<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
The Shaw Group, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
SHAW LOGO
THE SHAW GROUP INC.
8545 UNITED PLAZA BOULEVARD
BATON ROUGE, LOUISIANA 70809
NOTICE OF THE 1999 ANNUAL MEETING
OF SHAREHOLDERS
PLEASE TAKE NOTICE that the 1999 Annual Meeting of Shareholders of The Shaw
Group Inc., a Louisiana corporation (the "Company"), will be held at the Hilton
Hotel, 5500 Hilton Avenue, Baton Rouge, Louisiana, on January 29, 1999, at 9:00
a.m. to consider and act upon:
(1) the election of six members to the Board of Directors;
(2) a proposal to approve an amendment to the Company's 1993 Employee
Stock Option Plan to increase the number of shares of Common Stock reserved
for issuance thereunder; and
(3) such other business as may properly come before the meeting or any
adjournments thereof.
The Board of Directors has fixed the close of business on December 7, 1998,
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the meeting.
Your proxy card is enclosed. You are cordially invited to attend the 1999
Annual Meeting, but if you do not expect to attend or if you plan to attend but
it is more convenient for the designated proxies to vote your shares, please
execute, date and return the enclosed proxy card in the enclosed postage-paid
envelope as soon as possible to ensure that your shares will be voted at the
Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ T. A. BARFIELD, JR.
T. A. Barfield, Jr.
Secretary
Baton Rouge, Louisiana
December 28, 1998
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.
<PAGE> 3
THE SHAW GROUP INC.
8545 United Plaza Boulevard
Baton Rouge, Louisiana 70809
PROXY STATEMENT
The accompanying Proxy is solicited on behalf of the Board of Directors of
The Shaw Group Inc. (the "Company") for use at the 1999 Annual Meeting of
Shareholders to be held on January 29, 1999, at 9:00 a.m., at the Hilton Hotel,
5500 Hilton Avenue, Baton Rouge, Louisiana, and any adjournments thereof. Only
shareholders of record at the close of business on December 7, 1998 will be
entitled to notice of, and to vote at, this Annual Meeting. The Company
anticipates that this Proxy Statement and the accompanying Proxy will be first
sent or given to the Company's shareholders on approximately December 29, 1998.
GENERAL
The purpose of the Annual Meeting is to consider and act upon the matters
which are listed in the accompanying Notice of Annual Meeting and set forth in
this Proxy Statement. The holders of shares having a majority of the voting
power of the Company's common stock, no par value (the "Common Stock"), issued
and outstanding and entitled to vote thereat shall be present in person or
represented by proxy to constitute a quorum for the transaction of business at
the Annual Meeting. The shares held by each shareholder who signs and returns
the enclosed form of Proxy will be counted, in accordance with the voting
procedures outlined below, for purposes of determining the presence of a quorum
at the meeting, whether or not the shareholder abstains on all matters or any
matter to be acted on at the meeting. Abstentions are counted toward the
calculation of a quorum. Broker non-votes (which result when a broker holding
shares for a beneficial owner has not received voting instructions on certain
matters from such beneficial owners) will be counted toward fulfillment of
quorum requirements. Any shareholder giving a Proxy has the power to revoke it
at any time before it is exercised by providing written notice of revocation to
the Secretary of the Company or by filing a Proxy of a later date with the
Secretary of the Company.
The enclosed form of Proxy provides a means for a shareholder to vote for
all the nominees for director listed thereon, to withhold authority to vote for
one or more of such nominees, or to withhold authority to vote for all of such
nominees. The Company's by-laws provide that directors are elected by a
plurality of the votes cast. There is no cumulative voting. Accordingly, the
withholding of authority by a shareholder (including broker non-votes) will not
be counted in computing a plurality and thus will have no effect on the results
of the election of such nominees. Each Proxy will be voted in accordance with
the shareholder's directions.
The enclosed form of Proxy also provides a means for a shareholder to vote
for, against or abstain from voting on a proposal to approve an amendment to the
Company's 1993 Employee Stock Option Plan ("Proposal 2"). The affirmative vote
of a majority of the voting power of the Common Stock, present in person or
represented by proxy and entitled to vote at the meeting, is required for
approval of Proposal 2. An abstention with respect to Proposal 2 will have the
same effect as a vote against it. Broker non-votes will not be counted with
regard to Proposal 2, but have the effect of reducing the number of affirmative
votes required to approve the Proposal because they reduce the number of shares
present or represented from which a majority is calculated.
The enclosed form of Proxy also provides a means for a shareholder to vote
for, against or abstain from voting on any other matters as may properly come
before the Annual Meeting or any adjournments thereof. Approval of any other
matters as may properly come before the Annual Meeting will also 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.
Unless the shareholder specifies otherwise, a Proxy in the accompanying
form which is properly executed and duly returned will be voted FOR the election
of the six nominees listed hereinafter under the caption "Election of Directors"
and FOR Proposal 2 that is more fully discussed hereinafter under "Proposal to
Approve an Amendment to the Company's 1993 Employee Stock Option Plan."
<PAGE> 4
The cost of preparing, assembling, printing and mailing this Proxy
Statement, the form of Proxy, and the Notice of Annual Meeting of Shareholders
will be paid by the Company. In addition to solicitation by use of the mails,
solicitation of Proxies may also be made personally by certain directors,
officers and employees of the Company, and no additional compensation will be
paid to such individuals. Proxies will also be solicited by Corporate Investor
Communications, Inc., whose fee of $5,500 plus out-of-pocket expenses will be
paid by the Company. The Company will also supply brokers or persons holding
stock in their names or in the names of their nominees with such number of
Proxies, proxy materials and annual reports as they may require for mailing to
beneficial owners and will reimburse them for their reasonable expenses incurred
in connection therewith.
On November 30, 1998, the Company had issued and outstanding and entitled
to vote 11,803,016 shares of the Common Stock. The Common Stock is the only
outstanding class of voting securities of the Company.
VOTING RIGHTS OF COMMON STOCK
The Company's articles of incorporation, as restated, provide that each
outstanding share of Common Stock will entitle the holder thereof to five votes,
except that holders of outstanding shares of Common Stock with respect to which
there have been certain specified changes in beneficial ownership during the
four years immediately preceding the record date (December 7, 1998) will be
entitled to one vote per share. Thus, shares owned on or before December 7, 1994
and as to which there has been no such changes in beneficial ownership since
that date, are entitled to five votes per share. Under these provisions, shares
issued in the Company's initial public offering in December 1993 are entitled to
five votes per share (if no intervening change in beneficial ownership has
occurred) but shares issued by the Company in the public offering in December
1996 and January 1997 will be entitled to only one vote per share. See
"Determination of Beneficial Ownership" on page 19 for a more detailed
discussion of the provisions of the Company's articles of incorporation, as
restated, relating to the voting rights of the holders of the shares of Common
Stock and the manner of determination thereof.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Common Stock as of November 30, 1998 (except as otherwise noted) with
respect to (i) each person known by the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each executive officer of the
Company as of August 31, 1998 and each executive officer and director of the
Company as of the date of this Proxy Statement, and (iii) all such executive
officers and directors as a group. Each of the following shareholders has sole
voting and investment power with respect to shares beneficially owned by such
shareholder, except to the extent that authority is shared by spouses under
applicable law or as otherwise noted. The Common Stock constitutes the only
class of equity securities of the Company that is outstanding.
