300 feet long. The Company's marine repair activities include shotblasting,
painting, electrical system and piping repairs, propeller and shaft
reconditioning and ABS certified welding. The Company's conversion projects
primarily consist of lengthening the midbodies of vessels, modifying vessels
to permit their use for a different type of activity and other modifications
to increase the capacity or functionality of a vessel. All U.S. Coast Guard
inspected vessels and ABS classed vessels are required to undergo periodic
inspections and surveys which require drydock examination at least twice
during any five-year period. Non-U.S. flag vessels are subject to similar
regulations. The inspection of vessels generally results in repair work being
required in order to pass inspection. In addition, vessel owners often elect
to make other repairs or modifications to vessels while in drydock undergoing
required repairs. While the Company is not aware of any proposals to reduce
the frequency or scope of such inspections, any such reduction could adversely
affect the Company's results of operations.
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.
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During fiscal 1998, the Company derived 26.8% of its revenues from the U. S.
Army for the construction of seven S.T. Tugs, 15.8% from Danos & Curole for
the construction of lift boats and 11.3% from Double Eagle Marine for repair
and conversion services. The remaining 46.1% of revenues was attributable to
84 other customers.
Contract Procedure, Structure and Pricing
The Company's contracts for new construction projects generally are obtained
through a competitive bidding process. Contracts for the construction and
conversion of vessels for the U.S. government are generally subject to
competitive bidding. As a safeguard to anti-competitive bidding practices, the
U.S. Army, the U.S. Navy, the U.S. Coast Guard and the Corps of Engineers have
recently employed the concept of "cost realism," which requires that each
bidder submit information on pricing, estimated costs of completion and
anticipated profit margins. The government agencies use this and other data to
determine an estimated cost for each bidder. They then conduct a cost
comparison of the bidders' estimates against an independent estimate to arrive
at a close approximation of the real cost. The award is then made on the basis
of the expected cost to build, which often results in an award to a higher
bid.
The Company submits a large number of bids to commercial customers. However,
in the case of U.S. government contracts for which the bidding process is
significantly more detailed and costly, the Company tends to be more selective
regarding the projects on which it bids.
Most of the contracts entered into by the Company, whether commercial or
governmental, are fixed-price contracts under which the Company retains all
cost savings on completed contracts but is liable for all cost overruns.
Contracts with the U.S. government are subject to termination by the
government either for its convenience or upon default by the Company. If the
termination is for the government's convenience, the contracts provide for
payment upon termination for items delivered to and accepted by the
government, payment of the Company's costs incurred through the termination
date, and the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable profit. Under the
Truth in Negotiations Act, the U.S. government has a right for three years
after final payment on substantially all negotiated U.S. government contracts
to examine all of the Company's cost records with respect to such contracts to
determine whether the Company used and made available to the U.S. government,
or to the prime contractor in the case of a subcontract, accurate, complete
and current cost or pricing information in preparing bids and conducting
negotiations on the contracts or any amendments thereto.
Although varying contract terms may be negotiated on a case-by-case basis,
the Company's commercial and government contracts ordinarily provide for a
downpayment, with progress payments at specified stages of 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
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obligations. Commercial contracts also may require contract bid and
performance bonds if requested by the customer. As of December 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 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.
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The Company's marketing and sales strategy includes utilizing key employees
as salespersons to target relationships previously established and develop new
relationships with customers in the targeted markets. The Company's personnel
identify future projects by contacting customers and potential customers on a
regular basis in order to anticipate projects that will be competitively bid
or negotiated exclusively with the Company. The Company's personnel also keep
its customers advised of available capacity for drydocking, conversion and
repair activity.
Marketing efforts are currently focused in four areas: (i) new construction
of all types of barges, drydocks, lift boats, push boats, tug boats and
offshore support vessels; (ii) conversion and repair of barges and offshore
support vessels; (iii) fabrication of modular components of offshore drilling
rigs and FPSOs; and (iv) construction of vessels and barges for the U.S. Army,
U.S. Navy, U.S. Coast Guard and Corps of Engineers.
The Company is actively involved in strengthening its relationships with
customers through continuous interaction between the Company's key personnel,
project managers and the customers' project supervisors with respect to
ongoing projects. To accommodate the needs of the customers' project
supervisors, the Company has established on-site office facilities that such
project supervisors may use during the construction, repair or conversion
project. The Company also seeks to anticipate the current and future needs of
its customers as well as broader industry trends through these relationships.
Competition
U.S. shipbuilders are generally classified in two categories: (i) the six
largest shipbuilders, which are capable of building large scale vessels for
the U.S. Navy and commercial customers; and (ii) other shipyards that build
small to medium-sized vessels for governmental and commercial markets. The
Company does not compete for large vessel construction projects. The Company
competes for U.S. government contracts to build small to medium-sized vessels
principally with 10 to 15 U.S. shipbuilders, which may include one or more of
the six largest shipbuilders. The Company competes for domestic commercial
shipbuilding contracts principally with approximately 15 U.S. shipbuilders.
The number and identity of competitors on particular projects vary greatly
depending on the type of vessel and size of the project, but the Company
generally competes with only three or four companies with respect to a
particular project. The Company competes with over 70 shipyards for its
conversion and repair business.
Competition is based primarily on price, available capacity, service,
quality, and geographic proximity. The Company competes with a large number of
shipbuilders on a national, regional and local basis, some of which have
substantially greater financial resources than the Company and some of which
are public companies or 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.
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Employees
At December 31, 1998, the Company had 285 employees, of which 23 were
salaried, 252 were hourly and 10 were contract workers. The Company is not a
party to any collective bargaining agreements.
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.
Regulation
Environmental Regulation
The Company is subject to extensive and changing federal, state and local
laws (including common law) and regulations designed to protect the
environment ("Environmental Laws"), including laws and regulations that relate
to air and water quality, impose limitations on the discharge of pollutants
into the environment and establish standards for the treatment, storage and
disposal, of toxic and hazardous wastes. Stringent fines and penalties may be
imposed for non-compliance with these Environmental Laws. Additionally, these
laws require the acquisition of permits or other governmental authorizations
before undertaking certain activities, limit or prohibit other activities
because of protected areas or species and impose substantial liabilities for
pollution related to Company operations or properties. The Company cannot
predict how existing laws and regulations may be interpreted by enforcement
agencies or court rulings, whether additional laws and regulations will be
adopted, or the effect such changes may have on the Company's business,
financial condition or results of operations.
The Company's operations are potentially affected by the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). CERCLA (also known as the "Superfund" law) imposes
liability (without regard to fault) on certain categories of persons for
particular costs related to releases of hazardous substances at a facility
into the environment and for liability for natural resource damages.
Categories of responsible persons under CERCLA include certain owners and
operators of industrial facilities and certain other persons who generate or
transport hazardous substances. Liability under CERCLA is strict and generally
is joint and several. Persons potentially liable under CERCLA may also bring a
cause of action against certain other parties for contribution. In addition to
CERCLA, similar state or other Environmental Laws may impose the same or even
broader liability for the discharge, release or the mere presence of certain
substances into and in the environment.
Because industrial operations have been conducted at some of the Company's
properties by the Company and previous owners and operators for many years,
various materials from these operations might have been disposed of at such
properties. This could result in obligations under Environmental Laws, such as
requirements to remediate environmental impacts. There could be additional
environmental impact from historical operations at the Company's properties
that require remediation under Environmental Laws in the future. However, the
Company currently is not aware of any such circumstances that are likely to
result in any such impact under Environmental Laws.
In order to comply with a relatively recent requirement of the Environmental
Protection Agency, the Company has recently applied to the Louisiana
Department of Environmental Quality ("DEQ") for an air quality
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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 Merchant Marine Act of 1920 (the "Jones Act") requires that all vessels
transporting products between U.S. ports must be constructed in U.S.
shipyards, owned and crewed by U.S. citizens and registered under U.S. law,
thereby eliminating competition from foreign shipbuilders with respect to
vessels to be constructed for the U.S. coastwise trade. Many customers elect
to have vessels constructed at U.S. shipyards, even if such vessels are
intended for international use, in order to maintain flexibility to use such
vessel in the U.S. coastwise trade in the future. Bills seeking to
substantially modify the provisions of the Jones Act mandating the use of
ships constructed in the United States for U.S. coastwise trade have been
introduced in Congress. Similar bills seeking to rescind or substantially
modify the Jones Act and eliminate or adversely affect the competitive
advantages it affords to U.S. shipbuilders have been introduced in Congress
from time to time and are expected to be introduced in the future. Although
management believes it is unlikely that the Jones Act requirements will be
rescinded or materially modified in the foreseeable future, there can be no
assurance that such rescission or modification will not occur. Many foreign
shipyards are heavily subsidized by their governments and, as a result, there
can be no assurance that Company would be able to effectively compete with
such shipyards if they were permitted to construct vessels for use in the U.S.
coastwise trade.
OPA '90
Demand for double-hull carriers has been created by the Oil Pollution Act of
1990 ("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 5,000 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 vessel 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
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limited to vessels constructed in the U.S. 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), Finland, Japan, Korea and Norway and Sweden
(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 in 1997, 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
1998, Congress failed to adopt or ratify the OECD Accord. Proponents of the
OECD Accord may seek to introduce the legislation during the 106th Congress in
1999.
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.
Factors Influencing Future Results and Accuracy of Forward-Looking Statements
In this Form 10-K, the Annual Report and in the normal course of its
business, the Company, in an effort to help keep its stockholders and the
public informed about the Company's operations, may from time to time issue or
make certain statements, either in writing or orally, that are or contain
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
All statements contained herein, other than statements of historical fact, are
forward-looking statements. When used in this Form 10-K, the words
"anticipate", "believe", "estimate" and "expect" and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
Company's current views with respect to future events and are subject to
certain risks, uncertainties and assumptions, including but not limited to
those discussed below. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, believed, estimated or expected.
The Company does not intend to update these forward-looking statements.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, no assurance can be given that such
expectations will prove correct. 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 51 years and 25 years, respectively, each of these companies
operated as an independent entity prior to the Orange Acquisition in December
1997. The Company is in the process of integrating the personnel and
operations of Orange Shipbuilding and instituting 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.
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. The Company's
customers include 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
10
<PAGE>
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 since early 1998, and
the Company has experienced reduced levels of demand for its products and
services from customers involved in the offshore oil and gas industry. 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 is constructing 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. 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 did
not have the capacity to meet current demand. A 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. In 1998, the Company experienced significantly
less demand for its fabrication services related to modular components for
offshore oil and gas rigs and FPSOs due to adverse developments in the
offshore oil and gas industry related to lower oil and gas prices.
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 27.4% of the Company's total
revenue in 1998, and approximately 60.2% of the Company's backlog at December
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.
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
11
<PAGE>
have a significant adverse effect on the Company's operating results for any
particular fiscal quarter or year. In addition, some of the Company's
contracts for marine vessel construction require the Company to pay liquidated
damages if the Company fails to meet specified performance deadlines. Any such
payments could have a material adverse effect on the Company's operating
results.
The Company performs many of its repair and conversion projects on a time
and materials basis, under which the Company receives a specified hourly rate
for direct labor hours (which exceeds its direct labor costs and includes
related overhead) and a specified percentage mark-up over its cost of
materials. Under such contracts, the Company is protected against cost
overruns but does not benefit directly from cost savings.
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 have experienced shortages of skilled
labor from time to time as a result of demand 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, the Company experienced labor shortage that 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 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
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 year ended December 31, 1998, the Company's ten largest
customers collectively accounted for 88.0% of revenue. 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
12
<PAGE>
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 $21.5 million at December 31, 1998 was
attributable to 15 projects, of which $13.0 million was attributable to eight
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."
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 was an increase in
demand for vessel construction, conversion and repair services and this
increased demand could resulted 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.
13
<PAGE>
Regulation
The Company's commercial shipbuilding opportunities are materially dependent
on certain U.S. laws and regulations, the Jones Act which requires that
vessels transporting products between U.S. ports be constructed by U.S.
shipyards, 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 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 each of the last several years 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 1997 and 1998 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.
In addition, the Company depends, in part, on the demand for its services
from the oil and gas industry and is affected by changing taxes and other laws
and regulations relating to the oil and gas industry generally. The adoption
of laws and regulations curtailing exploration and development drilling for
oil and gas in the Gulf of Mexico for economic, environmental and other policy
reasons would adversely affect the Company's operations by limiting demand for
its services. The Company cannot determine to what extent future operations
and earnings of the Company may be affected by new legislation, new
regulations or changes in existing regulations.
Environmental Matters
The Company is subject to various federal, state and local environmental
laws and regulations that impose limitations on the discharge of pollutants
into the environment and establish standards for the transportation, storage
and disposal of toxic and hazardous wastes. Significant fines and penalties
may be imposed for non-compliance and certain environmental laws impose joint
and several "strict liability" for remediation of spills and releases of oil
and hazardous substances, rendering a person liable for environmental damage
without regard to negligence or fault on the part of such person. Such laws
and regulations may expose the Company to liability for the conduct of or
conditions caused by others, or for acts of the Company that are or were in
compliance with all applicable laws at the time such acts were performed.
Compliance with environmental laws increases the Company's cost of doing
business. Additionally, environmental laws have been subject to frequent
change.
The Company is unable to predict the future costs or other future effects of
environmental laws on its operations. There can be no assurance that the
Company will not incur material liability related to the Company's operations
and properties under environmental laws.
Reliance on Key Personnel
The Company will be highly dependent on the continuing efforts of William H.
Hidalgo, the Company's President and Chief Executive Officer, and the
Company's other executive officers and key operating personnel. The loss of
the services of any of these persons could have an adverse effect on the
business or prospects of the Company.
14
<PAGE>
Control by Existing Management and Stockholders
The Company's executive officers and directors and persons and entities
affiliated with them beneficially own approximately 4,952,723 shares of Common
Stock representing 70.0% of the outstanding shares of Common Stock of which J.
Parker Conrad, John P. Conrad, Jr. and Katherine Conrad Court own or control
through trusts 4,660,486 shares of Common Stock, representing 65.9% of all
shares of Common Stock outstanding. These holders of Common Stock control in
the aggregate 65.9% 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.
Potential Effect of Shares Eligible for Future Sale on Price of Common Stock
Of the 7,077,723 shares of Common Stock currently outstanding, the 2,125,000
shares sold in the Offering are freely tradable. 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 also has outstanding options to purchase up to a total of
528,500 shares of Common Stock granted to certain directors, officers and
employees of the Company. The Company registered all the shares subject to
these options under the Securities Act for public resale. These shares
generally are freely tradeable after their issuance by persons not affiliated
with the Company unless the Company contractually restricts their resale. The
Company also issued warrants to purchase an aggregate of 72,000 shares of
Common Stock at the initial public offering price to Morgan Keegan & Company,
Inc. Pursuant to a Warrant Agreement with Morgan Keegan & Company, Inc., the
Company 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. 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.
Possible Anti-takeover Effect of Certain Charter Provisions
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences,
powers and relative, participating, optional and other rights (including
preferences over the Common Stock respecting dividends and distributions and
voting rights) as the Board of Directors may determine. The issuance of this
"blank-check" preferred stock could render more difficult or discourage an
attempt to obtain control of the Company by means of a tender offer, merger,
proxy contest or otherwise. In addition, the Charter provides for a classified
Board of Directors, which may also have the effect of inhibiting or delaying a
change in control of the Company. Certain provisions of the Delaware General
Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors.
Item 2: Properties
Shipyards. The Company conducts its marine vessel construction, conversion
and repair operations at its 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 the conversion and repair facility in Amelia,
Louisiana for approximately $1.0 million in 1996 and commenced conversion and
repair services at this facility 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 six years, the Company has made, in the aggregate,
approximately $12.0 million of capital expenditures to add capacity and
improve the efficiency of its Morgan City and Orange Shipbuilding shipyards.
15
<PAGE>
Of this amount, Conrad spent approximately $8.7 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 1998 and 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 six
years also included approximately $3.3 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.
Morgan City. The Company's Morgan City, Louisiana shipyard is located on the
Atchafalaya River approximately 30 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 150 feet of
steel bulkhead and one slip. The Company's Orange shipyard equipment includes
a Wheelabratore, 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.
Items 3: 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.
Item 4: Submission of Matters to Vote of Security Holders
The Company did not submit any matters to a vote of security holders during
the fourth quarter of its fiscal year ended December 31, 1998.
16
<PAGE>
Part II
Item 5: Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's common stock, par value $0.01 per share, (the "Common Stock" )
is traded on the Nasdaq National Market System under the symbol "CNRD." At
March 20, 1999, there were approximately 1,038 holders of record of the
Company's Common Stock.
The following table sets forth the high and low bid prices per share of the
Common Stock, as reported by the Nasdaq National Market, for each fiscal
quarter since trading in the Common Stock began on June 10, 1998.
<TABLE>
<CAPTION>
Fiscal Year 1998 High Low
---------------- ------ ------
<S> <C> <C>
Second Quarter (commencing June 10, 1998)................... $12.06 $11.00
Third Quarter............................................... 11.75 4.00
Fourth Quarter.............................................. 7.50 3.75
</TABLE>
Prior to the Offering, Conrad made distributions of cash and nonoperating
assets to its stockholders. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Events." The Company
currently intends to retain all its earnings, if any, 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. In addition, the Term Loan restricts
the payments of dividends by the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
17
<PAGE>
Item 6: Selected Financial Data
The following table sets forth selected historical consolidated financial
data of the Company as of the dates and for the periods indicated. The
historical financial data for each year in the five-year period ended
December 31, 1998 are derived from the historical financial statements of the
Company. The following table also set forth pro forma financial information
that gives effect to the Company's S Corporation status, as further explained
in the notes. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and notes thereto included
elsewhere in this report.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
------- -------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenue ....................... $46,313 $22,117 $23,174 $20,914 $14,166
Cost of Revenue................ 34,120 15,032 17,003 16,660 11,271
------- -------- ------- ------- -------
Gross Profit................... 12,193 7,085 6,171 4,254 2,895
Selling, general and
administrative expenses....... 3,515 2,242 1,847 1,497 1,621
Executive compensation(1)...... 4,676 -- -- -- --
------- -------- ------- ------- -------
Income from operations......... 4,002 4,843 4,324 2,757 1,274
Interest and other income
(expense), net................ (1,141) 62 (26) (112) (159)
------- -------- ------- ------- -------
Income before income taxes..... 2,861 4,905 4,298 2,645 1,115
Provision for income taxes....... 1,932 -- -- -- --
Cumulative deferred tax
provision....................... 675 -- -- -- --
------- -------- ------- ------- -------
Net Income....................... $ 254 $ 4,905 $ 4,298 $ 2,645 $ 1,115
======= ======== ======= ======= =======
Net income per common share:
Basic and diluted.............. $ 0.04 $ 1.05 $ 0.92 $ 0.57 $ 0.24
Weighted average common shares
outstanding:
Basic and diluted.............. 6,167 4,660 4,660 4,660 4,660
Unaudited Pro Forma Data
Income before income taxes as
reported above................ $ 2,861 $ 4,905 $ 4,298 $ 2,645 $ 1,115
Pro forma provision for income
taxes(2)...................... 2,596 1,815 1,590 979 413
------- -------- ------- ------- -------
Pro forma net income(2)........ $ 265 $ 3,090 $ 2,708 $ 1,666 $ 702
======= ======== ======= ======= =======
Pro forma net income per
share(2)(3)................... $ 0.04 $ 0.55 -- -- --
Common and equivalent share
outstanding................... 6,569 5,577 -- -- --
Statement of Cash Flows Data
Cash provided by operating
activities.................... $ 1,988 $ 6,114 $ 5,313 $ 3,604 $ 1,110
Cash used in investing
activities(4)................. (1,718) (23,872) (1,961) (1,120) (287)
Cash provided by (used in)
financing activities.......... (4,747) 22,100 (2,619) (623) (516)
Other Financial Data:
Depreciation & amortization.... $ 2,249 $ 850 $ 798 $ 722 $ 676
Capital expenditures(4)........ $ 1,718 $ 23,872 $ 1,961 $ 1,120 $ 287
EBITDA(5)...................... $10,927 $ 5,693 $ 5,122 $ 3,479 $ 1,950
EBITDA margin(6)............... 23.6% 25.7% 22.1% 16.6% 13.8%
Operating profit margin(7)..... 8.6% 21.9% 18.7% 13.2% 9.0%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital .......................... $7,678 $7,760 $4,402 $3,733 $2,497
Property, Plant & Equipment............... 18,104 18,304 8,514 7,465 7,067
Total Assets.............................. 47,519 48,945 15,236 13,895 10,395
Long term debt, including current
portion.................................. 9,912 25,338 1,233 1,900 1,962
Stockholders' equity...................... 30,482 15,279 12,379 10,032 7,948
</TABLE>
- --------
(1) Represents non-cash executive compensation expense related to the issuance
of shares of restricted common stock 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."
(2) Gives effect to the application of federal and state income taxes to the
Company as if it were a C corporation for tax purposes. Prior to May 28,
1998, Conrad operated as an S corporation for federal and state income tax
purpose.
(3) Pro forma income per share consists of the Company's historical income as
an S corporation, adjusted for income taxes that would have been recorded
had the Company operated as a C corporation and excludes the one-time
charge of $675,000 to record the cumulative deferred income tax provision.
This amount is divided by the weighted average shares of common stock
outstanding which are increased to reflect additional shares to pay the
$10.0 million distribution of estimated undistributed earnings to
shareholders (916,591,shares). All such additional shares are based on the
offering price of $12.00 per share, net of offering expenses.
(4) Includes acquisition expenditures of $22.8 million (net of cash acquired)
incurred in December 1997 in connection with the Orange Acquisition.
(5) Represents income from operations before deduction of depreciation,
amortization and non-cash compensation expense related to the issuance of
stock and stock options to employees. EBITDA is not a measure of cash
flow, operating results or liquidity as determined by generally accepted
accounting principles. The Company has included information concerning
EBITDA as supplemental disclosure because management believes that EBITDA
provides meaningful information regarding a company's historical ability
to incur and service debt. EBITDA as defined and measured by the Company
may not be comparable to similarly titled measures reported by other
companies. EBITDA should not be considered in isolation or as an
alternative to, or more meaningful than, net income or cash flow provided
by operations as determined in accordance with generally accepted
accounting principles as an indicator of the Company's profitability or
liquidity.
(6) Represents EBITDA as a percentage of revenues.
(7) Represents income from operations as a percentage of revenues.
19
<PAGE>
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the Notes to Consolidated Financial
Statements included elsewhere in this Form 10-K.
Overview
The Company was incorporated in March 1998 to serve as the holding company
for Conrad Shipyard, Inc. ("Conrad") and Orange Shipbuilding Company, Inc.
("Orange Shipbuilding"). The shareholders of Conrad entered into an exchange
agreement pursuant to which they have exchanged their shares of common stock
of Conrad for shares of common stock of the Company (the "Reorganization")
prior to the completion of the Offering. In accordance with the terms of the
exchange agreement, the shareholders of Conrad received a number of shares of
common stock of the Company in direct proportion to their relative
shareholdings in Conrad. As a result of the Reorganization, the Company is a
holding company whose only assets consist of all of the outstanding shares of
capital stock of Conrad. Conrad continues to own all of the outstanding stock
of Orange Shipbuilding.
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 Company completed the Offering on June 15, 1998 in which it sold 2.1
million shares of common stock for net proceeds of $23.7 million ($1.4 million
was received in July 1998) after underwriting discounts of $1.8 million. The
Company used all of the proceeds to repay $10 million of indebtedness under
the Company's revolving credit facility and the remaining net proceeds were
used to repay $13.7 million of the approximately $25 million of indebtedness
under a term loan.
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 adversely impacted recently by decreased activity in the
offshore oil and gas industry. Activity by commercial and government customers
to construct new vessels to replace older vessels and upgrade the capacity or
functionality of existing vessels has remained steady. 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 a steady mix of repair
activities.
The Company is engaged in various types of construction under contracts that
generally range from one month to 36 months in duration. The Company uses the
percentage-of-completion method of accounting and therefore, takes into
account the estimated costs, 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
20
<PAGE>
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 material
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.
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 cost of $25.8 million. The cash
purchase price and related acquisition cost 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
market values at the date of acquisition. This resulted in an excess of
purchase price over fair value of assets acquired of approximately $15.7
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 operation of Orange Shipbuilding from the
date of acquisition to the end of Conrad's fiscal year were insignificant.
Conrad operated as an S corporation for federal and state income tax
purposes since April 1, 1990. As a result, Conrad was not subject to federal
or state income tax until after May 1998, and the entire earnings of Conrad
were subject to tax directly at the shareholder level. In May 1998, Conrad's S
election was terminated and thereafter Conrad became subject to corporate
level income taxation. A one-time net deferred tax liability charge to
earnings of $675,000 was made during 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 recorded a one-time net deferred tax liability of approximately
$200,000 in the fourth quarter ended December 31, 1997.
In the past, Conrad made distributions to its shareholders in order to fund
their federal and state income tax liabilities that resulted from Conrad's S
corporation status. In accordance with this practice, during the first quarter
of 1998, Conrad distributed approximately $506,000 to its shareholders and
distributed an additional $1.8 million prior to the effective date of the
Offering to fund the shareholders' federal and state income tax liabilities
estimated through the date of termination of its S corporation status.
On May 22, 1998, prior to the Reorganization, Conrad made an additional $10
million distribution ("Shareholder Distribution") to its shareholders, which
amount represented undistributed earnings of Conrad, estimated through the
date of the termination of Conrad's S corporation status, on which Conrad's
shareholders incurred federal and state income taxes. Conrad also made 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 were made prior
to the completion of the Offering, and Conrad funded the Shareholder
Distributions with borrowing under its revolving credit facility, which
borrowings were repaid with proceeds of the Offering.
In the first quarter of 1998, Conrad issued shares of restricted common
stock to William H. Hidalgo, the President and Chief Executive Officer, and
Cecil A. Hernandez, the Vice President-Finance and Administration
21
<PAGE>
and Chief Financial Officer, in consideration of past services rendered. The
agreements related to such restricted stock provide that 50% of the shares of
common stock issued to each such executive would be 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 would 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 were 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 were repaid in full by Mr. Hidalgo and Mr. Hernandez in July 1998.
In connection with the issuance of these shares to Messrs. Hidalgo and
Hernandez, the Company estimated it would recognize aggregate compensation
expense of $8.6 million, of which $4.3 million was recognized in the first
quarter of 1998 and the remainder was estimated to be recognized over a three-
year vesting period, of which $360,000 was expensed in the second quarter of
1998. During the third quarter of 1998 the executives surrendered and the
Company cancelled an aggregate 247,277 of their restricted shares in order to
eliminate the recurring compensation expense associated with the lapse of the
restrictions. As a result of the cancellation of the restricted shares, the
remainder of the estimated compensation expense of $4.0 million will not be
recognized in the future. On November 3, 1998, the executives were awarded
options to purchase an aggregate of 400,000 shares of Company common stock at
the market price of the stock on the date of the award.
22
<PAGE>
Results of Operations
The following table sets forth certain historical data of the Company and
percentage of revenues for the periods presented.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Financial Data:
Revenue
Vessel construction........ $ 31,754 68.6% $10,671 48.2% $11,421 49.3%
Repair and conversions..... 14,559 31.4% 11,446 51.8% 11,753 50.7%
-------- ------- -------
Total revenue............ 46,313 100.0% 22,117 100.0% 23,174 100.0%
-------- ------- -------
Cost of Revenue
Vessel construction........ 23,560 74.2% 7,250 67.9% 8,678 76.0%
Repair and conversions..... 10,560 72.5% 7,782 68.0% 8,325 70.8%
-------- ------- -------
Total Cost of revenue.... 34,120 73.7% 15,032 68.0% 17,003 73.4%
-------- ------- -------
Gross Profits
Vessel construction........ 8,194 25.8% 3,421 32.1% 2,743 24.0%
Repair and conversions..... 3,999 27.5% 3,664 32.0% 3,428 29.2%
-------- ------- -------
Total gross profit....... 12,193 26.3% 7,085 32.0% 6,171 26.6%
S G & A expenses............. 3,515 7.6% 2,242 10.1% 1,847 8.0%
Non-Cash executive
compensation................ 4,676 10.1% -- 0.0% -- 0.0%
-------- ------- -------
Income from operations....... 4,002 8.6% 4,843 21.9% 4,324 18.7%
Interest Expense............. 1,425 3.1% 126 0.6% 96 0.4%
Other expenses (income),
net......................... (284) -0.6% (188) -0.9% (70) -0.3%
-------- ------- -------
Income before income taxes... 2,861 6.2% 4,905 22.2% 4,298 18.5%
Income taxes................. 1,932 4.2% -- 0.0% -- 0.0%
Cumulative deferred tax
provision................... 675 1.5% -- 0.0% -- 0.0%
-------- ------- -------
Net income................... $ 254 0.5% $ 4,905 22.2% $ 4,298 18.5%
======== ======= =======
Pro Forma Data:
Income before income taxes as
reported above.............. $ 2,861 6.2% $ 4,905 22.2% $ 4,298 18.5%
Pro forma provision for
income taxes................ 2,596 5.6% 1,815 8.2% 1,590 6.9%
-------- ------- -------
Pro forma net income......... $ 265 0.6% $ 3,090 14.0% $ 2,708 11.7%
======== ======= =======
EBITDA (1)................... $10, 927 23.6% $ 5,693 25.7% $ 5,122 22.1%
======== ======= =======
Operating Data: Labor Hours.. 663 386 413
</TABLE>
- --------
(1) Represents income from operations before deduction of depreciation,
amortization and non-cash compensation expense related to the issuance of
common 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.
23
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The Company's results of operations for the year ended December 31, 1997 do
not include information relative to Orange Shipbuilding and thus only present
Conrad's results of operations for that period.
