SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
The Shaw Group, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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(THE SHAW GROUP INC. LOGO)
THE SHAW GROUP INC.
4171 ESSEN LANE
BATON ROUGE, LOUISIANA 70809
NOTICE OF THE 2003 ANNUAL MEETING
OF SHAREHOLDERS
PLEASE TAKE NOTICE that the 2003 Annual Meeting of Shareholders (the
"Annual Meeting") of The Shaw Group Inc., a Louisiana corporation (the
"Company"), will be held at the Radisson Hotel, 4728 Constitution Avenue, Baton
Rouge, Louisiana, on Friday, January 24, 2003, at 9:00 a.m. to consider and act
upon:
(1) the election of seven members to the Board of Directors, each for
a one-year term;
(2) a proposal to approve an amendment to the Company's 2001 Employee
Incentive Compensation Plan to increase by 1,500,000 shares the number of
shares of the Company's common stock, no par value reserved for issuance
thereunder; and
(3) such other business as may properly come before the Annual Meeting
and any adjournments thereof.
The Board of Directors has fixed the close of business on December 18,
2002, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the Annual Meeting.
Your proxy card is enclosed. You are cordially invited to attend the Annual
Meeting, but if you do not expect to attend or if you plan to attend but it is
more convenient for the designated proxies to vote your shares, please execute,
date and return the enclosed proxy card in the enclosed postage-paid envelope as
soon as possible to ensure that your shares will be voted at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ GARY P. GRAPHIA
Gary P. Graphia, Secretary
December 27, 2002
Baton Rouge, Louisiana
IMPORTANT
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE INDICATE YOUR WISHES, DATE,
SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY, FOR WHICH A RETURN ENVELOPE IS
PROVIDED.
THE SHAW GROUP INC.
4171 ESSEN LANE
BATON ROUGE, LOUISIANA 70809
PROXY STATEMENT
The accompanying Proxy is solicited on behalf of the Board of Directors of
The Shaw Group Inc. (the "Company") for use at the 2003 Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Friday, January 24, 2003, at
9:00 a.m., at the Radisson Hotel, 4728 Constitution Avenue, Baton Rouge,
Louisiana, and any adjournments thereof. Only shareholders of record at the
close of business on December 18, 2002 (the "Record Date"), will be entitled to
notice of, and to vote at, the Annual Meeting. The Company anticipates that this
Proxy Statement and the accompanying Proxy will be first sent or given to the
Company's shareholders on approximately December 27, 2002.
GENERAL
The purpose of the Annual Meeting is to consider and act upon the matters
that are set forth in the accompanying Notice of the Annual Meeting of
Shareholders and in this Proxy Statement. The holders of shares having a
majority of the voting power of the Company's common stock, no par value (the
"Common Stock"), issued and outstanding and entitled to vote at the Annual
Meeting must be present in person or represented by proxy to constitute a quorum
for the transaction of business at the Annual Meeting. The shares held by each
shareholder who signs and returns the enclosed form of Proxy will be counted, in
accordance with the voting procedures outlined in this Proxy Statement and in
the Company's articles of incorporation, for purposes of determining the
presence of a quorum at the Annual Meeting, whether or not the shareholder
abstains on any or all matters to be acted on at the Annual Meeting. Abstentions
will be counted towards the calculation of a quorum. Broker non-votes (which
result when a broker or nominee holding shares for a beneficial owner lacks
discretionary power to vote and has not received specific voting instructions
from the beneficial owner) will be counted towards fulfillment of quorum
requirements. Any shareholder filing a Proxy has the power to revoke it at any
time before it is exercised by providing written notice of revocation to the
Secretary of the Company or by filing a properly executed Proxy of a later date
with the Secretary of the Company.
At the Annual Meeting, the shareholders will consider and elect seven
members to the Company's Board of Directors. The enclosed form of Proxy provides
a means for a shareholder to vote for all the nominees for director listed
thereon, to withhold authority to vote for one or more of such nominees or to
withhold authority to vote for all of such nominees. Each Proxy will be voted in
accordance with the shareholder's directions indicated thereon. Article III of
the Company's by-laws provides that directors are elected by a plurality of the
votes cast. The seven nominees receiving the most votes will be elected as
members of the Board of Directors. There is no cumulative voting. Accordingly,
the withholding of authority by a shareholder (including broker non-votes) will
not be counted in computing a plurality, and thus, will have no effect on the
results of the election of directors.
The enclosed form of Proxy also provides a means for a shareholder to vote
for, against or abstain from voting on a proposal to approve an amendment to the
Company's 2001 Employee Incentive Compensation Plan ("Proposal 2"). The
affirmative vote of a majority of the voting power of the Common Stock, present
in person or represented by proxy and entitled to vote at the meeting, is
required for approval of Proposal 2. An abstention with respect to Proposal 2
will have the effect as a vote against it. Broker non-votes will be treated as
shares not present and not entitled to vote with regard to Proposal 2.
Approval of any other matters as may properly come before the Annual
Meeting will require the affirmative vote of a majority of the voting power
present in person or represented by proxy and entitled to vote at the Annual
Meeting. Each Proxy will be voted in accordance with the shareholder's
directions indicated thereon.
Unless a shareholder specifies otherwise, the enclosed Proxy, if properly
executed and duly returned, will be voted FOR the election of the seven director
nominees listed hereinafter under the caption "Election of
1
Directors" and FOR Proposal 2 that is more fully described hereafter under
"Proposal 2 -- To Approve an Amendment to Increase the Number of Shares Reserved
for Issuance Under the Company's 2001 Employee Incentive Compensation Plan."
The cost of preparing, assembling, printing and mailing this Proxy
Statement, the form of Proxy, and the Notice of the Annual Meeting of
Shareholders will be paid by the Company. In addition to solicitation of Proxies
through mailings, Proxies may also be solicited personally by certain directors,
officers and employees of the Company, and no additional compensation will be
paid to such individuals. Proxies will also be solicited by Georgeson
Shareholder Services, Inc., whose fee of approximately $5,500 plus out-of-pocket
expenses will be paid by the Company. The Company will also supply brokers or
persons holding stock in their names or in the names of their nominees with such
number of Proxies, proxy materials and annual reports as they may require for
mailing to beneficial owners and will reimburse them for their reasonable
expenses incurred in connection therewith.
As of November 30, 2002, the Company had issued and outstanding and
entitled to vote approximately 37,732,416 shares of Common Stock. The Common
Stock is the only outstanding class of voting securities of the Company.
The Company's principal executive offices are located at 4171 Essen Lane,
Baton Rouge, Louisiana, 70809, and the Company's telephone number is (225)
932-2500.
VOTING RIGHTS OF COMMON STOCK
Article IV of the Company's articles of incorporation provides generally
that each outstanding share of Common Stock will entitle the holder thereof to
five votes, except that holders of outstanding shares of Common Stock with
respect to which there has been one or more specified changes in beneficial
ownership during the four years immediately preceding the Record Date (December
18, 2002) will be entitled to only one vote per share. Thus, shares owned since
December 18, 1998, or an earlier date, and as to which there have been no such
specified changes in beneficial ownership since December 18, 1998, will entitle
the holder thereof to five votes per share. The actual voting power of each
holder of Common Stock will be based on stock ownership on the Record Date as
set forth in shareholder records at the date of the Annual Meeting. See
"Confirmation of Beneficial Ownership" below for a more detailed discussion of
(i) the provisions of the articles of incorporation of the Company relating to
the voting rights of the holders of the shares of Common Stock and the manner of
determination thereof; and (ii) certain procedures shareholders should follow to
confirm to the Company their beneficial ownership of shares of Common Stock.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Common Stock as of November 30, 2002 (except as otherwise noted), with
respect to (i) each director and each nominee for director; (ii) each executive
officer of the Company for whom compensation information is disclosed under the
heading "Executive Compensation;" (iii) all executive officers and directors as
a group; and (iv) each person, or group of affiliated persons known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock. Each of the following shareholders has sole voting and investment power
with respect to shares beneficially owned by such shareholder, except to the
extent that authority is shared by spouses under applicable law, or as otherwise
noted.
<Table>
<Caption>
PERCENT
BENEFICIAL OWNERSHIP OF VOTING
DIRECTORS, NOMINEES AND NAMED EXECUTIVE OFFICERS SHARES PERCENT POWER(13)
- ------------------------------------------------ ---------- --------- ---------
J.M. Bernhard, Jr.(1)....................................... 1,966,132 5.0% 15.4%
Albert McAlister(2)......................................... 147,104 * 1.5%
Richard F. Gill(3).......................................... 169,750 * *
Robert L. Belk(4)........................................... 198,500 * *
David W. Hoyle(5)........................................... 45,000 * *
Mitchell A. Rayner(6)....................................... 58,749 * *
William H. Grigg(7)......................................... 25,000 * *
L. Lane Grigsby(8).......................................... 20,700 * *
John W. Sinders, Jr.(9)..................................... 85,500 * *
T.A. Barfield, Jr.(10)...................................... 43,125 * *
Charles E. Roemer, III...................................... -- * *
All executive officers, directors and director-nominees as a
group (17 persons)(11).................................... 2,815,635 7.1% 18.6%
OTHER PERSONS
Snyder Capital Management, LP(12)
350 California Street
Suite 1460
San Francisco, California 94104-1436........................ 2,255,100 5.4% 4.9%
</Table>
- ---------------
* less than 1%
(1) Includes 600,000 shares of which Mr. Bernhard may be deemed to be
beneficial owner as a result of rights that he may exercise to acquire
beneficial ownership within 60 days.
(2) Includes 225 shares beneficially owned by Mr. McAlister's spouse and 10,000
shares of which Mr. McAlister may be deemed to be beneficial owner as a
result of rights that he may exercise to acquire beneficial ownership
within 60 days.
(3) Includes 152,500 shares of which Mr. Gill may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(4) Includes 104,740 shares of which Mr. Belk may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(5) Includes 6,250 shares beneficially owned by Mr. Hoyle's spouse and 17,000
shares of which Mr. Hoyle may be deemed to be beneficial owner as a result
of rights that he may exercise to acquire beneficial ownership within 60
days.
(6) Includes 58,749 shares of which Mr. Rayner may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership in 60 days.
(7) Includes 19,000 shares of which Mr. Grigg may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
3
(8) Includes 9,000 shares of which Mr. Grigsby may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(9) Includes 15,500 shares of which Mr. Sinders may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(10) Includes 43,125 shares of which Mr. Barfield may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(11) Includes 6,475 shares owned of record by spouses of executive officers and
directors and 1,084,739 shares of which executive officers and directors
may be deemed to be the beneficial owners as a result of rights they may
exercise to acquire beneficial ownership within 60 days.
(12) Number of shares beneficially owned by Snyder Capital Management, LP at
September 30, 2002 as indicated by a Form 13-F Holdings Report File Number
28-6636 as filed with the Securities and Exchange Commission.
(13) Based upon information contained in the stock records of the Company as of
the Record Date, or other information that is otherwise available to the
Company as of the date of this Proxy Statement.
ELECTION OF DIRECTORS
The Nominating and Corporate Governance Committee has recommended to the
Board of Directors and the Board of Directors of the Company has unanimously
nominated seven individuals for election as directors at the Annual Meeting.
Each of these nominees, other than Charles E. Roemer, III, is presently a
director of the Company. Each nominee director is to be elected for a term of
one year and to serve until the next annual meeting of shareholders or until his
successor is elected and has been qualified; provided, however, that if the
number of directors is ever increased to twelve or more, then, pursuant to
Article III, Section 2 of the Company's by-laws, at the next shareholders'
meeting at which directors are to be elected, the Board of Directors will be
divided into three classes, and directors will serve staggered three year terms.
The enclosed form of Proxy confers discretionary authority with respect to
the election of the nominees for director specified in this Proxy Statement and
the accompanying Proxy, but does not allow any authority to be conferred or
exercised to vote for the election of any person as a director other than the
persons named in this Proxy Statement and the accompanying Proxy unless, for
some reason not known as of the date hereof, one or more of such nominees should
become unavailable. In such event, it is intended that the Proxy would be voted
for one or more substitute nominees designated by the Board of Directors prior
to the Annual Meeting. The Board has no reason to believe that any nominee will
be unable or unwilling to serve. In order to be elected as a director, a nominee
must receive a plurality of the votes cast by the holders of Common Stock. The
seven nominees receiving the most votes will be elected as members of the Board
of Directors. The name, age, principal occupation or employment and other data
regarding each director nominee, based on information provided by the nominee,
are set forth below:
J. M. Bernhard, Jr., age 48, the Company's founder, has been
President, Chief Executive Officer and a director of the Company since its
inception in August 1987. Mr. Bernhard has been Chairman of the Board since
August 1990. Mr. Bernhard has spent over 21 years in the pipe fabrication
business. Immediately prior to his position with the Company, Mr. Bernhard
was Vice President and General Manager of Sunland Services, a pipe
fabrication company, and served on the board of directors of Barnard and
Burk Engineers & Constructors.
Albert McAlister, age 51, has been one of the Company's directors
since April 1990. Since 1975, Mr. McAlister has been a partner in the law
firm of McAlister & McAlister, P.A. in Laurens, South Carolina. He served
as Chairman of the Democratic Party in South Carolina from 1990 until 1994.
L. Lane Grigsby, age 60, has served as one of the Company's directors
since January 1995. Mr. Grigsby is Chairman of the Board of Cajun
Constructors, Inc., for which he also served as President and Chief
Executive Officer from April 1973 until June 1994. He has over 30 years of
experience in the industrial construction industry. He also serves as an
officer or director for several industry and charitable
4
organizations, including the Associated Builders and Contractors and the
Louisiana Association of Business and Industry.
David W. Hoyle, age 63, has served as one of the Company's directors
since January 1995. For the past 13 years, he has been self-employed,
primarily as a real estate developer. He has been a member of the Senate
Chamber of the North Carolina General Assembly since 1992. Senator Hoyle is
the Chairman of the Board of Directors of Citizens South Banking
Corporation, a bank holding company, and is Chairman of the Board of
Directors of its wholly-owned subsidiary, Citizens South Bank. Senator
Hoyle also serves as a director of several private corporations as well as
of several civic, educational and charitable organizations.
John W. Sinders, Jr., age 48, has served as one of the Company's
directors since March 1995. He has served as Managing Director of Jefferies
& Company, Inc. ("Jefferies"), an investment banking firm, since November
2001. He served as Managing Director of RBC Dominion Securities
Corporation, an investment banking firm, from August 1999 to November 2001.
From 1993 until 1999, Mr. Sinders served as an Executive Vice President of
Jefferies. Mr. Sinders served as a Managing Director of Howard Weil
Labouisse Friedrichs Incorporated, an investment banking firm, from 1987
until 1993. He was a member of the board of directors of Howard Weil from
1990 until 1993. Prior to joining Howard Weil, he was a partner with the
McGlinchey, Stafford law firm in New Orleans.
William H. Grigg, age 70, has served as one of the Company's directors
since January 1998. He is the retired Chairman of the Board and Chief
Executive Officer of Duke Power Company, now Duke Energy Corporation, one
of the world's largest energy companies. Mr. Grigg began his career at Duke
Power in 1963. He served as Chairman and Chief Executive Officer from April
1994 until June 1997. Prior to being elected Chairman, he served as Vice
Chairman of the Board for three years. Mr. Grigg is on the board of
directors of The Nations Fund family of mutual funds, Associated Electric
and Gas Insurance Services Ltd. (a mutual casualty insurance company),
Kuhlman Electric Company, Inc. and Faison Enterprises (a real estate
development company). He is a member of several civic and charitable
organizations serving on the Board of the Foundation for the Carolinas and
as Chairman of the Lynwood Foundation.
Charles E. Roemer, III, age 59, is a new nominee for director. Mr.
Roemer served as Governor of the State of Louisiana from 1988 to 1992. In
1980, Mr. Roemer was elected to the United States Congress to represent the
4th Congressional District of Louisiana, and served in that position for
four terms. Mr. Roemer presently serves as the Interim President of The
Business Bank, a wholesale business bank serving small and medium sized
businesses and professionals in Louisiana, which he co-founded in 1998. In
1999, Mr. Roemer co-founded each of FG Group, L.L.C., a trading company
between enterprises in the Far East and the United States and Bio-Prep,
which specializes in the design and direct sale of information packages and
protective kits for protection of individuals against bio-terrorist
attacks. In 1998, he formed Roemer Development, a company designing,
building and operating Continuous Care Retirement Communities in
not-for-profit association with colleges and universities.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE SEVEN NOMINEES
FOR DIRECTOR.
BOARD MEETINGS, COMMITTEES AND COMPENSATION OF DIRECTORS
During the fiscal year ended August 31, 2002 ("fiscal 2002"), ten meetings
of the Board of Directors were held. Each incumbent director who is a nominee
for re-election attended at least 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings held by all
committees of the Board on which each such director served during fiscal 2002.
During fiscal 2002, the Board of Directors created a new committee known as
the Nominating and Corporate Governance Committee (the "Nominating Committee").
The following directors serve on the Nominating Committee: L. Lane Grigsby
(Chairman), William H. Grigg and David W. Hoyle. While the Nominating Committee
did not meet during fiscal 2002, it met in fiscal 2003 for purposes of
considering
5
nominees for director for the 2003 Annual Meeting of Shareholders. The primary
functions of the Nominating Committee include the following:
- to recommend to the Board the director nominees for election at the
annual meeting of shareholders;
- to recommend to the Board director nominees for each committee of the
Board;
- to advise the Board about appropriate composition of the Board and its
committees;
- to advise the Board about and recommend appropriate corporate governance
practices; and
- to assist the Board in its annual review of the performance of the Board
and its committees.
The Nominating Committee intends, during 2003, to establish procedures for the
consideration by it of persons recommended by shareholders for nomination as
directors. Actual nominations by shareholders may be made only in the manner
specifically provided in the Company's by-laws. See "Shareholder Proposals"
below for information on shareholder nominations.
