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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
[ ] Preliminary Proxy Statement
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RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
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[ ] 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)
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CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
(THE SHAW GROUP INC. LOGO)
4171 ESSEN LANE
BATON ROUGE, LOUISIANA 70809
NOTICE OF THE 2005 ANNUAL MEETING
OF SHAREHOLDERS
Our 2005 Annual Meeting of Shareholders will be held at the Marriott Hotel,
5500 Hilton Avenue, Baton Rouge, Louisiana, on January 24, 2005, at 9:00 a.m.
Central Standard Time to consider and act upon:
(1) election of nine members to our Board of Directors, each for a
one-year term;
(2) a proposal to ratify the appointment of Ernst & Young LLP as our
independent auditors;
(3) a proposal to approve an amendment to our 2001 Employee Incentive
Compensation Plan to increase from 50,000 to 300,000, the maximum number of
shares of our common stock that may be allotted to any individual pursuant
to a restricted stock award in any fiscal year; and
(4) any other business as may properly come before the Annual Meeting
and any adjournments thereof.
Our Board of Directors has fixed the close of business on December 1, 2004,
as the record date to determine our shareholders who are entitled to vote at the
Annual Meeting.
Your proxy card is enclosed. We cordially invite you 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 to us 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 17, 2004
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
Our Board of Directors has sent you this Proxy Statement and the
accompanying proxy to solicit your vote for our 2005 Annual Meeting of
Shareholders to be held on January 24, 2005, at 9:00 a.m. Central Standard Time,
at the Marriott Hotel, 5500 Hilton Avenue, Baton Rouge, Louisiana. Only our
shareholders of record at the close of business on December 1, 2004, will be
entitled to notice of, and to vote at, the Annual Meeting. We anticipate that
this Proxy Statement and the accompanying proxy will be first mailed to our
shareholders on or about December 17, 2004.
Unless we have indicated otherwise or the context otherwise requires,
references in this Proxy Statement to "Shaw," "Company," "we," "us" and "our" or
similar terms are to The Shaw Group Inc.
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. Holders of
shares having a majority of the voting power of our common stock, no par value,
issued and outstanding and entitled to vote at the Annual Meeting must be
present in person or by proxy for a quorum to be present at the Annual Meeting.
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 our articles of incorporation, for purposes of determining the
presence of a quorum at the Annual Meeting, whether or not a shareholder
abstains on any or all matters to be acted on at the Annual Meeting. Abstentions
will count 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. You may revoke your proxy at any time before it is voted at the
meeting by giving written notice to our Secretary or by providing a later-dated
proxy or by voting in person at the Annual Meeting.
At the Annual Meeting, our shareholders will consider and elect nine
members to our Board of Directors. The enclosed form of proxy provides a means
for you to vote for all the listed nominees for director, to withhold authority
to vote for one or more of the nominees or to withhold authority to vote for all
of the nominees. Article III of our by-laws provides that directors are elected
by a plurality of the votes cast. The nine nominees receiving the most votes
will be elected as members of the Board of Directors. There is no cumulative
voting. The withholding of authority by a shareholder (including broker
non-votes) will not be counted in computing a plurality, and will have no effect
on the results of the election of directors.
The enclosed form of proxy also provides a means for you to vote for,
against or abstain from voting on a proposal to ratify the Company's appointment
of Ernst & Young LLP as the Company's independent auditors ("Proposal 2"). The
affirmative vote of a majority of the voting power of our 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 of a vote against it. Broker non-votes will be treated as
shares not present and not entitled to vote with regard to Proposal 2.
The enclosed form of proxy also provides a means for you to vote for,
against or abstain from voting on a proposal to approve an amendment to our 2001
Employee Incentive Compensation Plan ("Proposal 3"). The affirmative vote of a
majority of the voting power of our common stock, present in person or
represented by proxy and entitled to vote at the meeting, is required for
approval of Proposal 3. An abstention with respect to Proposal 3 will have the
effect of a vote against it. Broker non-votes will be treated as shares not
present and not entitled to vote with regard to Proposal 3.
Approval of any other matters 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. Accordingly, an abstention will have the
same effect as a vote against any such other matter.
1
If you properly execute and duly return your proxy card but do not indicate
how you wish to vote, your shares will be voted FOR the election of the nine
director nominees, FOR Proposal 2, and FOR Proposal 3, and in the proxies'
discretion on any other matter that may be properly brought before the meeting
or any adjournment of the meeting.
We will pay for the cost of preparing, assembling, printing and mailing
this Proxy Statement, the form of proxy and the Notice of the Annual Meeting. In
addition to solicitation of proxies through mailings, proxies may also be
solicited personally by certain of our directors, officers and employees, and no
additional compensation will be paid to these individuals. Proxies will also be
solicited by Georgeson Shareholder Services, Inc., whose fee of approximately
$6,000 plus out-of-pocket expenses will be paid by us. We 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, 2004, we had issued and outstanding and entitled to vote
approximately 64,080,588 shares of common stock. Our only outstanding class of
voting securities is our common stock. Additionally, as of November 30, 2004,
there are outstanding 722,401 shares of restricted stock entitled to vote.
Our principal executive offices are located at 4171 Essen Lane, Baton
Rouge, Louisiana, 70809, and our telephone number is (225) 932-2500. Our website
address is http://www.shawgrp.com.
VOTING RIGHTS OF OUR COMMON STOCK
Article IV of our articles of incorporation provides generally that each
outstanding share of our common stock will entitle its holder 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 December 1, 2004, which is the record date for
the Annual Meeting, will be entitled to only one vote per share. Based upon
these provisions of our articles, shares owned on or before December 1, 2000,
and as to which there have been no such specified changes in beneficial
ownership since December 1, 2000, 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 our shareholder records.
You should refer to the section of this Proxy Statement entitled "Confirmation
of Beneficial Ownership" for a more detailed discussion of (i) the provisions of
our articles of incorporation relating to your voting rights and the manner we
will determine your voting rights; and (ii) certain procedures you should follow
to confirm to us your beneficial ownership of shares.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of our common stock as of November 30, 2004 (except as otherwise noted), with
respect to:
- each director and each nominee for director;
- each of our executive officers whose compensation information is
disclosed under the heading "Executive Compensation;"
- all of our executive officers and directors as a group; and
- each person, or group of affiliated persons, known by us to own
beneficially more than 5% of the outstanding shares of common stock.
The following shareholders have sole voting and investment power with
respect to shares beneficially owned by them, except to the extent that
authority is shared by spouses under applicable law, or as otherwise noted. The
address for each of the following individual shareholders is c/o The Shaw Group
Inc., 4171 Essen Lane, Baton Rouge, Louisiana 70809. The addresses of the other
shareholders are as noted below.
<Table>
<Caption>
PERCENT OF
BENEFICIAL OWNERSHIP VOTING
DIRECTORS, NOMINEES & NAMED EXECUTIVE OFFICERS SHARES PERCENTAGE POWER(17)
- ---------------------------------------------- ---------- ---------- ----------
J.M. Bernhard, Jr.(1)....................................... 2,509,666 3.58% 10.0%
T.A. Barfield, Jr.(2)....................................... 232,625
James F. Barker............................................. -- * *
L. Lane Grigsby(4).......................................... 22,200 * *
David W. Hoyle(5)........................................... 66,500 * *
Albert D. McAlister(6)...................................... 148,604 * *
Charles E. Roemer, III(7)................................... 2,500 * *
John W. Sinders, Jr.(7)..................................... 87,000 * *
Robert L. Belk(8)........................................... 394,000 * *
David L. Chapman(9)......................................... 62,500 * *
Diana Severs Ferguson(10)................................... 63,750 * *
Dorsey Ron McCall(11)....................................... 37,500 * *
All executive officers, directors and director nominees as a
group (16 persons)(12).................................... 4,108,845 5.86% 12.50%
OTHER PERSONS
Jeffery L. Gendel et al. (Tontine Partners)(13)............. 3,878,300 5.53% 5.11%
200 Park Avenue, Suite 3900
New York, New York 10166
Fidelity Investments(14).................................... 7,726,300 11.02% 10.18%
801 Boylston Street
Boston, Massachusetts 02116
Dimensional Fund Advisors(15)............................... 4,069,958 5.80% 5.37%
1299 Ocean Avenue
Santa Monica, California 90401
Snyder Capital Management, L.P.(16)......................... 4,129,300 5.89% 5.44%
One Maritime Plaza, 18th Floor
San Francisco, California 94111
</Table>
- ---------------
* less than 1%
(1) Includes 876,000 option 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 of November 30, 2004, and 162,500
shares of unvested restricted stock which Mr. Bernhard is entitled to vote.
3
(2) Includes 97,625 option 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 of November 30, 2004, and 106,250
shares of unvested restricted stock which Mr. Barfield is entitled to vote.
(3) Includes 10,500 option 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 of November 30, 2004.
(4) Includes 6,250 shares beneficially owned by Senator Hoyle's spouse and
18,500 option shares of which Senator Hoyle may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days of November 30, 2004.
(5) Includes 225 shares beneficially owned by Mr. McAlister's spouse and 11,500
option 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 of November 30, 2004.
(6) Includes 2,500 option shares of which former Governor Roemer may be deemed
to be beneficial owner as a result of rights that he may exercise to
acquire beneficial ownership within 60 days of November 30, 2004.
(7) Includes 17,000 option 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 of November 30, 2004.
(8) Includes 223,740 option 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 of November 30, 2004, and 170,660
shares of unvested restricted stock which Mr. Belk is entitled to vote.
(9) Includes 62,500 option shares of which Mr. Chapman may be deemed to be
beneficial owner as a result of rights that he may exercise to acquire
beneficial ownership within 60 days of November 30, 2004.
(10) Includes 8,750 option shares of which Mrs. Ferguson may be deemed to be
beneficial owner as a result of rights that she may exercise to acquire
beneficial ownership within 60 days of November 30, 2004, and 46,667 shares
of unvested restricted stock which Mrs. Ferguson is entitled to vote.
(11) Includes 37,500 option shares of which Mr. McCall may be deemed to be
beneficial owner as a result of rights that he may exercise to acquire
beneficial ownership within 60 days of November 30, 2004.
(12) Includes 6,475 shares owned of record by spouses of executive officers and
directors and 1,742,172 option 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 of
November 30, 2004, and 477,280 shares of unvested restricted stock which
the executive officers and directors are entitled to vote.
(13) Number of shares beneficially owned by Jeffery L. Gendel, et al. (Tontine
Partners) as reported with the Securities and Exchange Commission and
confirmed with Georgeson Shareholder Services, Inc. on November 30, 2004.
(14) Number of shares beneficially owned by Fidelity Investments as reported
with the Securities and Exchange Commission and confirmed with Georgeson
Shareholder Services, Inc. on November 30, 2004.
(15) Number of shares beneficially owned by Dimensional Fund Advisors as
reported with the Securities and Exchange Commission and confirmed with
Georgeson Shareholder Services, Inc. on November 30, 2004.
(16) Number of shares beneficially owned by Snyder Capital Management, L.P. as
reported with the Securities and Exchange Commission and confirmed with
Georgeson Shareholder Services, Inc. on November 30, 2004.
(17) Based upon information contained in our stock records as of the record
date, or other information that is otherwise available to us as of the date
of this Proxy Statement.
4
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES
The Nominating and Corporate Governance Committee has recommended to our
Board, and our Board has unanimously nominated, nine individuals for election as
directors at the Annual Meeting. Each of the director nominees, except for Mr.
Belk, is presently one of our directors. Mr. Belk is being nominated by our
Board to fill a newly created ninth directorship position.