During the year ended December 31, 1998, the Company generated revenue of
$46.3 million, an increase of $24.2 million, or 109.4%, compared to $22.1
million generated in 1997. The increase was due to a $17.0 million increase in
vessel construction attributable to the inclusion of the activities of Orange
Shipbuilding in the results of operations of the Company for the year, and a
$4.1 million increase in vessel construction and $3.1 million increase in
repair and conversion revenue at Conrad for the year. The increase at Conrad
was primarily attributable to increased demand as offshore oil and gas
activity increased and to the types of jobs completed or in progress during
1998 which required more material and equipment as compared to projects
completed or in progress in 1997.
Gross profit increased $5.1 million, or 72.1%, to $12.2 million (26.3% of
revenue) in 1998 as compared to gross profit of $7.1 million (32.0% of
revenue) in 1997. The increase was due primarily to an increase of $4.0
million at Orange Shipbuilding, $800,000 in other vessel new construction and
$300,000 in repair and conversion. The decrease in gross profit as a
percentage of revenue was primarily due to an increase in the types of jobs
completed or in progress during 1998 which required more material and
equipment than that required for projects completed or in progress in 1997.
Selling, general and administrative expenses increased $1.3 million to $3.5
million (7.6% of revenue) for 1998 as compared to $2.2 million (10.1% of
revenue) for 1997, primarily due to an $801,000 increase in goodwill and loan
cost amortization, a $415,000 increase in salary and wages, an increase of
$175,000 in legal and accounting fees and a decrease of $359,000 in bonus
expense.
Income before income taxes decreased $2.0 million to $2.9 million for 1998
as compared to $4.9 million for 1997, primarily due to the non-cash executive
compensation charge of $4.7 million (described in "Recent Events") and
interest expense of $1.4 million.
The Company had net income of $254,000 for 1998 compared to $4.9 million for
1997. Net income for 1998 was impacted by the non-cash compensation charge of
$4.7 million, interest expense of $1.4 million, a one time deferred income tax
charge of $675,000 for such period related to the Company's conversion from an
S corporation to a C corporation and income taxes of $1.9 million. The Company
was an S corporation during 1997 and not subject to income taxes at the
corporate level.
Pro forma net income decreased $2.8 million to $265,000 for 1998 as compared
to pro forma net income of $3.1 million for 1997 primarily due to the non-cash
executive compensation charge of $4.7 million (described in "Recent Events")
and interest expense of $1.4 million. Pro forma net income gives effect to the
application of federal and state income taxes to the Company as if it were a C
corporation for tax purposes during all the periods presented. Pro forma net
income excludes the one-time charge of $675,000 to record the cumulative
deferred income tax provision.
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 the Company's
drydocks while it was being modified to facilitate the movement of vessels
from the drydock to dockside land repair areas.
24
<PAGE>
Gross profit increased $914,000, or 14.8%, to $7.1 million (32.0% of
revenue) in 1997 as compared to gross profit of $6.2 million (26.6% of
revenue) in 1996, This increase was primarily due to increase in negotiated
prices for fixed price contracts, increase in negotiated labor rates for
conversion and repair services, improved efficiencies resulting form 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 lengthy and costly litigation. The Company realized a profit with
respect to this project taking into account this settlement.
Selling, general and administrative expenses increased to $2.2 million
(10.1% of revenue) in 1997 as compared to $1.8 million (8.0% 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 increased $607,000, or 14.1%, to $4.9 million
(22.2% of revenue) in 1997 as compared to $4.3 million (18.5% of revenue) in
1996. This increase resulted primarily from the factors discussed above.
Liquidity and Capital Resources
The Company completed the Offering on June 15, 1998 in which it sold 2.1
million shares of common stock for net proceeds of $23.7 million ($ 1.4
million of which was received in July 1998) after underwriting discounts of
$1.8 million. The Company used all of the proceeds to repay $10.0 million of
indebtedness under the Company's revolving credit facility (the" Revolving
Credit Facility") and the remaining net proceeds were used to repay $13.7
million of the approximately $25.0 million of indebtedness under a term loan
(the "Term Loan").
Historically, the Company has funded its business through funds generated
from operations. Net cash provided by operations was $2.0 million, $6.1
million, and $5.3 million for 1998, 1997, and 1996 respectively. The decrease
in 1998 was primarily due to increase in accounts receivable and net change in
billings related to cost and estimated earnings on uncompleted contracts of
$5.6 million. The increases in 1997 and 1996 were principally due to 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. The Company has borrowed in the past to expand its
facilities and to fund the Orange Acquisition. The Company had a net reduction
in debt of $15.4 million in 1998, net borrowings for all credit arrangements
were $24.1 million during 1997, primarily in connection with the Orange
Acquisition and a net reduction in debt of $668,000 in 1996. The Company's
working capital position was $7.7 million, $7.8 million, and $4.4 million at
December 31, 1998, 1997, and 1996, respectively.
The Company's capital requirements historically have been primarily for
improvements to its facilities and equipment. Capital expenditures were $1.7
million for 1998 for improvements to facilities and equipment, of which
approximately $887,000 was for a major improvement to a drydock. Capital
expenditures totaled $1.1 million in 1997, which included major repairs to
drydocks, purchases of equipment and additions to facilities, and $2.0 million
in 1996, of which $1.0 million was for the purchase of the Amelia property.
Other investing activities in 1997 included the acquisition of Orange
Shipbuilding for $22.8 million (net of cash acquired).
The Company has entered into a loan agreement with a commercial bank (the
"Loan Agreement"), which specifies the terms of the Term Loan and the
Revolving Credit Facility. The Revolving Credit Facility permits the Company
to borrow up to $10.0 million for working capital and other general corporate
purposes, including the funding of acquisitions. The Revolving Credit Facility
bears interest on the same terms as the Term Loan and matures on April 30,
1999. A fee of 0.25% per annum on the unused portion of the Revolving Credit
Facility will be charged quarterly. The Company borrowed $10.0 million under
the Revolving Credit Facility prior to the
25
<PAGE>
Reorganization in order to fund part of the Shareholder Distributions as
further described in Recent Events. The
$10.0 million of indebtedness was paid from the proceeds as detailed above and
thus the $10 million Revolving Credit Facility remains available for future
use. The Loan Agreement contains customary restrictive covenants and financial
ratio test, including a current ratio requirement of 1.5 to 1.0, that could
limit the Company's use of available capacity under the Revolving Credit
Facility. The Loan Agreement prohibits the Company from paying dividends
without the consent of the lender and restricts the ability of the Company to
incur additional indebtedness.
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 March 18, 1999, 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 LIBOR rate option and the
interest rate at December 31, 1998 was 7.41% per annum. The Term Loan required
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 on April 2004. The Term Loan is secured by substantially all
of the Company's assets. During June 1998, the Company repaid $12.3 million of
the outstanding indebtedness under the Term Loan with a portion of the net
proceeds of the Offering. The Term Loan was reduced by an additional $1.4
million in July 1998 with additional proceeds of the Offering. The Company
additionally commenced principal repayments in June, resulting in a balance
due under the Term Loan of $9.9 million at December 31, 1998.
For 1998 net cash used in financing activities was $4.7 million. This net
decrease was composed of cash provided from borrowings of the Revolving Credit
Facility of $10.0 million, borrowings on insurance finance notes of $687,000
and net proceeds from sale of common stock of $23.0 million less cash used in
the principal repayment of debt of $26.1 million and distributions to
shareholders of $12.3 million prior to the effective date of the Offering. Net
cash provided by (used in) financing activities for 1997 and 1996 was $22.1
million and ($2.6) 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 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 1999. 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 1998,
1997, and 1996, inflation did not have a significant effect on the results of
the Company in those fiscal years.
Year 2000 Compliance
The Company is in the process of assessing its critical information
technology (IT) systems and non-IT systems and is developing and initiating a
plan to address deficiencies. The Company believes that it is on schedule to
successfully implement the required systems and equipment modifications
necessary to make the Company's critical systems Year 2000 compliant by mid-
1999.
The Company's critical IT systems are comprised primarily of a PC-based
general ledger accounting software package and related application modules, a
fixed asset system, payroll system and requisition system. The assessment of
the Company's IT systems found that some of the IT systems were not Year 2000
compliant. Changes to make these systems Year 2000 compliant are being made in
conjunction with the Company's planned upgrade cycle, which should be
completed prior to June 30, 1999.
Non-IT systems are comprised primarily of computer-controlled equipment and
electronic devices, including equipment with embedded microprocessors which
are used to operate equipment at the Company's production and repair
facilities. Additionally, telephone systems and other office-based electronic
equipment
26
<PAGE>
were considered in the assessment of non-IT systems. With respect to
production and repair facilities, the Company's assessment indicates that
there will be no disruption in the operations of its equipment as a result of
the Year 2000 problem. The Company plans to conduct testing of its equipment
with manufacturers' representatives during the first quarter of 1999 to verify
the current assessment. With respect to other office based non-IT systems, the
Company's assessment found that it will be necessary to replace or modify some
existing equipment, which should be completed by mid-1999.
The total cost to make all systems and equipment Year 2000 compliant is
currently estimated at $45,000, exclusive of software and systems that are
being upgraded in the normal business cycle. Approximately $2,000 has been
spent in modifying and upgrading systems and equipment to date. The costs
incurred to date and future costs with respect to Year 2000 compliance are
expected to be funded with cash from operations.
The Company is in the process of initiating communication with most
significant suppliers, customers and financial service providers on the Year
2000 issue. This communication will be used to determine the extent to which
the Company is vulnerable to these third parties' failure to remedy their own
Year 2000 issues. Although there is currently no indication that these
business partners will not achieve their Year 2000 compliance plans, there can
be no guarantee that the systems of other companies on which the Company
relies will be timely converted. Additionally, there can be no guarantee that
the Company will not experience Year 2000 problems. If the Company or its
business partners experience Year 2000 compliance problems, the Company could
experience business interruption and other adverse business consequences which
could have a material adverse impact on the Company's results of operations,
liquidity or financial position. The Company believes that the most likely
negative effects, if any, could include delays in payments to the Company from
customers or payments by the Company to suppliers and disruptions in shipments
of equipment and materials required to fabricate the Company's products.
Based on the Company's current assessment of its IT systems, non-IT systems
and business partners, the Company has not, to date, developed a contingency
plan for Year 2000 issues. The Company will continue to monitor its decision
on contingency planning and such a plan will be developed if and when it is
considered prudent to do so.
27
<PAGE>
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.
The Company has adopted SFAS 130 and has concluded that no additional
Statement of Comprehensive Income within its consolidated financial statements
is required at this time. In addition, the Company has considered the
implications of SFAS 131 and has included the required disclosures within the
notes to the consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Number 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 revises the
standards for disclosure of pension and other postretirement benefit plans by
standardizing the disclosure requirements, requiring additional information on
changes in the benefit obligations and fair values of plan assets and
eliminating certain disclosures requirements no longer considered to be
useful. These new disclosure requirements are designed to improve the
understandability of benefit disclosures for financial analysis. The Company
has considered the implications of SFAS 132 and has concluded that no
additional disclosure is required at this time.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 111"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Company has considered the implications of SFAS 133 and has concluded that its
implementation will not have a material effect on the Company's consolidated
financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are
incorporated under Item 14, Part IV of this Form 10-K.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III.
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item as to the directors and executive
officers of Conrad Industries is hereby incorporated by reference from the
company's definitive proxy statement prepared in connection with the 1999
Annual Meeting of Stockholders which is to be filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 within 120
days of the end of the company's fiscal year on December 31, 1998.
Item 11. Executive Compensation
The information required by this Item is hereby incorporated by reference
from the company's definitive proxy statement which is to be filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934 within 120 days of the end of the Company's fiscal year on December 31,
1998.
28
<PAGE>
Notwithstanding the foregoing, in accordance with the instructions to Item 402
of Regulation S-K, the information contained in the company's proxy statement
under the sub-heading "Report of the Compensation Committee" and "Performance
Graph" shall not be deemed to be filed as part of or incorporated by reference
into this Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item as to the ownership by management and
others of securities of Conrad Industries is hereby incorporated by reference
from the company's definitive proxy statement prepared in connection with the
1999 Annual Meeting of Stockholders which is to be filed with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934 within
120 days of the end of the company's fiscal year on December 31, 1998.
Item 13. Certain Relationships and Related Transactions
The information required by this Item as to certain business relationships
and transactions with management and other related parties of the company is
hereby incorporated by reference from the company's definitive proxy statement
prepared in connection with the 1999 Annual Meeting of Stockholders which is
to be filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 within 120 days of the end of the company's
fiscal year on December 31, 1998.
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents Filed as a Part of this Report
1. Financial Statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.......................................... F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-2
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................................. F-3
Consolidated Statement of Shareholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996..................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................................. F-5
Notes to Consolidated Financial Statements............................ F-6
</TABLE>
All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the financial
statements or notes thereto.
29
<PAGE>
2. Exhibits:
Exhibits to the Form 10-K have been included only with the copies of the
Form 10-K filed with the Commission and the NASDAQ--National Market System.
Upon request to the company and payment of a reasonable fee, copies of the
individual exhibits will be furnished.
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<C> <S>
*3.1 --Amended and Restated Certificate of Incorporation.
*3.2 --Amended and Restated Bylaws.
4.1 --Specimen Common Stock Certificate (filed as Exhibit 4 to the
company's Registration Statement on Form 8-A and incorporated by
reference herein).
*4.2 --Registration Rights Agreement by and among Conrad Industries, Inc.,
J. Parker Conrad, John P. Conrad, Jr., Katherine C. Court, The John
P. Conrad, Jr. Trust, The Daniel T. Conrad Trust, The Glen Alan
Conrad Trust, The Kenneth C. Conrad Trust, The Katherine C. Court
Trust, The James P. Conrad Trust, William H. Hidalgo, and Cecil A.
Hernandez.
*4.3 --Registration Rights Agreement between Conrad Industries, Inc. and
Morgan Keegan & Company, Inc.
10.1 --Stock Purchase Agreement dated as of December 12, 1997, by and
among Conrad Shipyard, Inc., Orange Shipbuilding, Thomas E. Clary,
Robert D. Clary and George B. Clary (filed as Exhibit 10.1 to the
company's Registration Statement on Form S-1 (Registration No. 33-
49773) and incorporated by reference herein).
10.2 --Loan Agreement, dated as of March 19, 1998, by and among Whitney
National Bank, Conrad Shipyard, Inc. and Orange Shipbuilding (filed
as Exhibit 10.2 to the company's Registration Statement on Form S-1
(Registration No. 33-49773) and incorporated by reference herein).
10.3 --Loan Agreement, dated as of May 22, 1998, by and among Whitney
National Bank, Conrad Shipyard, Inc. and Orange Shipbuilding (filed
as Exhibit 10.3 to the company's Registration Statement on Form S-1
(Registration No. 33-49773) and incorporated by reference herein).
10.4 --Stock Exchange Agreement, dated as of March 31, 1998, by and among
Conrad Industries, Inc., Conrad Shipyard, Inc., 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 (filed as
Exhibit 10.4 to the company's Registration Statement on Form S-1
(Registration No. 33-49773) and incorporated by reference herein).
10.5** --Conrad Industries, Inc. 1998 Stock Plan (filed as Exhibit 10.5 to
the company's Registration Statement on Form S-1 (Registration No.
33-49773) and incorporated by reference herein).
10.6** --Officer and Director Indemnification Agreement (filed as Exhibit
10.6 to the Company's Registration Statement on Form S-1
(Registration No. 33-49773) and incorporated by reference herein).
*10.7** --Employment Agreement between Conrad Shipyard, Inc. and J. Parker
Conrad.
*10.8** --Employment Agreement between Conrad Shipyard, Inc. and John Parker
Conrad, Jr.
*10.9** --Employment Agreement between Conrad Shipyard, Inc. and William H.
Hidalgo.
*10.10** --Employment Agreement between Conrad Shipyard, Inc. and Cecil A.
Hernandez.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<C> <S>
*10.11** --Employment Agreement between Orange and Ralph C. Thon.
--Warrant Agreement between the Conrad Industries, Inc. and Morgan
*10.12 Keegan & Company, Inc.
*21.1 --Subsidiaries of Conrad Industries, Inc.
*27.1 --Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** Management contract or compensation plan.
(b) Reports on Form 8-K:
Conrad Industries did not file any Current Reports on Form 8-K with the
Securities and Exchange Commission during the fourth quarter of 1998.
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Conrad Industries, Inc.
We have audited the accompanying consolidated balance sheets of Conrad
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company'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 consolidated financial statements present fairly, in
all material respects, the financial position of Conrad Industries, Inc. and
subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
February 24, 1999
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
---------------
ASSETS 1998 1997
------ ------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 3,074 $ 7,551
Accounts receivable, net..................................... 7,682 4,467
Costs and estimated earnings in excess of billings on
uncompleted contracts....................................... 2,692 2,499
Inventories.................................................. 230 139
Other current assets......................................... 562 638
------- -------
Total current assets....................................... 14,240 15,294
PROPERTY, PLANT AND EQUIPMENT, net............................. 18,104 18,304
COST IN EXCESS OF NET ASSETS ACQUIRED.......................... 14,963 15,294
OTHER ASSETS................................................... 212 53
------- -------
TOTAL ASSETS................................................... $47,519 $48,945
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................................. $ 1,650 $ 1,997
Accrued employee costs....................................... 215 448
Accrued expenses............................................. 1,255 725
Current maturities of long-term debt......................... 2,594 1,801
Billing in excess of costs and estimated earnings on
uncompleted contracts....................................... 848 2,563
------- -------
Total current liabilities.................................. 6,562 7,534
LONG-TERM DEBT, less current maturities........................ 7,318 23,537
DEFERRED INCOME TAXES.......................................... 3,157 2,595
------- -------
Total liabilities.......................................... 17,037 33,666
------- -------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value, 20,000,000 shares authorized,
7,077,723 shares outstanding in 1998 and 4,660,486 shares
outstanding in 1997......................................... 71 47
Additional paid-in capital................................... 27,780 156
Retained earnings............................................ 2,631 15,076
------- -------
Total shareholders' equity................................. 30,482 15,279
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $47,519 $48,945
======= =======
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
REVENUE.............................................. $46,313 $22,117 $23,174
COST OF REVENUE...................................... 34,120 15,032 17,003
------- ------- -------
GROSS PROFIT......................................... 12,193 7,085 6,171
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 3,515 2,242 1,847
EXECUTIVE COMPENSATION EXPENSE....................... 4,676 -- --
------- ------- -------
INCOME FROM OPERATIONS............................... 4,002 4,843 4,324
INTEREST EXPENSE..................................... (1,425) (126) (96)
OTHER INCOME......................................... 284 188 70
------- ------- -------
INCOME BEFORE INCOME TAXES........................... 2,861 4,905 4,298
PROVISION FOR INCOME TAXES........................... 1,932 -- --
PROVISION FOR CUMULATIVE DEFERRED TAXES.............. 675 -- --
------- ------- -------
NET INCOME........................................... $ 254 $ 4,905 $ 4,298
======= ======= =======
Net income per common share:
Basic and diluted.................................. $ 0.04 $ 1.05 $ 0.92
======= ======= =======
Weighted average common shares outstanding:
Basic and diluted.................................. 6,167 4,660 4,660
======= ======= =======
Unaudited pro forma data (Note 6):
Income before income taxes as reported above....... $ 2,861 $ 4,905 $ 4,298
Pro forma provision for income taxes............... 2,596 1,815 1,590
------- ------- -------
Pro forma net income............................... $ 265 $ 3,090 $ 2,708
======= ======= =======
Pro forma net income per share..................... $ 0.04 $ 0.55
======= =======
Common and equivalent shares outstanding........... 6,569 5,577
======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<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,
1996................... 4,660 $ 47 $ 156 $ -- $ 9,829 $10,032
Distributions........... -- -- -- -- (1,951) (1,951)
Net income.............. -- -- -- -- 4,298 4,298
-------- ------ ------- ------ ------- -------
BALANCE, DECEMBER 31,
1996................... 4,660 47 156 -- 12,176 12,379
Distributions........... -- -- -- -- (2,005) (2,005)
Net income.............. -- -- -- -- 4,905 4,905
-------- ------ ------- ------ ------- -------
BALANCE, DECEMBER 31,
1997................... 4,660 47 156 -- 15,076 15,279
Distributions........... -- -- -- -- (12,699) (12,699)
Stock issued to
executives............. 540 5 8,627 (4,316) -- 4,316
Amortization of unearned
stock compensation..... -- -- -- 360 -- 360
Stock cancellation...... (247) (2) (3,954) 3,956 -- --
Sale of common stock,
net of underwriting
commissions and
transaction costs of
$2,528................. 2,125 21 22,951 -- -- 22,972
Net income.............. -- -- -- -- 254 254
-------- ------ ------- ------ ------- -------
BALANCE, DECEMBER 31,
1998................... 7,078 $ 71 $27,780 $ -- $ 2,631 $30,482
======== ====== ======= ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December
31,
------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 254 $ 4,905 $4,298
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 2,249 850 798
Deferred income tax provision.................... 663 -- --
Provision for bad debts.......................... -- -- 510
Executive compensation expense................... 4,676 -- --
Other............................................ 65 -- 115
Changes in assets and liabilities, net of effect
of acquisition:
Accounts receivable............................ (3,215) (1,086) (752)
Net change in billings related to cost and
estimated earnings on uncompleted contracts... (2,341) 794 139
Inventory and other assets..................... (192) (35) 337
Accounts payable and accrued expenses.......... (171) 686 (132)
------- ------- ------
Net cash provided by operating activities.... 1,988 6,114 5,313
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired.... -- (22,819) --
Capital expenditures for plant and equipment....... (1,718) (1,053) (1,961)
------- ------- ------
Net cash used in investing activities........ (1,718) (23,872) (1,961)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net............ 22,972 -- --
Proceeds from issuance of debt..................... 10,687 25,338 1,229
Principal repayments of debt....................... (26,113) (1,233) (1,897)
Distributions to shareholders...................... (12,293) (2,005) (1,951)
------- ------- ------
Net cash (used in) provided by financing
activities.................................. (4,747) 22,100 (2,619)
------- ------- ------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS......................................... (4,477) 4,342 733
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR......... 7,551 3,209 2,476
------- ------- ------
CASH AND CASH EQUIVALENTS, END OF YEAR............... $ 3,074 $ 7,551 $3,209
======= ======= ======
SUPPLEMENTAL DISCLOSURES CASH FLOW INFORMATION:
Interest paid...................................... $ 1,531 $ 20 $ 99
======= ======= ======
Taxes paid......................................... $ 1,557 $ -- $ --
======= ======= ======
NONCASH ACTIVITIES:
Issuance of stock to executives.................... $ 4,676 $ -- $ --
======= ======= ======
Distributions of assets to shareholders............ $ 406 $ -- $ --
======= ======= ======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation--The consolidated financial
statements include the accounts of Conrad Industries, Inc. and its wholly-
owned subsidiaries (the "Company") which are primarily 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 the Company also performs
some repair work under cost-plus-fee agreements. All significant intercompany
transactions have been eliminated.
The Company was incorporated in March 1998 to serve as the holding company
for Conrad Shipyard, Inc. ("Conrad") and Orange Shipbuilding Company, Inc.
("Orange Shipbuilding"). The shareholders of Conrad entered into an Exchange
Agreement pursuant to which they have exchanged 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 received a number shares of common stock in direct proportion to their
relative shareholdings in Conrad. As a result of the Reorganization, the
Company is a holding company whose only assets consist of all the outstanding
shares of capital stock of Conrad. Conrad continues to own all of the
outstanding stock of Orange Shipbuilding.
On December 12, 1997, Conrad acquired all of the outstanding shares of
Orange Shipbuilding for $25,817,000 (See Note 2). The acquisition has been
accounted for by the purchase method. Accordingly, the operations of Orange
Shipbuilding are included in the Company's operations for the year ended
December 31, 1998. 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 the 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. The acquisition was funded with a $25.0
million short-term promissory note and existing cash (See Note 5).
Prior to the Reorganization and the completion of its initial public
offering (the "Offering"), Conrad made an election to terminate their S
corporation status and became subject to federal and state income tax
thereafter. As a result of its conversion from an S corporation to a C
corporation, Conrad was required to record a one-time charge to earnings a
deferred tax liability of $675,000 in the second quarter of 1998. Prior to the
completion of the Offering, Conrad made a $10.0 million distribution to its
shareholders, which represented undistributed earnings of Conrad, estimated
through the date of the termination of the S corporation status, on which
Conrad's current shareholders have incurred federal and state income taxes.
The distribution was funded with borrowings under a $10.0 million revolving
credit facility. The facility bears interest on the same terms as the term
loan referred to above and matures on April 30, 1999.
On June 15, 1998, the Company completed its initial public offering in which
it sold 2.0 million shares of common stock. The Company received net proceeds
from the Offering of $22.3 million. The net proceeds were used to repay $12.3
million of indebtedness under the term loan and $10.0 million of indebtedness
under the revolving credit facility.
On July 13, 1998, the underwriters of the Offering exercised 125,000 shares
of common stock of their over-allotment option. The net proceeds for the over-
allotment exercise of $1.4 million were used to repay indebtedness on the term
loan.
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
F-6
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition--The Company 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 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.
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. Accumulated amortization on
excess cost was $783,000 at December 31, 1998.
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. See
Note 6.
Fair Value of Financial Instruments--The carrying amounts of the Company's
financial instruments including cash and cash equivalents, receivables,
payables and long-term debt closely approximates fair value at December 31,
1998 and 1997.
F-7
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation--Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123") encourages but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations and has adopted the disclosure-only
provisions of SFAS 123. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. See Note 6.
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. The Company has adopted SFAS 130 and has concluded
that no additional Statement of Comprehensive Income within its consolidated
financial statements is required at this time. In addition, the Company has
considered the implications of SFAS 131 and has included the required
disclosures within the notes to the consolidated financial statements. See
Note 11.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 revises the
standards for disclosure of pension and other postretirement benefit plans by
standardizing the disclosure requirements, requiring additional information on
changes in the benefit obligations and fair values of plan assets, and
eliminating certain disclosure requirements no longer considered to be useful.
The new disclosure requirements are designed to improve the understandability
of benefit disclosures for final analysis. The Company has considered the
implications of SFAS 132 and has concluded that no additional disclosure is
required at this time.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Company has considered the implications of SFAS 133 and has concluded that its
implementation will not have a material effect on the Company's consolidated
financial statements.
2. 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 $25.0 million promissory note (see Note 5) and existing cash.
The acquisition has been accounted for under the purchase method. The final
purchase price was allocated to the net assets acquired (net book value of
$6,758,000) based on their estimated fair values at the date of acquisition as
follows (in thousands):
<TABLE>
<S> <C>
Current assets, other than cash..................................... $ 1,425
Property, plant and equipment....................................... 9,588
Liabilities assumed................................................. (3,940)
Cost in excess of net assets acquired............................... 15,746
-------
Purchase price, net of cash acquired ($2,998)....................... $22,819
=======
</TABLE>
F-8
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $515,0000 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 purchase 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 (in thousands, except per share
data):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Revenues................................................... $35,922 $29,636
======= =======
Net income................................................. $ 7,185 $ 2,201
======= =======
Net income per common share:
Basic and diluted........................................ $ 1.54 $ 0.47
======= =======
Pro forma net income adjusted for income taxes related to
operations as S corporation............................... $ 4,644
=======
Pro forma net income per share............................. $ 0.83
=======
</TABLE>
The above unaudited pro forma amounts have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill, additional depreciation expense for assets
recorded at fair market value at the date of acquisition, additional interest
expense for borrowings, and an adjustment to conform the revenue recognition
policy for contracts in progress. They do not purport to be indicative of the
results of operations which actually would have resulted had the combination
been in effect on January 1, 1996, or of future results of operations of the
consolidated entities.
3.RECEIVABLES
Receivables consisted of the following at December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
U.S. Government:
Amounts billed............................................ $ 3,705 $ 26
Unbilled costs and estimated earnings on uncompleted
contracts................................................ 558 542
------- ------
4,263 568
Commercial:
Amounts billed............................................ 3,977 4,441
Unbilled costs and estimated earnings on uncompleted
contracts................................................ 2,134 1,957
------- ------
Total................................................... $10,374 $6,966
======= ======
</TABLE>
Included above in amounts billed is an allowance for doubtful accounts of
$20,000 and $16,000 at December 31, 1998 and 1997, respectively. During 1996,
the allowance included $510,000 charged to expense relating to the resolution
of a contract dispute. During 1998 and 1997, there were no significant
transactions recorded in the allowance for doubtful accounts.
F-9
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 1998,
substantially all is expected to be collected within the next twelve months.
Information with respect to uncompleted contracts as of December 31, 1998
and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Costs incurred on uncompleted contracts.................... $20,945 $11,040
Estimated earnings......................................... 6,922 4,633
------- -------
27,867 15,673
Less billings to date...................................... 26,023 15,737
------- -------
$ 1,844 $ (64)
======= =======
</TABLE>
The above amounts are included in the accompanying balance sheets under the
following captions (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts......................................... $2,692 $2,499
Billings in excess of cost and estimated earnings on
uncompleted contracts......................................... 848 2,563
------ ------
Total...................................................... $1,844 $ (64)
====== ======
</TABLE>
4.PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land.......................................................... $ 2,477 $ 2,459
Buildings and improvements.................................... 10,879 10,469
Machinery and equipment....................................... 5,220 4,982
Drydocks and bulkheads........................................ 6,919 5,578
Barges and boat............................................... 480 933
Office and automotive......................................... 710 626
Construction in progress...................................... -- 810
------- -------
26,685 25,857
Less accumulated depreciation................................. (8,581) (7,553)
------- -------
$18,104 $18,304
======= =======
</TABLE>
F-10
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5.LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
Term loan--Bank, variable interest rate (7.41% at December
31, 1998), due
April 30, 2004.............................................. $9,822 $25,000
Short-term financing agreement, 8.29% interest rate, due
September 1, 1998........................................... -- 338
Short-term financing agreement, 7.72% interest rate, due June
9, 1999..................................................... 90 --
------ -------
9,912 25,338
Less current maturities...................................... (2,594) (1,801)
------ -------
$7,318 $23,537
====== =======
</TABLE>
In December 1997, Conrad entered into a $25.0 million promissory note with a
commercial bank to fund the acquisition of Orange Shipbuilding (see Note 2).