The following directors serve on the Audit Committee: William H. Grigg
(Chairman), John W. Sinders, Jr. and Albert McAlister. The Audit Committee met
six times during fiscal 2002. The primary purpose of the Audit Committee is to
assist the Board of Directors in the Board's oversight of:
- the integrity of the Company's financial statements;
- the Company's compliance with legal and regulatory requirements;
- the Company's systems of internal accounting and financial controls;
- the performance of the annual independent audit of the Company's
financial statements;
- the independent auditor's qualifications and independence; and
- the performance of the Company's internal audit function.
For additional information regarding Audit Committee functions and activities,
see "Audit Committee Report" below and the Audit Committee Charter, as amended
and restated, a copy of which is attached to this proxy statement as Appendix A.
The following directors serve on the Compensation Committee: David W. Hoyle
and L. Lane Grigsby. The Compensation Committee met six times during fiscal
2002. The primary functions of the Compensation Committee are set forth in the
"Compensation Committee Report on Executive Compensation" below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The persons serving as members of the Compensation Committee of the Board
of Directors during fiscal 2002 were David W. Hoyle and L. Lane Grigsby. No
member of the Compensation Committee was an officer or employee of the Company
or any of its subsidiaries during fiscal 2002. No executive officer of the
Company served during fiscal 2002 as a director or as a member of the
Compensation Committee of another entity, one of whose executive officers served
as a director or on the Compensation Committee of the Company.
DIRECTOR COMPENSATION
During fiscal 2002, each non-employee director of the Company received a
retainer of $11,000 per quarter and a fee of $1,000 for each meeting of the
Company's Board of Directors attended. During fiscal 2002, each non-employee
director serving on a committee of the Board received a fee of $250 for each
committee meeting attended. Directors were also reimbursed for certain expenses
in connection with their attendance at Board and committee meetings.
In addition, pursuant to the Company's 1996 Non-Employee Director Stock
Option Plan (as amended) (the "Director Plan"), each non-employee director
serving as of the effective date (July 14, 1996) of the Director Plan received,
and each director not serving on such effective date upon his or her initial
election by the shareholders will receive, an option to purchase 5,000 shares of
the Company's Common Stock. These
6
options vest in 25% increments in each of the four years following grant. In
addition, each non-employee director will be awarded an additional option to
purchase 1,500 shares of the Company's Common Stock on an annual basis upon
reelection to the Board. Such options will vest one year from the date of award.
The exercise price for all options granted under the Director Plan is the
closing price of a share of the Company's Common Stock reported on the New York
Stock Exchange on the effective date of the award.
MANAGEMENT OF THE COMPANY
The following table provides information with respect to the executive
officers of the Company. Each executive officer has been elected to serve until
his successor is duly appointed or elected by the Board of Directors or his
earlier removal or resignation from office.
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
J. M. Bernhard, Jr. ................................. 48 Chairman of the Board of Directors,
President and Chief Executive Officer
Richard F. Gill...................................... 59 Executive Vice President and Chief
Operating Officer; President of Stone &
Webster, Inc.
Robert L. Belk....................................... 53 Executive Vice President, Chief Financial
Officer and Treasurer
Mitchell A. Rayner................................... 47 Executive Vice President of Operations
Gary P. Graphia...................................... 40 Secretary and General Counsel
T. A. Barfield, Jr. ................................. 38 President, Environmental & Infrastructure
Division
David L. Chapman, Sr. ............................... 56 President, Fabrication & Manufacturing
Division
Nicholas C. Gallinaro................................ 62 President, Stone & Webster Process
Division
Dorsey Ron McCall.................................... 54 President, Maintenance Division
Norman C. Spence..................................... 52 President, Stone & Webster Power Division
Donald G. Stokes..................................... 60 President, Construction Division
</Table>
J. M. Bernhard, Jr. -- For personal information on Mr. Bernhard, see
"Election of Directors."
Richard F. Gill has been employed by the Company since 1997 when the
Company acquired certain assets of MERIT Industrial Constructors, Inc. ("MERIT")
and other affiliated entities. Mr. Gill served as President of MERIT from its
founding in January 1982 until the sale of its assets to the Company in 1997.
MERIT was an industrial construction and maintenance firm based in Baton Rouge,
Louisiana. Mr. Gill served as the President of Shaw Process and Industrial
Group, Inc., a wholly-owned subsidiary of the Company, from March 1997 until
August 1998, and as Senior Vice President in charge of International and
Construction Operations from September 1998 until May 1999. In May 1999, Mr.
Gill was appointed Executive Vice President and Chief Operating Officer. In
August 2000, Mr. Gill was appointed President of Stone & Webster, Inc., a
subsidiary of the Company. Mr. Gill has over 32 years of experience in the
industrial construction and maintenance industry.
Robert L. Belk joined the Company in October 1998 as Executive Vice
President, Chief Financial Officer and Treasurer. Prior to joining the Company,
Mr. Belk served Ocean Energy, Inc. ("Ocean Energy") as its Executive Vice
President of Administration from March 1998 until October 1998, as its Executive
Vice President and Chief Financial Officer from June 1997 until March 1998, and
as its Senior Vice President, Chief Financial Officer and Treasurer from 1993
until 1997. Prior to joining Ocean Energy, Mr. Belk was engaged in public
accounting with national and local firms and as a sole-practitioner.
Mitchell A. Rayner has been employed by the Company since May 1997 and
served as Vice President of Shaw Power Services, Inc., one of the Company's
subsidiaries from 1997 until 1998 and Vice President of U.S. Operations from
1998 to 2000. In August 2000, the Company appointed Mr. Rayner as its Senior
Vice President of Fabrication and Manufacturing and in March, 2002, Mr. Rayner
was appointed as Executive Vice President of Operations. Prior to joining the
Company, Mr. Rayner served as one of the principal owners of
7
Pipeline Technology since 1994 and an owner of Performance Contractors from 1980
until 1994. Mr. Rayner has over 25 years of experience in the industrial
construction, fabrication and maintenance industry.
Gary P. Graphia has been employed by the Company since August 1999 as
Secretary and General Counsel. Prior to joining the Company, Mr. Graphia
practiced law with Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, L.L.P.
where he was a partner. Mr. Graphia entered the practice of law in 1991 after
four years with Texas Commerce Bank, Houston, Texas, where he became an
Assistant Vice President.
T. A. Barfield, Jr. has been employed with the Company since 1994, and has
served the Company in various capacities, including General Counsel and
Secretary, Managing Director of Shaw U.K., President of Shaw APP and Senior Vice
President of Special Projects. Most recently, in May, 2002, Mr. Barfield was
named President of the Company's Environmental & Infrastructure Division. Prior
to joining Shaw, Mr. Barfield practiced law with Vinson & Elkins L.L.P.
David L. Chapman, Sr., joined the Company in April 2002, as President of
the Company's Fabrication & Manufacturing Division. Mr. Chapman has over 32
years of experience in the industrial fabrication business. Mr. Chapman joined
the Company from Turner Industries Group, a large industrial contracting
company, where he served as President of International Piping Systems, Turner
International Piping Systems, and International Painting Corporation. Prior to
joining Turner in 1984, Mr. Chapman was employed by Texas Pipe Bending Company
for 15 years where he served most recently as Vice President of Marketing.
Nicholas C. Gallinaro, became employed by the Company in April 2002, as
President of the Stone & Webster Process Division. Mr. Gallinaro joined the
Company from Kellogg Brown & Root, Inc., a large engineering, procurement and
construction ("EPC") company where he served since 1994, most recently as Senior
Vice President of Onshore Operations. Prior to joining Kellogg Brown & Root, Mr.
Gallinaro served as a Vice President of Raytheon Engineers & Constructors,
another large EPC company.
Dorsey Ron McCall, President of the Company's Maintenance Division, became
employed by the Company in August 2002. Mr. McCall joined the Company from
Turner Industries Group where he served for 23 years as Senior Vice President of
Construction and Maintenance of the Western Division. Prior to joining Turner,
Mr. McCall worked for C.F. Braun Engineers for six years.
Norman C. Spence joined the Company with the Company's acquisition of Stone
& Webster, Incorporated, a large EPC company, in 2000, and at such time was
named Vice President and General Manager of the Denver operations of the
Company's Stone & Webster subsidiary. Subsequently, in April, 2002, Mr. Spence
was appointed as President of the Stone & Webster Power Division. Mr. Spence
became employed by Stone & Webster in 1972, and held positions in operating
management, project management, business development and engineering.
Donald G. Stokes has been employed by the Company since July 2000, when the
Company acquired most of the assets of Stone & Webster. In April 2002, Mr.
Stokes was appointed as President of the Company's Construction Division. Prior
to the acquisition by the Company of Stone & Webster, Mr. Stokes served as Stone
& Webster's Senior Vice President of Project Management from March 2000 to July
2000. Prior to joining Stone & Webster, Mr. Stokes served as Senior Vice
President of Maintenance and Construction for Raytheon Engineers and
Constructors ("Raytheon"), another large EPC company, from February 1999 to
March 2000. Prior to joining Raytheon, Mr. Stokes served as Vice President of
Construction for M.W. Kellogg, also a large EPC company, from 1991 to 1999.
8
EXECUTIVE COMPENSATION
The following table contains compensation data for the last three fiscal
years for the Company's Chief Executive Officer and its four other most highly
compensated executive officers (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<Table>
<Caption>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- -------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(1) SALARY(2) BONUS(3) (4) OPTIONS(#)(5) (6)
- --------------------------- ------- --------- ---------- ------------ ------------- ------------
J. M. Bernhard, Jr. ................ 2002 $953,482 $1,000,000 -- -- $5,500
President, Chief Executive 2001 $941,667 $2,000,000 -- -- $5,333
Officer and Chairman of the Board 2000 $733,333 $1,000,000 -- 400,000 $5,989
Richard F. Gill..................... 2002 $664,306 $ 500,000 $79,966 15,000 $5,500
Executive Vice President 2001 $632,397 $ 500,000 $75,054 -- $5,250
and Chief Operating Officer; 2000 $419,031 $ 350,000 -- 160,000 $6,030
President of Stone & Webster, Inc.
Robert L. Belk...................... 2002 $463,573 $ 400,000 -- 10,000 $5,500
Executive Vice President, 2001 $443,647 $ 400,000 -- -- $5,250
Chief Financial Officer and
Treasurer 2000 $318,750 $ 250,000 -- 150,000 $5,250
Mitchell A. Rayner.................. 2002 $327,538 $ 200,000 -- 15,000 $5,500
Executive Vice President 2001 $270,321 $ 200,000 -- -- $5,250
of Operations 2000 $195,000 $ 100,000 -- 30,000 $5,250
T. A. Barfield, Jr. ................ 2002 $319,621 $ 218,151 -- 10,000 $5,500
President, Environmental & 2001 $240,362 $ 175,000 -- -- $5,698
Infrastructure Division 2000 $187,845 $ 100,000 -- 20,000 $4,088
</Table>
- ---------------
(1) The Company's fiscal year ends on August 31.
(2) From time to time, executive officers receive raises that are made
retroactive to prior periods. These raises may overlap fiscal periods. The
entire amount of the retroactive payment is reported in the year such amount
is received.
(3) The bonuses paid for 2002 to each of the Named Executive Officers (including
Mr. Bernhard) and to Mr. Bernhard for fiscal 2001, were paid as a result of
the achievement by the Company of specific and preestablished Company
performance goals. A portion of Mr. Barfield's bonus ($18,151) is the fiscal
2002 accrual of a separate, individual incentive bonus award to Mr. Barfield
in July 2002. All other bonuses in the table were paid at the discretion of
the Compensation Committee of the Board of Directors. For more information,
see "Compensation Committee Report on Executive Compensation" below.
(4) Perquisites and other personal benefits, except for those for Mr. Gill in
2002 and 2001, have not been disclosed in the "Other Annual Compensation"
column since, in the aggregate, they did not exceed the lesser of either
$50,000 or 10% of total salary and bonus. As a result of Company record
keeping procedures, the amounts disclosed for Mr. Gill for 2002 and 2001,
constitute total personal benefits for the calendar years of 2001 and 2000,
respectively. Of the 2002 and 2001 totals for Mr. Gill, $58,014 and $58,014
represent forgiveness of interest for the calendar years 2001 and 2000,
respectively.
(5) Denotes shares of Common Stock of the Company that may be purchased upon
exercise of options awarded pursuant to the Company's employee stock option
plans. All options have been granted at an exercise price of 100% of the
fair market value of the Common Stock on the date of grant. For additional
information regarding options granted during fiscal 2002, see "Option Grants
in Last Fiscal Year" and for
9
information regarding current holdings of options, see "Options Exercised and
Fiscal Year-End Option Values."
(6) Represents the Company's contribution on behalf of the officers to the
Company's 401(k) plan. As a result of non-discrimination testing of highly
compensated employees, refunds of employee 401(k) withholdings and the
forfeiture of the corresponding Company contribution may take place in
subsequent years. The Company contributions reflected in this table have not
been reduced for past or potential forfeitures as a result of
non-discrimination testing.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATE OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL PRICE -----------------------
NAME GRANTED(1) YEAR $/SHARE(2) EXPIRATION DATE 5% 10%
- ---- ---------- ---------- ---------- --------------- ---------- ----------
J. M. Bernhard, Jr. ... -- -- -- -- -- --
Richard F. Gill........ 15,000 1.8% $26.00 September 20, 2011 $245,269 $621,560
Robert L. Belk......... 10,000 1.2% $26.00 September 20, 2011 $163,513 $414,373
Mitchell A. Rayner..... 15,000 1.8% $26.00 September 20, 2011 $245,269 $621,560
T.A. Barfield, Jr. .... 10,000 1.2% $26.00 September 20, 2011 $163,513 $414,373
</Table>
- ---------------
(1) The options are generally exercisable in four 25% annual installments
beginning one year from the date of grant, with exercise prices equal to the
fair market value of a share of Common Stock on the date of grant.
(2) Based upon the closing price of a share of the Company's Common Stock listed
on the New York Stock Exchange on the date of award.
OPTIONS EXERCISED AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information (at August 31, 2002) regarding
(i) the number of shares received and the value realized upon exercise of stock
options during fiscal 2002 by any of the Chief Executive Officer and the Named
Executive Officers, and (ii) the number and value of exercisable and
unexercisable options held by any of the Chief Executive Officer and the Named
Executive Officers.
<Table>
<Caption>
VALUE OF UNEXERCISED
NUMBER OF SHARES IN-THE-MONEY OPTIONS AT
UNDERLYING UNEXERCISED FISCAL YEAR END
SHARES OPTIONS AT ---------------------------
ACQUIRED ON VALUE FISCAL YEAR-END EXERCISABLE UNEXERCISABLE
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE (1)(2) (2)(3)
- ---- ----------- ----------- ------------------------- ----------- -------------
J. M. Bernhard, Jr. .... -- -- 500,000/300,000 $3,768,750 $1,256,250
Richard F. Gill......... -- -- 114,375/129,375 $ 431,836 $ 431,836
Robert L. Belk.......... 23,866 $573,082 88,634/122,500 $ 171,277 $ 471,094
Mitchell A. Rayner...... -- -- 34,999/50,001 $ 251,250 $ 251,250
T.A. Barfield, Jr. ..... -- -- 25,313/35,312 $ 192,370 $ 192,357
</Table>
- ---------------
(1) The exercise price of all in-the-money exercisable options is $4.19 per
share.
(2) The values are based upon the closing price reported on the New York Stock
Exchange of the Common Stock on August 31, 2002 ($16.75).
(3) The exercise price of all in-the-money unexercisable options is $4.19 per
share.
AUDIT COMMITTEE REPORT
The following directors are members of the Audit Committee: William H.
Grigg (Chairman), John W. Sinders, Jr. and Albert McAlister, none of whom is an
officer of the Company and each of whom is considered
10
by the Board of Directors as satisfying the independence and financial literacy
standards of the New York Stock Exchange. Furthermore, two of the members of the
Audit Committee, William H. Grigg and John W. Sinders, Jr., have accounting and
related financial management expertise, as determined by the Board of Directors
in its business judgment. Despite Mr. Sinders' present affiliation with
Jefferies & Company, Inc. and his former affiliation with RBC Dominion
Securities Corporation, each an investment banking firm that has performed
investment banking services for and on the Company's behalf, the Board of
Directors has determined, in its business judgment, that such relationships do
not and will not interfere with the exercise of Mr. Sinders' independent
judgment on behalf of the Company. Furthermore, the Board believes that due to
his significant accounting and related financial management experience, Mr.
Sinders is well-qualified to serve on the Audit Committee.
The Audit Committee performs the functions described in its charter, which
has been amended and restated, and is filed as Appendix A to this Proxy
Statement. While the Audit Committee oversees the Company's financial reporting
process, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles ("GAAP") and
applicable rules and regulations. These are the responsibilities of the
Company's management and the Company's independent auditor.
Prior to June 26, 2002, the Company's independent auditor was Arthur
Andersen LLP ("Arthur Andersen"). The Company dismissed Arthur Andersen
effective on June 26, 2002, and engaged Ernst & Young LLP ("Ernst & Young") to
serve as its independent auditor for the fiscal year ending August 31, 2002. The
Arthur Andersen dismissal and the Ernst & Young engagement were recommended by
the Audit Committee and approved by the Company's Board of Directors. For more
information on these matters, please see "Auditor Services" below.
The Audit Committee held six meetings during fiscal 2002. The meetings were
designed to facilitate and encourage communication between the Audit Committee,
the Company's internal auditors and the Company's independent public
accountants.
During certain of these meetings, the Audit Committee reviewed and
discussed with management and representatives of its independent auditors, Ernst
& Young, the audited financial statements to be included in the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 2002. The discussions
with representatives of Ernst & Young also included the matters required by
Statement on Auditing Standards No. 61, Communication with Audit Committees. The
Audit Committee has received from Ernst & Young written disclosures and the
letter as required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees. Additionally, the Audit Committee has
discussed with representatives of Ernst & Young the issue of the independence of
Ernst & Young from the Company.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 2002, filed with the
Securities and Exchange Commission on November 27, 2002.