2
<PAGE> 5
<TABLE>
<CAPTION>
PERCENT OF
BENEFICIAL OWNERSHIP VOTING
NAME OF BENEFICIAL OWNER SHARES PERCENT POWER(13)
- ------------------------ ---------- --------- ----------
<S> <C> <C> <C>
J. M. Bernhard, Jr. ........................................ 1,499,566 12.7% 34.6%
11100 Mead Road, Second Floor
Baton Rouge, Louisiana 70816
G. Ray Wilkie, Jr.(1)....................................... 324,238 2.7% 7.5%
Albert McAlister(2)......................................... 74,542 * 1.7%
Richard F. Gill(3).......................................... 68,750 * *
Ronald D. Brown, Jr.(4)..................................... 63,500 * *
John W. Sinders, Jr.(5)..................................... 22,500 * *
George P. Bevan(6).......................................... 21,365 * *
David W. Hoyle(7)........................................... 15,500 * *
L. Lane Grigsby(8).......................................... 10,350 * *
Edward L. Pagano(9)......................................... 2,700 * *
N. Andrew Dupuy, Jr.(10).................................... 2,500 * *
Robert L. Belk.............................................. 2,000 * *
William H. Grigg(11)........................................ 1,500 -- --
Bill A. Jackson............................................. -- -- --
All executive officers and directors as a group (14
persons)(12).............................................. 2,109,011 17.7% 44.7%
</TABLE>
- ---------------
* less than 1%
(1) Includes 22,500 shares of which Mr. Wilkie may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(2) Includes 5,500 shares of which Mr. McAlister may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(3) Includes 40,000 shares owned by a company in which Mr. Gill has an
ownership interest and 6,250 shares of which Mr. Gill may be deemed to be
beneficial owner as a result of rights that he may exercise to acquire
beneficial ownership within 60 days.
(4) Includes 17,500 shares of which Mr. Brown may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(5) Includes 5,500 shares of which Mr. Sinders may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(6) Includes 5,740 shares owned of record by Mr. Bevan's spouse and 15,625
shares of which Mr. Bevan may be deemed to be beneficial owner as a result
of rights that he may exercise to acquire beneficial ownership within 60
days.
(7) Includes 2,000 shares owned of record by Mr. Hoyle's spouse and 5,500
shares of which Mr. Hoyle may be deemed to be beneficial owner as a result
of rights that he may exercise to acquire beneficial ownership within 60
days.
(8) Includes 5,500 shares of which Mr. Grigsby may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(9) Includes 2,500 shares of which Mr. Pagano may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(10) Represents shares of which Mr. Dupuy may be deemed to be beneficial owner
as a result of rights that he may exercise to acquire beneficial ownership
within 60 days.
(11) Represents shares of which Mr. Grigg may be deemed to be beneficial owner
as a result of rights that he may exercise to acquire beneficial ownership
within 60 days.
(12) Includes 7,740 shares owned of record by spouses of executive officers and
directors and 90,375 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.
(13) Based upon information available to the Company as of the date of this
Proxy Statement.
3
<PAGE> 6
ELECTION OF DIRECTORS
At its December 8, 1997 meeting, the Board of Directors decreased the
number of directorships from nine to six. Each nominee is presently a director
of the Company. Each director is to be elected for a term of one year and to
serve until the next annual meeting of shareholders or until his successor is
elected and qualified. The enclosed form of Proxy confers discretionary
authority with respect to the election of directors, but no authority under the
Proxy will be exercised to vote for the election of any person as a director,
other than the persons named in this Proxy Statement who have been nominated by
the present Board of Directors, unless, for some reason not presently known, one
or more of such nominees should become unavailable. In such event, it is
intended that the Proxy would be voted for a substitute nominee or nominees who
would be designated by the Board of Directors prior to the 1999 Annual Meeting
of Shareholders. In order to be elected as a director, a nominee must receive a
plurality of the votes cast by the holders of Common Stock. The name and age,
principal occupation or employment, and other data regarding each nominee, based
on information received from the respective nominees, are set forth below:
J. M. BERNHARD, JR., age 44, founder of the Company, has been
President and Chief Executive Officer of the Company since its inception in
September 1987. He has also been a director of the Company since its
inception. Mr. Bernhard has been Chairman of the Board since August 1990.
Mr. Bernhard has spent the last 20 years in the pipe fabrication business.
Immediately prior to his position with the Company, Mr. Bernhard was Vice
President and General Manager of Sunland Services and served on the Board
of Directors of Barnard and Burk Engineers & Constructors.
ALBERT MCALISTER, age 47, has been a director of the Company since
April 1990. He served on the Company's Audit Committee from November 1993
to February 1998 and the Company's Compensation Committee from November
1993 to March 1995. Since 1975, Mr. McAlister has been a partner in the law
firm of McAlister & McAlister, P.A. in Laurens, South Carolina. He also
served as Chairman of the Democratic Party in South Carolina from 1990
until 1994.
L. LANE GRIGSBY, age 57, has served as a director of the Company since
January 1995 and a member of its Audit Committee since February 1998. He
also served on the Company's Compensation Committee from March 1995 to
February 1998. Mr. Grigsby is also the Chairman of the Board of Cajun
Constructors, Inc., for which he also served as President and Chief
Executive Officer from April 1973 to June 1994. He has 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 60, has served as a director of the Company since
January 1995 and a member of its Compensation Committee since March 1995.
He has also served as a member of the Audit Committee from September 1996
to February 1998. For the past twelve years, he has been self-employed
primarily as a real estate developer and has been a member of the Senate
Chamber of the North Carolina General Assembly since 1992. Senator Hoyle
serves as a director of several private corporations, including as Chairman
of the Board of Gaston Federal Bank, as well as several civic, educational
and charitable organizations.
JOHN W. SINDERS, JR., age 43, has served as a director of the Company
since March 1995 and a member of its Compensation Committee since February
1998. He also served as a member of the Audit Committee from March 1995 to
September 1996. He has served as a managing director of Jefferies &
Company, Inc. since 1993. From 1987 to 1993, Mr. Sinders served as a
managing director of Howard Weil Labouisse Friedrichs Incorporated and a
member of the Board of Directors of Howard Weil from 1990 to 1993. Prior to
joining Howard Weil, he was a partner with the law firm of McGlinchey,
Stafford, Mintz, Cellini & Lang.