Principal and interest at an 8.0% annual rate were payable monthly. Subsequent
to year end, Conrad refinanced this short-term obligation into a term loan.
The term loan bears interest at LIBOR rate plus 2.0% until March 18, 1999.
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%. Interest only was
payable monthly until May 1998. Thereafter the term loan became payable in 70
monthly principal payments of $209,000 plus interest with a final payment due
in April 2004. The Company used $13.7 million of the proceeds from the
Offering and the over-allotment exercise to repay indebtedness under the term
loan. The term loan is secured by substantially all of Conrad's assets and is
guaranteed up to $2.0 million by J. Parker Conrad, Co-Chairman of the Board of
Directors. The term loan restricts the payment of dividends by the Company.
The term loan is conditioned upon Conrad remaining in compliance with the
covenants of the loan agreement and maintaining certain financial ratios. As
of December 31, 1998, Conrad was in compliance with these covenants.
In May 1998, Conrad entered into 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 facility bears interest on the same
terms as the term loan referred above and matures on April 30, 1999. A fee of
0.25% per annum on the unused portion of the line of credit will be charged
quarterly. At December 31, 1998, $10.0 million was available under the
facility.
The Company enters into short-term notes payable to finance certain of its
insurance premiums. At December 31, 1998 and 1997 the amounts outstanding
related to these notes payable were $90,000 and $338,000, respectively. The
notes are secured by Conrad's insurance policies and provide for annual
interest rates of 7.72% and 8.29% at December 31, 1998 and 1997, respectively.
Annual maturities of long-term debt at December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
1999.............................................................. $ 2,598
2000.............................................................. 2,508
2001.............................................................. 2,508
2002.............................................................. 2,298
-------
$ 9,912
=======
</TABLE>
F-11
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6.SHAREHOLDERS' EQUITY
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 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 prior periods have been
restated to conform to the requirements of SFAS 128. The number of weighted
average shares outstanding for basic and diluted income per share was
6,167,310, 4,660,486 and 4,660,486 for the years ended December 31, 1998, 1997
and 1996, respectively.
Proforma income per share consists of the Company's historical income as an
S corporation, adjusted for income taxes that would have been recorded had the
Company operated as a C corporation and excludes the one-time charge of
$675,000 to record the cumulative deferred income tax provision. This amount
is divided by the weighted average shares of common stock outstanding which
are increased to reflect additional shares to pay the $10.0 million
distribution of estimated undistributed earnings to shareholders (916,591
shares). All such additional shares are based on the offering price of $12.00
per share, net of offering expenses.
Stock Issuance to Executive Officers
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. The agreements related to
such restricted stock provide that fifty percent of the shares of common stock
issued to each such executive would be 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 would 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 were 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 were repaid in full by Mr. Hidalgo and Mr. Hernandez in July 1998.
In connection with the issuance of these shares to Messrs. Hidalgo and
Hernandez, the Company estimated it would recognize aggregate compensation
expense of $8.6 million, of which $4.3 million was recognized in the first
quarter of 1998 and the remainder was estimated to be recognized over a three-
year vesting period, of which $360,000 was expensed in the second quarter of
1998. During the third quarter of 1998 the executives surrendered and the
Company canceled 247,277 of their restricted shares in order to eliminate the
recurring compensation expense associated with the lapse of the restrictions.
As a result of the cancellation of the shares, the remainder of the estimated
compensation expense of $4.0 million will not be recognized in the future. On
November 3, 1998, the executives were awarded options to purchase an aggregate
of 400,000 shares of Company stock at the market price of the stock on the
date of the award.
Stock Option Plan
The Company established the 1998 Stock Plan (the "Stock Plan") 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,
F-12
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
restricted stock, dividend equivalents, performance units, automatic director
options, phantom shares, limited stock appreciation rights, 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 directors options. The non-employee
directors of the Company will only receive automatic grants of Director
options. Awards granted under the Stock Plan have a maximum term of ten years.
A total of 700,000 shares have been authorized and reserved for issuance. No
awards may be granted under the Stock Plan after March 31, 2008.
The following is a summary of the option activity for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
Number of
Options
---------
<S> <C>
Outstanding at January 1, 1998..................................... --
Grants............................................................. 537,500
Forfeited.......................................................... (9,000)
Exercised.......................................................... --
-------
Outstanding at December 31, 1998................................... 528,500
=======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Exercise ------------------------------ --------------------
Price Weighted Weighted Weighted
Range Average Average Average
Per Number Remaining Exercise Number Exercise
Share Outstanding Life Price Exercisable Price
- -------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 6.75 528,500 9.7 years $6.75 43,630 $6.75
</TABLE>
During the fourth quarter of 1998, 121,000 options previously issued during
the second quarter with an exercise price of $12.00 were repriced to an
exercise price of $6.75 which was equal to the fair value of the Company's
common stock on the repricing date.
Options granted under the Stock Plan during 1998 have various vesting rights
ranging from six months to two and one-half years from the date of the grant.
The Company accounts for options granted under the Stock Plan as prescribed
by APB 25 and, accordingly, no compensation expense has been recognized for
stock options granted as the exercise price of all stock options granted under
the Stock Plan was equal to the fair value of the Company's common stock at
the date of grant. Had compensation cost for the Stock Plan been determined
based on the fair value at the grant dates consistent with the method of SFAS
123, the Company's net income and net income per share amounts would have
approximated the following proforma amounts (in thousands, except per share
data):
<TABLE>
<CAPTION>
December 31,
1998
---------------
As Pro
Reported Forma
-------- ------
<S> <C> <C>
Net income (loss).......................................... $ 254 $ (139)
Net income (loss) per share:
Basic and diluted.......................................... $0.04 $(0.02)
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1998 was $3.40. The fair value of each option granted is
estimated on the date of the grant using the Black-Scholes option pricing
model with the following assumptions: (i) no dividend yield, (ii) expected
volatility of 75.4%, (iii) risk-free interest rate of 5.15%, and (iv) expected
life of 2.8 years.
F-13
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants
In June 1998, the Company issued to the Underwriter involved in the
Offering, warrants to purchase 72,000 shares of common stock exercisable for
five years at the initial public offering price of $12.00 per share. At
December 31, 1998, no warrants had been exercised.
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
$88,000 and $42,000 for the years ended December 31, 1998 and 1997,
respectively.
8.INCOME TAXES
Prior to the Reorganization and the completion of its initial public
offering, Conrad made an election to terminate their S corporation status and
became subject to federal and state income tax thereafter. As a result of its
conversion from an S corporation to a C corporation, Conrad was required to
record a one-time charge to earnings a deferred tax liability of $675,000 in
the second quarter of 1998. The Company has provided for income taxes relating
to the operation of Orange Shipbuilding since its acquisition on December 12,
1997.
Income taxes are now accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires
the use of the asset and liability approach for financial accounting and
reporting for income taxes.
The Company has provided for Federal and State income taxes as follows (in
thousands):
<TABLE>
<CAPTION>
1998
------
<S> <C>
Current provision..................................................... $1,944
Deferred provision.................................................... 663
------
$2,607
======
</TABLE>
State income taxes included above are not significant for the year
presented.
The pro forma provision for income taxes varied from the Federal statutory
income tax rate due to the following (in thousands):
<TABLE>
<CAPTION>
1998
-----------
Amount %
------ ----
<S> <C> <C>
Taxes at Federal statutory rate.................................. $1,001 35.0
Non-deductible executive compensation expense.................... 1,275 44.6
Non-deductible goodwill amortization............................. 273 9.5
State income taxes............................................... 47 1.6
------ ----
Total.......................................................... $2,596 90.7
====== ====
</TABLE>
Deferred income taxes represent the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their tax bases. The tax effects of significant items comprising
the Company's net deferred tax balances at December 31, 1998 and 1997 (1997
related to Orange Shipbuilding) are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Deferred Tax Liabilities:
Differences between book and tax basis of property, plant
and equipment........................................... $3,157 $2,595
Deferred Tax Assets:
Contracts in progress.................................... (129) (230)
------ ------
Net deferred tax liabilities............................... $3,028 $2,365
====== ======
</TABLE>
F-14
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net deferred tax liabilities are included in the following balance sheet
captions (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Non-current deferred income tax liabilities.................. $3,157 $2,595
Accrued expenses............................................. (129) (230)
------ ------
Net deferred tax liabilities................................. $3,028 $2,365
====== ======
</TABLE>
9.SALES TO MAJOR CUSTOMERS
Sales to various customers, which amount to 10% or more of the Company's
total revenues for the three years ended December 31, 1998, 1997 and 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
Amount % Amount % Amount %
------- --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Customer A.................................... $12,693 27%
Customer B.................................... 7,303 16%
Customer C.................................... 5,230 11%
Customer D.................................... $4,604 21%
Customer E.................................... 3,395 15%
Customer F.................................... 2,351 11%
Customer G.................................... $3,735 16%
Customer H.................................... 3,407 15%
Customer I.................................... 2,351 10%
</TABLE>
10.RELATED PARTY TRANSACTIONS
The Company 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, 1998, 1997 and 1996 were $171,000, $164,000 and
$121,000, respectively. The Company believes that such transactions were made
on a competitive basis at market prices.
In 1991, the Company and J. Parker Conrad, Co-Chairman of the Board of
Directors entered into a Key Executive Insurance Agreement pursuant to which
each year the Company had 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. During the year ended December 31,
1998, the Company and Mr. Conrad agreed to terminate this agreement, allowing
Mr. Conrad to select the beneficiary of the death benefit. The Company did not
pay the annual premium for the year ended December 31, 1998.
As discussed in Note 5 to the financial statements, J. Parker Conrad has
guaranteed the indebtedness under the term loan up to $2.0 million.
11.SEGMENT AND RELATED INFORMATION
The Company classifies its business into two segments:
Vessel Construction
The Company constructs a variety of marine vessels, including large and
small deck barges, single and double hull tank barges, lift boats, push boats,
offshore tug boats and offshore support vessels. The Company also fabricates
components of offshore drilling rigs and floating production, storage and
offloading vessels including sponsons, stability columns, blisters, pencil
columns and other modular components.
F-15
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Repair and Conversions
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 and other regulatory
agencies.
The Company evaluates the performance of its segments based upon gross
profit. Selling, general and administrative expenses, executive compensation
expense, interest expense, other income (expense), and income taxes are not
allocated to the segments. Accounting policies are the same as those described
in Note 1, "Summary of Significant Accounting Policies". Intersegment sales
and transfers are not significant.
Selected information as to the operations of the Company by segment is as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December
31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenue:
Vessel construction................................ $31,754 $10,671 $11,421
Repair and conversions............................. 14,559 11,446 11,753
------- ------- -------
Total Revenue.................................... 46,313 22,117 23,174
------- ------- -------
Cost of Revenue:
Vessel construction................................ 23,560 7,250 8,678
Repair and conversions............................. 10,560 7,782 8,325
------- ------- -------
Total Cost of Revenue............................ 34,120 15,032 17,003
------- ------- -------
Gross Profit:
Vessel construction................................ 8,194 3,421 2,743
Repair and conversions............................. 3,999 3,664 3,428
------- ------- -------
Total Gross Profit............................... 12,193 7,085 6,171
Selling, General and Administrative Expenses......... 3,515 2,242 1,847
Executive Compensation Expense....................... 4,676 -- --
------- ------- -------
Income from Operations............................... 4,002 4,843 4,324
Interest Expense..................................... (1,425) (126) (96)
Other Income......................................... 284 188 70
------- ------- -------
Income before Income Taxes........................... 2,861 4,905 4,298
Provision for Income Taxes........................... 1,932 -- --
Provision for Cumulative Deferred Taxes.............. 675 -- --
------- ------- -------
Net Income........................................... $ 254 $ 4,905 $ 4,298
======= ======= =======
</TABLE>
Certain other financial information of the Company by segment is as follows
(in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Depreciation and Amortization Expense:
Vessel construction.......................................... $ 813 $269 $262
Repair and conversion........................................ 511 481 456
Included in selling, general and administrative expenses..... 925 100 80
------ ---- ----
Total Depreciation and Amortization Expense................ $2,249 $850 $798
====== ==== ====
</TABLE>
F-16
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total assets and capital expenditures of the Company by segment are as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December
31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Total Assets:
Vessel construction.................................. $35,245 $35,438 $ 3,239
Repair and conversion................................ 7,554 6,598 6,752
Other................................................ 4,720 6,909 5,245
------- ------- -------
Total Assets....................................... $47,519 $48,945 $15,236
======= ======= =======
Capital Expenditures:
Vessel construction.................................. $ 330 $ 82 $ 58
Repair and conversion................................ 806 741 1,585
Other................................................ 582 230 318
------- ------- -------
Total Capital Expenditures......................... $ 1,718 $ 1,053 $ 1,961
======= ======= =======
</TABLE>
Certain assets and capital expenditures of the Company are allocated to
corporate and are included in the "Other" caption.
Revenues included in the consolidated financial statements of the Company
are derived from customers domiciled in the United States. All assets of the
Company are located in the United States.
12.COMMITMENTS AND CONTINGENCIES
At December 31, 1998 and 1997, the Company had outstanding a contract
performance bond issued by a third party in the amount of $3,660,000.
The Company 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.
The Company 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 the Company's
consolidated financial statements.
F-17
<PAGE>
CONRAD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13.SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Consolidated operating results for the four quarters of 1998 and 1997 were
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Fiscal 1998
Revenue......................... 11,569 12,418 12,794 9,532
Gross profit.................... 3,429 3,749 3,084 1,931
Net income (loss)............... (2,478) 1,004 1,317 410
Net income (loss) per share:
Basic and diluted............. (0.53) 0.18 0.18 0.06
Pro forma net income (loss)..... (2,603) 1,080 1,317 410
Pro forma net income (loss) per
share.......................... (0.47) 0.17 0.18 0.06
Fiscal 1997
Revenue......................... 5,546 5,005 5,903 5,663
Gross profit.................... 1,736 1,530 1,922 1,898
Net income...................... 1,232 1,028 1,366 1,280
Net income per share:
Basic and diluted............. 0.26 0.22 0.29 0.27
Pro forma net income............ 776 648 861 806
Pro forma net income per share.. 0.14 0.12 0.15 0.14
</TABLE>
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CONRAD INDUSTRIES, INC.
By: /s/ William H. Hidalgo
----------------------------------
William H. Hidalgo
Date: March 31, 1999 President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Signature Title
Date
/s/ J. Parker Conrad Co-Chairman of the March 31, 1999
- ----------------------------------- Board of Directors
J. Parker Conrad
/s/ John P. Conrad, Jr. Co-Chairman of the March 31, 1999
- ----------------------------------- Board of Directors
John P. Conrad, Jr.
/s/ William H. Hidalgo President, Chief March 31, 1999
- ----------------------------------- Executive Officer and
William H. Hidalgo Director (Principal
Executive Officer)
/s/ Cecil A. Hernandez Vice President-- March 31, 1999
- ----------------------------------- Finance and
Cecil A. Hernandez Administration,
Chief Financial
Officer, Secretary
and Director
(Principal Financial
Officer and
Principal Accounting
Officer)
/s/ Michael J. Harris Director March 31, 1999
- -----------------------------------
Michael J. Harris
/s/ Louis J. Michot, Jr. Director March 31, 1999
- -----------------------------------
Louis J. Michot, Jr.
/s/ Richard E. Roberson, Jr. Director March 31, 1999
- -----------------------------------
Richard E. Roberson, Jr.
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<C> <S>
*3.1 --Amended and Restated Certificate of Incorporation.
*3.2 --Amended and Restated Bylaws.
4.1 --Specimen Common Stock Certificate (filed as Exhibit 4 to the
company's Registration Statement on Form 8-A and incorporated by
reference herein).
*4.2 --Registration Rights Agreement by and among Conrad Industries, Inc.,
J. Parker Conrad, John P. Conrad, Jr., Katherine C. Court, The John
P. Conrad, Jr. Trust, The Daniel T. Conrad Trust, The Glen Alan
Conrad Trust, The Kenneth C. Conrad Trust, The Katherine C. Court
Trust, The James P. Conrad Trust, William H. Hidalgo, and Cecil A.
Hernandez.
*4.3 --Registration Rights Agreement between Conrad Industries, Inc. and
Morgan Keegan & Company, Inc.
10.1 --Stock Purchase Agreement dated as of December 12, 1997, by and
among Conrad Shipyard, Inc., Orange Shipbuilding, Thomas E. Clary,
Robert D. Clary and George B. Clary (filed as Exhibit 10.1 to the
company's Registration Statement on Form S-1 (Registration No. 33-
49773) and incorporated by reference herein).
10.2 --Loan Agreement, dated as of March 19, 1998, by and among Whitney
National Bank, Conrad Shipyard, Inc. and Orange Shipbuilding (filed
as Exhibit 10.2 to the company's Registration Statement on Form S-1
(Registration No. 33-49773) and incorporated by reference herein).
10.3 --Loan Agreement, dated as of May 22, 1998, by and among Whitney
National Bank, Conrad Shipyard, Inc. and Orange Shipbuilding (filed
as Exhibit 10.3 to the company's Registration Statement on Form S-1
(Registration No. 33-49773) and incorporated by reference herein).
10.4 --Stock Exchange Agreement, dated as of March 31, 1998, by and among
Conrad Industries, Inc., Conrad Shipyard, Inc., 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 (filed as
Exhibit 10.4 to the company's Registration Statement on Form S-1
(Registration No. 33-49773) and incorporated by reference herein).
10.5** --Conrad Industries, Inc. 1998 Stock Plan (filed as Exhibit 10.5 to
the company's Registration Statement on Form S-1 (Registration No.
33-49773) and incorporated by reference herein).
10.6** --Officer and Director Indemnification Agreement (filed as Exhibit
10.6 to the Company's Registration Statement on Form S-1
(Registration No. 33-49773) and incorporated by reference herein).
*10.7** --Employment Agreement between Conrad Shipyard, Inc. and J. Parker
Conrad.
*10.8** --Employment Agreement between Conrad Shipyard, Inc. and John Parker
Conrad, Jr.
*10.9** --Employment Agreement between Conrad Shipyard, Inc. and William H.
Hidalgo.
*10.10** --Employment Agreement between Conrad Shipyard, Inc. and Cecil A.
Hernandez.
*10.11** --Employment Agreement between Orange and Ralph C. Thon.
*10.12 --Warrant Agreement between the Conrad Industries, Inc. and Morgan
Keegan & Company, Inc.
*21.1 --Subsidiaries of Conrad Industries, Inc.
*27.1 --Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** Management contract or compensation plan.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CONRAD INDUSTRIES, INC.
Conrad Industries, Inc, (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware ("DGCL"), hereby certifies as follows pursuant to Sections 242 and 245
of the DGCL:
1. The original Certificate of Incorporation was filed in the Office
of the Secretary of State of the State of Delaware (the "Secretary of State") on
March 30, 1998.
2. The directors and the sole stockholder of the Corporation, in
accordance with Sections 242 and 245 of the DGCL, adopted and approved this
Amended and Restated Certificate of Incorporation.
3. The Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:
FIRST: The name of the corporation is:
Conrad Industries, Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of the registered agent of the corporation at such address is
The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 25,000,000, of which 5,000,000
shares shall be Preferred Stock, par value $0.01 per share, and 20,000,000
shares shall be Common Stock, par value $0.01 per share.
A. Preferred Stock. (1) Preferred Stock may be issued from time to time
in one or more series and in such amounts as may be determined by the Board
of Directors. The voting powers, designations, preferences and relative,
participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if any, of the
Preferred Stock of each series shall be such as are fixed by the Board of
Directors, authority so to do being hereby expressly granted, and as are
stated and expressed in a resolution or resolutions adopted by the Board of
Directors providing for the issue of such series of Preferred Stock (herein
called the "Directors' Resolution"). The Directors' Resolution as to any
series shall (a) establish the number of shares constituting, and the
distinctive designation of, that series, (b) fix the dividend rate, if any,
of the shares of such series, the payment dates for dividends on shares of
such series and the date or dates, or the method of determining the date or
dates, if any, from which dividends on shares of such series shall be
cumulative, (c) fix the amount or amounts payable on shares of such series
upon voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, (d) state the price or prices or rate or rates,
and adjustments, if any, at which, the time or times and the terms and
conditions upon which, the shares of such series may be redeemed at the
option of the Corporation or at the option of the holder or holders of
shares of such series or upon the occurrence of a specified event, and
state whether such shares may be redeemed for cash, property or rights,
including securities of the Corporation or another entity; and such
Directors' Resolution may
<PAGE>
(i) limit the number of shares of such series that may be issued, (ii)
provide for a sinking fund for the purchase or redemption of shares of such
series and specify the terms and conditions governing the operations of any
such fund, (iii) grant voting rights to the holders of shares of such
series, provided that each share shall not have more than one vote per
share, (iv) impose conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issuance of additional
Preferred Stock or other capital stock ranking on a parity therewith, or
prior thereto, with respect to dividends or distribution of assets upon
liquidation, (v) impose conditions or restrictions upon the payment of
dividends upon, or the making of other distributions to, or the acquisition
of, shares ranking junior to the Preferred Stock or to any series thereof
with respect to dividends or distributions of assets upon liquidation, (vi)
state the time or times, the price or prices or the rate or rates of
exchange and other terms, conditions and adjustments upon which shares of
any such series may be made convertible into, or exchangeable for, at the
option of the holder or the Corporation or upon the occurrence of a
specified event, shares of any other class or classes or of any other
series of Preferred Stock or any other class or classes of stock or other
securities of the Corporation, and (vii) grant such other special rights
and impose such qualifications, limitations or restrictions thereon as
shall be fixed by the Board of Directors, to the extent not inconsistent
with this Article FOURTH and to the full extent now or hereafter permitted
by the laws of the State of Delaware.
(2) Except as expressly provided by law, or except as may be provided in
any Directors' Resolution, the Preferred Stock shall have no right or power
to vote on any question or in any proceeding or to be represented at, or to
receive notice of, any meeting of stockholders of the Corporation.
(3) Preferred Stock that is redeemed, purchased or retired by the
Corporation shall assume the status of authorized but unissued Preferred
Stock and may thereafter, subject to the provisions of any Directors'
Resolution providing for the issue of any particular series of Preferred
Stock, be reissued in the same manner as authorized but unissued Preferred
Stock.
B. Common Stock. All shares of the Common Stock of the Corporation shall
be identical and except as otherwise required by law or as otherwise
provided in the Directors' Resolution or Resolutions, if any, adopted by
the Board of Directors with respect to any series of Preferred Stock, the
holders of the Common Stock shall exclusively possess all voting power, and
each share of Common Stock shall have one vote.
FIFTH: The business and affairs of the Corporation shall be managed and
controlled by its Board of Directors. The number of directors constituting the
Board of Directors shall be fixed by the Board of Directors, but shall not be
less than three or more than 15. The directors shall be divided into three
classes, designated Class I, Class II and Class III. The initial term for
directors in Class I shall expire at the annual meeting of stockholders to be
held in 1999; the initial term for directors in Class II shall expire at the
annual meeting of stockholders to be held in 2000; and the
-2-
<PAGE>
initial term for directors in Class III shall expire at the annual meeting of
stockholders to be held in 2001.
At the expiration of the initial term of each class of directors, and of
each succeeding term of each class, each class of directors shall be elected to
serve until the annual meeting of stockholders held three years from such
expiration and until their successors are elected and qualified or until their
earlier death, resignation, removal or retirement. Any increase or decrease in
the number of directors constituting the Board shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly as
possible to one-third the whole number of directors as so adjusted. Any director
elected or appointed to fill a vacancy shall hold office for the remaining term
of the class to which such directorship is assigned. No decrease in the number
of directors constituting the Corporation's Board of Directors shall shorten the
term of any incumbent director. Any vacancy in the Board of Directors, whether
arising through death, resignation or removal of a director, or through an
increase in the number of directors of any class, shall be filled by the
majority vote of the remaining directors. The Bylaws may contain any provision
regarding classification of the Corporation's directors not inconsistent with
the terms hereof.
A director of the Corporation may be removed only for cause and only upon
the affirmative vote of the holders of a majority of the outstanding capital
stock of the Corporation entitled to vote at an election of directors, subject
to further restrictions on removal, not inconsistent with this Article FIFTH, as
may be contained in the Bylaws.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH unless expressly provided by such terms.
SIXTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The Board of Directors is authorized to alter, amend or repeal the
Bylaws or adopt new Bylaws of the Corporation. The stockholders shall not
repeal or change the Bylaws of the Corporation unless such repeal or change
is approved by the affirmative vote of the holders of not less than 80% of
the total voting power of all shares of stock of the Corporation entitled
to vote in the election of directors, considered for the purposes of this
paragraph A as a single class.
B. Election of directors need not be by written ballot unless the Bylaws
so provide.
-3-
<PAGE>
C. In addition to the powers herein or by statute expressly conferred upon
the Corporation's directors, the Corporation's directors are hereby
empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to the
provisions of the statutes of Delaware, this Certificate of Incorporation,
and any Bylaws adopted by the stockholders; provided, however, that no
Bylaws hereafter adopted shall invalidate any prior act of the directors
which would have been valid if such Bylaws had not been adopted.
D. Any vote or votes authorizing liquidation of the Corporation or
proceedings for its dissolution may provide, subject to (i) any agreements
among and between stockholders, (ii) the rights of creditors and (iii)
rights expressly provided for particular classes or series of stock, for
the distribution pro rata among the stockholders of the Corporation of
assets of the Corporation, wholly or in part in kind, whether such assets
be in cash or other property, and may authorize the Board of Directors of
the Corporation to determine the value of the different assets of the
Corporation for the purpose of such liquidation and may divide, or
authorize the Board of Directors of the Corporation to divide, such assets
or any part thereof among the stockholders of the Corporation in such
manner that every stockholder will receive a proportionate amount in value
(determined as aforesaid) of cash or property of the Corporation upon such
liquidation or dissolution even though each stockholder may not receive a
strictly proportionate part of each such asset.
E. Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon
liquidation to elect additional directors under specific circumstances:
(1) any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing of such stockholders;
(2) special meetings of the stockholders of the Corporation may
be called only by the Chairman of the Board of Directors and shall be
called within ten (10) days after the written request, or by
resolution adopted by the affirmative vote, of a majority of the Board
of Directors; and
(3) the business permitted to be conducted at any special meeting
of the stockholders is limited to the business brought before the
meeting by the Chairman or by the Secretary at the request of a
majority of the Board of Directors.
SEVENTH: The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
-4-
<PAGE>
EIGHTH: The Board of Directors is hereby authorized to create and issue,
whether or not in connection with the issuance and sale of any of its stock or
other securities, rights (the "Rights") entitling the holders thereof to
purchase from shares of capital stock or other securities of the Corporation.
The times at which and the terms upon which the Rights are to be issued will be
determined by the Board of Directors and set forth in the contracts or
instruments that evidence the Rights. The authority of the Board of Directors
with respect to the Rights shall include, but not be limited to, determination
of the following:
(a) the initial purchase price per share of the capital stock or other
securities of the Corporation to be purchased upon exercise of the Rights;
(b) provisions relating to the times at which and the circumstances under
which the Rights may be exercised or sold or otherwise transferred, either
together with or separately from, any other securities of the Corporation.
(c) provisions that adjust the number or exercise price of the Rights or
amount or nature of the securities or other property receivable upon
exercise of the Rights in the event of a combination, split or
recapitalization of any capital stock of the Corporation, a change in
ownership of the Corporation's securities or a reorganization, merger,
consolidation, sale of assets or other occurrence relating to the
Corporation or any capital stock of the Corporation, and provisions
restricting the ability of the Corporation to enter into any such
transaction absent an assumption by the other party or parties thereto of
the obligations of the Corporation under such Rights.
(d) provisions that deny the holder of a specified percentage of the
outstanding securities of the Corporation the right to exercise the Rights
and/or cause the Rights held by such holder to become void;
(e) provisions that permit the Corporation to redeem the Rights;
(f) the appointment of one or more agents to take specified actions on
behalf of the Corporation with respect to the Rights; and
(g) such other provisions relating to the Rights as may be determined by
the Board of Directors.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article NINTH
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived
-5-
<PAGE>
an improper personal benefit. No amendment to or repeal of this Article NINTH
shall apply to, or have any effect on, the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal. If the General Corporation
Law of the State of Delaware is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended.
TENTH: The provisions set forth in this Article TENTH and Articles FIFTH,
SIXTH, EIGHTH and NINTH hereof may not be amended, altered, changed, repealed or
rescinded in any respect unless such action is approved by the affirmative vote
of the holders of not less than 80 percent of the total voting power of all
shares of stock of the Corporation entitled to vote in the election of
directors, considered for purposes of this Article TENTH as a single class. The
voting requirements contained in this Article TENTH and in Article SIXTH hereof
shall be in addition to voting requirements imposed by law, other provisions of
this Certificate of Incorporation or any designation of preferences in favor of
certain classes or series of shares of capital stock of the Corporation.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
(S)291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
(S)279 of Title 8 of the Delaware Code order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
TWELFTH: The corporation is to have perpetual existence.
-6-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been executed for and on behalf of the Corporation by its officers thereunto
duly authorized as of May 27, 1998.
/s/ William H. Hidalgo
-------------------------------------
William H. Hidalgo
President and Chief Executive Officer
-7-
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
B Y L A W S
OF
CONRAD INDUSTRIES, INC.
