Document:

EXHIBIT 10.3

                           SDS NOTE EXCHANGE AGREEMENT

     SDS NOTE EXCHANGE AGREEMENT, dated as of November 11, 2002 (this
"Agreement"), by and between FiberNet Telecom Group, Inc., a Delaware
corporation (the "Company"), and SDS Merchant Fund, L.P. (the "Purchaser").

                                 R E C I T A L S

     WHEREAS, the Purchaser holds that certain promissory note, issued on March
14, 2002 by the Company, in the initial principal amount of $2,000,000.00, as
amended by the Amendments dated June 14, 2002, June 28, 2002, July 12, 2002,
August 13, 2002, August 30, 2002, October 4, 2002 and October 18, 2002 (the
"Note");

     WHEREAS, the Company desires to issue to the Purchaser, in exchange for the
Note, shares of the Company's common stock, par value $.001 per share (the
"Common Stock");

     WHEREAS, the Company is a party to that certain Common Stock Purchase
Agreement, dated even date herewith, among the Company, the Purchaser and
investors named therein (the "Purchase Agreement"); and

     WHEREAS, the Company and the Purchaser desire to enter into this Agreement
to set forth certain matters relating to such exchange.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:

                                   ARTICLE I.

                                    Exchange

     Section 1.1. Exchange of Note for Shares. Upon the following terms and
conditions, and in consideration of and in express reliance upon such terms and
conditions and the representations, warranties and covenants of this Agreement,
the Purchaser shall surrender to the Company for exchange, the Note, together
with all appropriate indorsements and instruments of transfer, and, in exchange
therefor, the Company shall issue to the Purchaser 52,000,000 shares of Common
Stock (the "Shares"). The Shares shall be "Registrable Securities" as defined in
the Registration Rights Agreement (as defined in the Purchase Agreement).
Notwithstanding Section 1(c) of the Note, the transaction contemplated by this
Agreement is in no way prohibited by the terms of Section 1(c) of the Note and
constitutes a transaction contemplated by such section. The exchange described
in this Section 1.1 is referred to herein as the "Exchange".

     Section 1.2. Closing. The closing (the "Closing") of the Exchange shall
take place at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New
York, NY 10019 at 10 a.m. New York time on November 11, 2002, or such other
date, time and place as shall be agreed upon by the Company and the Purchaser.
The date of the Closing is referred to herein as the "Closing Date".

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                                  ARTICLE II.

                         Representations and Warranties

     Section 2.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser, as of the date hereof and the
Closing Date, as follows:

     (a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite power to own, lease and operate its
properties and assets and to conduct its business as it is now being conducted.
The Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary except for
any jurisdictions (alone or in the aggregate) in which the failure to be so
qualified will not have a Material Adverse Effect. For the purposes of this
Agreement, "Material Adverse Effect" means any condition, circumstance, or
situation that would prohibit or hinder the Company from executing this
Agreement and/or performing any of its obligations hereunder or thereunder in
any material respect.

     (b) Authorization; Enforcement. The Company has the requisite power and
authority to enter into and perform this Agreement and to consummate the
Exchange. The execution, delivery and performance of this Agreement by the
Company have been duly and validly authorized by all necessary corporate action,
and no further consent or authorization is required for the Company to effect
the transactions contemplated hereby. When executed and delivered by the
Company, the Agreement shall constitute a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor's rights and remedies or
by other equitable principles of general application.

     (c) Issuance of Shares. The Shares have been duly authorized by all
necessary corporate action and, when issued in accordance with the terms hereof
upon surrender of the Note in the Exchange, the Shares shall be validly issued
and outstanding, fully paid and non-assessable.

     (d) No Conflicts. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby does not and will not (i) violate any provision of the
Company's Certificate of Incorporation or Bylaws, each as amended to date, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party or by which any of the
Company's properties or assets are bound, or (iii) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or by which any property or asset of the Company is bound or
affected, except, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations

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and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The Company is not required under federal, state, foreign or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or consummate the Exchange in accordance with the terms hereof (other
than any filings, consents and approvals which may be required to be made by the
Company under applicable state and federal securities laws, rules or
regulations, or the rules of the Nasdaq SmallCap Market, prior to or subsequent
to the Closing).

     Section 2.2. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company, as of the date hereof and as of
the Closing Date, as follows:

     (a) Organization and Standing of the Purchaser. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization.

     (b) Authorization and Power. The Purchaser has the requisite power and
authority to enter into and perform this Agreement and to consummate the
Exchange. The execution, delivery and performance of this Agreement by the
Purchaser and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary organizational action, and no further
consent or authorization is required for the Purchaser to effect the
transactions contemplated hereby. When executed and delivered by the Purchaser,
this Agreement shall constitute valid and binding obligations of the Purchaser
enforceable against the Purchaser in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.

     (c) No Conflict. The execution, delivery and performance of this Agreement
by the Purchaser and the consummation by the Purchaser of the transactions
contemplated hereby does not and will not (i) violate any provision of the
Purchaser's organizational documents, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Purchaser is a party or by which the Purchaser's properties or assets
are bound, or (iii) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Purchaser or by
which any property or asset of the Purchaser is bound or affected, except, in
all cases, other than violations pursuant to clauses (i) or (iii) (with respect
to federal and state securities laws) above, except, for such conflicts,
defaults, terminations, amendments, acceleration, cancellations and violations
as would not, individually or in the aggregate, materially and adversely affect
Purchaser's ability to perform its obligations hereunder.

     (d) Acquisition for Investment. The Purchaser is acquiring the Shares
solely for its own account for the purpose of investment and not with a view to
or for sale in connection with any

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<PAGE>

distribution. The Purchaser does not have a present intention to sell any of the
Shares, nor a present arrangement (whether or not legally binding) or intention
to effect any distribution of any of the Shares, to or through any person or
entity.

     (e) Assessment of Risks. The Purchaser acknowledges that it (i) has such
knowledge and experience in financial and business matters that such Purchaser
is capable of evaluating the merits and risks of such Purchaser's investment in
the Company (by virtue of its purchase of Shares hereunder), (ii) is able to
bear the financial risks associated with an investment in the Shares and (iii)
has been given full access to such records of the Company and to the officers of
the Company as it has deemed necessary or appropriate to conduct its due
diligence investigation with respect to the Shares.

     (f) No General Solicitation. The Purchaser acknowledges that the Shares
were not offered to the Purchaser by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio or (ii) any seminar or meeting to which the
Purchaser was invited by any of the foregoing means of communications.

     (g) Accredited Investor. The Purchaser is an "accredited investor" (as
defined in Rule 501 of Regulation D under the Securities Act of 1933, as
amended).

     (h) Legend. The Purchaser hereby acknowledges and agrees that the
certificates or other documents representing the Shares may contain the
following, or a substantially similar, legend, which legend shall be removed
only upon receipt by the Company of an opinion of its counsel, which opinion
shall be satisfactory to the Company, that such legend may be so removed:

          THE SECURITIES REPRESENTED HEREBY (THE "SECURITIES")
          HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
          1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
          SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR
          OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
          SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES
          LAWS OR FIBERNET TELECOM GROUP, INC. SHALL HAVE
          RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF
          SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
          PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
          REQUIRED.

     (i) Certain Fees. The Purchaser has not employed any broker or finder or
incurred any liability for any brokerage, investment banking, commission,
finders', structuring or financial advisory fees or other similar fees in
connection with this Agreement or the transactions contemplated hereby.

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<PAGE>

                                  ARTICLE III.

                            Covenants of the Parties

     Section 3.1. Covenants. The parties hereto hereby covenant with each other
as follows, which covenants, as applicable, are for the benefit of such parties
and their respective permitted assigns:

     (a) Further Assurances. From and after the Closing Date, upon the request
of the Purchaser or the Company, the Company and the Purchaser shall execute and
deliver such instruments, documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement.

     (b) Commercially Reasonable Efforts. Each party hereto will use
commercially reasonable efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable,
consistent with applicable law, to consummate and make effective in the most
expeditious manner practicable the transactions contemplated hereby, including
without limitation, making all required regulatory and other filings required by
applicable law as promptly as practicable after the date hereof.

                                  ARTICLE IV.

                                   Conditions

     Section 4.1. Conditions Precedent to the Obligation of the Company to
Close. The obligation hereunder of the Company to close and effect the Exchange
at the Closing is subject to the satisfaction or waiver, at or before the
Closing of the conditions set forth below:

     (a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time, except for representations and warranties that are expressly
made as of a particular date, which shall be true and correct in all material
respects as of such date.

     (b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Closing.

     (c) No Injunction, Statute or Rule. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

     (d) Surrender of Note. The Purchaser shall have surrendered to the Company
the Note together with all appropriate indorsements other appropriate
instruments of transfer.

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     (e) Closing of the Purchase Agreement. The closing pursuant to the Purchase
Agreement shall have been consummated.

     (f) Registration Rights Agreement. The Company shall have executed and
delivered to the Purchaser the Registration Rights Agreement (as defined in the
Purchase Agreement).

The conditions set forth in this Section 4.1 are for the Company's sole benefit
and may be waived only by the Company at any time in its sole discretion.

     Section 4.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to close and effect the
Exchange is subject to the satisfaction or waiver, at or before the Closing, of
each of the conditions set forth below:

     (a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement shall be true
and correct in all material respects as of the Closing Date, except for
representations and warranties that speak as of a particular date, which shall
be true and correct in all material respects as of such date.

     (b) Performance by the Company. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.

     (c) No Injunction, Statute or Rule. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

     (d) Certificates. The Company shall have delivered to the Purchaser
certificates representing the Shares (in such denominations as the Purchaser may
request) being acquired by the Purchaser at the Closing.

The conditions set forth in this Section 4.2 are for the Purchaser's sole
benefit and may be waived only by the Purchaser at any time in its sole
discretion.

                                   ARTICLE V.

                                  Miscellaneous

     Section 5.1. Fees and Expenses. Each party hereto shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.

     Section 5.2. Entire Agreement; Amendment. This Agreement contains the
entire understanding and agreement (written or oral) of the parties hereto with
respect to the subject matter hereof and, except as specifically set forth
herein, neither the Company nor the Purchaser make any representation, warranty,
covenant or undertaking with respect to such matters, and

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they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein. No provision of this Agreement
may be waived or amended other than by a written instrument signed by each party
hereto. Any amendment or waiver effected in accordance with this Section 5.2
shall be binding upon each such party and its permitted assigns.

     Section 5.3. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:

If to the Company:              FiberNet Telecom Group, Inc.
                                570 Lexington Avenue
                                New York, New York 10022
                                Attention: President
                                Tel. No.: (212) 405-6200
                                Fax No.:  (212) 421-8860

with copies (which copies
shall not constitute notice
to the Company) to:             Willkie Farr & Gallagher
                                787 Seventh Avenue
                                New York, New York  10019
                                Attention: Gordon Caplan
                                Tel No.: (212) 728-8000
                                Fax No.: (212) 728-8111

If to the Purchaser:            SDS Merchant Fund, L.P.
                                53 Forest Avenue, 2nd Floor
                                Old Greenwich, Connecticut 06870
                                Attention: Steve Derby
                                Tel. No.: (203) 967-5850
                                Fax No.:  (203) 967-5851

with copies (which copies
shall not constitute notice

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to the Purchaser) to:           Jenkens & Gilchrist Parker Chapin LLP
                                The Chrysler Building
                                405 Lexington Ave.
                                New York, New York  10174
                                Attention: Christopher S. Auguste
                                Tel No.: (212) 704-6000
                                Fax No.: (212) 704-6288

Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

     Section 5.4. Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.

