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Conrad Industries Inc ˇ DEF 14A ˇ For 5/27/99

Filed On 4/22/99   ˇ   SEC File 0-24263   ˇ   Accession Number 899243-99-777

  in   Show  and 
  As Of               Filer                 Filing     On/For/As Docs:Pgs              Issuer               Agent

 4/22/99  Conrad Industries Inc             DEF 14A     5/27/99    1:41                                     899243

Definitive Proxy Solicitation Material   ˇ   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     Definitive Proxy Statement                            41    202K 


Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page
5Voting Information General Instructions on How to Vote Your Proxy
8Proposals Proposal Number 1: Election of Directors
"Nominees for Director
"Louis J. Michot, Jr
9Proposal Number 2: Approval of Increase in the Number of Shares Available Under the 1998 Stock Plan
10Phantom Shares
"Bonus Shares
11Change in Control
15Directors' Meetings and Compensation
"Board Committees and their Functions
16Compensation Committee Interlocks and Insider Participation
17Report of the Compensation Committee
20Executive Compensation
24Stock Plan
25Transactions with Certain Affiliates
28Compliance with Section 16(a)
"Stockholder Proposals for the 2000 Annual Meeting
"Discretionary Voting of Proxies on Other Matters
291998 Form 10-K
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SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12 CONRAD INDUSTRIES, INC. ------------------------------------------------ (Name of Registrant as Specified In Its Charter) ----------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------- 5) Total fee paid: ------------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ------------------------------------------------------------------- 2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------- 3) Filing Party: ------------------------------------------------------------------- 4) Date Filed: -------------------------------------------------------------------
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CONRAD INDUSTRIES, INC. 1501 Front Street Morgan City, Louisiana 70381 April 23, 1999 TO OUR STOCKHOLDERS: You are cordially invited to attend the 1999 Annual Meeting of Stockholders of Conrad Industries, Inc. to be held on Thursday, May 27, 1999, at 9:00 a.m., local time, at the Petroleum Club of Morgan City, 500 Roderick, Morgan City, Louisiana. A Notice of the Annual Meeting, proxy statement and form of proxy card are enclosed with this letter. We encourage you to read the Notice of the Annual Meeting and proxy statement so that you may be informed about the business to come before the meeting. Your participation in Conrad Industries' business is important, regardless of the number of shares that you hold. To ensure your representation at the meeting, please promptly sign and return the accompanying proxy card in the enclosed postage-paid envelope. We look forward to seeing you on May 27, 1999. Sincerely, /s/ William H. Hidalgo ---------------------------- William H. Hidalgo President and Chief Executive Officer
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CONRAD INDUSTRIES, INC. 1501 Front Street Morgan City, Louisiana 70381 ---------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 27, 1999 To the Stockholders of Conrad Industries, Inc.: When and Where. The 1999 Annual Meeting of Stockholders of Conrad Industries, Inc. will be held on Thursday, May 27, 1999, at 9:00 a.m., local time, at the Petroleum Club of Morgan City, 500 Roderick, Morgan City, Louisiana. Record Date. Only stockholders of record at the close of business on April 12, 1999 will be entitled to notice of and to vote at the Annual Meeting. Purpose of the Meeting. The Annual Meeting has been called for the following purposes: 1. To elect two Class I directors of Conrad Industries, each to serve for three-year terms until the company's 2002 Annual Meeting of Stockholders or until their respective successors have been duly elected and qualified; 2. To approve an increase in the number of shares of common stock subject to the Conrad Industries, Inc. 1998 Stock Plan; 3. To ratify the appointment of Deloitte & Touche LLP as Conrad Industries' independent public accountants for its fiscal year ending December 31, 1999; and 4. To consider and act upon such other business as may properly come before the meeting or any adjournments thereof. You will find more information on the nominees for director and the proposals in the proxy statement. You will find further instructions on how to vote beginning on page 2 of the proxy statement. Your Vote Counts! It is important that your shares be represented at the Annual Meeting regardless of whether you plan to attend. This will ensure the presence of a quorum at the meeting. Please complete, sign and date the enclosed proxy card and return it in the envelope provided as promptly as possible, even if you intend to be present at the meeting. You may revoke your proxy at any time before it is voted. By Order of the Board of Directors, /s/ Cecil A. Hernandez ------------------------------------ Cecil A. Hernandez Secretary Morgan City, Louisiana April 23, 1999
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CONRAD INDUSTRIES, INC. 1501 Front Street Morgan City, Louisiana 70381 ---------------- PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS To Be Held May 27, 1999 ˇ Download Table CONTENTS OF 1999 PROXY STATEMENT Page -------------------------------- ---- Voting Information General Instructions on How to Vote Your Proxy.......................... 2 Voting Rules............................................................ 3 Proposals Proposal Number 1: Election of Directors................................ 5 Proposal Number 2: Increase in the number of shares subject to 1998 Stock Plan............................................................. 6 Proposal Number 3: Appointment of Independent Public Accountants........ 10 Company Information Information about Current and Continuing Directors...................... 11 Directors' Meetings and Compensation.................................... 12 Board Committees and their Functions.................................... 12 Compensation Committee Interlocks and Insider Participation............. 13 Report of the Compensation Committee.................................... 14 Executive Compensation.................................................. 17 Transactions with Certain Affiliates.................................... 22 Stock Ownership by Conrad Industries' Largest Stockholders and Management............................................................. 24 Compliance with Section 16(a)........................................... 25 Stockholder Proposals for the 2000 Annual Meeting....................... 25 Discretionary Voting of Proxies on Other Matters........................ 25 1998 Form 10-K.......................................................... 26 Appendix A Conrad Industries, Inc. Amended and Restated 1998 Stock Plan The principal executive offices of Conrad Industries are located at 1501 Front Street, Morgan City, Louisiana 70381. This proxy statement, and the accompanying Notice of 1999 Annual Meeting of Stockholders and proxy card, are first being mailed to our stockholders on or about April 23, 1999.