DATED: June 10, 1998
<PAGE>
I N D E X
PAGE
ARTICLE 1 OFFICES
Section 1.1 Principal Office.......................................... 1
Section 1.2 Registered Office......................................... 1
Section 1.3 Other Offices............................................. 1
ARTICLE II STOCKHOLDERS' MEETINGS
Section 2.1 Annual Meeting............................................ 1
Section 2.2 Special Meetings.......................................... 2
Section 2.3 Notice of Meetings and Adjourned Meetings................. 2
Section 2.4 Voting Lists.............................................. 3
Section 2.5 Quorum.................................................... 4
Section 2.6 Organization.............................................. 4
Section 2.7 Voting.................................................... 5
Section 2.8 Authorization of Proxies.................................. 6
Section 2.9 Stockholders Entitled to Vote............................. 7
Section 2.10 Order of Business......................................... 7
Section 2.11 Action by Written Consent................................. 7
Section 2.12 Inspectors of Election.................................... 7
Section 2.13 Notice of Stockholder Nominees............................ 8
Section 2.14 Stockholder Proposals..................................... 10
ARTICLE III DIRECTORS
Section 3.1 Management................................................ 12
Section 3.2 Number and Term........................................... 12
Section 3.3 Quorum and Manner of Action............................... 13
Section 3.4 Vacancies................................................. 14
Section 3.5 Resignations.............................................. 14
Section 3.6 Removals.................................................. 15
Section 3.7 Annual Meetings........................................... 15
Section 3.8 Regular Meetings.......................................... 15
Section 3.9 Special Meetings.......................................... 15
Section 3.10 Organization of Meetings.................................. 16
Section 3.11 Place of Meetings......................................... 16
Section 3.12 Compensation of Directors................................. 16
Section 3.13 Action by Unanimous Written Consent....................... 17
Section 3.14 Participation in Meetings by Telephone.................... 17
i
<PAGE>
Section 3.15 Election of Directors by Class Vote of Holders
of Preferred Stock...................................... 17
ARTICLE IV COMMITTEES OF THE BOARD
Section 4.1 Membership and Authorities................................ 18
Section 4.2 Minutes................................................... 18
Section 4.3 Vacancies................................................. 19
Section 4.4 Telephone Meetings........................................ 19
Section 4.5 Action Without Meeting.................................... 19
ARTICLE V OFFICERS
Section 5.1 Number and Title.......................................... 20
Section 5.2 Term of Office; Vacancies................................. 20
Section 5.3 Removal of Elected Officers............................... 20
Section 5.4 Resignations.............................................. 20
Section 5.5 The Chairman of the Board................................. 21
Section 5.6 Chief Executive Officer................................... 21
Section 5.7 President................................................. 22
Section 5.8 Vice Presidents........................................... 23
Section 5.9 Secretary................................................. 24
Section 5.10 Assistant Secretaries..................................... 24
Section 5.11 Treasurer................................................. 25
Section 5.12 Assistant Treasurers...................................... 25
Section 5.13 Subordinate Officers; Agents.............................. 26
Section 5.14 Salaries and Compensation................................. 26
ARTICLE VI INDEMNIFICATION
Section 6.1 Indemnification of Directors and Officers................. 26
ARTICLE VII CAPITAL STOCK
Section 7.1 Certificates of Stock..................................... 31
Section 7.2 Lost Certificates......................................... 32
Section 7.3 Fixing Date for Determination of Stockholders
of Record for Certain Purposes.......................... 32
Section 7.4 Dividends................................................. 33
Section 7.5 Registered Stockholders................................... 33
Section 7.6 Transfer of Stock......................................... 33
Section 7.7 Stock Options, Warrants, Etc.............................. 34
ARTICLE VIII MISCELLANEOUS PROVISIONS
Section 8.1 Corporate Seal............................................ 34
Section 8.2 Fiscal Year............................................... 35
Section 8.3 Checks, Drafts, Notes..................................... 35
ii
<PAGE>
Section 8.4 Corporate Contracts and Instruments....................... 35
Section 8.5 Notice and Waiver of Notice............................... 35
Section 8.6 Examination of Books and Records.......................... 36
Section 8.7 Voting Upon Shares Held by the Corporation................ 36
ARTICLE IX AMENDMENTS
Section 9.1 Amendment................................................. 37
iii
<PAGE>
CONRAD INDUSTRIES, INC.
B Y L A W S
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the Corporation
shall be in Morgan City, Louisiana.
SECTION 1.2 REGISTERED OFFICE. The registered office and registered
agent of the Corporation required to be maintained in the State of Delaware by
the General Corporation Law of the State of Delaware (the "DGCL") shall be as
designated from time to time by the appropriate filing by the Corporation in the
office of the Secretary of State of the State of Delaware.
SECTION 1.3 OTHER OFFICES. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the holders of shares
of each class or series of stock as are entitled to notice thereof and to vote
thereat pursuant to applicable law and the Corporation's certificate of
incorporation, as amended and in effect from time to time (the "Certificate of
Incorporation") for the purpose of electing directors and transacting such other
proper
<PAGE>
business as may come before it shall be held at such time and at such place,
within or without the State of Delaware, as may be designated by the Board of
Directors.
SECTION 2.2 SPECIAL MEETINGS. In addition to such special meetings as are
provided by law or the Certificate of Incorporation, special meetings of the
holders of any class or series or of all classes or series of the Corporation's
stock for any purpose or purposes, may be called at any time by the Chairman of
the Board of Directors and shall be called by the Secretary within ten (10) days
after the written request, or by resolution adopted by the affirmative vote, of
a majority of the Board of Directors, which request shall fix the date, time and
place (within or without the State of Delaware), and state the purpose or
purposes of the proposed meeting. Except to the extent specified in the
Corporation's Certificate of Incorporation or the resolutions of the Board of
Directors creating any class or series of preferred stock of the Corporation,
Stockholders of the Corporation may not call a special meeting. The business
permitted to be conducted at any special meeting of the stockholders is limited
to the business brought before the meeting by the Chairman or by the Secretary
at the request of a majority of the Board of Directors
SECTION 2.3 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Except as
otherwise provided by law, written notice of any meeting of Stockholders shall
be given either by personal delivery or by mail to each Stockholder of record
entitled to vote thereat. Notice of each meeting shall be in such form as is
approved by the Board of Directors and shall state the date, place and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, such written
notice shall be given not less than 10 nor more than 60 days before the date of
the meeting. Except when a Stockholder attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business
-2-
<PAGE>
on the grounds that the meeting is not lawfully called or convened, presence in
person or by proxy of a Stockholder shall constitute a waiver of notice of such
meeting. Further, a written waiver of any notice required by law or by these
Bylaws, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Except as otherwise
provided by law, the business that may be transacted at any such meeting shall
be limited to and consist of the purpose or purposes stated in such notice. If a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each Stockholder of record entitled to vote at the meeting.
SECTION 2.4 VOTING LISTS. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least 10 days
before each meeting of the Stockholders, a complete list of Stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of each and the number of shares held by
each, which list, for a period of 10 days prior to such meeting, shall be kept
on file either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held, and such list shall be subject to
inspection by the Stockholders at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any Stockholder for the duration of
the meeting. The original stock transfer books shall be prima-facie evidence as
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to who are the Stockholders entitled to examine such list or transfer books or
to vote at any meeting of Stockholders.
SECTION 2.5 QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the Corporation's
stock issued and outstanding and entitled to vote at a meeting, present in
person or represented by proxy, without regard to class or series, shall
constitute a quorum at all meetings of the Stockholders for the transaction of
business. If, however, such quorum shall not be present or represented at any
meeting of the Stockholders, the Chairman of the Board of Directors or other
person presiding over such meeting or the holders of a majority of such shares
of stock, present in person or represented by proxy, may adjourn any meeting
from time to time without notice other than announcement at the meeting, except
as otherwise required by these Bylaws, until a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally called. A holder of a share of the Corporation's
capital stock shall be treated as being present or represented at a meeting if
such holder is (i) present in person at the meeting or (ii) represented at the
meeting by a valid proxy, regardless of whether the instrument granting the
proxy is marked as casting a vote or abstaining, is left blank or does not
empower such proxy to vote with respect to some or all matters to be voted upon
at the meeting.
SECTION 2.6 ORGANIZATION. Meetings of the Stockholders shall be presided
over by the Chairman of the Board of Directors, if one shall be elected, or in
his absence, by the Chief Executive Officer, the President or by any Senior Vice
President, or, in the absence of any of such officers, by a chairman to be
chosen by a majority of the Stockholders entitled to vote at the meeting who are
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present in person or by proxy. The Secretary, or, in his absence, any Assistant
Secretary or any person appointed by the individual presiding over the meeting,
shall act as secretary at meetings of the Stockholders.
SECTION 2.7 VOTING. Each Stockholder of record, as determined pursuant to
Section 2.9, who is entitled to vote in accordance with the terms of the
Certificate of Incorporation and in accordance with the provisions of these
Bylaws, shall, except to the extent specified in the Certificate of
Incorporation or any resolution adopted by the Board of Directors to establish
any series of Preferred Stock of the Corporation, be entitled to one vote, in
person or by proxy, for each share of stock registered in his name on the books
of the Corporation. Every Stockholder entitled to vote at any Stockholders'
meeting may authorize another person or persons to act for him by proxy duly
appointed by instrument in writing subscribed by such Stockholder and executed
not more than three years prior to the meeting, unless the proxy provides for a
longer period. Each proxy shall be revocable unless it expressly states therein
that it is irrevocable and, only so long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A Stockholder's attendance
at any meeting, when such Stockholder has theretofore given a proxy, shall not
have the effect of revoking such proxy unless such Stockholder shall in writing
so notify the Secretary of the meeting prior to the voting of the proxy.
Unless otherwise provided by law, no vote on the election of directors or any
question brought before the meeting need be by ballot unless the chairman of the
meeting shall determine that it shall be by ballot or the holders of a majority
of the shares of stock present in person or by proxy and entitled to participate
in such vote shall so demand. In a vote by ballot, each ballot shall state the
number of shares voted and the name of the Stockholder or proxy voting. Except
as otherwise provided by law, by the Certificate of Incorporation or these
Bylaws, (i) action
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on a matter (other than the election of directors) shall be approved if the
votes cast by holders of shares of stock present and entitled to vote on the
matter at a meeting at which a quorum is present in favor of the matter exceed
the votes cast opposing the matter and (ii) directors shall be elected by a
plurality of the votes cast by the holders of shares present and entitled to
vote in the election at a meeting at which a quorum is present. In the election
of directors, votes may not be cumulated. In determining the number of votes
cast, shares abstaining from voting or not voted on a matter (including director
elections) will not be treated as votes cast.
SECTION 2.8 AUTHORIZATION OF PROXIES. Without limiting the manner in
which a Stockholder may authorize another person or persons to act for him as
proxy, the following are valid means of granting such authority. A Stockholder
may execute a writing authorizing another person or persons to act for him as
proxy. Execution may be accomplished by the Stockholder or his authorized
officer, director, employee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means including, but
not limited to, by facsimile signature. A Stockholder may also authorize
another person or persons to act for him as proxy by transmitting or authorizing
the transmission of a telegram, cablegram or other means of electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the Stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
writing or
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transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 2.9 STOCKHOLDERS ENTITLED TO VOTE. The Board of Directors may fix
a date not more than 60 days nor less than 10 days prior to the date of any
meeting of Stockholders as a record date for the determination of the
Stockholders entitled to notice of and to vote at such meeting and any
adjournment thereof, and in such case such Stockholders and only such
Stockholders as shall be Stockholders of record on the date so fixed shall be
entitled to notice of and to vote at, such meeting and any adjournment thereof
notwithstanding any transfer of any stock on the books of the Corporation after
such record date fixed as aforesaid.
SECTION 2.10 ORDER OF BUSINESS. The order of business at all meetings of
Stockholders shall be as determined by the chairman of the meeting or as is
otherwise determined by the vote of the holders of a majority of the shares of
stock present in person or by proxy and entitled to vote without regard to class
or series at the meeting.
SECTION 2.11 ACTION BY WRITTEN CONSENT. Any action required or permitted
to be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation and may not
be effected by any consent in writing of such stockholders.
SECTION 2.12 INSPECTORS OF ELECTION. Before any meeting of Stockholders,
the Board of Directors may, and if required by law shall, appoint one or more
persons to act as inspectors of election at such meeting or any adjournment
thereof. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and if required by law or
requested by any Stockholder entitled to vote or his proxy shall, appoint a
substitute inspector. If no inspectors
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are appointed by the Board of Directors, the chairman of the meeting may, and if
required by law or requested by any Stockholder entitled to vote or his proxy
shall, appoint one or more inspectors at the meeting. Notwithstanding the
foregoing, inspectors shall be appointed consistent with Section 231 of the
DGCL. Inspectors may include individuals who serve the Corporation in other
capacities (including as officers, employees, agents or representatives);
provided, however, that no director or candidate for the office of director
shall act as an inspector. Inspectors need not be Stockholders. The inspectors
shall (i) determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum and the validity and effect of proxies
and (ii) receive votes or ballots, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes and ballots, determine the results and do such acts as are proper to
conduct the election or vote with fairness to all Stockholders. On request of
the chairman of the meeting, the inspectors shall make a report in writing of
any challenge, request or matter determined by them and shall execute a
certificate of any fact found by them. The inspectors shall have such other
duties as may be prescribed by Section 231 of the DGCL.
SECTION 2.13 NOTICE OF STOCKHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 2.13 shall
be eligible for election as directors of the Corporation. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of the Corporation's Stockholders (a) by or at the direction of the
Board of Directors or (b) by any Stockholder of the Corporation entitled to vote
for the election of directors at such meeting who complies with the procedures
set forth in this Section 2.13. All nominations by Stockholders shall be made
pursuant to timely notice in proper written form submitted to the
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Secretary of the Corporation. To be timely, a Stockholders' notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the anniversary
of the annual meeting held for the immediately preceding year (provided,
however, that if no annual meeting was held in the previous year or the date of
the annual meeting of Stockholders has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, the notice must be received by the Corporation at least 45 days prior
to the date the Corporation intends to distribute its proxy statement with
respect to such meeting) or, in the case of a special meeting at which directors
are to be elected and for which less than 40 days' notice or prior public
disclosure of the date of the meeting is given or made to Stockholders, notice
by the Stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. To be in proper
written form, such Stockholder's notice to the Secretary shall set forth in
writing (a) as to each person whom such Stockholder proposes to nominate for
election or re-election as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected; and (b) as to such
Stockholder (i) the name and address, as they appear on the Corporation's books,
and principal occupation of such Stockholder, (ii) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
Stockholder and the dates upon which such Stockholder acquired such shares and
documentary support for any claims of beneficial ownership, and (iii) a
description
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of all agreements, arrangements or understandings between such Stockholder and
each such person that such Stockholder proposes to nominate as a director and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by such Stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a director shall furnish to the Secretary of the Corporation that
information required to be set forth in a Stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director unless nominated in accordance with the procedures set forth in these
Bylaws of the Company. The chairman of the Stockholder's meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the procedures prescribed by these Bylaws of the
Company, and if he shall so determine, he shall announce such determination to
the meeting and the defective nomination shall be disregarded.
SECTION 2.14 STOCKHOLDER PROPOSALS. At any special meeting of the
Corporation's Stockholders, only such business shall be conducted as shall have
been brought before the meeting by or at the direction of the Board of
Directors. At any annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (a) by or at the
direction of the Board of Directors or (b) by any Stockholder who complies with
the procedures set forth in this Section 2.14; provided, however, that nothing
in this Section 2.14 shall be deemed to preclude discussion by any Stockholder
of any business properly brought before any annual meeting of Stockholders in
accordance with such procedures. For business properly to be brought before an
annual meeting by a Stockholder, the Stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation. To be
timely, a Stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than
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60 days nor more than 90 days prior to the anniversary of the annual meeting
held for the immediately preceding year (provided, however, that if no annual
meeting was held in the previous year or the date of the annual meeting of
Stockholders has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, the notice must
be received by the Corporation at least 45 days prior to the date the
Corporation intends to distribute its proxy statement with respect to such
meeting). To be in proper written form, such Stockholder's notice to the
Secretary shall set forth in writing as to each matter such Stockholder proposes
to bring before the annual meeting (a) a brief description of the business
desired to be brought before the annual meeting, including the exact text of any
proposal to be presented for adoption and any supporting statement (which shall
not exceed 500 words in the aggregate), and such Stockholder's reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, and principal occupation of such
Stockholder, (c) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such Stockholder and the dates upon which
such Stockholder acquired such shares and documentary support for any claims of
beneficial ownership, and (d) any material interest of such Stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2.14 and the foregoing rights of a Stockholder to
propose business for consideration at an annual meeting of Stockholders shall be
subject to such conditions, restrictions and limitations as may be imposed by
the Certificate of Incorporation. The chairman of an annual stockholder's
meeting shall, if the facts warrant, determine and declare to the meeting that
business is not properly brought before the meeting in accordance with the
provisions of this Section 2.14, and, if he should so determine, he
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shall so announce such determination to the meeting and any such business not
properly brought before the meeting shall not be transacted. Notwithstanding any
other provision of these Bylaws, the Corporation shall be under no obligation to
include any Stockholder proposal in its proxy statement material or otherwise
present any such proposal to Stockholders at a meeting of Stockholders if the
Board of Directors reasonably believes that the proponents thereof have not
complied with Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, and the
Corporation shall not be required to include in its proxy statement material to
Stockholders any Stockholder proposal not required to be included in its proxy
statement to Stockholders in accordance with such act, rules or regulations.
ARTICLE III
DIRECTORS
SECTION 3.1 MANAGEMENT. The property, affairs and business of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all powers of the Corporation and do all lawful acts and
things as are not by law, by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the Stockholders.
SECTION 3.2 NUMBER AND TERM. The Board of Directors shall be classified
in accordance with the Certificate of Incorporation and the actual number of
directors constituting the entire Board of Directors shall be fixed from time to
time by resolution of the Board of Directors adopted by the affirmative vote of
a majority of the members of the entire Board of Directors, but shall consist of
not less than three nor more than 15 members, one-third of whom shall be elected
each year by the Stockholders except as provided in Section 3.4. The Board of
Directors shall have sole authority to determine the number of directors, within
the limits set forth above, and may increase or decrease
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the exact number of directors from time to time by resolution duly adopted by
the affirmative vote of a majority of the entire Board of Directors. Such
increases and decreases shall be apportioned among the classes of directors so
that all classes will be as nearly equal in number as possible. Directors need
not be Stockholders. No decrease in the number of directors shall have the
effect of shortening the term of office of any incumbent director.
SECTION 3.3 QUORUM AND MANNER OF ACTION. At all meetings of the Board of
Directors a majority of the total number of directors holding office shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
law, by the Certificate of Incorporation or by these Bylaws. When the Board of
Directors consists of one director, the one director shall constitute a majority
and a quorum. If at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum is obtained, and no further notice thereof need be
given other than by announcement at such adjourned meeting. Attendance by a
director at a meeting shall constitute a waiver of notice of such meeting except
where a director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened. A Director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to such action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as Secretary of the meeting before
the adjournment thereof or shall forward any dissent by certified or registered
mail
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to the Secretary immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any Director who voted in favor of such action.
SECTION 3.4 VACANCIES. Except as otherwise provided by law and the
Certificate of Incorporation, in the case of any increase in the authorized
number of directors or of any vacancy in the Board of Directors, however
created, the additional director or directors may be elected, or, as the case
may be, the vacancy or vacancies shall be filled by majority vote of the
directors remaining on the whole Board of Directors although less than a quorum,
or by a sole remaining director. In the event one or more directors shall
resign, effective at a future date, such vacancy or vacancies shall be filled by
a majority of the directors who will remain on the whole Board of Directors,
although less than a quorum, or by a sole remaining director. Any director
elected or chosen as provided herein shall serve until the sooner of (i) the
unexpired term of the directorship to which he is appointed; or (ii) until his
successor is elected and qualified; or (iii) until his earlier resignation or
removal. If, as a result of a disaster or emergency (as determined in good
faith by the then remaining Directors), it becomes impossible to ascertain
whether or not vacancies exist on the Board of Directors and a person is or
persons are elected by the Directors, who in good faith believe themselves to be
a majority of the remaining Directors, to fill a vacancy or vacancies that such
remaining Directors in good faith believe exists, then the acts of such person
or persons who are so elected as Directors shall be valid and binding upon the
Corporation and the Stockholders, although it may subsequently develop that at
the time of the election (i) there was in fact no vacancy or vacancies existing
on the Board of Directors or (ii) the directors who so elected such person or
persons did not in fact constitute a majority of the remaining Directors.
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SECTION 3.5 RESIGNATIONS. A director may resign at any time upon written
notice of resignation to the Corporation, delivered to the Secretary. Any
resignation shall be effective immediately unless a certain effective date is
specified therein, in which event it will be effective upon such date and
acceptance of any resignation shall not be necessary to make it effective.
SECTION 3.6 REMOVALS. Any director or the entire Board of Directors may
be removed before the expiration of such Director's term of office only for
cause, and another person or persons may be elected to serve for the remainder
of his or their term, and only upon the affirmative vote of the holders of a
majority of the shares of the Corporation entitled to vote in the election of
directors. Stockholders may not remove any director without cause. In case any
vacancy so created shall not be filled by the Stockholders at such meeting, such
vacancy may be filled by the directors as provided in Section 3.4.
SECTION 3.7 ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held, if a quorum be present, immediately following each annual meeting
of the Stockholders at the place such meeting of Stockholders took place, for
the purpose of organization and transaction of any other business that might be
transacted at a regular meeting thereof, and no notice of such meeting shall be
necessary. If a quorum is not present, such annual meeting may be held at any
other time or place that may be specified in a notice given in the manner
provided in Section 3.9 for special meetings of the Board of Directors or in a
waiver of notice thereof.
SECTION 3.8 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such places and times as shall be determined from
time to time by resolution of the Board of Directors. Except as otherwise
provided by law, any business may be transacted at any regular meeting of the
Board of Directors.
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SECTION 3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chief Executive Officer or by the Secretary on the written
request of one-third of the members of the whole Board of Directors stating the
purpose or purposes of such meeting. Notices of special meetings, if mailed,
shall be mailed to each director not later than two days before the day the
meeting is to be held or if otherwise given in the manner permitted by these
Bylaws, not later than the day before such meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in any
notice or written waiver of notice unless so required by the Certificate of
Incorporation or by the Bylaws. Unless limited by law, the Certificate of
Incorporation or by these Bylaws, any and all business may be transacted at a
special meeting.
SECTION 3.10 ORGANIZATION OF MEETINGS. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as such Board
of Directors may from time to time determine, and all matters shall be
determined by the vote of a majority of the directors present at any meeting at
which there is a quorum, except as otherwise provided by these Bylaws or
required by law.
SECTION 3.11 PLACE OF MEETINGS. The Board of Directors may hold their
meetings and have one or more offices, and keep the books of the Corporation,
inside or outside the State of Delaware, at any office or offices of the
Corporation, or at any other place as they may from time to time by resolution
determine.
SECTION 3.12 COMPENSATION OF DIRECTORS. The Board of Directors shall have
the authority to fix, and from time to time to change, the compensation of
Directors. Directors shall not receive any stated salary for their services as
directors, but by resolution of the Board of Directors a fixed honorarium or
fees and expenses, if any, of attendance may be paid by the Corporation for
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attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending such committee meetings.
SECTION 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT. Unless otherwise
restricted by law, the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
of Directors or of such committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board of Directors or the committee.
SECTION 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors or of any committee thereof may participate in a meeting of
such Board of Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
Section 3.14 shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
SECTION 3.15 ELECTION OF DIRECTORS BY CLASS VOTE OF HOLDERS OF PREFERRED
STOCK. Notwithstanding the foregoing provisions of this Article III, if the
resolutions of the Board of Directors creating any class or series of preferred
stock of the Corporation entitle the holders of such preferred stock, voting
separately by class or series, to elect additional Directors under specified
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circumstances, then all provisions of such resolutions relating to the
nomination, election, term of office, removal, filling of vacancies and other
features of such directorships shall, as to such directorships, govern and
control over any conflicting provisions of this Article III, and such Directors
so elected need not be divided into classes pursuant to this Article III unless
expressly provided by the provisions of such resolutions.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 4.1 MEMBERSHIP AND AUTHORITIES. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board of Directors,
designate one or more Directors to constitute an Executive Committee and such
other committees as the Board of Directors may determine, each of which
committees to the extent provided in said resolution or resolutions or in these
Bylaws, shall have and may exercise all the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except in those
cases where the authority of the Board of Directors is specifically denied to
the Executive Committee or such other committee or committees by law, the
Certificate of Incorporation or these Bylaws, and may authorize the seal of the
Corporation to be affixed to all papers that may require it. The designation of
an Executive Committee or other committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed upon it or him by law. Each member of a
committee of the Board of Directors shall serve as such until the earliest of
(i) his death, (ii) the expiration of his term as a Director, (iii) his
resignation as a member of such committee or as a Director and (iv) his removal
as a member of such committee or as a Director.
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SECTION 4.2 MINUTES. Each committee designated by the Board of Directors
shall keep regular minutes of its proceedings and shall provide a report of its
proceedings to the Board of Directors when required or requested by the Board of
Directors.
SECTION 4.3 VACANCIES. The Board of Directors may designate one or more
of its members as alternate members of any committee who may replace any absent
or disqualified member at any meeting of such committee. If no alternate
members have been appointed, the committee member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member. The Board of Directors shall have the power at any time to fill
vacancies in, to change the membership of, and to dissolve, any committee.
SECTION 4.4 TELEPHONE MEETINGS. Members of any committee designated by
the Board of Directors may participate in or hold a meeting by use of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this Section 4.4 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
SECTION 4.5 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of any committee designated by the Board of Directors may
be taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the members of the committee
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and filed with the minutes of the committee proceedings. Such consent shall have
the same force and effect as a unanimous vote at a meeting.
ARTICLE V
OFFICERS
SECTION 5.1 NUMBER AND TITLE. The elected officers of the Corporation
shall be chosen by the Board of Directors and shall be a Chief Executive
Officer, the President, a Vice President, a Secretary and a Treasurer. The
Board of Directors may also choose a Chairman of the Board, who must be a member
of the Board of Directors, and additional Vice Presidents (including one or more
Executive Vice Presidents and one or more Senior Vice Presidents), a Chief
Financial Officer, a General Counsel, one or more Assistant Secretaries and/or
one or more Assistant Treasurers. One person may hold any two or more of these
offices.
SECTION 5.2 TERM OF OFFICE; VACANCIES. So far as is practicable, all
elected officers shall be elected by the Board of Directors at the annual
meeting of the Board of Directors in each year, and except as otherwise provided
in this Article V, shall hold office until the next such meeting of the Board of
Directors in the subsequent year and until their respective successors are
elected and qualified or until their earlier resignation or removal. All
appointed officers shall hold office at the pleasure of the Board of Directors.
If any vacancy shall occur in any office, the Board of Directors may elect or
appoint a successor to fill such vacancy for the remainder of the term.
SECTION 5.3 REMOVAL OF ELECTED OFFICERS. Any elected officer may be
removed at any time, with or without cause, by affirmative vote of a majority of
the whole Board of Directors, at any regular meeting or at any special meeting
called for such purpose.
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SECTION 5.4 RESIGNATIONS. Any officer may resign at any time upon written
notice of resignation to the Chief Executive Officer, Secretary or Board of
Directors of the Corporation. Any resignation shall be effective immediately
unless a date certain is specified for it to take effect, in which event it
shall be effective upon such date, and acceptance of any resignation shall not
be necessary to make it effective, irrespective of whether the resignation is
tendered subject to such acceptance. Any such resignation is without prejudice
to the rights, if any, of the Corporation under any contract to which the
officer is a party.
SECTION 5.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
shall be elected, shall preside at all meetings of the Stockholders and Board of
Directors. In addition, the Chairman of the Board shall perform whatever duties
and shall exercise all powers that are given to him by the Board of Directors.
SECTION 5.6 CHIEF EXECUTIVE OFFICER. (a) The Chief Executive Officer shall
be the chief executive officer of the Corporation and, subject to the
supervision, direction and control of the Board of Directors and the Chairman of
the Board (if any), shall have general supervision, direction and control of the
business and officers of the Corporation with all such powers as may be
reasonably incident to such responsibilities. The Chief Executive Officer shall
implement the general directives, plans and policies formulated by the Board of
Directors and shall further have such duties, responsibilities and authorities
as may be assigned to him by the Board of Directors. The Chief Executive Officer
shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation. The Chief Executive Officer may sign,
with any other proper officer, certificates for shares of the Corporation and
any deeds, bonds, mortgages, contracts and other documents which the Board of
Directors has authorized to be executed, except where
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required by law to be otherwise signed and executed and except where the signing
and execution thereof shall be expressly delegated by the Board or Directors or
these Bylaws to some other officer or agent of the Corporation.
(b) During the time of any vacancy in the office of Chairman of the
Board or in the event of the absence or disability of the Chairman of the Board,
the Chief Executive Officer shall have the duties and powers of the Chairman of
the Board unless otherwise determined by the Board of Directors. In the absence
of the Chairman of the Board, if one be elected, the Chief Executive Officer
shall preside at meetings of the Stockholders and Board of Directors and shall
be ex officio a member of all standing committees. During the time of any
vacancy in the office of President or in the event of the absence or disability
of the President, the Chief Executive Officer shall have the duties and powers
of the President unless otherwise determined by the Board of Directors. In no
event shall any third party having any dealings with the Corporation be bound to
inquire as to any facts required by the terms of this Section 5.6 for the
exercise by the Chief Executive Officer of the powers of the Chairman of the
Board or the President.