     Section 5.5. Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.

     Section 5.6. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither party hereto may assign its rights or obligations under this Agreement
(by operation of law or otherwise) without the prior written consent of each
other party hereto, and any attempted assignment without such consent shall be
void ab initio.

     Section 5.7. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person or entity.

     Section 5.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions thereof. This Agreement shall not
be interpreted or construed with any presumption against the party causing this
Agreement to be drafted.

     Section 5.9. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.

     Section 5.10. Severability. The provisions of this Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability

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shall not affect any other provision or part of a provision of this Agreement
and this Agreement shall be reformed and construed as if such invalid or illegal
or unenforceable provision, or part of such provision, had never been contained
herein, so that such provisions would be valid, legal and enforceable to the
maximum extent possible.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this SDS Note Exchange
Agreement to be duly executed by their respective authorized officers as of the
date first above written.

                                    FIBERNET TELECOM GROUP, INC.

                                    By:  /s/ Michael S. Liss
                                         -------------------------------------
                                         Name:   Michael S. Liss
                                         Title:  President and Chief Executive
                                                 Officer

                                    SDS MERCHANT FUND, L.P.

                                    By:  /s/ Steve Derby
                                         -------------------------------------
                                         Name:   Steve Derby
                                         Title:  Managing Member<PAGE>

                                                                    EXHIBIT 10.1

                    THIRD AMENDED AND RESTATED LOAN AGREEMENT

     This Third Amended and Restated Loan Agreement is dated as of July 18, 2002
and is by and among Whitney National Bank ("Lender"), a national banking
association, and Conrad Shipyard, L.L.C. ("Borrower"), a Louisiana limited
liability company, and Orange Shipbuilding Company, Inc. ("Orange"), a Texas
corporation, and Conrad Industries, Inc.("Conrad "), a Delaware corporation,
(with Orange and Conrad collectively referred to as "Guarantor").

                                   WITNESSETH:

     WHEREAS, Lender, Conrad Shipyard, Inc. and Orange entered into a Loan
Agreement, dated as of March 19, 1998, which provided for a term loan in the sum
of Twenty-Five Million and No/100 ($25,000,000.00) Dollars (the "Initial Loan
Agreement");

     WHEREAS, Lender, Conrad Shipyard, Inc., Orange and Conrad entered into an
amended and restated Loan Agreement, dated as of May 22, 1998, as amended by
First Amendment to Loan Agreement dated as of April 30, 1999, which provided for
a line of credit in the amount of Ten Million and No/100 ($10,000,000.00)
Dollars in addition to the term loan of $25,000,000.00 and amended and restated
the Initial Loan Agreement (the "First Amended and Restated Loan Agreement");

     WHEREAS, Lender, Conrad Shipyard, Inc., Orange and Conrad entered into a
Second Amended and Restated Loan Agreement, dated as of December 31, 1999,
whereby Lender consented to Conrad Shipyard, Inc. using up to $1,000,000.00 of
the line of credit to repurchase shares of stock of Conrad Shipyard, Inc. and
extending the line of credit (the "Second Amended and Restated Loan Agreement");

     WHEREAS, Conrad Shipyard, Inc. on December 28, 2000, but effective as of
December 31, 2000, merged into Conrad Shipyard, L.L.C., a Louisiana limited
liability company with Conrad Shipyard, L.L.C. being the surviving entity and
assuming all obligations and liabilities of Conrad Shipyard, Inc.;

     WHEREAS, Borrower requested the restructure of the $25,000,000.00 term loan
into a $9,007,000.00 term loan and the renewal of the line of credit in the
amount of $10,000,000.00 both at a reduced interest rate, which was documented
in that certain First Amendment to Second Amended and Restated Loan Agreement,
dated as of December 31, 2001; and

     WHEREAS, Borrower has requested Lender to extend it a line of credit in the
amount of $6,700,000.00 in connection with the development of the Amelia
Deepwater facility in Amelia, Louisiana and Lender is agreeable to such request
upon the terms and conditions hereinafter provided and upon receipt of the
additional collateral hereinafter provided;

     NOW THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, Borrower,
Guarantor and Lender

<PAGE>

agree to amend, restate and supercede the Second Amended and Restated Loan
Agreement and all other prior loan agreements 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 a Line of Credit.

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

     "Affiliate" shall mean any Person, which has twenty percent (20%) or more
of any class of its capital stock (or, in the case of a Person which is not a
corporation, twenty percent (20%) or more of its equity interest) beneficially
owned or held or controlled, directly or indirectly, by Borrower, Guarantor or
any Subsidiary. For purposes of this definition, "control" shall mean the power
to direct the management and policies of a Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.

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

     "Amelia Shipyard" shall mean the approximately 52 acres of immovable
property in Amelia, Louisiana, owned by Borrower on which the Amelia Deepwater
facility is being developed, as described on Exhibit C.

     "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.

     "Borrower" shall mean Conrad Shipyard, L.L.C., a Louisiana limited
liability company.

     "Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday for commercial banks in New Orleans, Louisiana and London, England.

     "Cash Flow" shall mean for any period the sum of net income after taxes
(including any applicable reserves for such taxes), plus depreciation,
amortization and any adjustments for noncash expenses, plus interest expense,
all determined in accordance with GAAP.

     "Closing Date" shall mean the effective date of this Agreement.

     "Company Agent" shall mean Kenneth G. Myers, Jr. or Cecil A. Hernandez.

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     "Conrad" shall mean, Conrad Industries, Inc., a Delaware corporation, which
is the sole member of Borrower.

     "Conrad Shipyard" shall mean the approximately 11 acres of immovable
property on the Atchafalya River, Morgan City, Louisiana, owned by Borrower 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 obligations for borrowed money,
whether as maker or endorser, of Borrower, Guarantor and all their Subsidiaries
(including without limitation, all notes, debentures, bonds or similar
instruments shown on a balance sheet or financial statement of Borrower,
Guarantor and all their Subsidiaries).

     "Consolidated Funded Debt Payments" shall mean, for any period, all
principal and interest payments of Consolidated Funded Debt as required by the
terms of the documents evidencing such debt and other indebtedness and excluding
any prepayments of principal thereunder.

     "Current Assets" means, at a particular date, all amounts which would, in
conformity with GAAP, be included under current assets on a balance sheet of the
Borrower, Guarantor and all their Subsidiaries at such date.

     "Current Liabilities" means, at a particular date, all amounts which would,
in conformity with GAAP, be included under current liabilities on a balance
sheet of the Borrower, Guarantor and all their 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, Guarantor and all their
Subsidiaries), (ii) capitalized lease obligations of such Person or any
subsidiary thereof, (iii) obligations with respect to any installment sale or
conditional sale agreement or title retention agreement, (iv) indebtedness
arising under acceptance facilities, (v) reimbursement obligations arising in
connection with surety, or performance or other similar bonds and in connection
with letters of credit issued in lieu of such bonds, (vi) the outstanding amount
of all other letters of credit and (vii) any withdrawal liability or obligation
of such Person or an ERISA affiliate to a multiemployer plan.

     "Debt Service Coverage Ratio" shall mean the ratio calculated on a rolling
four (4) quarter basis over the life of the Loan of Cash Flow to Consolidated
Funded Debt Payments.

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     "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.

     "Drydock" shall mean that certain drydock, CONRAD DD 6, bearing official
number 1122612.

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

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

     "GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time and applied on a consistent basis.

     "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.

     "Guarantor" shall mean Orange Shipbuilding Company, Inc. and Conrad
Industries, Inc., which term means individually, collectively, and
interchangeably any, each and/or all of them.

     "Hazardous Materials" shall mean:

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

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

     (c)  asbestos;

     (d)  polychlorinated biphenyls;

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

                                       4

<PAGE>

     (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 Company Agent
give Lender written notice of 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 period for Base Rate; provided that:

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

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

     (iii) if any Interest Period would otherwise expire on a day which is not a
     Business Day, such Interest Period shall expire on the next succeeding
     Business Day; provided, however, that if any Interest Period would
     otherwise expire on a day which is not a

                                       5

<PAGE>

     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 dates for the Loan.

     If upon the expiration of any Interest Period, the Borrower has failed to
elect, or is 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 an interest rate per annum (rounded upward to the
nearest hundredth of a percent (1/100 of 1%)) which is the offered quotation to
Lender of the London interbank offered rate for U.S. 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 Bloomberg, L.P. or such other
service used by Lender as an information vendor for the purpose of displaying
British Bankers' Association interest settlement rates for U.S. Dollar Deposits,
as determined by Lender as of the opening of business of Lender or as soon
thereafter as practicable, plus the applicable margin of 175 basis points (1
3/4% percent). The Libor Rate shall be determined by Lender on the first
Business Day of each Interest Period with the change in the Libor Rate to be
effective as of such Business Day.

     "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 collectively the promissory note evidencing the
$10,000,000 Line of Credit and the promissory note evidencing the $6,700,000
Line of Credit as described in Article II.

     "Lines of Credit" shall mean collectively the $10,000,000 Line of Credit
and the $6,700,000 Line of Credit, with each a "Line of Credit".

     "Loan" shall mean collectively the Lines 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 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.

                                       6

<PAGE>

     "Note" shall mean collectively the Line Note and the note evidencing the
Term Loan, and any and all renewal and/or replacement notes.

     "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" shall mean Orange Shipbuilding Company, Inc., a Texas corporation.

     "Orange Shipyard" shall mean the shipyard owned by Orange which contains
approximately 12 acres of real property on the Sabine River, Orange, Texas, as
described on Exhibit B.

     "Permitted Liens" shall mean those presently outstanding Liens of the
Borrower in favor of Lender 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, a limited liability company (including the Borrower), a
trust, an unincorporated organization, government or any department or agency
thereof.

                                       7

<PAGE>

     "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 Amelia Shipyard, the Conrad Shipyard and the
Orange Shipyard and any other immovable or real property owned by the Borrower,
Guarantor or any of their Subsidiaries.

     "$6,700,000 Line of Credit" shall mean that certain line of credit loan to
Borrower described in Section 2.02(c).

     "$6,700,000 Line of Credit Period" shall mean the period commencing on the
Closing Date and ending on December 31, 2002.

     "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,
Guarantor and all their 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, Guarantor and all their Subsidiaries.

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

     "$10,000,000 Line of Credit" shall mean Borrower's existing line of credit
loan described in Section 2.02(b).

     "$10,000,000 Line of Credit Period" shall mean the period commencing on the
Closing Date and ending on May 31, 2003.

                                   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 Loan to the
Borrower, said extensions of credit being more particularly described
hereinafter.