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VOTING INFORMATION GENERAL INSTRUCTIONS ON HOW TO VOTE YOUR PROXY: Below are instructions on how to vote, as well as information on your rights as a stockholder as they relate to voting. Some of the instructions will differ depending on how your stock is held. It is important to follow the instructions that apply to your situation. If your shares are held in "street name," you should vote your shares in the method directed by your broker or other nominee. If you plan to attend the meeting and vote in person, your instructions will depend on how your shares are held: . Shares registered in your name--Check the appropriate box on the enclosed proxy card and bring evidence of your stock ownership with you to the meeting. The proxy card and the evidence of your ownership will serve as your authorization to vote in person. . Shares registered in the name of your broker or other nominee--Ask your broker to provide you with a broker's proxy card in your name (which will allow you to vote your shares in person at the meeting) and bring evidence of your stock ownership from your broker. Remember that attendance at the meeting will be limited to stockholders as of the record date (or their authorized representatives) with evidence of their share ownership and guests of Conrad Industries. How to Revoke Your Proxy. If your shares are registered in your name, you may revoke your proxy at any time before it is exercised by: . filing with the Secretary of Conrad Industries a written notice revoking it, . executing and returning another proxy bearing a later date, or . attending the Annual Meeting and expressing a desire to vote your shares of common stock in person. If your shares are held in street name, you must contact your broker to revoke your proxy. Written notices to Conrad Industries must be addressed to Cecil A. Hernandez, Secretary, Conrad Industries, Inc., 1501 Front Street, P. O. Box 790, Morgan City, Louisiana 70381. No revocation by written notice will be effective unless such notice has been received by the Secretary of Conrad Industries prior to the day of the Annual Meeting or by the inspector of election at the Annual Meeting. 2
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VOTING RULES: Stockholders Entitled to Vote--The Record Date. The close of business on April 12, 1999 has been fixed as the record date for the determination of stockholders entitled to vote at the Annual Meeting and any postponement(s) or adjournment(s) thereof. As of the record date, Conrad Industries had issued and outstanding 7,077,723 shares of common stock of Conrad Industries. There are no other classes of voting securities of Conrad Industries outstanding. Quorum Required. A quorum must exist for us to hold the Annual Meeting. For a quorum to exist, we will need the presence, either in person or by proxy, of holders of a majority of the outstanding shares of Conrad Industries' common stock as of the record date. Abstentions and broker non-votes are counted for purposes of determining whether a quorum is present. Generally, broker non- votes occur when shares held by a broker for a beneficial owner are not voted with respect to a particular proposal because (1) the broker has not received voting instructions from the beneficial owner and (2) the broker lacks discretionary voting power to vote such shares. Number of Votes. You are entitled to one vote per share of Conrad Industries' common stock that you own as of the record date on each matter that is called to vote at the Annual Meeting. Voting to Elect Directors. When voting to elect directors, you have three options: . Vote for both of the nominees; . Vote for only one of the nominees; or . Withhold authority to vote for all of the nominees. If a quorum is present at the Annual Meeting, the two persons receiving the greatest number of votes will be elected to serve as directors. Because of this rule, any shares that are not voted or any votes that are withheld will not influence the outcome of the election of directors. Cumulative voting for the election of directors is not permitted. Voting on Other Matters. When voting on all other matters, you will also have three options, but these options are different from those pertaining to the election of directors: . Vote "FOR" a given proposal; . Vote "AGAINST" a given proposal; or . ABSTAIN from voting on a given proposal. Each matter, other than the election of directors, requires the affirmative vote of a majority of the shares present or represented at the Annual Meeting and entitled to vote on the proposal. An abstention with respect to a particular proposal will be treated as a vote not cast with respect to such proposal. Broker non-votes will not affect the results on a proposal because shares held by brokers who withhold authority to vote will be considered absent in the voting tallies on these proposals. A duly executed proxy confers discretionary authority to the persons named in the proxy authorizing those persons to vote, in their discretion, on any other matters properly presented at the Annual Meeting. The Board of Directors is not currently aware of any such other matters to be presented at the meeting. 3
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Voting of Proxies with Unmarked Votes. All proxies that are properly completed, signed and returned prior to the Annual Meeting will be voted. If you return your proxy with no votes marked, your shares will be voted as follows: . "FOR" the election of each of the two nominees for director. . "FOR" the increase in the number of shares available under the 1998 Stock Plan. . "FOR" the appointment of Deloitte & Touche LLP as Conrad Industries' independent public accountants. It is possible for a proxy to indicate that some of the shares represented are not being voted as to certain proposals. This occurs, for example, when a broker is not permitted to vote on a proposal without instructions from the beneficial owner of the stock. In these cases, non-voted (broker non-votes) shares are considered absent for those proposals. Who Counts the Votes. Votes will be counted by American Stock Transfer & Trust Company, our transfer agent and registrar. Information about this Solicitation of Proxies. The solicitation of the proxy accompanying this statement is being made by Conrad Industries' Board of Directors in connection with the 1999 Annual Meeting of Stockholders. In addition to the solicitation of proxies by use of this proxy statement, directors, officers and employees of Conrad Industries may solicit the return of proxies by mail, personal interview, telephone or telegraph. Officers and employees of Conrad Industries will not receive additional compensation for their solicitation efforts, but they will be reimbursed for any out-of-pocket expenses incurred. Brokerage houses and other custodians, nominees and fiduciaries will be requested, in connection with the stock registered in their names, to forward solicitation materials to beneficial owners of such stock. All costs of preparing, printing, assembling and mailing the Notice of the 1999 Annual Meeting of Stockholders, this proxy statement, the enclosed form of proxy card and any additional materials, as well as the cost of forwarding solicitation materials to the beneficial owners of stock and all other costs of solicitation, will be borne by Conrad Industries. 4
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PROPOSALS PROPOSAL NUMBER 1: ELECTION OF DIRECTORS Conrad Industries' Charter divides or "classifies" its Board of Directors into three classes (Classes I, II and III), with respect to the three-year terms for which the directors in each class individually hold office. Each class consists, as nearly as possible, of one third of the entire Board. Conrad Industries' Board of Directors currently has seven members. Each director is elected to hold office for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected, except that the initial terms of office of the current Class I, Class II and Class III Directors expire at the annual meetings of stockholders to be held in 1999, 2000 and 2001, respectively. The current term for Class I Directors will expire at this year's Annual Meeting. The current terms for Class II and Class III Directors will expire at the 2000 and 2001 Annual Meetings of Stockholders, respectively. The Board of Directors has nominated and urges you to vote for the election of the two nominees identified below to serve as Class I directors for a three- year term or until their successors are duly elected and qualified. Each of the nominees listed below is a member of Conrad Industries' present Board of Directors. Proxies solicited hereby will be voted for both nominees unless stockholders specify otherwise in their proxies. If, at the time of or prior to the Annual Meeting, any of the nominees should be unable or decline to serve, the discretionary authority provided in the proxy may be used to vote for a substitute or substitutes designated by the Board of Directors. The Board of Directors has no reason to believe that any substitute nominee or nominees will be required. Nominees for Director Class I--Terms Expiring at 2002 Annual Meeting The two nominees for re-election as Class I directors, and certain additional information with respect to each of them, are as follows: ˇ Enlarge/Download Table Year First Name Age Position with Conrad Industries Became a Director ---- --- ------------------------------- ----------------- Cecil A. Hernandez...... 