SECTION 5.7 PRESIDENT. (a) The President shall be the chief operating
officer of the Corporation and, subject to the supervision, direction and
control of the Chief Executive Officer and the Board of Directors, shall manage
the day-to-day operations of the Corporation. He shall have the general powers
and duties of management usually vested in the chief operating officer of a
corporation and such other powers and duties as may be assigned to him by the
Board of Directors, the Chief Executive Officer or these Bylaws. The President
may sign, with any other proper officer, certificates for shares of the
Corporation and any deeds, bonds, mortgages, contracts and other documents which
the Board of Directors has authorized to be executed, except where required by
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law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board or Directors or
these Bylaws to some other officer or agent of the Corporation. In the absence
of the President, his duties shall be performed and his authority may be
exercised by the Chief Executive Officer or a Vice President of the Corporation
as may have been designated by the President with the right reserved to the
Board of Directors to designate or supersede any designation so made.
(b) During the time of any vacancy in the offices of the Chairman of
the Board and Chief Executive Officer or in the event of the absence or
disability of the Chairman of the Board and the Chief Executive Officer, the
President shall have the duties and powers of the Chief Executive Officer unless
otherwise determined by the Board of Directors. In no event shall any third
party having any dealings with the Corporation be bound to inquire as to any
facts required by the terms of this Section 5.7 for the exercise by the
President of the powers of the Chief Executive Officer.
SECTION 5.8 VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors, or if not ranked, the Vice President designated by the
President, shall perform all the duties of the President as chief operating
officer of the Corporation, and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the President as chief operating
officer of the Corporation. In no event shall any third party having dealings
with the Corporation be bound to inquire as to any facts required by the terms
of this Section 5.8 for the exercise by any Vice President of the powers of the
President as chief operating officer of the Corporation. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be assigned to them by these Bylaws and as may
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from time to time be assigned to them by the Board of Directors, the Chief
Executive Officer or the President, and may sign, with any other proper officer,
certificates for shares of the Corporation.
SECTION 5.9 SECRETARY. The Secretary shall keep or cause to be kept, at
the principal office of the Corporation or such other place as the Board of
Directors may order, a book of minutes of all meetings and actions of the Board
of Directors, committees of the Board of Directors and Stockholders, with the
time and place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present at meetings of
the Board of Directors and committees thereof, the number of shares present or
represented at Stockholders' meetings and the proceedings thereof. The
Secretary, if available, shall attend all meetings of the Board of Directors and
all meetings of the Stockholders and record the proceedings of the meetings in a
book to be kept for that purpose and shall perform like duties for any committee
of the Board of Directors as the Board of Directors or such committee shall
designate him to serve. The Secretary shall give, or cause to be given, notice
of all meetings of the Stockholders and meetings of the Board of Directors and
committees thereof and shall perform such other duties incident to the office of
secretary or as may be prescribed by the Board of Directors or the President,
under whose supervision he shall be. The Secretary shall have custody of the
corporate seal of the Corporation, if one be adopted pursuant to Section 8.1,
and he, or any Assistant Secretary, or any other person whom the Board of
Directors may designate, shall have authority to affix the same to any
instrument requiring it, and when so affixed it may be attested by his signature
or by the signature of any Assistant Secretary or by the signature of such other
person so affixing such seal.
SECTION 5.10 ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned
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to him by the Board of Directors, the Chief Executive Officer, the President or
the Secretary. The Assistant Secretary or such other person as may be designated
by the Chief Executive Officer shall exercise the powers of the Secretary during
that officer's absence or inability to act.
SECTION 5.11 TREASURER. The Treasurer shall have the custody of and be
responsible for the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in the books belonging to the Corporation
and shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the President and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation and
he shall perform all other duties incident to the position of Treasurer, or as
may be prescribed by the Board of Directors or the Chief Executive Officer. If
required by the Board of Directors, he shall give the Corporation a bond in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 5.12 ASSISTANT TREASURERS. Each Assistant Treasurer shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Board of Directors, the
President or the Treasurer. The Assistant Treasurer or such
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other person designated by the Chief Executive Officer shall exercise the power
of the Treasurer during that officer's absence or inability to act.
SECTION 5.13 SUBORDINATE OFFICERS; AGENTS. The Board of Directors may (a)
appoint such other officers subordinate to the Chief Executive Officer and
President (including a Chief Financial Officer and/or a General Counsel) as it
shall deem necessary or desirable who shall hold their offices for such terms,
have such authority and perform such duties as the Board of Directors may from
time to time determine, or (b) delegate to any committee or officer the power to
appoint any such subordinate officers. The Board of Directors may also appoint
one or more agents as it shall deem necessary or desirable who shall have such
authority and perform such duties as the Board of Directors may from time to
time determine. Any agent may be removed at any time, with or without cause, by
affirmative vote of a majority of the whole Board of Directors, at any regular
meeting or at any special meeting called for such purpose.
SECTION 5.14 SALARIES AND COMPENSATION. The salary or other compensation
of officers shall be fixed from time to time by the Board of Directors. The
Board of Directors may delegate to any committee or officer the power to fix
from time to time the salary or other compensation of officers and agents.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) The
Corporation (i) shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that
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such person is or was, at any time prior to or during which this Article VI is
in effect, a director or officer of the Corporation, or is or was, at any time
prior to or during which this Article VI is in effect, serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust, other enterprise or employee benefit plan and (ii) upon a
determination by the Board of Directors that indemnification is appropriate, the
Corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that such
person is or was, at any time prior to or during which this Article VI is in
effect, an employee or agent of the Corporation or at the request of the
Corporation was serving as an employee or agent of any other corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan, in
the case of (i) and (ii) against reasonable expenses (including attorneys'
fees), judgments, fines, penalties, amounts paid in settlement and other
liabilities actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
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(b) The Corporation (i) shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that such person is or was, at any time prior to or during
which this Article VI is in effect, a director or officer of the Corporation, or
is or was, at any time prior to or during which this Article VI is in effect,
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and (ii) upon a determination by the Board of Directors that
indemnification is appropriate, the Corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was, at any
time prior to or during which this Article VI is in effect, an employee or agent
of the Corporation or at the request of the Corporation was serving as an
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, in the case of (i) and (ii) against
expenses (including attorneys' fees), actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation; provided, that no
indemnification shall be made under this sub-section (b) in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery, or other court of appropriate jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
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indemnity of such expenses which the Delaware Court of Chancery, or other court
of appropriate jurisdiction, shall deem proper.
(c) Any indemnification under sub-sections (a) or (b) (unless ordered by
the Delaware Court of Chancery or other court of appropriate jurisdiction) shall
be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of such person is proper in the circumstances
because he has met the applicable standard of conduct set forth in sub-sections
(a) and (b). Such determination shall be made (1) by the Board of Directors by
a majority vote of a quorum consisting of directors not parties to such action,
suit or proceeding; or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel, in written opinion, selected by the Board of Directors; or (3) by the
Stockholders. In the event a determination is made under this sub-section (c)
that the director, officer, employee or agent has met the applicable standard of
conduct as to some matters but not as to others, amounts to be indemnified may
be reasonably prorated.
(d) Expenses incurred by a person who is or was a director or officer of
the Corporation in appearing at, participating in or defending any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, shall be paid by the Corporation at reasonable
intervals in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the director or officer to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized by this Article VI. In
addition, the Corporation shall pay or reimburse expenses incurred by any person
who is or was a director or officer of the Corporation in connection with such
person's appearance as a witness or other participant in a proceeding in which
such person or the Corporation
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is not a named party to such proceeding, provided that such appearance or
participation is on behalf of the Corporation or by reason of his capacity as a
director or officer, or former director or officer of the Corporation.
(e) If in a suit or proceeding for indemnification required under this
Article VI of a director or officer, or former director or officer, of the
Corporation or any of its affiliates, a court of competent jurisdiction
determines that such person is entitled to indemnification under this Article
VI, the court shall award, and the Corporation shall pay, to such person the
expenses incurred in securing such judicial determination.
(f) It is the intention of the Corporation to indemnify the persons
referred to in this Article VI to the fullest extent permitted by law and with
respect to any action, suit or proceeding arising from events which occur at any
time prior to or during which this Article VI is in effect. The indemnification
and advancement of expenses provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be or become entitled under any law, the Certificate
of Incorporation, these Bylaws, agreement, the vote of Stockholders or
disinterested directors or otherwise, or under any policy or policies of
insurance purchased and maintained by the Corporation on behalf of any such
person, both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
(g) The indemnification provided by this Article VI shall be subject to all
valid and applicable laws, and, in the event this Article VI or any of the
provisions hereof or the indemnification contemplated hereby are found to be
inconsistent with or contrary to any such valid
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laws, the latter shall be deemed to control and this Article VI shall be
regarded as modified accordingly, and, as so modified, to continue in full force
and effect.
ARTICLE VII
CAPITAL STOCK
SECTION 7.1 CERTIFICATES OF STOCK. Certificates of stock shall be issued
to each Stockholder certifying the number of shares owned by him in the
Corporation and shall be in a form not inconsistent with the Certificate of
Incorporation and as approved by the Board of Directors. The certificates shall
be signed by the Chairman of the Board, the Chief Executive Officer, the
President or a Vice President and by the Secretary or an Assistant Secretary, or
the Treasurer or an Assistant Treasurer and may be sealed with the seal of the
Corporation or a facsimile thereof. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
If the Corporation shall be authorized to issue more than one (1) class of
stock or more than one (1) series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided by statute, in lieu of the foregoing requirements, there
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may be set forth on the face or back of the certificate which the Corporation
shall issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each Stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. The Board of
Directors shall have the power and authority to provide that certificates
representing shares of stock of the Corporation bear such legends and statements
as the Board of Directors deems appropriate in connection with the requirements
of federal or state securities laws or other applicable laws.
SECTION 7.2 LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the owner of such certificate, or his legal
representative. When authorizing the issuance of a new certificate, the Board of
Directors may in its discretion, as a condition precedent to the issuance
thereof, require the owner, or his legal representative, to give a bond in such
form and substance with such surety as it may direct, to indemnify the
Corporation against any claim that may be made on account of the alleged loss,
theft or destruction of such certificate or the issuance of such new
certificate.
SECTION 7.3 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD FOR
CERTAIN PURPOSES. (a) In order that the Corporation may determine the
Stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of capital stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than 60 days prior to the date of payment of such dividend or
other distribution or allotment
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of such rights or the date when any such rights in respect of any change,
conversion or exchange of stock may be exercised or the date of such other
action. In such a case, only Stockholders of record on the date so fixed shall
be entitled to receive any such dividend or other distribution or allotment of
rights or to exercise such rights or for any other purpose, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
(b) If no record date is fixed, the record date for determining
Stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 7.4 DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, if any, and except as otherwise provided by law, the directors
may declare dividends upon the capital stock of the Corporation as and when they
deem it to be expedient. Such dividends may be paid in cash, in property or in
shares of the Corporation's capital stock. Before declaring any dividend the
Directors may set apart out of the funds of the Corporation available for
dividend such sum or sums as the directors from time to time in their discretion
think proper for working capital or as a reserve fund to meet contingencies or
for equalizing dividends, or for such other purposes as the directors shall
determine to be conducive to the interests of the Corporation and the directors
may modify or abolish any such reserve in the manner in which it was created.
SECTION 7.5 REGISTERED STOCKHOLDERS. Except as expressly provided by law,
the Certificate of Incorporation and these Bylaws, the Corporation shall be
entitled to treat registered Stockholders as the only holders and owners in fact
of the shares standing in their respective names and the Corporation shall not
be bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, regardless of whether it shall have express or
other notice thereof.
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SECTION 7.6 TRANSFER OF STOCK. Transfers of shares of the capital stock
of the Corporation shall be made only on the books of the Corporation by the
registered owners thereof, or by their legal representatives or their duly
authorized attorneys. Upon any such transfers the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock transfer books and ledgers, by whom they shall be canceled and new
certificates shall thereupon be issued.
SECTION 7.7 STOCK OPTIONS, WARRANTS, ETC. Unless otherwise expressly
prohibited in the resolutions of the Board of Directors creating any class or
series of preferred stock of the Corporation, the Board of Directors shall have
the power and authority to create and issue (whether or not in connection with
the issue and sale of any stock or other securities of the Corporation),
warrants, rights or options entitling the holders thereof to purchase from the
Corporation any shares of capital stock of the Corporation of any class or
series or any other securities of the Corporation for such consideration and to
such persons, firms or Corporations as the Board of Directors, in its sole
discretion, may determine setting aside from the authorized but unissued stock
of the Corporation the requisite number of shares for issuance upon the exercise
of such warrants, rights or options. Such warrants, rights and options shall be
evidenced by one or more instruments approved by the Board of Directors. The
Board of Directors shall be empowered to set the exercise price, duration, time
for exercise and other terms of such warrants, rights and operations; provided,
however, that the consideration to be received for any shares of capital stock
subject thereto shall not be less than the par value thereof.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
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SECTION 8.1 CORPORATE SEAL. If one be adopted, the corporate seal shall
have inscribed thereon the name of the Corporation and shall be in such form as
may be approved by the Board of Directors. Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or in any manner reproduced.
SECTION 8.2 FISCAL YEAR. The fiscal year of the Corporation shall be the
calendar year unless changed by resolution of the Board of Directors.
SECTION 8.3 CHECKS, DRAFTS, NOTES. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner as shall from time to time be
determined by resolution (whether general or special) of the Board of Directors
or may be prescribed by any officer or officers, or any officer and agent
jointly, thereunto duly authorized by the Board of Directors.
SECTION 8.4 CORPORATE CONTRACTS AND INSTRUMENTS. Subject always to the
specific directions of the Board of Directors, the Chairman of the Board (if
any), the Chief Executive Officer, the President, any Vice President, the
Secretary or the Treasurer may enter into contracts and execute instruments in
the name and on behalf of the Corporation. The Board of Directors and, subject
to the specific directions of the Board of Directors, the Chairman of the Board
(if any), the Chief Executive Officer or the President may authorize one or more
officers, employees or agents of the Corporation to enter into any contact or
execute any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 8.5 NOTICE AND WAIVER OF NOTICE. Whenever notice is required to
be given to any director or Stockholder under the provisions of applicable law,
the Certificate of Incorporation or
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of these Bylaws it shall not be construed to only mean personal notice, rather,
such notice may also be given in writing, by mail, addressed to such director or
Stockholder at his address as it appears on the records of the Corporation, with
postage thereon prepaid (unless prior to the mailing of such notice he shall
have filed with the Secretary of the Corporation a written request that notices
intended for him be mailed to some other address in which case, such notice
shall be mailed to the address designated in the request), and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram, cable or other
form of recorded communication, by personal delivery or by telephone. Whenever
notice is required to be given under any provision of law, the Certificate of
Incorporation or these Bylaws, a waiver thereof in writing, by telegraph, cable
or other form of recorded communication, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting, to
the transaction of any business on the ground that the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Stockholders, directors, or members of
a committee of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or these Bylaws.
SECTION 8.6 EXAMINATION OF BOOKS AND RECORDS. The Board of Directors
shall determine from time to time whether, and if allowed, when and under what
conditions and regulations the accounts and books of the Corporation (except
such as may by statute be specifically opened to
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inspection) or any of them shall be open to inspection by the Stockholders, and
the Stockholders' rights in this respect are and shall be restricted and limited
accordingly.
SECTION 8.7 VOTING UPON SHARES HELD BY THE CORPORATION. Unless otherwise
provided by law or by the Board of Directors, the Chairman of the Board of
Directors, if one shall be elected, or the Chief Executive Officer, if a
Chairman of the Board of Directors shall not be elected, acting on behalf of the
Corporation, shall have full power and authority to attend and to act and to
vote at any meeting of Stockholders of any corporation in which the Corporation
may hold stock and, at any such meeting, shall possess and may exercise any and
all of the rights and powers incident to the ownership of such stock which, as
the owner thereof, the Corporation might have possessed and exercised, if
present. The Board of Directors by resolution from time to time may confer like
powers upon any person or persons.
ARTICLE IX
AMENDMENTS
SECTION 9.1 AMENDMENT. Except as otherwise expressly provided in the
Certificate of Incorporation, the directors, by the affirmative vote of a
majority of the entire Board of Directors and without the assent or vote of the
Stockholders, may at any meeting, provided the substance of the proposed
amendment shall have been stated in the notice of the meeting, make, repeal,
alter, amend or rescind any of these Bylaws. The Stockholders shall not make,
repeal, alter, amend or rescind any of the provisions of these Bylaws except by
the holders of not less than 80% of the total voting power of all shares of
stock of the Corporation entitled to vote in the election of directors,
considered for purposes of this Article IX as one class.
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EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 10,
1998, is by and among John Parker Conrad; John Parker Conrad, Jr., appearing
herein individually and as trustee of The John Parker Conrad, Jr. Trust, as
trustee of The Glenn Alan Conrad Trust, as trustee of The Kenneth Charles Conrad
Trust, and as trustee of The Daniel Thomas Conrad Trust; Katherine Conrad Court,
appearing herein individually and as trustee of The Katherine Conrad Court Trust
and as trustee of The James Patrick Court Trust; William H. Hidalgo; and Cecil
Hernandez (collectively, the "Holders"); and Conrad Industries, Inc., a Delaware
corporation (the "Company").
R E C I T A L S:
----------------
WHEREAS, the Company intends to sell up to 2,300,000 shares of its common
stock (the "Common Stock") through an initial public offering (the "IPO"); and
in connection with such IPO, the Company has filed a registration statement with
the Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Securities Act"); and
WHEREAS, following the IPO, the Common Stock will be registered under
Section 12 of the Securities and Exchange Act of 1934 (the "Exchange Act"); and
under the provisions of the Securities Act and the rules and regulations
promulgated thereunder, the Holders are or may be limited in the manner of the
sale of the shares of Common Stock owned by them, absent registration under the
Securities Act of the sale of such Common Stock or the availability of exemption
from the registration requirements of the Securities Act; and
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
<PAGE>
1. Demand Registration.
(A) Request for Registration. As used in this Agreement, "Restricted
Stock" shall mean all shares of Common Stock received by the Holders pursuant to
the Stock Exchange Agreement, dated as of March 31, 1998, by and among the
Company, Conrad Shipyard, Inc. (formerly Conrad Industries, Inc.), a Louisiana
corporation ("Conrad LA"), and each of the Holders, together with any securities
issued or issuable with respect to any such Common Stock by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
As to any particular issued Restricted Stock, such securities shall cease to be
Restricted Stock when (i) a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (ii) such securities shall have been distributed by the Holders to
the public pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) such securities shall have been otherwise transferred by
the Holders, new certificates representing the transferred securities not
bearing a legend restricting further transfer shall have been delivered by the
Company to the transferees thereof and subsequent disposition of such securities
shall not require registration or qualification of such securities under the
Securities Act or any similar state law then in force, (iv) such securities
shall have ceased to be outstanding, or (v) the Holders thereof shall agree in
writing that such Restricted Stock shall no longer be Restricted Stock. The
Holders and any permitted assignee of any of the Holder's rights and duties
hereunder are referred to herein as the "Holders" and a Holder selling or
distributing Restricted Stock pursuant hereto is referred to herein as a
"selling Holder." Subject to the conditions and limitations set forth in
Section 4 of this Agreement, at any time and from time to time after 180 days
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<PAGE>
after the date of the IPO, the Holder or Holders of Restricted Stock holding in
the aggregate Twenty Percent (20%) of the number of shares of Restricted Stock
then outstanding may make a written request for registration under the
Securities Act of all or part of its or their Restricted Stock pursuant to this
Section 1 ("Demand Registration"), provided that the number of shares of
Restricted Stock proposed to be sold or distributed shall be (i) at least Ten
Percent (10%) of the aggregate number of initial shares of Restricted Stock
(520,000 shares) or (ii) all remaining shares of Restricted Stock then
outstanding. Such request will specify the aggregate number of shares of
Restricted Stock proposed to be sold or distributed and will also specify the
intended method of disposition thereof. Within ten (10) business days after
receipt of such request, the Company will give written notice of such
registration request to all other Holders of Restricted Stock and include in
such registration all Restricted Stock with respect to which the Company has
received written requests for inclusion therein within fifteen (15) business
days after the receipt by the applicable Holder of the Company's notice. Each
such request will also specify the aggregate number of shares of Restricted
Stock to be registered and the intended method of disposition thereof. No other
party, including the Company (but excluding another Holder of Restricted Stock),
shall be permitted to offer securities under any such Demand Registration unless
the Holder or Holders requesting the Demand Registration shall consent thereto
in writing.
(B) Priority on Demand Registrations. If the Holders of a majority in
number of shares of the Restricted Stock to be registered in a Demand
Registration so elect, the offering of such Restricted Stock pursuant to such
Demand Registration shall be in the form of an underwritten offering. In such
event, if the managing underwriter or underwriters of such offering advise the
Company and the Holders in writing that in their opinion the aggregate amount of
Restricted Stock
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<PAGE>
requested to be included in such offering is so large that it will materially
and adversely affect the success of such offering, the Company will include in
such registration only the aggregate number of shares of Restricted Stock which
in the opinion of such managing underwriter or underwriters can be sold without
any such material adverse effect, and such number of shares shall be allocated
pro rata among the Holders of Restricted Stock on the basis of the number of
shares of Restricted Stock requested by such Holders to be included in such
registration. To the extent Restricted Stock so requested to be registered is
excluded from the offering based on the provisions of the foregoing sentence,
then the Holders of such Restricted Stock shall have the right to one additional
Demand Registration under this Section with respect to such Restricted Stock.
(C) Selection of Underwriters and Counsel. If any Demand Registration
is in the form of an underwritten offering, the Holders of a majority in number
of shares of Restricted Stock to be registered will select and obtain the
services of the investment banker or investment bankers and manager or managers
that will administer the offering and the counsel to such investment bankers and
managers; provided that such investment bankers, managers and counsel are
approved by the Company, which approval shall not be unreasonably withheld.
2. Piggyback Registration. If the Company proposes to file a registration
statement under the Securities Act with respect to an offering for its own
account or for the account of any of its respective security holders of any
class of its equity securities (other than a registration statement on Form S-8
(or any successor form) or any other registration statement relating solely to
an employee benefit plan or filed in connection with an exchange offer, a
transaction to which Rule 145 under the Securities Act applies or an offering of
securities solely to the Company's existing stockholders and other than a
registration statement pursuant to a "Demand Registration" under the
Registration Rights Agreement dated as of June 10, 1998 between the Company and
Morgan Keegan & Company, Inc.), then the Company shall in each case give written
notice of such proposed filing to the
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<PAGE>
Holders of Restricted Stock as soon as practicable (but no later than ten (10)
business days) before the anticipated filing date, and such notice shall offer
such Holders the opportunity to register such number of shares of Restricted
Stock as each such Holder may request; provided, however, that no such notice
need be given to the Holders, and the Holders shall have no rights under this
Section 2, if the Holders have therefore disposed of the Restricted Stock. Each
Holder desiring to have Restricted Stock included in such registration statement
shall so advise the Company in writing within ten (10) business days after the
date of the Company's notice, setting forth the amount of such Holder's
Restricted Stock for which registration is requested. If the Company's offering
is to be an underwritten offering, the Company shall, subject to the further
provisions of this Agreement, use its reasonable efforts to cause the managing
underwriter or underwriters to permit the Holders of the Restricted Stock
requested to be included in the registration for such offering to include such
securities in such offering on the same terms and conditions as any similar
securities of the Company included therein. The right of each Holder to
registration pursuant to this Section 2 shall, unless the Company otherwise
assents, be conditioned upon such Holder's participation as a seller in such
underwriting and its execution of an underwriting agreement with the managing
underwriter or underwriters selected by the Company. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering deliver
a written opinion to the Holders of Restricted Stock that either because of (A)
the kind of securities which the Holders, the Company and any other persons or
entities intend to include in such offering or (B) the size of the offering
which the Holders, the Company and other persons intend to make, the success of
the offering would be materially and adversely affected by inclusion of the
Restricted Stock requested to be included, then (i) in the event that the size
of the offering is the basis of such managing underwriter's opinion, the number
of
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<PAGE>
shares to be offered for the accounts of Holders of Restricted Stock shall be
reduced pro rata on the basis of the number of securities requested by such
Holders to be offered to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters; provided that if securities are being
offered for the account of other persons or entities as well as the Company,
such reduction shall not represent a greater fraction of the number of
securities intended to be offered by Holders of Restricted Stock than the
fraction of similar reductions imposed on such other persons or entities over
the amount of securities they intended to offer; and (ii) in the event that the
kind of securities to be offered is the basis of such managing underwriter's
opinion, (x) the Restricted Stock to be included in such offering shall be
reduced as described in clause (i) above (subject to the proviso in clause (i))
or, (y) if such actions would, in the judgment of the managing underwriter, be
insufficient to substantially eliminate the adverse effect that inclusion of the
Restricted Stock requested to be included would have on such offering, such
Restricted Stock will be excluded entirely from such offering. Any Restricted
Stock excluded from an underwriting shall be withdrawn from registration and
shall not, without the consent of the Company and the managing underwriter, be
transferred in a public distribution or a sale into the public trading markets
prior to the earlier of 120 days (or such other shorter period of time as the
managing underwriter may require) after the effective date of the registration
statement or 180 days after the date the Holders of such Restricted Stock are
notified of such exclusion.
3. Registration Procedures. Whenever, pursuant to Section 1 or 2, the
Holders of Restricted Stock have requested that any Restricted Stock be
registered, the Company will, subject to the provisions of Section 4, use all
reasonable efforts to effect the registration and the sale or
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<PAGE>
distribution of such Restricted Stock in accordance with the intended method of
disposition thereof as promptly as practicable, and in connection with any such
request, the Company shall:
(A) in connection with a request pursuant to Section 1, prepare and
file with the SEC, not later than forty-five (45) days after receipt of such a
request, a registration statement on any form for which the Company then
qualifies and which counsel for the Company shall deem appropriate and which
form shall be available for the sale or distribution of such Restricted Stock in
accordance with the intended method of distribution thereof, and use its
reasonable efforts to cause such registration statement to become effective;
provided that if the Board of Directors of the Company has determined in its
good faith judgment that the filing of such registration statement would
materially adversely affect a pending or proposed public offering of the
Company's securities or would otherwise be significantly disadvantageous to the
Company and the Company shall furnish to Holders making such a request a
certificate signed by either the chief executive officer or the chief financial
officer of the Company stating that the Board of Directors has made such
determination, the Company shall have an additional period of not more than 180
days within which to file such registration statement (provided that the Company
shall be entitled to furnish such a certificate only once in any 12-month
period); and provided further, (i) that before filing a registration statement
or prospectus or any amendments or supplements thereto, the Company will furnish
to one counsel selected by the Holders of a majority in number of shares of the
Restricted Stock covered by such registration statement copies of all such
documents proposed to be filed, which documents will be subject to the review
and comment of such counsel, and (ii) that after the filing of the registration
statement, the Company will promptly notify each selling Holder of Restricted
Stock of any stop
7
<PAGE>
order issued or, to the knowledge of the Company, threatened by the SEC and take
all reasonable actions to prevent the entry of such stop order or to remove it
if entered;
(B) in connection with a registration pursuant to Section 1, prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not less than 180
days or such shorter period as shall terminate when the distribution of all
Restricted Stock covered by such registration statement shall have terminated
(but in no event prior to the expiration of the applicable period referred to in
Section 4(3) of the Securities Act and Rule 174 thereunder), and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the selling Holders
thereof set forth in such registration statement;
(C) as soon as reasonably practicable, furnish to such selling
Holders, prior to filing a registration statement, copies of such registration
statement as proposed to be filed, and thereafter furnish to such selling
Holders such number of copies of such registration statement, each amendment and
supplement thereto (in each case, if specified by such Holders, including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such selling
Holders may reasonably request in order to facilitate the disposition of the
Restricted Stock owned by such selling Holders;
(D) with reasonable promptness, use its reasonable efforts to register
or qualify such Restricted Stock under such other securities or blue sky laws of
such jurisdictions within the United States and Canada as any selling Holder
reasonably (in light of such selling Holder's
8
<PAGE>
intended plan of distribution) requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such selling Holder to
consummate the disposition in such jurisdictions of the Restricted Stock owned
by such selling Holder; provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection (D), or (ii) subject
itself to taxation in any such jurisdiction;
(E) with reasonable promptness, use reasonable efforts to cause the
Restricted Stock covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable the selling
Holders thereto to consummate the disposition of such Restricted Stock;
(F) promptly notify each selling Holder of such Restricted Stock, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of any event known to the Company
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers or recipients of such Restricted
Stock, such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and promptly make available to each
selling Holder any such supplement or amendment;
(G) in connection with a request pursuant to Section 1, enter into an
underwriting agreement in customary form, the form and substance of such
underwriting agreement being subject to the reasonable satisfaction of the
Company and the Holders;
9
<PAGE>
(H) with reasonable promptness make available for inspection by any
selling Holder, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such selling Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and the properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers and employees to supply all
information reasonably requested for such purpose by any such Inspector in
connection with such registration statement. Each Inspector that actually
reviews Records supplied by the Company that include information that the
Company identifies, in good faith, to be confidential ("Confidential
Information") shall be required, prior to any such review, to execute an
agreement with the Company providing that such Inspector shall not publicly
disclose any Confidential Information unless such disclosure is required by
applicable law or legal process. Each selling Holder of Restricted Stock agrees
that Confidential Information obtained by it as a result of such inspections
shall not be used by it as the basis for any transactions in securities of the
Company unless and until such information is made generally available to the
public. Each selling Holder of Restricted Stock further agrees that it will,
upon learning that disclosure of Confidential Information is sought in a court
of competent jurisdiction, give notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of the
Confidential Information. Each selling Holder also agrees that the due diligence
investigation made by the Inspectors shall be conducted in a manner which shall
not unreasonably disrupt the operations of the Company or the work performed by
the Company's officers and employees;
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<PAGE>
(I) in the event such sale is pursuant to an underwritten offering,
use its reasonable efforts to obtain a comfort letter or letters from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters as the managing
underwriter reasonably requests;
(J) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering a period of
twelve months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(K) with reasonable promptness, use its reasonable efforts to cause
all such Restricted Stock to be listed on each securities exchange on which the
Common Stock of the Company is then listed, provided that the applicable listing
requirements are satisfied.