     Section 2.02. (a) Term Loan. On December 31, 2001, Lender made a term loan
to Borrower in the principal sum of Nine Million, Seven Thousand and No/100
($9,007,000.00) Dollars (the "Term Loan") which is evidenced by a promissory
note, dated December 31, 2001, payable to the order of Lender in the amount of
$9,007,000.00, with interest to accrue at the Libor Rate or Base Rate in
accordance with Section 2.03 (the "Term Note"). The Term Loan is

                                       8

<PAGE>

payable in 40 monthly payments of principal each in the amount of $107,000.00,
plus accrued interest with a final payment of all unpaid principal and interest
then due payable on May 31, 2005. The first installment of principal and
interest on the Term Loan was payable on January 31, 2002 with the succeeding
installments payable on the last day of each month until the Term Loan has been
paid in full. Borrower hereby acknowledges that the terms of the Term Note shall
be governed by this Agreement and that the reference to the Loan Agreement in
the Term Note shall be this Agreement.

     (b) $10,000,000 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 $10,000,000 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 "$10,000,000 Line of Credit"). On May 31,
2003, Lender's obligations to make any Advance on the $10,000,000 Line of Credit
shall cease. The $10,000,000 Line of Credit is evidenced by a promissory note
executed by the Borrower, dated December 31, 2001, in the principal sum of
$10,000,000.00 (the "$10,000,000 Line of Credit Note"), payable to the order of
the Lender on May 31, 2003. During the $10,000,000 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 the first month after the initial Advance, and
continuing on the last day of each succeeding month, with the unpaid balance of
principal and accrued interest due on May 31, 2003. Borrower hereby acknowledges
that the terms of the $10,000,000 Line of Credit Note shall be governed by this
Agreement and that the reference to the Loan Agreement in the $10,000,000 Line
of Credit Note shall be this Agreement.

     (c) $6,700,000 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 $6,700,000 Line of Credit Period in an aggregate
principal amount outstanding not to exceed the sum of Six Million Seven Hundred
Thousand and No/100 ($6,700,000.00) Dollars (the "$6,700,000 Line of Credit").
On December 31, 2002, Lender's obligations to make any Advance on the $6,700,000
Line of Credit shall cease. The $6,700,000 Line of Credit shall be evidenced by
a promissory note executed by the Borrower on the Closing Date in the principal
sum of $6,700,000.00, payable to the order of the Lender. The $6,700,000 Line of
Credit shall bear 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 the first month after the initial Advance, and continuing
on the last day of each succeeding month through and including December 31,
2002. On January 1, 2003, the $6,700,000 Line of Credit shall convert to a term
loan and shall be payable in 52 monthly payments of principal each in the amount
of $58,000.00, plus accrued interest, beginning on January 31, 2003, and
continuing on the last day of each succeeding month thereafter, with a final
payment of the remaining unpaid balance of principal and accrued interest due on
May 31, 2007.

     (d) Advances. Upon the terms and subject to the conditions hereof, Borrower
may request an Advance under the applicable 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

                                       9

<PAGE>

under a 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 Company Agent. Borrower hereby authorizes the
Company Agent to borrow money and contract obligations with Lender. Until
Borrower notifies Lender in writing of the withdrawal of the Company Agent's
rights and powers, Lender shall be able to rely conclusively upon the right of
the Company Agent to request Advances on behalf of Borrower. Borrower agrees
that only its duly authorized Company Agent shall request an Advance under the
Lines of Credit.

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

     (e) 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 Lines of Credit or make Lender liable to
Borrower for failure to mail the credit advice.

     (f) 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 Lines 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 Lines 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 the Libor Rate. On the last Business Day
prior to the expiration of the then applicable Interest Period for the Loan,
Borrower will determine the Interest Period and whether the Loan will accrue
interest at Libor Rate or Base Rate. Upon the expiration of such Interest Period
and any Interest Period thereafter, the Borrower shall have the option to
convert the interest rate accruing on all (but not less than all) of the
outstanding principal balance of the Loan into a Libor Rate or Base Rate;
provided that (i) a Loan can not be converted when any Default has occurred and
is continuing and in such event the Loan shall accrue interest at the Base Rate,
and (ii) no conversions of the 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 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

                                       10

<PAGE>

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 governmental
          rule, regulation, order, guideline or request, such as, for example,
          but not limited to: (A) a change in the basis of taxation of payment
          to Lender of the principal or interest on such Libor Rate (except for
          changes in the rate of tax on, or determined by reference to, the net
          income or profits of Lender) or (B) a change in official reserve
          requirements; or

          (iii) at any time, that the making or continuance of any Libor Rate
          has been made (x) unlawful by any law or governmental rule, regulation
          or order, (y) impossible by compliance by Lender in good faith with
          any governmental request (whether or not having force of law) or (z)
          impracticable as a result of a contingency occurring after the date of
          this Agreement which materially and adversely affects the London
          interbank market;

then, and in any such event, Lender shall promptly give notice (by telephone
confirmed in writing) to the Borrower. Thereafter (x) in the case of clause (i)
above, Libor Rate shall no longer be available until such time as Lender
notifies the Borrower that the circumstances giving rise to such notice no
longer exist, and any Notice of Conversion given by the Borrower with respect to
Libor Rate which have not yet been incurred (including by way of conversion)
shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above,
the Borrower agrees to pay to Lender, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or otherwise as agreed to by Lender and the Borrower)
as shall be required to compensate Lender for such increased costs or reductions
in amounts received or receivable hereunder (a written notice as to the
additional amounts owed to Lender, showing the basis for the calculation
thereof, submitted to the Borrower by Lender in good faith shall, absent
manifest error, be final and conclusive and binding on all the parties hereto)
and (z) in the case of clause (iii) above, the Loan shall accrue

                                       11

<PAGE>

interest at the Base Rate. Lender agrees that if it gives notice to the Borrower
of any of the events described in clause (i) or (iii) above, it shall promptly
notify the Borrower if such event ceases to exist. If any such event described
in clause (iii) above ceases to exist as to Lender, Lender's obligations to
convert the interest accruing on the Loan into Libor Rate on the terms and
conditions contained herein shall be reinstated.

     (b) At any time that any Libor Rate Loan is affected by the circumstances
described in Section 2.04 (a)(ii) or (iii), the Loan shall accrue interest at
the Base Rate.

     Section 2.05. Use of Proceeds. Subject to the compliance with the terms and
conditions of this Agreement, Borrower may use the $10,000,000 Line of Credit to
fund the general corporate operating needs of Borrower and/or the short term
funding of Borrower's capital expenditures and acquisitions of other businesses,
provided that acquisitions of other businesses must be made on terms acceptable
to Lender. In addition to the foregoing, Borrower may use up to the aggregate
principal amount of $1,000,000.00 of the $10,000,000 Line of Credit for the
purchase by either Borrower or Conrad of up to 200,000 shares of Conrad's
outstanding stock. Subject to the compliance with the terms and conditions of
this Agreement, Borrower may use the $6,700,000 Line of Credit to develop the
Amelia Deepwater facility at the Amelia Shipyard. Subject to the compliance with
the terms and conditions of this Agreement, Borrower shall use the proceeds of
the Term Loan to satisfy the existing term loan of Borrower and to fund capital
expenditures.

     Section 2.06. Prepayment. Borrower shall be entitled to prepay the Loan in
whole or in part, without payment of premium or penalty.

                                   ARTICLE III
                          Security for the Obligations

     Section 3.01. Collateral. The Loan and the Obligations shall be secured by
a first Lien in favor of Lender on the following collateral (the "Collateral")
to be documented upon terms and conditions satisfactory to Lender (the
"Collateral Documents"):

                                 CONRAD SHIPYARD

          (a)  A Collateral Note by Borrower in amount of $50,000,000.00 secured
by and paraphed for identification with a first, valid and enforceable
collateral mortgage mortgaging the Conrad Shipyard and all improvements and
component parts located thereon, which mortgage shall include an assignment of
leases and rents;

          (b)  A Security Agreement executed by Borrower granting a security
interest in the Collateral Note;

          (c)  A Security Agreement and Financing Statements by Borrower
granting a first lien and security interest in all furniture, equipment,
inventory, fixtures, accounts, documents and general intangibles, including
without limitation, franchise agreements, operating

                                       12

<PAGE>

agreements, contract rights, licenses, permits and parish and city ordinances
and approvals relating to or usable in connection with the use, occupancy,
operation, ownership or maintenance of the Conrad Shipyard;

                                     DRYDOCK

          (d)  A First Preferred Ship Mortgage by Borrower granting Lender a
preferred ship mortgage and security interest in the Drydock;

                                 AMELIA SHIPYARD

          (e)  A Collateral Note by Borrower in amount of $40,000,000.00 secured
by and paraphed for identification with a first, valid and enforceable
collateral mortgage mortgaging the Amelia Shipyard and all improvements and
component parts located thereon, which mortgage shall include an assignment of
leases and rents;

          (f)  A Security Agreement executed by Borrower granting a security
interest in the Collateral Note;

                                 ORANGE SHIPYARD

          (g)  A deed of trust by Orange mortgaging the Orange Shipyard and all
improvements and component parts located thereon, which deed of trust shall
include an assignment of leases and rents; and

          (h)  A Security Agreement and Financing Statements by Orange granting
a first lien and security interest in all furniture, equipment, inventory,
fixtures, accounts, documents and general intangibles, including without
limitation, franchise agreements, operating agreements, contract rights,
licenses, permits and parish and city ordinances and approvals relating to or
usable in connection with the use, occupancy, operation, ownership or
maintenance of the Orange Shipyard.

                                CONRAD INDUSTRIES

          (i)  A Security Agreement and Financing Statements by Conrad granting
a first lien and security interest in all furniture, equipment, inventory,
accounts, documents and general intangibles.

     Section 3.02. Guaranties. Conrad and Orange shall jointly, severally and
solidarily guaranty the repayment of all Obligations of Borrower to Lender,
including but not limited to the Loan.

                                       13

<PAGE>

                                   SECTION IV
                         REPRESENTATIONS AND WARRANTIES

     In order to induce Lender to enter into this Agreement, the Borrower and
Guarantor represent and warrant to Lender as follows:

     Section 4.01. Corporate Existence.   (a) Borrower is a validly organized
limited liability company duly existing and in good standing under the laws of
the State of Louisiana and is duly qualified as a foreign limited liability
company in all jurisdictions wherein the property owned or the business
transacted by it make such qualifications necessary. Orange is a validly
organized corporation duly existing and in good standing under the laws of the
State of Texas and is duly qualified as a foreign corporation in all
jurisdictions wherein the property owned or the business transacted by it make
such qualifications necessary. Conrad is a validly organized corporation duly
existing and in good standing under the laws of the State of Delaware and is
duly qualified as a foreign corporation in the State of Louisiana and in all
jurisdictions wherein the property owned or the business transacted by it make
such qualifications necessary.

          (b) Borrower has never done business under any name other than its
name set forth above, Conrad Shipyard, Inc. and Conrad Industries, Inc.
Borrower's tax identification number is 72-0456758 and its principal place of
business is 1501 Front Street, Morgan City, Louisiana 70380. Borrower's
corporate charter number with the Secretary of State of Louisiana is 35019085K.

          (c) Orange has never done business under any name other than its name
set forth above and Clary Industries, Inc. Orange's tax identification number is
74-1789273 and its principal place of business is 710 Market Street, Orange,
Texas 77630.