42 Vice President--Finance and 1998 Administration, Chief Financial Officer and Director (Class I) Louis J. Michot, Jr..... 76 Director (Class I) 1998 Cecil A. Hernandez joined Conrad Industries in January 1998. Mr. Hernandez has served as Vice President--Finance and Administration, Chief Financial Officer and Director of Conrad Industries since March 1998. Mr. Hernandez founded Hernandez & Blackwell CPAs in 1983 and served as its Managing Partner until December 1997. Hernandez & Blackwell CPAs merged with Darnall, Sikes & Frederick CPAs in 1996. Additionally, Mr. Hernandez provided accounting and consulting services for Conrad Industries as the outside Certified Public Accountant from 1993 until 1997. From 1982 to 1983, Mr. Hernandez served as Assistant Controller for Oceaneering International, a publicly traded diving company. Mr. Hernandez was employed at Deloitte Haskins & Sells, an international accounting firm, from 1979 to 1982. Louis J. Michot, Jr. has been a Director of Conrad Industries since the consummation of the initial public offering in June 1998. Since 1991, Mr. Michot has been Chairman of the Board of Louis J. Michot & Associates, Inc., a family-owned holding company which at present deals principally in real estate sales, development and rentals. From 1952 to 1991, Mr. Michot served as its President and CEO, during which time 5
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he developed a chain of 45 fast food restaurants in Louisiana, Mississippi and Texas and became actively engaged in other business ventures. Mr. Michot was one of the organizers of the Bank of Lafayette and served on its Board of Directors from 1975 to 1980. He served in the Louisiana Legislature from 1960 to 1964, on the State Board of Education from 1968 to 1972 and as the State Superintendent of Education from 1972 to 1976. Mr. Michot's wife is a first cousin of J. Parker Conrad. The Board of Directors recommends that stockholders vote "FOR" the election of Messrs. Hernandez and Michot as directors to hold office until the 2002 Annual Meeting of Stockholders and until their successors are elected and qualified. Proxies executed and returned will be so voted unless contrary instructions are indicated thereon. PROPOSAL NUMBER 2: APPROVAL OF INCREASE IN THE NUMBER OF SHARES AVAILABLE UNDER THE 1998 STOCK PLAN In March 1998, the Board of Directors and the stockholders approved and adopted the Conrad Industries, Inc. 1998 Stock Plan. The 1998 Stock Plan permits the granting of any or all of the following types of awards: stock appreciation rights, stock options, restricted stock, dividend equivalents, performance units, automatic director options, phantom shares, limited stock appreciation rights, bonus stock and cash tax rights. The Board believes the 1998 Stock Plan provides an enhanced mechanism for compensating officers and employees of, and any consultants to, Conrad Industries and its affiliates on the basis of individual and corporate performance. As of the date of this Proxy Statement, there are 207,457 shares of common stock remaining for grants of awards under the 1998 Stock Plan. Conrad Industries' philosophy with respect to management and employee compensation has been to attract and retain executive and employee talent of the highest quality through emphasizing equity appreciation incentives without incurring excessive cash obligations. We expect to continue to emphasize stock- based incentive compensation in order to closely align the interests of the executive officers and key members of its workforce with the interests of Conrad Industries' stockholders. The Board of Directors believes that it is the recruitment and retention of such individuals upon whom, in large measure, the sustained progress, growth and profitability of Conrad Industries will depend. By providing relatively higher stock incentives, Conrad Industries is also able to maintain salaries of management personnel at reasonable levels. The Board of Directors believes that its compensation strategy can be implemented for the foreseeable future if Proposal Number 2 is approved. The Board has adopted and recommended for approval by the stockholders an increase in the number of shares of common stock available under the 1998 Stock Plan. The amendment will increase the number of shares of common stock that may be issued pursuant to the 1998 Stock Plan from 700,000 to 950,000. Options to purchase an aggregate of 492,543 shares of common stock have been granted as of the date of this Proxy Statement under the 1998 Stock Plan. The Board believes it is in the best interests of Conrad Industries to increase the number of shares available under the 1998 Stock Plan so as to enable Conrad Industries to make future grants of options and certain other awards pursuant to the 1998 Stock Plan. Additionally, during the third quarter of 1998, certain executives of Conrad Industries surrendered and the company canceled 247,277 shares of restricted stock, decreasing the total number of shares of Conrad Industries common stock outstanding. A copy of the proposed amended and restated 1998 Stock Plan is set forth as Appendix A to this Proxy Statement. The following summary of the 1998 Stock Plan is qualified in its entirety to the more detailed provisions of the 1998 Stock Plan. Eligibility for Participation. All employees, including officers, of Conrad Industries and its subsidiaries are eligible for participation in all Awards under the 1998 Stock Plan, other than automatic Director options. Only nonemployee directors of Conrad Industries will receive automatic grants of Director options. 6
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Administration. The 1998 Stock Plan is administered by the Compensation Committee of the Board of Directors. Except with respect to the automatic grant of Director options, the Compensation Committee will select the employees who will receive Awards, determine the type and terms of Awards to be granted and interpret and administer the 1998 Stock Plan. Employee Stock Options. Stock options granted to employees are subject to such terms and conditions as may be established by the Compensation Committee, which may include conditioning the exercisability of an option on the achievement of one or more performance goals, except that in all events: (1) no stock options may be granted after the termination of the 1998 Stock Plan; (2) the option exercise price cannot be less than the market value per share of the common stock of Conrad Industries at the date of grant (unless it is a replacement option granted to new employees in conjunction with an acquisition of the stock or property of another corporation); and (3) no stock option may be exercised more than 10 years after it is granted. Stock options may be granted either as incentive stock options ("ISOs") under Section 422 of the Internal Revenue Code of 1986 (the "Code"), non-qualified stock options or a combination thereof. The Compensation Committee will determine the form in which payment of the optionee's exercise price may be made, which may include cash, shares of common stock of Conrad Industries already owned by the optionee for more than six months, a "cashless broker exercise" through procedures established by Conrad Industries, other property approved by the Compensation Committee or any combination thereof. Director Stock Options. The 1998 Stock Plan provides that each nonemployee director of Conrad Industries shall automatically receive on the date of each annual meeting of Conrad Industries' stockholders (beginning with the 1999 Annual Stockholders' Meeting) an immediately vested option to purchase 1,000 shares of common stock of Conrad Industries at an exercise price per share equal to the fair market value of the common stock of Conrad Industries on the date of grant. Each person who becomes a nonemployee director of Conrad Industries shall automatically receive an immediately vested option to purchase 1,000 shares of common stock of Conrad Industries on the date of such person's election or appointment at an exercise price per share equal to the fair market value of the common stock of Conrad Industries on the date of grant. Neither the Compensation Committee nor the Board of Directors has any discretion with respect to Director options. Each Director option shall have a term of 10 years, subject to earlier termination depending upon continuity of service on the Board. Phantom Shares. The Compensation Committee may grant phantom shares of common stock of Conrad Industries to employees, which may be payable in cash, shares of common stock of Conrad Industries or a combination thereof, subject to the achievement of specified performance goals. The Compensation Committee shall determine the performance goals to be achieved and the length of the performance period. Performance Awards. The Compensation Committee may also grant performance awards to employees. Performance awards are units equivalent to such value as the Compensation Committee determines and may consist of payments in cash, shares of common stock of Conrad Industries or a combination thereof, payable upon the achievement of specified performance goals. The Compensation Committee shall determine the performance goals to be achieved and the length of the performance period. Bonus Shares. The Compensation Committee may deliver unrestricted shares of common stock of Conrad Industries to an employee as additional compensation for the person's services to the company or a subsidiary in lieu of or in addition to a cash bonus. Other Stock-Based Awards. The Compensation Committee, in its discretion, may grant other forms of Awards based on, or payable in, shares of common stock of Conrad Industries. Subject to certain limitations, participants, including directors, may elect to defer the receipt of an Award or other compensation in the form of phantom shares for limited periods. 7