WILLIAM H. GRIGG, age 66, has served as a director of the Company
since January 1998 and a member of its Audit Committee since February 1998.
He is the retired Chairman and Chief Executive Officer of Duke Power
Company, now Duke Energy Corporation. Mr. Grigg began his career at Duke
Power in 1963. He served as chairman and Chief Executive Officer from April
1994 to June 1997. Prior
4
<PAGE> 7
to being elected chairman, he served as vice chairman for three years. Mr.
Grigg is on the board of directors of Hatteras Income Securities Inc.,
Nations Fund, Inc., Associated Electric and Gas Insurance Services Ltd.,
the Charlotte-Mecklenburg Hospital Authority and Coltec Industries Inc. He
is a member of several civic and charitable organizations, serving as the
Chairman of the Board of the Foundation for the Carolinas.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE SIX NOMINEES FOR
DIRECTOR.
BOARD MEETINGS, COMMITTEES AND COMPENSATION
During the fiscal year ended August 31, 1998 ("fiscal 1998"), seven
meetings of the Board of Directors were held. Each incumbent director who is a
nominee for re-election attended at least 75% of aggregate of the total number
of meetings of the Board of Directors and the total number of meetings held by
all committees of the Board on which each such director served during fiscal
1998. The Board of Directors has no nominating or other committee performing
similar functions at this time. The following directors presently serve on the
Audit Committee: L. Lane Grigsby and William H. Grigg. In February 1998, Messrs.
Grigsby and Grigg replaced Albert McAlister and David W. Hoyle on the Audit
Committee. The Audit Committee met one time during fiscal 1998. The primary
functions of the Audit Committee are as follows: to review the scope and timing
of the audit and non-audit services rendered by the Company's independent
accountants; to review their reports upon completion of their audits; to review
the appropriateness of the Company's accounting policies, the adequacy of its
financial controls and the reliability of the financial information reported to
the public; and to report to the Board of Directors on its activities. The
following directors presently serve on the Compensation Committee: David W.
Hoyle and John W. Sinders, Jr. In February 1998, Mr. Sinders replaced Mr.
Grigsby on the Compensation Committee. The Compensation Committee met three
times in fiscal 1998. The primary functions of the Compensation Committee are to
provide a general review of the Company's compensation and benefit plans to
determine if they meet corporate objectives. In addition, the Compensation
Committee reviews the Chief Executive Officer's recommendations on (i)
compensation of all officers of the Company, (ii) granting of awards under the
Company's 1993 Employee Stock Option Plan and its other benefit plans, and (iii)
the adoption of and/or changes to major Company compensation policies and
practices.
5
<PAGE> 8
MANAGEMENT OF THE COMPANY
The following table provides information with respect to (i) all persons
who were serving as executive officers of the Company on August 31, 1998, and
(ii) all persons who, as of the date of this Proxy Statement, are serving as
executive officers of the Company. As a result of a recent corporate
reorganization, (i) Messrs. Brown and Dupuy, while still employed as officers of
the Company or its subsidiaries, are no longer serving as executive officers of
the Company, and (ii) Messrs. Wilkie, Gill and Bevan continued as executive
officers becoming Senior Vice Presidents. Mr. Pagano resigned from the Company
in October 1998, and Messrs. Jackson and Belk joined the Company as executive
officers in October 1998. 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 POSITION
---- --------
<S> <C>
J. M. Bernhard, Jr. ......................... President and Chief Executive Officer
Robert L. Belk............................... Executive Vice President, Chief Financial
Officer and Treasurer
Bill A. Jackson.............................. Executive Vice President and Chief Operating
Officer
G. Ray Wilkie, Jr. .......................... Senior Vice President -- U. S. Operations
Richard F. Gill.............................. Senior Vice President -- International and
Construction Operations
George P. Bevan.............................. Senior Vice President
Ronald D. Brown, Jr. ........................ President of Shaw Manufacturing & Services,
Inc.*
N. Andrew Dupuy, Jr. ........................ Vice President
Edward L. Pagano............................. Former Chief Financial Officer and Treasurer
</TABLE>
- ---------------
* a wholly-owned subsidiary of the Company
J.M. BERNHARD, JR. -- See "Election of Directors".
ROBERT L. BELK, age 49, joined the Company in October 1998 as Executive
Vice President, Chief Financial Officer and Treasurer. Prior to joining the
Company, Mr. Belk served Ocean Energy, Inc. as its Executive Vice President of
Administration from March 1998 until October 1998, 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, Inc., Mr. Belk was engaged in public accounting
with national and local firms and as well as a sole-practitioner.
BILL A. JACKSON, age 54, joined the Company in October 1998 as Executive
Vice President and Chief Operating Officer. Prior to joining the Company, from
1995 to September 1998, Mr. Jackson served as the President, Chief Executive
Officer and a Director of GSG Inc., a joint venture owned by Bechtel Corporation
and EDS Corporation, and as a Vice President of Bechtel Corporation and a Senior
Vice President and Director of Bechtel Services Corporation. From 1992 to 1995
he served as a Vice President of Bechtel Corporation and from 1989 to 1992, he
served as Vice President of Bechtel Corporation and Manager of Worldwide
Procurement. Mr. Jackson has over 24 years of experience with Bechtel
Corporation and its affiliates.
G. RAY WILKIE, JR., age 53, joined the Company in March 1988 and served as
Vice President of B. F. Shaw, Inc., a wholly-owned subsidiary of the Company,
from September 1990 until May 1993, as President of B. F. Shaw, Inc. from May
1993 until November 1995, and as an Executive Vice President of the Company from
November 1995 until August 1998. In September 1998, Mr. Wilkie was appointed
Senior Vice President of the Company in charge of the Company's U.S. Operations,
one of the Company's two principal operating divisions. Mr. Wilkie also served
as a director of the Company from January 1993 until March 1995. Mr. Wilkie has
spent the last 31 years in the pipe fabrication business.
6
<PAGE> 9
RICHARD F. GILL, age 55, has been employed by the Company since March 20,
1997, when the Company acquired certain assets of MERIT Industrial Constructors,
Inc. and other affiliated entities ("MERIT"). Mr. Gill served as the President
of Shaw Process and Industrial Group, Inc., a wholly-owned subsidiary of the
Company from March 1997 until August 1998, and in September 1998 he was
appointed a Senior Vice President of the Company in charge of Construction and
International Operations, one of the Company's two principal operating
divisions. Mr. Gill was President of MERIT since it was founded in January 1982.
MERIT was an industrial construction and maintenance firm based in Baton Rouge,
Louisiana. Mr. Gill has over 31 years experience in the industrial construction
and maintenance industry.