          (d) Conrad has never done business under any name other than its name
set forth above. Conrad's tax identification number is 72-1416999 and its
principal place of business is 1501 Front Street, Morgan City, Louisiana 70380.

     Section 4.02. Corporate Power and Authorization. The making and performance
by the Borrower of this Agreement, the borrowing by the Borrower and the
issuance of the Note and Collateral Documents by it hereunder, have been duly
authorized by all necessary action and will not (i) violate any provision of law
or of the articles of organization or operating agreement of the Borrower, or
(ii) result in a breach of, or constitute a default under, any agreement,
indenture or other instrument to which the Borrower is a party or by which it is
bound, the result of which would be to have material and adverse effect on the
business or property of the Borrower. The making and performance by Guarantor of
this Agreement, the issuance of the Continuing Guaranty and the Collateral
Documents by it hereunder have been duly authorized by all necessary corporate
action and will not (i) violate any provision of law or of the articles of
incorporation or by-laws of Guarantor, or (ii) result in a breach of, or
constitute a default under, any agreement, indenture or other instrument to
which Guarantor is a party or by which it is bound, the result of which would be
to have material and adverse effect on the business or property of Guarantor.

                                       14

<PAGE>

     Section 4.03. No Consent. No consent or approval of any governmental agency
or authority is required in connection with the execution, delivery and
performance by Borrower or Guarantor of this Agreement, the Note, the Collateral
Documents and all other documents required hereunder.

     Section 4.04. Enforceable Obligations. This Agreement, the Collateral
Documents and the Note to which the Borrower and/or Guarantor, as applicable, is
a party, when duly executed and delivered for value will be legal, valid and
binding obligations of the Borrower and/or Guarantor, as applicable, enforceable
against the Borrower and/or Guarantor, as applicable, in accordance with their
respective terms. Borrower hereby agrees to jointly, severally and solidarily
assume and perform all Obligations that Conrad Shipyard, Inc. owed or owes to
Lender, whether now or in the future.

     Section 4.05. No Material Liabilities or Litigation. Except for liabilities
incurred in the normal course of business, liabilities disclosed on the
financial statements previously delivered to Lender and the Obligations, the
Borrower and Guarantor do not have any material (individually or in the
aggregate) liabilities, direct or contingent. In addition, there are no pending
or threatened actions or proceedings before any court or administrative agency
which may materially and adversely affect the Borrower's and/or Guarantor's
business, operations, assets conditions or property, financial or otherwise.

     Section 4.06. Financial Condition. The financial statements of Borrower as
heretofore furnished to Lender have been prepared in accordance with the
generally accepted accounting principles applied on a consistent basis and
fairly present the financial condition of Borrower as of those dates. To the
best of Borrower's knowledge and belief, Borrower does not have any contingent
obligation or liability for taxes not disclosed by or reserved against in said
financial statements, and there have been no material adverse changes in the
financial condition of Borrower from that set forth in said financial
statements. The financial statements of Guarantor as heretofore furnished to
Lender fairly present the financial condition of Guarantor as of the date
hereof. To the best of Guarantor's knowledge and belief, Guarantor has no
contingent obligation or liability for taxes not disclosed by or reserved
against in said financial statements, and there have been no material adverse
changes in the financial condition of Guarantor from that set forth in said
financial statements. Since the close of the period covered by the latest
financial statement delivered to Lender with respect to the Borrower and
Guarantor, there has been no material adverse change in the assets, liabilities
or financial condition of the Borrower or Guarantor. No event has occurred
(including, without limitation, any litigation or administrative proceedings)
and no condition exists or, to the knowledge of Borrower or Guarantor, is
threatened, which (i) might render Borrower or Guarantor unable to perform its
obligations under this Agreement, the Note or the Collateral Documents, or (ii)
would constitute a Default hereunder, or (iii) might adversely affect the
financial condition of the Borrower or Guarantor or the validity or priority of
the lien of the Collateral Documents. All parties acknowledge that Lender is
relying upon said financial statements in entering into this Agreement and the
Loan.

     Section 4.07. Liabilities and Litigation. There is no litigation, legal or
administrative proceeding, investigation or other action of any nature pending
or, to the knowledge of Borrower and/or Guarantor, threatened against or
affecting Borrower or Guarantor which involves the

                                       15

<PAGE>

possibility of any judgment or liability not fully covered by insurance, and
which may materially and adversely affect the business or assets of the Borrower
or Guarantor or their respective ability to carry on business as now conducted.

     Section 4.08. Taxes and Governmental Charges. Borrower and Guarantor have
filed all tax returns and reports required to be filed by all applicable
jurisdictions and have paid all taxes, assessments, fees and other governmental
charges levied upon it or upon any property owned by them or upon their income,
which are due and payable, including interest and penalties, or has provided
adequate reserves for the payment thereof.

     Section 4.09. Title to Property. Borrower and Guarantor, as applicable,
have good, valid and merchantable title to the Property, free of all Liens
except (i) those created by the Collateral Documents, (ii) those disclosed to
Lender in writing prior to date hereof, including those reflected on the title
commitment covering portions of the Property, and (iii) Permitted Liens.
Furthermore, neither Borrower nor Guarantor has heretofore conveyed or agreed to
convey or encumber any Collateral in any way, except in favor of the Lender or
as disclosed to Lender in writing prior to date hereof. Neither Borrower nor
Guarantor has any Liens on any of their assets except Permitted Liens.

     Section 4.10. Default. Neither Borrower nor Guarantor is in default (in any
respect which materially and adversely affects its business, property,
operations or condition, financial or otherwise) under any indenture, mortgage,
deed of trust, agreement or other instrument to which Borrower and/or Guarantor
is a party or by which either is bound or subject to any charter or other
corporate restriction which materially and adversely affects its business,
properties or assets, operation or condition, whether financial or otherwise,
except as disclosed to the Lender in writing. No Default hereunder has occurred
and is continuing.

     Section 4.11. No Consent. Borrower's and Guarantor's execution, delivery
and performance of this Agreement, the Note and the Collateral Documents, as
applicable, do not require the consent or approval of any other Person,
including without limitation any regulatory authority or governmental body of
the United States or any state thereof or any political subdivision of the
United States or any state thereof.

     Section 4.12. Compliance with the Law. Borrower and/or Guarantor (i) is not
in violation of any law, judgment, decree, order, ordinance or governmental rule
or regulation to which the Borrower or any of its property are subject; and (ii)
has not failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of any of its property or the conduct
of its business; in each case, which violation or failure could reasonably be
anticipated to materially and adversely affect the business, prospects, profits,
property or condition (financial or otherwise) of the Borrower.

     Section 4.13. Other Information. All information, reports, papers and data
given to Lender by the Borrower and Guarantor pursuant to this Agreement and in
connection with the Borrower's application for the Loan are accurate and correct
in all material respects. All financial projections given to Lender were
prepared in good faith based on facts and circumstances existing at the time of
preparation and were believed by the Borrower to be

                                       16

<PAGE>

accurate in all material respects. No information, exhibit or report furnished
by the Borrower to Lender in connection with the negotiation of this Agreement
contains any material misstatement of fact or fails to state a material fact or
any fact necessary to make the statement contained therein not materially
misleading.

     Section 4.14. Environmental Matters. (a) To the best of the Borrower's
knowledge, all operating facilities and property owned, leased, used, or
operated by the Borrower and/or Guarantor have been, and will continue to be,
owned, leased, used, or operated by the Borrower and/or Guarantor in substantial
compliance with applicable environmental laws, regulations, and guidelines.
There has been no claim, complaint, or notice received by the Borrower or
Guarantor with respect to a violation of environmental laws which remains
unsettled or unresolved as of the date hereof, including but not limited to, any
unsettled or unresolved liabilities relating to, arising out of or resulting
from (i) any emission, discharge or release of any pollutant, contaminant,
Hazardous Material, toxic material or other similar waste or (ii) any
processing, distribution, use, treatment, transport, removal, storage and/or
disposal of materials or wastes into or upon the ambient air, surface water,
ground water or land owned by the Borrower or any Guarantor or any alleged
violation of any federal, state, or local statute, regulation, or ordinance
relating to the environment. There has been no complaint or notice received by
the Borrower or Guarantor regarding potential liability under the Comprehensive
Environmental Response Compensation and Liability Act, as amended, the Resource
Conservation and Recovery Act, as amended, or any comparable state or local law
which is unsettled or remains unresolved as of the date hereof. To the
Borrower's knowledge, there has been no release of a Hazardous Material at any
facility or property owned, leased, used, or operated by the Borrower or
Guarantor which caused or could have caused a material adverse change in the
Borrower's financial condition, business or ability to pay or perform its
Obligations. For purposes of the last sentence of this Section 4.14, "release"
shall have the meaning assigned to it under the Comprehensive Environmental
Response Compensation and Liability Act.

          (b) Borrower and Guarantor have obtained all permits, licenses or
similar authorizations to construct, occupy, operate or use any buildings,
improvements, fixtures and equipment forming a part of the Property by reason of
any Hazardous Materials. The use which the Borrower and Guarantor makes and
intends to make of the Property will not result in any Hazardous Materials
Contamination.

     Section 4.15. Governmental Requirements. The Property is in compliance with
all current Governmental Requirements affecting the Property, including, without
limitation, all current zoning and land use regulations, building codes and all
restrictions and requirements imposed by applicable governmental authorities
with respect to the construction of any improvements on the Property and the
contemplated use of the Property.

     Section 4.16. Continuing Accuracy. All of the representations and
warranties contained in this article or elsewhere in this Agreement shall be
true through and until the Obligations are fully satisfied, and Borrower shall
promptly notify Lender of any event which would render any of said
representations and warranties untrue or misleading.

                                       17

<PAGE>

     Section 4.17. Americans With Disabilities Act. The Property shall be
readily accessible to individuals with disabilities, and complies with all terms
and conditions of the Americans With Disabilities Act, 42 U.S.C. (S)1210, et
seq. and all regulations and orders promulgated thereunder.

     Section 4.18. Clean Air Act. The Property now complies with and upon
completion of the Improvements shall continue to comply with all terms and
conditions of 42 U.S.C. (S)7401, et seq. and all regulations and orders
promulgated thereunder.

     Section 4.19. Licenses, Permits. The Borrower and Guarantor have all
permits, certificates, licenses (including patent and copyright licenses)
approvals and other authorizations required in connection with the operation of
their business.

     Section 4.20. Government Contracts. Neither Borrower nor Guarantor has ever
been debarred or suspended from contracting (as a first tier or any other level
of subcontractor) for or bidding on any Governmental Contract (as such term is
defined below). Neither Borrower nor Guarantor is currently debarred or
suspended from (or has received notice that it is under investigation with
respect to a possible debarment or suspension from) bidding on or entering into
any contract with or for any Governmental Authority ( a "Government Contract").
Neither Borrower nor Guarantor has been given notice (i) that any Government
Contract may be or will be terminated for the convenience of a Governmental
Authority or a default by Borrower or Guarantor, as the case may be, (ii) that a
major program or contract of Borrower or Guarantor will be eliminated or
substantially reduced or suspended, (iii) requiring or resulting in, loss of use
or substantial impairment or interference of use by Borrower or Guarantor, as
the case may be, of any facilities owned by a Governmental Authority, or (iv)
that any relevant budget authority or contract authority has been exceeded with
respect to any material Government Contract. Neither the Borrower or Guarantor
anticipates incurring cost overruns on any Government Contracts which would have
a material adverse effect on the financial condition of Borrower or Guarantor.