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Performance Goals. The Compensation Committee shall subject grants of phantom shares and performance units and, in its discretion, may condition the exercisability of employee stock options, on the attainment of certain performance goals. Such performance goals, which may be described in terms of company-wide objectives, in terms of objectives that are related to performance of the division, department or function within the company or a subsidiary in which the employee receiving the Award is employed or in individual or other terms, and which will relate to a period of time determined by the Compensation Committee. The performance goals that may be used include one or more of the following: net income; earnings before interest, taxes, depreciation, and amortization expenses and noncash compensation expense related to the issuance of stock and stock options to employees; profit margins, economic value added, sales; return on equity; return on assets; earnings per share; and cash flows. Which objectives to use with respect to an Award, the weighting of the objectives if more than one is used, and whether the objective is to be measured against a company-established budget or target, an index or a peer group of companies, shall be determined by the Compensation Committee in its discretion at the time of grant of the Award. A performance goal need not be based on an increase or a positive result and may include, for example, maintaining the status quo or limiting economic losses. Annual Award Limits. The maximum number of shares of common stock of Conrad Industries with respect to which any employee can receive stock options, bonus stock, phantom shares, and other stock-based awards during any calendar year is 250,000. In addition, no employee can receive performance award grants having a value in excess of $2 million in any calendar year. Transferability. Awards under the 1998 Stock Plan generally will not be transferable other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order; provided, however, the Compensation Committee may, in its discretion, permit a participant to transfer nonqualified stock options to the participant's "immediate family members", as defined in the 1998 Stock Plan. Adjustments. The Compensation Committee may provide for adjustment of Awards under the 1998 Stock Plan if it determines such adjustment is required to prevent dilution or enlargement of the rights of participants in the 1998 Stock Plan that would otherwise result from a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, reorganization or other similar corporate transaction. Term of the Plan. Unless sooner terminated, the 1998 Stock Plan will terminate on March 31, 2008 after which date no additional Awards may be made under it; however all then outstanding Awards will continue pursuant to their terms. Tax Withholding. The 1998 Stock Plan permits the Compensation Committee to allow a participant, upon exercise of an option or payment of an Award, to satisfy any applicable federal tax withholding requirements in the form of shares of common stock of Conrad Industries, including shares issuable upon exercise or payment of such Award. Change in Control. The 1998 Stock Plan provides that upon a "change in control" of Conrad Industries, all Awards will become immediately exercisable or payable, as the case may be. A "change in control" of Conrad Industries shall be deemed to occur if a person or group acquires 30% or more of the Company's voting securities, the directors at the beginning of the 1998 Stock Plan cease to constitute a majority of the Board of Directors (but a director whose election or nomination was approved by a majority of the current directors will be deemed a continuing director), the stockholders of the company approve a merger or consolidation of the Company with any other company (with certain exceptions), the stockholders of Conrad Industries approve an agreement for the sale, exchange or disposition by the company of all or a substantial portion of the company's assets or the stockholders of the Conrad Industries adopt a plan of complete liquidation of the company, or the date Conrad Industries files a report or proxy statement with the Securities and Exchange Commission that a change in control has or may occur pursuant to any then existing contract or transaction. 8
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Amendment and Termination. The Board of Directors of Conrad Industries may amend or terminate the 1998 Stock Plan at any time without stockholder approval, except for any amendment that applicable law or stock exchange rules require stockholder approval. Unless the term of the 1998 Stock Plan is extended or earlier terminated, the 1998 Stock Plan will terminate on March 31, 2008. Certain Federal Income Tax Consequences. The following is a brief summary of certain of the federal income tax consequences of certain transactions under the 1998 Stock Plan based on current federal income tax laws. This summary is not intended to be exhaustive and does not describe state or local tax consequences. Additional or different federal tax consequences to the employee, director or Conrad Industries may result depending upon other considerations not described below. In general: (1) no income will be recognized by an optionee at the time a non-qualified stock option (an option not qualified under Section 422 of the Code) ("NQO") is granted; (2) at the time of exercise of a NQO, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares if they are nonrestricted on the date of exercise; (3) at the time of sale of shares acquired pursuant to the exercise of a NQO, any appreciation (or depreciation) in the value of the shares after the date of exercise will be treated as either short term or long term capital gain (or loss) depending on how long the shares have been held. No income generally will be recognized by an optionee upon the grant or exercise of an ISO, although the excess of the fair market value on the date of exercise over the option price is included in alternative minimum taxable income for alternative minimum tax purposes. However, if the optionee exercises the ISO and disposes of the shares of common stock of Conrad Industries in the same year and the amount realized is less than the fair market value on the date of exercise, only the difference between the amount realized and the adjusted basis of the stock will be included in alternative minimum taxable income. If shares of common stock of Conrad Industries are issued to an optionee pursuant to the exercise of an ISO and no disposition of the shares is made by the optionee within two years after the date of grant or within one year after the transfer of the shares to the optionee (the "Holding Periods"), then, upon the sale of the shares, any amount realized in excess of the option price will be taxed to the optionee as long term capital gain and any loss sustained will be a long term capital loss. If shares of common stock of Conrad Industries acquired upon the exercise of an ISO are disposed of prior to the expiration of either Holding Period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount of equal to any excess of the fair market value of the shares at the time of exercise (or, if less, the amount realized on the disposition of the shares in a sale or exchange) over the option price paid for the shares. Any further gain (or loss) realized by the optionee generally will be taxed as short term or long term capital gain (or loss) depending on the holding period. No income generally will be recognized upon the grant of phantom shares or performance awards. Upon payment in respect of phantom shares or earned performance awards, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any nonrestricted shares of common stock of Conrad Industries received less any amount paid for such award at the time of payment or transfer pursuant to the fulfillment of the specified conditions or the achievement of the performance goals. The recipient of bonus stock generally will be subject to tax at ordinary income rates on the fair market value of the shares of common stock of Conrad Industries on the date that such shares are transferred to the recipient, and the capital gain or loss holding period for such shares will also commence on that date. To the extent that a participant recognizes ordinary income in the circumstances described above, Conrad Industries or subsidiary for which the participant performs services will be entitled to a corresponding 9