Each director nominee is to be elected for a one-year term 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
our 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 provides the proxies with discretionary power
with respect to the election of the nominees for director listed in this Proxy
Statement, but does not provide the proxies with any authority to vote for the
election of any person as a director other than the persons named in this Proxy
Statement unless, for some reason we do not know as of the date hereof, one or
more of the nominees should become unavailable. In that event, we intend that
the proxies would vote for one or more substitute nominees designated by our
Board prior to the Annual Meeting. Our Board has no reason to believe that any
director nominee will be unable or unwilling to serve. To be elected as a
director, a nominee must receive a plurality of the votes cast at the Annual
Meeting by the holders of common stock. The nine nominees receiving the most
votes will be elected as members of our Board. The name, age, principal
occupation or employment and other data regarding each director nominee, based
on information provided to us by the nominee, are set forth below:
J. M. BERNHARD, JR., age 50, our founder, has been Chief Executive
Officer and a director of us since our inception in August 1987. Mr.
Bernhard served as our President from our inception until September 2003
and has been Chairman of our Board of Directors since August 1990. Mr.
Bernhard has spent over 21 years in the pipe fabrication business.
Immediately prior to his positions with us, 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.
T.A. BARFIELD, JR., age 40, has served as one of our directors since
September 2003, when the Board of Directors created an additional and the
Company's eighth directorship and appointed Mr. Barfield to that position.
Mr. Barfield was first elected as a director by the shareholders at the
January 2004 Annual Meeting. Mr. Barfield has been employed with us since
1994, and in September 2003 was named President and Chief Operating
Officer. Mr. Barfield has previously served us in various capacities,
including President of our Environmental & Infrastructure Division, Senior
Vice President of Special Projects, President of Shaw Alloy Piping
Products, Inc., General Counsel and Secretary and Managing Director of Shaw
U.K. Prior to joining Shaw, Mr. Barfield practiced law with Vinson & Elkins
L.L.P.
JAMES F. BARKER, age 57, has served as one of our directors since
January 2004. Mr. Barker is the president of Clemson University, having
been appointed as Clemson's 14th president in October 1999. He earned his
bachelor of architecture degree from Clemson in 1970 and his master of
architecture and urban design degree from Washington University in St.
Louis in 1973. Before returning to Clemson in 1986 to serve as dean of the
College of Architecture, he was dean of the School of Architecture at
Mississippi State University. In 1995, he became dean of Clemson's new
College of Architecture, Arts and Humanities. At Clemson, Mr. Barker
co-founded the S.C. Design Arts Partnership to support community design
outreach projects, initiated the Charleston Architecture Center,
established the University's Arts in April program, and developed a Mayors'
Institute to help city leaders learn how to manage issues related to growth
and development. Mr. Barker is a recipient of the National Distinguished
Professor Award of the Association of Collegiate Schools of Architecture
and served as president of that association. He was named Fellow of the
American Institute of Architects and has also been a partner in an
architectural practice.
5
L. LANE GRIGSBY, age 62, has served as one of our directors since
January 1995. Mr. Grigsby is Chairman of the Board of Directors 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 organizations,
including the Associated Builders and Contractors and the Louisiana
Association of Business and Industry.
DAVID W. HOYLE, age 65, has served as one of our directors since
January 1995. For the past 15 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.
ALBERT D. MCALISTER, age 53, has been one of our 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.
CHARLES E. ROEMER, III, age 61, has served as one of our directors
since January 2003. Governor Roemer served as Governor of the State of
Louisiana from 1988 to 1992. In 1980, Governor Roemer was elected to the
United States Congress to represent the 4th Congressional District of
Louisiana, and served in that position for seven years. Governor Roemer
presently serves as the President and Chief Executive Officer 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, Governor 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.
JOHN W. SINDERS, JR., age 50, has served as one of our directors since
March 1995. He has served as Managing Director of Jefferies & Company,
Inc., 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 & Company, Inc.
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, Louisiana.
ROBERT L. BELK, age 55, is a new nominee for our new ninth director
position. Mr. Belk is our Executive Vice President, Chief Financial Officer
and Treasurer, having held such position since he joined us in October
1998. Prior to joining us, Mr. Belk served Ocean Energy, Inc. 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.
REQUIRED VOTE
The nine nominees receiving the most votes cast at the Annual Meeting will
be elected to our Board of Directors. The enclosed form of proxy provides a
means for the shareholders to vote for all of the listed nominees for director,
to withhold authority to vote for one or more of the nominees or to withhold
authority to vote for all of the nominees. Each properly executed proxy received
in time for the Annual Meeting will be voted as specified therein.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE NINE
NOMINEES FOR DIRECTOR.
6
CORPORATE GOVERNANCE MATTERS
Set forth below in question and answer format is a summary of certain of
our corporate governance policies and practices, some of which may have been
modified since last year's Annual Meeting.
DOES SHAW HAVE CORPORATE GOVERNANCE PRINCIPLES?
Yes, our Board has formally adopted Principles on Corporate Governance to
assure that the Board will have the necessary authority and practices in place
to review and evaluate our business operations as needed and to assure that the
Board is focused on shareholder value. Our Principles on Corporate Governance
set forth the practices the Board will follow with respect to board composition
and selection, board meetings and involvement of senior management, CEO
performance and succession planning, and board committees and compensation. A
summary of those principles is set forth below. You may find a copy of our
current Principles on Corporate Governance on our website at
http://www.shawgrp.com.
HOW MANY INDEPENDENT DIRECTORS DOES SHAW HAVE?
Our Board of Directors has affirmatively determined that the following five
of our nine nominees for directors are independent and have no material
relationship with Shaw: Albert D. McAlister, David W. Hoyle, John W. Sinders,
Jr., Charles E. Roemer, III and James F. Barker.
HOW DOES SHAW DETERMINE WHETHER A DIRECTOR IS INDEPENDENT?
For these purposes, "independent" and "independence" have the meanings set
forth under the Securities Exchange Act of 1934, as amended, the rules and
regulations adopted thereunder by the SEC, the corporate governance and listing
standards of the New York Stock Exchange, and Shaw's Principles on Corporate
Governance, all as in effect from time to time. In accordance with Shaw's
Principles on Corporate Governance, a director will not qualify as independent
unless:
(a) The Board of Directors affirmatively determines that the director has
no material relationship with Shaw (either directly or as a partner,
shareholder or officer of an organization that has a relationship with
Shaw);
(b) The director is not, and has not been within the last three years, an
employee of Shaw, and no immediate family member of the director is, or
has been within the last three yeas, an executive officer of Shaw;
(c) The director has not received, and no immediate family member of the
director has received, during any twelve-month period within the last
three years, more than $100,000 in direct compensation from Shaw, other
than director and committee fees and pension or other forms of deferred
compensation for prior service (provided such compensation is not
contingent in any way on continued service);
(d) (i) The director is not, and no immediate family member of the director
is, a current partner of a firm that is Shaw's internal or external
auditor; (ii) the director is not a current employee of such a firm;
(iii) no immediate family member of the director is a current employee
of such a firm who participates in the firm's audit, assurance or tax
compliance (but not tax planning) practice; and (iv) the director and
no immediate family member of the director was within the last three
years, or is currently, a partner or employee of such a firm and
personally worked on Shaw's audit within that time;
(e) Three years shall have elapsed since the end of any affiliation,
employment or auditing relationship between a director and a present or
former internal or external auditor of the Company;
(f) The director is not, and no immediate family member of the director is,
or has been within the last three years, employed as an executive
officer of another company where any of Shaw's present executive
officers at the same time serves or served on that company's
compensation committee;
7
(g) The director is not a current employee, and no immediate family member
of the director is a current executive officer, of a company that has
made payments to, or received payments from, Shaw for property or
services in an amount which, in any of the last three fiscal years,
exceeds the greater of $1 million, or 2% of such other company's
consolidated gross revenues.
Directors with immediate family members in the latter five categories must
likewise be subject to the three year "cooling off" period for determining their
independence. Our Board of Directors has affirmatively determined that each of
our independent directors meets these standards.
HOW MANY TIMES DID SHAW'S BOARD OF DIRECTORS MEET LAST YEAR?
Our full Board of Directors held 8 meetings in fiscal 2004.
DID ALL OF SHAW'S DIRECTORS ATTEND AT LEAST 75% OF THE MEETINGS OF THE
BOARD AND THEIR ASSIGNED COMMITTEES?
Yes, all of our directors attended at least 75% of the meetings of the
Board of Directors and their assigned committees during fiscal 2004.
DO THE NON-MANAGEMENT DIRECTORS OF SHAW MEET DURING THE YEAR IN EXECUTIVE
SESSION?
Yes, Shaw's non-management directors met separately at regularly scheduled
executive sessions during fiscal 2004 and will continue to do so without any
member of management being present. The chairman of our Nominating and Corporate
Governance Committee served as presiding director at each executive session
during fiscal 2004.
HOW CAN INTERESTED PARTIES COMMUNICATE DIRECTLY WITH THE NON-MANAGEMENT
DIRECTORS OF SHAW?
Interested parties wishing to contact the non-management directors of Shaw
may do so by sending an e-mail to board@shawgrp.com, or by writing to them at
the following address: Board of Directors, 4171 Essen Lane, Baton Rouge,
Louisiana 70809. All e-mails and letters received by either of these two methods
will be categorized and processed by Shaw's Director of Internal Audit and then
forwarded to Shaw's non-management directors. For additional information, please
see "Corporate Governance" on our website at http://www.shawgrp.com.
DO THE INDEPENDENT DIRECTORS OF SHAW MEET SEPARATELY DURING THE YEAR?
Yes, Shaw's independent directors met separately during fiscal 2004 in
non-management executive sessions as noted above. The independent directors will
continue to meet in executive sessions without any members of management or any
non-independent directors being present, pursuant to the rules promulgated by
the New York Stock Exchange.
DOES SHAW'S BOARD OF DIRECTORS HAVE ANY SEPARATELY-DESIGNATED STANDING
COMMITTEES?
Shaw's Board of Directors presently has four separately-designated standing
committees: (1) the Audit Committee, (2) the Compensation Committee, (3) the
Nominating and Corporate Governance Committee and (4) the Executive Committee.
Each of these committees is composed entirely of independent directors.
Independence for these purposes has the meaning described above under "Corporate
Governance Matters -- How does Shaw determine whether a director is
independent?" See "Corporate Governance Matters -- How many independent
directors does Shaw have?"
WHAT DOES THE AUDIT COMMITTEE DO?
The Audit Committee assists the Board in its oversight of:
- the integrity of Shaw's financial statements;
- Shaw's compliance with legal and regulatory requirements;
8
- Shaw's systems of internal accounting and financial controls;
- the performance of the annual independent audit of Shaw's financial
statements;
- the independent auditor's qualifications and independence; and
- the performance of Shaw's internal audit function.
The Audit Committee also prepares an Audit Committee report in conformity
with the rules of the SEC to be included in Shaw's annual proxy statement.
DOES THE AUDIT COMMITTEE HAVE A CHARTER, AND, IF SO, WHERE CAN I FIND A
COPY?
Yes, our Board has adopted an Audit Committee Charter. A copy of the Audit
Committee Charter can be found on our website at http://www.shawgrp.com.
WHO ARE THE MEMBERS OF THE AUDIT COMMITTEE?
At present, as well as during the 2004 fiscal year, the Audit Committee
members are Mr. Barker, Mr. Sinders and Governor Roemer, with Mr. Sinders
serving as chairman.
HOW MANY MEETINGS DID THE AUDIT COMMITTEE HAVE LAST YEAR?
The Audit Committee held 8 meetings during fiscal 2004.
DOES THE AUDIT COMMITTEE HAVE AN AUDIT COMMITTEE FINANCIAL EXPERT?
Yes, the Board has determined that Mr. Sinders meets the qualifications of
an audit committee financial expert as defined by the rules promulgated by the
SEC.
WHAT DOES THE COMPENSATION COMMITTEE DO?