     Section 4.21. Federal Regulations. No part of the proceeds of the Loan will
be used as "purpose credit" within the meaning of such term under Regulations U
or G of the Board of Governors of the Federal Reserve System as now and from
time to time hereafter in effect, if such use would violate the provisions of
Regulations U or G.

     Section 4.22. Subsidiaries. At the Effective Date, the Borrower has no
Subsidiaries except Guarantor, and the Borrower owns all of the capital stock of
Orange and Conrad owns all of the capital stock of Borrower. There are no Liens
on any of the capital stock of Orange or of Borrower.

     Section 4.23. Government Contracts. Borrower and Guarantor have the right
under their Government Contracts to grant a security interest to the proceeds
therefrom under the Collateral Documents and the Collateral Documents create a
non-perfected security interest in the Government Contracts. To the best of
Borrower's and Guarantor's respective knowledge, there are no material offsets,
and there are not currently threatened or pending any material claims or offsets
against Borrower or Guarantor by any Governmental Authority.

                                       18

<PAGE>

     Section 4.24. Assets Mortgaged to Lender. Except for the Drydock, all
drydocks, barges and other vessels and equipment of Borrower and Guarantor are
not documented vessels with the United States Coast Guard and are free and clear
of any Liens, except the Collateral Documents or Permitted Liens. In the event
any asset of Borrower or Guarantor becomes a documented vessel with the United
States Coast Guard, Borrower agrees to notify Lender and to execute a preferred
maritime ship mortgage encumbering such asset in favor of Lender upon terms and
conditions reasonably acceptable to Lender. All immovable and real property of
Borrower and Guarantor are mortgaged to Lender under the Collateral Documents.
All equipment of Borrower and Guarantor are subject to a perfected security
interest in favor of Lender in accordance with the terms of the Collateral
Documents. Orange acknowledges that the Collateral Documents executed by it
continue to secure the performance and payment of the Obligations, even though
Borrower changed its name from Conrad Industries, Inc. to Conrad Shipyard, Inc.
and then merged into Conrad Shipyard, L.L.C.

                                    SECTION V
                              AFFIRMATIVE COVENANTS

     The Borrower agrees that, so long the Loan remains unpaid, or any other
amount or any Obligations are owing to Lender hereunder, the Borrower and
Guarantor and all of its Subsidiaries, as applicable, shall comply with the
covenants in this Section.

     Section 5.01. Financial Covenants. Borrower shall comply with the following
Financial Covenants until the Loan has been paid in full, except as provided
herein:

     (a) Debt to Tangible Net Worth. The Borrower on a consolidated basis with
Guarantor and each Subsidiary shall maintain a Debt to Net Worth Ratio of no
greater than 1.5 to 1.0 until the Loan is paid in full.

     (b) Debt Service Coverage Ratio. Borrower on a consolidated basis with
Guarantor and each Subsidiary shall maintain at all times during the existence
of the Loan a Debt Service Coverage Ratio of at least 1.35 to 1.0 as of the end
of each fiscal quarter.

     (c) Current Ratio. Borrower on a consolidated basis with Guarantor and each
Subsidiary shall maintain at all times during the existence of the Loan a ratio
of Current Assets (minus any prepaid expenses) to Current Liabilities of 1.25 to
1.0 or greater.

     Section 5.02. Financial Statements. (a) Conrad shall, from time to time,
promptly furnish to Lender as soon as available, but in any event within ninety
(90) days after the close of Conrad's fiscal year a copy of the audited
financial statements of Borrower, Guarantor and all of its Subsidiaries on a
consolidated basis, as of the close of such fiscal year prepared in reasonable
detail and in accordance with generally accepted accounting principles in the
United States in effect from time to time and applied consistently throughout
the period reflected therein, with such financial statements to include a
balance sheet of the Borrower and Guarantor and all of its Subsidiaries on a
consolidated basis, as of the end of such year and the related statement of
operations, of stockholder's equity and of cash flow prepared in reasonable

                                       19

<PAGE>

detail and in conformity with generally accepted accounting principles in the
United States in effect from time to time and applied on a basis consistent with
that of the preceding fiscal year, and audited by independent certified public
accountants selected by Conrad and satisfactory to Lender.

     (b) Conrad shall, from time to time, promptly furnish Lender as soon as
available, but in any event within sixty (60) days after the end of each quarter
of each fiscal year of Conrad, the consolidated unaudited balance sheet of
Borrower, Guarantor and all of its Subsidiaries as of the end of each such
quarter and the related unaudited statements of operations, of shareholder's
equity and of cash flow for such quarter and the portion of the fiscal year
throughout such date, all prepared in reasonable detail and in conformity with
good accounting practices in the United States in effect from time to time and
applied consistently throughout the period reflected therein and certified by
the chief financial officer of Conrad.

     (c) Immediately upon becoming aware of the occurrence of any event which
constitutes a Default or which could constitute a Default with the passage of
time or the giving of notice, or both, Borrower shall give written notice to
Lender describing such occurrence together with a detailed statement by the
Company Agent of the steps being taken by Borrower to cure the effect of such
event.

     (d) Borrower shall furnish to Lender concurrently with the delivery of the
financial statements referred to in subsections (a) and (b) above, a certificate
of the chief financial officer of Borrower (i) stating that such officer has no
knowledge of any Default, or any other event with which the passage of time
would become a Default under this Agreement or the Collateral Documents, except
as specified in such certificate and (ii) showing in detail the calculations
supporting such statements in respect to Section 5.01. The Borrower shall
furnish to Lender with reasonable promptness, such additional financial and
other information as Lender may from time to time reasonably request.

     Section 5.03. Conduct of Business and Maintenance of Existence. Borrower
and Guarantor shall continue to engage principally in the business of the same
general type now conducted by it and preserve, renew and keep in full force and
effect its limited liability existence and take all reasonable action to
maintain all rights, privileges and franchises necessary in the normal conduct
of its business and comply with all laws.

     Section 5.04. Inspection of Property; Books and Records; Discussions. The
Borrower, Guarantor and their Subsidiaries shall keep proper books and records
in conformity in all material respects with GAAP and permit representatives of
Lender to visit and inspect any of its properties and examine the books and
records of the Borrower at any reasonable time during normal business hours and
as often as may reasonably be necessary, and to discuss the business,
operations, properties and financial and other condition of the Borrower,
Guarantor and their Subsidiaries with officers of the Borrower, Guarantor and
their Subsidiaries and with its independent certified public accountants.

     Section 5.05. Notice of Certain Events. (a) The Borrower shall promptly
notify Lender of any change in location of the Borrower's and/or Guarantor'
principal places of

                                       20

<PAGE>

business or the office where Borrower and/or Guarantor keeps its records
concerning accounts and contract rights.

          (b) The Borrower shall promptly notify Lender of the arising of any
litigation or dispute threatened against or affecting the Borrower, Guarantor
and/or any of their Subsidiaries or the Property which, if adversely determined,
would have a material adverse effect upon the financial condition or business of
the Borrower and/or Guarantor. In the event of such litigation, the Borrower
will cause such proceedings to be vigorously contested in good faith and, in the
event of any adverse ruling or decision, the Borrower shall prosecute all
allowable appeals. Lender may (but shall not be obligated to), without prior
notice to Borrower, commence, appear in or defend any action or proceeding
purporting to affect the Loan, or the respective rights and obligations of
Lender or Borrower and/or Guarantor pursuant to this Agreement. Lender may (but
shall not be obligated to) pay all necessary expenses, including reasonable
attorneys' fees and expenses incurred in connection with such proceedings or
actions, which Borrower agrees to repay to Lender upon demand.

     Section 5.06. Environmental Indemnity. (a) Borrower and Guarantor agree to
(i) give notice to Lender immediately upon its acquiring knowledge of the
violation of any Governmental Requirement regarding the presence of any
Hazardous Materials on the Property and/or of any Hazardous Materials
Contamination with a full description thereof; and (ii) promptly comply with any
Governmental Requirement requiring removal, treatment or disposal of such
Hazardous Materials or Hazardous Materials Contamination and provide Lender with
satisfactory evidence of such compliance. Upon the discovery of any Hazardous
Materials Contamination, or upon the occurrence of a Default and the expiration
of the cure period provided in Section 8.02, Lender shall have the right to
cause an environmental audit or review of the Property to be performed by a firm
acceptable to Lender at the sole cost and expense of Borrower.

          (b) Borrower and Guarantor shall solidarily defend, indemnify and hold
Lender, its directors, officers, agents and employees harmless from any and all
liabilities (including strict liability), actions, demands, penalties, losses,
costs or expenses (including, without limitation, reasonable attorneys' fees and
remedial costs), suits, costs of any settlement or judgment and claims of any
and every kind whatsoever which may now or in the future be paid, incurred, or
suffered by, or asserted against Lender by any person or entity or governmental
agency for, with respect to, or as a direct or indirect result of, the presence
on or under, or the escape, seepage, leakage, spillage, discharge, emission,
discharging or release from or onto the Property of any Hazardous Materials or
any Hazardous Materials Contamination, or arise out of, or result from, the
environmental condition of the Property or the applicability of any Governmental
Requirement relating to Hazardous Materials (including, without limitation,
CERCLA or any so called federal, state or local "super fund" or "super lien"
laws, statute, ordinance, code, rule, regulation, order or decree) regardless of
whether or not caused by or within the control of Borrower and/or Guarantor.
These representations, covenants and warranties contained in this Section 5.06
shall survive the termination of this Agreement.

     Section 5.07. Indemnification. (a) Borrower and Guarantor shall solidarily
defend, indemnify Lender and hold Lender harmless from claims of brokers with
whom the Borrower

                                       21

<PAGE>

and/or Guarantor has dealt in the execution hereof or the consummation of the
transactions contemplated hereby.

          (b) The Borrower and Guarantor shall solidarily defend, indemnify
Lender and hold Lender harmless from any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses of
whatever kind or nature which may be imposed on, incurred by or asserted at any
time against Lender in any way relating to, or arising in connection with, the
use or occupancy of any of the Property.

          (c) Borrower and Guarantor solidarily agree to defend, indemnify, hold
harmless and fully protect Lender from any allegation or charge whatsoever of
negligence, misfeasance or nonfeasance of Lender in whole or in part, pertaining
to any defect in the Property, and particularly, any failure of Lender or any
agent, officer, employee or representative of Lender, to note any defect in
materials or workmanship or of physical conditions or failure to comply with any
ordinances, statutes or other governmental requirements, or to call to the
attention of any person whatsoever, or take any action, or to demand that any
action be taken, with regard to any such defect or failure or lack of
compliance.