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deduction for federal income tax purposes provided that, among other things, (1) the income meets the test of reasonableness, is an ordinary and necessary business expense, (2) is not an "excess parachute payment" within the meeting of Section 280G of the Code, (3) if the $1.0 million limitation of Section 162(m) of the Code is exceeded, the compensation qualifies as "performance based" under such section, and (4) Conrad Industries has timely and properly reported such compensation income to the Internal Revenue Service. The Board of Directors recommends that stockholders vote "FOR" the approval of an increase in the number of shares available under the 1998 Stock Plan. Proxies executed and returned will be so voted unless contrary instructions are indicated thereon. PROPOSAL NUMBER 3: RATIFICATION AND APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors has appointed the firm of Deloitte & Touche LLP as Conrad Industries' independent public accountants to make an examination of the accounts of Conrad Industries for the fiscal year ending December 31, 1999, subject to ratification by Conrad Industries' stockholders. Representatives of Deloitte & Touche LLP will be present at the Annual Meeting and will have an opportunity to make a statement, if they desire to do so. They will also be available to respond to appropriate questions from stockholders attending the Annual Meeting. The Board of Directors recommends that stockholders vote "FOR" ratification and approval of Deloitte & Touche LLP's appointment. Proxies executed and returned will be so voted unless contrary instructions are indicated thereon. 10
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COMPANY INFORMATION INFORMATION ABOUT THE CURRENT AND CONTINUING DIRECTORS ˇ Enlarge/Download Table Name Age Position ---- --- -------- J. Parker Conrad.................... 83 Co-Chairman of the Board of Directors (Class III) John P. Conrad, Jr.................. 55 Co-Chairman of the Board of Directors (Class III) William H. Hidalgo.................. 59 President, Chief Executive Officer and Director (Class II) Cecil A. Hernandez.................. 42 Vice President--Finance and Administration, Chief Financial Officer and Director (Class I) Michael J. Harris................... 49 Director (Class II) Louis J. Michot, Jr................. 76 Director (Class I) Richard E. Roberson, Jr............. 63 Director (Class III) Information regarding the business experience of Mr. Hernandez and Mr. Michot is set forth above under the heading "--Nominees for Director." J. Parker Conrad founded Conrad Industries and has served as Chairman of the Board of Conrad Industries from its inception in 1948 and as President of Conrad Industries from 1948 until 1994. Mr. Conrad has served as Co-Chairman of the Board of Conrad Industries since March 1998. Mr. Conrad is the father of John P. Conrad, Jr. John P. Conrad, Jr. has been with Conrad Industries since 1962, serving as Vice President of Conrad Industries since 1982 and as Co-Chairman of the Board of Conrad Industries since March 1998. Mr. Conrad founded Johnny's Propeller Shop, a marine-related service company, in 1963 and has been Chairman of the Board of this Company since its inception. Mr. Conrad is also the Chairman and President of Bay Star, a Houston-based paging company which Mr. Conrad founded in 1986. Additionally, Mr. Conrad is founder of Venture Transport, Inc., a specialized carrier in oil field and energy equipment, and has served on its Board of Directors since its inception in 1987. William H. Hidalgo has served as President and Chief Executive Officer of Conrad Industries since May 1994. Mr. Hidalgo has served as President, Chief Executive Officer and Director of Conrad Industries since March 1998. Prior to joining Conrad Industries, Mr. Hidalgo was employed by Oil & Gas Marine Service, Inc., a marine-related service company, from 1977 to 1994, and from 1988 to 1994 was responsible for all marine operations as Vice President and General Manager. Mr. Hidalgo has 35 years experience in the marine business and has been actively involved in the design, construction, repair, conversion, modification, and operation of marine vessels throughout his career. Mr. Hidalgo is a licensed professional Civil Engineer with extensive experience in the design and construction of energy related marine structures. Michael J. Harris has been a Director of Conrad Industries since the consummation of the initial public offering in June 1998. Mr. Harris is a Managing Director of Morgan Keegan & Company, Inc., where he has been employed since 1986. Morgan Keegan & Company, Inc. is a subsidiary of Morgan Keegan, Inc., a publicly traded firm providing securities brokerage, investment banking and other financial services. Mr. Harris has headed the Energy Investment Banking Group of Morgan Keegan since 1994 and prior to 1994 was the senior energy securities analyst. 11
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Richard E. Roberson, Jr. has been a Director of Conrad Industries since the consummation of the initial public offering in June 1998. Mr. Roberson served as Vice President, Chief Financial Officer, Treasurer and director of Global Industries, Ltd. from December 1992 to May 1996, when he retired. From March 1986 until September 1991, Mr. Roberson served as Vice President--Finance for Ocean Drilling & Exploration Company. Additionally, Mr. Roberson served as a director of UNIFAB International, Inc. from September 1997 to August 1998. Mr. Roberson has over 30 years of experience in the oil and gas and oil service industry, including over 20 years as an accounting and financial officer. DIRECTORS' MEETINGS AND COMPENSATION During 1998, the Board of Directors met three times and took certain additional actions by unanimous written consent in lieu of meetings. During 1998, no director of Conrad Industries attended fewer than 75 percent of the meetings of the Board of Directors. Conrad Industries' directors who are employees do not receive any cash compensation for service on the Board of Directors or any committee. The directors are, however, reimbursed for expenses incurred in connection with attending each board and committee meeting, and for other expenses incurred in their capacity as Directors. Directors who are not employees of Conrad Industries receive a fee of $12,000 annually, $1,000 for attendance at each Board of Directors meeting and $500 for each committee meeting attended (unless held on the same day as the Board of Directors meeting). Under the 1998 Stock Plan, each non-employee director receives (1) the grant of options to purchase 1,000 shares of Conrad Industries' common stock upon his initial election to the Board and (2) an annual grant of options to purchase 1,000 shares of Conrad Industries' common stock, in each case at the closing sales price of the common stock on the date of grant. BOARD COMMITTEES AND THEIR FUNCTIONS Conrad Industries' Board of Directors has an Audit Committee and a Compensation Committee, and does not have a Nominating Committee. The Audit Committee's functions include: . overseeing the performance and reviewing the scope of the audit function of the company's independent auditors; . reviewing audit plans and procedures; . reviewing the company's policies with respect to conflicts of interest; . reviewing the prohibition on the use of corporate funds or assets for improper purposes; . reviewing changes in accounting policies; and . reviewing the use of independent auditors for non-audit services. In addition, the Audit Committee makes annual recommendations to the Board of Directors for the appointment of independent public accountants for the ensuing year. Messrs. Harris, Roberson and Michot served as the members of the Audit Committee during 1998. The Compensation Committee's functions include: . reviewing salaries and other compensation of officers and key employees on an annual basis or whenever it is requested by the Board of Directors or the Chief Executive Officer; 12
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. preparing a report and submitting recommendations to the Board of Directors regarding salaries and compensation; . selecting officers and key employees for participation in incentive compensation plans and establishing performance goals for those officers and key employees and reporting to the full Board of Directors; . reviewing and monitoring benefits under all employee plans of the company and reporting, if the Compensation Committee deems it appropriate, to the full Board of Directors; . considering and making recommendations to the Board of Directors from time to time with respect to the management organization of the company, including recommending the election and appointment of officers of the company and reviewing plans providing for the orderly succession of the officers of the company; and . administering incentive compensation and stock plans, including the 1998 Stock Plan, as may be required by such plans, subject to the continuing supervision and control of the Board of Directors. The Compensation Committee also administers Conrad Industries' 1998 Stock Plan or other similar plan benefiting the employees and officers of Conrad Industries. Messrs. Harris, Roberson and Michot served as members of the Compensation Committee during 1998. During 1998, the Audit Committee met two times and the Compensation Committee met two times. During 1998, no director of Conrad Industries attended fewer than 75 percent of the number of meetings of committees on which he served. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to April 1998, the Board of Directors had no Compensation Committee, and J. Parker Conrad, John P. Conrad Jr., William H. Hidalgo and Cecil A. Hernandez participated in deliberations of Conrad Industries' Board of Directors concerning executive officer compensation. 13