The duties of the Compensation Committee are:
- to review each year Shaw's incentive compensation plans and equity-based
plans and make a determination whether such compensation and benefit
plans are consistent with corporate objectives (shareholders shall be
given the opportunity to vote on equity-compensation plans, as required
by law, applicable listing standards, and Shaw's corporate governance
principles);
- to review, approve and report each year the CEO's recommendations
regarding:
(i) the compensation of all officers of Shaw;
(ii) awards under Shaw's stock option plans and any other benefit plans of
Shaw;
(iii) the adoption of and/or major changes to major compensation policies
and practices of Shaw; and
(iv) employment agreements, severance arrangements, and change in control
provisions/agreements, in each case as, when, and if appropriate;
- to review each year and make recommendations to the Board regarding the
compensation of all directors;
- to review each year and approve corporate goals and objectives relevant
to the compensation payable to the CEO, and, either as a committee or
together with the other independent directors (as directed by the Board)
evaluate the CEO performance in light of the goals and objectives and set
the CEO compensation level based on this evaluation;
- to produce a Compensation Committee report on executive compensation as
required by the SEC, to be included in Shaw's annual proxy statement;
9
- to select, retain and terminate, in its sole discretion, independent
compensation and benefits consultants and special outside counsel, as
needed, to provide independent advice to the Compensation Committee with
respect to the Shaw's current and proposed executive compensation and
employee benefit programs;
- to oversee and approve the continuity planning process; and
- to review and approve, or review and recommend to the Board for its
approval of, any transaction in equity securities of Shaw, or derivatives
of those equity securities, between Shaw and any officer or director of
Shaw, who is subject to the reporting and short-swing liability
provisions of Section 16 of the Securities Exchange Act of 1934, as
amended.
DOES THE COMPENSATION COMMITTEE HAVE A CHARTER, AND, IF SO, WHERE CAN I
FIND A COPY?
Yes, our Board has adopted the Compensation Committee Charter. A copy of
the Compensation Committee Charter can be found on our website at
http://www.shawgrp.com.
WHO ARE THE MEMBERS OF THE COMPENSATION COMMITTEE?
At the present, as well as during the 2004 fiscal year, the Compensation
Committee consisted of Mr. McAlister and Governor Roemer, with Mr. McAllister
serving as chairman.
HOW MANY MEETINGS DID THE COMPENSATION COMMITTEE HAVE LAST YEAR?
The Compensation Committee held 4 meetings during fiscal 2004.
WHAT DOES THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE DO?
The functions of the Nominating and Corporate Governance Committee include
the following:
- to assist the Board by identifying individuals qualified to become Board
members, and to recommend to the Board the director nominees for election
at the annual meeting of shareholders or for appointment to fill
vacancies;
- 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 implementing these practices;
- to assist the Board in its annual review of the performance of the Board
and its committees;
- to direct all matters relating to succession of the CEO of Shaw; and
- to perform such other functions as the Board may assign to the Committee
from time to time.
DOES THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE HAVE AN ESTABLISHED
POLICY GOVERNING DIRECTOR NOMINATIONS?
Yes, the Nominating and Corporate Governance Committee has a policy
governing director nominations. In considering candidates for the Board, the
Committee considers the entirety of each candidate's credentials. There is
currently no set of specific minimum qualifications that must be met by a
nominee recommended by the Committee, as different factors may assume greater or
lesser significance at particular times and the needs of the Board may vary in
light of its composition and the Committee's perceptions about future issues and
needs. However, while the Committee does not maintain a formal list of
qualifications, in making its evaluation and recommendation of candidates, the
Committee may consider, among other factors, diversity, age, skill, experience
in the context of the needs of the Board, independence qualifications, whether
prospective nominees have relevant business and financial experience, have
industry or other specialized expertise and have high moral character.
10
The Committee may consider candidates for the Board from any reasonable
source, including from a search firm engaged by the Committee or stockholder
recommendations (provided the procedures set forth below are followed). The
Committee does not intend to alter the manner in which it evaluates candidates
based on whether the candidate is recommended by a stockholder or not. However,
in evaluating a candidate's relevant business experience, the Committee may
consider previous experience as a member of the Board.
Stockholders or a group of stockholders may recommend potential candidates
for consideration by the Committee by sending a timely written request to the
Company's Secretary at the Company's principal executive offices, 4171 Essen
Lane, Baton Rouge, Louisiana 70809. To be timely, a stockholder's or group of
stockholder's written request shall be delivered to or mailed and received at
the principal executive offices of the Corporation not earlier than the 150th
calendar day and not later than the 120th calendar day before the first
anniversary of the date of the Company's proxy statement released to security
holders in connection with the preceding year's annual meeting. To be in proper
written form, a stockholder's or group of stockholder's request shall set forth
in writing (i) as to each person whom the stockholder or group recommends for
election as a director, all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, including, without limitation, such person's
name, contact information, biographical information and qualifications and each
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if nominated and elected; and (ii) as to the
stockholder or group of stockholders making the recommendation, the (x) name and
address, as they appear on the Company's books, of each such stockholder, and
(y) the class and number of the Company securities that each stockholder
beneficially owns and the period of time each stockholder has beneficially owned
the securities. Additional information may be requested from time to time by the
Committee from the person recommended as a director or the stockholder or group
of stockholders making the recommendation.
The stockholder recommendation procedures described above do not preclude a
stockholder of record from making nominations of directors or making proposals
at any annual stockholder meeting provided they comply with the requirements set
out in the Company's bylaws and, for their proposals to be included in the
Company's proxy, with the proxy requirements under Regulation 14A of the
Securities Exchange Act of 1934, as amended.
DOES THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE HAVE A CHARTER, AND,
IF SO, WHERE CAN I FIND A COPY?
Yes, our Board has adopted the Nominating and Corporate Governance
Committee Charter. A copy of the Nominating and Corporate Governance Committee
Charter can be found on our website at http://www.shawgrp.com.
WHO ARE THE MEMBERS OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE?
At the present, as well as during the 2004 fiscal year, the Nominating and
Corporate Governance Committee consisted of and Mr. Sinders and Senator Hoyle,
with Senator Hoyle serving as chairman.
HOW MANY MEETINGS DID THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
HOLD LAST YEAR?
The Nominating and Corporate Governance Committee held 4 meetings during
the 2004 fiscal year.
WHAT DOES THE EXECUTIVE COMMITTEE DO?
In accordance with our Bylaws, the Executive Committee manages the affairs
of Shaw, as necessary, between meetings of the Board. In practice, the Executive
Committee meets infrequently and does not act except on matters that must be
dealt with prior to the next scheduled Board meeting and in situations where the
Board has not provided specific instructions.
At present, as well as during the 2004 fiscal year, the Executive Committee
consists of Mr. McAlister and Governor Roemer.
11
ARE SHAW'S DIRECTORS COMPENSATED?
All non-employee directors receive an annual retainer of $44,000 payable in
$11,000 quarterly installments, plus $1,000 for each Board meeting attended and
$250 for each Board committee meeting attended. In addition, the chairman of the
Audit Committee receives an additional $5,000 per quarter and the other Audit
Committee members receive an additional $1,000 per quarter.
DO THE DIRECTORS RECEIVE STOCK OPTIONS?
Pursuant to the Shaw 1996 Non-Employee Director Stock Option Plan, each
non-employee director serving as of the effective date of the Plan (July 14,
1996) received, and each non-employee director not serving on the effective date
upon his or her initial election by the shareholders receives, options to
purchase 5,000 shares of our common stock. These options vest in equal 25%
increments in each of the four years following the grant of such options. In
addition, each non-employee director is awarded additional options to purchase
1,500 shares of common stock on an annual basis upon re-election to the Board.
These options vest one year from the date of award. The exercise price for all
options granted under the Plan is the closing price of a share of our common
stock reported on the New York Stock Exchange on the effective date of the
award.
DOES SHAW HAVE A CODE OF ETHICS AND CONDUCT, AND, IF SO, WHERE CAN I FIND A
COPY?
Yes, our Board of Directors has formally adopted The Shaw Group Inc. Code
of Corporate Conduct and Insider Trading and Disclosure Policy, which applies to
all of our employees, officers and directors. Our Board of Directors has also
formally adopted a separate Code of Ethics for the Chief Executive Officer and
Senior Financial Officers, which applies to our Chief Executive Officer, Chief
Financial Officer, Controller and all other senior financial and accounting
officers. Copies of these codes are available on our website at
http://www.shawgrp.com.
HOW CAN I OBTAIN PRINTED COPIES OF THE INFORMATION DESCRIBED ABOVE?
We will provide printed copies of the charters of our Audit, Compensation
and Nominating and Corporate Governance Committees, as well as the Code of
Corporate Conduct and Insider Trading and Disclosure Policy and the Code of
Ethics for Chief Executive Officer and Senior Financial Officers, to any person
without charge upon request.
12
OUR EXECUTIVE MANAGEMENT TEAM
The following table provides information with respect to our executive
officers. 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. ....................... 50 Chairman of the Board of Directors and
Chief Executive Officer
T.A. Barfield, Jr. ....................... 40 President and Chief Operating Officer
Robert L. Belk............................ 55 Executive Vice President, Chief Financial
Officer and Treasurer
Gary P. Graphia........................... 42 Secretary and General Counsel
Diana Severs Ferguson..................... 46 President, Environmental & Infrastructure
Division
David L. Chapman, Sr. .................... 58 President, Fabrication & Manufacturing
Division
Dorsey Ron McCall......................... 56 President, Maintenance & Construction
Division
Ebrahim Fatemizadeh....................... 55 President, Energy & Chemicals Division
Richard F. Gill........................... 61 Executive Vice President, Chairman of the
Company's Executive Committee and Acting
President, Shaw Stone & Webster Nuclear
Services Division
Dirk J. Wild.............................. 37 Senior Vice President and Chief Accounting
Officer
</Table>
J.M. Bernhard, Jr. -- For personal information on Mr. Bernhard, see
"Election of Directors."
T.A. Barfield, Jr. -- For personal information on Mr. Barfield, see
"Election of Directors."
Robert L. Belk -- For personal information on Mr. Belk, see "Election of
Directors."
Gary P. Graphia has been employed by us since August 1999 as Secretary and
General Counsel. Prior to joining us, 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
TexasCommerce Bank, Houston, Texas, where he became an Assistant Vice President.
Diana Severs Ferguson joined us in October 2003 and serves as President of
our Shaw Environmental & Infrastructure Division. Ms. Severs Ferguson came to us
following a 23-year career with Fluor Corporation. Most recently, she served as
President, Defense Group, where she oversaw Fluor's defense business with the
federal government. Prior to this position, Ms. Severs Ferguson was Senior Vice
President Sales, Marketing and Strategic Planning for Fluor's Government Group.
David L. Chapman, Sr., joined us in April 2002 as President of our
Fabrication & Manufacturing Division. Mr. Chapman has over 32 years of
experience in the industrial fabrication business. Mr. Chapman joined us 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.
Dorsey Ron McCall joined us in August 2002 as President of our Maintenance
Division. In September 2004, Mr. McCall was appointed as President of our
Maintenance & Construction Division. Mr. McCall joined Shaw 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.
13
Ebrahim (Abe) Fatemizadeh joined us in September 2003 as President of our
Stone & Webster Power Group and in October 2003, he was appointed President of
Power and Process, Engineering, Procurement and Construction of the ECM
Division. In September 2004, Mr. Fatemizadeh was appointed as President of our
Shaw Stone & Webster Power and Process of EPC Division. In November 2004, Mr.
Fatemizadeh was appointed as President of Shaw Energy & Chemicals Division when
the Power and Process, Engineering, Procurement and Construction portions of the
ECM Division were given the new name of Energy & Chemicals Division. Prior to
joining us, Mr. Fatemizadeh was Vice President of Fluor Corporation where he
served for 15 years and was responsible for the management of global operations
for Fluor's Chemical Business Unit. Previously, Mr. Fatemizadeh was Senior Vice
President of Operations and General Manager for Duke Fluor Daniel in Aliso
Viejo, California.
