Revolving Credit Facility

LOAN AGREEMENT


This Agreement is dated as of May 22, 1998 and is by and among Whitney National Bank ("Lender"), a national banking association, and Conrad Industries, Inc. ("Borrower"), a Louisiana corporation and Orange Shipbuilding Company, Inc., a Texas corporation, ("Orange" or a "Guarantor", as applicable), a Texas corporation.


WITNESSETH:


WHEREAS, Lender, Borrower and Orange entered into a Loan Agreement, dated as of March 19, 1998, covering a term loan in the sum of Twenty-five Million and No/100 ($25,000,000.00) Dollars (the "Initial Loan Agreement");


WHEREAS, the Borrower has requested Lender to make a Line of Credit in the amount of $10,000,000 that may be used to fund (i) the working capital needs of Borrower, (ii) the short term funding of capital expenditures and acquisitions by Borrower on terms acceptable to Lender and /or (iii) a dividend to certain of Borrower's shareholders and Lender has agreed to the Line of Credit upon the terms and conditions set forth.


NOW THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Borrower, Orange and Lender agree to amend and restate Initial Loan Agreement as follows:


SECTION I. DEFINITIONS


For the purpose of this Agreement, the following terms shall have the meanings specified below:


"Advance" shall mean a disbursement under the Line of Credit.


"Advance Request" shall mean the Borrower's request for an Advance.


"Agreement" shall mean this Loan Agreement, as it may be amended from time to time.


"Base Rate" shall mean the Prime Rate minus the applicable margin of 50 basis points during any Interest Period. Prime Rate shall mean that rate of interest as recorded by Whitney National Bank from time to time as its prime lending rate with the rate of interest to change when and as said prime lending rate changes. The Prime Rate is not necessarily the lowest interest rate charged by Whitney National Bank. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Prime Rate shall take effect at the time of such change in the Prime Rate.


"Business Day" shall mean any day on which banks are required to be open to carry on their normal business in the State of Louisiana.


"Capital Expenditures" shall mean as to any Person, without duplication and for any period, the cost attributed, in accordance with GAAP consistent with those applied in preparation of the financial statements referred to in Section 5.2 hereof, to acquisitions during such period by such Person of any asset, tangible or intangible, or replacements or substitutes therefor or additions thereto which such


Person treated as a noncurrent asset on such Person's financial statements, including, without limitation, the acquisition or construction of assets having a useful life of more than one (1) year, excluding the cost associated with the purchase of the stock of Orange.


"Closing Date" shall mean the date this Agreement is duly executed by Lender and the Borrower and Orange.


"Company Agent" shall mean William H. Hidalgo or Cecil A. Hernandez.


"Conrad Shipyard" shall mean the approximately 11 acres of immovable property on the Atchafalya River, Morgan City , Louisiana, owned by Conrad and which is the Borrower's shipyard in Morgan City, Louisiana, as described on Exhibit A.


"Consolidated" refers to the consolidation of any Person, in accordance with GAAP, with its properly consolidated subsidiaries. References herein to a Person's consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the condition, liabilities, etc. of such Person and its properly consolidated subsidiaries.


"Consolidated Funded Debt" shall mean all Debt or other obligations for borrowed money or for the deferred purchase price of property or services, whether as maker or endorser, of Borrower, its Parent Company and all of its Subsidiaries (including without limitation, all notes, debentures, bonds or similar instruments and all liabilities shown on a balance sheet or financial statement of Borrower, its Parent Company and all of its Subsidiaries)


"Consolidated Funded Debt Payments" shall mean, at a particular date all principal and interest payments of Consolidated Funded Debt as required by the terms of the documents evidencing such Debt and excluding any prepayments of principal or interest thereunder.


"Current Assets" means, at a particular date, all amounts which would, in conformity with generally accepted accounting principles in the United States of America in effect from time to time and applied on a consistent basis, be included under current assets on a balance sheet of the Borrower, its Parent Company and all of its Subsidiaries at such date.


"Current Liabilities" means, at a particular date, all amounts which would, in conformity with generally accepted accounting principles in the United States of America in effect from time to time and applied on a consistent basis, be included under current liabilities on a balance sheet of the Borrower, its Parent Company and all of its Subsidiaries as at such date.