GEORGE P. BEVAN, age 51, has been employed by the Company since September
1994, and served as an Executive Vice President of the Company from April 1997
to August 1998. In September 1998, he was appointed a Senior Vice President of
the Company. Mr. Bevan was previously a Vice President of the Company. Prior to
joining the Company, Mr. Bevan was a senior partner in the law firm of
Bevan-Hernandez, which he began in 1991. He was also President of Southern
United Financial Corporation, an insurance and financial services company from
1987 to 1994.
RONALD D. BROWN, JR., age 45, has been employed by the Company since April
5, 1996, when the Company purchased all of the outstanding capital stock of his
family's business, Alloy Piping Products, Inc. ("APP"), a manufacturer of
specialty stainless and carbon steel pipe fittings and other stainless pipe
products located in Shreveport, Louisiana. Since the acquisition, Mr. Brown has
served as APP's President since joining the Company in April 1996 and as the
President of Shaw Manufacturing and Services, Inc., a wholly-owned subsidiary of
the Company since January 1997. Mr. Brown has over 26 years experience in the
pipe fittings manufacturing business.
N. ANDREW DUPUY, JR., age 43, has been employed by the Company since
February 20, 1997, when the Company purchased all of the outstanding capital
stock of United Crafts, Inc. ("UCI"), an industrial construction and maintenance
company based in Baton Rouge, Louisiana. After the acquisition, Mr. Dupuy
remained as UCI's President, a position he held until December 1997, and then as
President of Shaw Power Services, Inc., a wholly-owned subsidiary of the Company
until August 1998. He now serves as a Vice President of the Company. Mr. Dupuy
has over 25 years experience in the industrial construction and maintenance
industry.
EDWARD L. PAGANO, age 40, joined the Company in May 1997 and served as the
Company's Chief Financial Officer and Treasurer until his resignation in October
1998. Prior to his employment with the Company, Mr. Pagano spent eight years
with Kvaerner John Brown, where he was Senior Vice President and Chief Financial
Officer for its U.S. operations. Kvaerner John Brown, a division of Kvaerner
a.s. of Oslo, Norway, is the third largest engineering and construction company
in the world, specializing in providing total turnkey projects in the chemical,
hydrocarbon and pharmaceutical industries.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table contains compensation data for the last three fiscal
years for the Company's Chief Executive Officer and its four other most highly
compensated executive officers during fiscal 1998 (the "Named Executive
Officers"). As noted above, Messrs. Dupuy and Pagano were executive officers of
the Company as of August 31, 1998.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SECURITIES ALL
FISCAL OTHER ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS COMPENSATION(5) OPTIONS(#) COMPENSATION(6)
- --------------------------- ------- -------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
J. M. Bernhard, Jr.............. 1998 $539,343 $50,000 $75,318 35,000 $ 4,142
President, Chief Executive 1997 $500,000 -- $54,531 -- $ 4,750
Officer and Chairman of the 1996 $500,000 -- -- -- $ 2,630
Board
Richard F. Gill(2).............. 1998 $213,221 $20,000 -- -- $ 3,132
Senior Vice President 1997 $ 76,667 -- -- 25,000 --
1996 -- -- -- -- --
Edward L. Pagano(3)............. 1998 $190,132 $17,500 -- 7,500 $ 923
Former Chief Financial Officer 1997 $ 57,008 -- -- 10,000 --
and Treasurer 1996 -- -- -- -- --
N. Andrew Dupuy, Jr.(4)......... 1998 $189,803 $12,000 -- 15,000 $ 3,548
Vice President 1997 $ 69,947 -- 10,000 $ 500
1996 -- -- --
G. Ray Wilkie, Jr............... 1998 $185,593 $18,500 -- -- $ 4,816
Senior Vice President 1997 $185,000 -- -- -- $ 5,448
1996 $150,000 -- -- -- $ 3,088
</TABLE>
- ---------------
(1) The Company's fiscal year ends on August 31.
(2) Mr. Gill did not join the Company until March 1997.
(3) Mr. Pagano did not join the Company until May 1997 and resigned in October
1998.
(4) Mr. Dupuy did not join the Company until February 1997.
(5) Personal benefits, except those in fiscal 1998 and 1997 for Mr. Bernhard,
have not been disclosed in the "Other Annual Compensation" column since, in
the aggregate, they did not exceed the lesser of either $50,000 or 10% of
the total salary and bonus. As a result of Company recordkeeping procedures,
the amount disclosed in the fiscal 1998 and 1997 columns for Mr. Bernhard
constitutes total personal benefits for the periods of January 1, 1997
through December 31, 1997 and January 1, 1996 through December 31, 1996,
respectively. Of the totals, $49,616 and $37,909 represent Mr. Bernhard's
personal use of Company transportation for the calendar years 1997 and 1996,
respectively.
(6) Represents the Company's contribution on behalf of the officers to the
Company's 401(k) plan.
8
<PAGE> 11
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grants of options
to purchase shares of the Company's Common Stock that were made under the
Company's 1993 Employee Stock Option Plan to any of the Company's Chief
Executive Officer and the Named Executive Officers during fiscal 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATE OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE
OPTIONS EMPLOYEES PRICE EXPIRATION APPRECIATION FOR
NAME GRANTED(1) FISCAL YEAR $/SHARES(2) DATE OPTION TERM(2)
---- ---------- ----------- ----------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
J. M. Bernhard, Jr........ 35,000 61% $24.00 February 9, 2008 $528,271 $1,338,744
N. Andrew Dupuy, Jr....... 15,000 13% 24.00 February 9, 2008 $226,402 $ 573,747
Edward L. Pagano.......... 7,500 26% 24.00 February 9, 2008 $113,201 $ 286,874
</TABLE>
- ---------------
(1) The options are subject to the terms of the 1993 Employee Stock Option Plan.
(2) Based upon the closing price of a share of the Company's Common Stock listed
on the New York Stock Exchange on the date of award ($24.00).
FISCAL YEAR-END OPTION VALUES
The following table sets forth the value at August 31, 1998 of the
unexercised options held by any of the Chief Executive Officer and Named
Executive Officers during fiscal 1998:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT FISCAL YEAR END
FISCAL YEAR-END ---------------------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE(1)(2) UNEXERCISABLE(2)(3)
---- ------------------------- ----------------- -------------------
<S> <C> <C> <C>
J. M. Bernhard, Jr..................... 0/35,000 -- 0
Richard F. Gill........................ 6,250/18,750 0 0
N. Andrew Dupuy, Jr.................... 2,500/22,500 0 0
Edward L. Pagano....................... 2,500/15,000 0 0
G. Ray Wilkie, Jr...................... 22,500/7,500 $29,531 $9,844
</TABLE>
- ---------------
(1) The exercise prices of the reported options range from $6.75 per share to
$20.25 per share with a weighted average exercise price of $10.78.
(2) The values are based upon the closing price reported on the New York Stock
Exchange of the Common Stock on August 31, 1998 ($8.0625).