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REPORT OF THE COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors currently consists of Michael J. Harris, Louis Michot, Jr. and Richard E. Roberson, Jr., none of whom are officers or employees of Conrad Industries. The Compensation Committee is responsible for evaluating the performance of management, determining salaries and bonuses for certain executive officers and key employees of Conrad Industries and administering Conrad Industries' 1998 Stock Plan. The Committee has furnished the following report on executive compensation for 1998: Under the supervision of the Compensation Committee, Conrad Industries has developed a compensation policy which is designated to attract and retain talented executives and employees responsible for the success of Conrad Industries and to motivate management to enhance long-term stockholder value. The annual compensation package for executive officers primarily consists of: . a cash salary which reflects the responsibilities relating to the position and individual performance; . variable performance awards payable in cash or stock and tied to the individual's or the company's achievement of certain goals or milestones; and . long-term stock based incentive awards which strengthen the mutuality of interests between the executive officers and key employees and the company's stockholders. In determining the level and composition of compensation of each of Conrad Industries' executive officers, including its Chief Executive Officer, the Compensation Committee takes into account various qualitative and quantitative indicators of corporate and individual performance. Although no specific target has been established, the Compensation Committee may review salaries of comparable peer group companies. In setting such salaries, the Compensation Committee considers its peer group to be certain companies in the ship building industry with market capitalizations similar to that of Conrad Industries. Consequently, in evaluating the performance of management, including that of the Chief Executive Officer, the Compensation Committee takes into consideration such factors as the company's financial results and operating performance in comparison with those of other companies in the industry. In addition, the Compensation Committee recognizes performance and achievements that are more difficult to quantify, such as the successful supervision of major corporate projects, demonstrated leadership ability and contributions to the industry and community development. Base compensation for executive officers, including the Chief Executive Officer, is generally established through negotiation between Conrad Industries and the executive officer at the time the executive is hired, and then subsequently adjusted when such officer's base compensation is subject to review or reconsideration. In 1998, Conrad Industries entered into employment agreements with J. Parker Conrad, John P. Conrad, Jr., William H. Hidalgo and Cecil A. Hernandez, and a subsidiary of Conrad Industries entered into an employment agreement with Ralph C. Thon. Such agreements provide for annual base salaries of $220,500, $200,000, $195,290, $150,000 and $85,000, respectively, which base salaries may be increased by the Board of Directors. The Board of Directors has not taken any action to increase the base salaries of such executive officers for the 1999 calendar year. When establishing or reviewing base compensation levels for each executive officer, the Compensation Committee, in accordance with its general compensation policy, considers numerous factors, including the responsibilities relating to the position, the qualifications of the executive and the relevant experience the individual brings to Conrad Industries, strategic goals for which the executive has responsibility, and compensation levels of comparable companies, and annual performance of the individual. No pre-determined weights are given to any one of such factors. In the first quarter of 1998, Conrad Industries issued shares of common stock to William H. Hidalgo, the President and Chief Executive Officer, and Cecil A. Hernandez, the Vice President--Finance and 14
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Administration and Chief Financial Officer, in consideration of past services rendered. The agreements related to such restricted stock provided 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 (1) the termination by the company of such executive's employment for reasons other than "cause" (as defined) or (2) the death, disability or retirement (at or after the age of 65) of such executive and would also lapse with respect to 33 1/3% of such restricted shares on each of the first three anniversaries of the completion of the company's initial public offering in June 1998. The shares of common stock of Conrad Industries 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 of the company completed prior to the initial public offering. In connection with the issuance of shares of Conrad Industries 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 expended 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, Mr. Hidalgo and Mr. Hernandez were granted stock options to purchase 250,000 and 114,043 shares, respectively, of common stock at $6.75 per share, the market price of the stock on the date of the award. In addition to each executive officer's base compensation, the Compensation Committee may award cash bonuses under an annual incentive plan and/or grant awards under Conrad Industries' 1998 Stock Plan to chosen executive officers depending on the extent to which certain defined personal and corporate performance goals are achieved. The Board of Directors has determined not to pay any cash bonuses under the annual incentive plan or make any award under the 1998 Stock Plan to any executive officer for 1998, except as described above. All employees of Conrad Industries, including its executive officers, are eligible to receive long-term stock based incentive awards under Conrad Industries' 1998 Stock Plan as a means of providing such individuals with a continuing proprietary interest in Conrad Industries. Such grants further the mutuality of interest between Conrad Industries' employees and its stockholders by providing significant incentives for such employees to achieve and maintain high levels of performance. Conrad Industries' 1998 Stock Plan enhances the company's ability to attract and retain the services of qualified individuals. Factors considered in determining whether such awards are granted to an executive officer of Conrad Industries include: . the executive's position in Conrad Industries, his or her performance and responsibilities; . the amount of stock options, if any, currently held by the officer; . the vesting schedules of any such options; and . the executive officer's other compensation. While the Compensation Committee does not adhere to any firmly established formulas or schedules for the issuance of awards such as options or restricted stock, the Compensation Committee will generally tailor the terms of any such grant to achieve its goal as a long-term incentive award by providing for a vesting schedule encompassing several years or tying the vesting dates to particular corporate or personal milestones. 15
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The management of Conrad reviewed with the Compensation Committee the substantial decline in the price of Conrad common stock from the date of the initial public offering to November 3, 1998, compared the Conrad common stock performance during this period with the common stock performance of Conrad's peer group, noted that given these facts, competitors could make job offers to key Conrad employees which could include stock option awards more valuable than the Conrad stock option awards held by employees, and recommended that the Compensation Committee consider repricing all of the Conrad stock option awards outstanding. In the fourth quarter of 1998, 125,500 employee stock options which had previously been issued to employees with an original exercise price of $12.00 per share were repriced at $6.75 per share, the market price of the common stock of Conrad Industries on the date of repricing. These included 12,000 options originally issued to Mr. Ralph C. Thon. Additionally, the Board of Directors determined that it was advisable to reprice options to the non- employee directors in order to encourage their continued involvement as directors of Conrad Industries. As a result, 1,000 employee stock options which had been issued to each of the non-employee directors, Messrs. Harris, Roberson and Michot, with an original exercise price of $12.00 per share, were also repriced during the fourth quarter of 1998. The new exercise price of the stock options, $6.75, represents the market price of the common stock of Conrad Industries on the date of repricing. The stock option repricing was approved or ratified by the entire Board of Directors. The foregoing report is given by the following members of the Compensation Committee: Michael J. Harris Richard E. Roberson, Jr. Louis Michot, Jr. 16