"Debt" of a Person shall mean at a particular date, the sum (without duplication and in conformity with GAAP of (i) all indebtedness or other obligations for borrowed money or for the deferred purchase price of property or services, whether as maker or endorser, (including without limitation, all notes, debentures, bonds or similar instruments and all liabilities shown on a balance sheet or financial statement of Borrower, its Parent Company and all of its Subsidiaries), (ii) capitalized lease obligations of such Person or any subsidiary thereof, (iii) obligations with respect to any installment sale or conditional sale agreement or title retention agreement, (iv) indebtedness arising under acceptance facilities, (v) reimbursement obligations arising in connection with surety, or performance or other similar bonds and in connection with letters of credit issued in lieu of such bonds, (vi) the outstanding


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amount of all other letters of credit and (vii) any withdrawal liability or obligation of such Person or an ERISA affiliate to a multiemployer plan.


"Debt to Worth Ratio" shall mean the ratio for a given period of Debt to Tangible Net Worth.


"Default" shall mean the occurrence of any of the events specified in Section VI.


"EBITDA" shall mean the net income after taxes of Borrower, its Parent Company and all of its Subsidiaries for each fiscal year of four consecutive quarters, plus all amounts deducted in determining such net operating income after taxes on account of (a) all interest paid or payable by Borrower, its Parent Company and all of its Subsidiaries during such period, (b) all taxes paid or accrued based on or measured by income and (c) all depreciation and amortization expenses accrued during such period, all in accordance with GAAP.


"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.


"Eligible Income" shall mean EBITDA minus (i) Capital Expenditures and (ii) state and federal income taxes for the applicable accounting period.


"Financial Covenants" shall mean all of the financial covenants to be met by Borrower on a consolidated basis as described in Section 5.01.


"Fixed Charges Coverage Ratio" shall mean the ratio calculated on a rolling four quarter basis over the life of the Loan of Eligible Income to Consolidated Funded Debt Payments.


"GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time.


"Governmental Authority" means any sovereign state or nation or government, or any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation, the United States Department of Defense, the United States Navy, the United States Coast Guard and United States Army Corp of Engineers.


"Government Contracts" shall have the meaning as provided in Section 4.20.


"Guarantors" shall mean Orange and J. Parker Conrad (with each a "Guarantor").


"Hazardous Materials" shall mean:


(a) any "hazardous waste" as defined by either the Resource Conservation
and Recovery Act of 1976 (42 U.S.C. (S)6901 et. seq.), as amended from
time to time, and regulations promulgated thereunder;


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(b) any "hazardous substance" as defined by either the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. (S)9601 et. seq.) ("CERCLA"), as amended from time to time, and
regulations promulgated thereunder;


(c) asbestos;


(d) polychlorinated biphenyls;


(e) any "regulated substance" as defined under Underground Storage Tank
Regulations, 53 Fed. Reg. 37196 (Sept. 23, 1988), codified as 40 C.F.R.
(S) 280.12, or La. Adm. Code 33:XI.103;


(f) any naturally occurring radioactive materials, the possession, use,
transfer, processing, distribution, or disposal of which is subject to
regulation by the Louisiana Department of Environmental Quality
pursuant to the provisions of La. Adm. Code 33:XV, Chapter 14, as
amended from time to time;


(g) any non-hazardous oil field wastes ("Now") defined and regulated by the
Commissioner of Conservation under La. R.S. 30:1, et seq., or the
Louisiana Abandoned Oil field Waste Site Law, La. R.S. 30:71 et seq.,
as amended from time to time, and regulations promulgated thereunder;


(h) any substance the presence of which on the Property is prohibited by
any lawful rules and regulations of legally constituted authorities
from time to time in force and effect relating to the Property,
including but not limited to any solid waste and underground storage
tanks subject to the regulations of the Louisiana Department of
Environmental Quality ; and


(i) any other substance which by any such rule or regulation requires
special handling in its collection, storage, treatment, or disposal.