Richard F. Gill has been employed by us since 1997 when we 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 us 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., our
wholly-owned subsidiary, from March 1997 until August 1998, and as Senior Vice
President in charge of International and Construction Operations from September
1998 until May 1999 and as our Chief Operating Officer until September 2003. In
September 2003, Mr. Gill was appointed Executive Vice President and Chairman of
our non-director executive committee. In September 2004, Mr. Gill was appointed
Acting President of our Shaw Stone & Webster Nuclear Services Division. Mr. Gill
has over 32 years of experience in the industrial construction and maintenance
industry.
Dirk J. Wild first joined the Company in November 2001 as Vice President of
Special Projects, and held such position until August 2002 when he was appointed
as Senior Vice President -- Financial Controls. Mr. Wild served as Senior Vice
President -- Financial Controls until March 2003, when he was appointed as
Senior Vice President & Chief Financial Officer of the Company's Engineering,
Construction & Maintenance ("ECM") Division. Mr. Wild served as Senior Vice
President & Chief Financial Officer of the Company's ECM Division from March
2003 until his appointment in October 2004 to the newly created position of
Senior Vice President & Chief Accounting Officer. For the 12 years prior to
joining the Company, Mr. Wild was employed with the former accounting firm
Arthur Anderson, LLP in New Orleans, serving last as a Senior Manager.
14
COMPENSATION OF OUR HIGHEST PAID EXECUTIVES
The following table shows compensation data for the last three fiscal years
for our CEO and our four other most highly compensated executive officers
("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION VALUE OF
-------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
FISCAL COMPENSATION AWARDS OPTIONS LTPI COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2)(3) (5)(6)(7) ($)(8) (#)(9) PAYOUTS (10)
- --------------------------- ------ --------- ----------- ------------ ---------- ---------- ------- ------------
Bernhard.................. 2004 $958,197 $ 238,000 $236,107 $1,680,000 304,000 $ -- $6,500
Chairman and CEO 2003 $950,000 $ -- $144,969 $ -- -- $ -- $6,000
2002 $953,482 $1,000,000 $ 50,679 $ -- -- $ -- $5,500
Barfield.................. 2004 $534,944 $ 245,813 $ -- $ 840,000 98,000 $ -- $6,500
President and COO 2003 $350,000 $ 126,813 $ -- $ -- 30,000 $ -- $6,000
2002 $319,621 $ 200,000 $ -- $ -- 10,000 $ -- $5,875
Ferguson.................. 2004 $342,186 $ 362,500 $ -- $ 269,750 35,000 $ -- $ --
President, Shaw E&I 2003 $ -- $ -- $ -- $ -- -- $ -- $ --
2002 $ -- $ -- $ -- $ -- -- $ -- $ --
Chapman................... 2004 $353,029 $ 350,000 $ 56,847 $ -- -- $ -- $6,500
President, Fabrication &
Manufacturing 2003 $350,000 $ 325,000 $ -- $ -- 25,000 $ -- $ --
2002 $141,345 $ 350,000 $ -- $ -- 100,000 $ -- $ --
McCall.................... 2004 $302,597 $ 250,000 $ -- $ -- -- $ -- $6,615
President, Maintenance 2003 $300,000 $ 500,000(4) $ 57,437 $ -- 25,000 $ -- $ 692
& Construction 2002 $ 28,846 $ 250,000 $ -- $ -- 50,000 $ -- $ --
</Table>
- ---------------
(1) Our 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 the amount
is received.
(3) The bonuses paid to Mr. Chapman and Mr. McCall for fiscal 2004, 2003 and
2002 were required to be paid pursuant to employment agreements. See
"Employment Agreements." The bonus paid to Mr. Bernhard for fiscal 2002 was
paid as a result of the achievement by us of specified and pre-established
corporate performance goals. All other bonuses in the table were paid at
the discretion of the Compensation Committee of our Board. For more
information, see "Compensation Committee Report on Executive Compensation"
below. Bonuses for Mr. Barfield in fiscal 2004 and 2003 reflect $126,813
and $126,813, respectively, of a two year retention bonus that was paid in
fiscal 2003.
(4) Pursuant to his employment agreement, Mr. McCall is entitled to an annual
bonus, which amount is the greater of $250,000 or an amount equal to five
percent of any increase in the net profits of the Company's Maintenance
operations over the net profits from Maintenance operations of the initial
year of his employment. Mr. McCall's bonus for fiscal 2004 has not yet been
finalized. Any bonus amount in excess of $250,000 will be determined and
paid to him as soon as practicable. For fiscal 2003, the total bonus paid
to Mr. McCall was $500,000 for which the minimum $250,000 was disclosed in
the fiscal 2003 proxy statement. The bonus amount for fiscal 2003 has been
adjusted to reflect the total bonus of $500,000.
(5) Perquisites and other personal benefits for Mr. Bernhard in fiscal 2004,
2003 and 2002 include compensation related to Mr. Bernhard's personal use
of the Company's aircraft of $215,401, $133,538 and $49,854, respectively,
which compensation has been calculated based upon the aggregate incremental
cost of such usage to the Company for each fiscal year. Personal usage of
the aircraft in fiscal 2003 and 2002 was previously reported using the
Standard Industry Fare Level ("SIFL") method for valuing flights for
personal use as a basis for valuing the incremental cost to the Company.
However, the Securities and Exchange Commission has recently suggested that
incremental cost may not equate to the tax value of the benefit. Under the
SIFL method, these costs would have been $23,901, $15,512 and $3,703 in
fiscal 2004, 2003 and 2002, respectively, which is less than the $50,000 or
10% of total salary and bonus threshold. In accordance with applicable
Treasury Regulations, the Company included the
15
amounts based on SIFL for all such years as compensation in Mr. Bernhard's
reportable income. At the Company's request, certain officers and directors
are provided security services from time to time. Costs for these services
are not included in other annual compensation for Mr. Bernhard.
(6) Based on our record keeping procedures, the amounts disclosed for Mr.
Chapman for fiscal 2004 constitute total personal benefits for the
respective calendar year. Of the fiscal 2004 total for Mr. Chapman, $18,573
reflects incremental costs to the Company for payment of vehicle expenses
and $29,200 reflects imputed interest for the calendar year on a loan the
Company extended to Mr. Chapman as of April 6, 2002. For more information,
see "Certain Relationships and Related Transactions."
(7) Based on our record keeping procedures, the amounts disclosed for Mr.
McCall for fiscal 2003 constitute total personal benefits for the
respective calendar year. Of the fiscal 2003 total for Mr. McCall, $26,106
represents imputed interest for the calendar year on a loan the Company
extended to Mr. McCall as of July 29, 2002 and $24,675 represents the
payment of relocation expenses. For more information, see "Certain
Relationships and Related Transactions."
(8) Value of restricted stock reflects the number of restricted stock shares
multiplied by the closing market price on the date of the grant.
(9) Denotes shares of common stock that may be purchased upon exercise of
options awarded pursuant to our 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. We have made certain guarantees with
respect to Mr. Chapman's stock options. See "Employment Agreements." For
additional information regarding options granted during fiscal 2004, see
"Option Grants in Last Fiscal Year" and for information regarding current
holdings of options, see "Options Exercised and Fiscal Year-End Option
Values."
(10) Represents our contribution on behalf of the executive officers to our
401(k) plan. As a result of nondiscrimination testing of highly compensated
employees, refunds of employee 401(k) withholdings and the forfeiture of
our corresponding contribution may take place in subsequent years. Our
contributions reflected in this table have not been reduced for past or
potential forfeitures as a result of nondiscrimination testing.
OPTION GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE VALUE
The following table shows all options to purchase common stock granted to
each of the Named Executive Officers in fiscal 2004 and the potential value of
such grants at the stock price appreciation rates of 5% and 10% compounded
annually over the term of the option. The 5% and 10% appreciation rates are
required to be disclosed by SEC rules and are not intended to forecast possible
future appreciation, if any, in the price of our common stock.
<Table>
<Caption>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATE OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES PRICE OPTION TERM(2)
GRANTED IN FISCAL $/SHARE EXPIRATION -----------------------------
NAME (1) YEAR (2) DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ------------- -------------
J. M. Bernhard, Jr. ....... 304,000 28.4% $11.20 10/9/2013 $2,140,890 $5,425,222
T.A. Barfield, Jr. ........ 98,000 9.2% $11.20 10/9/2013 $ 690,155 $1,748,920
Diana Severs Ferguson...... 35,000 3.3% $10.79 10/5/2013 $ 237,461 $ 601,749
David L. Chapman, Sr.(3)... -0- -0- N/A N/A N/A N/A
Dorsey Ron McCall.......... -0- -0- N/A N/A N/A N/A
</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 our common stock listed on the
New York Stock Exchange on the date of award.
(3) We have made certain guarantees with respect to Mr. Chapman's stock options.
See "Employment Agreements."
16
OPTIONS EXERCISED AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information (at August 31, 2004) regarding
(i) the number of shares received and the value realized upon exercise of stock
options during fiscal 2004 by the Named Executive Officers, and (ii) the number
and value of exercised and unexercised options held by the Named Executive
Officers.
<Table>
<Caption>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT ---------------------------
ACQUIRED ON VALUE FISCAL YEAR-END EXERCISABLE UNEXERCISABLE
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE (1)(2) (2)(3)
- ---- ----------- ----------- ------------------------- ----------- -------------
J. M. Bernhard, Jr. .... -- -- 800,000/304,000 $2,441,000 $-0-
T. A. Barfield, Jr. .... -- -- 63,125/125,500 $ 186,889 $-0-
Diana Severs Ferguson... -- -- -0-/35,000 $ -0- $-0-
David L. Chapman, -- 56,250/68,750
Sr.(4)................ -- $ -0- $-0-
Dorsey Ron McCall....... -- -- 31,250/43,750 $ -0- $-0-
</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, 2004 ($10.29).
(3) There were no in-the-money unexercisable options on August 31, 2004.
(4) We have made certain guarantees with respect to the return on the sale of
shares underlying Mr. Chapman's stock options. See "Employment Agreements."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board administrates Shaw's compensation
programs for executive officers, including the CEO and key employees. The
Compensation Committee meets regularly and is comprised of two independent
directors. The present members of the Compensation Committee are Albert D.
McAlister and Governor Roemer. See "Corporate Governance Matters -- Who are the
members of the Compensation Committee?" above.
The following sets forth the Compensation Committee's policies regarding
executive compensation during fiscal 2004, a discussion of Shaw's executive
compensation program and the decisions and actions of the Compensation Committee
during fiscal 2004 with respect to compensation for the CEO specifically and the
other executive officers and key employees as a group. For additional
information about the Compensation Committee's duties, see "Corporate Governance
Matters -- What does the Compensation Committee do?"
COMPENSATION PHILOSOPHY AND OBJECTIVES
In performing its duties, the Compensation Committee seeks to attain the
following corporate objectives:
- to attract, motivate and retain competent and talented employees focused
on enhancing shareholder value;
- to correlate compensation with Shaw objectives and strategies;
- to provide compensation opportunities that are linked to the performance
of Shaw;
- to align employee incentives with those of Shaw's shareholders; and
- to reward the outstanding achievement of employees whose individual
contributions enhance Shaw's results.
No specific weighting is assigned to any of these objectives by the
Compensation Committee in making decisions regarding compensation for the CEO or
other executive officers or key employees of Shaw.
17
EXECUTIVE COMPENSATION COMPONENTS AND PRACTICES
Shaw's executive compensation program consists of three components: (1)
base salary, (2) short-term incentives (cash bonuses) and (3) long-term
incentives available under our Long Term Incentive Plans, including stock
options and restricted stock. The policies and practices for determining
executive compensation, and specifically that of the CEO, are described below.
Base Salary. In determining appropriate base salaries, the Compensation
Committee considers, among other factors, competitive market forces as they
relate to attracting and retaining highly talented executives. The Compensation
Committee also considers job responsibility, experience, tenure and the cost of
living in the areas where Shaw's offices and facilities are located. The
Compensation Committee also utilizes survey and other relevant information from
nationally recognized independent compensation consulting firms. Compensation
survey results demonstrated that the base salaries of executive officers were
consistent with the Company's goals and philosophy. Accordingly, the
Compensation Committee approved a raise for fiscal 2004 for Mr. Graphia only.