(3) The exercise prices of the reported options range from $6.75 per share to
$24.00 per share with a weighted average exercise price of $20.92.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The persons serving as members of the Compensation Committee of the Board
of Directors during fiscal 1998 were David W. Hoyle, John W. Sinders, Jr. and L.
Lane Grigsby. No member of the Compensation Committee was an officer or employee
of the Company or any of its subsidiaries during fiscal 1998. No executive
officer of the Company served during fiscal 1998 as a director or as a member of
the Compensation Committee of another entity, one of whose executive officers
served as a director or on the Compensation Committee of the Company.
9
<PAGE> 12
DIRECTOR COMPENSATION
Each non-employee director of the Company receives a fee of $10,000 per
year and $750 for each meeting of the Company's Board of Directors attended.
Each non-employee director serving on a committee of the Board receives a fee of
$250 for each committee meeting attended. Directors are also reimbursed for
certain expenses in connection with their attendance at board and committee
meetings. In addition, pursuant to the Company's 1996 Non-Employee Director
Stock Option Plan (the "Director Plan"), each non-employee director serving as
of the effective date (July 14, 1996) of the Director Plan received an option to
purchase 5,000 shares of the Company's Common Stock. These options vest in 25%
increments in each of the four years following grant. In addition, each
non-employee director will be awarded an additional option to purchase 1,500
shares of the Company's Common Stock on an annual basis upon his or her election
or reelection to the Board. Such options will vest one year from the date of
award. The exercise price for all options granted under the Director Plan is the
closing price of a share of the Company's Common Stock reported on the New York
Stock Exchange on the date of award.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General. The Compensation Committee of the Board of Directors (the
"Committee") has been appointed by the Board as the administrator of the
Company's compensation program for executive officers and key employees. During
fiscal 1998, the Committee was comprised of two non-employee directors. David W.
Hoyle served on the Committee for the entire fiscal year. L. Lane Grigsby served
on the Committee from the beginning of fiscal 1998 until February 9, 1998, and
John W. Sinders, Jr. served from February 9, 1998 through the end of fiscal
1998.
The duties of the Committee generally are to review (a) the Company's
compensation and benefit plans to determine if they meet corporate objectives
and (b) the Chief Executive Officer's recommendations regarding (i) the
compensation of all officers of the Company; (ii) awards under the Company's
1993 Employee Stock Option Plan (for which the Committee serves as
administrator) and its other benefit plans; and (iii) the adoption of and/or
changes to major Company compensation policies and practices.
In performing the above described duties, the Committee seeks to attain the
following corporate objectives: (i) to attract, motivate and retain competent
employees focused on enhancing shareholder value; (ii) to correlate compensation
with Company objectives and strategies; (iii) to provide compensation
opportunities that are linked to the performance of the Company; and (iv) to
align employee incentives with those of the Company's shareholders. No specific
weighting is assigned to any of these objectives by the Committee in making
decisions regarding compensation for the Chief Executive Officer (the "CEO") or
executives or key employees of the Company.
Set forth below is a discussion of the Company's executive compensation
program, including a description of the decisions and actions of the Committee
during fiscal 1998 with respect to compensation for the CEO and executive
officers and key employees of the Company as a group.
Management Compensation
Base Salary. In determining appropriate base salaries, the Committee
considers competitive market forces as they relate to attracting and retaining
highly talented executives. The Committee also considers job responsibility,
experience, tenure and the cost of living in the areas where the Company's
offices and facilities are located, among other factors, in setting base salary
levels. In fiscal 1998, based upon recommendations of the CEO and in light of
additional responsibilities necessitated by the Company's recent acquisitions
and growth, the Committee approved additional raises for certain members of the
Company's executive and senior management, including Messrs. Bernhard, Gill and
Dupuy. The Committee believes that such raises will generally motivate and
encourage such persons to continue in the employ of the Company.
Cash Bonuses. During the Company's fiscal year ended August 31, 1995, the
Company adopted an Annual Incentive Compensation Plan (the "1995 Incentive
Plan") for the Company. The 1995 Incentive Plan provided for annual bonuses to
all salaried employees (other than the CEO) of the Company and its domestic
10
<PAGE> 13
subsidiaries, if the Company achieved certain targets, which were based upon a
minimum return on equity. The 1995 Incentive Plan provided that the bonus pool
was to be 50% of the amount that net profit after taxes exceeds the target. In
its fiscal years ended August 31, 1996 and 1997, the Company did not attain the
threshold required for payment of bonuses under the 1995 Incentive Plan.
In fiscal 1998, in connection with the reorganization of the Company into
three principal operating groups and in an effort to, among other things,
increase the efficiency and productivity of the Company's operations and
encourage greater accountability of individual members of senior management, the
Committee terminated the 1995 Incentive Plan and approved a new incentive plan
(the "1998 Incentive Plan") proposed by the Company's management.
The 1998 Incentive Plan provides a member of the Company's senior
management with a bonus if certain budgeted performance goals are met or
exceeded by such member's specific profit center or operating group. In
addition, in an effort to encourage the Company's overall efficiency and promote
the synergistic cooperation of its operating groups, members of senior
management will receive a bonus if the Company as a whole meets or exceeds
certain budgeted performance goals. Under the 1998 Incentive Plan, the aggregate
bonus of any member of senior management is capped at 20% to 75% of salary
depending on position, with employees in higher positions being eligible to
receive a greater percentage of their salary in bonuses. Subject to such cap,
the amount of any bonus increases if budgeted goals are exceeded by certain
threshold percentages.
In fiscal 1998, neither the Company as a whole nor any of the Company's
three principal operating groups met or exceeded their budgeted performance
goals, and accordingly no bonuses were paid to any of the Company's executive
officers under the 1998 Incentive Plan. Certain non-executive members of senior
management, however, received bonuses under the 1998 Incentive Plan based upon
certain profit centers meeting or exceeding their budgeted performance goals.
In fiscal 1998, the Company's management recommended and the Committee
approved approximately $160,000 in discretionary cash bonuses that were paid to
certain executive officers and other members of senior management in connection
with their contributions to a certain acquisition by the Company. In addition,
the Company paid approximately $150,000 in other discretionary cash bonuses to
certain non-executive members of senior management and other employees that were
recommended by Company management and approved by the Committee in light of
their contributions to the Company's record performance in sales, earnings and
earnings per share for fiscal 1997.
Awards of Stock Options and Restricted Stock. The Company's 1993 Employee
Stock Option Plan (the "Option Plan") is maintained by the Company to provide
key employees, including employee-directors, with an additional incentive to
promote the financial success of the Company as reflected in increased value in
the Company's Common Stock. Stock options granted to key employees and
executives have generally been long-term (10 years) and vest in 25% annual
increments beginning one year from the date of grant. The Company has used, and
plans to continue to use the award of stock options to align the interests of
the recipients with the interests of the Company's shareholders and to provide
an incentive for the key employees or executives to remain in the employ of the
Company. During fiscal 1998, the Committee granted options covering a total of
57,500 shares of Common Stock.