The Audit Committee of the Board of Directors
William H. Grigg (Chairman)
John W. Sinders, Jr.
Albert McAlister
AUDIT FEES
The following table sets forth the aggregate fees and costs incurred by the
Company for: (i) professional services rendered for the audit of the Company's
financial statements for the fiscal year ended August 31, 2002 and the reviews
of the financial statements included in the Company's Form 10-Q reports for the
fiscal year ended August 31, 2002; (ii) professional services rendered in
connection with financial information systems
11
design and implementation, and (iii) other professional services rendered by the
Company's principal accountant and billed during the fiscal year ended August
31, 2002:
<Table>
Audit Fees(1)............................................... $1,715,295
Financial Information Systems Design And Implementation
Fees(2)................................................... $ -0-
All Other Fees
Audit Related Services(2)................................. $ 28,258
Nonaudit Services(2)(3)................................... $ 795,711
Total All Other Fees................................. $ 823,969
----------
TOTAL............................................. $2,539,264
==========
</Table>
- ---------------
(1) The Audit Fees include $315,000 in fees paid to other accounting firms,
including Arthur Andersen (which was paid $90,049 of the foregoing total)
for services rendered by such firms.
(2) Does not include $8,126,007 in fees paid by the Company to Arthur Andersen
that are not otherwise included under the item "Audit Fees" in the above
table. These fees paid to Arthur Andersen include fees of $4,417,669 for
financial information systems design and implementation, and fees of
$3,708,338 for nonaudit services. Nonaudit services rendered by Arthur
Andersen include acquisition due diligence services, merger integration
assistance and tax consulting services.
(3) Nonaudit services rendered by Ernst & Young represent primarily tax
compliance and tax consulting services and include fees paid to Ernst &
Young prior to its engagement in June 2002, as the Company's principal
independent accountant.
The Company's Audit Committee reviews audit and non-audit services
performed by the Committee's independent public accountants as well as the fee
charged for such services. In its review of all non-audit service fees, the
Audit Committee considers among other things, the possible effect of such
services on the auditor's independence.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has been appointed by
the Board as the administrator of the Company's compensation programs for
executive officers and key employees. During fiscal 2002, the Committee was
comprised of two non-employee directors, David W. Hoyle and L. Lane Grigsby.
The duties of the Committee generally are:
- to review the Company's incentive compensation plans and equity-based
plans and make a determination regarding whether such compensation and
benefit plans are consistent with corporate objectives;
- to review and approve the Chief Executive Officer's recommendations
regarding:
- the compensation of all officers of the Company;
- awards under the Company's stock option plans and any other benefit
plans of the Company;
- the adoption of and/or major changes to major compensation policies and
practices of the Company; and
- employment agreements, severance arrangements, and change in control
provisions/agreements, in each case as, when, and if appropriate;
- to review and make recommendations to the Board regarding the
compensation of all directors;
- to establish and approve corporate goals and objectives relevant to the
compensation payable to the Chief Executive Officer, evaluate the Chief
Executive Officer's performance in light of the goals and objectives and
set the Chief Executive Officer's compensation level based on this
evaluation; and
- to produce an annual report on executive compensation for inclusion in
the Company's proxy statement in accordance with applicable rules and
regulations.
12
In performing the above described duties, the Committee seeks to attain the
following corporate objectives: (a) to attract, motivate and retain competent
employees focused on enhancing shareholder value; (b) to correlate compensation
with Company objectives and strategies; (c) to provide compensation
opportunities that are linked to the performance of the Company; and (d) to
align employee incentives with those of the Company's shareholders. No specific
weighting is assigned to any of these objectives by the Committee in making
decisions regarding compensation for the Chief Executive Officer (the "CEO") or
other executive officers or key employees of the Company.
Set forth below is a discussion of the Company's executive compensation
program, including a description of the decisions and actions of the Committee
during fiscal 2002 with respect to compensation for the CEO and other executive
officers and key employees of the Company as a group.
MANAGEMENT COMPENSATION
Base Salary. In determining appropriate base salaries, the Committee,
among other factors, considers competitive market forces as they relate to
attracting and retaining highly talented executives. The Committee also
considers job responsibility, experience, tenure and the cost of living in the
areas where the Company's offices and facilities are located. The Stone &
Webster acquisition in fiscal 2000 and the IT Group acquisition in fiscal 2002
have resulted in a significant expansion of the Company's operations and have
dramatically increased the duties and responsibilities of the Company's
executives and senior officers. Based upon recommendations of the CEO, and in
light of such increased duties and responsibilities, the Committee approved
raises for fiscal 2002 for certain members of the Company's executive and senior
management, including Messrs. Gill, Belk, Rayner, Barfield, Stokes, Spence and
Graphia. The Committee believes that such raises will generally motivate and
encourage such persons to continue in the employ of the Company. For discussion
of the CEO's base salary, see "Compensation of the Chief Executive Officer"
below.
Cash Bonuses. For the fiscal 2002 year end, the Committee approved bonuses
for executives and key officers. The bonuses paid to the executive officers
became payable as a result of the attainment of a specific performance goal
pre-established by the Committee under the 2001 Plan. The Committee awarded
bonuses to officers and employees based upon the Company's attainment of record
operating results for fiscal 2002, contributions of certain employees to the
Company's successful acquisition of IT Group in fiscal 2002 as well as a survey
of total cash compensation paid by comparably sized companies. For fiscal 2001,
the Committee approved discretionary cash bonuses that were paid to executives
and key officers (other than the CEO) as a result of record operating results
achieved by the Company in fiscal 2001. The CEO's bonuses in fiscal 2001 and
fiscal 2002 were based upon the achievement by the Company of specific
performance goals that had been previously established by the Committee. For
information concerning the bonuses paid to the CEO, see "Compensation of Chief
Executive Officer" below.
Awards of Stock Options. During fiscal 2002, stock options covering an
aggregate of 837,500 shares of Common Stock were awarded to officers and key
employees of the Company including the executive officers of the Company other
than the CEO. The options have exercise prices ranging from $16.98 to $34.35 per
share (the fair market value on the date of grants) and vest in four 25% annual
increments beginning one year following the date of award. The Company has used,
and plans to continue to use the award of stock options to align the interests
of the recipients with the interests of the Company's shareholders and to
provide an incentive for the key employees (and executives) to remain in the
employ of the Company. The award of stock options provides key employees with an
additional incentive to promote the financial success of the Company as
reflected in increased value in the Company's Common Stock.
The Committee recommended to the Board of Directors an amendment to the
2001 Plan to increase by 1,500,000 shares the number of shares of Common Stock
reserved for issuance under the 2001 Plan. The Committee believes that an
increase is desirable due to the addition of 6,000 - 7,000 new employees
resulting from the IT Group acquisition and is necessary to continue to attract,
motivate and retain participants in the 2001 Plan. See "Proposal 2 -- To Approve
an Amendment to Increase the Number of Shares Reserved for Issuance Under the
Company's 2001 Employee Incentive Compensation Plan."
13
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
During fiscal 2001, the Company engaged a compensation consultant, Towers
Perrin, to provide consultation services in respect of the compensation package
for the CEO. Towers Perrin conducted market research, evaluated compensation
packages being paid to top executives of companies that compete with the Company
or that have comparable market capitalizations, and provided a report to the
Committee concerning the compensation of the CEO. Based upon the Towers Perrin
report, during fiscal 2001 the Committee recommended a new Employment Agreement
for the CEO, which the Board of Directors approved. The Employment Agreement is
discussed in greater detail below, under the heading "Employment Agreements and
Change of Control Arrangements." In general, the Employment Agreement provides
for a base salary of $950,000 per year (subject to increase by the Board of
Directors) and bonuses that are paid pursuant to any bonus program of the
Company or, in the absence of a program, at the Board's discretion.
The CEO was paid a bonus of $1,000,000 for 2002 based upon the attainment
by the Company of pre-established Company performance goals. The bonus was
payable pursuant to the 2001 Plan. The Committee believes that the CEO has
contributed substantially to (i) the record operating results attained by the
Company in fiscal 2002 and (ii) the successful acquisition of IT Group and,
therefore, believes that his 2002 compensation is substantially linked to
Company performance.
Prior to the engagement of Towers Perrin, the Committee approved a bonus
for the CEO pursuant to the 2001 Plan of $2,000,000, subject to the attainment
by the Company of a specified performance goal for fiscal year 2001. The Company
attained the performance goal and the bonus became payable to the CEO.
The Committee believes that the CEO's substantial holdings of Common Stock
align his interests with those of the Company's shareholders, and that the award
of stock options covering an aggregate of 800,000 shares of Common Stock over
the past several years provides meaningful incentive and motivation for his
performance, as well as strengthens the alignment of his interests with those of
the Company's shareholders in general.
SECTION 162(m) POLICY
Section 162(m) of the Internal Revenue Code limits the deductibility of
certain compensation and benefits paid to the chief executive officer and the
four highest paid executive officers in excess of $1 million to each of them.
The Committee believes that the compensation payable for fiscal 2002 will not
result in any substantial loss of tax deductions for the Company. The bonuses
payable to Mr. Bernhard and the other executive officers of the Company for
fiscal 2002 were based upon the attainment of a pre-established Company
performance condition pursuant to the terms of the 2001 Plan and the Company's
deductions with respect to such bonuses should not be limited by Section 162(m).
Also, the 2001 Plan has been designed to meet the requirements in Section 162(m)
for stock options, including the requirements that all options have an exercise
price that is no less than the fair market value of the Common Stock on the
grant date and that the plan state the maximum number of shares that can be
issued during a specified period to a participant under the Plan. Thus, the
provisions of Section 162(m) should not limit the Company's ability to deduct
all of the compensation income generated in connection with the exercise of
stock options granted under the 2001 Plan. The 2001 Plan is further designed to
provide flexibility that allows the Company to structure other awards made under
the 2001 Plan to preserve the deductibility of any compensation expense over $1
million. While it is the Committee's intent to adopt policies to obtain maximum
deductibility of executive compensation, consistent with the objectives of the
Company's executive compensation program outlined above, the Committee is
cognizant of the need for flexibility in making executive compensation
decisions, based on the relevant facts and circumstances, so that the best
interests of the Company are maximized. As a result, under certain
circumstances, executive compensation may be awarded that is not deductible.
THE COMPENSATION COMMITTEE
David W. Hoyle L. Lane Grigsby
14
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company and Mr. Bernhard are parties to an Employment Agreement
effective as of April 10, 2001 (the "Employment Agreement") which supercedes a
prior 1993 agreement, as amended. Pursuant to the terms of the Employment
Agreement, Mr. Bernhard has agreed to serve as the Company's Chairman, President
and Chief Executive Officer. The Employment Agreement has a ten year term that
automatically renews each day following the date of the Employment Agreement for
ten years so that on any given day, the remaining term of such agreement shall
be ten years. Notwithstanding the foregoing, the Company or Mr. Bernhard may
give notice that the Employment Agreement shall not be further renewed and that
after the date fixed in such notice, the term of the Employment Agreement shall
expire in ten years. The Employment Agreement provides that Mr. Bernhard will,
among other things: (a) receive an annual base salary in the amount of $950,000
which may be increased by the Board of Directors. (Mr. Bernhard's base salary
for fiscal 2002 was $950,000); (b) receive bonus awards under any bonus program
established by the Company or in the absence of a bonus program, such bonus
awards as may be as determined by the Board of Directors; (c) be included in all
plans and programs of the Company that are made available to the Company's
employees generally, including health, dental, disability, 401(k) and life
insurance plans, vacations and holidays; and (d) receive other benefits in
addition to those made available to the Company's management, including an
automobile allowance and other means of transportation for his personal use and
benefit.
In the event that Mr. Bernhard resigns for Good Reason (as defined in the
Employment Agreement to include, among other things, a change of control of the
Company), or is discharged by the Company for reason(s) other than his
Misconduct (as defined therein) or disability, the Company will be obligated to
pay Mr. Bernhard, in a lump sum, his base salary in effect immediately prior to
termination plus the highest bonus paid by the Company during the ten years
prior to termination multiplied by the number of years remaining in the term of
the Employment Agreement, which, unless prior notice had been properly given,
shall be ten years. Further, upon termination for any of the reasons described
above, all stock options and similar awards previously granted to Mr. Bernhard
will become fully vested.
In the event of Mr. Bernhard's death, his estate shall be entitled to a
lump sum payment of one year's base salary, a prorata bonus in the amount such
executive would have otherwise been entitled to receive and a death benefit of
$10,000,000 (which shall be provided through the purchase of term life
insurance, if available) and his surviving spouse and children shall be entitled
to receive one year of paid group health and dental benefits.
Finally, Mr. Bernhard has agreed not to compete with the Company for a
period of ten years following termination of employment, and in consideration
for such non-compete, the Company has agreed upon his termination to pay Mr.
Bernhard a lump sum amount of $15,000,000. Upon a change of control of the
Company, the entire $15,000,000 non-compete payment becomes immediately due and
payable. The Company has agreed to set aside $5,000,000 per year for each of the
three years following the date of the Employment Agreement to fund such
non-compete payment.
The Company and Mr. Gill are parties to an Employment Agreement dated May
5, 2000 (the "Gill Agreement"), pursuant to which Mr. Gill has agreed to serve
as the Company's Executive Vice President and Chief Operating Officer. As
amended by an amendment dated as of January 10, 2001, the Gill Agreement has a
term of three years that is automatically renewed each day for three years so
that on any given day, the remaining term of such agreement is three years.
Notwithstanding the foregoing, the Company or Mr. Gill may give notice that the
Gill Agreement shall not be further renewed and that after the date fixed in
such notice, the term of the Gill Agreement shall expire in three years.
Pursuant to the Gill Agreement, Mr. Gill is entitled to a base annual salary of,
at a minimum, $415,000 (Mr. Gill's base salary for fiscal 2002 was $661,880),
bonuses as paid in the discretion of the Board, reimbursement of expenses, an
automobile allowance and participation in the various employee benefit plans or
programs provided to employees of the Company in general. The base salary
payable to Mr. Gill may be increased but may not be decreased without Mr. Gill's
consent.
In the event of the resignation by Mr. Gill for Good Reason (as defined in
the Gill Agreement to include, among other things, the occurrence of certain
events that constitute a change of control of the Company),
15
termination as a result of his disability or termination by the Company for any
reason other than Mr. Gill's Misconduct (as defined therein) or disability, all
stock options and similar awards previously granted to Mr. Gill will become
fully vested. Further, if Mr. Gill resigns for Good Reason or is terminated by
the Company for any reason other than his Misconduct or disability, the Company
shall be obligated to (i) pay him, in a lump sum, his base salary in effect
prior to termination plus his highest bonus paid over the course of the three
years prior to termination multiplied by the number of years left in the term of
the Gill Agreement (which, unless notice has been properly given, shall be three
years); and (ii) provide disability, accident and group health benefits for the
remainder of the term of such agreement. In the event of Mr. Gill's death, his
estate shall be entitled to a lump sum payment of one year's base salary and his
surviving spouse and children shall be entitled to receive one year of paid
group health and dental insurance benefits.
The Company and Mr. Belk are parties to an Employment Agreement dated May
1, 2000 pursuant to which Mr. Belk has agreed to serve as the Company's
Executive Vice President and Chief Financial Officer. Mr. Belk's agreement is
substantially similar to the Gill Agreement described above, except that such
agreement provides (i) for a base annual salary of, at a minimum, $350,000 (Mr.
Belk's base salary for fiscal 2002 was $461,880), and (ii) that the term "Good
Reason" shall include Mr. Bernhard ceasing to be Chairman and Chief Executive
Officer of the Company.
The Company and Mr. Barfield are parties to an Employment Agreement dated
as of July 10, 2002, pursuant to which Mr. Barfield has agreed to serve as
Senior Vice President for the Company. Mr. Barfield's agreement is substantially
similar to the Gill Agreement, except that such agreement provides for a base
annual salary of, at a minimum, $350,000.
Certain of the Company's benefit plans include provisions relating to a
change of control. These provisions have the effect of varying the benefits
payable at that time from those that would be payable if no change of control
had occurred. Stock options granted under the Company's Stone & Webster
Acquisition Stock Option Plan vest immediately upon a change of control.
Further, all stock options, stock appreciation rights, restricted stock awards
and performance share awards granted under the Company's 2001 Employee Incentive
Compensation Plan become fully vested upon a change of control. In addition,
incentive bonuses that have been approved and accrued will become fully payable
in the event of a change of control under the terms of the 2001 Plan.
16
STOCK PERFORMANCE GRAPH
For the period commencing August 31, 1997, and ending August 31, 2002, the
following line graph provides a comparison of the total shareholder return on
the Company's Common Stock with the return of (i) the Standard & Poor's Small
Cap 600 Index; (ii) an industry peer group that consists of several companies
(the "Peer Group") and (iii) the Russell 2000 Index. Because of the Company's
acquisitions of Stone & Webster and IT Group, the Company has determined that it
is now appropriate to utilize an industry peer group (composed of Jacobs
Engineering Group Inc. and Fluor Corporation) for comparison. The Company, prior
to the acquisitions, believed there was no comparable peer group or line of
business/industry index to which it could compare itself. As a result, the
Company had included the Russell 2000 Index, which is an index of companies with
comparable market capitalizations. All amounts have been calculated as if all
dividends, if any, were reinvested.
COMPARISON OF THE FIVE YEAR CUMULATIVE TOTAL RETURN AMONG THE SHAW GROUP INC.,
THE STANDARD & POOR'S SMALL CAP 600 INDEX,PEER GROUP AND THE RUSSELL 2000 INDEX*
[PERFORMANCE GRAPH]
* $100 INVESTED ON 8/31/97 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING AUGUST 31.