Cash Bonuses. For the 2004 fiscal year, the Compensation Committee
approved bonuses for certain executives and key officers. The bonuses paid or
payable to Messrs. Chapman and McCall for fiscal 2004 were required to be paid
pursuant to their respective employment agreements. See "Employment Agreements."
Other bonuses paid to certain key employees for fiscal 2004 were approved on a
discretionary basis and determined based on the results of the respective
officers' operations and other contributions to Shaw. Such factors include,
among other things, participation in acquisitions, strategy and organizational
development and safety. In approving bonuses, the Compensation Committee also
considers the results of survey information from nationally recognized
compensation consultants in determining overall compensation required to retain
and incentivize key executives and employees.
Awards of Stock Options. During fiscal 2004, stock options covering an
aggregate of 1,035,311 shares of common stock were awarded to officers and key
employees of Shaw. The options have exercise prices ranging from $8.75 to $13.62
per share (the fair market value on the date of grants) and vest in four equal
25% annual increments beginning one year following the date of award. All
executives are eligible to be considered for stock options granted annually. The
size of the grant is determined by the Compensation Committee based on survey
information from nationally recognized compensation consulting firms and other
factors such as job responsibilities and scope, level of expertise and
experience required, strategic impact of the executive's position, overall
business performance and the executive's individual contribution. Shaw has used,
and plans to continue to use, the award of stock options to align the interests
of the recipients with the interests of Shaw's shareholders, to provide an
incentive for the key employees (and executives) to remain in the employ of Shaw
and to attract new employees to Shaw. The award of stock options provides key
employees with an additional incentive to promote the financial success of Shaw
as reflected in increased value in common stock. Grants of stock options are
made annually to officers and key employees of Shaw under the 2001 Employee
Incentive Compensation Plan. For additional information regarding stock options
of certain executives, see the tables set forth above and "Employment
Agreements" below.
Awards of Restricted Stock. Beginning in fiscal 2004, restricted stock
awards of 594,872 shares were awarded to officers and key employees of Shaw.
Additionally, the Company agreed to issue 98,000 shares of restricted stock at a
future date to the Chief Executive Officer and President and Chief Operating
Officer. The size of the grant is determined by the Compensation Committee based
on survey information from nationally recognized compensation consulting firms
and other factors such as job responsibilities and scope, level of expertise and
experience required, strategic impact of the executive's position, overall
business performance and the executive's individual contribution. Shaw plans to
use the issuance of restricted stock to align the interests of the recipients
with the interests of Shaw's shareholders, to provide an incentive for the key
employees (and executives) to remain in the employ of Shaw and to attract new
employees to Shaw. The award of restricted stock provides key employees with an
additional incentive to promote the financial success of Shaw as reflected in
increased value in common stock. Awards of restricted stock are made annually to
officers and key employees of Shaw under the 2001 Employee Incentive
Compensation Plan. For additional
18
information regarding restricted stock of certain executives, see the tables set
forth above and "Employment Agreements" below.
The Compensation Committee has recommended to the Board of Directors an
amendment to the 2001 Employee Incentive Compensation Plan to increase by
250,000 shares the maximum number of shares of common stock that may be awarded
to an individual in any fiscal year under the 2001 Employee Incentive
Compensation Plan. See "Proposal 3 -- To Approve an Amendment to our 2001
Employee Incentive Compensation Plan to Increase from 50,000 to 300,000, the
Maximum Number of Shares That May be Allotted to Any Individual pursuant to a
Restricted Stock Award in any Fiscal Year." The Company believes that the
increase in the maximum number of shares that may be allotted to an individual
in any given year is justified and is in line with recent trends to increasingly
award restricted stock to motivate and encourage employees, and to allow awards
of long term incentive compensation which is competitive with the Company's
peers and companies of similar size.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Compensation Committee's basis for compensation of the CEO, J.M.
Bernhard, Jr., is based on the compensation philosophy, objectives and practices
described above. Mr. Bernhard participates in the same executive compensation
plans that are available to the other executive officers and also has an
Employment Agreement with Shaw. During fiscal 2001, Shaw 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 Shaw or that have comparable market capitalizations and provided a
report to the Compensation Committee concerning the compensation of the CEO.
Based upon the Towers Perrin report, during fiscal 2001 the Compensation
Committee recommended an Employment Agreement for the CEO, which the Board of
Directors approved. The Employment Agreement is discussed in greater detail
below, under the headings "Employment Agreements" and "Change of Control
Arrangements." In general, the CEO's 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 Shaw or, in the absence
of a program, at the Board's discretion. A bonus of $238,000 was approved to be
paid to the CEO for fiscal 2004.
The Compensation Committee believes that its prior awards of stock options
to the CEO, as of August 31, 2004, covering an aggregate of 876,000 shares of
common stock, provide meaningful incentive and motivation for his performance,
as well as strengthen the alignment of his interests with those of Shaw's
shareholders in general. Stock options for 304,000 shares were granted to the
CEO during fiscal 2004. Restricted stock awards of 150,000 shares were made to
the CEO during fiscal 2004, and the Company agreed to issue an additional 71,000
shares of restricted stock at a future date.
SECTION 162(M) POLICY
In conducting programs applicable to executives, the Compensation Committee
considers the effects of Section 162(m) of the Internal Revenue Code ("Section
162(m)"), which denies publicly held companies a tax deduction for annual
compensation in excess of one million dollars paid to their chief executive
officer or any of their four other most highly compensated executive officers
who are employed on the last day of a given year, unless their compensation is
based on performance criteria that are established by a committee of outside
directors and approved, as to their material terms, by that company's
stockholders, Our 2001 Employee Incentive Compensation Plan (the "2001 Plan") is
generally designed and implemented so that it qualifies for full deductibility
under Section 162(m), including satisfying 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 Shaw'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 designed to provide
flexibility with respect to whether restricted stock awards will qualify as
performance-based compensation under Section 162(m); and therefore, be exempt
from the deduction limit. The 2001 Plan is further designed to provide
flexibility that allows Shaw to structure other awards made under the 2001 Plan
19
to preserve the deductibility of any compensation expense over $1 million.
However, certain compensation or awards may be granted under this plan that do
not qualify under Section 162(m).
While it is the Compensation Committee's intent to adopt policies to obtain
maximum deductibility of executive compensation, consistent with the objectives
of Shaw's executive compensation program outlined above, the Compensation
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 Shaw are maximized. As a result, under certain
circumstances, executive compensation (such as recent awards of restricted
stock) may be awarded that is not deductible.
COMPENSATION COMMITTEE
Albert D. McAlister
Charles E. Roemer, III
EMPLOYMENT AGREEMENTS
CEO. We and Mr. Bernhard are parties to an Employment Agreement effective
as of April 10, 2001. Pursuant to the terms of the agreement, Mr. Bernhard has
agreed to serve as our Chairman and Chief Executive Officer for a ten year term
that automatically renews each day for ten years so that on any given day, the
remaining term of such agreement is ten years. We or Mr. Bernhard may give
notice at any time that the agreement will not be further renewed and that after
the date fixed in the notice, the term of the agreement will expire in ten
years. The 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 2004 was
$950,000); (b) receive bonus awards under any bonus program established by us
or, in the absence of a bonus program, bonus awards as may be as determined by
us; (c) be included in all of our plans and programs that are made available to
our 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 our management, including a country club
membership, an automobile allowance and a mid-size jet aircraft for his personal
use and benefit.
In the event that Mr. Bernhard resigns for Good Reason (as defined in his
agreement to include, among other things, a Change of Control of us, as defined
therein), or is discharged by the Company for reason(s) other than his
Misconduct (as defined therein) or disability, we 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 us during the ten years prior to
termination multiplied by the number of years remaining in the term of the
agreement, which, unless prior notice had been properly given, will be ten
years. Based on Mr. Bernhard's present salary and his highest bonus in the
preceding ten years, in the event of a separation as described above, Mr.
Bernhard would be entitled to receive a lump sum payment from us of $30,350,000.
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 pro-rata bonus in the amount he
would have otherwise been entitled to receive and a death benefit of
$10,000,000, and his surviving spouse and children will be entitled to receive
one year of paid group health and dental benefits.
In the event of Mr. Bernhard's disability, the Company shall pay Mr.
Bernhard monthly for up to 12 months the amount by which his monthly base
compensation exceeds the monthly benefit received by Mr. Bernhard pursuant to
any disability insurance covering him. After said 12 month period, the Company
shall pay Mr. Bernhard a disability benefit of $10 million which shall be paid
in cash within 15 day s after the date of his termination.
Mr. Bernhard has agreed not to compete with us for a period of ten years
following termination of employment, and in consideration for this agreement, we
have agreed upon his termination to pay
20
Mr. Bernhard a lump sum amount of $15,000,000. Upon a Change of Control of us,
the entire $15,000,000 non-compete payment becomes immediately due and payable.
During each of fiscal 2001, 2002 and 2003, we set aside $5,000,000 to fund the
potential non-compete payment. For ten years from the date of Mr. Bernhard's
termination, Mr. Bernhard is entitled to use of our aircraft for up to 150 hours
annually for his private use.
Named Executive Officers. We and Mr. Barfield are parties to an Employment
Agreement dated as of July 10, 2002, pursuant to which Mr. Barfield serves as
the President and Chief Operating Officer of the Company. Mr. Barfield's
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 his agreement is
three years. Notwithstanding the foregoing, we or Mr. Barfield may give notice
that his agreement will not be further renewed and that after the date fixed in
the notice, the term of the agreement will expire in three years. Mr. Barfield
is entitled to a base annual salary of, at a minimum, $350,000, which may be
increased by the Board of Directors (Mr. Barfield's base salary for fiscal 2004
was $500,000), 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 Shaw in general. The annual
base salary payable to Mr. Barfield may be increased but may not be decreased
without Mr. Barfield's consent.
In the event of the resignation by Mr. Barfield for Good Reason (as defined
in his agreement to include, among other things, the occurrence of certain
events that constitute a Change of Control of us, as defined therein),
termination as a result of his disability or termination by us for any reason
other than Mr. Barfield's Misconduct (as defined in his agreement) or
disability, all stock options and similar awards previously granted to Mr.
Barfield will become fully vested. Further, if Mr. Barfield resigns for Good
Reason or is terminated by us for any reason other than his Misconduct or
disability, we will be obligated to (a) 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 agreement (which, unless notice has been properly given, will be
three years), and based on Mr. Barfield's present salary and his highest bonus
in the preceding three years is approximately $2,331,000; and (b) provide
disability, accident and group health benefits for the remainder of the term of
such agreement. In the event of Mr. Barfield's death, his estate will be
entitled to a lump sum payment of one year's base salary and his surviving
spouse and children will be entitled to receive one year of paid group health
and dental insurance benefits.
We and Mr. Chapman are parties to an Employment Agreement dated April 6,
2002, pursuant to which Mr. Chapman serves as the President of our Fabrication &
Manufacturing Division. Under the agreement, Mr. Chapman is entitled to (a) an
annual base salary of $350,000, (b) participation in our annual bonus program
with a guaranteed minimum bonus of $325,000 per year, (c) an automobile
allowance, (d) a country club membership, and (e) be included in all of our
plans and programs that are made available to our employees generally, including
health, dental, disability, 401(k), and life insurance plans, vacations and
holidays. Upon commencement of his employment with us, Mr. Chapman was granted
options to purchase 100,000 shares of our common stock. We have guaranteed Mr.
Chapman a $10 per share accretion in stock price with respect to the shares
underlying these options based on the performance of the Fabrication &
Manufacturing Division. Upon Mr. Chapman's exercise of those options, we will
pay him, in cash, the difference between the guaranteed accreted value per share
of the stock and the fair market value of the stock on the exercise date.