     Section 5.08. Maintenance of the Property. Borrower and Guarantor shall
cause the Property to be maintained in good condition and repair and will not
commit or suffer to be committed any waste of the Property. The Property shall
not be removed, demolished or materially altered (except for normal
replacement), without the prior written consent of Lender, except as currently
contemplated and disclosed to Lender with respect to the Amelia Shipyard.
Borrower and Guarantor shall promptly comply with all laws, orders, and
ordinances affecting the Property or the use thereof, and shall promptly repair,
replace or rebuild any part of the Property which may be damaged or destroyed by
any casualty (including any casualty for which insurance was not obtained or
obtainable) and shall complete and pay for, within a reasonable time, any
structure at any time in the process of construction or repair on the Property.
Except with regard to normal and customary utility servitudes, the Borrower and
Guarantor will not, without obtaining the prior written consent of Lender,
initiate, join in, or consent to any private restrictive covenant, zoning
ordinance, or other public or private restrictions, limiting or defining the
uses which may be made of the Property or any part thereof.

     Section 5.09. Americans With Disabilities Act. (a) Borrower and Guarantor
shall (i) maintain the Property to be readily accessible to individuals with
disabilities, (ii) provide goods, services, accommodations, access and
facilities without discrimination on the basis of disability, and (iii) comply
with all terms and conditions of the Americans With Disabilities Act, 42
U.S.C. (S)1210, et seq. and all regulations and orders promulgated thereunder.

     (b) Borrower and Guarantor shall defend, indemnify and hold Lender harmless
from any and all liabilities (including strict liability), actions, demands,
penalties, losses, costs or expenses (including, without limitation, reasonable
attorneys' fees and remedial costs), suits, costs of any settlement or judgment
and claims of any and every kind whatsoever which may now or in the future be
paid, incurred, or suffered by, or asserted against Lender by any person or
entity or governmental agency for, with respect to, or as a direct or indirect
result of, any violations of the

                                       22

<PAGE>

Americans With Disabilities Act or any regulations or orders promulgated
thereunder resulting from the operation, maintenance or renovation of the
Property.

     Section 5.10. Clean Air Act. (a) Borrower and Guarantor shall maintain the
Property in full compliance with all terms and conditions of the Clean Air Act
42 U.S.C. (S)7401, et seq. and all regulations and orders promulgated
thereunder.

     (b) Borrower and Guarantor shall defend, indemnify and hold Lender harmless
from any and all liabilities (including strict liability), actions, demands,
penalties, losses, costs or expenses (including, without limitation, reasonable
attorneys' fees and remedial costs), suits, costs of any settlement or judgment
and claims of any and every kind whatsoever which may now or in the future be
paid, incurred, or suffered by, or asserted against Lender by any person or
entity or governmental agency for, with respect to, or as a direct or indirect
result of, any violations of the Clean Air Act or any regulations or orders
promulgated thereunder resulting from the operation, maintenance or renovation
of the Property.

     Section 5.11. ERISA. Borrower shall fulfill its obligations under the
minimum funding standards of ERISA and the Internal Revenue Code of 1986, as
amended, with respect to each Plan, and neither the Borrower nor any Affiliate
or Subsidiary shall take any action that would result in the termination of a
Plan by the Pension Benefit Guaranty Corporation.

     Section 5.12. Taxes and Other Liens. Borrower and Guarantor will pay and
discharge promptly when due all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon the Property as well as all
claims of any kind (including claims for labor, materials, supplies and rent)
which, if unpaid, might become a Lien upon any or all of the Property; provided,
however, the Borrower and/or Guarantor shall not be required to pay any such
tax, assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted and if Borrower and/or Guarantor have set up reserves
therefor adequate under generally accepted accounting principles or if the claim
is covered by insurance or the payment or performance bonds. Borrower shall
furnish Lender with proof of payment of all taxes, assessments, charges, levies
or claims not later than the date on which penalties might attach thereto, or in
the event that the Borrower and/or Guarantor contests any such taxes,
assessments, charges, levies or claims in accordance with this section, Borrower
and/or Guarantor shall furnish Lender with a description of the contested matter
and all actions taken by Borrower and/or Guarantor in connection with such
contest.

     Section 5.13. Maintenance of Borrower's and its Subsidiaries' Existence.
Borrower, Guarantor and their Subsidiaries will (i) maintain their respective
limited liability or corporate existence and rights; (ii) observe and comply (to
the extent necessary so that any failure will not materially and adversely
affect the business of the Borrower, Guarantor and/or their Subsidiaries) with
all applicable Governmental Requirements applicable to Borrower, Guarantor
and/or their Subsidiaries or the Property (including without limitation
applicable statutes, regulations, orders and restrictions relating to
environmental standards or controls or to energy regulations); and (iii)
maintain the Property in generally good and workable condition at all times and
make all repairs, replacements, additions, betterments and improvements to the
Property to

                                       23

<PAGE>

the extent necessary so that any failure will not materially and adversely
affect the business of the Borrower, Guarantor and/or their Subsidiaries.

     Section 5.14. Further Assurances. Borrower and Guarantor will promptly (and
in no event later than 30 days after written notice from Lender is received)
cure any defects in the creation, execution and delivery of this Agreement, the
Note or the Collateral Documents. Borrower and/or Guarantor at Borrower's
expense will promptly execute and deliver to Lender upon request all such other
and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrower and/or Guarantor
in this Agreement, the Note or in the Collateral Documents or to further
evidence and more fully describe the Collateral, or to correct any omissions in
the Collateral Documents, or more fully state the security obligations set out
herein or in any of the Collateral Documents, or to perfect, protect or preserve
any Liens created pursuant to any of the Collateral Documents, or to make any
recordings, to file any notices, or obtain any consents as may be necessary or
appropriate in connection with the transactions contemplated by this Agreement.

     Section 5.15. Reimbursement of Expenses. Borrower will pay all reasonable
legal fees incurred by Lender in connection with the preparation of this
Agreement, the Note and the Collateral Documents. Borrower will, upon request,
promptly reimburse Lender for all amounts expended, advanced or incurred by
Lender to satisfy any obligation of the Borrower under this Agreement, or to
protect the Property or business of the Borrower or to collect the Obligations,
or to enforce the rights of Lender under this Agreement, which amounts will
include all court costs, attorneys fees, fees of auditors and accountants and
investigation expenses reasonably incurred by Lender in connection with any such
matters, together with interest at the interest rate set forth in the Note on
each such amount from the date that the same is expended, advanced or incurred
by Lender until the date of reimbursement to Lender.

     Section 5.16. Insurance. (a) The Borrower shall procure and maintain for
the benefit of Lender original paid-up insurance policies from companies
satisfactory to Lender, in amounts, in form and substance, and with expiration
dates acceptable to Lender and containing a noncontributory standard mortgagee
clause or its equivalent in a form satisfactory to Lender, or the statutory
mortgagee clause, if any, required in the state where the Property is located,
or a mortgagee's loss payable endorsement, in favor of Lender, providing the
following types of insurance on the Property:

               (i) Multi-Peril Hazard Insurance. For the Property, multi-peril
hazard insurance. In each case, the policies will afford insurance against loss
or damage by fire, lightning, explosion, earthquake, collapse, theft, sprinkler
leakage, vandalism and malicious mischief and such other perils as are included
in so-called "all-risks" or "extended coverage" and against such other insurable
perils as, under good insurance practices, from time to time are insured against
for properties of similar character and location; such insurance to be not less
than 100% of the full replacement cost of the improvements located on the
Property (except to the extent such improvements are deemed contents of the
Property, then such insurance to be not less than the fair market value of such
contents), without deduction for depreciation; said policies to contain
replacement costs and stipulated value endorsements.

                                       24

<PAGE>

               (ii) Comprehensive General Liability Insurance. Comprehensive
public liability insurance with respect to the Property and the operations
related thereto, whether conducted on or off the Property, against liability for
personal injury (including bodily injury and death) and property damage, of not
less than a total of $5,000,000.00 combined single limit bodily injury and
property damage; such comprehensive public liability insurance to be on a per
occurrence basis and to specifically include but not limited to water damage
liability, products liability, motor vehicle liability for all owned and
nonowned vehicles, including rented and leased vehicles, and contractual
indemnification.

               (iii) Workers' Compensation and General Liability. Workers'
compensation and general liability insurance against loss, damage or injury to
employees, agents or representatives of the Borrower, Guarantor and/or their
Subsidiaries or of any contractor and subcontractor, or insurance against loss,
damage or injury caused by any employees, agents or representatives of the
Borrower, Guarantor and/or their Subsidiaries or of any contractor or
subcontractor.

               (iv) Flood Insurance. Flood Insurance Policy in the amount of the
Loan or the maximum amount obtainable, whichever is less, if the property is
located in a Flood Hazard Area as defined by the Federal Emergency Management
Agency.

               (v) Other Insurance. Such other insurance on the Property or any
replacements or substitutions therefor and in such amounts as may from time to
time be reasonably required by Lender against other insurable casualties which
at the time are commonly insured against in the case of premises similarly
situated, due regard being given to the height and type of the improvements on
the Property, its construction, location, use and occupancy, or any replacements
or substitutions therefor.

          (b) All of the foregoing policies shall contain an agreement by the
insurer not to cancel or amend the policies without giving Lender at least
thirty (30) days' prior written notice of its intention to do so and shall
provide that the policies shall be payable not withstanding the acts of
Borrower, Guarantor or their Subsidiaries, as applicable.

          (c) At or before Closing, Borrower shall deliver original binders
evidencing the insurance and within 15 days of closing the original or certified
policies to Lender, and Borrower shall deliver original or certified renewal
policies with satisfactory evidence of payment not less than fifteen (15) days
in advance of the expiration date of the existing policy or policies. In the
event Borrower and/or its Subsidiaries should, for any reason whatsoever, fail
to keep the Property or any part thereof so insured, or to keep said policies so
payable, or fail to deliver to Lender the original or certified policies of
insurance and the renewals thereof upon demand, then Lender after giving written
notice to Borrower of that deficiency and if after 15 days after delivery of
such notice, there is still no insurance coverage, then Lender, if it so elects,
may itself have such insurance effected in such amounts and in such companies as
it may deem proper and may pay the premiums therefor. The Borrower shall
reimburse Lender upon demand for the amount of premium paid, together with
interest thereon at 15% percent per annum from date until paid.

                                       25

<PAGE>

          (d) Borrower and Guarantor agree to notify Lender immediately in
writing of any material fire or other casualty to or accident involving any of
the Property, whether or not such fire, casualty or accident is covered by
insurance. Borrower and Guarantor further agree to notify promptly Borrower's
and/or Guarantor insurance company and to submit an appropriate claim and proof
of claim to the respective insurance company if any of the Property is damaged
or destroyed by fire or other casualty.

          (e) Lender is hereby authorized and empowered, at its option, to
collect and receive the proceeds from any policy or policies of insurance, and
each insurance company is hereby authorized and directed to make payment of all
such losses directly to Lender instead of to the Borrower and/or Guarantor and
Lender jointly. Lender shall apply the net proceeds thereof, in accordance with
Subsections (f), (g) and/or (h) hereof.