<Table>
<Caption>
8/97 8/98 8/99 8/00 8/01 8/02
------- ------ ------- ------- ------- -------
The Shaw Group Inc. ................. $100.00 $37.28 $ 94.80 $257.52 $252.95 $154.91
S&P Smallcap 600 Index............... $100.00 $81.70 $101.48 $130.09 $130.80 $118.33
Peer Group........................... $100.00 $69.14 $101.12 $151.12 $190.98 $143.38
Russell 2000 Index................... $100.00 $80.60 $103.46 $131.56 $116.26 $ 98.31
</Table>
THE FOREGOING GRAPH REPRESENTS HISTORICAL STOCK PRICE PERFORMANCE AND IS
NOT NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE PERFORMANCE.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John W. Sinders, Jr., a director of the Company, was a managing director of
Jefferies & Company, Inc. ("Jefferies"), an investment banking firm, when
Jefferies handled the repurchase of some of the shares of the Company's Common
Stock, beginning in fiscal 1999, earning Jefferies approximately $74,000 in
commissions. Mr. Sinders was a managing director of RBC Dominion Securities
Corporation ("RBC"), also an investment banking firm, when (i) RBC was one of
the managing underwriters for the Company's November 1999 public offering of
shares of Common Stock earning RBC approximately $150,000 in commissions; and
(ii) RBC was a participating underwriter for the Company's October 2000 public
offering of shares of Common Stock earning RBC approximately $44,000 in
commissions.
L. Lane Grigsby, a director of the Company, is the majority owner of a
construction company which the Company has used on certain projects, primarily
as a subcontractor. Mr. Grigsby also had a minority interest in a company that
provided services to the contractor of the Company's leased building; the
director has since divested himself of this interest. During fiscal 2002, the
Company made total payments of approximately $20,825,000 to the two companies in
which Mr. Grigsby had an interest, and owed one of the companies approximately
$7,750,000 as of August 31, 2002. During fiscal 2001, the Company made payments
of approximately $266,000 to one of these companies.
Effective August 1, 2002, the Company entered into a five-year watercraft
lease agreement with a corporation owned by Dorsey Ron McCall, one of the
Company's executive officers. The lease was made in connection with Mr. McCall's
agreement to become employed by the Company, and the payments thereunder are
$10,000 per month.
Charles E. Roemer, III, a new nominee for director of the Company, is a 20%
equity owner of FG Group, L.L.C., which has a representative agreement with the
Company to represent the Company's interests in Asia on a commission basis. FG
Group receives an annual retainer from the Company of $100,000. The agreement is
set to expire on March 1, 2003.
The Company has, from time to time, made loans to certain of its executive
officers and/or entities in which such executive officers have a material
interest. Each such loan in which the indebtedness exceeded $60,000 at any time
since the beginning of fiscal 2002 is listed below with the following
information indicated for each (i) the name of the borrower; (ii) the nature of
the borrower's relationship with the Company; (iii) the largest amount of
indebtedness outstanding at any time since September 1, 2001; (iv) the amount
outstanding as of August 31, 2002; and (v) the interest rate charges thereon:
(a)(i) Donald Stokes; (ii) executive officer of the Company; (iii) $150,000;
(iv) $100,000; (v) 0%; (b)(i) David L. Chapman, Sr.; (ii) executive officer of
the Company; (iii) $1,000,000; (iv) $1,000,000; (v) 0%; (c)(i) Nicholas C.
Gallinaro; (ii) executive officer of the Company; (iii) $1,000,000; (iv)
$1,000,000; (v) 0%; and (d)(i) Dorsey Ron McCall; (ii) executive officer of the
Company; (iii) $750,000; (iv) $750,000; (v) 0%. The foregoing loans were all
made in connection with the executives' agreement to become or remain employed
by the Company, are evidenced by written promissory notes or other evidences of
indebtedness, will be forgiven by the Company in the event the executives remain
employed by the Company for certain specified time periods, but are repayable in
the event such executives voluntarily terminate their employment prior to the
expiration of such specified time periods.
Effective July 30, 2002, the Sarbanes-Oxley Act of 2002 prohibits the
granting of any personal loans to or for the benefit of any of our executive
officers and directors and the modification or renewal of any such existing
personal loans. The Company has not granted any new personal loans or modified
existing personal loans to or for executive officers and directors since the
effective date of this provision.
PROPOSAL 2 -- TO APPROVE AN AMENDMENT TO INCREASE THE
NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE COMPANY'S
2001 EMPLOYEE INCENTIVE COMPENSATION PLAN
The Board of Directors is recommending for approval of the shareholders an
amendment to the Company's 2001 Employee Incentive Compensation Plan (the "2001
Plan") to increase by 1,500,000 shares
18
the number of shares of the Company's Common Stock reserved for issuance
thereunder from 2,000,000 shares to 3,500,000, which amounts to approximately
9.3% of the shares of Common Stock outstanding at November 30, 2002.
SUMMARY OF THE 2001 PLAN
The following summary of the 2001 Plan is qualified in its entirety by the
specific provisions of the 2001 Plan, a copy of which is attached hereto as
Appendix B.
General. The Board of Directors and shareholders of the Company approved
the adoption of the 2001 Plan in November, 2000 and January, 2001, respectively.
Upon its initial adoption, 2,000,000 shares of Common Stock were reserved for
issuance under the 2001 Plan. As of November 30, 2002, an aggregate of 2,000,000
shares of Common Stock remain reserved for issuance under the 2001 Plan. Awards
covering 933,875 shares of Common Stock have been previously granted, thus
leaving only 1,066,125 shares for future award under the 2001 Plan. The Board
believes that the proposed increase is warranted as a result of the IT Group
acquisition in fiscal 2002 by which the Company gained an additional 6,000-7,000
new employees, and that the increase is necessary for future awards under the
2001 Plan to attract, retain and motivate participants (including the new IT
Group employees) in the 2001 Plan.
The Company intends to register the 1,500,000 share increase on a
Registration Statement on Form S-8 under the Securities Act of 1933 as soon as
practicable after receiving shareholder approval. The closing price of a share
of the Company's Common Stock as reported on the New York Stock Exchange on
November 29, 2002 was $17.30.
Administration and Eligibility. The Compensation Committee of the Board of
Directors (the "Committee") acts as administrator of the 2001 Plan. The
Committee is composed of disinterested, outside directors designated by the
Board of Directors. The persons eligible to participate in the 2001 Plan include
officers, employees of and consultants to the Company, as may be selected from
time to time by the Committee.
Types of Awards. Under the 2001 Plan, the Committee may award options
(which may be either options intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended, or those not
intended to be incentive stock options); stock appreciation rights ("SARs"),
restricted stock; performance shares and incentive bonuses.
Terms of Awards. The Committee has the full and complete discretion to
provide the terms and conditions of any award under the 2001 Plan, provided that
(i) the exercise price of an option or SAR cannot be less than 100% of the fair
market value of a share of Common Stock on the date of grant; and (ii)
performance shares must have an initial value equal to the fair market value of
a share of Common Stock on the date of grant. Further, no restricted stock award
made to any individual participant can exceed 25,000 shares of Common Stock in
any one fiscal year and no more than 25,000 shares of Common Stock may be
subject to any performance share award to any individual participant in any one
fiscal year. All awards under the 2001 Plan are generally non-transferable other
than by will or the laws of descent and distribution. However, the Committee has
the discretion to award non-statutory options that are transferable to members
of a participant's immediate family, including trusts for the benefit of such
family members and partnerships in which such family members are the only
partners.
Change of Control. All options and SARs shall become fully exercisable,
all shares of restricted stock and performance shares shall fully vest free of
restrictions and all approved and accrued incentive bonuses shall be fully
payable upon the occurrence of a Change of Control as defined in the 2001 Plan.
A "Change of Control" is defined generally as the happening of any of the
following: (i) when any person (except any shareholder who, as of January 1,
2000, owned 10% or more of the combined voting power of the Company) becomes the
beneficial owner of 20% or more of the combined voting power of the Company;
(ii) when, during a period of 24 consecutive months, the individuals who, at the
beginning of such period, constitute the members of the Company's Board of
Directors cease for any reason other than death or disability to constitute at
least a majority thereof; (iii) the acquisition of the Company or all or
substantially all of the Company's
19
assets by a third party; or (iv) the Company files a report or proxy statement
with the Securities and Exchange Commission disclosing that a change of control
of the Company has or may have occurred or will or may occur in the future
pursuant to any then-existing contract or transaction.
Capitalization Changes. In the event that shares of Common Stock are
changed into or exchanged for a different kind or number of shares of stock or
other securities of the Company as a result of a stock dividend, stock split,
combination of shares, merger, consolidation, reorganization, recapitalization
or other change in the capital structure of or by the Company, the Committee may
adjust awards and the number of shares of Common Stock subject to the Plan to
preserve the benefits or potential benefits of awards thereunder.
TERM OF PLAN; AMENDMENTS
The 2001 Plan shall terminate automatically on November 27, 2010, and the
Board of Directors may suspend or terminate the 2001 Plan at any earlier time.
The Board of Directors may amend the 2001 Plan from time to time in its sole
discretion unless the amendment would, under applicable federal, state or local
law, require shareholder approval. Further, no amendment may impair the rights
of any participant without his or her consent. The Committee has the discretion
to modify, extend or renew the terms of outstanding awards provided that no
modification of an award may impair the rights or obligations of a participant
without his or her consent.
FEDERAL INCOME TAX CONSEQUENCES OF THE ISSUANCE AND EXERCISE OF OPTIONS
The following summary sets forth, in general, certain United States income
tax consequences on the issuance and exercise of options under the 2001 Plan.
The following statements are based on current interpretations of existing United
States income tax law. The law is technical and complex and the statements below
represent only a general summary of some of the applicable provisions.
Incentive Stock Options. An employee who receives an incentive stock
option generally does not recognize taxable income on the date that the
incentive stock option is granted or exercised (except that the alternative
minimum tax provisions may apply to the employee). However, the Company cannot
deduct the incentive stock option grant as compensation expense. If the
incentive stock option is exercised more than three months after the employee
has left the employ of the Company (the three month period is extended to 12
months in the event of disability and is waived in the event of death), the
favorable tax treatment is not available to the employee.
With respect to the disposition of the Common Stock received pursuant to
the exercise of an incentive stock option, the tax treatment depends upon
whether the shares of Common Stock were disposed of within the statutory holding
period. The holding period is the later of two years from the date of the grant
of the incentive stock option or one year from the date that the shares were
transferred to the employee upon exercise. If the employee disposes of the stock
received pursuant to the exercise of the incentive stock option after the
expiration of the holding period, the employee will recognize as capital gain,
income on the difference between the amount received as a result of the
disposition over the employee's basis in the stock. If the employee disposes of
the shares prior to the expiration of the holding period, the employee must
recognize as ordinary income the gain on the disposition of the Common Stock and
the Company may deduct from income an amount equal to the amount that the
employee recognized as ordinary income. The Company will not be entitled to any
deduction in connection with any loss to the employee or the portion of any gain
that is taxable to the employee as short-term or long-term capital gain.
Non-Statutory Stock Options. A participant who is awarded a non-statutory
stock option will generally incur no taxable income as a result of the grant
thereof. The Company can claim no tax deduction on the date the non-statutory
stock option is granted. With the exception of those instances allowed in the
2001 Plan, and discussed above, a non-statutory stock option is not transferable
by the participant. If the non-statutory stock option is transferred in a
non-arm's length transaction, the participant may be required to realize
ordinary income at the time of the transfer to the extent of the amount realized
from the disposition of the non-statutory stock option. Upon the exercise of the
non-statutory stock option, the participant will be required to recognize
ordinary income equal to the excess of the fair market value of the shares of
Common Stock on the
20
exercise date over the exercise price of the non-statutory stock option. The
Company will be entitled to a corresponding deduction equal to the amount of
income recognized by the participant, provided the Company satisfies any federal
income tax reporting requirements. Upon disposition of the Common Stock, any
appreciation (or depreciation) occurring after the date the non-statutory stock
option was exercised is treated as short-term or long-term capital gain or loss,
depending upon the length of time that the participant has held the shares of
Common Stock. Also, if the shares received upon the exercise of a non-statutory
stock option are transferred to the participant subject to certain restrictions,
then the taxable income realized by the participant, unless the participant
elects otherwise, and the Company's tax deduction (assuming any federal income
tax reporting requirements are satisfied) should be deferred and should be
measured based upon the fair market value of the shares at the time the
restrictions lapse. The restrictions imposed on officers, directors, and 10%
shareholders by Section 16(b) of the Securities Exchange Act of 1934, as
amended, is such a restriction during the period prescribed thereby if other
shares have been purchased by such individual within six months prior to the
exercise of a non-statutory stock option. Ordinary income realized upon the
exercise of a non-statutory stock option is not an adjustment for alternative
minimum tax purposes.
REQUIRED VOTE
Approval of the proposed amendment to the 2001 Plan requires the
affirmative vote of a majority of the total voting power of the Common Stock
present in person or represented by proxy and entitled to vote at the 2003
Annual Meeting. The enclosed form of Proxy provides a means for the shareholders
to vote for the proposed amendment to the 2001 Plan, to vote against the
proposed amendment to the 2001 Plan or to abstain from voting with respect to
the proposed amendment to the 2001 Plan.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF AN AMENDMENT TO THE 2001
EMPLOYEE INCENTIVE COMPENSATION PLAN TO RESERVE AN ADDITIONAL 1,500,000 SHARES
FOR ISSUANCE THEREUNDER.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of November 30, 2002 with
respect to the shares of the Company's Common Stock that may be issued under the
Company's existing equity compensation plans.
<Table>
<Caption>
A B C
-------------------------- ------------------- -------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO WEIGHTED AVERAGE EQUITY COMPENSATION PLANS
BE ISSUED UPON EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN COLUMN A)
- ------------- -------------------------- ------------------- -------------------------
Equity Compensation Plans
Approved by
Shareholders(1).............. 2,895,664 $17.54 1,137,559
Equity Compensation Plans Not
Approved by
Shareholders(2).............. 853,250 $21.30 159,250
Total.......................... 3,748,914 $18.39 1,296,809
</Table>
- ---------------
(1) Consists of the 1993 Employee Stock Option Plan (the "1993 Plan"), the 2001
Employee Incentive Compensation Plan (the "2001 Plan") and the 1996
Non-Employee Director Stock Option Plan (the "Director Plan"). At November
30, 2002, of the number of securities remaining available for future
issuance in column C, 40,434 shares of Common Stock may be subject to awards
of restricted stock under the 1993 Plan and 1,066,125 shares of Common Stock
may be subject to SARs, restricted stock and performance share awards under
the 2001 Plan.
(2) Consists solely of the Stone & Webster Acquisition Stock Option Plan. No
stock options under this Plan were awarded to directors or executive
officers of the Company.
The Stone & Webster Acquisition Stock Option Plan. The Stone & Webster
Acquisition Stock Option Plan (the "S&W Plan") was implemented by the Board of
Directors effective as of July 28, 2000, solely in
21
connection with the Company's acquisition of substantially all of the assets of
Stone & Webster, Incorporated ("Stone & Webster") to award non-statutory stock
options to (i) certain non-executive officers and key employees of the Company
who contributed significantly to such acquisition and (ii) certain key employees
of Stone & Webster who were retained by the Company. The S&W Plan is a
non-shareholder approved plan. Stock option awards covering 1,061,000 shares of
Common Stock were awarded at an exercise price of $21.00 per share (the fair
market value per share of the Common Stock on the award date), and each award
vests in four equal 25% annual installments beginning one year from the award
date. All options are non-statutory options under the Federal tax law. As of
November 30, 2002, options covering 853,250 shares of Common Stock were
outstanding under the S&W Plan, and options covering 58,500 shares had been
exercised. 159,250 shares remain available for award under the S&W Plan.
The Compensation Committee of the Board of Directors acts as administrator
of the S&W Plan. All options under the S&W Plan are generally non-transferable
other than by will or the laws of descent and distribution. All options shall
become fully exercisable upon the occurrence of a Change of Control as defined
in the S&W Plan. A "Change of Control" is defined generally as the happening of
any of the following: (i) when any person (except any shareholder who, as of
January 1, 2000, owned 10% or more of the combined voting power of the Company)
becomes the beneficial owner of 20% or more of the combined voting power of the
Company; (ii) when, during a period of 24 consecutive months, the individuals
who, at the beginning of such period, constitute the members of the Company's
Board of Directors cease for any reason other than death or disability to
constitute at least a majority thereof; (iii) the acquisition of the Company or
all or substantially all of the Company's assets by a third party; or (iv) the
Company files a report or proxy statement with the Securities and Exchange
Commission disclosing that a change of control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction.
In the event of a corporate transaction involving the Company (including
any stock dividend, stock split, split-up, split-off, combination or exchange of
shares, merger, consolidation, reorganization, recapitalization or other similar
transactions), the Committee may adjust awards and the number of shares of
Common Stock subject to the S&W Plan to preserve the benefits or potential
benefits of awards thereunder.
The S&W Plan shall terminate automatically on July 28, 2010, and the Board
of Directors may suspend or terminate the S&W Plan at any earlier time. The
Board of Directors may amend the S&W Plan from time to time in its sole
discretion unless the amendment would, under applicable federal, state or local
law, require shareholder approval. Further, no amendment may impair the rights
of any participant without his or her consent. The Committee has the authority
under the S&W Plan to modify, extend or renew the terms of any outstanding
option grants under the S&W Plan, however, no modification to an outstanding
option may be made without the participant's consent if such modification would
impair the rights or obligations of the participant thereunder.
Share issuances under the 1993 Plan, the 2001 Plan and the Director Plan
will not reduce or otherwise affect the number of shares of Common Stock
available for issuance under the S&W Plan, and share issuances under the S&W
Plan will not reduce or otherwise affect the number of shares of Common Stock
available for issuance under the 1993 Plan, the 2001 Plan and the Director Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16"), requires the Company's directors and certain officers and beneficial
owners of the Common Stock (collectively, the "reporting persons") to file with
the Securities and Exchange Commission (the "SEC") reports of ownership and
changes in ownership of the Common Stock. The reporting persons are required to
furnish the Company with copies of all reports filed pursuant to Section 16.
Based solely upon a review of such reports received by it, or written
representations from certain reporting persons that no Form 5 reports were
required for those persons, the Company believes that, during fiscal 2002, all
filing obligations applicable to the reporting persons were complied with.