We also loaned Mr. Chapman $1,000,000 with such loan being issued upon the
commencement of his employment with us in April 2002. The loan will be forgiven
upon Mr. Chapman's employment with us for three years. If Mr. Chapman resigns
his position with us prior to completing three years employment with Shaw, he
will be required to repay the full amount of the loan. See "Certain
Relationships and Related Transactions."
The agreement also provides that upon the completion of three years service
to us, Mr. Chapman will provide consulting services to us for an additional
three years. In consideration for his consulting services, we will pay Mr.
Chapman an annual retainer of $200,000 per year (based upon a minimum of 200
hours of service per year).
21
We and Mrs. Ferguson are parties to an Employment Agreement dated as of
September 12, 2003, pursuant to which Mrs. Ferguson serves as the President of
Environmental & Infrastructure Division. Under the agreement, Mrs. Ferguson is
entitled to (a) an annual base salary of $375,000, (b) an annual discretionary
bonus, which amount is targeted to be 58% of her base salary, with a maximum of
116% of her base salary (for fiscal 2004, Mrs. Ferguson was guaranteed a bonus
of at least 50% of her base salary), (c) employment for three years, unless
terminated for Cause (as defined in her agreement), (d) a death and disability
benefit, and (e) be included in all of our plans and programs that are made
available to our executive employees and employees generally, including health,
dental, disability, 401(k) and life insurance plans, vacations and holidays.
Upon commencement of her employment with us, Mrs. Ferguson was granted options
to purchase 35,000 shares of our common stock and 25,000 shares of restricted
stock. Upon commencement of employment with us, Mrs. Ferguson also received a
signing bonus of $175,000 from the Company, which was subject to repayment if
Mrs. Ferguson voluntarily terminated her employment with the Company or if she
was terminated for Cause within six months of employment.
We and Mr. McCall are parties to an Employment Agreement dated as of July
29, 2002, pursuant to which Mr. McCall serves as the President of Maintenance &
Construction Division. Under the agreement, Mr. McCall is entitled to (a) an
annual base salary of $300,000, (b) an annual bonus, which amount is the greater
of $250,000 or an amount equal to five percent of any increase in the net
profits of the Company's Maintenance operations over the net profits from
Maintenance operations of the initial year of his employment, (c) a country club
membership, (d) a death and disability benefit, (e) be included in all of our
plans and programs that are made available to our employees generally, including
health, dental, disability, 401(k) and life insurance plans, vacations and
holidays, and (f) a watercraft lease arrangement. See "Certain Relationships and
Related Transactions." Upon commencement of his employment with us, Mr. McCall
was granted options to purchase 50,000 shares of our common stock.
Upon commencement of employment with us, Mr. McCall also received an
advance of $750,000 from the Company. Each year thereafter, a portion of his
overall bonus is credited against such advance until the advance is reduced to
zero. If Mr. McCall terminates his employment or is terminated for Cause (as
defined in his agreement) prior to September 1, 2007, Mr. McCall will be
required to reimburse the Company for any amounts outstanding under the advance.
However, if his employment is terminated for any other reason, Mr. McCall shall
have no obligation to repay any amounts outstanding thereunder.
Following the completion of his employment with the Company, we have also
agreed to hire Mr. McCall as a consultant. For each year that Mr. McCall
provides consulting services for us, we will pay him 60% of the bonus that he
received during his final year of employment with the Company. The term, in
years, of this consulting arrangement will be equal to the term of Mr. McCall's
employment with the Company.
Mr. McCall's agreement also provides that upon the change of control of the
Company (as defined in his agreement), the Company's obligations under his
agreement shall be assumed by the person acquiring control.
CHANGE OF CONTROL ARRANGEMENTS
In addition to the change of control arrangements contained in certain
employment agreements with executive officers described above, certain of our
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 our 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 our 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 Employee Incentive Compensation Plan.
AUDIT COMMITTEE REPORT
The Audit Committee performs the functions described in its charter. While
the Audit Committee oversees Shaw's financial reporting process, it is not the
duty of the Audit Committee to plan or conduct audits
22
or to determine that Shaw's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles and applicable
rules and regulations. These are the responsibilities of Shaw's management and
Shaw's independent auditors.
The Audit Committee held nine meetings during fiscal 2004. The meetings
were designed to facilitate and encourage communication between the Audit
Committee, Shaw's internal auditors and Shaw's independent auditors.
During certain of these meetings, the Audit Committee reviewed and
discussed with management and representatives of its independent auditors, Ernst
& Young LLP, the audited financial statements to be included in Shaw's Annual
Report on Form 10-K for the fiscal year ended August 31, 2004. The discussions
with representatives of Ernst & Young LLP also included the matters required by
Statement on Auditing Standards No. 61, Communication with Audit
Committees. The Audit Committee has received from Ernst & Young LLP 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 LLP the issue of
the independence of Ernst & Young LLP from Shaw.
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 Shaw Group's Annual Report
on Form 10-K for the fiscal year ended August 31, 2004, filed with the
Securities and Exchange Commission on November 2, 2004. The Audit Committee also
reappointed Ernst & Young to serve as independent auditors for Shaw for fiscal
2005. At the 2005 Annual Meeting, the shareholders will vote to ratify the Audit
Committee's appointment of Ernst & Young as the Company's independent auditors.
AUDIT COMMITTEE
John W. Sinders, Jr.
Charles E. Roemer, III
James F. Barker
AUDIT FEES
The following table sets forth the aggregate fees and costs incurred by us
for: (i) professional services rendered by our principal independent accountant
for the audit of our consolidated financial statements for the fiscal years
ended August 31, 2004 and 2003 and the reviews of the consolidated financial
statements included in our Form 10-Q reports and statutory audits required
internationally for the fiscal years ended August 31, 2004 and 2003, (ii)
professional services rendered in connection with assurance and related services
not included in (i) above, (iii) professional services rendered for tax
compliance, tax advice, and tax planning, and (iv) other professional services
rendered by our principal independent accountant and billed during the fiscal
years ended August 31, 2004 and 2003:
<Table>
<Caption>
YEARS ENDED AUGUST 31,
-----------------------
2004 2003
---------- ----------
Audit Fees(1)........................................ $1,517,030 $1,758,104
Audit-Related Fees(2)................................ 451,560 198,390
Tax Fees(3).......................................... 946,452 1,645,606
All Other Fees(4).................................... 22,000 --
---------- ----------
Total........................................... $2,937,042 $3,602,100
========== ==========
</Table>
- ---------------
(1) The Audit Fees exclude $305,000 and $325,000 in fees paid to another
accounting firm for services rendered by that firm for the years ended
August 31, 2004 and 2003, respectively.
(2) The Audit-Related Fees include principally audits of certain joint ventures,
due diligence services, state contract licensing reports, internal control
reviews and attest services on certain agreed upon procedures reports.
23
(3) The Tax Fees represent primarily tax compliance, tax advice and tax planning
including expatriate tax services.
(4) The All Other Fees includes fees for an agreed upon procedures project not
related to the audit or other audit-related fees in fiscal 2004.
The Audit Committee reviews and pre-approves audit and non-audit services
performed by our independent public accountant as well as the fee charged for
such services. The Audit Committee may delegate pre-approval authority for such
services to one or more members, whose decisions are then presented to the full
Audit Committee at its scheduled meetings. Beginning May 6, 2003, 100% of the
audit and non-audit services provided by our independent public accountant were
pre-approved by the Audit Committee in accordance with the Audit Committee
Charter. 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. The policies and procedures that govern the Audit
Committee's review and approval of audit and non-audit services are set forth in
Appendix A to this Proxy Statement.
24
STOCK PERFORMANCE GRAPH
For the period commencing August 31, 1999, and ended August 31, 2004, 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 SmallCap
600 Index; and (ii) an industry peer group (comprised of Jacobs Engineering
Group Inc., Fluor Corporation, URS Corporation, Washington Group International,
Inc. and the Company) (the "Peer Group") appropriate to us in light of the
Company's acquisitions of Stone & Webster in fiscal 2000 and IT Group in fiscal
2002. All amounts have been calculated as if all dividends, if any, were
reinvested.
COMPARISON OF THE 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SHAW GROUP INC. (THE),
THE S&P SMALLCAP 600 INDEX AND A PEER GROUP
(PERFORMANCE GRAPH)
* $100 INVESTED ON 8/31/99 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING AUGUST 31.
<Table>
<Caption>
8/99 8/00 8/01 8/02 8/03 8/04
------- ------ ------- ------- ------- -------
The Shaw Group Inc. ................. 100.00 271.65 266.83 163.41 86.44 100.39
S&P SmallCap 600 Index............... 100.00 128.19 128.88 116.60 143.07 164.33
Peer Group........................... 100.00 120.87 122.64 107.69 135.83 144.69
</Table>
THE FOREGOING GRAPH REPRESENTS HISTORICAL STOCK PRICE PERFORMANCE AND IS
NOT NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE PERFORMANCE.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described in more detail for certain of our executives under the caption
"Employment Agreements" above, we have entered into employment agreements with
our Chief Executive Officer, President and Chief Operating Officer, Executive
Vice President and Chief Financial Officer, President of our Environmental &
Infrastructure Division, President of our Fabrication & Manufacturing Division,
President of our Maintenance & Construction Division, President of our Energy &
Chemicals Division and our Executive Vice-President, Chairman of the Executive
Committee and Acting President of Shaw Stone & Webster Nuclear Services
Division. Under the terms of the agreements, the executives are entitled to
receive their base salaries, bonuses and other employee benefits for the periods
of time specified therein. In the event of termination of employment as a result
of certain reasons (including a change in control of our company), the
executives will be entitled to receive their base salaries and certain other
benefits for the remaining term of their agreement and all options and similar
awards shall become fully vested. Additionally, in the event of an executive's
death, his estate is entitled to certain payments and benefits.
In 2001, our employment agreement with our Chief Executive Officer was
amended to provide a non-compete clause upon the Chief Executive Officer's
separation from our company. The amount of the non-compete payment will be $15.0
million and was based upon an outside study of the fair value of non-compete
provisions. We also agreed to set aside $5.0 million per year of our funds in
fiscal 2001 through 2003 in order to fund this obligation, and, therefore, as of
August 31, 2004 and 2003, $15.0 million is invested in a separate fund and is
included in other long-term assets in the accompanying consolidated balance
sheets. The $15.0 million payment is due upon the Chief Executive Officer's
separation for any reason from our company, or upon change in control. Upon
separation from our company, we will amortize the payment over the non-compete
period.
We have, from time to time, made loans to certain of our executive officers
and/or entities in which the executive officers have a material interest. Each
such loan in which the indebtedness exceeded $60,000 at any time since September
1, 2003 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, 2003; (iv) the amount outstanding as of August 31, 2004; and
(v) the interest rate charges thereon: (a)(i) David L. Chapman, Sr.; (ii)
executive officer of The Shaw Group Inc.; (iii) $1,000,000; (iv) $194,443; (v)
0%; and (b)(i) Dorsey Ron McCall; (ii) executive officer of The Shaw Group Inc.;
(iii) $750,000; (iv) $328,625; (v) 0%. The foregoing loans were all made in
connection with the executives' agreement to become or remain employed by us,
are evidenced by written promissory notes, will be forgiven by us in the event
the executives remain employed by us for certain specified time periods,
generally two to five years, 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. We have not granted any new personal loans or modified existing
personal loans to or for executive officers and directors since the effective
date of such provision.