"Hazardous Materials Contamination" shall mean (i) the contamination (whether presently existing or hereafter occurring) of the Property, including the improvements, facilities, soil, ground, water, air or other elements on, or of, the Property by Hazardous Materials, (ii) the contamination of the Property, including the buildings, facilities, soil, ground, water, air or other elements on, or of, any other property as a result of Hazardous Materials at any time (whether before or after the date of this Loan Agreement) emanating from the Property or (iii) the existence of an underground storage tank which is out-of- service or must be removed in accordance with La. Adm. Code 33:XI, et seq.


"Interest Period" shall mean at the time the Borrower gives a Notice of Conversion (as defined in Section 2.03) in respect of the making of, or converting the interest rate on the Loan to accrue at Libor Rate or Base Rate on the last Business Day prior to the expiration of the then applicable Interest Period, the Borrower shall have the right to elect, by having the Borrower Agent give Lender notice thereof the interest period (each an "Interest Period") applicable to Libor Rate or Base Rate, which Interest Period shall, at the option of the Borrower, be one month, two month, three month or six month period for Libor Rate or a thirty day for Base Rate; provided that:


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(i) the Loan shall at all times accrue interest at the rate chosen during
the applicable Interest Period;


(ii) the Interest Period for any Libor Rate or Base Rate shall commence on
the day on which the preceding Interest Period thereto expires;


(iii) if any Interest Period would otherwise expire on a day which is not a
Business Day, such Interest Period shall expire on the next succeeding
Business Day; provided, however, that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;


(iv) no Interest Period may be selected nor the rate of interest be changed
at any time when a Default is then in existence; and


(v) no Interest Period shall be selected which extends beyond the
respective Maturity Date for the Loan.


If upon the expiration of any Interest Period, the Borrower have failed to elect, or are not permitted to elect, a new Interest Period, the Borrower shall be deemed to have elected to have the Loan accrue interest equal to the Base Rate effective as of the expiration date of such current Interest Period.


"Libor Rate" shall mean, for any Interest Period, an interest rate per annum (rounded upward to the nearest hundredths of a percent), as determined by Lender, which is the offered quotation to Lender of the London interbank offered rates for Dollar deposits of amounts in immediately available funds in the London market for one month, two months, three months or six months as recorded by the Dow Jones Telerate Service, as of the opening of business of Lender or as soon thereafter as practicable, for a period to accrue equal to such Interest Period, plus the applicable margin of 200 basis points (2.00% percent). As of March 19 1998, the Libor Rate with a six month maturity was five and 68/10 (5.68%) percent plus the margin is a total rate of seven and 68/100 (7.68%) percent per annum.


"Lien" shall mean any mortgage, pledge, hypothecation, security interest, encumbrance, lien, judgment, garnishment, seizure, tax lien or levy (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, or any capitalized lease, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction).


"Line Note" shall mean the note evidencing the Line as described in Article II.


"Line of Credit" shall mean the $10,000,000.00 line of credit as described in Article II.


"Loan" shall mean collectively the Line of Credit and the Term Loan and shall include all principal, interest, attorney's fees and costs owed thereon.


"Net Tangible Assets" of any Person shall mean, as of any date, the aggregate book value of the assets which would be reflected on a balance sheet of such Person prepared as of such date in accordance


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with GAAP, less the aggregate book value of such Person's intangible assets (i.e., patents, copyrights, trademarks, trade names, goodwill, franchises and other similar intangibles) as of such date.


"Note" shall mean collectively the Line Note and other notes evidencing the Loan.


"Obligations" shall mean all obligations (monetary or otherwise, including, but not limited to, all representations, warranties and covenants contained in this Agreement) of the Borrower to Lender, whether direct or contingent, due or to become due, now existing or hereafter arising, including future advances, with interest, attorneys' fees, expenses of collection and costs arising under or in connection with this Agreement, the Loan, the Note, the Collateral Documents, promissory notes, checks, overdrafts, letter of credit agreements, endorsements and continuing guaranties.


"Orange Shipyard" shall mean the approximately 12 acres of real property on the Sabine River, Orange, Texas, owned by Orange Shipbuilding Company, Inc. and which is Orange's shipyard, as described on Exhibit B.


"Parent Company" shall mean a Delaware corporation to be created with the same name as Borrower which will own all of the capital stock of Borrower.