          (f) If there is a fire or casualty loss which damages a portion (but
not all) of the improvements on any of the Property and as long as no Default
has occurred and is continuing, then the proceeds of the insurance shall be
deposited into a cash collateral account and such proceeds will be applied to
the payment of the cost of restoration of the improvements upon such terms and
conditions as Lender may deem necessary or appropriate in its reasonable
discretion; provided, however, that (i) such insurance proceeds must be adequate
to cover the cost of restoration of the improvements, or if the proceeds are
insufficient, then the Borrower shall give Lender such adequate protection and
assurance as Lender may, in its reasonable discretion require, that additional
funds will be provided by the Borrower in order to complete the restoration of
the Improvements (ii) the Borrower shall have provided Lender with such adequate
protection and assurance as Lender may, in its reasonable discretion require,
that the Borrower has sufficient funds on hand to pay interest and principal on
the Loan during the restoration period, and (iii) the first priority of the
Collateral Documents in the Property is not impaired. In connection with any
restoration of any of the improvements, the Borrower and/or Guarantor shall
provide Lender with a detailed cost breakdown showing by line item all costs
projected for such restoration and a revised and updated cost breakdown shall be
furnished by the Borrower and/or Guarantor to Lender on a monthly basis.

          (g) If there is a fire or casualty loss which constitutes a total loss
or a constructive total loss of any of the Property and Borrower decides not to
rebuild the improvements, or if all of the conditions set forth in subclause (i)
through (iii) of Subsection (f) above are not satisfied, then the insurance
proceeds shall be applied to the payment of the Obligations. If such insurance
proceeds are not sufficient to pay the Obligations in full, the Borrower shall
remain liable to pay the deficiency; and if the proceeds exceed the amount
necessary to pay the Obligations in full, then such excess shall be paid to
Borrower. If Borrower decides to rebuild the improvements, the provisions of
Subsection (f) above must be satisfied.

          (h) Upon demand of Lender and after the occurrence of a Default, the
Borrower shall pay to Lender, together with, at the same time as and in addition
to the payments of principal and/or interest due on the Note, a pro rata portion
of the property taxes, assessments, governmental charges, levies and insurance
premiums relating to the Property next to become due, as estimated by Lender, so
that Lender will have sufficient funds on hand to pay such taxes, assessments,
governmental charges, levies and premiums not less than thirty (30) days prior
to

                                       26

<PAGE>

the due date thereof. All such amounts shall be held by Lender (not in trust)
without interest as further security for the Obligations. Lender may apply all
or a portion of the amounts so paid at such time and in such order as Lender, in
its uncontrolled discretion shall determine, to the payment of the taxes,
assessments, governmental charges, levies and insurance premiums, as the case
may be.

                                   SECTION VI
                               NEGATIVE COVENANTS

     Borrower agrees that, so long as the Loan remain unpaid, or any other
amount or any Obligations are owing to Lender hereunder, the Borrower, Guarantor
and all of their Subsidiaries, as applicable, shall comply with the applicable
covenants contained in this Section.

     Section 6.01. Limitations on Liens. Other than Permitted Liens, Borrower
and/or Guarantor or any of their Subsidiaries shall not create, encumber or
suffer any Lien, other than the Collateral Documents and Permitted Liens, to
exist on the Property, any other Collateral or upon any of the capital stock of
any Subsidiary of Borrower and/or Guarantor without the prior written consent of
Lender.

     Section 6.02. Environmental Liabilities. Borrower, Guarantor and/or any of
their Subsidiaries shall not violate any Governmental Requirement regarding
Hazardous Materials and shall not create or allow any Hazardous Materials
Contamination; and, without limiting the foregoing, or otherwise dispose of (or
permit any Person to dispose of) any Hazardous Material (except in accordance
with applicable law) into or onto or from, the Property, nor allow any Lien
imposed pursuant to any Governmental Requirement relating to Hazardous Materials
or the disposal thereof to be imposed or to remain on the Property.

     Section 6.03. ERISA Compliance. Borrower, Guarantor and/or any of their
Subsidiaries shall not at any time permit any Plan maintained by it to engage in
any "prohibited transaction" as such term is defined in Section 4975 of the
Code; incur any "accumulated funding deficiency" as such term is defined in
Section 302 of ERISA; or terminate any such Plan in a manner which could result
in the imposition of a Lien on the property of the Borrower and/or Guarantor
pursuant to Section 4068 of ERISA.

     Section 6.04. Consolidation/Merger. Neither Borrower, Guarantor nor any of
their Subsidiaries shall merge or consolidate with any other Person without the
written consent of Lender.

     Section 6.05. Restricted Payments. Neither Borrower nor Conrad shall
declare or pay any dividend on, or declare or make any other distribution on
account of, any shares of any class of its stock now or hereafter outstanding,
or set apart any sum for such purpose without the Lender's prior written
consent. Neither Borrower, Guarantor nor any of their Subsidiaries shall
purchase any of the capital stock of Conrad other than the purchase of not more
than 200,000 shares of Conrad as authorized by Section 2.05 for a purchase price
of not greater than $1,000,000.00.

                                       27

<PAGE>

     Section 6.06. Transaction with Affiliates. Neither Borrower, Guarantor nor
any of their Subsidiaries shall enter into any transaction (including the
purchase, sale or exchange of property or the rendering of any service) with any
Affiliate except upon fair and reasonable terms which are at least as favorable
to the Borrower, Guarantor or any Subsidiary as would be obtained in a
comparable arm's length transaction with a non-Affiliate.

     Section 6.07. Transfer of Borrower's or Guarantor's Stock. Neither the
membership interest of Borrower nor the capital stock of Orange shall be sold,
transferred, exchange, pledged or encumbered to or in favor of a third Person
without the prior written consent of Lender.

     Section 6.08. Parent Company. Without the prior written consent of Lender,
Conrad shall not ever have any assets or liabilities (other than the assets and
liabilities of Borrower and its Subsidiaries on a consolidated basis) and shall
not ever create or incur any Debt.

                                   ARTICLE VII
                              CONDITIONS OF LENDING

     Section 7.01. Conditions of Initial Advance. The obligation of the Lender
to make the initial Advance under any Line of Credit is subject to the accuracy
of each and every representation and warranty of the Borrower contained in this
Agreement, and to the receipt of the following on or before the Closing Date:

          (a)  Agreement. A duly executed counterpart of this Agreement signed
by all the parties thereto.

          (b)  Note. The duly executed Line Note for the $6,700,000 Line of
Credit signed by the Borrower.

          (c)  Corporate Authorization. Such authorization by the member or
Board of Directors of Borrower and Guarantor in form and substance satisfactory
to the Lender with respect to the authorization of this Agreement, the Note and
the Collateral Documents, as the case may be and the individuals authorized to
sign such instruments.

          (d)  Fees. Pay all fees and expenses of Lender's counsel, appraisers,
inspectors and related experts.

          (e)  Collateral Documents. Duly executed counterparts or originals of
the Collateral Documents and receipt of the Collateral.

          (f)  Representations. Each of the representations and warranties of
the Borrower contained in this Agreement shall be true and correct on and as of
the date of the initial Advance and the Closing Date, except as such
representations and warranties relate to matters that are permitted by this
Agreement.

                                       28

<PAGE>

     Section 7.02. Each Additional Advance. The obligation of the Lender to make
additional advances on the Line of Credit is subject to the satisfaction of each
of the following conditions:

          (a)  Each of the representations and warranties of the Borrower
contained in this Agreement shall be true and correct on and as of the date of
such subsequent advance, except as such representations and warranties relate to
matters that are permitted by this Agreement.

          (b)  At the time of each subsequent advance, no Default shall have
occurred and be continuing and no event with the passage of time or notice (or
both) would be a Default shall have occurred and be continuing.

          (c)  There shall have occurred no material adverse changes, either
individually or in the aggregate, in the assets, liabilities, financial
conditions, business operations, affairs or circumstances of the Borrower and/or
Guarantor from those reflected in the most recent financial statements furnished
to the Lender prior to the Closing Date, except to the extent that such changes
are permitted by this Agreement; and

          (d)  The satisfaction with any documentation or other conditions as
required herein.

                                  SECTION VIII
                                EVENTS OF DEFAULT

     Section 8.01. Defaults. The occurrence of any one or more of the following
events shall constitute a default (a "Default") under this Agreement:

          (a) the failure of Borrower to pay promptly when due any interest or
principal on any of the Obligations, including but not limited to the Loan;

          (b) the failure of Borrower and/or Guarantor to observe or perform
promptly when due any covenant, agreement, or obligation due to the Lender;

          (c) the failure to pay on demand any amounts advanced by Lender for
the payment of taxes and assessments or the cost of obtaining the release of any
Collateral from any seizure, Lien, or attachment;

          (d) the inaccuracy at any time of any warranty, representation, or
statement made to Lender by Borrower and/or Guarantor, whether such warranty,
representation, or statement is made (i) in this Agreement, the Note, or the
Collateral Documents, or (ii) in any other agreement, document, or writing;

          (e) any default on or in connection with any Obligation;

                                       29

<PAGE>

          (f) any material discrepancy between any financial statement submitted
to Lender by Borrower and/or Guarantor and its actual financial condition;

          (g) any garnishment, seizure, or attachment of, or any tax lien or tax
levy against, any assets of Borrower and/or Guarantor, including, without
limitation, those assets that are Collateral, unless the same is being contested
in good faith and is secured by adequate reserves in an amount sufficient to
satisfy same;

          (h) one or more judgments, decrees, arbitration award, rulings or
decisions shall be entered against Borrower and/or Guarantor involving in the
aggregate a liability (not paid or fully covered by insurance including
self-insurance or the payment or performance bonds) of $500,000 or more and all
such judgments, decrees, awards and rulings shall not have been vacated, paid,
discharged, stayed or bonded pending appeal within 60 days from the entry
thereof;

          (i) Borrower shall default in any payment of principal of or interest
on any Debt other than the Loan in the aggregate principal amount of more than
$100,000, in each instance, beyond the period of grace, if any, provided in the
instrument or agreement under which such Debt or observance or performance of
any other agreement or condition relating to any such Debt or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such Debt or
beneficiary or beneficiaries of such (or a trustee, agent or other Person acting
on behalf of such holder or holders or beneficiary or beneficiaries) to cause,
with the giving of notice if required, such Debt to become due prior to its
stated maturity;

          (j) a receiver, conservator, liquidator or trustee of the Borrower
and/or Guarantor, or of any of their property (including the Property) is
appointed by order or decree of any court or agency or supervisory authority
having jurisdiction; or an order for relief is entered against the Borrower
and/or Guarantor under the Federal Bankruptcy Code; or the Borrower and/or
Guarantor is adjudicated bankrupt or insolvent; or any material portion of any
property of any of the Borrower and/or Guarantor (including the Property) is
sequestered by court order and such order remains in effect for more than thirty
(30) days after such party obtains knowledge thereof; or a petition is filed
against the Borrower and/or Guarantor under any state, reorganization,
arrangement, insolvency, readjustment of debt, dissolution, liquidation or
receivership law of any jurisdiction, whether now or hereafter in effect, and
such petition is not dismissed within sixty (60) days;

          (k) the Borrower and/or Guarantor files a case under the Federal
Bankruptcy Code or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any case or petition against it under any such law;

          (l) the Borrower and/or Guarantor makes an assignment for the benefit
of its creditors, or admits in writing its inability to pay its debts generally
as they become due, or consents to the appointment of a receiver, trustee or
liquidator of the Borrower and/or Guarantor or of all or any part of its
property;

                                       30

<PAGE>

          (m) the entry of a final court order that enjoins or restrains
Borrower's and/or Guarantor's conduct of their business activities;

          (n) the existence or future enactment of any law, by any federal,
state, parish, county, municipal, or other taxing authority, requiring or
permitting Borrower to deduct any amount from any payments to be made on the
Loan or any other Obligation;

          (o) the failure of Borrower and/or Guarantor to pay any federal,
state, or local tax, fee, or duty, unless the same is being contested in good
faith and is secured by an adequate reserve in an amount sufficient to satisfy
same and enforcement proceedings have not begun;

          (p) any material adverse change in Borrower's financial condition,
business, or ability to pay or perform its obligations to Lender; or

          (q) the Collateral, or any material portion thereof, is condemned or
expropriated under power of eminent domain by any legally constituted
governmental authority.