Each selling Holder of Restricted Stock agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in subsection (F) hereof, such selling Holder will forthwith discontinue
disposition of Restricted Stock pursuant to the registration statement covering
such Restricted Stock until such selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subsection (F) hereof. In
the event the Company shall give any such notice, the Company shall extend the
period during which such registration statement shall be maintained effective
pursuant to this Agreement (including the period referred to in subsection (B))
by the number of days during the period from and including the date of the
giving of such notice pursuant to subsection (F) hereof to and including the
date when each selling Holder of Restricted Stock covered by such registration
statement shall have received the
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<PAGE>
copies of the supplemented or amended prospectus contemplated by subsection (F)
hereof. Each selling Holder also agrees to notify the Company if any event
relating to such selling Holder occurs which would require the preparation of a
supplement or amendment to the prospectus so that such prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
4. Conditions and Limitations.
(A) The Company's obligations under Section 1 shall be
subject to the following limitations:
(i) the Company need not file a registration statement either (x)
during the period starting with the date sixty (60) days prior to the
Company's estimated date of filing of, and ending ninety (90) days after
the effective date of, any registration statement pertaining to securities
of the Company (other than a registration statement on Form S-8 (or any
successor form) or any other registration statement relating solely to
employee benefit plans or filed in connection with an exchange offer, a
transaction to which Rule 145 under the Securities Act applies or an
offering of securities solely to the Company's existing stockholders),
provided that if such Company registration statement is not filed within
ninety (90) days after the first date on which the Company notifies a
Holder of Restricted Stock that it will delay a Demand Registration
pursuant to this clause (x), the Company may not further postpone such
Demand Registration pursuant to this clause; or (y) during the period
specified in the first proviso of subparagraph (A) of Section 3;
(ii) except as provided in Section 1(B), the Company shall not be
required to file more than three Demand Registrations. A registration
statement will not count as a
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Demand Registration until it has become effective and the Holder or Holders
have sold or distributed Restricted Stock thereunder; and
(iii) the Company shall have received the information and
documents specified in Section 5 and each selling Holder shall have
observed or performed its other covenants and conditions contained in such
Section and Section 7.
(B) The Company's obligation under Section 2 shall be subject to the
limitations and conditions specified in such Section and in clause (iii) of
subsection (A) of this Section 4, and to the condition that the Company may at
any time terminate its proposal to register its shares and discontinue its
efforts to cause a registration statement to become or remain effective.
5. Information From and Certain Covenants of Holders of Restricted Stock.
Notices and requests delivered to the Company by Holders for whom Restricted
Stock is to be registered pursuant to this Agreement shall contain such
information regarding the Restricted Stock to be so registered, the Holder and
the intended method of disposition of such Restricted Stock as shall reasonably
be required in connection with the action to be taken. Any Holder whose
Restricted Stock is included in a registration statement pursuant to this
Agreement shall execute all consents, powers of attorney, registration
statements and other documents reasonably required to be signed by it in order
to cause such registration statement to become effective. Each selling Holder
covenants that, in disposing of such Holder's shares, such Holder shall comply
with Rules 10b-2, 10b-5 and Regulation M of the SEC adopted pursuant to the
Exchange Act (and any successor rules thereto).
6. Registration Expenses. All Registration Expenses (as defined herein)
will be borne by the Company. Underwriting discounts and commissions applicable
to the sale of Restricted Stock
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<PAGE>
shall be borne by the Holder of the Restricted Stock to which such discount or
commission relates, and each selling Holder shall be responsible for the fees
and expenses of any legal counsel, accountants or other agents retained by such
selling Holder and all other out-of-pocket expenses incurred by such selling
Holder in connection with any registration under this Agreement.
As used herein, the term Registration Expenses means all expenses incident
to the Company's performance of or compliance with this Agreement (whether or
not the registration in connection with which such expenses are incurred
ultimately becomes effective), including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Restricted Stock), rating agency fees, printing
expenses, messenger and delivery expenses incurred by the Company, internal
expenses incurred by the Company (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, NASD fees (including filing
fees and reasonable fees and disbursements of counsel in connection with
compliance with NASD rules and regulations), and fees and disbursements of
counsel for the Company and its independent certified public accountants
(including the expenses of any special audit or comfort letters required by or
incident to such performance), securities act liability insurance (if the
Company elects to obtain such insurance), the reasonable fees and expenses of
any special experts retained by the Company in connection with such registration
and the fees and expenses of other persons retained by the Company in connection
with such registration.
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<PAGE>
7. Indemnification; Contribution.
(A) Indemnification by the Company. The Company agrees to indemnify
and hold harmless each selling Holder of Restricted Stock from and against any
and all losses, claims, damages, liabilities and expenses (including reasonable
costs of counsel) (i) arising out of or based upon (1) any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Restricted Stock or in any amendment or
supplement thereto or in any preliminary prospectus relating to the Restricted
Stock, or (2) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of, or are based upon, any such untrue statement or omission
or allegation thereof based upon information furnished in writing to the Company
by such selling Holder, or (ii) arising out of or based upon any violation of
any Federal or state securities laws or rules or regulations thereunder
committed by the Company in connection with the performance of its obligations
hereunder. The Company also agrees to include in any underwriting agreement
with any underwriters of the Restricted Stock provisions indemnifying and
providing for contribution to such underwriters and their officers and directors
and each person who controls such underwriters on substantially the same basis
as the provisions of this Section 7 indemnifying and providing for contribution
to the selling Holders.
(B) Indemnification by Holders of Restricted Stock. Each selling
Holder agrees to indemnify and hold harmless the Company, its officers,
directors and agents and each person (other than a selling Holder), if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against any and all
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losses, claims, damages, liabilities and expenses (including reasonable costs of
counsel) (i) arising out of or based upon (1) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Restricted Stock or in any amendment or supplement
thereto or in any preliminary prospectus relating to the Restricted Stock, or
(2) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or (ii) arising out of or based upon any violation of any Federal or state
securities laws or rules or regulations thereunder committed by such Holder in
connection with the disposition of such Holder's Restricted Stock, provided (x)
that such losses, claims, damages, liabilities or expenses arise out of or are
based upon any such untrue statement or omission or allegation thereof based
upon information furnished in writing to the Company by such selling Holder or
upon such selling Holder's behalf expressly for use therein, and (y) that no
selling Holder shall be liable for any indemnification under this Section 7 in
an aggregate amount which exceeds the total net proceeds received by such
selling Holder from the offering. Each selling Holder also agrees to include in
any underwriting agreement with underwriters of the Restricted Stock provisions
indemnifying and providing for contribution to such underwriters, their officers
and directors and each person who controls such underwriters on substantially
the same basis as the provisions of this Section 7 indemnifying and providing
for contribution to the Company.
(C) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or any
claim shall be asserted against any indemnified party in respect of which
indemnity may be sought from an indemnifying party, the indemnifying party shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party, and shall assume the payment of all
expenses
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<PAGE>
incurred in connection with the defense thereof; provided, that the indemnifying
party may require such indemnified party to undertake to reimburse all such fees
and expenses if it is ultimately determined that such indemnified party is not
entitled to indemnification or advancement of expenses hereunder. Such
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses, (ii) the
indemnifying party shall have failed to promptly assume the defense of such
action, claim or proceeding and to employ counsel reasonably satisfactory to
such indemnified party, or (iii) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such indemnified party
and such indemnifying party, and such indemnified party shall have been advised
in writing by counsel that there may be one or more legal defenses available to
such indemnified party which are different from or additional to those available
to the indemnifying party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of
such indemnified party; it being understood, however, that the indemnifying
party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel, subject to the indemnifying
party's approval of counsel, which approval shall not be unreasonably withheld)
at any time for such indemnified party.) The indemnifying party shall not be
liable for any settlement of any such action, claim or proceeding
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effected without its written consent (such consent which shall not be
unreasonably withheld), but if settled with its written consent, or if there is
a final judgment for the plaintiff in any such action or proceeding, the
indemnifying party agrees to indemnify and hold harmless such indemnified party
from and against any loss or liability (to the extent stated above) by reason of
such settlement or judgment.
(D) Contribution. If the indemnification provided for in this Section
7 is unavailable to the Company or the selling Holders in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments, in such proportion
as is appropriate to reflect the relative fault of each such party in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative fault of each such party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission.
The Company and the selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7(D) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding
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paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claims.
Notwithstanding the provisions of this Section 7(D), no selling Holder shall be
required to contribute an amount in excess of the amount by which the total
price at which the Restricted Stock of such selling Holder was offered to the
public exceeds the amount of any damages which such selling Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. Amendments. This Agreement may be amended or modified upon the
written consent thereto of the Company and the Holders of a majority in number
of shares of Restricted Stock.
9. Assignments. This Agreement shall be binding on and inure to the
benefit of the respective successors and assigns of the parties hereto. Without
the written consent of the Company, a Holder may not assign any rights hereunder
except to a transferee of such Holder of Restricted Stock aggregating Ten
Percent (10%) or more of the Restricted Stock then outstanding, provided that
the foregoing will not prevent any successor by merger, consolidation or
transfer of substantially all the assets of such Holder from succeeding to a
Holder's rights hereunder.
10. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE,
WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW.
19
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11. Notices. Any notice, request, instruction, correspondence or other
documents to be given hereunder by either party to the other (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed, postage prepaid, or by telecopier, as follows:
If to the Company:
Conrad Industries, Inc.
1501 Front Street
P.O. Box 790
Morgan City, Louisiana, 70381
Attention: William H. Hidalgo
Telephone: (504) 384-3060
If to J. Parker Conrad:
c/o Conrad Industries, Inc.
1501 Front Street
P.O. Box 790
Morgan City, Louisiana, 70381
Telephone: (504) 384-3060
If to John P. Conrad, Jr.:
c/o Conrad Industries, Inc.
1501 Front Street
P.O. Box 790
Morgan City, Louisiana, 70381
Telephone: (504) 384-3060
If to Katherine Conrad Court:
c/o Conrad Industries, Inc.
1501 Front Street
P.O. Box 790
Morgan City, Louisiana, 70381
Telephone: (504) 384-3060
If to William H. Hidalgo:
c/o Conrad Industries, Inc.
1501 Front Street
P.O. Box 790
Morgan City, Louisiana, 70381
Telephone: (504) 384-3060
If to Cecil A. Hernandez:
c/o Conrad Industries, Inc.
1501 Front Street
P.O. Box 790
Morgan City, Louisiana, 70381
Telephone: (504) 384-3060
Notice given by personal delivery or mail shall be effective upon actual
receipt. Notice given by telecopier shall be effective upon actual receipt if
received during the recipient's normal business hours, or at the beginning of
the recipient's next business day after receipt if not received during the
20
<PAGE>
recipient's normal business hours. Any party may change any address to which
Notice is to be given to it by giving Notice as provided above of such change of
address.
12. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
13. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
14. Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover reasonable attorneys' fees in addition to its costs and
expenses and any other available remedy.
21
<PAGE>
IN WITNESS WHEREOF, the Holders and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized.
CONRAD INDUSTRIES, INC.
By: /s/ William H. Hidalgo
-------------------------------
WILLIAM H. HIDALGO
PRESIDENT
/s/ J. Parker Conrad
-------------------------------
J. PARKER CONRAD
/s/ John P. Conrad, Jr.
-------------------------------
JOHN P. CONRAD, JR.
/s/ Katherine Conrad Court
-------------------------------
KATHERINE CONRAD COURT
/s/ Cecil A. Hernandez
-------------------------------
CECIL A. HERNANDEZ
/s/ William H. Hidalgo
-------------------------------
WILLIAM H. HIDALGO
JOHN PARKER CONRAD, JR. TRUST
/s/ John P. Conrad, Jr.
----------------------------------
BY: JOHN P. CONRAD, JR., TRUSTEE
22
<PAGE>
GLENN ALAN CONRAD TRUST
/s/ John P. Conrad, Jr.
----------------------------------
BY: JOHN P. CONRAD, JR., TRUSTEE
KENNETH CHARLES CONRAD TRUST
/s/ John P. Conrad, Jr.
----------------------------------
BY: JOHN P. CONRAD, JR., TRUSTEE
DANIEL THOMAS CONRAD TRUST
/s/ John Parker Conrad, Jr.
----------------------------------
BY: JOHN PARKER CONRAD, JR.
KATHERINE CONRAD COURT TRUST
/s/ Katherine Conrad Court
----------------------------------
BY: KATHERINE CONRAD COURT
JAMES PATRICK COURT TRUST
/s/ Katherine Conrad Court
----------------------------------
BY: KATHERINE CONRAD COURT
23
<PAGE>
SPOUSAL CONSENT
I, the undersigned, spouse of J. Parker Conrad, a party to that
certain agreement entitled "Registration Rights Agreement" dated as of June 10,
1998, acknowledge that I have read said agreement and do fully understand it,
and, in consideration of the provisions and benefits thereof, I agree and
consent thereto and to any disposition made thereunder of an interest I may have
or may come to have in the shares of common stock of Conrad Industries, Inc., a
Delaware corporation, whether as community or separate property, dower rights or
otherwise, pursuant to the terms and conditions stated therein, effective as of
June 10, 1998, at Morgan City, Louisiana.
/s/ Shirley Conrad
-----------------------
Shirley Conrad
24
<PAGE>
SPOUSAL CONSENT
I, the undersigned, spouse of John P. Conrad, Jr., a party to that
certain agreement entitled "Registration Rights Agreement" dated as of
June 10, 1998, acknowledge that I have read said agreement and do fully
understand it, and, in consideration of the provisions and benefits thereof, I
agree and consent thereto and to any disposition made thereunder of an interest
I may have or may come to have in the shares of common stock of Conrad
Industries, Inc., a Delaware corporation, whether as community or separate
property, dower rights or otherwise, pursuant to the terms and conditions stated
therein, effective as of June 10, 1998, at Morgan City, Louisiana.
/s/ Mary Lou Brunson Conrad
---------------------------
Mary Lou Brunson Conrad
25
<PAGE>
SPOUSAL CONSENT
I, the undersigned, spouse of Katherine Conrad Court, a party to that
certain agreement entitled "Registration Rights Agreement" dated as of
June 10, 1998, acknowledge that I have read said agreement and do fully
understand it, and, in consideration of the provisions and benefits thereof, I
agree and consent thereto and to any disposition made thereunder of an interest
I may have or may come to have in the shares of common stock of Conrad
Industries, Inc., a Delaware corporation, whether as community or separate
property, dower rights or otherwise, pursuant to the terms and conditions stated
therein, effective as of June 10, 1998, at Morgan City, Louisiana.
/s/ James K. Court
----------------------
James K. Court
26
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 10,
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 2,300,000 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
June 10, 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."
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<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 (36,000 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 June 10, 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.
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<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
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<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
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<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
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<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
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<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
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<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
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<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
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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
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(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).
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<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
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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.
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(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.
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(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
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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.
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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
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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
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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.
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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: /s/ William H. Hidalgo
-------------------------------------
WILLIAM H. HIDALGO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MORGAN KEEGAN & COMPANY, INC.
By: /s/ Randolph C. Coley
-------------------------------------
RANDOLPH C. COLEY
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Conrad
Industries, Inc. (to be renamed Conrad Shipyard, Inc.), a Louisiana
corporation (the "Company"), and J. Parker Conrad ("Executive") is hereby
entered into effective as of March 31, 1998 (the "Effective Date").
RECITALS
WHEREAS, the Company desires to continue Executive's employment, and
Executive desires to continue his employment with the Company, all on the terms
and conditions set forth in this Agreement; and
WHEREAS, a Delaware corporation to be named Conrad Industries, Inc.
("Conrad") has been formed to become the parent corporation of the Company and
the stockholders of the Company will exchange their stock in the Company for
stock of Conrad following such formation;
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein and the performance of each, it is
hereby agreed as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as Co-Chairman of the Board
of Directors of the Company. As such, Executive shall have
responsibilities, duties and authority reasonably accorded to, expected of
and consistent with Executive's position as Co-Chairman of the Board of
Directors of the Company. Executive hereby accepts this employment upon
the terms and conditions herein contained and, subject to paragraph 1(c),
agrees to devote substantially all of his time, attention and efforts to
promote and further the business and interests of the Company and its
affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder,
engage in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect
with Executive's duties and responsibilities
<PAGE>
hereunder. The foregoing limitations shall not be construed as prohibiting
Executive from making personal investments in such form or manner as will
neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during the term
shall be $220,500 per year, payable in accordance with the Company's
payroll procedures for executives, but not less frequently than monthly.
Such base salary may be increased from time to time, at the discretion of
the Board of Directors of the Company (the "Board"), in light of the
Executive's position, responsibilities and performance, and, as increased
from time to time, may not be reduced.
(b) Executive Perquisites, Benefits and Other Compensation. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Executive shall be promptly reimbursed for all business
travel and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his duties pursuant to this Agreement
and in accordance with the Company's policy for executives of the
Company. All such expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the
Company's expense reporting policy;
(ii) Executive shall, subject to the satisfaction of any general
eligibility criteria, be eligible to participate in all compensation
and benefit plans and programs as are maintained from time to time for
executives of the Company;
(iii) Executive shall be entitled to vacation in accordance with
the policies of the Company; and
(iv) The Company shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the Board.
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3. Non-Competition Agreement.
(a) Executive recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's agreement to the
provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage the Company.
Subject to the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of two
years immediately following the termination of such for any reason
whatsoever, either for Cause or in the event Executive terminates his
employment without Good Reason, except as may be set forth herein, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the
construction, conversion or repair of marine vessels or the
fabrication of modular components for offshore drilling rigs and
floating production, storage and offloading vessels (collectively, the
"Businesses") of the Company, Conrad, or any subsidiary or affiliate
of Conrad (collectively, the "Companies") in any area in which any of
the Companies conduct one or more of the Businesses, including any
territory serviced by any of the Companies during the term of
Executive's employment (the "Territory");
(ii) call upon any person who is, at that time, an employee of
any of the Companies for the purpose or with the intent of enticing
such employee away from or out of the employ of any of the Companies;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of any
of the Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with any of the
Companies within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's knowledge after due inquiry, either called upon by
any of the Companies or for which any of the Companies made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
any of the Companies to any person, firm, partnership, corporation or
business for any reason
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or purpose whatsoever except to the extent that any of the Companies
has in the past disclosed such information to the public for valid
business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Executive from acquiring as an investment (i) not more than 1%
of the capital stock of a competing business, whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or similar market or
(ii) not more than 5% of the capital stock of a competing business whose
stock is not publicly traded unless the Board consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by the Company, in the event of breach
by him, by injunctions and restraining orders. Executive further agrees to
waive any requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Companies on the date of the execution of
this Agreement and the current plans of the Companies; but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations
of the Companies throughout the term of this covenant, whether before or
after the date of termination of the employment of Executive, unless
Executive was conducting such new business prior to any Company conducting
such new business.
(d) It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed by the Company and shall enter into a
business or pursue other activities not in competition with the Businesses
of the Companies or similar activities or businesses in locations the
operation of which, under such circumstances, does not violate clause
(a)(i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the Companies shall
thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of
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the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and the Agreement shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the further
provisions of this Agreement) following termination of employment stated at
the beginning of this paragraph 3, during which the agreements and
covenants of Executive made in this paragraph 3 shall be effective, shall
be computed by excluding from such computation any time during which
Executive is in violation of any provision of this paragraph 3.
(g) The Company and Executive hereby agree that this covenant is a
material and substantial part of this Agreement.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue
thereafter at Executive's and Company's mutual election on a year-to-year basis
on the same terms and conditions contained herein in effect as of the time of
renewal (the "Extended Term"); provided, however, upon a Change in Control of
the Company, the term of this Agreement shall automatically continue following
such Change in Control for a period equal to the then remaining term or two
years, whichever period is longer, unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's estate; provided,
however, all Nonvested Shares, if any, shall immediately vest in full.
(b) Disability. If Executive becomes entitled to receive benefits
under an insured long-term disability plan of the Company that includes its
officers, the Company may terminate Executive's employment hereunder with
no severance compensation due Executive; provided, however, all Nonvested
Shares, if any, shall immediately vest in full.
(c) Cause. The Company may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause", which
shall be: (1) Executive's willful, material and irreparable breach of this
Agreement (which remains uncured 10 days after receipt of written notice);
(2) Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 10 days after receipt of
written notice of need to cure) of any of Executive's material duties and
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responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of the Company which
materially and adversely affects the Company (monetarily or otherwise); or
(4) Executive's conviction of a felony crime involving moral turpitude. In
the event of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause. Executive may, without Good Reason (as hereinafter
defined), terminate this Agreement and Executive's employment effective 30
days after written notice is provided to the Company. Executive may only
be terminated without Cause by the Company during either the Initial Term
or Extended Term if such termination is approved by at least 51% of the
members of the Board. Should Executive be terminated by the Company
without Cause during the Initial Term or should Executive terminate with
Good Reason during the Initial Term, then, Executive shall receive from the
Company, in a lump sum payment due on the effective date of such
termination, the equivalent of the base salary (at the rate then in effect)
for whatever time period is remaining under the Initial Term or for one
year, whichever amount is greater. Should Executive be terminated by the
Company without Cause during the Extended Term or should Executive
terminate with Good Reason during the Extended Term, Executive shall
receive from the Company, in a lump sum payment due on the effective date
of such termination, the equivalent to one year of base salary at the rate
then in effect. Further, any termination without Cause by the Company or
by Executive for Good Reason shall operate to shorten the period set forth
in paragraph 3(a) and during which the terms of paragraph 3 apply to one
year from the date of termination of employment. If Executive resigns or
otherwise terminates his employment without Good Reason, rather than the
Company terminating his employment pursuant to this paragraph 4(d),
Executive shall receive no severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless such
event is agreed to in writing by Executive: (a) Executive is demoted by
means of a material reduction in authority, responsibilities or duties to a
position of less stature or importance within the Company than the position
described in Section 1(a) hereof; (b) Executive's annual base salary as
then in effect is reduced; or (c) the relocation of the Company's principal
executive offices to a location outside the Morgan City, Louisiana area or
the Company's requiring Executive to relocate anywhere other than the
Company's principal executive offices.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce
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his rights hereunder. Further, none of the provisions of paragraph 3 shall apply
in the event this Agreement is terminated as a result of a breach by the
Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date. All other rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination, except that the
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein shall survive
such termination in accordance with their terms.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company or any of
the Companies or their representatives, vendors or customers which pertain to
the business of the Company or any of the Companies shall be and remain the
property of the Company or the Companies, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or the
Companies which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company. Executive
hereby assigns and agrees to assign all his interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments that the
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
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8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the Company an
advantage over its actual and potential, current and future competitors.
Executive further acknowledges and agrees that Executive owes the Company a
fiduciary duty to preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Company's Confidential
Information would irreparably injure the Company.
(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential Information in strict
confidence, and shall not use any Confidential Information except for the
benefit of the Company, in accordance with the duties assigned to
Executive. Executive shall not, at any time (either during or after the
term of Executive's employment), disclose any Confidential Information to
any person or entity (except other employees of the Company who have a need
to know the information in connection with the performance of their
employment duties), or copy, reproduce, modify, decompile or reverse
engineer any Confidential Information, or remove any Confidential
Information from the Company's premises, without the prior written consent
of the President of the Company, or permit any other person to do so.
Executive shall take reasonable precautions to protect the physical
security of all documents and other material containing Confidential
Information (regardless of the medium on which the Confidential Information
is stored). This Agreement applies to all Confidential Information,
whether now known or later to become known to Executive.
(c) Upon the termination of Executive's employment with the Company
for any reason, and upon request of the Company at any other time,
Executive shall promptly surrender and deliver to the Company all documents
and other written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or other
material. Within five days of any such request, Executive shall certify to
the Company in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or for the
Company (whether or not owned or developed by the Companies and whether or
not developed by Executive) that is not generally known to persons in the
Business. Confidential Information includes, but is not limited to, the
following: all trade secrets of the Companies; all information that the
Companies have marked as confidential or has otherwise described to
Executive (either in writing or orally) as confidential; all nonpublic
information concerning the Companies'
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products, services, prospective products or services, research, product
designs, prices, discounts, costs, marketing plans, marketing techniques,
market studies, test data, customers, customer lists and records, suppliers
and contracts; all business records and plans; all personnel files; all
financial information of or concerning the Companies'; all information
relating to operating system software, application software, software and
system methodology, hardware platforms, technical information, inventions,
computer programs and listings, source codes, object codes, copyrights and
other intellectual property; all technical specifications; any proprietary
information belonging to the Companies; all computer hardware or software
manuals; all training or instruction manuals; and all data and all computer
system passwords and user codes.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive, his employment by the
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, reasonable attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or may
hereafter come to have against the Company based upon or arising out of any non-
competition agreement, invention or secrecy agreement between Executive and such
third party which was in existence as of the date of this Agreement.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. The
parties hereby acknowledge that, upon the formation of Conrad and the related
transactions, the term "Company" as used in this Agreement and shall include
Conrad, except (i) with respect to the definition of "Change in Control", where
the term "Company" shall mean Conrad, and (ii) references to the Board shall
mean the Board of Directors of Conrad. The Company will require any successor,
other than Conrad, by agreement in form and substance reasonably acceptable to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Subject to the preceding, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
11. Change in Control.
(a) In the event a Change in Control is initiated or occurs during the
Initial Term or Extended Term, then the provisions of this paragraph 11
shall be applicable.
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(b) If, on or within two years following the effective date of a
Change in Control, the Company terminates Executive's employment other than
for Cause or Executive terminates his employment for Good Reason, or if
Executive's employment with the Company is terminated by the Company within
six months before the effective date of a Change in Control and it is
reasonably demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably calculated to
effect a Change in Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall receive from
Company, in a lump sum payment due on the later of the effective date of
Executive's termination or the Change in Control, as the case may be, the
equivalent of three years' base salary at the rate in effect on Executive's
termination date.
(c) Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11(b) shall operate to automatically
waive in full the noncompetition restrictions imposed on Executive pursuant
to paragraph 3(a).
(d) If it shall be determined that any payment made or benefit (a
"Payment") provided to Executive, whether or not made or provided pursuant
to this Agreement and whether or not upon a Change in Control as defined
herein, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto, the
Company shall pay Executive an amount of cash (the "Additional Amount")
such that the net after tax benefit received by Executive after paying all
applicable taxes on such Payment and the Additional Amount shall be equal
to the net after-tax amount that Executive would have received with respect
to the Payment if Section 4999 had not been applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate
the amount of any Company payment provided for in this Agreement by seeking
other employment or otherwise. The amount of any payment required to be paid to
Executive by the Company pursuant to this Agreement shall not be reduced by any
amounts that are owed to the Company by Executive, or by any setoff,
counterclaim, recoupment, defense or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any payments pursuant to this
Agreement unless Executive has executed a general release of all claims
Executive may have against the Company and its affiliates in a form of such
release reasonably acceptable to the Company and such release has become final.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Executive against all
expenses
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(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Executive in connection therewith. In the
event that both Executive and the Company are made a party to the same third-
party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company.
15. Complete Agreement. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. This written Agreement
may not be later modified except by a further writing signed by a duly
authorized officer of the Company and Executive, and no term of this Agreement
may be waived except by writing signed by the party waiving the benefit of such
term. Without limiting the generality of the foregoing, either party's failure
to insist on strict compliance with this Agreement shall not be deemed a waiver
thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Conrad Industries, Inc.
150 Front St.
P.O. Box 790
Morgan City, Louisiana 70381
Attn: Chairman of the Board
To Executive: J. Parker Conrad
c/o Conrad Industries, Inc.
P. O. Box 790
Morgan City, Louisiana 70381
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested,
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or when actually received. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties
shall request the Association of Attorney Mediators in Louisiana (or similar
association) to appoint a mediator. If the mediator is unable to facilitate a
settlement of the dispute within a reasonable period of time, as determined by
the mediator, the mediator shall issue a written statement to the parties to
that effect and any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Morgan City, Louisiana, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Executive was terminated without disability or Cause, as defined in paragraphs
4(b) and 4(c), respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel
shall be final and binding. Judgment may be entered on the arbitrators' award
in any court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Louisiana without regard to its conflicts
of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
CONRAD INDUSTRIES, INC.
By: /s/ William H. Hidalgo
-----------------------------------------
Name: William H. Hidalgo
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
EXECUTIVE
/s/ J. Parker Conrad
------------------------------
J. Parker Conrad
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Conrad
Industries, Inc. (to be renamed Conrad Shipyard, Inc.), a Louisiana
corporation (the "Company"), and John P. Conrad, Jr. ("Executive") is hereby
entered into effective as of March 31, 1998 (the "Effective Date").
RECITALS
WHEREAS, the Company desires to continue Executive's employment, and
Executive desires to continue his employment with the Company, all on the terms
and conditions set forth in this Agreement; and
WHEREAS, a Delaware corporation to be named Conrad Industries, Inc.