22
AUDITOR SERVICES
The Company's consolidated financial statements for the fiscal year ended
August 31, 2002, were audited by the firm of Ernst & Young LLP ("Ernst & Young")
and such firm shall remain as the Company's independent auditor until replaced
by the Board of Directors. The Company's Board of Directors and Audit Committee
annually consider and recommend the selection of the Company's independent
public accountants. A representative of Ernst & Young will be present at the
Annual Meeting to respond to any appropriate questions and will have the
opportunity to make a statement, if so desired.
On June 26, 2002, the Company dismissed Arthur Andersen LLP ("Arthur
Andersen") as its independent auditor and engaged Ernst & Young to serve as its
independent auditor for the fiscal year ending August 31, 2002. The Arthur
Andersen dismissal and the Ernst & Young engagement were recommended by the
Company's Audit Committee and approved by the Company's Board of Directors and
became effective immediately.
Arthur Andersen's reports on the Company's consolidated financial
statements as of and for the fiscal years ended August 31, 2001, and August 31,
2000, did not contain an adverse opinion or disclaimer of opinion, nor were such
reports qualified or modified as to uncertainty, audit scope or accounting
principles.
During the interim period from September 1, 2001, through June 26, 2002,
and the Company's 2001 and 2000 fiscal years, there were (i) no disagreements
with Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to Arthur Andersen's satisfaction, would have
caused Arthur Andersen to make a reference to the subject matter of the
disagreements in connection with Arthur Andersen's reports on the Company's
financial statements for such periods; and (ii) no reportable events as defined
in Item 304(a)(1)(v) of Regulation S-K, except for notification from Arthur
Andersen in connection with the audit of the Company's August 31, 2000 financial
statements that the accounting system of Stone & Webster, Incorporated ("Stone &
Webster") contained certain material weaknesses in internal accounting controls.
The Company completed its acquisition of substantially all of the assets and
liabilities of Stone & Webster in a bankruptcy proceeding on July 14, 2000, and
eliminated the weakness during the Company's 2001 fiscal year. As a result
thereof, Arthur Andersen did not include these matters in its management letter
for the audit for the fiscal year ended August 31, 2001.
During the interim period from September 1, 2001, through June 26, 2002,
and the Company's 2001 and 2000 fiscal years, the Company did not consult Ernst
& Young with respect to the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's consolidated financial statements, or any
other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii)
of Regulation S-K.
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered by the Company for inclusion in
the proxy materials for the 2004 Annual Meeting of Shareholders must be
submitted in accordance with applicable regulations of the SEC and received by
the Company at its principal executive offices no later than October 3, 2003.
In order for a shareholder to bring any business or nominations before the
Annual Meeting, certain conditions set forth in Article II, Section 7(b) of the
Company's by-laws must be complied with, including, but not limited to, the
delivery of a notice to the Secretary not less than thirty (30) nor more than
sixty (60) days in advance of the Annual Meeting, or if fewer than forty (40)
days notice or prior disclosure of the date of the Annual Meeting is given or
made to the shareholders, not later than the tenth day following the day on
which the notice of the date of the Annual Meeting was mailed or such prior
disclosure was made. The requirements as to the form and content of such advance
notice are set forth in Article II, Section 7(b) of the Company's by-laws, a
copy of which may be obtained by contacting the Company's Secretary at (225)
932-2500.
23
CONFIRMATION OF BENEFICIAL OWNERSHIP
As described below, the number of votes that each shareholder will be
entitled to cast at the Annual Meeting will depend on the date on which the
shares were acquired and whether or not there has been a change in beneficial
ownership since the date of acquisition with respect to each of such holder's
shares.
In certain cases, record ownership may change but beneficial ownership for
voting purposes will not change. The articles of incorporation state the
exceptions where beneficial ownership is deemed not to have changed upon the
transfer of shares of Common Stock.
Article IV of the Company's articles of incorporation provides that each
outstanding share of Common Stock will entitle the holder thereof to five votes
on each matter properly submitted to the shareholders of the Company for their
vote, waiver, release or other action; except that no holder of outstanding
shares of Common Stock will be entitled to exercise more than one vote on any
such matter in respect of any shares of Common Stock with respect to which there
has been a change in beneficial ownership during the four years immediately
preceding the date on which a determination is made of the shareholders of the
Company who are entitled to vote or to take any other action. A change in
beneficial ownership of an outstanding share of Common Stock will be deemed to
have occurred whenever a change occurs in any person or persons who, directly or
indirectly, through any contract, agreement, arrangement, understanding,
relationship or otherwise has or shares any of the following:
(a) voting power, which includes, without limitation, the power to
vote or to direct the voting power of such share of Common Stock;
(b) investment power, which includes, without limitation, the power to
direct the sale or other disposition of such share of Common Stock;
(c) the right to receive or to retain the proceeds of any sale or
other disposition of such share of Common Stock; or
(d) the right to receive or retain any distributions, including,
without limitation, cash dividends, in respect of such share of Common
Stock.
Without limiting the generality of the foregoing, the following events or
conditions will be deemed to involve a change in beneficial ownership of a share
of Common Stock:
(a) in the absence of proof to the contrary provided in accordance
with certain procedures set forth below, a change in beneficial ownership
will be deemed to have occurred (i) whenever an outstanding share of Common
Stock is transferred of record into the name of any other person, and (ii)
upon the issuance of shares in a public offering;
(b) in the case of an outstanding share of Common Stock held of record
in the name of a corporation, general partnership, limited partnership,
voting trustee, bank, trust company, broker, nominee or clearing agency, if
it has not been established pursuant to the procedures set forth below that
there has been no change in the person or persons who or that direct the
exercise of the rights referred to in subparagraphs (a) through (d)
inclusive, of the preceding paragraph with respect to such outstanding
share of Common Stock during the four years immediately preceding the date
on which a determination is made of the shareholders of the Company
entitled to vote or to take any other action, then a change in beneficial
ownership of such share of Common Stock shall be deemed to have occurred
during such period;
(c) in the case of an outstanding share of Common Stock held of record
in the name of any person as a trustee, agent, guardian or custodian under
the Uniform Gifts to Minors Act as in effect in any jurisdiction, a change
in beneficial ownership will be deemed to have occurred whenever there is a
change in the beneficiary of such trust, the principal of such agent, the
ward of such guardian, the minor for whom such custodian is acting or a
change in such trustee agent, guardian or custodian; or
(d) in the case of outstanding shares of Common Stock beneficially
owned by a person or group of persons who, after acquiring, directly or
indirectly, the beneficial ownership of 5% of the outstanding
24
shares of Common Stock, fails to notify the Company of such ownership
within ten days after such acquisition, a change in beneficial ownership of
such shares of Common Stock will be deemed to occur on each day while such
failure continues.
Notwithstanding any other provision in the Company's articles of
incorporation, to the contrary, no change in beneficial ownership of an
outstanding share of Common Stock shall be deemed to have occurred solely as a
result of:
(a) any transfer of any interest in an outstanding share of Common
Stock pursuant to a bequest or inheritance, by operation of law upon the
death of any individual, or by any other transfer without valuable
consideration, including, without limitation, a gift that is made in good
faith and not for the purpose of circumventing the provisions of the
Company's articles of incorporation;
(b) any changes in beneficiary of any trust, or any distribution of an
outstanding share of Common Stock from trust, by reason of the birth,
death, marriage or divorce of any natural person; the adoption of any
natural person prior to age 18; or the passage of a given period of time or
the attainment by any natural person of a specific age; or the creation or
termination of any guardianship or custodial arrangement;
(c) any appointment of a successor trustee, agent, guardian or
custodian with respect to an outstanding share of Common Stock if neither
such successor has, nor its predecessor had, the power to vote or to
dispose of such share of Common Stock without further instructions from
others;
(d) any change in the person to whom dividends or other distributions
in respect of an outstanding share of Common Stock are to be paid pursuant
to the issuance or modification of a revocable dividend payment order;
(e) any issuance of a share of Common Stock by the Company or any
transfer by the Company of a share of Common Stock held in treasury other
than in a public offering thereof, unless otherwise determined by the Board
of Directors at the time of authorizing such issuance or transfer;
(f) any giving of a proxy in connection with a solicitation of proxies
subject to the provisions of Section 14 of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder;
(g) any transfer, whether or not with consideration, among individuals
related or formerly related by blood, marriage or adoption ("relatives") or
between a relative and any person controlled by one or more relatives where
the principal purpose for the transfer is to further the estate tax
planning objectives of the transferor or of relatives of the transferor;
(h) any appointment of a successor trustee as a result of the death of
the predecessor trustee (which predecessor trustee shall have been a
natural person);
(i) any appointment of a successor trustee who or which was
specifically named in a trust instrument prior to December 8, 1993; or
(j) any appointment of a successor trustee as a result of the
resignation, removal or failure to qualify of a predecessor trustee or as a
result of mandatory retirement pursuant to the express terms of a trust
instrument; provided, that less than 50% of the trustees administering any
single trust will have changed (including in such percentage the
appointment of the successor trustee) during the four-year period preceding
the appointment of such successor trustee.
All determinations concerning changes in beneficial ownership, or the
absence of any such change, shall be made by the Board of Directors of the
Company or, at any time when the Company employs a transfer agent with respect
to the shares of Common Stock, at the Company's request, by such transfer agent
on the Company's behalf. In accordance with the Company's articles of
incorporation, written procedures to facilitate such determinations have been
established and may be amended from time to time by the Board of Directors. Such
procedures provide, among other things, the manner of proof of facts that will
be accepted and the frequency with which such proof may be required to be
renewed. The Company and any transfer agent will be
25
entitled to rely on any and all information concerning beneficial ownership of
the outstanding shares of Common Stock coming to their attention from any source
and in any manner reasonably deemed by them to be reliable, but neither the
Company nor any transfer agent shall be charged with any other knowledge
concerning the beneficial ownership of outstanding shares of Common Stock.
In the event of any stock split or stock dividend with respect to the
outstanding shares of Common Stock, each share of Common Stock acquired by
reason of such split or dividend will be deemed to have been beneficially owned
by the same person from the same date as that on which beneficial ownership of
the outstanding share or shares of Common Stock, with respect to which such
share of Common Stock was distributed, was acquired. Each outstanding share of
Common Stock, whether at any particular time the holder thereof is entitled to
exercise five votes or one vote, shall be identical to all other shares of
Common Stock in all respects, and together the outstanding shares of Common
Stock constitute a single class of shares of the Company.
By resolution duly adopted by the Board of Directors of the Company
pursuant to the foregoing provisions of the Company's articles of incorporation,
the following procedures have been adopted for use in determining the number of
votes to which a shareholder is entitled:
(a) The Company may accept the written and signed statement of a
shareholder to the effect that no change in beneficial ownership has
occurred during the period following December 18, 1998, and until December
18, 2002, the date on which a determination is made of the shareholders of
the Company who are entitled to vote or take any other action at the Annual
Meeting. Such statement may be abbreviated to state only the number of
shares to which such shareholder is entitled to exercise five votes or one
vote.
(b) In the event the General Counsel of the Company, in his sole
discretion, taking into account the standards set forth in the Company's
articles of incorporation deems any such statement to be inadequate or for
any reason deems it in the best interest of the Company to require further
evidence of the absence of change of beneficial ownership during such
period preceding the record date, he may require such additional evidence
and, until it is provided in form and substance satisfactory to him, a
change in beneficial ownership during such period shall be deemed to have
taken place.
(c) Information supplementing that contemplated by paragraph (a) and
additional evidence contemplated by paragraph (b) may be provided by a
shareholder at any time but must be furnished at least three (3) business
days prior to any meeting of shareholders at which such shares are to be
voted for any change to be effective at such meeting.
Individual shareholders of record as of December 18, 2002 (i.e., those
shareholders whose shares of Common Stock are not held by a broker or a bank or
in nominee name) will be entitled to the number of votes per share as evidenced
on the records of the Company. Such shareholders of record may confirm to the
Company, in accordance with the procedures set forth above, beneficial ownership
in the event such shareholders believe that the records of the Company may not
be accurate.
Shareholders whose shares of Common Stock are held by brokers or banks or
in nominee name are requested to confirm to the Company how many of the shares
they owned as of December 18, 2002 were beneficially owned on or before December
18, 1998, entitling such shareholder to five votes per share, and how many were
acquired after December 18, 1998, entitling such shareholder to one vote per
share. IF NO CONFIRMATION OF BENEFICIAL OWNERSHIP IS RECEIVED FROM A SHAREHOLDER
AT LEAST THREE (3) BUSINESS DAYS PRIOR TO THE ANNUAL MEETING, IT WILL BE DEEMED
BY THE COMPANY THAT BENEFICIAL OWNERSHIP OF ALL SHARES WAS EFFECTED AFTER
DECEMBER 18, 1998, AND THAT THE SHAREHOLDER WILL BE ENTITLED TO ONLY ONE VOTE
FOR EACH SHARE. If a shareholder provides incorrect information, he or she may
provide correct information at any time at least three (3) business days prior
to the Annual Meeting to be held on January 24, 2003.
If a shareholder has any questions concerning the foregoing procedures, the
shareholder should contact the Company's Secretary and General Counsel, Gary P.
Graphia, by telephone at (225) 932-2500 (or toll free at (800) 747-3322) or by
e-mailing ir@shawgrp.com.
26
OTHER MATTERS
The Board of Directors knows of no other matters, which may be properly, or
are likely to be, brought before the Annual Meeting. However, if any proper
matters are brought before the Annual Meeting, the persons named as Proxies in
the enclosed form of Proxy will vote thereon as the Board of Directors
recommends.
ANNUAL REPORT
The Annual Report to shareholders containing financial statements for the
Company's fiscal year ended August 31, 2002 has been mailed to shareholders
prior to or with this Proxy Statement. However, the Annual Report does not form
any part of the material for the solicitation of Proxies.
UPON WRITTEN REQUEST BY A SHAREHOLDER, THE COMPANY WILL PROVIDE WITHOUT
CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED AUGUST 31, 2002 (BUT NOT INCLUDING EXHIBITS), AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. REQUESTS FOR COPIES OF THE FORM 10-K SHOULD BE
ADDRESSED TO INVESTOR RELATIONS, THE SHAW GROUP INC., 4171 ESSEN LANE, BATON
ROUGE, LOUISIANA 70809.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ GARY P. GRAPHIA
Gary P. Graphia, Secretary
Baton Rouge, Louisiana
December 27, 2002
27
APPENDIX A
THE SHAW GROUP INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The primary purpose of the Audit Committee (the "Committee") of The Shaw
Group Inc. (the "Company") is to (a) assist the Board of Directors (the "Board")
in the Board's oversight of (i) the integrity of the Company's financial
statements; (ii) the Company's compliance with legal and regulatory
requirements; (iii) the Company's systems of internal accounting and financial
controls; (iv) the performance of the annual independent audit of the Company's
financial statements; (v) the independent auditor's qualifications and
independence; and (vi) the performance of the Company's internal audit function,
and (b) prepare an Audit Committee Report in conformity with rules of the
Securities and Exchange Commission (the "SEC") to be included in the Company's
annual proxy statement.
In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and the power to retain outside
counsel, auditors or consultants, or incur other expenses for this purpose,
which expenses the Company shall pay. The Committee may also meet with the
Company's investment bankers or financial analysts who follow the Company. The
Committee may require any officer or employee of the Company or any of its
subsidiaries, the Company's outside legal counsel, and the Company's external
auditors to meet with the Committee or any member of the Committee. The Board
and the Committee are in place to represent the Company's shareholders;
accordingly, the outside auditor is ultimately accountable to the Board and the
Committee.
ORGANIZATION
The Committee shall be comprised of not less than three members of the
Board, all of whom shall meet the independence and experience requirements of
the New York Stock Exchange (the "NYSE"), Section 10A(m)(3) of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the
Securities and Exchange Commission (the "SEC"). At least one member of the
Committee shall be a financial expert as defined by the SEC. The Board shall
determine annually whether each member of the Committee is independent in
accordance with the requirements described above. No member shall serve on an
audit committee of more than two other public companies. Each member shall serve
at the pleasure of the Board of Directors for such term or terms as the Board
shall determine.
MEETINGS
The Committee shall meet at least four (4) times a year. The agenda of each
meeting will be prepared by the Secretary of the Committee and whenever
reasonably possible, circulated to each member prior to the meeting date.
SPECIFIC RESPONSIBILITIES
The Committee's job is one of oversight and the Committee recognizes that
is not the duty of the Committee to plan or conduct audits or to determine that
the Company's financial statements and disclosures are complete and accurate and
are in accordance with generally accepted accounting procedures ("GAAP") and
applicable rules and regulations. These are the responsibilities of the
Company's management and the Company's independent auditors. The Company's
management is responsible for compliance with laws and regulations and
compliance with the Company's policies and procedures. Additionally, the
Committee recognizes that financial management, including the internal audit
staff, as well as the outside auditors, have more time, knowledge and more
detailed information on the Company than do Committee members, consequently, in
carrying out its oversight responsibilities, the Committee is not providing any
expert or special
A-1
assurance as to the Company's financial statements or any professional
certification as to the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Company may diverge from this guide
as appropriate given the circumstances.
General
1. Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
2. Retain and terminate the Company's independent auditors, which firm is
ultimately accountable to the Committee and the Board.
3. Approve the fees to be paid the independent auditor. The Company shall
provide for appropriate funding, as determined by the Committee, for payment of
compensation to the independent auditors.
4. Review the experience and qualifications of the senior members of the
independent auditors team and the quality control procedures of the independent
auditors.
5. Require that the independent auditors comply with partner rotation rules
of the SEC and the NYSE, however, the lead audit partner and the reviewing audit
partner engaged on the Company's account shall rotate at least every five years.
6. Pre-approve all services (including audit services, audit-related
services, tax services and other services in accordance with the SEC and NYSE
rules) to be performed for the Company by the independent auditors. The
Committee may delegate pre-approval authority for such services to one or more
members, whose decisions shall be presented to the full Committee at its
scheduled meetings.