The Option Plan also provides for restricted stock as an additional type of
award that may be made thereunder. The Committee has the sole discretion to
determine the terms and conditions of the award of shares of restricted stock,
but in no event may shares of restricted stock vest less than six months after
the date of award. In fiscal 1998, the Committee awarded an aggregate of 30,000
shares of restricted stock that vest only if the employees receiving such shares
are continuously employed by the Company in a position of equal or greater rank
through July 14, 2001. The Committee believes that awards of restricted stock
serve to align the officer's interests with that of the Company's shareholders
and provide an incentive to the officer to remain in the Company's employ.
On October 19, 1998, the Committee made additional awards of options as a
result of the management recommendations. The options, which in the aggregate
cover 983,750 shares of Common Stock, were awarded to key employees in crucial
positions that will affect the Company's overall growth and performance over the
11
<PAGE> 14
next several years. The Committee believes that the awards will also result in a
more equitable distribution of options to key employees, based upon current
levels of responsibility. The options have an exercise price of $8.375 per share
(the fair market value on the date of grant) and vest in 25% increments on each
of October 19, 1999, 2000, 2001 and 2002. The options are contingent upon the
approval by the Company's shareholders of the proposal to amend the Option Plan
to increase the number of shares reserved for issuance thereunder at the
Company's 1999 Annual Meeting. If such amendment is approved, the options
granted on October 19, 1998 will replace options (the "Replaced Options") to
acquire an aggregate of 106,875 shares of Common Stock (with exercise prices
ranging from $17.375 to $24.00 per share) previously awarded under the Option
Plan. The options granted on October 19, 1998 will have extended vesting dates
as compared to the Replaced Options.
In addition, on October 19, 1998, the Committee amended options (the
"Amended Options") to purchase 38,125 shares of Common Stock (with exercise
prices ranging from $7.375 to $20.25 per share) previously awarded under the
Option Plan to certain officers and key employees of the Company to provide for,
among other things, a reduction in the exercise prices thereof to $8.375 per
share (which was the closing price listed on the New York Stock Exchange on
October 19, 1998).
The Committee's actions with respect to the Replaced Options and the
Amended Options are a result of the Committee's determination that, in light of
the recent drop in the market price of the Common Stock, the exercise prices of
such options were too high to provide meaningful incentives and motivation to
the officers and other key employees of the Company holding such options. The
Committee also determined that replacing or amending options which are not
"in-the-money" to bring the exercise prices thereof reasonably close to current
market prices serves to align more closely the interests of the officers and key
employees with the interests of the Company's shareholders.
Compensation of the Chief Executive Officer
In September 1993, prior to the creation of the Committee, the Company's
Board of Directors (other than Mr. Bernhard) determined that Mr. Bernhard's base
salary should be $500,000 annually. At such time, the Board, in setting his base
salary, sought to ensure that Mr. Bernhard would continue with the same
strategies and manner of operating the Company as he had in the past and to
ensure that he would not leave the employ of the Company. The Board, other than
Mr. Bernhard, also determined in 1993 that Mr. Bernhard would be entitled to
such annual bonuses as determined by the Compensation Committee (which at that
time had not yet been formed), plus other various prerequisites and benefits.
The Board believed at such time, and the Committee continues to believe, that
Mr. Bernhard's actions create value for the Company and its shareholders. The
Board, later in 1993, approved an Employment Agreement between the Company and
Mr. Bernhard that incorporated the compensation package previously approved by
the Board, among other things. Further, in August 1997, Mr. Bernhard's
Employment Agreement was amended to provide for a ten-year term. See "Employment
Agreements" elsewhere in this Proxy Statement, where Mr. Bernhard's Employment
Agreement is discussed in greater detail.
12
<PAGE> 15
In fiscal 1998, the Committee approved a $50,000 discretionary cash bonus
to Mr. Bernhard to recognize and reward his contributions to a certain
acquisition by the Company. In addition, in light of, among other things, Mr.
Bernhard's contributions toward the Company's continued growth in revenues and
earnings since 1993 and its significant expansion of activities, as well as the
his leadership in developing the Company's strategy and vision, the Committee
raised his annual salary to $575,000 and granted him an option to acquire 35,000
shares of Common Stock pursuant to the Company's 1993 Employee Stock Option
Plan. In October 1998, the Committee awarded Mr. Bernhard an option to acquire
up to 200,000 shares of Common Stock, which option is subject to shareholder
approval of the proposed amendment to the Option Plan at the 1999 Annual Meeting
and replaces the aforementioned option to acquire 35,000 shares of Common Stock.
The Committee believes that these actions will help retain his services and
motivate his future performance. While Mr. Bernhard's significant holdings of
Common Stock align his interests with those of the Company's shareholders, the
Committee believes that the award of stock options provides meaningful incentive
and motivation for his performance, as well as strengthen the alignment of his
interests with those of the Company's shareholders in general.
THE COMPENSATION COMMITTEE
David W. Hoyle
John W. Sinders, Jr.
EMPLOYMENT AGREEMENTS
The Company and Mr. Bernhard are parties to an Employment Agreement (the
"Employment Agreement") pursuant to which Mr. Bernhard has agreed to serve as
the Company's President and Chief Executive Officer. The initial term of the
Employment Agreement expired on December 31, 1996, but was automatically
extended for a three-year period in accordance with provisions of the Employment
Agreement since either party terminated the agreement in accordance with its
terms. As of August 21, 1997, the Company and Mr. Bernhard amended the
Employment Agreement to provide for a term expiring on December 31, 2007, with
automatic one-year extensions thereafter unless one of the parties notifies the
other in writing of his or its intention to terminate at least three months
prior to the relevant December 31st. The Employment Agreement provides that Mr.
Bernhard will receive, among other things, an annual base salary in the amount
of $500,000 (which was raised to $575,000 in fiscal 1998), participation in the
Company's bonus plan as determined by the Compensation Committee of the Board of
Directors and the inclusion of Mr. Bernhard in all plans and programs of the
Company which are made available to the Company's executives and other salaried
employees generally, including group life insurance, accidental death and
dismemberment insurance, hospitalization, long-term disability, vacations and
holidays. Mr. Bernhard is also entitled under the Employment Agreement to other
benefits in addition to those made available to the Company's management,
including providing him with acceptable Company vehicles and other means of
transportation for his personal use and benefit.
In the event Mr. Bernhard's employment is terminated as a result of his
death or disability (as defined in the Employment Agreement), he or his legal
representative will receive, among other payments, all amounts owed under his
Employment Agreement as of the date of his death or disability. In the event Mr.