("Conrad") has been formed to become the parent corporation of the Company and
the stockholders of the Company will exchange their stock in the Company for
stock of Conrad following such formation;
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein and the performance of each, it is
hereby agreed as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as Co-Chairman of the Board
of Directors of the Company. As such, Executive shall have
responsibilities, duties and authority reasonably accorded to, expected of
and consistent with Executive's position as Co-Chairman of the Board of
Directors of the Company. Executive hereby accepts this employment upon
the terms and conditions herein contained and, subject to paragraph 1(c),
agrees to devote substantially all of his time, attention and efforts to
promote and further the business and interests of the Company and its
affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder,
engage in any other business activity pursued for gain, profit or other
pecuniary advantage if such
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activity interferes in any material respect with Executive's duties and
responsibilities hereunder. The foregoing limitations shall not be
construed as prohibiting Executive from making personal investments in such
form or manner as will neither require his services in the operation or
affairs of the companies or enterprises in which such investments are made
nor violate the terms of paragraph 3 hereof.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during the term
shall be $200,000 per year, payable in accordance with the Company's
payroll procedures for executives, but not less frequently than monthly.
Such base salary may be increased from time to time, at the discretion of
the Board of Directors of the Company (the "Board"), in light of the
Executive's position, responsibilities and performance, and, as increased
from time to time, may not be reduced.
(b) Executive Perquisites, Benefits and Other Compensation. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Executive shall be promptly reimbursed for all business
travel and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his duties pursuant to this Agreement
and in accordance with the Company's policy for executives of the
Company. All such expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the
Company's expense reporting policy;
(ii) Executive shall, subject to the satisfaction of any general
eligibility criteria, be eligible to participate in all compensation
and benefit plans and programs as are maintained from time to time for
executives of the Company;
(iii) Executive shall be entitled to vacation in accordance with
the policies of the Company; and
(iv) The Company shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the Board.
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3. Non-Competition Agreement.
(a) Executive recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's agreement to the
provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage the Company.
Subject to the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of two
years immediately following the termination of such for any reason
whatsoever, either for Cause or in the event Executive terminates his
employment without Good Reason, except as may be set forth herein, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the
construction, conversion or repair of marine vessels or the
fabrication of modular components for offshore drilling rigs or
floating production, storage and offloading vessels (collectively, the
"Businesses") of the Company, Conrad, or any subsidiary or affiliate
of Conrad (collectively, the "Companies") in any area in which any of
the Companies conduct one or more of the Businesses, including any
territory serviced by any of the Companies during the term of
Executive's employment (the "Territory");
(ii) call upon any person who is, at that time, an employee of
any of the Companies for the purpose or with the intent of enticing
such employee away from or out of the employ of any of the Companies;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of any
of the Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with any of the
Companies within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's knowledge after due inquiry, either called upon by
any of the Companies or for which any of the Companies made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
any of the Companies to any person, firm, partnership, corporation or
business for any reason
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or purpose whatsoever except to the extent that any of the Companies
has in the past disclosed such information to the public for valid
business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Executive from acquiring as an investment (i) not more than 1%
of the capital stock of a competing business, whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or similar market or
(ii) not more than 5% of the capital stock of a competing business whose
stock is not publicly traded unless the Board consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by the Company, in the event of breach
by him, by injunctions and restraining orders. Executive further agrees to
waive any requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Companies on the date of the execution of
this Agreement and the current plans of the Companies; but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations
of the Companies throughout the term of this covenant, whether before or
after the date of termination of the employment of Executive, unless
Executive was conducting such new business prior to any Company conducting
such new business.
(d) It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed by the Company and shall enter into a
business or pursue other activities not in competition with the Businesses
of the Companies or similar activities or businesses in locations the
operation of which, under such circumstances, does not violate clause
(a)(i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the Companies shall
thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of
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the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and the Agreement shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the further
provisions of this Agreement) following termination of employment stated at
the beginning of this paragraph 3, during which the agreements and
covenants of Executive made in this paragraph 3 shall be effective, shall
be computed by excluding from such computation any time during which
Executive is in violation of any provision of this paragraph 3.
(g) The Company and Executive hereby agree that this covenant is a
material and substantial part of this Agreement.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue
thereafter at Executive's and Company's mutual election on a year-to-year basis
on the same terms and conditions contained herein in effect as of the time of
renewal (the "Extended Term"); provided, however, upon a Change in Control of
the Company, the term of this Agreement shall automatically continue following
such Change in Control for a period equal to the then remaining term or two
years, whichever period is longer, unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's estate; provided,
however, all Nonvested Shares, if any, shall immediately vest in full.
(b) Disability. If Executive becomes entitled to receive benefits
under an insured long-term disability plan of the Company that includes its
officers, the Company may terminate Executive's employment hereunder with
no severance compensation due Executive; provided, however, all Nonvested
Shares, if any, shall immediately vest in full.
(c) Cause. The Company may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause", which
shall be: (1) Executive's willful, material and irreparable breach of this
Agreement (which remains uncured 10 days after receipt of written notice);
(2) Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 10 days after receipt of
written notice of need to cure) of any of Executive's material duties and
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responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of the Company which
materially and adversely affects the Company (monetarily or otherwise); or
(4) Executive's conviction of a felony crime involving moral turpitude. In
the event of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause. Executive may, without Good Reason (as hereinafter
defined), terminate this Agreement and Executive's employment effective 30
days after written notice is provided to the Company. Executive may only
be terminated without Cause by the Company during either the Initial Term
or Extended Term if such termination is approved by at least 51% of the
members of the Board. Should Executive be terminated by the Company
without Cause during the Initial Term or should Executive terminate with
Good Reason during the Initial Term, then, Executive shall receive from the
Company, in a lump sum payment due on the effective date of such
termination, the equivalent of the base salary (at the rate then in effect)
for whatever time period is remaining under the Initial Term or for one
year, whichever amount is greater. Should Executive be terminated by the
Company without Cause during the Extended Term or should Executive
terminate with Good Reason during the Extended Term, Executive shall
receive from the Company, in a lump sum payment due on the effective date
of such termination, the equivalent to one year of base salary at the rate
then in effect. Further, any termination without Cause by the Company or
by Executive for Good Reason shall operate to shorten the period set forth
in paragraph 3(a) and during which the terms of paragraph 3 apply to one
year from the date of termination of employment. If Executive resigns or
otherwise terminates his employment without Good Reason, rather than the
Company terminating his employment pursuant to this paragraph 4(d),
Executive shall receive no severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless such
event is agreed to in writing by Executive: (a) Executive is demoted by
means of a material reduction in authority, responsibilities or duties to a
position of less stature or importance within the Company than the position
described in Section 1(a) hereof; (b) Executive's annual base salary as
then in effect is reduced; or (c) the relocation of the Company's principal
executive offices to a location outside the Morgan City, Louisiana area or
the Company's requiring Executive to relocate anywhere other than the
Company's principal executive offices.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce
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his rights hereunder. Further, none of the provisions of paragraph 3 shall apply
in the event this Agreement is terminated as a result of a breach by the
Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date. All other rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination, except that the
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein shall survive
such termination in accordance with their terms.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company or any of
the Companies or their representatives, vendors or customers which pertain to
the business of the Company or any of the Companies shall be and remain the
property of the Company or the Companies, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or the
Companies which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company. Executive
hereby assigns and agrees to assign all his interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments that the
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
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8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the Company an
advantage over its actual and potential, current and future competitors.
Executive further acknowledges and agrees that Executive owes the Company a
fiduciary duty to preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Company's Confidential
Information would irreparably injure the Company.
(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential Information in strict
confidence, and shall not use any Confidential Information except for the
benefit of the Company, in accordance with the duties assigned to
Executive. Executive shall not, at any time (either during or after the
term of Executive's employment), disclose any Confidential Information to
any person or entity (except other employees of the Company who have a need
to know the information in connection with the performance of their
employment duties), or copy, reproduce, modify, decompile or reverse
engineer any Confidential Information, or remove any Confidential
Information from the Company's premises, without the prior written consent
of the President of the Company, or permit any other person to do so.
Executive shall take reasonable precautions to protect the physical
security of all documents and other material containing Confidential
Information (regardless of the medium on which the Confidential Information
is stored). This Agreement applies to all Confidential Information,
whether now known or later to become known to Executive.
(c) Upon the termination of Executive's employment with the Company
for any reason, and upon request of the Company at any other time,
Executive shall promptly surrender and deliver to the Company all documents
and other written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or other
material. Within five days of any such request, Executive shall certify to
the Company in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or for the
Company (whether or not owned or developed by the Companies and whether or
not developed by Executive) that is not generally known to persons in the
Business. Confidential Information includes, but is not limited to, the
following: all trade secrets of the Companies; all information that the
Companies have marked as confidential or has otherwise described to
Executive (either in writing or orally) as confidential; all nonpublic
information concerning the Companies'
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products, services, prospective products or services, research, product
designs, prices, discounts, costs, marketing plans, marketing techniques,
market studies, test data, customers, customer lists and records, suppliers
and contracts; all business records and plans; all personnel files; all
financial information of or concerning the Companies'; all information
relating to operating system software, application software, software and
system methodology, hardware platforms, technical information, inventions,
computer programs and listings, source codes, object codes, copyrights and
other intellectual property; all technical specifications; any proprietary
information belonging to the Companies; all computer hardware or software
manuals; all training or instruction manuals; and all data and all computer
system passwords and user codes.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive, his employment by the
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, reasonable attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or may
hereafter come to have against the Company based upon or arising out of any non-
competition agreement, invention or secrecy agreement between Executive and such
third party which was in existence as of the date of this Agreement.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. The
parties hereby acknowledge that, upon the formation of Conrad and the related
transactions, the term "Company" as used in this Agreement and shall include
Conrad, except (i) with respect to the definition of "Change in Control", where
the term "Company" shall mean Conrad, and (ii) references to the Board shall
mean the Board of Directors of Conrad. The Company will require any successor,
other than Conrad, by agreement in form and substance reasonably acceptable to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Subject to the preceding, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
11. Change in Control.
(a) In the event a Change in Control is initiated or occurs during the
Initial Term or Extended Term, then the provisions of this paragraph 11
shall be applicable.
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(b) If, on or within two years following the effective date of a
Change in Control, the Company terminates Executive's employment other than
for Cause or Executive terminates his employment for Good Reason, or if
Executive's employment with the Company is terminated by the Company within
six months before the effective date of a Change in Control and it is
reasonably demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably calculated to
effect a Change in Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall receive from
Company, in a lump sum payment due on the later of the effective date of
Executive's termination or the Change in Control, as the case may be, the
equivalent of three years' base salary at the rate in effect on Executive's
termination date.
(c) Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11(b) shall operate to automatically
waive in full the noncompetition restrictions imposed on Executive pursuant
to paragraph 3(a).
(d) If it shall be determined that any payment made or benefit (a
"Payment") provided to Executive, whether or not made or provided pursuant
to this Agreement and whether or not upon a Change in Control as defined
herein, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto, the
Company shall pay Executive an amount of cash (the "Additional Amount")
such that the net after tax benefit received by Executive after paying all
applicable taxes on such Payment and the Additional Amount shall be equal
to the net after-tax amount that Executive would have received with respect
to the Payment if Section 4999 had not been applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate
the amount of any Company payment provided for in this Agreement by seeking
other employment or otherwise. The amount of any payment required to be paid to
Executive by the Company pursuant to this Agreement shall not be reduced by any
amounts that are owed to the Company by Executive, or by any setoff,
counterclaim, recoupment, defense or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any payments pursuant to this
Agreement unless Executive has executed a general release of all claims
Executive may have against the Company and its affiliates in a form of such
release reasonably acceptable to the Company and such release has become final.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Executive against all
expenses
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(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Executive in connection therewith. In the
event that both Executive and the Company are made a party to the same third-
party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company.
15. Complete Agreement. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. This written Agreement
may not be later modified except by a further writing signed by a duly
authorized officer of the Company and Executive, and no term of this Agreement
may be waived except by writing signed by the party waiving the benefit of such
term. Without limiting the generality of the foregoing, either party's failure
to insist on strict compliance with this Agreement shall not be deemed a waiver
thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Conrad Industries, Inc.
150 Front St.
P.O. Box 790
Morgan City, Louisiana 70381
Attn: Chairman of the Board
To Executive: John P. Conrad, Jr.
c/o Conrad Industries, Inc.
P. O. Box 790
Morgan City, Louisiana 70381
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested,
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or when actually received. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties
shall request the Association of Attorney Mediators in Louisiana (or similar
association) to appoint a mediator. If the mediator is unable to facilitate a
settlement of the dispute within a reasonable period of time, as determined by
the mediator, the mediator shall issue a written statement to the parties to
that effect and any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Morgan City, Louisiana, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Executive was terminated without disability or Cause, as defined in paragraphs
4(b) and 4(c), respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel
shall be final and binding. Judgment may be entered on the arbitrators' award
in any court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Louisiana without regard to its conflicts
of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
CONRAD INDUSTRIES, INC.
By: /s/ William H. Hidalgo
-----------------------------------------
Name: William H. Hidalgo
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
EXECUTIVE
/s/ John P. Conrad, Jr.
------------------------------
John P. Conrad, Jr.
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Conrad
Industries, Inc. (to be renamed Conrad Shipyard, Inc.), a Louisiana
corporation (the "Company"), and William H. Hidalgo ("Executive") is hereby
entered into effective as of March 31, 1998 (the "Effective Date").
RECITALS
WHEREAS, the Company desires to continue Executive's employment, and
Executive desires to continue his employment with the Company, all on the terms
and conditions set forth in this Agreement; and
WHEREAS, a Delaware corporation to be named Conrad Industries, Inc.
("Conrad") has been formed to become the parent corporation of the Company and
the stockholders of the Company will exchange their stock in the Company for
stock of Conrad following such formation;
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein and the performance of each, it is
hereby agreed as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as the Chief Executive
Officer and President of the Company. As such, Executive shall have
responsibilities, duties and authority reasonably accorded to, expected of
and consistent with Executive's positions as the Chief Executive Officer
and President of the Company. Executive hereby accepts this employment
upon the terms and conditions herein contained and, subject to paragraph
1(c), agrees to devote substantially all of his time, attention and efforts
to promote and further the business and interests of the Company and its
affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company.
(c) Executive shall not, during the term of his employment hereunder,
engage in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect
with Executive's duties and responsibilities
<PAGE>
hereunder. The foregoing limitations shall not be construed as prohibiting
Executive from making personal investments in such form or manner as will
neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during the term
shall be $195,290 per year, payable in accordance with the Company's
payroll procedures for executives, but not less frequently than monthly.
Such base salary may be increased from time to time, at the discretion of
the Board of Directors of the Company (the "Board"), in light of the
Executive's position, responsibilities and performance, and, as increased
from time to time, may not be reduced.
(b) Company Stock. The Company hereby grants to Executive 168 shares
of common stock of the Company ("Company Stock"), subject to the following
terms:
(i) Executive shall be immediately vested in 50% of the shares
of Company Stock on the Effective Date;
(ii) Executive shall vest in the remaining 50% of the shares of
Company Stock (the "Nonvested Shares") at the rate of 33 1/3% on each
anniversary of the Effective Date (rounded up to the nearest whole
share) on which Executive continues to be an employee of the Company,
subject to the further provisions of this Agreement;
(iii) Executive shall become automatically 100% vested in the
Nonvested Shares immediately prior to a "Change in Control" of the
Company, as such term is defined in the Conrad Industries, Inc. 1998
Stock Plan;
(iv) prior to becoming vested, the Nonvested Shares may not be
transferred (except by will or the laws of descent and distribution),
pledged or encumbered in any manner by Executive;
(v) all distributions made by the Company with respect to the
Nonvested Shares (cash, stock or other property), and any shares
issued upon a stock split or stock dividend or by Conrad in exchange
for the Nonvested Shares shall be subject to the same restrictions
applicable to the Nonvested Shares as set forth in this Agreement; and
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(vi) the Company may place such legends on the certificate for
the Nonvested Shares evidencing the restrictions provided herein as it
deems appropriate.
Executive hereby covenants that he shall enter into that certain Stock
Exchange Agreement between the Company, Conrad and the stockholders of the
same.
(c) Executive Perquisites, Benefits and Other Compensation. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Executive shall be promptly reimbursed for all business
travel and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his duties pursuant to this Agreement
and in accordance with the Company's policy for executives of the
Company. All such expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the
Company's expense reporting policy;
(ii) Executive shall, subject to the satisfaction of any general
eligibility criteria, be eligible to participate in all compensation
and benefit plans and programs as are maintained from time to time for
executives of the Company;
(iii) Executive shall be entitled to vacation in accordance with
the policies of the Company; and
(iv) The Company shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the Board.
3. Non-Competition Agreement.
(a) Executive recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's agreement to the
provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage the Company.
Subject to the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of two
years immediately following the termination of such for any reason
whatsoever, either for Cause or in the event Executive terminates his
employment without Good Reason, except as may be set forth herein, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
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(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the
construction, conversion or repair of marine vessels or the
fabrication of modular components for offshore drilling rigs or
floating production, storage and offloading vessels (collectively, the
"Businesses") of the Company, Conrad, or any subsidiary or affiliate
of Conrad (collectively, the "Companies") in any area in which any of
the Companies conduct one or more of the Businesses, including any
territory serviced by any of the Companies during the term of
Executive's employment (the "Territory");
(ii) call upon any person who is, at that time, an employee of
any of the Companies for the purpose or with the intent of enticing
such employee away from or out of the employ of any of the Companies;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of any
of the Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with any of the
Companies within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's knowledge after due inquiry, either called upon by
any of the Companies or for which any of the Companies made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
any of the Companies to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that any of the Companies has in the past disclosed such information
to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Executive from acquiring as an investment (i) not more than 1%
of the capital stock of a competing business, whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or similar market or
(ii) not more than 5% of the capital stock of a competing business whose
stock is not publicly traded unless the Board consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by the Company, in the
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event of breach by him, by injunctions and restraining orders. Executive
further agrees to waive any requirement for the Company's securing or
posting of any bond in connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Companies on the date of the execution of
this Agreement and the current plans of the Companies; but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations
of the Companies throughout the term of this covenant, whether before or
after the date of termination of the employment of Executive, unless
Executive was conducting such new business prior to any Company conducting
such new business.
(d) It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed by the Company and shall enter into a
business or pursue other activities not in competition with the Businesses
of the Companies or similar activities or businesses in locations the
operation of which, under such circumstances, does not violate clause
(a)(i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the Companies shall
thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of the
parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the further
provisions of this Agreement) following termination of employment stated at
the beginning of this paragraph 3, during which the agreements and
covenants of Executive made in this paragraph 3 shall be effective, shall
be computed by excluding from such computation any time during which
Executive is in violation of any provision of this paragraph 3.
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(g) The Company and Executive hereby agree that this covenant is a
material and substantial part of this Agreement.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue
thereafter at Executive's and Company's mutual election on a year-to-year basis
on the same terms and conditions contained herein in effect as of the time of
renewal (the "Extended Term"); provided, however, upon a Change in Control of
the Company, the term of this Agreement shall automatically continue following
such Change in Control for a period equal to the then remaining term or two
years, whichever period is longer, unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's estate; provided,
however, all Nonvested Shares, if any, shall immediately vest in full.
(b) Disability. If Executive becomes entitled to receive benefits
under an insured long-term disability plan of the Company that includes its
officers, the Company may terminate Executive's employment hereunder with
no severance compensation due Executive; provided, however, all Nonvested
Shares, if any, shall immediately vest in full.
(c) Cause. The Company may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause", which
shall be: (1) Executive's willful, material and irreparable breach of this
Agreement (which remains uncured 10 days after receipt of written notice);
(2) Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 10 days after receipt of
written notice of need to cure) of any of Executive's material duties and
responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of the Company which
materially and adversely affects the Company (monetarily or otherwise); or
(4) Executive's conviction of a felony crime involving moral turpitude. In
the event of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause. Executive may, without Good Reason (as hereinafter
defined), terminate this Agreement and Executive's employment effective 30
days after written notice is provided to the Company. Executive may only
be terminated without Cause by the Company during either the Initial Term
or Extended Term if such termination is approved by at least 51% of the
members of the Board. Should Executive be terminated by the Company
without Cause during the Initial Term or should Executive terminate with
Good Reason during the Initial Term, then, (i) Executive shall receive from
the Company,
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in a lump sum payment due on the effective date of such termination, the
equivalent of the base salary (at the rate then in effect) for whatever
time period is remaining under the Initial Term or for one year, whichever
amount is greater, and (ii) all Nonvested Shares immediately shall be
vested in full. Should Executive be terminated by the Company without Cause
during the Extended Term or should Executive terminate with Good Reason
during the Extended Term, Executive shall receive from the Company, in a
lump sum payment due on the effective date of such termination, the
equivalent to one year of base salary at the rate then in effect. Further,
any termination without Cause by the Company or by Executive for Good
Reason shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one year from the date of
termination of employment. If Executive resigns or otherwise terminates his
employment without Good Reason, rather than the Company terminating his
employment pursuant to this paragraph 4(d), Executive shall receive no
severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless such
event is agreed to in writing by Executive: (a) Executive is demoted by
means of a material reduction in authority, responsibilities or duties to a
position of less stature or importance within the Company than the position
described in Section 1(a) hereof; (b) Executive's annual base salary as
then in effect is reduced; or (c) the relocation of the Company's principal
executive offices to a location outside the Morgan City, Louisiana area or
the Company's requiring Executive to relocate anywhere other than the
Company's principal executive offices.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date. All other rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination, except that the
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein shall survive
such termination in accordance with their terms.
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5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company or any of
the Companies or their representatives, vendors or customers which pertain to
the business of the Company or any of the Companies shall be and remain the
property of the Company or the Companies, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or the
Companies which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company. Executive
hereby assigns and agrees to assign all his interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments that the
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the Company an
advantage over its actual and potential, current and future competitors.
Executive further acknowledges and agrees that Executive owes the Company a
fiduciary duty to preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Company's Confidential
Information would irreparably injure the Company.
(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential Information in strict
confidence, and shall not use any Confidential
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Information except for the benefit of the Company, in accordance with the
duties assigned to Executive. Executive shall not, at any time (either
during or after the term of Executive's employment), disclose any
Confidential Information to any person or entity (except other employees of
the Company who have a need to know the information in connection with the
performance of their employment duties), or copy, reproduce, modify,
decompile or reverse engineer any Confidential Information, or remove any
Confidential Information from the Company's premises, without the prior
written consent of the President of the Company, or permit any other person
to do so. Executive shall take reasonable precautions to protect the
physical security of all documents and other material containing
Confidential Information (regardless of the medium on which the
Confidential Information is stored). This Agreement applies to all
Confidential Information, whether now known or later to become known to
Executive.
(c) Upon the termination of Executive's employment with the Company
for any reason, and upon request of the Company at any other time,
Executive shall promptly surrender and deliver to the Company all documents
and other written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or other
material. Within five days of any such request, Executive shall certify to
the Company in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or for the
Company (whether or not owned or developed by the Companies and whether or
not developed by Executive) that is not generally known to persons in the
Business. Confidential Information includes, but is not limited to, the
following: all trade secrets of the Companies; all information that the
Companies have marked as confidential or has otherwise described to
Executive (either in writing or orally) as confidential; all nonpublic
information concerning the Companies' products, services, prospective
products or services, research, product designs, prices, discounts, costs,
marketing plans, marketing techniques, market studies, test data,
customers, customer lists and records, suppliers and contracts; all
business records and plans; all personnel files; all financial information
of or concerning the Companies'; all information relating to operating
system software, application software, software and system methodology,
hardware platforms, technical information, inventions, computer programs
and listings, source codes, object codes, copyrights and other intellectual
property; all technical specifications; any proprietary information
belonging to the Companies; all computer hardware or software manuals; all
training or instruction manuals; and all data and all computer system
passwords and user codes.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive, his employment by the
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former
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employer, client or any other person or entity. Further, Executive agrees to
indemnify the Company for any claim, including, but not limited to, reasonable
attorneys' fees and expenses of investigation, by any such third party that such
third party may now have or may hereafter come to have against the Company based
upon or arising out of any non-competition agreement, invention or secrecy
agreement between Executive and such third party which was in existence as of
the date of this Agreement.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. The
parties hereby acknowledge that, upon the formation of Conrad and the related
transactions, the term "Company" as used in this Agreement and shall include
Conrad, except (i) with respect to the definition of "Change in Control", where
the term "Company" shall mean Conrad, and (ii) references to the Board shall
mean the Board of Directors of Conrad. The Company will require any successor,
other than Conrad, by agreement in form and substance reasonably acceptable to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Subject to the preceding, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
11. Change in Control.
(a) In the event a Change in Control is initiated or occurs during the
Initial Term or Extended Term, then the provisions of this paragraph 11
shall be applicable.
(b) If, on or within two years following the effective date of a
Change in Control, the Company terminates Executive's employment other than
for Cause or Executive terminates his employment for Good Reason, or if
Executive's employment with the Company is terminated by the Company within
six months before the effective date of a Change in Control and it is
reasonably demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably calculated to
effect a Change in Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall receive from
Company, in a lump sum payment due on the later of the effective date of
Executive's termination or the Change in Control, as the case may be, the
equivalent of three years' base salary at the rate in effect on Executive's
termination date.
(c) Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11(b) shall operate to automatically
waive in full the noncompetition restrictions imposed on Executive pursuant
to paragraph 3(a).
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(d) If it shall be determined that any payment made or benefit (a
"Payment") provided to Executive, whether or not made or provided pursuant
to this Agreement and whether or not upon a Change in Control as defined
herein, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto, the
Company shall pay Executive an amount of cash (the "Additional Amount")
such that the net after tax benefit received by Executive after paying all
applicable taxes on such Payment and the Additional Amount shall be equal
to the net after-tax amount that Executive would have received with respect
to the Payment if Section 4999 had not been applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate
the amount of any Company payment provided for in this Agreement by seeking
other employment or otherwise. The amount of any payment required to be paid to
Executive by the Company pursuant to this Agreement shall not be reduced by any
amounts that are owed to the Company by Executive, or by any setoff,
counterclaim, recoupment, defense or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any payments pursuant to this
Agreement unless Executive has executed a general release of all claims
Executive may have against the Company and its affiliates in a form of such
release reasonably acceptable to the Company and such release has become final.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company.
15. Complete Agreement. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive
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statement and expression of the agreement between the Company and Executive and
of all the terms of this Agreement, and it cannot be varied, contradicted or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of the Company and Executive, and no
term of this Agreement may be waived except by writing signed by the party
waiving the benefit of such term. Without limiting the generality of the
foregoing, either party's failure to insist on strict compliance with this
Agreement shall not be deemed a waiver thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Conrad Industries, Inc.
150 Front St.
P.O. Box 790
Morgan City, Louisiana 70381
Attn: Chairman of the Board
To Executive: William H. Hidalgo
c/o Conrad Industries, Inc.
P. O. Box 790
Morgan City, Louisiana 70381
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties
shall request the Association of Attorney Mediators in Louisiana (or similar
association) to appoint a mediator. If the mediator is unable to
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facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Morgan City,
Louisiana, in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall have the authority to order back-pay,
severance compensation, vesting of options (or cash compensation in lieu of
vesting of options), reimbursement of costs, including those incurred to enforce
this Agreement, and interest thereon in the event the arbitrators determine that
Executive was terminated without disability or Cause, as defined in paragraphs
4(b) and 4(c), respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Louisiana without regard to its conflicts
of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
CONRAD INDUSTRIES, INC.
By: /s/ William H. Hidalgo
-----------------------------------------
Name: William H. Hidalgo
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
EXECUTIVE
/s/ William H. Hidalgo
------------------------------
William H. Hidalgo
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EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") by and between Conrad
Industries, Inc. (to be renamed Conrad Shipyard, Inc.), a Louisiana
corporation (the "Company"), and Cecil A. Hernandez ("Executive") is hereby
entered into effective as of March 31, 1998 (the "Effective Date").
RECITALS
WHEREAS, the Company desires to continue Executive's employment, and
Executive desires to continue his employment with the Company, all on the terms
and conditions set forth in this Agreement; and
WHEREAS, a Delaware corporation to be named Conrad Industries, Inc.
("Conrad") has been formed to become the parent corporation of the Company and
the stockholders of the Company will exchange their stock in the Company for
stock of Conrad following such formation;
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants and conditions set forth herein and the performance of each, it is
hereby agreed as follows:
AGREEMENTS
1. Employment and Duties.
(a) The Company hereby employs Executive as the Vice President-Finance
and Administration and Chief Financial Officer of the Company. As such,
Executive shall have responsibilities, duties and authority reasonably
accorded to, expected of and consistent with Executive's positions as the
Vice President-Finance and Administration and Chief Financial Officer of
the Company. Executive hereby accepts this employment upon the terms and
conditions herein contained and, subject to paragraph 1(c), agrees to
devote substantially all of his time, attention and efforts to promote and
further the business and interests of the Company and its affiliates.
(b) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company.
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(c) Executive shall not, during the term of his employment hereunder,
engage in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect
with Executive's duties and responsibilities hereunder. The foregoing
limitations shall not be construed as prohibiting Executive from making
personal investments in such form or manner as will neither require his
services in the operation or affairs of the companies or enterprises in
which such investments are made nor violate the terms of paragraph 3
hereof.
2. Compensation. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) Base Salary. The base salary payable to Executive during the term
shall be $150,000 per year, payable in accordance with the Company's
payroll procedures for executives, but not less frequently than monthly.
Such base salary may be increased from time to time, at the discretion of
the Board of Directors of the Company (the "Board"), in light of the
Executive's position, responsibilities and performance, and, as increased
from time to time, may not be reduced.