"Permitted Liens" shall mean those presently outstanding Liens of the Borrower and (i) pledges or deposits by the Borrower under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Debt of the Borrower) or leases (other than capitalized leases) to which the Borrower is a party, or deposits to secure statutory obligations of the Borrower or deposits of cash or U.S. Government Bonds to secure surety or appeal bonds to which the Borrower is a party, or deposits as security for contested taxes or import duties or for the payment of rent; (ii) Liens imposed by law, such as carriers', warehousemen's, materialmen's and mechanics' liens, incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on the Borrower's books; (iii) judgment Liens in existence less than 30 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance; (iv) Liens for property taxes not yet delinquent and Liens for property taxes the payment of which is being actively contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on the Borrower's books; and (v) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for rights-of-way, highways and railroad crossings, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of the Borrower or to the ownership of its property which were not incurred in connection with Debt of the Borrower, which Liens do not in the aggregate materially detract from the value of said properties or materially impair their use in the operation of the business taken as a whole of the Borrower.


"Person" shall mean and include an individual, a partnership, a joint venture, a corporation (including the Borrower), a trust, an unincorporated organization, government or any department or agency thereof, each Affiliate and each Subsidiary.


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"Plan" shall mean any employee benefit plan which is covered by ERISA and in respect of which the Borrower is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.


"Property" shall mean the Conrad Shipyard and the Orange Shipyard and any other immovable or real property owned by the Borrower, its Parent Company or any of its Subsidiaries.


"Subsidiary" shall mean, with respect to any Person, any corporation, association, partnership, joint venture or other business or corporate entity, enterprise or organization which is directly or indirectly (through one or more intermediaries) controlled by or owned 50% or more by such Person.


"Tangible Net Worth" means, at a particular date, all amounts which would be included under shareholders' equity on the balance sheet of Borrower, its Parent Company and all of its Subsidiaries in conformity with generally accepted accounting principles in the United States of America in effect from time to time and applied on a consistent basis excluding any amount attributable to goodwill or other intangibles of Borrower, its Parent Company and all of its Subsidiaries.


"Term Loan" shall mean Borrower's existing term loan described in Section 2.02 (a).


"Unused Line of Credit" shall mean $10,000,000.00 minus the outstanding principal balance of the Line of Credit.


SECTION II
THE CREDIT


SECTION 2.01. COMMITMENT TO LEND. Subject to and upon the terms and conditions contained in this Agreement, and relying on the representations and warranties contained in this Agreement, Lender agrees to make the Line of Credit to the Borrower, said extension of credit being more particularly described hereinafter.


SECTION 2.02. (a) TERM LOAN. On March 15, 1998, Lender lent to the Borrower the principal sum of Twenty-five Million and No/100 ($25,000,000.00) Dollars (the "Term Loan") which was evidenced by a promissory note payable to the order of Lender in the amount of $25,000,000.00, with interest to accrue at the Libor Rate or Base Rate in accordance with Section 2.03. The Term Loan was initially payable interest only on the last day of each month commencing March 31, 1998 and thereafter on the last day of each month until May 31, 1998. Thereafter, the Term Loan shall be payable in 70 equal monthly principal payments of $209,000.00, plus accrued interest with a final payment of all unpaid principal and interest then due payable on April 30, 2004. The first installment of principal and interest on the Term Loan shall be payable on June 30, 1998 with the succeeding installments payable on the last day of each month until the Term Loan has been paid in full. Borrower hereby acknowledges and affirms the Term Loan.


(b) LINE OF CREDIT. Subject to and upon the terms and conditions contained in this Agreement, and relying on the representations and warranties contained in this Agreement, the Lender agrees to make Advances to Borrower periodically during the Line of Credit Period in an aggregate principal amount outstanding not to exceed the sum of TEN MILLION AND NO/100 ($10,000,000.00) DOLLARS (the "Line of Credit"). On April 30, 1999, Lender's obligations to make any Advance on the


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Line of Credit shall cease. The Line of Credit shall be evidenced by a promissory note executed by the Borrower in a form acceptable to Lender, dated the Closing Date, in the principal sum of $10,000,000.00, payable to the order of the Lender on April 30, 1999. During the Line of Credit Period, the Advances shall accrue interest at Libor Rate or Base Rate in accordance with Section 2.03 and shall be payable interest only monthly in arrears on the last day of each month, beginning May 30, 1998, and continuing on the last day of each succeeding month until April 30, 1999.