In January 2003, our subsidiary, Stone & Webster, Inc., was awarded a
subcontract to perform engineering services for a company (the "Related
Company") for whom an executive officer and a significant owner is the brother
to our Chief Executive Officer for total consideration of approximately $2
million. In connection with the services agreement, we entered into a guaranty
agreement with the Related Company under which we agreed, under certain
circumstances, to guarantee the payment of certain sums which may be owed by the
Related Company to its client under a performance-based services and equipment
contract. That guaranty, by its terms, may be assigned by the Related Company to
its client. We also entered into an indemnification and fee agreement between us
and the Related Company pursuant to which, among other things, the Related
Company must pay us an annual fee in consideration for our entering into the
guaranty agreement. The amount of the annual fee varies, but totals
approximately $0.8 million over the 20-year term. Although we believe the
probability that we will have to make any payments under the guaranty agreement
is remote, we have recorded the guarantee at its fair value of approximately
$0.3 million. We have the right, but
26
not the obligation, to take over all of the Related Company's rights and
obligations under its contract with the customer, if a demand by the customer
under the contract with the Related Company ever occurs and remains unsatisfied.
We expect that we will not be required to make any payments under the guaranty
agreement, but the maximum potential amount of future payments (undiscounted) we
could be required to make would be approximately $13 million over the 20-year
term of the contract.
Effective August 1, 2002, we entered into a five-year watercraft lease
agreement with a corporation owned by Dorsey Ron McCall, one of our executive
officers. The lease was made in connection with Mr. McCall's agreement to become
employed by us, and the payments thereunder are $10,000 per month.
During fiscal 2004, Mr. John Reneau, the brother-in-law of the Company's
Chief Executive Officer, was employed by Shaw Waste Solutions, LLC, one of the
Company's affiliates. Mr. Reneau was hired with an aggregate salary of $75,000;
however, only $51,942 was paid for services during fiscal 2004. Mr. Reneau is
also eligible for a discretionary annual bonus, although decisions with respect
to bonuses for fiscal 2004 had not yet been made with respect to certain
employees as of the date of this proxy statement. He is also eligible to receive
stock options and restricted stock, although decisions with respect to the
issuance of stock options and restricted stock had not yet been made as of the
date of this proxy statement.
On August 27, 2004, Mr. Ahmad Fatemizadeh, the brother of an executive
officer, Abe Fatemizadeh, was hired by the Company as the President of the
Process Industry Sector within our Engineering, Construction and Maintenance
segment. Mr. Ahmad Fatemizadeh's annual salary is $283,500; however, no payments
were made in fiscal 2004. Mr. Fatemizadeh also received a sign-on bonus of
$147,000 which was paid in fiscal 2005. Mr. Fatemizadeh is also eligible to
receive discretionary annual bonuses, stock options and restricted stock
beginning in fiscal 2005.
During fiscal 2004, David Chapman, Jr., the son of an executive officer,
David Chapman, Sr., was employed by the Company as a manager in our Fabrication,
Manufacturing and Distribution segment. David Chapman, Jr. was paid an aggregate
salary of approximately $95,000 for services during fiscal 2004. David Chapman,
Jr. is also eligible for a discretionary annual bonus, although decisions with
respect to certain employees, bonuses for fiscal 2004 had not yet been made as
of the date of this proxy statement. Mr. Chapman is also eligible to receive
stock options and restricted stock, although decisions with respect to the
issuance of stock options and restricted stock had not yet been made as of the
date of this proxy statement.
Mr. Kenneth Paul Neal, Jr., the son-in-law of Richard Gill, our Executive
Vice President, Chairman of the Company's Executive Committee and Acting
President of our Shaw Stone & Webster Nuclear Services Division, has been
employed with us as an environmental manager since the acquisition of Mr. Gill's
company, MERIT, in 1997. Prior to that date, Mr. Neal had been employed by MERIT
since 1983. Mr. Neal's aggregate salary in fiscal 2004 was $77,477.
PROPOSAL 2 -- TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
COMPANY'S INDEPENDENT AUDITORS
The Board of Directors is recommending for approval of our shareholders a
proposal to ratify the appointment of Ernst & Young LLP as the Company's
independent auditors. Our Audit Committee annually considers and appoints our
independent auditors.
REQUIRED VOTE
Approval of the proposal to ratify the Company's appointment of Ernst &
Young LLP requires 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 Annual Meeting. The enclosed form of proxy provides a means for the
shareholders to vote for the proposal to ratify the appointment of Ernst & Young
LLP as the Company's independent auditors, to vote against the proposal to
ratify the appointment of Ernst & Young LLP as the Company's independent
auditors or to abstain from voting with respect to the proposal to ratify the
appointment of Ernst & Young LLP as the Company's independent auditors. Each
properly executed proxy received in time for the Annual Meeting will be voted as
specified therein.
27
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE PROPOSAL TO RATIFY
THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
PROPOSAL 3 -- TO APPROVE AN AMENDMENT TO OUR 2001 EMPLOYEE INCENTIVE
COMPENSATION PLAN TO INCREASE FROM 50,000 TO 300,000, THE MAXIMUM
NUMBER OF SHARES THAT MAY BE ALLOTED TO ANY INDIVIDUAL PURSUANT TO A
RESTRICTED STOCK AWARD DURING ANY FISCAL YEAR
The Board of Directors is recommending for approval of our shareholders an
amendment to our 2001 Employee Incentive Compensation Plan to increase from
50,000 to 300,000, the maximum number of shares of common stock that may be
allotted to any individual pursuant to a restricted stock award in a fiscal
year.
SUMMARY OF THE 2001 EMPLOYEE INCENTIVE COMPENSATION PLAN
The following summary of the 2001 Employee Incentive Compensation Plan is
qualified in its entirety by the specific provisions of the 2001 Employee
Incentive Compensation Plan, a copy of which is attached to this Proxy Statement
as Appendix B.
General. The Board of Directors and our shareholders approved the adoption
of the 2001 Employee Incentive Compensation 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 Employee Incentive Compensation Plan,
and in 2002 and 2003 our shareholders approved an increase of 1,500,000 shares
and 2,000,000 shares, respectively, in the number of shares reserved for
issuance under the 2001 Employee Incentive Compensation Plan. As of November 30,
2004, an aggregate of 2,054,467 shares of common stock remain reserved for
issuance under the 2001 Employee Incentive Compensation Plan. Awards covering
2,964,411 shares of common stock have been previously granted, thus leaving only
2,054,467 shares for future award under the 2001 Employee Incentive Compensation
Plan. The Plan provides that only 50,000 shares may be allotted to any
individual pursuant to a restricted stock award during any fiscal year. The
Board believes that the proposed increase in the maximum number of shares that
may be allotted to 300,000 is necessary for future awards under the 2001
Employee Incentive Compensation Plan to attract, retain and motivate
participants in the 2001 Employee Incentive Compensation Plan.
The closing price of a share of our common stock as reported on the New
York Stock Exchange on November 30, 2004 was $14.73.
Administration and Eligibility. The Compensation Committee of the Board of
Directors acts as administrator of the 2001 Employee Incentive Compensation
Plan. The Committee is composed of independent directors designated by the Board
of Directors. The persons eligible to participate in the 2001 Employee Incentive
Compensation Plan include our officers and employees and consultants, as may be
selected from time to time by the Committee.
Types of Awards. Under the 2001 Employee Incentive Compensation 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 Employee Incentive
Compensation 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
50,000 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
Employee Incentive Compensation Plan are generally nontransferable other than by
will or the laws of descent and distribution. However, the Committee has the
28
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 become fully exercisable, all
shares of restricted stock and performance shares fully vest free of
restrictions and all approved and accrued incentive bonuses become fully payable
upon the occurrence of a Change of Control as defined in the 2001 Employee
Incentive Compensation 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 us; (ii) when, during a period of 24 consecutive months, the
individuals who, at the beginning of such period, constitute the members of our
Board of Directors cease for any reason other than death or disability to
constitute at least a majority thereof; (iii) the acquisition of us or all or
substantially all of our assets by a third party; or (iv) we file a report or
proxy statement with the SEC disclosing that a change of control of us 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 us 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 us, the Committee may adjust awards and
the number of shares of common stock subject to the 2001 Employee Incentive
Compensation Plan to preserve the benefits or potential benefits of awards
thereunder.
TERM; AMENDMENTS
The 2001 Employee Incentive Compensation Plan will terminate automatically
on November 27, 2010, and the Board of Directors may suspend or terminate the
2001 Employee Incentive Compensation Plan at any earlier time. The Board of
Directors may amend the 2001 Employee Incentive Compensation Plan from time to
time in its sole discretion, provided that, unless the requisite approval of
shareholders is obtained, no amendment shall be made to the 2001 Employee
Incentive Compensation Plan if such amendment would (i) increase the number of
Shares available for issuance under the 2001 Employee Incentive Compensation
Plan or increase the limits applicable to Awards under the 2001 Employee
Incentive Compensation Plan, in each case, except as provided in Section 4.4 of
the 2001 Employee Incentive Compensation; (ii) lower the Exercise Price of an
Option or SAR grant value below 100% of the Fair Market Value of one Share on
the date of the Award, except as provided in Section 4.4 of the 2001 Employee
Incentive Compensation; (iii) remove the repricing restriction set forth in
Section 17.2 of the 2001 Employee Incentive Compensation; or (iv) require
shareholder approval pursuant to applicable federal, state or local law or under
rules of the New York Stock Exchange, if the Shares are then listed on such
exchange. No amendment shall adversely affect the rights of any Participant
under any Award theretofore made under the 2001 Employee Incentive Compensation
Plan, without the Participant's 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 Employee
Incentive Compensation 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, we 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 us (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.
29
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
we may deduct from income an amount equal to the amount that the employee
recognized as ordinary income. We 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. We can claim no tax deduction on the date the nonstatutory stock option
is granted. With the exception of those instances allowed in the 2001 Employee
Incentive Compensation 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 exercise date over the exercise price of the
non-statutory stock option. We will be entitled to a corresponding deduction
equal to the amount of income recognized by the participant, provided we satisfy
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 our 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 nonstatutory stock option is not an adjustment for alternative
minimum tax purposes.
REQUIRED VOTE
Approval of the proposed amendment to the 2001 Employee Incentive
Compensation Plan requires 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 Annual Meeting. The enclosed form of proxy provides a means for
the shareholders to vote for the proposed amendment to the 2001 Employee
Incentive Compensation Plan, to vote against the proposed amendment to the 2001
Employee Incentive Compensation Plan or to abstain from voting with respect to
the proposed amendment to the 2001 Employee Incentive Compensation Plan. Each
properly executed proxy received in time for the Annual Meeting will be voted as
specified therein.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF AN AMENDMENT TO THE
2001 EMPLOYEE INCENTIVE COMPENSATION PLAN TO INCREASE THE MAXIMUM NUMBER OF
SHARES THAT MAY BE ALLOTTED TO ANY INDIVIDUAL PURSUANT TO A RESTRICTED STOCK
AWARD IN ANY FISCAL YEAR THEREUNDER.
30
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information as of August 31, 2004 with
respect to the shares of our common stock that may be issued under our existing
equity compensation plans.
<Table>
<Caption>
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
WEIGHTED AVERAGE EQUITY COMPENSATION PLANS
NUMBER OF SECURITIES TO EXERCISE PRICE OF (EXCLUDING SECURITIES
BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS REFLECTED IN COLUMN
PLAN CATEGORY OUTSTANDING OPTIONS(A) (B) (A))(C)
- ------------- -------------------------- ------------------- -------------------------
Equity Compensation Plans
Approved by Shareholders(1)... 4,721,900 $15.24 2,254,901
Equity Compensation Plans Not
Approved by Shareholders(2)... 720,250 $21.35 292,250
Total........................... 5,442,150 $16.05 2,547,151
</Table>
- ---------------
(1) Consists of the 1993 Employee Stock Option Plan, the 2001 Employee Incentive
Compensation Plan and the 1996 Non-Employee Director Stock Option Plan. At
August 31, 2004, of the number of securities remaining available for future
issuance in column (c), 156,000 shares of common stock may be subject to
awards under the 1996 Non-Employee Director Stock Option Plan, and 2,254,901
shares of common stock may be subject to SARs, restricted stock and
performance share awards under the 2001 Employee Incentive Compensation
Plan. In accordance with SEC rules, the information in this table with
respect to the 2001 Employee Incentive Compensation Plan includes the
securities previously authorized for issuance.