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EXECUTIVE COMPENSATION Executive Officers Set forth below is certain information concerning the executive officers of Conrad Industries, including the business experience of each during the past five years. ˇ Download Table Name Age Position with Conrad Industries ---- --- ------------------------------- J. Parker Conrad.................... 83 Co-Chairman of the Board John P. Conrad, Jr.................. 56 Co-Chairman of the Board William H. Hidalgo.................. 58 President and Chief Executive Officer Cecil A. Hernandez.................. 42 Vice President--Finance and Administration, Chief Financial Officer Ralph C. Thon....................... 56 General Manager--Orange Shipbuilding Information regarding the business experience of Messrs. Conrad, Conrad, Jr., Hidalgo and Hernandez is set forth above under the heading "Information about Current and Continuing Directors." Ralph C. Thon has been employed by Orange Shipbuilding as Chief Engineer from 1980 until 1997 and as General Manager since 1997. Mr. Thon has 37 years of experience in shipbuilding management. Compensation of Executive Officers Summary Compensation Table The following table provides certain summary information concerning compensation paid or accrued during the last two fiscal years to Conrad Industries' Chief Executive Officer and to each of the other executive officers of the company, determined as of the end of the last fiscal year, whose annual compensation exceeded $100,000. Further information with respect to each of the named executive officer's compensation is described below the table. ˇ Enlarge/Download Table Annual Compensation Long-Term Compensation -------------------------------------- ---------------------- Other Restricted Securities Name and Principal Annual Stock Underlying All Other Position Year Salary Bonus Compensation(1) Awards Options (#) Compensation(2) ------------------ ---- -------- -------- --------------- ---------- ----------- --------------- J. Parker Conrad........ 1998 $220,500 -- -- -- -- -- Co-Chairman of the 1997 $210,000 -- -- -- -- -- Board John P. Conrad, Jr. .... 1998 $200,000 -- -- -- -- -- Co-Chairman of the 1997 $150,000 $ 75,000 -- -- -- -- Board William H. Hidalgo...... 1998 $195,290 -- -- (4) 250,000 $2,500 President and Chief 1997 $185,990 $245,000 -- -- -- $2,375 Executive Officer Cecil A. Hernandez(3)... 1998 $150,000 -- -- (4) 114,043 $1,515 Vice President--Finance and Administration and Chief Financial Officer Financial Officer Ralph C. Thon........... 1998 $ 85,000 $ 32,000 -- -- 12,000 $2,500 General Manager--Orange Shipbuilding 17
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-------- (1) None of the executive officers has received perquisites, the value of which exceeded the lesser of $50,000 or 10% of the salary of such executive officer. (2) Consists of payments made by Conrad Industries under the company's 401(k) plan for the benefit of the executive officers. (3) Cecil A. Hernandez was not an employee of Conrad Industries in 1997. (4) Prior to the initial public offering of Conrad Industries, Messrs. Hidalgo and Hernandez were issued 385,695 and 153,819 shares of restricted common stock of Conrad Industries, respectively. Subsequently, 176,777 and 70,500 shares of such restricted stock, respectively, were surrendered by such executive officers. As of December 31, 1998, Messrs. Hidalgo and Hernandez held 208,918 and 83,319 shares of restricted common stock, respectively, which at the time of grant, prior to the initial public offering of Conrad Industries and therefore the existence of a public market for such stock, were valued at $401,123 and $159,972, respectively. As of March 31, 1999, using the closing sales price of Conrad Industries' common stock as reported by the Nasdaq Stock Market of $3.625, such shares of restricted stock were valued at $757,328 and $302,031, respectively. Of the 208,918 and 83,319 shares of restricted stock held by Messrs. Hidalgo and Hernandez, respectively, 192,848 and 76,910 shares of restricted stock, respectively, vested on March 31, 1998, and 16,070 and 6,409 shares of restricted stock, respectively, will vest on June 10, 1999. Dividends will be paid on the restricted stock reported if any are declared by the company. Option Grants During 1998 The following table provides certain information with respect to options granted to the Chief Executive Officer and to each of the executive officers named below during the fiscal year ended December 31, 1998, under our 1998 Stock Plan. The Securities and Exchange Commission requires disclosure of the potential realizable value or present value of each grant. The disclosure assumes the options will be held for the full 10-year term prior to exercise. These options may be exercised prior to November 2, 2008. The actual value, if any, an executive officer may realize will depend upon the excess of the stock price over the exercise price on the date the option is exercised. There can be no assurance that the stock price will appreciate at the rates shown in the table. As of March 31, 1999, the closing sales price of our common stock, as reported by the Nasdaq Stock Market, was $3.625 per share. ˇ Enlarge/Download Table Individual Grants ---------------------------------------------------- Potential Realizable Value at Assumed Number of Percent of Annual Rates of Stock Securities Total Options Price Appreciation Underlying Granted to Exercise for Option Term Options Employees in Price per Expiration --------------------- Name Granted (#) Fiscal Year Share Date 5% 10% ------------------------ ----------- ------------- --------- ---------------- ---------- ---------- William H. Hidalgo...... 250,000 100% $6.75 November 2, 2008 $1,062,500 $2,690,000 Cecil A. Hernandez...... 114,043 100% $6.75 November 2, 2008 $ 484,683 $1,227,103 Fiscal Year-End Option Values The following table sets forth certain information regarding (1) the number of shares of common stock underlying unexercised options held by the Chief Executive Officer and each Named Executive Officer as of December 31, 1998, and (2) the value, at December 31, 1998, of exercisable and unexercisable "in-the- money" stock options held by the Chief Executive Officer and each executive officer named in the Summary Compensation Table. Neither the Chief Executive Officer nor any other Named Executive Officer exercised any stock options during the year ended December 31, 1998. A stock option is "in-the-money" if the closing market price of the company's common stock exceeds the exercise price of the stock option. The value of "in-the-money" unexercised stock options set forth in the foregoing table represents the difference between the exercise price of these options and the closing sales price of our common stock on December 31, 1998, as reported by the Nasdaq Stock Market, $3.906 per share. 18
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1998 Option Values ˇ Download Table Number of Securities Underlying Unexercised Value of Unexercised Options at Fiscal In-the-Money Options at Year-End Fiscal Year End ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- William H. Hidalgo.......... -- 250,000 -- -- Cecil A. Hernandez.......... -- 114,043 -- -- Ralph C. Thon............... 4,000 8,000 -- -- Report on Repricing of Options The following table sets forth information concerning options to purchase common stock held by executive officers which were repriced on November 3, 1998. Amounts represent new stock options granted under Conrad Industries' 1998 Stock Plan and include both incentive and non-qualified stock options. One- third of such options become exercisable on each of December 10, 1998, June 10, 1999 and June 10, 2000. The exercise price of each option represents the market price of the common stock on the date of grant. ˇ Download Table Length of Original Option Term Number of Market Remaining Securities Price of Exercise at Date of Date Underlying Stock at Price at New Repricing Name and Principal Options Options Time of Time of Exercise---------- Position Repriced Repriced Repricing Repricing Price Years Days ------------------ -------- ---------- --------- --------- -------- ----- ---- Ralph C. Thon........... 11/3/98 12,000 $6.75 $12.00 $6.75 9 219 General Manager--Orange Shipbuilding 19
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Performance Graph The following performance graph compares Conrad Industries' cumulative total stockholder return on its common stock to the cumulative total return of the Nasdaq Composite Index and to a peer group stock index which consists of the publicly-traded companies which perform construction, conversion and repair of marine vessels. The companies that comprise the peer group index are: Halter Marine Inc. and Friede Goldman International Inc. The graph covers the period from June 10, 1998 (the initial trading date of the common stock) to December 31, 1998. The graph assumes that the value of the investment in Conrad Industries' common stock and each index was 100 at June 10, 1998 and that all dividends were reinvested. COMPARISON OF 6 MONTH CUMULATIVE TOTAL RETURN* AMONG CONRAD INDUSTRIES, INC., THE S & P SMALLCAP 600 INDEX AND A PEER GROUP [Performance Graph Appears Here] 6/10/98 12/31/98 --------- ---------- Conrad Industries, Inc. 100 33 Peer Group 100 34 S&P Smallcap 600 100 97 20