7. Review and discuss the Company's annual audited financial statements,
the Form 10-K and proxy statement, and the Company's quarterly financial
statements with management and the independent auditors, including major issues
regarding accounting and auditing principles and practices as well as the
adequacy of internal controls that could significantly affect the Company's
financial statements. Such review and discussion must include disclosures to be
made in the Company's SEC reports under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
8. Review with management and the independent auditor the effect of
regulatory and accounting initiatives as well as material off-balance sheet
structures on the Company's financial statements.
9. Review any analysis prepared by management and the independent auditor
of significant financial reporting issues and judgments made in connection with
the preparation of the Company's financial statements, including a disruption of
any transaction as to which management obtained Statement on Auditing Standards
No. 50 letters.
10. Meet periodically with management and the internal auditing department
to review the Company's risk assessment as well as major financial risk
exposures and the steps management has taken to monitor and control such risks.
11. Review major changes to the Company's accounting principles and
auditing practices as suggested by the independent auditors, internal auditors
or management.
12. Review and discuss with financial management the Company's earnings
press releases, including the use of "pro forma" or "adjusted" non-GAAP
information, as well as financial information and earnings guidance provided by
the Company to analysts and rating agencies.
13. Obtain advice and assistance from outside legal, accounting and other
advisors the Committee determines necessary to carry out its duties, without the
necessity of Board approval.
A-2
14. At least annually, obtain and review reports from the independent
auditor describing:
(a) the independent auditor's internal quality control procedures;
(b) Any material issues raised by the most recent internal quality
control review, or peer review, of the independent auditor, or by any
inquiry or investigation by governmental or professional authorities within
the preceding five years respecting one or more independent audits
conducted by the independent auditor and any steps taken to deal with any
such issues; and
(c) All relationships between the independent auditor and the Company.
After reviewing the foregoing report and the independent auditor's work,
including the nature of all services and fees provided, throughout the year, the
Committee shall evaluate the independent auditor's qualifications, performance
and independence and report to the Board its findings.
15. Together with the Board, discuss the performance of the independent
auditor and whether it is appropriate to rotate independent auditors on a
regular basis. If so determined by the Committee, recommend that the Board
replace the independent auditor.
16. Review and approve the appointment and replacement of the senior
internal auditing executive.
17. Review the annual internal audit plan prepared by the senior internal
auditing executive and any significant deviations from the plan.
18. Review the Internal Audit Department's responsibilities, budget and
staffing.
19. Review the regular internal audit reports prepared by the Internal
Audit Department (including management's responses) and any other significant
findings stemming from internal audit activities.
20. Meet with the independent auditor to review the planning and staffing
of the audit.
21. Review with the independent auditors, prior to the initiation of the
annual audit, the independent auditors' process for identifying and responding
to key audit and internal control risks, and the scope and approach of the audit
to assure completeness of coverage of key business controls and risk areas.
22. Periodically discuss separately with management, the independent
accountants and the internal auditors the adequacy and integrity of the
Company's accounting policies and procedures and internal accounting controls,
the completeness and accuracy of the Company's financial disclosure and the
extent to which major recommendations made by the independent accountants or the
internal auditors have been implemented or resolved.
23. Approve the formation of all offshore subsidiaries or affiliates of the
Company.
24. Serve as a channel of communication between the independent auditor and
the Board and/or management of the Company. The independent auditors are
ultimately accountable to the Committee.
25. Instruct the independent auditor to report directly to the Committee
any problems or difficulties (as defined in Statement on Auditing Standards No.
61) incurred in connection with the audit, including any restrictions on the
scope of activities or access to required information, or any disagreements with
management and resolve any disagreements between management and (as defined in
Statement or Auditing Standards No. 61) the independent auditors regarding
financial reporting.
26. Discuss with the independent auditor whether any communications are
required under Section 10A of the Securities Exchange Act of 1934.
27. Obtain reports from management, the Company's senior internal auditing
executive and the independent auditor that the Company's subsidiary/foreign
affiliated entities are in conformity with applicable legal requirements and the
Company's Code of Conduct.
28. Review with the independent auditor any management letter provided by
the auditor and the Company's response to such problems or difficulties or any
such management letter.
A-3
29. Prepare the report required by the rules of the SEC to be included in
the Company's annual proxy statement.
30. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations and with the Company's
Code of Conduct.
31. Review with the Company's General Counsel legal matters that may have a
material impact on the financial statements, the Company's compliance policies
and any material reports or inquiries received from regulators or governmental
agencies.
32. Meet at least quarterly with management, the internal auditors and the
independent auditor in separate executive sessions.
33. In accordance with SEC and NYSE rules, establish, and monitor
compliance with, clear hiring guidelines and policies for employees or former
employees of the independent auditor who were engaged on the Company's account.
34. Establish procedures for:
(a) The receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or auditing
matters; and
(b) The confidential, anonymous submission by employees of the Company
of concerns regarding questionable accounting or auditing matters.
35. Obtain and review reports from the independent auditor concerning:
(a) All critical accounting policies and practices to be used; and
(b) All alternative treatments of financial information within
generally accepted accounting principles that have been discussed with
management of the Company, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the independent
auditor.
System of Internal Controls
1. Review and evaluate the effectiveness of the Company's process for
assessing significant risks or exposures and the steps management has taken to
minimize such risks to the Company. Consider and review with management, the
internal auditor and the independent accountants the following:
(a) The effectiveness of or weaknesses in the Company's internal
controls including the status and adequacy of management information
systems and other information and security, the overall control environment
and accounting and financial controls;
(b) Any disclosures provided by the Chief Executive Officer or the
Chief Financial Officer to the Committee regarding (i) significant
deficiencies in the design or operation of internal controls which could
adversely affect the Company's ability to record, process, summarize, and
report financial data and (ii) any fraud, including that which involves
management or other employees who have a significant role in the Company's
internal controls; and
(c) Any related significant findings and recommendations of the
independent auditors, together with management's response thereto,
including the timetable for implementation of recommendations to correct
weaknesses in internal controls.
2. Assess internal processes for determining and managing key financial
statement risk areas.
3. Ascertain whether the Company has an effective process for determining
risks and exposures from asserted and unasserted litigation and claims and from
noncompliance with laws and regulations.
4. Review with management and the independent auditors any significant
transactions that are not a normal part of the Company's operations.
A-4
PROCEDURAL MATTERS
A majority of the members of the Committee will constitute a quorum. A
majority of the members present at any meeting at which a quorum is present may
act on behalf of the Committee. The Committee will meet at such times as shall
be determined by its Chairperson, or upon the request of any two of its members.
The Chairperson will provide, when present, at all meetings of the Committee.
The Committee will keep a record of its meetings and report on them to the
Board. The Committee may meet by telephone or video conference and may take
action by unanimous written consent.
PERFORMANCE CRITERIA
The Board of Directors will establish performance criteria for the
Committee and, on a regular basis, will evaluate each Committee member.
Committee evaluation will include an assessment of whether the Committee has the
necessary diversity of skills, backgrounds, experiences, etc. to meet the
Company's needs. Individual evaluations will include high standards for
in-person-attendance at Committee meetings and consideration of absences.
A-5
APPENDIX B
THE SHAW GROUP INC.
2001 EMPLOYEE INCENTIVE COMPENSATION PLAN
(AS AMENDED AND RESTATED THROUGH DECEMBER 19, 2002)
1. PURPOSE OF PLAN
The Shaw Group Inc. 2001 Employee Incentive Compensation Plan has been
established by the Company to (i) attract and retain persons eligible to
participate in the Plan; (ii) motivate participants, by means of appropriate
incentives, to achieve long-range goals; (iii) provide incentive compensation
opportunities that are competitive with those of other similar companies; and
(iv) further identify participants' interests with those of the Company's other
shareholders through compensation that is based on the Common Stock thereby
promoting the long-term financial interest of the Company and its Subsidiaries,
including the growth in value of the Company's equity and enhancement of
long-term shareholder return.
2. DEFINITIONS
Unless otherwise required by the context, the following terms when used in
the Plan shall have the meanings set forth in this Section 2:
(a) "Agreement": An agreement evidencing an Award in such form as
adopted from time to time by the Committee pursuant to the Plan.
(b) "Award": Any award or benefit granted under the Plan, including
without limitation, the grant of Options, SARs, Restricted Stock,
Performance Shares or Incentive Bonuses, or any combination thereof, under
the Plan.
(c) "Board of Directors": The Board of Directors of the Company.
(d) "Cause": For purposes of the Plan, whether the termination of a
Participant's employment shall have been for Cause shall be determined by
the Committee in its sole discretion, if said Participant has: (i) been
convicted of, or has pleaded guilty or nolo contendere to a charge that he
committed a felony under the laws of the United States or any state or a
crime involving moral turpitude, including but not limited to fraud, theft,
embezzlement or any crime that results in or is intended to result in
personal enrichment at the expense of the Company or its Subsidiaries; (ii)
perpetrated a fraud against, or theft of property of the Company or any of
its Subsidiaries; (iii) committed acts amounting to gross negligence,
intentional neglect or willful misconduct in carrying out his duties and
responsibilities as an employee of the Company or one or more of its
Subsidiaries; (iv) willfully or persistently failed to attend to his duties
as an employee of the Company or one or more of its Subsidiaries; or (v) as
a result of his gross negligence or willful misconduct, committed any act
that causes, or has knowingly failed to take reasonable and appropriate
action to prevent, any material injury to the financial condition or
business reputation of the Company or any of its Subsidiaries.
(e) "Change of Control": For the purposes of the Plan, the term Change
in Control shall mean the happening of any of the following:
(i) any "person" as defined in Section 3(a)(9) of the Exchange Act,
and as used in Section 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d) of the Exchange Act (but excluding any
shareholder of record of the Company as of January 1, 2000, owning 10%
or more of the combined voting power of the Company's securities which
are entitled to vote in the election of directors of the Company)
directly or indirectly becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities which are entitled to vote with respect to
the election of directors;
B-1
(ii) When, during any period of 24 consecutive months, the
individuals who, at the beginning of such period, constitute the Board
of Directors of the Company (the "Incumbent Directors") cease for any
reason other than death or disability to constitute at least a majority
thereof; provided, however, that a director who was not a director at
the beginning of such 24-month period shall be deemed to have satisfied
such 24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with approval
of, at least two-thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at the beginning
of such 24-month period) or by operation of this provision;
(iii) The acquisition of the Company or all or substantially all of
the Company's assets by an entity other than the Company (or a
Subsidiary) through purchase of assets, or by merger, or otherwise,
except in the case of a transaction pursuant to which, immediately after
the transaction, the Company's shareholders immediately prior to the
transaction own immediately after the transaction at least a majority of
the combined voting power of the surviving entity's then outstanding
securities which are entitled to vote with respect to the election of
directors of such entity; or
(iv) The Company files a report or proxy statement with the
Commission pursuant to the Exchange Act disclosing in response to Form
8-K, Form 10-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has or
may have occurred or will or may occur in the future pursuant to any
then-existing contract or transaction.
(f) "Code": The Internal Revenue Code of 1986, as amended from time to
time.
(g) "Commission": The Securities and Exchange Commission.
(h) "Committee": The Compensation Committee of the Board of Directors
or such other committee appointed by the Board of Directors which meets the
requirements set forth in Section 14.1 hereof.
(i) "Company": The Shaw Group Inc., a Louisiana corporation.
(j) "Consultant": Any professional advisor to the Company or its
Subsidiaries as well as any employee, officer or director of a corporation
that serves as an advisor, consultant or independent contractor to the
Company or its Subsidiaries. The term "Consultant" shall not, however,
include any director, officer or employee of the Company or its
Subsidiaries.
(k) "Effective Date": The date on which the Plan shall become
effective as set forth in Section 16 hereof.
(l) "Exchange Act": The Securities Exchange Act of 1934, as amended,
together with all regulations and rules issued thereunder.
(m) "Exercise Price": (i) In the case of an Option, the price per
Share at which the Shares subject to such Option may be purchased upon
exercise of such Option and (ii) in the case of an SAR, the price per Share
which upon grant, the Committee determines shall be used in calculating the
aggregate value which a Participant shall be entitled to receive upon
exercise of such SAR.
(n) "Fair Market Value": As applied to a specific date, the fair
market value of a Share on such date as determined in good faith by the
Committee in the following manner:
(i) If the Shares are then listed on any national or regional stock
exchange, the Fair Market Value shall be the last quoted sales price of
a Share on the date in question, or if there are no reported sales on
such date, on the last preceding date on which sales were reported;
(ii) If the Shares are not so listed, then the Fair Market Value
shall be the mean between the bid and ask prices quoted by a market
maker or other recognized specialist in the Shares at the close of the
date in question; or
B-2
(iii) In the absence of either of the foregoing, the Fair Market
Value shall be determined by the Committee in its absolute discretion
after giving consideration to the book value, the revenues, the earnings
history and the prospects of the Company in light of market conditions
generally.
The Fair Market Value determined in such manner shall be final, binding
and conclusive on all parties.
(o) "Incentive Bonus": An Award granted pursuant to Section 8 of the
Plan.
(p) "ISO": An Option intended to qualify as an "incentive stock
option," as defined in Section 422 of the Code or any statutory provision
that may replace such Section and designated as an incentive stock option
by the Committee.
(q) "Officer": An officer of the Company or its Subsidiaries meeting
the definition of "officer" in Rule 16a-1(f) (or any successor provision)
promulgated by the Commission under the Exchange Act.
(r) "NQSO": An Option not intended to be an ISO and designated as a
nonqualified stock option by the Committee.
(s) "Option": Any ISO or NQSO granted under the Plan.
(t) "Participant": An officer or other employee of or Consultant to
the Company or any of its Subsidiaries who has been granted an Award under
the Plan.
(u) "Performance Measures": The Performance Measures described in
Section 9.1 of the Plan.
(v) "Performance Period": For the purposes of the grant of Performance
Shares, the time period during which the applicable performance goal(s)
must be met.
(w) "Performance Shares": An Award granted pursuant to Section 7 of
the Plan.
(x) "Plan": This The Shaw Group Inc. 2001 Employee Incentive
Compensation Plan, as the same may be amended from time to time.
(y) "Related": (i) In the case of an SAR, an SAR that is granted in
connection with, and to the extent exercisable, in whole or in part, in
lieu of, an Option or another SAR; and (ii) in the case of an Option, an
Option with respect to which and to the extent an SAR is exercisable, in
whole or in part, in lieu thereof, has been granted.
(z) "Restricted Stock": Shares which have been awarded to a
Participant under Section 6 hereof.
(aa) "Restriction Period": The time period during which Restricted
Stock awarded under the Plan must be held before it becomes fully vested,
unless additional conditions have been placed upon the vesting thereof.
(bb) "SAR": A stock appreciation right awarded to a Participant under
Section 5.3 hereto.
(cc) "Shares": Shares of the Company's authorized but unissued or
reacquired no par value per share common stock, or such other class or kind
of shares or other securities as may be applicable pursuant to the
provisions of Section 4.4 hereof.
(dd) "Subsidiary": Any "subsidiary corporation" of the Company, as
such term is defined in Section 424(f) of the Code.
3. PARTICIPATION
Participants shall be selected by the Committee from the officers (whether
or not they are directors), employees of the Company or its Subsidiaries (either
full or part-time) and Consultants. An Award may be granted to an employee, in
connection with hiring, retention or otherwise, prior to the date the employee
first performs services for the Company or the Subsidiaries, provided that such
Awards shall not become vested prior to the date the employee first performs
such services.
B-3
4. SHARES SUBJECT TO PLAN
4.1 Shares Subject to the Plan. The maximum number of Shares that may be
delivered to Participants and their beneficiaries pursuant to the Plan shall be
equal to the sum of: (i) 3.5 million shares of Common Stock and (ii) any shares
of Common Stock that are represented by awards granted under the Company's 1993
Employee Stock Option Plan, as amended and restated, which are forfeited, expire
or are canceled without the delivery of shares of Common Stock or which result
in the forfeiture of shares of Common Stock back to the Company. The limitations
established by the preceding sentence shall be subject to adjustment as provided
in Section 4.4 of the Plan.
4.2 Accounting for Number of Shares. For purposes of determining the
aggregate number of Shares available for delivery to Participants pursuant to
the Plan, any Shares granted under the Plan which are forfeited back to the
Company because of the failure to meet an award contingency or condition shall
again be available for delivery pursuant to new Awards granted under the Plan.
Any Shares covered by an Award (or portion of an Award) granted under the Plan,
which is forfeited or canceled, expires or is settled in cash, shall be deemed
not to have been delivered for purposes of determining the maximum number of
Shares available for delivery under the Plan. Likewise, if any Option is
exercised by tendering Shares to the Company as full or partial payment in
connection with the exercise of an Option under this Plan or the Prior Plan,
only the number of Shares issued net of the Shares tendered shall be deemed
delivered for purposes of determining the maximum number of Shares available for
delivery under the Plan. Further, Shares issued under the Plan through the
settlement, assumption or substitution of outstanding Awards or obligations to
grant future Awards as a result of acquiring another entity shall not reduce the
maximum number of Shares available for delivery under the Plan.
4.3 Maximum Total Option and SAR Awards. Notwithstanding the provisions of
Section 4.1, over the term of the Plan, the total number of Shares that may be
issued upon exercise of all Options and SARs granted under the Plan shall not
exceed 3.5 million shares of Common Stock. The limitations in this Section 4.3
shall be subject to adjustment as provided in Section 4.4 below.
4.4 Adjustments. In the event of a corporate transaction involving the
Company (including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares, or other
similar transactions or award), the Committee may adjust Awards as well as the
total number of shares subject to the Plan to preserve the benefits or potential
benefits of the Awards. Action by the Committee may include: (i) adjustment of
the number and kind of Shares (or other securities or property) which may be
delivered under the Plan; (ii) adjustment of the number and kind of Shares (or
the securities or property) subject to outstanding Awards; (iii) adjustment of
the Exercise Price of outstanding Options and SARs; and (iv) any other
adjustments that the Committee determines to be equitable, in its sole
discretion.