(2) Consists solely of the Stone & Webster Acquisition Stock Option Plan. No
stock options under this plan were awarded to our directors or executive
officers.
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 connection with our
acquisition of substantially all of the assets of Stone & Webster, Incorporated
to award non-statutory stock options to (i) certain of our non-executive
officers and key employees who contributed significantly to such acquisition and
(ii) certain key employees of Stone & Webster who were retained by us. 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 Federal tax law. As
of August 31, 2004, options covering 720,250 shares of common stock were
outstanding under the S&W Plan, and options covering 58,500 shares had been
exercised. An aggregate of 244,750 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 us) becomes
the beneficial owner of 20% or more of the combined voting power of us; (ii)
when, during a period of 24 consecutive months, the individuals who, at the
beginning of such period, constitute the members of our Board of Directors cease
for any reason other than death or disability to constitute at least a majority
thereof; (iii) the acquisition of us or all or substantially all of our assets
by a third party; or (iv) we file a report or proxy statement with the SEC
disclosing that a change of control of us 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 us (including any stock
dividend, stock split, split-up, split-off, combination or exchange of shares,
merger, consolidation, reorganization, recapitalization or other
31
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 will 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 Employee Stock Option Plan, the 2001
Employee Incentive Compensation Plan and the 1996 Non-Employee Director Stock
Option 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 effect the number of shares of common
stock available for issuance under the 1993 Employee Stock Option Plan, the 2001
Employee Incentive Compensation Plan or the 1996 Non-Employee Director Stock
Option Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers and certain beneficial owners of our common
stock to file with the SEC reports of ownership and changes in ownership of our
common stock. The reporting persons are required to furnish us with copies of
all reports filed pursuant to Section 16.
Based solely upon a review of such reports received by us and written
representations to us from certain reporting persons, we believe that, during
fiscal 2004, all filing obligations under Section 16 applicable to the reporting
persons were complied with, except that each of the following named individuals
reported the listed restricted stock awards made on October 10, 2003, late on a
Form 4 filed on January 16, 2004 -- J.M. Bernhard, Jr. (221,000 shares), T.A.
Barfield, Jr. (102,000 shares), Robert L. Belk (39,000 shares), Diana Severs
Ferguson (25,000 shares) and Gary P. Graphia (12,500 shares); and Ebrahim
Fatemizadeh reported a restricted stock award of 4,904 shares made on May 19,
2004, late on a Form 5 filed on September 13, 2004.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee during fiscal 2004 or at present is
or has been an officer or employee of Shaw or any of its subsidiaries. In
addition, there are no Compensation Committee interlocks between Shaw and other
entities involving Shaw's executive officers and directors who serve as
executive officers of such entities.
AUDITOR SERVICES
Our consolidated financial statements for the fiscal year ended August 31,
2004, were audited by the firm of Ernst & Young LLP ("Ernst & Young") and such
firm will remain as our independent auditor until
replaced by the Board of Directors. Our Audit Committee annually considers and
appoints our independent auditors. A representative of Ernst & Young is expected
to be present at the Annual Meeting to respond to any appropriate questions and
will have the opportunity to make a statement, if so desired.
Ernst & Young's report on our consolidated financial statements as of and
for the fiscal years ended August 31, 2004, 2003 and 2002, did not contain an
adverse opinion or disclaimer of opinion, nor was the report qualified or
modified as to uncertainty, audit scope or accounting principles.
32
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered by us for inclusion in the proxy
materials for the 2006 Annual Meeting of Shareholders must be submitted in
accordance with applicable regulations of the SEC and received by us at our
principal executive offices no later than August 20, 2005.
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 our
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 our by-laws, a copy of which may be obtained by
contacting our Secretary at (225) 932-2500.
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 our 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 us 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 our shareholders 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
33
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 our shareholders 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 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 our 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
our 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 us or any transfer by us 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
34
(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 or, at any
time when we employ a transfer agent with respect to the shares of common stock,
at our request, by such transfer agent on our behalf. In accordance with our
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. We and any transfer agent will be 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 we nor any transfer
agent will 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.
By resolution duly adopted by the Board of Directors pursuant to the
foregoing provisions of our articles of incorporation, the following procedures
have been adopted for use in determining the number of votes to which a
shareholder is entitled:
(a) We 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 1, 2000, and until December 1, 2004, 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 our General Counsel, in his sole discretion, taking into
account the standards set forth in our articles of incorporation deems
any such statement to be inadequate or for any reason deems it in the
best interest of us 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 1, 2004 (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 our shareholder records. These shareholders of record may confirm to us, in
accordance with the procedures set forth above, beneficial ownership in the
event such shareholders believe that our shareholder records 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 us how many of the shares they owned
as of December 1, 2004, were beneficially owned on or before December 1, 2000,
entitling such shareholder to five (5) votes per share, and how many
35
were acquired after December 1, 2000, entitling such shareholder to one (1) 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 US THAT BENEFICIAL OWNERSHIP OF ALL SHARES WAS EFFECTED AFTER
DECEMBER 1, 2000, 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, 2005.
If a shareholder has any questions concerning the foregoing procedures, the
shareholder should contact our 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.
OTHER MATTERS
As of the date of this Proxy Statement, 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 our consolidated financial
statements for the fiscal year ended August 31, 2004, 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.
THE ANNUAL REPORT TO SHAREHOLDERS IS AVAILABLE ON OUR WEBSITE AT
HTTP://WWW.SHAWGRP.COM AND 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, 2004 (BUT NOT INCLUDING EXHIBITS), AS FILED
WITH THE SEC. 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 17, 2004
36
APPENDIX A
THE SHAW GROUP INC.
PRE-APPROVAL OF SERVICES TO BE PROVIDED BY INDEPENDENT ACCOUNTANT
The Committee is required to pre-approve the engagement of the Company's
independent accountant to perform any services for the Company or its
subsidiaries. This pre-approval is required to be obtained prior to the
engagement of the independent accountant. The Committee has determined to
categorize the services that might be performed by the independent accountant in
the following list. For engagements to provide services included in "Level 1",
the Committee must pre-approve the services. For engagements to provide services
included in "Level 2", the Committee has delegated its full authority to any
single member of the Committee to pre-approve these services. All services
pre-approved by a single member shall be reviewed by the Committee at the
following Committee meeting.
AUDIT SERVICES
The Committee will pre-approve the auditors for recurring engagements
annually as a matter of course. The Levels below are intended as minimums and
generally would only be required for an unforeseen audit or for audit services
performed outside of recurring annual audits.
LEVEL 1
- Audit of the annual consolidated financial statements of The Shaw Group
Inc., including quarterly reviews
- Any other audit services not specifically listed
LEVEL 2
- Consents to include the Independent Accountant's report in Company
filings with the SEC
- Comfort letters
- Statutory audits of foreign subsidiaries
- Audits of wholly-owned consolidated entities (e.g., Shaw Constructors for
State Contractors' licenses)
AUDIT RELATED SERVICES
LEVEL 1
- Audits of Employee Benefit Plans
- Due diligence related to Mergers & Acquisition when fees exceed $200,000
- Internal control reviews
- Any other audit related services not specifically listed
LEVEL 2
- Due diligence related to Mergers & Acquisitions when fees do not exceed
$200,000
- Accounting assistance & audits in connection with proposed or consummated
acquisitions when fees do not exceed $200,000
- Consultation concerning financial accounting and reporting standards when
fees do not exceed $200,000
A-1
TAX SERVICES
LEVEL 1
- Tax compliance services related to the consolidated Shaw Group Federal
tax return
- Any other tax services not specifically listed
LEVEL 2
- Tax payment planning services when fees do not exceed $200,000
- Tax consultation and tax planning services when fees do not exceed
$200,000
OTHER SERVICES
LEVEL 1
- Any other services when fees exceed $100,000
LEVEL 2
- Any other services when fees do not exceed $100,000
Note: The Committee recognizes that for certain engagements, such as due
diligence assistance related to mergers and acquisitions, the total fees are
usually unknown. In these circumstances, a single engagement may be pre-approved
at Level 2, and then as it becomes apparent that the fees will exceed he Level 2
limitations, a Level 1 "pre-approval" will need to be obtained. This provision
is a practical recognition that certain engagements will require pre-approval in
a very short time frame, while providing a reasonable limitation to ensure Level
2 pre-approval is provided for larger, more material engagements.
A-2
APPENDIX B
THE SHAW GROUP INC.
2001 EMPLOYEE INCENTIVE COMPENSATION PLAN
(AS AMENDED AND RESTATED THROUGH DECEMBER 13, 2004, BY THE BOARD OF DIRECTORS,
SUBJECT TO THE APPROVAL OF THE SHAREHOLDERS AT THE 2005 ANNUAL MEETING OF THE
SHAREHOLDERS)
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;
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(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 5.5 million shares of Common Stock. 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 5.5 million shares of Common Stock (as adjusted to reflect a two-for-one
Common Stock split distributed on December 15, 2000). 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
(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
B-4
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 (as
adjusted to reflect a two-for-one Common Stock Split distributed on December 15,
2000) (subject to further 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 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)
B-5
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 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
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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;
(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
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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, 300,000 Shares
(subject to further adjustment as provided in Section 4.4 of the Plan).
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.
(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.
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(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., 4171
Essen Lane, 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 50,000 Shares (as adjusted to reflect a
two-for-one Common Sock split distributed on December 15, 2000) (subject to
further adjustment as provided in Section 4.4 of the Plan) 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 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
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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.
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
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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 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
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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;
(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
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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, provided that, unless the requisite approval of
shareholders is obtained, no amendment shall be made to the Plan if such
amendment would (i) increase the number of Shares available for issuance under
the Plan or increase the limits applicable to Awards under the Plan, in each
case, except as provided in Section 4.4; (ii) lower the Exercise Price of an
Option or SAR grant value below 100% of the Fair Market Value of one Share on
the date of the Award, except as provided in Section 4.4; (iii) remove the
repricing restriction set forth in Section 17.2; or (iv) require shareholder
approval pursuant to applicable federal, state or local law or under rules of
the New York Stock Exchange, if the Shares are then listed on such exchange. 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
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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.
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); provided, however, that the Committee shall not have the authority
to accept the surrender or cancellation of any Options and any SARs that relate
to such Options outstanding hereunder (to the extent not theretofore exercised)
and grant new Options and any SARs that relate to such new Options hereunder in
substitution therefor (to the extent not theretofore exercised) at an Exercise
Price that is less than the Exercise Price of the Options surrendered or
canceled. The foregoing shall not limit any adjustments made under Section 4.4
of the Plan. Notwithstanding the provisions of this Section 17.2, 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
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 Marriott Hotel, 5500 Hilton Avenue, Baton Rouge, Louisiana, at
9:00 a.m. on January 24, 2005, or any postponement or adjournment thereof, and
to vote all shares of common stock held of record by the undersigned on December
1, 2004, 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
[ ] FOR all nominees listed in this block (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed in this block
NOMINEES: J.M. Bernhard, Jr., T.A. Barfield, Jr., James F. Barker, L. Lane
Grigsby, David W. Hoyle, Albert D. McAlister, Charles E. Roemer, III, John
W. Sinders, Jr. and Robert L. Belk.
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 ratify the appointment of Ernst & Young LLP as the independent auditors
for The Shaw Group Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an amendment to The Shaw Group Inc. 2001 Employee Incentive
Compensation Plan to increase from 50,000 to 300,000, the maximum number of
shares of the Company's no par value common stock that may be allotted to
any individual pursuant to a restricted stock award in any fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. 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, 3 AND 4.
Shareholders are requested to confirm to the Company how many of the shares they
own as of December 1, 2004 were beneficially owned on or before December 1,
2000, entitling such shareholder to five votes per share, and how many were
acquired after December 1, 2000, 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 1, 2000, 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