(c) ADVANCES. Upon the terms and subject to the conditions hereof, Borrower may request an Advance under the Line of Credit during Lender's regular business hours in accordance with the provisions of Section 2.03. Borrower shall make a request for an Advance under the Line of Credit by delivering to Lender by mail, hand-delivery, facsimile or by telephonic notice to Lender's applicable officer specifying (i) the amount to be borrowed, and (ii) the date the funds will be borrowed, and all Advance Requests shall be made by the Borrower's Agent. Borrower hereby authorizes Company's Agent to borrow money and contract obligations with Lender. Until Borrower notifies Lender in writing of the withdrawal of Company's Agent's rights and powers, Lender shall be able to rely conclusively upon the right of Company's Agent to make Advances on behalf of Borrower. Borrower agrees that only its duly authorized Company's Agent shall make an Advance under the Line of Credit.


All proceeds of any Advance shall be deposited to Borrower's account at Lender.


(d) CREDIT ADVICE. After the borrowing of any Advance in accordance with this Agreement, Lender will mail to Borrower at the most recent address shown on Lender's records a credit advice showing the amount of the Advance and the amount of funds credited into Borrower's Account. Within ten (10) days after the date of such advices, Borrower shall notify Lender of any inaccuracy in the credit advices or the lack of authority to borrow the Advance. Failure by Borrower to notify Lender timely shall preclude the Borrower from asserting against Lender the inaccuracy of such advices and/or the lack of authorization of such Advance. Lender's failure to mail the credit advice shall not alter Borrower's obligation to repay the Line of Credit or make Lender liable to Borrower for failure to mail the credit advice.


(e) INTERNAL RECORDS SHALL CONTROL. The principal amount shown on the face of the Line Note evidences the maximum aggregate principal amount that may be outstanding on the Line of Credit. Borrower agrees that the internal records of Lender shall constitute for all purposes prima facie evidence of (i) the amount of principal and interest owing on the Loan from time to time, (ii) the amount of each Advance made to Borrower under the Line of Credit and (iii) the amount of each principal and/or interest payment received by Lender on the Loan, unless such internal records of Lender are manifestly erroneous.


SECTION 2.03. CONVERSION. (a) The Borrower has previously determined that the Term Loan shall accrue interest at Libor Rate with an Interest Period to expire on September 18, 1998. On the date of the initial Advance, Borrower will determine the Interest Period and whether the Advance will accrue interest at Libor Rate or the Base Period. Upon the expiration of such Interest Period and any Interest Period thereafter, the Borrower shall have the option to convert the interest rate accruing on all (but not less than all) of the outstanding principal balance of the Term Loan or the Line of Credit, as applicable, into a Libor Rate or Base Rate; provided that (i) a Loan can not be converted when any Default has occurred and is continuing and in such event the Loan shall continue to accrue interest at the rate in


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effect as of the date of such Default, and (ii) no conversions of any Loan are allowed until the expiration of the Interest Period applicable to the existing rate of interest has expired.


(b) Each conversion shall be enacted by the Company Agent by giving Lender at its main office prior to 11:00 a. m. (New Orleans time) on or before the last Business Day of the applicable Interest Rate Period written or telephone notice of the conversion (each a "Notice of Conversion") specifying if the applicable Loan is to be converted into accruing interest at Libor Rate or Base Rate and the Interest Period to be applicable thereto. In the absence of any specific rate election by the Borrower or if Borrower fails to provide such notice to the Lender in a timely manner, the Loan shall accrue interest at the Base Rate. Borrower may prepay the Loan without payment of premium or penalty.


(c) Interest on the outstanding principal owed on the Loan shall be computed and assessed on the basis of the actual number of days elapsed over a year composed of 360 days.


SECTION 2.04. INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that Lender shall have determined in good faith (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto):


(i) on any Interest Period or date of conversion that, by reason of
any changes arising after the date of this Agreement affecting the
London interbank market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Libor Rate; or


(ii) at any time, that Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with
respect to any Libor Rate because of any change since the date of this
Agreement in any applicable law or governmental rule, regulation,
order, guideline or request or in the interpretation or administration
thereof and including the introduction of any new law or ...