(b) Company Stock. The Company hereby grants to Executive 67 shares
of common stock of the Company ("Company Stock"), subject to the following
terms:
(i) Executive shall be immediately vested in 50% of the shares
of Company Stock on the Effective Date;
(ii) Executive shall vest in the remaining 50% of the shares of
Company Stock (the "Nonvested Shares") at the rate of 33 1/3% on each
anniversary of the Effective Date (rounded up to the nearest whole
share) on which Executive continues to be an employee of the Company,
subject to the further provisions of this Agreement;
(iii) Executive shall become automatically 100% vested in the
Nonvested Shares immediately prior to a "Change in Control" of the
Company, as such term is defined in the Conrad Industries, Inc. 1998
Stock Plan;
(iv) prior to becoming vested, the Nonvested Shares may not be
transferred (except by will or the laws of descent and distribution),
pledged or encumbered in any manner by Executive;
(v) all distributions made by the Company with respect to the
Nonvested Shares (cash, stock or other property), and any shares
issued upon a stock split or stock dividend or by Conrad in exchange
for the Nonvested Shares shall be subject
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to the same restrictions applicable to the Nonvested Shares as set
forth in this Agreement; and
(vi) the Company may place such legends on the certificate for
the Nonvested Shares evidencing the restrictions provided herein as it
deems appropriate.
Executive hereby covenants that he shall enter into that certain Stock
Exchange Agreement between the Company, Conrad and the stockholders of the
same.
(c) Executive Perquisites, Benefits and Other Compensation. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Executive shall be promptly reimbursed for all business
travel and other out-of-pocket expenses reasonably incurred by
Executive in the performance of his duties pursuant to this Agreement
and in accordance with the Company's policy for executives of the
Company. All such expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the
Company's expense reporting policy;
(ii) Executive shall, subject to the satisfaction of any general
eligibility criteria, be eligible to participate in all compensation
and benefit plans and programs as are maintained from time to time for
executives of the Company;
(iii) Executive shall be entitled to vacation in accordance with
the policies of the Company; and
(iv) The Company shall provide Executive with such other
perquisites as may be deemed appropriate for Executive by the Board.
3. Non-Competition Agreement.
(a) Executive recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's agreement to the
provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage the Company.
Subject to the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of two
years immediately following the termination of such for any reason
whatsoever, either for Cause or in the event Executive terminates his
employment without Good Reason, except
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as may be set forth herein, directly or indirectly, for himself or on
behalf of or in conjunction with any other person, company, partnership,
corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the
construction, conversion or repair of marine vessels or the
fabrication of modular components for offshore drilling rigs or
floating production, storage and offloading vessels (collectively, the
"Businesses") of the Company, Conrad, or any subsidiary or affiliate
of Conrad (collectively, the "Companies") in any area in which any of
the Companies conduct one or more of the Businesses, including any
territory serviced by any of the Companies during the term of
Executive's employment (the "Territory");
(ii) call upon any person who is, at that time, an employee of
any of the Companies for the purpose or with the intent of enticing
such employee away from or out of the employ of any of the Companies;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of any
of the Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with any of the
Companies within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's knowledge after due inquiry, either called upon by
any of the Companies or for which any of the Companies made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
any of the Companies to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that any of the Companies has in the past disclosed such information
to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Executive from acquiring as an investment (i) not more than 1%
of the capital stock of a competing business, whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or similar market or
(ii) not more than 5% of the capital stock of a competing business whose
stock is not publicly traded unless the Board consents to such acquisition.
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(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by the Company, in the event of breach
by him, by injunctions and restraining orders. Executive further agrees to
waive any requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Companies on the date of the execution of
this Agreement and the current plans of the Companies; but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations
of the Companies throughout the term of this covenant, whether before or
after the date of termination of the employment of Executive, unless
Executive was conducting such new business prior to any Company conducting
such new business.
(d) It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed by the Company and shall enter into a
business or pursue other activities not in competition with the Businesses
of the Companies or similar activities or businesses in locations the
operation of which, under such circumstances, does not violate clause
(a)(i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the Companies shall
thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of the
parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the further
provisions of this Agreement) following termination of employment stated at
the beginning of this paragraph 3, during which the agreements and
covenants of Executive made in this
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paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Executive is in violation of any
provision of this paragraph 3.
(g) The Company and Executive hereby agree that this covenant is a
material and substantial part of this Agreement.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue
thereafter at Executive's and Company's mutual election on a year-to-year basis
on the same terms and conditions contained herein in effect as of the time of
renewal (the "Extended Term"); provided, however, upon a Change in Control of
the Company, the term of this Agreement shall automatically continue following
such Change in Control for a period equal to the then remaining term or two
years, whichever period is longer, unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's estate; provided,
however, all Nonvested Shares, if any, shall immediately vest in full.
(b) Disability. If Executive becomes entitled to receive benefits
under an insured long-term disability plan of the Company that includes its
officers, the Company may terminate Executive's employment hereunder with
no severance compensation due Executive; provided, however, all Nonvested
Shares, if any, shall immediately vest in full.
(c) Cause. The Company may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause", which
shall be: (1) Executive's willful, material and irreparable breach of this
Agreement (which remains uncured 10 days after receipt of written notice);
(2) Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 10 days after receipt of
written notice of need to cure) of any of Executive's material duties and
responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of the Company which
materially and adversely affects the Company (monetarily or otherwise); or
(4) Executive's conviction of a felony crime involving moral turpitude. In
the event of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause. Executive may, without Good Reason (as hereinafter
defined), terminate this Agreement and Executive's employment effective 30
days after written notice is provided to the Company. Executive may only
be terminated without Cause by the Company during either the Initial Term
or Extended Term if such termination is
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approved by at least 51% of the members of the Board. Should Executive be
terminated by the Company without Cause during the Initial Term or should
Executive terminate with Good Reason during the Initial Term, then, (i)
Executive shall receive from the Company, in a lump sum payment due on the
effective date of such termination, the equivalent of the base salary (at
the rate then in effect) for whatever time period is remaining under the
Initial Term or for one year, whichever amount is greater, and (ii) all
Nonvested Shares immediately shall be vested in full. Should Executive be
terminated by the Company without Cause during the Extended Term or should
Executive terminate with Good Reason during the Extended Term, Executive
shall receive from the Company, in a lump sum payment due on the effective
date of such termination, the equivalent to one year of base salary at the
rate then in effect. Further, any termination without Cause by the Company
or by Executive for Good Reason shall operate to shorten the period set
forth in paragraph 3(a) and during which the terms of paragraph 3 apply to
one year from the date of termination of employment. If Executive resigns
or otherwise terminates his employment without Good Reason, rather than the
Company terminating his employment pursuant to this paragraph 4(d),
Executive shall receive no severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless such
event is agreed to in writing by Executive: (a) Executive is demoted by
means of a material reduction in authority, responsibilities or duties to a
position of less stature or importance within the Company than the position
described in Section 1(a) hereof; (b) Executive's annual base salary as
then in effect is reduced; or (c) the relocation of the Company's principal
executive offices to a location outside the Morgan City, Louisiana area or
the Company's requiring Executive to relocate anywhere other than the
Company's principal executive offices.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by the Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date. All other rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination, except that the
Executive's obligations
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under paragraphs 3, 5, 6, 7, and 8 herein shall survive such termination in
accordance with their terms.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company or any of
the Companies or their representatives, vendors or customers which pertain to
the business of the Company or any of the Companies shall be and remain the
property of the Company or the Companies, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or the
Companies which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company. Executive
hereby assigns and agrees to assign all his interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments that the
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the Company an
advantage over its actual and potential, current and future competitors.
Executive further acknowledges and agrees that Executive owes the Company a
fiduciary duty to preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Company's Confidential
Information would irreparably injure the Company.
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(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential Information in strict
confidence, and shall not use any Confidential Information except for the
benefit of the Company, in accordance with the duties assigned to
Executive. Executive shall not, at any time (either during or after the
term of Executive's employment), disclose any Confidential Information to
any person or entity (except other employees of the Company who have a need
to know the information in connection with the performance of their
employment duties), or copy, reproduce, modify, decompile or reverse
engineer any Confidential Information, or remove any Confidential
Information from the Company's premises, without the prior written consent
of the President of the Company, or permit any other person to do so.
Executive shall take reasonable precautions to protect the physical
security of all documents and other material containing Confidential
Information (regardless of the medium on which the Confidential Information
is stored). This Agreement applies to all Confidential Information,
whether now known or later to become known to Executive.
(c) Upon the termination of Executive's employment with the Company
for any reason, and upon request of the Company at any other time,
Executive shall promptly surrender and deliver to the Company all documents
and other written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or other
material. Within five days of any such request, Executive shall certify to
the Company in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or for the
Company (whether or not owned or developed by the Companies and whether or
not developed by Executive) that is not generally known to persons in the
Business. Confidential Information includes, but is not limited to, the
following: all trade secrets of the Companies; all information that the
Companies have marked as confidential or has otherwise described to
Executive (either in writing or orally) as confidential; all nonpublic
information concerning the Companies' products, services, prospective
products or services, research, product designs, prices, discounts, costs,
marketing plans, marketing techniques, market studies, test data,
customers, customer lists and records, suppliers and contracts; all
business records and plans; all personnel files; all financial information
of or concerning the Companies'; all information relating to operating
system software, application software, software and system methodology,
hardware platforms, technical information, inventions, computer programs
and listings, source codes, object codes, copyrights and other intellectual
property; all technical specifications; any proprietary information
belonging to the Companies; all computer hardware or software manuals; all
training or instruction manuals; and all data and all computer system
passwords and user codes.
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9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive, his employment by the
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, reasonable attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or may
hereafter come to have against the Company based upon or arising out of any non-
competition agreement, invention or secrecy agreement between Executive and such
third party which was in existence as of the date of this Agreement.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. The
parties hereby acknowledge that, upon the formation of Conrad and the related
transactions, the term "Company" as used in this Agreement and shall include
Conrad, except (i) with respect to the definition of "Change in Control", where
the term "Company" shall mean Conrad, and (ii) references to the Board shall
mean the Board of Directors of Conrad. The Company will require any successor,
other than Conrad, by agreement in form and substance reasonably acceptable to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Subject to the preceding, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
11. Change in Control.
(a) In the event a Change in Control is initiated or occurs during the
Initial Term or Extended Term, then the provisions of this paragraph 11
shall be applicable.
(b) If, on or within two years following the effective date of a
Change in Control, the Company terminates Executive's employment other than
for Cause or Executive terminates his employment for Good Reason, or if
Executive's employment with the Company is terminated by the Company within
six months before the effective date of a Change in Control and it is
reasonably demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably calculated to
effect a Change in Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall receive from
Company, in a lump sum payment due on the later of the effective date of
Executive's termination or the Change in Control, as the case may be, the
equivalent of two years' base salary at the rate in effect on Executive's
termination date.
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(c) Notwithstanding anything in this Agreement to the contrary, a
termination pursuant to paragraph 11(b) shall operate to automatically
waive in full the noncompetition restrictions imposed on Executive pursuant
to paragraph 3(a).
(d) If it shall be determined that any payment made or benefit (a
"Payment") provided to Executive, whether or not made or provided pursuant
to this Agreement and whether or not upon a Change in Control as defined
herein, is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any successor thereto, the
Company shall pay Executive an amount of cash (the "Additional Amount")
such that the net after tax benefit received by Executive after paying all
applicable taxes on such Payment and the Additional Amount shall be equal
to the net after-tax amount that Executive would have received with respect
to the Payment if Section 4999 had not been applicable.
12. No Mitigation or Offset. Executive shall not be required to mitigate
the amount of any Company payment provided for in this Agreement by seeking
other employment or otherwise. The amount of any payment required to be paid to
Executive by the Company pursuant to this Agreement shall not be reduced by any
amounts that are owed to the Company by Executive, or by any setoff,
counterclaim, recoupment, defense or other claim, right or action.
13. Release. Notwithstanding anything in this Agreement to the contrary,
Executive shall not be entitled to receive any payments pursuant to this
Agreement unless Executive has executed a general release of all claims
Executive may have against the Company and its affiliates in a form of such
release reasonably acceptable to the Company and such release has become final.
14. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Executive), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith. In the event that both Executive and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company.
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15. Complete Agreement. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. This written Agreement
may not be later modified except by a further writing signed by a duly
authorized officer of the Company and Executive, and no term of this Agreement
may be waived except by writing signed by the party waiving the benefit of such
term. Without limiting the generality of the foregoing, either party's failure
to insist on strict compliance with this Agreement shall not be deemed a waiver
thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Conrad Industries, Inc.
150 Front St.
P.O. Box 790
Morgan City, Louisiana 70381
Attn: Chairman of the Board
To Executive: Cecil A. Hernandez
c/o Conrad Industries, Inc.
P. O. Box 790
Morgan City, Louisiana 70381
Notice shall be deemed given and effective on the earlier of three days after
the deposit in the U.S. mail of a writing addressed as above and sent first
class mail, certified, return receipt requested, or when actually received.
Either party may change the address for notice by notifying the other party of
such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a
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demand for direct negotiation, the parties shall attempt to resolve the dispute
through mediation. If the parties do not promptly agree on a mediator, the
parties shall request the Association of Attorney Mediators in Louisiana (or
similar association) to appoint a mediator. If the mediator is unable to
facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Morgan City,
Louisiana, in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall have the authority to order back-pay,
severance compensation, vesting of options (or cash compensation in lieu of
vesting of options), reimbursement of costs, including those incurred to enforce
this Agreement, and interest thereon in the event the arbitrators determine that
Executive was terminated without disability or Cause, as defined in paragraphs
4(b) and 4(c), respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Louisiana without regard to its conflicts
of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective for all purposes as of the Effective Date.
CONRAD INDUSTRIES, INC.
By: /s/ William H. Hidalgo
-----------------------------------------
Name: William H. Hidalgo
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
EXECUTIVE
/s/ Cecil A. Hernandez
------------------------------
Cecil A. Hernandez
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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
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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.
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3. Non-Competition Agreement.
(a) Executive recognizes that the Company's willingness to enter into
this Agreement is based in material part on Executive's agreement to the
provisions of this paragraph 3 and that Executive's breach of the
provisions of this paragraph 3 could materially damage the Company.
Subject to the further provisions of this Agreement, Executive will not,
during the term of his employment with the Company, and for a period of two
years immediately following the termination of such for any reason
whatsoever, either for Cause or in the event Executive terminates his
employment without Good Reason, except as may be set forth herein, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the
construction, conversion or repair of marine vessels or the
fabrication of modular components for offshore drilling rigs or
floating production, storage and offloading vessels (collectively, the
"Businesses") of the Company, Conrad, or any subsidiary or affiliate
of Conrad (collectively, the "Companies") in any area in which any of
the Companies conduct one or more of the Businesses, including any
territory serviced by any of the Companies during the term of
Executive's employment (the "Territory");
(ii) call upon any person who is, at that time, an employee of
any of the Companies for the purpose or with the intent of enticing
such employee away from or out of the employ of any of the Companies;
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of any
of the Companies within the Territory for the purpose of soliciting or
selling products or services in direct competition with any of the
Companies within the Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's knowledge after due inquiry, either called upon by
any of the Companies or for which any of the Companies made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of any
of the Companies to any person, firm, partnership, corporation or
business for any reason
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or purpose whatsoever except to the extent that any of the Companies
has in the past disclosed such information to the public for valid
business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Executive from acquiring as an investment (i) not more than 1%
of the capital stock of a competing business, whose stock is traded on a
national securities exchange, the Nasdaq Stock Market or similar market or
(ii) not more than 5% of the capital stock of a competing business whose
stock is not publicly traded unless the Board consents to such acquisition.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company
for which it would have no other adequate remedy, Executive agrees that
foregoing covenant may be enforced by the Company, in the event of breach
by him, by injunctions and restraining orders. Executive further agrees to
waive any requirement for the Company's securing or posting of any bond in
connection with such remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Companies on the date of the execution of
this Agreement and the current plans of the Companies; but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations
of the Companies throughout the term of this covenant, whether before or
after the date of termination of the employment of Executive, unless
Executive was conducting such new business prior to any Company conducting
such new business.
(d) It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed by the Company and shall enter into a
business or pursue other activities not in competition with the Businesses
of the Companies or similar activities or businesses in locations the
operation of which, under such circumstances, does not violate clause
(a)(i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be
chargeable with a violation of this paragraph 3 if the Companies shall
thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
(e) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of
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the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and the Agreement shall thereby be reformed.
(f) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two years (subject to the further
provisions of this Agreement) following termination of employment stated at
the beginning of this paragraph 3, during which the agreements and
covenants of Executive made in this paragraph 3 shall be effective, shall
be computed by excluding from such computation any time during which
Executive is in violation of any provision of this paragraph 3.
(g) The Company and Executive hereby agree that this covenant is a
material and substantial part of this Agreement.
4. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the Effective Date and continue for three years (the "Initial
Term") and, unless terminated sooner as herein provided, shall continue
thereafter at Executive's and Company's mutual election on a year-to-year basis
on the same terms and conditions contained herein in effect as of the time of
renewal (the "Extended Term"); provided, however, upon a Change in Control of
the Company, the term of this Agreement shall automatically continue following
such Change in Control for a period equal to the then remaining term or two
years, whichever period is longer, unless earlier terminated as provided in
paragraph 11. This Agreement and Executive's employment may be terminated in any
one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due Executive's estate; provided,
however, all Nonvested Shares, if any, shall immediately vest in full.
(b) Disability. If Executive becomes entitled to receive benefits
under an insured long-term disability plan of the Company that includes its
officers, the Company may terminate Executive's employment hereunder with
no severance compensation due Executive; provided, however, all Nonvested
Shares, if any, shall immediately vest in full.
(c) Cause. The Company may terminate this Agreement and Executive's
employment 10 days after written notice to Executive for "Cause", which
shall be: (1) Executive's willful, material and irreparable breach of this
Agreement (which remains uncured 10 days after receipt of written notice);
(2) Executive's gross negligence in the performance or intentional
nonperformance (in either case continuing for 10 days after receipt of
written notice of need to cure) of any of Executive's material duties and
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responsibilities hereunder; (3) Executive's dishonesty or fraud with
respect to the business, reputation or affairs of the Company which
materially and adversely affects the Company (monetarily or otherwise); or
(4) Executive's conviction of a felony crime involving moral turpitude. In
the event of a termination for Cause, Executive shall have no right to any
severance compensation.
(d) Without Cause. Executive may, without Good Reason (as hereinafter
defined), terminate this Agreement and Executive's employment effective 30
days after written notice is provided to the Company. Executive may only be
terminated without Cause by the Company during either the Initial Term or
Extended Term if such termination is approved by at least 51% of the
members of the Board. Should Executive be terminated by the Company
without Cause during the Initial Term or should Executive terminate with
Good Reason during the Initial Term, then, Executive shall receive from the
Company, in a lump sum payment due on the effective date of such
termination, the equivalent of the base salary (at the rate then in effect)
for whatever time period is remaining under the Initial Term or for one
year, whichever amount is greater. Should Executive be terminated by the
Company without Cause during the Extended Term or should Executive
terminate with Good Reason during the Extended Term, Executive shall
receive from the Company, in a lump sum payment due on the effective date
of such termination, the equivalent to one year of base salary at the rate
then in effect. Further, any termination without Cause by the Company or
by Executive for Good Reason shall operate to shorten the period set forth
in paragraph 3(a) and during which the terms of paragraph 3 apply to one
year from the date of termination of employment. If Executive resigns or
otherwise terminates his employment without Good Reason, rather than the
Company terminating his employment pursuant to this paragraph 4(d),
Executive shall receive no severance compensation.
Executive shall have "Good Reason" to terminate his employment
hereunder upon the occurrence of any of the following events, unless such
event is agreed to in writing by Executive: (a) Executive is demoted by
means of a material reduction in authority, responsibilities or duties to a
position of less stature or importance within the Company than the position
described in Section 1(a) hereof; (b) Executive's annual base salary as
then in effect is reduced; or (c) the relocation of the Company's principal
executive offices to a location outside the Morgan City, Louisiana area or
the Company's requiring Executive to relocate anywhere other than the
Company's principal executive offices.
If termination of Executive's employment arises out of the Company's
failure to pay Executive on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 18 below, the Company shall pay all amounts and damages
to which Executive may be entitled as a result of such breach, including
interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce
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his rights hereunder. Further, none of the provisions of paragraph 3 shall apply
in the event this Agreement is terminated as a result of a breach by the
Company.
Upon termination of this Agreement for any reason provided above, in
addition to the above payments, if any, Executive shall be entitled to receive
all compensation earned and all benefits and reimbursements due through the
effective date of termination, paid to Executive in a lump sum on the effective
date. All other rights and obligations of the Company and Executive under this
Agreement shall cease as of the effective date of termination, except that the
Executive's obligations under paragraphs 3, 5, 6, 7, and 8 herein shall survive
such termination in accordance with their terms.
5. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company or any of
the Companies or their representatives, vendors or customers which pertain to
the business of the Company or any of the Companies shall be and remain the
property of the Company or the Companies, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or the
Companies which is collected by Executive shall be delivered promptly to the
Company without request by it upon termination of Executive's employment.
6. Inventions. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one year thereafter, if conceived during employment, and which are
directly related to the business or activities of the Company and which
Executive conceives as a result of his employment by the Company. Executive
hereby assigns and agrees to assign all his interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall
execute any and all applications, assignments or other instruments that the
Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
7. Trade Secrets. Executive agrees that he will not, during or after the
term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
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8. Confidentiality.
(a) Executive acknowledges and agrees that all Confidential
Information (as defined below) of the Company is confidential and a
valuable, special and unique asset of the Company that gives the Company an
advantage over its actual and potential, current and future competitors.
Executive further acknowledges and agrees that Executive owes the Company a
fiduciary duty to preserve and protect all Confidential Information from
unauthorized disclosure or unauthorized use, that certain Confidential
Information constitutes "trade secrets" under applicable laws and, that
unauthorized disclosure or unauthorized use of the Company's Confidential
Information would irreparably injure the Company.
(b) Both during the term of Executive's employment and after the
termination of Executive's employment for any reason (including wrongful
termination), Executive shall hold all Confidential Information in strict
confidence, and shall not use any Confidential Information except for the
benefit of the Company, in accordance with the duties assigned to
Executive. Executive shall not, at any time (either during or after the
term of Executive's employment), disclose any Confidential Information to
any person or entity (except other employees of the Company who have a need
to know the information in connection with the performance of their
employment duties), or copy, reproduce, modify, decompile or reverse
engineer any Confidential Information, or remove any Confidential
Information from the Company's premises, without the prior written consent
of the President of the Company, or permit any other person to do so.
Executive shall take reasonable precautions to protect the physical
security of all documents and other material containing Confidential
Information (regardless of the medium on which the Confidential Information
is stored). This Agreement applies to all Confidential Information,
whether now known or later to become known to Executive.
(c) Upon the termination of Executive's employment with the Company
for any reason, and upon request of the Company at any other time,
Executive shall promptly surrender and deliver to the Company all documents
and other written material of any nature containing or pertaining to any
Confidential Information and shall not retain any such document or other
material. Within five days of any such request, Executive shall certify to
the Company in writing that all such materials have been returned.
(d) As used in this Agreement, the term "Confidential Information"
shall mean any information or material known to or used by or for the
Company (whether or not owned or developed by the Companies and whether or
not developed by Executive) that is not generally known to persons in the
Business. Confidential Information includes, but is not limited to, the
following: all trade secrets of the Companies; all information that the
Companies have marked as confidential or has otherwise described to
Executive (either in writing or orally) as confidential; all nonpublic
information concerning the Companies'
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products, services, prospective products or services, research, product
designs, prices, discounts, costs, marketing plans, marketing techniques,
market studies, test data, customers, customer lists and records, suppliers
and contracts; all business records and plans; all personnel files; all
financial information of or concerning the Companies'; all information
relating to operating system software, application software, software and
system methodology, hardware platforms, technical information, inventions,
computer programs and listings, source codes, object codes, copyrights and
other intellectual property; all technical specifications; any proprietary
information belonging to the Companies; all computer hardware or software
manuals; all training or instruction manuals; and all data and all computer
system passwords and user codes.
9. No Prior Agreements. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive, his employment by the
Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, reasonable attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or may
hereafter come to have against the Company based upon or arising out of any non-
competition agreement, invention or secrecy agreement between Executive and such
third party which was in existence as of the date of this Agreement.
10. Assignment; Binding Effect. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. The
parties hereby acknowledge that, upon the formation of Conrad and the related
transactions, the term "Company" as used in this Agreement and shall include
Conrad, except (i) with respect to the definition of "Change in Control", where
the term "Company" shall mean Conrad, and (ii) references to the Board shall
mean the Board of Directors of Conrad. The Company will require any successor,
other than Conrad, by agreement in form and substance reasonably acceptable to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Subject to the preceding, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
11. Change in Control.
(a) In the event a Change in Control is initiated or occurs during the
Initial Term or Extended Term, then the provisions of this paragraph 11
shall be applicable.
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(b) If, on or within two years following the effective date of a
Change in Control, the Company terminates Executive's employment other than
for Cause or Executive terminates his employment for Good Reason, or if
Executive's employment with the Company is terminated by the Company within
six months before the effective date of a Change in Control and it is
reasonably demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably calculated to
effect a Change in Control, or (ii) otherwise arose in connection with or
anticipation of a Change in Control, then Executive shall receive from
Company, in a lump sum payment due on the later of the effective date of
Executive's termination or the Change in Control, as the case may be, the
equivalent of 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
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(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Executive in connection therewith. In the
event that both Executive and the Company are made a party to the same third-
party action, complaint, suit or proceeding, the Company agrees to engage
competent legal representation, and Executive agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Executive,
Employee may engage separate counsel and the Company shall pay all reasonable
attorneys' fees and reasonable expenses of such separate counsel. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company for errors or omissions made in good faith where Executive has not
exhibited gross, willful and wanton negligence and misconduct nor performed
criminal and fraudulent acts which materially damage the business of the
Company.
15. Complete Agreement. Executive has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements. This written Agreement
may not be later modified except by a further writing signed by a duly
authorized officer of the Company and Executive, and no term of this Agreement
may be waived except by writing signed by the party waiving the benefit of such
term. Without limiting the generality of the foregoing, either party's failure
to insist on strict compliance with this Agreement shall not be deemed a waiver
thereof.
16. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: 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,
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or when actually received. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 16.
17. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
18. Dispute Resolutions. Except with respect to injunctive relief as
provided in paragraph 3(b), neither party shall institute a proceeding in any
court or administrative agency to resolve a dispute between the parties before
that party has sought to resolve the dispute through direct negotiation with the
other party. If the dispute is not resolved within two weeks after a demand for
direct negotiation, the parties shall attempt to resolve the dispute through
mediation. If the parties do not promptly agree on a mediator, the parties
shall request the Association of Attorney Mediators in Louisiana (or similar
association) to appoint a mediator. If the mediator is unable to facilitate a
settlement of the dispute within a reasonable period of time, as determined by
the mediator, the mediator shall issue a written statement to the parties to
that effect and any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in Morgan City, Louisiana, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Executive was terminated without disability or Cause, as defined in paragraphs
4(b) and 4(c), respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel
shall be final and binding. Judgment may be entered on the arbitrators' award
in any court having jurisdiction. The costs and expenses, including reasonable
attorneys' fees, of the prevailing party in any dispute arising under this
Agreement will be promptly paid by the other party.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Louisiana without regard to its conflicts
of law provisions.
20. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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<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: /s/ William H. Hidalgo
-----------------------------------------
Name: William H. Hidalgo
---------------------------------------
EXECUTIVE
/s/ Ralph C. Thon
------------------------------
Ralph C. Thon
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<PAGE>
EXHIBIT 10.12
================================================================================
WARRANT AGREEMENT
BETWEEN
CONRAD INDUSTRIES, INC.
AND
MORGAN KEEGAN & COMPANY, INC.
___________________________________
DATED AS OF June 10, 1998
___________________________________
Warrants to Purchase 72,000 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
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EXHIBITS
A. Form of Warrant Certificate.............................................A-1
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<PAGE>
WARRANT AGREEMENT
This WARRANT AGREEMENT, dated as of June 10, 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:
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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 72,000 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 June 9, 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
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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 Time, 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.
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<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.
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"Warrant Price" shall mean the exercise price per Warrant Share, initially
set at $12.00 (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 72,000 Warrant Shares at the Warrant Price, subject to
adjustment pursuant to Section 5.
2. WARRANT CERTIFICATES
2.1 Issuance of Warrant. An aggregate of 72,000 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
72,000 Warrants, except for
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<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
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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
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<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
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(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
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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
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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);
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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
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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:
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(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
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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
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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
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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
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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
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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
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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
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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.
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<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
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<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: /s/ William H. Hildago
------------------------------------
William H. Hidalgo, President and
Chief Executive Officer
MORGAN KEEGAN & COMPANY, INC.
By: /s/ Randolph C. Coley
------------------------------------
Randolph C. Coley
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<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
June __, 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"),
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<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 June ___, 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:
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<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 June __, 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
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<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 June ___, 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 21.1
SUBSIDIARIES OF CONRAD INDUSTRIES, INC.
Conrad Shipyard, Inc. (Louisiana Corporation)
Orange Shipbuilding Company, Inc. (Texas Corporation)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONRAD
INDUSTRIES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,074
<SECURITIES> 0
<RECEIVABLES> 7,702
<ALLOWANCES> 20
<INVENTORY> 230
<CURRENT-ASSETS> 14,240
<PP&E> 26,685
<DEPRECIATION> 8,581
<TOTAL-ASSETS> 47,519
<CURRENT-LIABILITIES> 6,562
<BONDS> 7,318
0
0
<COMMON> 71
<OTHER-SE> 30,411
<TOTAL-LIABILITY-AND-EQUITY> 47,519
<SALES> 46,313
<TOTAL-REVENUES> 46,313
<CGS> 34,120
<TOTAL-COSTS> 34,120
<OTHER-EXPENSES> 7,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,425
<INCOME-PRETAX> 2,861
<INCOME-TAX> 2,607
<INCOME-CONTINUING> 254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