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Stock Plan The Conrad Industries, Inc. 1998 Stock Plan was adopted by the Board of Directors of the company and approved by the company's stockholders in March 1998. The 1998 Stock Plan permits the granting of any or all of the following types of awards ("Awards"): stock appreciation rights, stock options, restricted stock, dividend equivalents, performance units, automatic director options, phantom shares, limited stock appreciation rights ("LSARs"), bonus stock and cash tax rights. All officers and employees of, and any consultants to, the company or any affiliate of the company will be eligible for participation in all Awards under the 1998 Stock Plan other than director options. Each non-employee director of the company is entitled to receive (1) the grant of options to purchase 1,000 shares of Conrad Industries' common stock upon his initial election to the Board and (2) an annual grant of options to purchase 1,000 shares of Conrad Industries' common stock, in each case at the closing sale price of the common stock on the date of grant. An aggregate of 700,000 shares of common stock have been authorized and reserved for issuance pursuant to the 1998 Stock Plan. As of the date of this Proxy Statement, options to purchase an aggregate of 492,543 shares of common stock have been granted under the 1998 Stock Plan. The 1998 Stock Plan is administered by the Compensation Committee of the company's Board of Directors. The Compensation Committee selects the participants who will receive Awards, determine the type and terms of Awards to be granted and interpret and administer the 1998 Stock Plan. No Awards may be granted under the 1998 Stock Plan after March 31, 2008. The Board of Directors has approved, subject to stockholder approval, an amendment to the 1998 Stock Plan to increase the maximum number of shares of common stock issuable under the 1998 Stock Plan from 700,000 shares to 950,000 shares. See "Proposal Number 2: Approval of Increase in the Number of Shares Available Under the 1998 Stock Plan." 401(k) Plan Conrad Industries maintains a retirement savings plan, effective as of August 1997, in which eligible employees of Conrad Industries may elect to participate. The plan is an individual account plan providing for deferred compensation as described in Section 401(k) of the Code and is subject to, and intended to comply with, the Employee Retirement Income Security Act of 1974. Each eligible employee is permitted to defer receipt of up to 15% of his annual salary up to the applicable statutory maximum prescribed in the Code. Conrad Industries may, in its discretion, match employee deferrals in cash, but this company contribution may not exceed an amount equal to five percent of the employee's salary. Conrad Industries currently has elected to match $0.25 for each $1.00 of employee deferral. The amounts held under the 401(k) Plan are invested among various investment funds maintained under the 401(k) Plan in accordance with the directions of each participant. Salary deferral contributions under the 401(k) Plan are 100% vested. Matching contributions vest over a period of four years after an employee completes two years of service with Conrad Industries. Participants or their beneficiaries are entitled to payment of vested benefits upon termination of employment. Conrad Industries made contributions of approximately $88,000 under the 401(k) plan in 1998. Annual Incentive Plan Conrad Industries has established an annual incentive plan under which key employees will be awarded cash payments based upon the achievement of certain performance goals. The aggregate amount shall not exceed five percent of the company's EBITDA (defined as operating income before depreciation, amortization and non-cash compensation expenses related to issuance of stock and stock options to employees). The Board of Directors will determine the actual amount of the bonus pool, subject to this limitation, and the key employees who would be recipients of any such cash bonuses and the individual amount of the cash bonus for each such key employee. 21
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Employment Agreements with Directors and Executive Officers Conrad Industries has entered into employment and non-competition agreements with each of J. Parker Conrad, John P. Conrad, Jr., William H. Hidalgo and Cecil A. Hernandez. Orange Shipbuilding has entered into a similar agreement with Ralph C. Thon. These agreements prohibit such officers from disclosing Conrad Industries' confidential information and trade secrets and generally restrict these individuals from competing with Conrad Industries for a period of two years after the termination of their employment. Each of these agreements has an initial term of three years and provides for annual extensions at the end of its initial term, subject to the parties' mutual agreement, and is terminable by the employer for "cause" upon ten day's notice and without "cause" (1) by the employee upon 30 days' written notice and (2) by the employer upon approval by a majority of the Board of Directors. The employment agreements provide that the employer shall pay a base salary of $220,500 to J. Parker Conrad, $200,000 to John P. Conrad, Jr., $195,290 to William H. Hidalgo, $150,000 to Cecil A. Hernandez and $85,000 to Ralph C. Thon, which base salaries may be increased by the Board of Directors. Such agreements also provide that each executive officer will be reimbursed for out- of-pocket business expenses and that each executive officer shall be eligible to participate in all benefit plans and programs as are maintained from time to time by the employer. Each employment agreement provides that if the officer's employment is terminated by the employer without "cause" or is terminated by the officer for "good reason," the officer shall be entitled to receive a lump sum severance payment at the effective time of termination equal to the base salary (at the rate then in effect) for the greater of (1) the time period remaining under the term of the agreement or (2) one year. In addition, the time period during which such officer is restricted from competing with Conrad Industries will be shortened from two years to one year. The employment agreements also provide that if the officer's employment is terminated within two years following a change in control by Conrad Industries other than for "cause" or by the officer for "good reason," or the officer is terminated by Conrad Industries within three months prior to the change in control at the request for the acquirer in anticipation of the change in control, (1) the officer will be entitled to receive a lump sum severance amount equal to the greater of (a) in the case of J. Parker Conrad, John P. Conrad, Jr., and William H. Hidalgo, three years' base salary and, in the case of Cecil A. Hernandez and Ralph C. Thon, two years' base salary or (b) the base salary for whatever period is then remaining on the initial term; (2) the provisions which restrict competition with Conrad Industries shall not apply; and (3) if any payment to the officer is subject to the 20% excise tax on excess parachute payments, the officers shall be made "whole" on a net after tax basis. A change in control is generally defined to occur upon (1) the acquisition by any person of 50% or more of the total voting power of the outstanding securities of Conrad Industries, (2) the first purchase pursuant to a tender or exchange offer for Common Stock, (3) the approval by the stockholders of Conrad Industries of certain mergers, sale of substantially all the assets, or dissolution of Conrad Industries or (4) a change in a majority of the members of Conrad Industries' Board of Directors. In general, a "parachute payment" is any payment made by Conrad Industries in the nature of compensation that is contingent on a change in control of Conrad Industries and includes the present value of the accelerations of vesting and the payment of options and other deferred compensation amounts upon a change in control. If the aggregate present value of the parachute payments to certain individuals, including officers, equals or exceeds three times that individual's "base amount" (generally, the individual's average annual compensation from Conrad Industries for the five calendar years ending before the date of the exchange in control), then all parachute amounts in excess of the base amount are "excess" parachute payments. An individual will be subject to a 20% excise tax on excess parachute amounts and Conrad Industries will not be entitled to a tax deduction for such payments. TRANSACTIONS WITH CERTAIN AFFILIATES During 1998, Conrad Industries purchased in its ordinary course of business certain components from Johnny's Propeller Shop, a company wholly owned by John P. Conrad, Jr., Co-Chairman of the Board of 22
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