5. AWARDS OF OPTIONS AND SARS
5.1 General Terms And Conditions. The Committee shall have full and
complete authority and discretion, except as expressly limited by the Plan, to
grant Options and SARs and to provide any and all terms and conditions (which
need not be identical among the Participants) thereof. In particular, the
Committee shall prescribe the following terms and conditions:
(a) The Exercise Price of the Option or SAR, which may not be less
than 100% of the Fair Market Value per Share at the date of grant of the
Option or SAR;
(b) The number of Shares subject to, and the expiration date of, the
Option or SAR;
(c) The manner, time and rate (cumulative or otherwise) of exercise of
the Option or SAR; provided, however, that except as otherwise specified in
the Plan, no Option or SAR awarded to a Participant who is an Officer shall
expressly provide for exercise prior to the expiration of six months from
the date of grant; and
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(d) The restrictions or conditions (such as performance goals), if
any, to be placed upon the Option or SAR, the exercisability of the Option
or SAR or upon the Shares which may be issued upon exercise of the Option
or SAR. The Committee may, as a condition of granting an Option or SAR,
require that a Participant agree not to thereafter exercise one or more
Options or SARs previously granted to such Participant.
5.2 Maximum Award Of Options and SARs. The number of Shares that may be
allotted by the Committee pursuant to Options and SARs awarded to any individual
Participant shall not exceed, in any fiscal year, 2.0 million Shares (subject to
adjustment pursuant to Section 4.4 of the Plan). If an Option is in tandem with
an SAR, such that the exercise of the Option or SAR with respect to a Share
cancels the tandem SAR or Option right, respectively, with respect to such
Share, the tandem Option and SAR rights with respect to such Share shall be
counted as covering but one Share for purposes of applying the limitations of
this Section 5.2.
5.3 SAR Awards.
(a) Grant of SARs. An SAR shall, upon its exercise, entitle the
Participant to whom such SAR was granted to receive a number of Shares or cash
or combination thereof, as the Committee in its discretion shall determine, the
aggregate value of which (i.e., the sum of the amount of cash and/or Fair Market
Value of such Shares on date of exercise) shall equal the amount by which the
Fair Market Value per Share on the date of such exercise shall exceed the
Exercise Price of such SAR multiplied by the number of Shares with respect of
which such SAR shall have been exercised. An SAR may be related to an Option or
may be granted independently of an Option, as the Committee shall from time to
time in each case determine. A Related SAR may be granted at the time of grant
of an Option or, in the case of an NQSO, at any time thereafter during the term
of the NQSO.
(b) Related SARs. The Exercise Price of a Related SAR shall be the same as
the Exercise Price of the Related Option. A Related SAR shall be exercisable
only at such time or times and only to the extent that the Related Option is
exercisable and then only when the Fair Market Value per Share on the date of
exercise exceeds the Exercise Price. A Related SAR shall expire no later than
the Related Option. Upon exercise of a Related SAR, in whole or in part, the
Related Option shall be cancelled automatically to the extent of the number of
Shares covered by such exercise, and such Shares shall no longer be available
for delivery pursuant to future Awards. Conversely, if the Related Option is
exercised, in whole or in part, the Related SAR shall be cancelled automatically
to the extent of the number of Shares covered by the Option exercise.
5.4 Exercise of Options and SARs.
(a) General Exercise Rights. Except as provided in Section 5.9, an Option
or SAR ranted under the Plan shall be exercisable during the lifetime of the
Participant to whom such Option or SAR was granted only by such Participant, and
except as provided in Section 5.4(c) and Section 5.9 hereof, no Option or SAR
may be exercised unless at the time such Participant exercises such Option or
SAR, such Participant is an employee of and has continuously since the grant
thereof been an employee of, the Company or an any of its Subsidiaries. Transfer
of employment between Subsidiaries or between Subsidiary and the Company shall
not be considered an interruption or termination of employment for any purpose
under this Plan. Neither shall a leave of absence at the request, or with the
approval, of the Company or Subsidiary be deemed an interruption or termination
of employment, so long as the period of such leave does not exceed 90 days, or,
if longer, so long as the Participant's right to re-employment with the Company
or Subsidiary is guaranteed by contract. An Option or SAR also shall contain
such conditions upon exercise (including, without limitation, conditions
limiting the time of exercise to specified periods) as may be required to
satisfy applicable regulatory requirements, including, without limitation, Rule
16b-3 (or any successor rule) promulgated by the Commission.
(b) Notice of Exercise. An Option or SAR may not be exercised with respect
to less than 100 Shares, unless the exercise relates to all Shares covered by
the Option or SAR at the date of exercise. An Option or SAR may be exercised by
delivery of a written notice to the Company, which shall state the election to
exercise the Option or SAR and the number of whole Shares in respect of which it
is being exercised, and shall be signed by the person or persons so exercising
the Option or SAR. In the case of an exercise of an
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Option or SAR, such notice shall either: (i) if applicable, be accompanied by
payment of the full Exercise Price and all applicable withholding taxes, in
which event the Company shall deliver any certificate(s) representing Shares to
which the Participant is entitled as a result of the exercise as soon as
practicable after the notice has been received; or (ii) fix a date (not less
than 5 nor more than 15 business days from the date such notice has been
received by the Company) for the payment of the full Exercise Price and all
applicable withholding taxes, against delivery by the Company of any
certificate(s) representing Shares to which the Participant is entitled to
receive as a result of the exercise. Payment of such Exercise Price and
withholding taxes shall be made as provided in Sections 5.4(d) and 13,
respectively. In the event the Option or SAR shall be exercised pursuant to
Section 5.4(c)(i) or Section 5.9 hereof, by any person or persons other than the
Participant, such notice shall be accompanied by appropriate proof of the right
of such person or persons to exercise the Option or SAR.
(c) Exercise After Termination of Employment. Except as otherwise
determined by the Committee at the date of grant of the Option or SAR and as is
provided in the applicable Agreement evidencing the Award, upon termination of a
Participant's employment with the Company or any of its Subsidiaries, such
Participant (or in the case of death, the person(s) to whom the Option is
transferred by will or the laws of descent and distribution) may exercise such
Option or SAR during the following periods of time (but in no event after the
expiration date of such Option or SAR) to the extent that such Participant was
entitled to exercise such Option or SAR (or portion thereof) at the date of such
termination (i.e., the Option or SAR (or portion thereof) must be "vested" at
the time of termination to be exercisable thereafter):
(i) In the case of termination as a result of death, disability or
retirement of the Participant, the Option or SAR shall remain exercisable
for a one-year period following such termination; for this purpose,
"disability" shall exist when the Participant is unable to engage in any
substantial, gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than 12 months, as determined by the Committee in its sole discretion,
and "retirement" shall mean voluntary retirement at or after the
Participant's normal retirement date as determined by the Committee in its
sole discretion;
(ii) In the case of termination for Cause, the Option shall
immediately terminate and shall no longer be exercisable; and
(iii) In the case of termination for any reason other than those set
forth in subparagraphs (i) and (ii) above, the Option or SAR shall remain
exercisable for three months after the date of termination.
To the extent the Option or SAR is not exercised within the foregoing periods of
time, the Option or SAR shall automatically terminate at the end of the
applicable period of time. Notwithstanding the foregoing provisions, failure to
exercise an ISO within the periods of time prescribed under Sections 421 and 422
of the Code shall cause an ISO to cease to be treated as an "incentive stock
option" for purposes of Section 421 of the Code.
(d) Payment of Option Exercise Price. Upon the exercise of an Option,
payment of the Exercise Price shall be made either (i) in cash (by a certified
check, bank draft or money order payable in United States dollars), (ii) with
the consent of the Committee and subject to Section 5.4(e) hereof, by delivering
the Participant's duly-executed promissory note and related documents, (iii)
with the consent of the Committee, by delivering Shares already owned by the
Participant valued at Fair Market Value as of the date of exercise, (iv) with
the consent of the Committee, by irrevocably authorizing a third party to sell
shares of Common Stock (or a sufficient portion of such shares) acquired upon
exercise of the Option and remit to the Company a sufficient portion of the
sales proceeds to pay the entire Exercise Price and any tax withholding
resulting from such exercise, or (v) by a combination of the foregoing forms of
payment.
(e) Payment with Loan. The Committee may, in its sole discretion, assist
any Participant in the exercise of one or more Options granted to such
Participant under the Plan by authorizing the extension of a loan to such
Participant from the Company. Except as otherwise provided in this Section
5.4(e), the terms of any loan (including the interest rate and terms of
repayment) shall be established by the Committee in its sole
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discretion. Any such loan by the Company shall be with full recourse against the
Participant to whom the loan is granted, shall be secured in whole or in part by
the Shares so purchased, and shall bear interest at a rate not less than the
minimum interest rate required at the time of purchase of the Shares in order to
avoid having imputed interest or original issue discount under Sections 483 or
1272 of the Code. In addition, any such loan by the Company shall become
immediately due and payable in full, at the option of the Company, upon
termination of the Participant's employment with the Company or its Subsidiaries
for any reason or upon the sale of any Shares acquired with such loan to the
extent of the cash and fair market value of any property received by the
Participant in such sale. The Committee may make arrangements for the
application of payroll deductions from compensation payable to the Participant
to amounts owing to the Company under any such loan. Until any loan by the
Company under this Section 5.4(e) is fully paid in cash, the Shares shall be
pledged to the Company as security for such loan and the Company shall retain
physical possession of the stock certificates evidencing the Shares so purchased
together with a duly executed stock power for such Shares. No loan shall be made
hereunder unless counsel for the Company shall be satisfied that the loan and
the issuance of Shares funded thereby will be in compliance with all applicable
federal, state and local laws, and such counsel shall be consulted prior to the
funding of any such loan.
5.5 Settlement of Awards of Options and SARs. Settlement of Awards of
Options and SARs is subject to Section 10.
5.6 Options or SARs Awarded to Consultants. Any provision of this Section
5 to the contrary notwithstanding, (i) an Option or SAR may be exercised at any
time by a Participant who is a Consultant during the applicable period in the
manner provided in Section 5.4(b) above; provided, that in the event of the
death of a Participant who is a Consultant, the Option or SAR may be exercised
by the executors or administrators of the estate of such Consultant or by the
person or persons who shall have acquired the Option or SAR directly by bequest
or inheritance; and (ii) the Exercise Price for an Option or SAR awarded to a
Consultant must be paid in cash (by a certified check, bank draft of money
order).
5.7 Rights as a Shareholder. A Participant shall have no rights as a
shareholder with respect to any Shares issuable on exercise of an Option or SAR
until the date of the issuance of a stock certificate to the Participant for
such Shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 4.4 hereof.
5.8 Special Provisions for ISOs.
Any provision of the Plan to the contrary notwithstanding, the following
special provisions shall apply to all ISOs granted under the Plan:
(a) The Option must be expressly designated as an ISO by the Committee
and in the Agreement evidencing the Option;
(b) No ISO shall be granted more than ten years from the Effective
Date of the Plan and no ISO shall be exercisable more than ten years from
the date such ISO is granted;
(c) The Exercise Price of any ISO shall not be less than the Fair
Market Value per Share on the date such ISO is granted;
(d) Any ISO shall not be transferable by the Participant to whom such
ISO is granted other than by will or the laws of descent and distribution
and shall be exercisable during such Participant's lifetime only by such
Participant;
(e) No ISO shall be granted to any individual who, at the time such
ISO is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary
unless the Exercise Price of such ISO is at least 110% of the Fair Market
Value per Share at the date of grant and such ISO is not exercisable after
the expiration of five years from the date such ISO is granted;
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(f) The aggregate Fair Market Value (determined as of the time any ISO
is granted) of any Company stock with respect to which any ISOs granted to
a Participant are exercisable for the first time by such Participant during
any calendar year (under this Plan and all other stock option plans of the
Company and any of its Subsidiary and any predecessor of any such
corporations) shall not exceed $100,000 as required under Section 422(d)(i)
of the Code. (To the extent the $100,000 limit is exceeded, the $100,000 in
Options, measured as described above, granted earliest in time will be
treated as ISOs); and
(g) any other terms and conditions as may be required in order that
the ISO qualifies as an "incentive stock option" under Section 422 of the
Code or successor provision.
Notwithstanding the provisions of Section 5.4(c)(i), the favorable tax treatment
available pursuant to Section 422 of the Code upon the exercise of an ISO will
not be available to a Participant who exercises any ISO more than (i) 12 months
after the date of termination of employment due to the Participant's disability
or (ii) three months after the date of termination of employment due to
retirement of the Participant.
5.9 Limited Transferability. No Option or SAR, nor any interest therein,
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution. Notwithstanding
the foregoing, the Committee shall have the discretionary authority to grant
NQSOs and SARs (that are not Related to an ISO) that are transferable by the
Participant to the Participant's children, grandchildren, spouse, one or more
trusts for the benefit of such family members, or a partnership in which such
family members were the only partners. The holder of an NQSO or SAR transferred
pursuant to this Section 5.9 shall be bound by the terms and conditions that
govern the NQSO or SAR during the period that it was held by the Participant;
provided, however, that such transferee may not transfer the NQSO or SAR except
by will or the laws of descent and distribution.
6. RESTRICTED STOCK
6.1 General Terms/Conditions. The Committee may, in its discretion, grant
one or more Awards of Restricted Stock to any Participant. Each Award of
Restricted Stock shall be evidenced by an Agreement which shall specify the
number of Shares to be issued to the Participant, the date of such issuance, the
price, if any, to be paid for such Shares by the Participant, the Restriction
Period and any other conditions imposed on such Shares as the Committee, in its
discretion, shall determine. Notwithstanding the foregoing, the Committee shall
impose upon each Award of Restricted Stock made to a Participant who is an
Officer a Restriction Period expiring no earlier than six months after the date
of grant of the Restricted Stock.
6.2 Maximum Award of Restricted Stock. The maximum number of Shares that
may be allotted by the Committee pursuant to Restricted Stock awarded to any
individual Participant shall not exceed, in any fiscal year, 25,000 Shares.
6.3 Restrictions and Forfeitures.
(a) Shares included in Restricted Stock Awards may not be sold, assigned,
transferred, pledged or otherwise disposed of or encumbered, either voluntarily
or involuntarily, until such Shares have fully vested.
(b) Participants holding shares of Restricted Stock granted hereunder may
be granted the right to exercise full voting rights with respect to those Shares
during the Restriction Period. During the Restriction Period, Participants
holding shares of Restricted Stock granted hereunder may be credited with
regular cash dividends paid with respect to the underlying Shares while they are
so held. The Committee may apply any restrictions to the dividends that the
Committee deems appropriate. Without limiting the generality of the preceding
sentence, if the grant or vesting of Restricted Stock is designed to comply with
one or more of the Performance Measures set forth in Section 9.1, the Committee
may apply any restrictions it deems appropriate to the payment of dividends
declared with respect to such Restricted Stock, such that the dividends and/or
the Restricted Stock maintain eligibility under Section 162(m) of the Code.
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(c) In the event that the Participant shall have paid any cash for the
Restricted Stock, the Agreement shall specify whether and to what extent such
cash shall be returned upon a forfeiture (with or without an earnings factor).
(d) The Restricted Stock shall be evidenced by a stock certificate
registered only in the name of the Participant, which stock certificate shall be
held by the Company until the Restricted Stock has fully vested.
(e) The occurrence of any of the following events shall cause the immediate
vesting of the Restricted Stock:
(i) the death of the Participant;
(ii) the retirement of the Participant on or after the Participant's
normal retirement date;
(iii) the disability of the Participant.
For the purposes of this Subsection, the term "disability" shall be
defined as such term is defined in Section 5.4(c)(i). Notwithstanding the
foregoing, to the extent a condition(s) other than a Restriction Period has
been imposed by the Committee upon the Restricted Stock, the occurrence of
the foregoing shall not cause immediate vesting unless and until such
condition(s) has been met.
(f) A Restricted Stock Award shall be entirely forfeited by the Participant
in the event that prior to vesting, the Participant breaches any terms or
conditions of the Plan, the Participant resigns from or is terminated by the
Company, or any condition(s) imposed upon vesting are not met.
6.4 Legend on Certificates. Each certificate evidencing a Restricted Stock
Award under the Plan shall be registered in the name of the Participant and
deposited by the Participant, together with a stock power endorsed in blank,
with the Company and shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of Common Stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in The Shaw Group Inc. 2001 Employee Incentive
Compensation Plan and a Restricted Stock Agreement entered into between the
registered owner and The Shaw Group Inc. Copies of such Plan and Agreement
are on file in the offices of the Secretary of The Shaw Group Inc., 8545
United Plaza Boulevard, Baton Rouge, Louisiana 70809."
6.5 Section 83(b) Elections. Within 30 days after the issuance of shares
of Restricted Stock to a Participant under the Plan, the Participant shall
decide whether or not to file an election pursuant to Section 83(b) of the Code
and Treasury Regulation Section 1.83-2 (and state law counterparts) with respect
to such Restricted Stock. If the Participant does file such an election, the
Participant shall promptly furnish the Company with a copy of such election.
7. PERFORMANCE SHARES
7.1 Grant of Performance Shares. Subject to the terms of the Plan,
Performance Shares may be granted to Participants in such amounts and upon such
terms, and at any time and from time to time, as shall be determined by the
Committee, provided that no more than 25,000 Shares may be subject to any
Performance Share Awards granted to any individual Participant in any fiscal
year.
7.2 Value of Performance Shares. Each Performance Share shall have an
initial value equal to the Fair Market Value of a Share on the date of grant.
The Committee shall set performance goals in its discretion which, depending on
the extent to which they are met, will determine the number and/or value of
Performance Shares that will be paid out to the Participant.
7.3 Earning of Performance Shares. Subject to the terms of the Plan, after
the applicable Performance Period has ended, the holder of Performance Shares
shall be entitled to receive payout on the number and value of Performance
Shares earned by the Participant over the Performance Period, to be determined
as a function of the extent to which the corresponding performance goals have
been achieved.