     Section 8.02. Notice of Default and Remedies. Upon the happening of any
event of Default and such Default continues for a period of ten (10) days for a
payment default under the Loan or the Obligations or thirty (30) days for any
other type of default, after Lender has mailed or sent written notice of such
Default to the Borrower (but with no notice required in the event of a Default
under paragraphs (j), (k), or (l) of Section 8.01), Lender may declare the
entire principal amount of all Obligations then outstanding, including the Loan
and interest accrued thereon, to be immediately due and payable without
presentment, demand, protest, notice of protest or dishonor or other notice of
default of any kind, all of which are hereby expressly waived by the Borrower
and Lender is then authorized to exercise any and all of its rights and remedies
under the Collateral Documents and/or the Obligations.

     Section 8.03. Right of Set-off and Compensation. Upon the occurrence and
continuance of a Default and expiration of the notice provided in Section 8.02,
Lender is hereby authorized at any time and from time to time, without notice to
Borrower (any such notice being expressly waived by the Borrower) to set-off,
compensate and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held, and other indebtedness at any time owing
by the Lender to or for the credit or the account of the Borrower against any
and all of the Obligations of the Borrower, irrespective of whether or not the
Lender shall have made any demand under this Agreement or the Note and although
such Obligations may be unmatured. The Lender agrees promptly to notify the
Borrower after any such set-off, compensation and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section are in addition to
other rights of set-off and compensation which the Lender may have under the
Collateral Documents or otherwise. Lender shall have the right to impute all
payments on the Obligations in any order as Lender may desire.

                                       31

<PAGE>

                                   SECTION IX
                                  MISCELLANEOUS

     Section 9.01. Notices. All notices and other communications given hereunder
or in connection herewith shall be in writing, shall be sent by registered or
certified mail, return receipt requested, postage prepaid, or by hand delivery
with acknowledged receipt of delivery, shall be deemed given on the date of
acceptance or refusal of acceptance shown on such receipt; and shall be
addressed to the party to receive such notice at the following applicable
addresses:

     If to the Borrower:   Conrad Shipyard, L.L.C.
                           1501 Front Street
                           Morgan City, Louisiana 70380
                           Attn: Cecil A. Hernandez

     If to Lender:         Whitney National Bank
                           228 St. Charles Avenue
                           New Orleans, Louisiana 70130
                           Attn: Edgar W. Santa Cruz, III
                                 Vice President

     Any party may, by notice given as aforesaid, change its address for all
subsequent notices.

     Section 9.02. Amendments and Waivers. No amendment of any provision of this
Agreement or of the Note shall be effective unless the same shall be in writing
and signed by Lender and the Borrower. No waiver of Borrower's Obligations shall
be effective unless in writing and signed by Lender, and then such waiver shall
be effective only in the specific instance and for the specific purpose for
which given.

     Section 9.03. No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of Lender, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.

     Section 9.04. Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement, the Collateral Documents and the
Note.

     Section 9.05. Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation hereof in any respect.

     Section 9.06. Severability. Any provision of this Agreement which is
prohibited or unenforceable under applicable law shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.

                                       32

<PAGE>

     Section 9.07. Governing Law. This Agreement, the Note and the rights and
obligations of the parties under this Agreement and the Note shall be governed
by, and construed and interpreted in accordance with, the law of the State of
Louisiana.

     Section 9.08. Time of the Essence. Time shall be deemed of the essence with
respect to the performance of all of the terms, provisions and conditions on the
part of the Borrower and the Lender to be performed hereunder.

     Section 9.09. Successors and Assigns; Participants. (a) All covenants and
agreements contained by or on behalf of the Borrower in this Agreement, the Note
and the Collateral Documents shall bind its successors and assigns and shall
inure to the benefit of the Lender and its successors and assigns.

     (b) This Agreement is for the benefit of the Lender and for such other
Person or Persons as may from time to time become or be the holders of any of
the Obligations, and this Agreement shall be transferable and negotiable, with
the same force and effect and to the same extent as the Obligations may be
transferable, it being understood that, upon the transfer or assignment by the
Lender of any of the Obligations, the legal holder of such Obligations shall
have all of the rights granted to the Lender under this Agreement.

     (c) Borrower hereby recognizes and agrees that the Lender may, from time to
time, one or more times, transfer all or any portion of the Obligations to one
or more third parties. Such transfers may include, but are not limited to, sales
of participation interests in such Obligations in favor of one or more
third-party lenders. Borrower specifically (i) consents to all such transfers
and assignments, waives any subsequent notice of and right to consent to any
such transfers and assignments as may be provided under applicable Louisiana
law; (ii) agrees that the purchaser of a participation interest in the
Obligations will be considered as the absolute owner of a percentage interest of
such Obligations and that such a purchaser will have all of the rights granted
to the purchaser under any participation agreement governing the sale of such a
participation interest; (iii) waives any right of off-set that Borrower may have
against the Lender, and/or any purchaser of such a participation interest in the
Obligations and unconditionally agrees that either the Lender or such a
purchaser may enforce Borrower's Obligations under this Agreement, irrespective
of the failure or insolvency of the Lender or any such purchaser; (iv) agrees
that any purchaser of a participation interest in the Obligations may exercise
any and all rights of counterclaim, set-off, banker's lien and other liens with
respect to any and all monies owing to the Borrower in accordance with the terms
of the Obligations, including but not limited to this Agreement; and (v) agrees
that, upon any transfer of all or any portion of the Obligations, the Lender may
transfer and deliver any and all collateral securing repayment of such
Obligations to the transferee of such Obligations and such collateral shall
secure any and all of the Obligations in favor of such a transferee, and after
any such transfer has taken place, the Lender shall be fully discharged from any
and all future liability and responsibility to Borrower with respect to such
collateral, and the transferee thereafter shall be vested with all the powers,
rights and duties with respect to such collateral.

     Section 9.10. Counterparts. This Agreement may be executed in two or more
counterparts, and it shall not be necessary that the signatures of all parties
hereto be contained on any one counterpart hereof; each counterpart shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

                                       33

<PAGE>

     Section 9.11. Payment of Expenses and Indemnity.

     (a) The Borrower agrees (i) to promptly pay or reimburse Lender for all of
Lender's reasonable out-of-pocket costs, expenses and attorneys' fees incurred
in connection with the preparation, execution and delivery of this Agreement,
the Note, the Collateral Documents and any other documents prepared in
connection herewith, and (ii) to promptly pay or reimburse Lender for all of
Lender's reasonable out-of-pocket costs and expenses incurred in connection with
the preparation, execution and delivery of any amendment, supplement or
modification to this Agreement, the Note, the Collateral Documents and any other
documents prepared in connection herewith, together with the reasonable fees and
disbursements of counsel to Lender and the reasonable costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the Note, the Collateral Documents and any such other documents.

     (b) In consideration of the execution and delivery of this Agreement by
Lender, the Borrower hereby indemnifies, exonerates and holds Lender and its
respective officers, directors, employees, and agents, (herein collectively
called the "Bank Parties" and individually called a "Bank Party") free and
harmless from and against any and all actions, causes of action, suits, losses,
costs, liabilities and damages, and expenses actually incurred in connection
therewith (irrespective of whether such Bank Party is a party to the action for
which indemnification hereunder is sought), including reasonable attorneys' fees
and disbursements (collectively, the "Indemnification Liabilities"), incurred by
the Bank Parties or any of them as a result of, or arising out of, or relating
to:

               (i) any transaction financed or to be financed in whole or in
          part, directly or indirectly, with the proceeds of the Loan; or

               (ii) any investigation, litigation, or proceeding related to any
          acquisition or proposed acquisition by the Borrower or any of its
          Subsidiaries of all or any portion of the stock or all or
          substantially all of the assets of any Person, regardless of whether
          any Bank Party is a party thereto; or

               (iii) the presence on or under, or the escape, seepage leakage,
          spillage, discharge, emission, discharging or releases from, any real
          property owned or operated by the Borrower or any Subsidiary of any
          Hazardous Material (including, without limitation, any losses,
          liabilities, damages, injuries, costs, expenses or claims asserted or
          arising under the Comprehensive Environmental Response. Compensation
          and Liability Act, any so-called "Superfund" or "Superlien" law, or
          any other federal, state, local or other statute, law, ordinance,
          code, rule, regulation, order or decree regulating, relating to or
          imposing liability or standards on conduct concerning, any Hazardous
          Material), regardless of whether caused by, or within the control of,
          the Borrower or any Subsidiary;

except for any such Indemnification Liabilities arising for the account of a
particular Bank Party which a court of competent jurisdiction shall have
determined in a final proceeding to have arisen by reason of the relevant Bank
Party's gross negligence, bad faith, willful misconduct or breach of contractual
obligation arising under this Agreement and owed to the Borrower (which

                                       34

<PAGE>

shall be the sole responsibility of such Bank Party). The agreements in this
Section shall survive payment of the Loan and the Obligations and all other
amounts payable hereunder.

     Section 9.12. Entire Agreement. This Agreement, the Note, the Collateral
Documents and the other documents executed in connection herewith constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof. To the extent the terms of the Collateral Documents conflict with the
terms of this Agreement, the terms of this Agreement shall control. To the
extent that the Note or any of the Collateral Documents or any other documents
executed in connection with the existing or prior Obligations of Borrower to
Lender reference a prior loan agreement, such reference shall be to this
Agreement, as it may be amended, supplemented or modified from time to time.

                                       35

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.

                                        CONRAD SHIPYARD, L.L.C.

                                        By:  /s/ Cecil A. Hernandez
                                           -------------------------------------
                                                 Cecil A. Hernandez
                                                 Its: Treasurer and Manager

                                        CONRAD INDUSTRIES, INC.

                                        By:  /s/ Cecil A. Hernandez
                                           -------------------------------------
                                                 Cecil A. Hernandez
                                                 Its: Chief Financial Officer

                                        ORANGE SHIPBUILDING COMPANY, INC.

                                        By:  /s/ Cecil A. Hernandez
                                           -------------------------------------
                                                 Cecil A. Hernandez
                                                 Its: Chief Financial Officer

                                        WHITNEY NATIONAL BANK

                                        By:  /s/ Edgar W. Santa Cruz, III
                                           -------------------------------------
                                                 Edgar W. Santa Cruz, III
                                                 Its: Vice President

                                       36

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