Bernhard's employment is terminated by the Company for Cause (as defined in the
Employment Agreement), Mr. Bernhard will receive all amounts owed to him under
his Employment Agreement as of the date of termination. In the event Mr.
Bernhard's employment is terminated by the Company other than for Cause, Mr.
Bernhard will receive a lump sum payment equal to the full amount payable under
the Employment Agreement.
In connection with the Company's acquisition of certain assets of MERIT
Industrial Constructors, Inc. ("Merit") and it affiliates, the Company and Mr.
Gill entered into an Employment and Non-Competition Agreement dated March 20,
1997 whereby the Company agreed to employ Mr. Gill for a two-year period at
13
<PAGE> 16
an annual salary of $200,000 (which salary was raised to $225,000 in fiscal
1998). The agreement also provides for an agreement by Mr. Gill not to compete
with the Company for a period of two years following termination of employment.
In connection with the Company's acquisition of all of the outstanding
capital stock of United Crafts, Inc. (now named Shaw Constructors, Inc.), the
company entered into an Employment and Non-Competition Agreement with Andy Dupuy
with a term of three years and at an annual salary of $125,000 (which salary was
raised to $200,000 in fiscal 1998). The agreement also contains a covenant not
to compete for a period of two years following termination of employment.
STOCK PERFORMANCE GRAPH
For the period commencing December 8, 1993 (the date of the Company's
initial inclusion on the Nasdaq Stock Market) and ending August 31, 1998, the
following line graphs provide a comparison of the total shareholder return on
the Company's Common Stock with the return the Standard & Poor's Small Cap 600
Index and the Russell 2000 Index. Because the Company is the only company with
securities publicly traded in the United States securities markets that is
primarily engaged in the business of fabricating piping systems, there is no
similar industry peer group with which to compare the Company. Thus, the Company
has selected as the most appropriate peer group the Russell 2000 Index, which is
an index of companies with comparable market capitalizations. All amounts have
been calculated as if all dividends, if any, were reinvested.
COMPARISON OF THE 57-MONTH CUMULATIVE TOTAL RETURN AMONG
THE SHAW GROUP INC., THE STANDARD & POOR'S SMALL CAP 600 INDEX
AND THE RUSSELL 2000 INDEX
<TABLE>
<CAPTION>
THE SHAW S&P
MEASUREMENT PERIOD GROUP SMALLCAP RUSSELL 2000
(FISCAL YEAR COVERED) INC.(1) 600 INDEX INDEX
<S> <C> <C> <C>
12/8/93 100 100 100
8/94 88 102 104
8/95 66 124 125
8/96 227 141 139
8/97 149 189 179
8/98 56 161 147
</TABLE>
- ---------------
(1) Based upon the price of $14.50 per share, the initial public offering price
per share of the Common Stock.
14
<PAGE> 17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with its acquisition of certain assets of Merit and its
affiliates, the Company entered into a lease with an affiliate of Merit and Mr.
Gill for an office building and related real estate located in Baton Rouge,
Louisiana. The lease was for a five-year term at a monthly rental of $5,400. The
lease contained an option to purchase the office building and related real
estate in favor of the Company, for which option the Company paid 40,000 shares
of Shaw Common Stock. In June 1998, the Company exercised its option and
purchased the office building and related real estate by paying such affiliate
$654,000 in cash.
L. Lane Grigsby, a director of the Company, is an owner of construction
companies that were used by the Company in fiscal 1998 primarily as
subcontractors. During fiscal 1998, the Company paid these construction
companies approximately $4,000,000 for work performed.
The Company has, from time to time, made loans to certain of its executive
officers and/or entities in which such persons have a material interest. Each
such loan in which the indebtedness exceeded $60,000 at any time since the
beginning of fiscal 1998 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 the beginning of fiscal 1998; (iv)
the nature of the loan and of the transaction in which it was incurred; (v) the
amount outstanding as of November 30, 1998; and (vi) the interest rate charges
thereon.
(i) Merit Industrial Constructors, Inc. ("Merit"); (ii) controlled by
Richard F. Gill, an executive officer of the Company; (iii) $475,000; (iv)
made in connection with the acquisition by the Company of certain assets of
Merit; (v) $475,000; (vi) 8%.
(ii) Edward L. Pagano; (ii) executive officer of the Company; (iii)
$200,000; (iv) made in connection with Mr. Pagano's agreement to become
employed by the Company; (v) $135,000; (vi) 0%.
(iii) George P. Bevan; (ii) executive officer of the Company; (iii)
$130,000; (iv) made in connection with Mr. Bevan's employment; (v)
$130,000; (vi) 0% on $100,000 of the loan and 8.5% on $30,000 of the loan.
The Company imputes interest on the loans to Messrs. Bevan and Pagano at
the applicable federal rate and includes such amounts in their compensation for
federal income tax purposes.
PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1993 EMPLOYEE STOCK OPTION
PLAN
General. The Board of Directors is recommending for approval of the
shareholders an amendment to The Shaw Group Inc. 1993 Employee Stock Option Plan
(the "Option Plan") to increase the number of shares of the Company's Common
Stock reserved for issuance thereunder as restricted stock or upon exercise of
stock options from 590,442 shares to 1,662,500 shares, which amounts to
approximately 12.5% of the shares of Common Stock outstanding at August 31,
1998.
The Company adopted the Option Plan effective as of December 1, 1993. The
persons eligible to participate in the Option Plan are key employees, including
executive officers and employee-directors, as may be selected from time to time
by the Compensation Committee of the Board of Directors (the "Committee"), which
acts as administrator for the Option Plan. The Committee is composed of
disinterested, outside directors designated by the Board of Directors. The
Committee selects the persons eligible to receive 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 (the "Code"), or those not intended to
be incentive stock options) and determines (i) the number of shares of Common
Stock subject to each option; (ii) the vesting schedule of the option; (iii) the
option's exercise price (which cannot be less than 100% of the fair market value
on the date of grant); and (iv) the duration of the option (which cannot exceed
10 years). All options under the Option Plan are generally non-transferable
other than by will or the laws of descent and distribution, and incentive stock
options are exercisable during the lifetime of the optionee only while the
optionee is in the employ of the Company or within three months (one year in the
case of disability) after termination of employment. If the optionee dies, the
option is exercisable for one year from the date of death. The Committee also
may select
15
<PAGE> 18
eligible employees for awards of restricted shares of Common Stock ("Restricted
Stock") under the Option Plan and determine the number of shares of Restricted
Stock to be issued, the date of issuance, the price, if any, to be paid for such
shares, the vesting period and any other conditions that the Committee may
impose.