7.4 Form and Timing of Payment of Performance Shares. Payment of earned
Performance Shares shall be made in a single lump sum following the close of the
applicable Performance Period. Subject to the
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terms of this Plan, the Committee, in its sole discretion, may pay earned
Performance Shares in the form of cash or in Shares (or in a combination
thereof) which have an aggregate Fair Market Value equal to the value of the
earned Performance Shares at the close of the applicable Performance Period.
Such Shares may be granted subject to any restrictions deemed appropriate by the
Committee. The determination of the Committee with respect to the form of payout
of such Awards shall be set forth in the Agreement pertaining to the grant of
the Award of Performance Shares.
At the discretion of the Committee, Participants may be entitled to receive
any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Shares which have been earned, but not yet
distributed to Participants (such dividends shall be subject to the same
accrual, forfeiture, and payout restrictions as apply to dividends earned with
respect to Shares of Restricted Stock, as set forth in Section 6 hereof). In
addition, Participants may, at the discretion of the Committee, be entitled to
exercise their voting rights with respect to such Shares.
7.5 Termination of Employment Due to Death, Disability, or
Retirement. Unless determined otherwise by the Committee and set forth in the
Agreement evidencing an Award of Performance Shares, in the event the employment
of a Participant is terminated by reason of death, disability, or retirement
during a Performance Period, the Participant or his legal representative shall
receive a payout of the Performance Shares which is prorated, as specified by
the Committee, in its sole discretion. For purposes of this Section 7.5, the
term "disability" shall be defined as such term is defined in Section 5.4(c)(i).
Payment of earned Performance Shares shall be made at a time specified by
the Committee in its sole discretion and set forth in the Agreement evidencing
such Award. Notwithstanding the foregoing, with respect to Performance Shares
that have been awarded with the intention of qualifying as "performance-based
compensation" under Section 162(m) of the Code to a Participant who retires
during a Performance Period, payment shall be made pursuant to such Performance
Share Award at the same time as payments are made to Participants who did not
terminate employment during the applicable Performance Period.
7.6 Termination of Employment for Other Reasons. In the event that a
Participant's employment terminates for any reason other than those reasons set
forth in Section 7.5 above, all Performance Shares shall be forfeited by the
Participant to the Company unless determined otherwise by the Committee, as set
forth in the Agreement evidencing such Award.
7.7 Non-Transferability. Except as otherwise provided in an Agreement
evidencing such Award of Performance Shares, Performance Shares may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until such Performance Shares have fully vested.
Further, except as otherwise provided in an Agreement evidencing such Award of
Performance Shares, a Participant's rights under the Plan shall be exercisable
during the Participant's lifetime only by the Participant or the Participant's
legal representative.
8. INCENTIVE BONUSES
8.1 Awards of Incentive Bonuses. The Committee shall have the
discretionary authority to designate Participants to whom Incentive Bonuses are
to be paid. Incentive Bonuses shall be determined exclusively by the Committee
pursuant to procedures established by the Committee; provided, however, that for
any fiscal year, no individual Participant may receive Incentive Bonuses
aggregating more than $5 million.
8.2 Terms and Conditions. The Committee, at the time an Incentive Bonus is
made, shall specify the terms and conditions that govern the granting thereof.
Such terms and conditions may include, by way of example and not limitation,
requirements that the Participant complete a specified period of employment with
the Company or a Subsidiary, or that the Company or Subsidiary or the
Participant attain stated objectives or goals as a prerequisite to payment under
an Incentive Bonus. The Committee, at the time the Incentive Bonus is granted
shall also specify what amount shall be payable under the Incentive Bonus and
whether amounts shall be payable in the event of the Participant's death,
disability or retirement.
8.3 Settlement of Incentive Bonuses. Settlement of Incentive Bonuses is
subject to Section 10.
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9. PERFORMANCE-BASED COMPENSATION
9.1 Performance Measures. The Committee may designate whether an Award
being granted to any Participant is intended to be "performance-based
compensation" as that term is used in Section 162(m) of the Code. Any such
Awards designated by the Committee to be "performance-based compensation" shall
be conditioned on the achievement of one or more Performance Measures, to the
extent required by Code Section 162(m). The Performance Measures that may be
used by the Committee for such Awards shall be based on any one or more of the
following, as selected by the Committee:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Return measures (including, but not limited to, return on assets,
capital, equity or sales);
(d) Earnings before or after taxes;
(e) Share price (including, but not limited to, growth measure and
total shareholder return);
(f) Gross revenues;
(g) Working capital measures; or
(h) Backlog.
For Awards under this Section 9 intended to be "performance-based compensation",
(i) the grant of the Awards and the establishment of the Performance Measures
shall be made during the period required by Section 162(m) of the Code and (ii)
the Committee shall certify in writing that the Performance Measure has been
met. The Committee shall have the discretion to define the Performance Measures
on a corporation or subsidiary or business division basis or in comparison with
peer group performance.
9.2 Board Authority. In the event that applicable tax and/or securities
laws change to permit the Committee discretion to alter the governing
Performance Measures without obtaining shareholder approval of such changes, the
Board of Directors of the Company shall have the sole discretion to make changes
in the Performance Measures without shareholder approval.
10. SETTLEMENT OF AWARDS
The obligation to make payments and distributions with respect to Awards
may be satisfied through cash payments, the delivery of shares of Common Stock,
the granting of replacement Awards, or combination thereof as the Committee
shall determine, in its sole discretion. Satisfaction of any such obligations
under an Award, which is sometimes referred to as "settlement" of the Award, may
be subject to such conditions, restrictions, and contingencies as the Committee
shall determine. The Committee may permit or require the deferral of any Award
payment, subject to such rules and procedures as it may establish, which may
include provisions for the payment or crediting of interest or dividend
equivalents. Each Subsidiary shall be liable for payment of cash due under the
Plan with respect to any Participant to the extent that such benefits are
attributable to the services rendered for that Subsidiary by the Participant.
Any disputes relating to liability of a Subsidiary for cash payments shall be
resolved by the Committee.
11. CONSULTANTS
An Award made to a Consultant hereunder must be supported by bona fide
services actually rendered by the Company to the Consultant. However, in no
event shall an Award be made to a Consultant (i) for services rendered by the
Consultant in connection with the offer or sale of securities in a capital
raising transaction or (ii) who directly or indirectly promotes or maintains a
market for the Company's securities.
12. GOVERNMENT REGULATIONS
This Plan, the granting of Awards under this Plan and the issuance or
transfer of Shares (and/or the payment of money) pursuant thereto are subject to
all applicable federal and state laws, rules and regulations
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and to such approvals by any regulatory or governmental agency (including
without limitation "no action" positions of the Commission) which may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Without limiting the generality of the foregoing, no Awards may be
granted under this Plan, and no Shares shall be issued by the Company, pursuant
to or in connection with any such Award, unless and until, in each such case,
all legal requirements applicable to the issuance or payment have, in the
opinion of counsel to the Company, been complied with. In connection with any
stock issuance or transfer, the person acquiring the Shares shall, if requested
by the Company, give assurances satisfactory to counsel to the Company in
respect of such matters as the Company may deem desirable to assure compliance
with all applicable legal requirements. The Company shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such Shares to
listing or for quotation on any stock exchange or automated quotation system on
which Shares may then be listed or quoted, and (ii) the completion and
effectiveness of such registration or other qualification of such Shares under
any state or federal law, rule or regulation, as the Committee shall determine
to be necessary or advisable.
13. TAX WITHHOLDING
The Company shall have the right to withhold from amounts due Participants,
or to collect from Participants directly, the amount which the Company deems
necessary to satisfy any taxes required by law to be withheld at any time by
reason of participation in the Plan, and the obligations of the Company under
the Plan shall be conditional on payment of such taxes. The Participant may,
prior to the due date of any taxes, pay such amounts to the Company in cash, or
with the consent of the Committee, in Shares (which shall be valued at their
Fair Market Value on the date of payment). There is no obligation under this
Plan that any Participant be advised of the existence of the tax or the amount
required to be withheld. Without limiting the generality of the foregoing, in
any case where it determines that a tax is or will be required to be withheld in
connection with the issuance or transfer or vesting of Shares under this Plan,
the Company may pursuant to such rules as the Committee may establish, reduce
the number of such Shares so issued or transferred by such number of Shares as
the Company may deem appropriate in its sole discretion to accomplish such
withholding or make such other arrangements as it deems satisfactory.
Notwithstanding any other provision of this Plan, the Committee may impose such
conditions on the payment of any withholding obligation as may be required to
satisfy applicable regulatory requirements, including, without limitation, Rule
16b-3 (or successor provision) promulgated by the Commission.
14. ADMINISTRATION OF PLAN
14.1 The Committee. The Plan shall be administered by the Committee, which
shall be comprised of two or more members of the Board of Directors, each of
whom shall be a "Non-Employee Director" as defined in Rule 16b-3(b)(3) (or any
successor provision) promulgated by the Commission and each of whom shall
qualify as an "outside director" as defined in Section 162(m) of the Code.
14.2 Committee Action. A majority of the members of the Committee at the
time in office shall constitute a quorum for the transaction of business, and
any determination or action may be taken at a meeting by a majority vote or may
be taken without a meeting by a written resolution signed by all members of the
Committee. All decisions and determinations of the Committee shall be final,
conclusive and binding upon all Participants and upon all other persons claiming
any rights under the Plan with respect to any Award. Members of the Board of
Directors and members of the Committee acting under the Plan shall be fully
protected in relying in good faith upon the advice of counsel and shall incur no
liability except for willful misconduct in the performance of their duties.
14.3 Committee Authority. In amplification of the Committee's powers and
duties, but not by way of limitation, the Committee shall have full authority
and power to:
(a) Construe and interpret the provisions of the Plan and establish,
amend and rescind rules and regulations relating to the Plan and to make
all other determinations that may be necessary or advisable for the
administration of the Plan not inconsistent with the Plan;
(b) Decide all questions of eligibility for Plan participation and for
the grant of Awards;
B-12
(c) Determine the types of Awards and the number of Shares covered by
the Awards, if any, to be granted to any Participant, to establish the
terms, conditions, Performance Measures, restrictions and other provisions
of such Awards, and (subject to the restrictions imposed by Section 17) to
cancel or suspend Awards;
(d) Adopt forms of agreements and other documents consistent with the
Plan;
(e) Engage agents to perform legal, accounting and other such
professional services as it may deem proper for administering the Plan; and
(f) Take such other actions as may be reasonably required or
appropriate to administer the Plan or to carry out the Committee activities
contemplated by other sections of this Plan.
14.4 Indemnification. In addition to such other rights of indemnification
as they may have as directors or as members of the Committee, the Board of
Directors and the members of the Committee shall be indemnified by the Company
against the reasonable expenses, including court costs and reasonable attorneys'
fees, actually incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted hereunder, and against all amounts
paid by them in settlement thereof or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except where such indemnification is
expressly prohibited by applicable law.
15. CHANGE OF CONTROL
Subject to the provisions of Section 4.4 (relating to the adjustment of
Shares), or except as otherwise provided in the Agreement evidencing the Award,
upon the occurrence of a Change of Control:
(a) all outstanding Options (regardless of whether in tandem with
SARs) shall become fully exercisable,
(b) all outstanding SARs (regardless of whether in tandem with
Options) shall become fully exercisable,
(c) all Restricted Stock and Performance Shares shall become fully
vested, and
(d) All Incentive Bonuses that have been approved and accrued shall
become fully payable.
16. EFFECTIVE DATE AND SHAREHOLDER APPROVAL
The Effective Date of the Plan shall be November 27, 2000 (the date the
Plan was approved by the Board of Directors) subject to receipt within one year
of such date the approval of the Plan by the holders of a majority of the total
voting power of the voting securities of the Company present in person or
represented by proxy at a meeting of shareholders at which the approval of such
Plan is considered.
17. AMENDMENT AND TERMINATION
17.1 The Plan
(a) Amendment. The Board of Directors may amend the Plan from time to time
in its sole discretion unless the amendment would, pursuant to any applicable
federal, state or local law or pursuant to the rules of the exchange upon which
the Common Stock is then trading, require shareholder approval, in which event
such approval shall be obtained. However, no amendment shall adversely affect
the rights of any Participant under any Award theretofore made under the Plan,
without the Participant's consent.
(b) Termination. The Plan shall terminate automatically on the tenth
anniversary of the Effective Date, and the Board of Directors may suspend or
terminate the Plan at any earlier time. Upon termination of the Plan, no
additional Awards shall be granted under the Plan; provided, however, that the
terms of the Plan shall continue in full force and effect with respect to
outstanding Awards and Shares issued under the Plan.
B-13
17.2 Awards. Subject to the terms and conditions and the limitations of
the Plan, the Committee may in the exercise of its sole discretion modify,
extend or renew the terms of outstanding Awards granted under the Plan, or
accept the surrender of outstanding Awards (to the extent not theretofore
exercised). Notwithstanding the foregoing, however, no modification of an Award
shall, without the consent of the Participant, impair any rights or obligations
under any Awards theretofore granted under the Plan.
18. MISCELLANEOUS
18.1 No Individual Rights. No person shall have any claim or right to be
granted an Award under the Plan, or having been selected as a Participant for
one Award, to be so selected again. Neither the establishment of the Plan nor
any amendments thereto, nor the granting of any Award under the Plan, shall be
construed as in any way modifying or affecting, or evidencing any intention or
understanding with respect to, the terms of the employment of any Participant
with the Company or any of its Subsidiaries.
18.2 Multiple Awards. Subject to the terms and restrictions set forth in
the Plan, a Participant may hold more than one Award.
18.3 Written Notice. As used herein, any notices required hereunder shall
be in writing and shall be given on the forms, if any, provided or specified by
the Committee. Written notice shall be effective upon actual receipt by the
person to whom such notice is to be given; provided, however, that in the case
of notices to Participants and their transferees, heirs, legatees and legal
representatives, notice shall be effective upon delivery if delivered personally
or three business days after mailing, registered first class postage prepaid to
the last known address of the person to whom notice is given. Written notice
shall be given to the Committee and the Company at the following address or such
other address as may be specified from time to time:
The Shaw Group Inc.
4171 Essen Lane
Baton Rouge, Louisiana 70809
Attention: Secretary
18.4 Unfunded Plan. The Plan shall be unfunded and shall not create (and
shall not be construed to create) a trust or a separate fund or funds. The Plan
shall not establish any fiduciary relationship between the Company and any
Participant. To the extent any person holds any obligation of the Company by an
Award granted under the Plan, such obligation shall merely constitute a general
unsecured liability of the Company and accordingly, shall not confer upon such
person any right, title or interest in any assets of the Company.
18.5 Applicable Law; Severability. The Plan shall be governed by and
construed in all respects in accordance with the laws of the State of Louisiana.
If any provision of the Plan shall be held by a court of competent jurisdiction
to be invalid or unenforceable, the remaining provisions of the Plan shall
continue to be fully effective.
B-14
THE SOLICITATION OF THIS PROXY IS MADE ON BEHALF OF THE BOARD OF DIRECTORS
THE SHAW GROUP INC.
4171 Essen Lane o Baton Rouge, Louisiana 70809
The undersigned hereby appoints J.M. Bernhard, Jr. and Robert L. Belk, and each
of them with full power of substitution, the attorney and proxy of the
undersigned to attend the Annual Meeting of Shareholders of THE SHAW GROUP INC.
to be held at The Radisson Hotel, 4728 Constitution Avenue, Baton Rouge,
Louisiana, at 9:00 a.m. on January 24, 2003, or any postponement or adjournment
thereof, and to vote all shares of common stock held of record by the
undersigned on December 18, 2002, with all powers the undersigned would possess
if present upon the following matters and upon any other business that may
properly come before the meeting or any postponement or adjournment thereof. The
Board of Directors recommends a vote for the following items:
1. ELECTION OF DIRECTORS
o FOR all nominees listed in this block (except as marked to the
contrary)
o WITHHOLD AUTHORITY to vote for all nominees listed in this
block
NOMINEES: J.M. Bernhard, Jr., William H. Grigg, L. Lane Grigsby, David
W. Hoyle, Albert McAlister, Charles E. Roemer, III and John W. Sinders,
Jr.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW:
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2. To approve an amendment to The Shaw Group Inc. 2001 Employee Incentive
Compensation Plan to increase by 1,500,000 shares the number of shares
of the Company's no par value common stock reserved for issuance
thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED HEREIN. IF NO
SPECIFICATION IS MADE, IT IS THE INTENTION OF THE PROXIES TO VOTE FOR PROPOSALS
1, 2 AND 3.
Shareholders are requested to confirm to the Company how many of the shares they
own as of December 18, 2002 were beneficially owned on or before December 18,
1998, entitling such shareholder to five votes per share, and how many were
acquired after December 18, 1998, entitling such shareholder to one vote per
share. IF NO CONFIRMATION OF BENEFICIAL OWNERSHIP IS RECEIVED FROM A SHAREHOLDER
AT LEAST THREE (3) BUSINESS DAYS PRIOR TO THE ANNUAL MEETING, IT WILL BE DEEMED
BY THE COMPANY THAT BENEFICIAL OWNERSHIP OF ALL SHARES WAS EFFECTED AFTER
DECEMBER 18, 1998, AND THAT THE SHAREHOLDER WILL BE ENTITLED TO ONE VOTE FOR
EACH SHARE. If a shareholder provides incorrect information, he or she may
provide correct information at any time at least three (3) business days prior
to the date of the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
I PLAN TO ATTEND MEETING [ ]
Dated:
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Signature
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Signature if held jointly
INSTRUCTIONS: This proxy, signed and dated,
must be returned for your shares to be
represented at the Annual Meeting. To vote,
please mark the appropriate box for each
proposal in blue or black ink, date and sign
this proxy exactly as your name appear(s)
hereon. If stock is held jointly, signature
should include both names. Executors,
administrators, trustees, guardians and
others signing in a representative capacity
should give their full title.
SEE REVERSE SIDE