Upon its adoption in 1993, 405,000 shares were initially reserved for
issuance under the Option Plan. In 1995, the Option Plan was amended to increase
the number of shares reserved for issuance thereunder to 850,000, which
amendment was approved by the Company's shareholders at the Company's 1996
Annual Meeting. Through November 30, 1998, 259,558 shares of Common Stock have
been issued pursuant to the exercise of options and the award of Restricted
Stock under the Option Plan. Consequently, the aggregate number of shares of
Common Stock reserved for issuance under the Option Plan is presently 590,442
shares, of which 384,746 shares cover existing options. Pursuant to the proposed
amendment, the number of shares reserved for issuance under the Option Plan will
be increased to 1,662,500. Currently outstanding under the Option Plan are
options to purchase an aggregate of 1,367,246 shares of Common Stock, which
includes options to purchase 983,750 shares of Common Stock granted on October
19, 1998 (which options will be forfeited if the proposed amendment is not
approved). The maximum number of shares reserved under the Option Plan and the
exercise prices of options awarded thereunder is subject to adjustment in the
event of a stock dividend, split or combination, or to reflect a merger,
capitalization or other change in the capital structure of or by the Company.
Furthermore, subject to shareholder approval of the proposed amendment to the
Option Plan, options to purchase an aggregate of 106,875 shares of Common Stock
with exercise prices ranging from $17.375 to $24.00 per share will be terminated
and replaced by the options granted on October 19, 1998. The following table
describes the October 19, 1998 awards, to the persons and groups described
therein, of options to purchase 983,750 shares of Common Stock that are subject
to shareholder approval of the proposed amendment.
New Plan Benefits.
NEW PLAN BENEFITS
1993 EMPLOYEE STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF STOCK OPTIONS
----------------- -----------------------
<S> <C>
J. M. Bernhard, Jr.......................................... 200,000(1)
Chairman, President and Chief Executive Officer
Robert L. Belk.............................................. 75,000
Executive Vice President, Chief Financial Officer and
Treasurer
Bill A. Jackson............................................. 75,000
Executive Vice President and Chief Operating Officer
G. Ray Wilkie, Jr........................................... 42,500
Senior Vice President
Richard F. Gill............................................. 50,000(2)
Senior Vice President
George P. Bevan............................................. 45,625
Senior Vice President
Executive Officer Group..................................... 488,125(3)
Non-Executive Officer Employee Group........................ 495,625(4)
</TABLE>
- ---------------
(1) Subject to shareholder approval of the proposed amendment to the Option
Plan, this option replaces an option to acquire up to 35,000 shares of
Common Stock at $24.00 per share to become exercisable in 25% increments on
each of February 9, 1999, 2000, 2001 and 2002.
16
<PAGE> 19
(2) Subject to shareholder approval of the proposed amendment to the Option
Plan, this option replaces an option to acquire up to 18,750 shares of
Common Stock at $20.25 per share to become exercisable in 33% increments on
each of March 20, 1999, 2000 and 2001.
(3) Subject to shareholder approval of the proposed amendment to the Option
Plan, these options replace options to acquire up to 53,750 shares of Common
Stock.
(4) Subject to shareholder approval of the proposed amendment to the Option
Plan, these options replace options to acquire up to 53,125 shares of Common
Stock.
The options granted on October 19, 1998 have an exercise price of $8.375
per share, the closing price listed on the New York Stock Exchange on the date
of grant, and vest in 25% increments on each of October 19, 1999, 2000, 2001 and
2002. On November 30, 1998, the closing price of a share of Common Stock listed
on the New York Stock Exchange was $8.875 per share.
Federal Income Tax Consequences. The following statements are based on
current interpretation of existing federal income tax law. The law is technical
and complex and the statements below represent only a general summary of some of
the applicable provisions. The following discussion sets forth federal tax
consequences on the grant and exercise of an option under the Option Plan.
Incentive Stock Options. An employee who receives an incentive stock option
granted under the provisions of the Option Plan 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). If an incentive stock option is granted, the Company cannot deduct
the related compensation expense. If the incentive stock option is exercised
more than three months after the employee has left the employ of the Company
(the three-month period is extended to 12 months in the event of disability or
in the event of death), the favorable tax treatment is not available to the
employee. The incentive stock option cannot be transferred by the employee
except upon the employee's death.
With respect to the disposition of the stock received pursuant to the
exercise of an incentive stock option, the tax treatment depends upon whether
the stock was disposed of within the statutory holding period. The holding
period is the later of two years from the date of the granting 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 stock prior to
the expiration of the holding period, the employee must recognize, as ordinary
compensation, income from the gain on the disposition of the Common Stock and
the Company may deduct from its income an amount equal to the amount that the
employee recognized as ordinary compensation income.
Nonstatutory Stock Options. An employee of the company who is awarded a
nonstatutory stock option under the Option Plan will generally incur no taxable
income as a result of the grant. The Company can claim no tax deduction on the
date that the nonstatutory stock option is granted. The nonstatutory stock
option cannot be transferred by the optionee except as provided in the Option
Plan. If the nonstatutory stock option is transferred in a non-arm's length
transaction, the optionee 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
nonstatutory stock option. Upon the exercise of the nonstatutory stock option,
the optionee 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 nonstatutory stock option. The Company will be
entitled to a corresponding deduction in the amount of the income recognized by
the optionee.
Amendment or Termination of the Option Plan. The Board of Directors may
amend or terminate the Option Plan at any time and from time to time provided
that no such amendment shall, without the approval of shareholders of the
Company, (a) change the aggregate number of shares which may be issued under
options pursuant to the provisions of the Option Plan, (b) extend the term
during which an option may be exercised or the termination date of the Option
Plan, or (c) materially change the class of employees entitled to receive
options under the Option Plan; unless, in each such case, the Company's Board of
Directors shall
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obtain an opinion of legal counsel to the effect that shareholder approval of
the amendment is not required (i) by law, (ii) the applicable rules and
regulations of, or any agreement with, any national securities exchange on which
the Common Stock is then listed, or if the Common Stock is not so listed, the
rules and regulations of, or any agreement with, the National Association of
Securities Dealers, Inc., and (iii) in order to make available to the optionee
the benefits of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, or any similar or successor rule.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT TO
THE COMPANY'S 1993 EMPLOYEE STOCK OPTION PLAN.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16"), requires the Company's directors and certain officers and beneficial
owners of the Common Stock (collectively, the "reporting persons") to file with
the Securities and Exchange Commission (the "SEC") reports of ownership and
changes in ownership of the Common Stock. The reporting persons are required to
furnish the Company with copies of all reports filed pursuant to Section 16(a).
Based solely upon a review of such reports received by it, or written
representations from certain reporting persons that no Form 5 reports were
required for those persons, the Company believes that, during fiscal 1998, all
filing obligations applicable to the reporting persons were complied with except
as follows: T. A. Barfield, Jr., the Company's Secretary and General Counsel,
failed to timely file a Form 5 report with respect to a gift of Common Stock.
Mr. Bevan failed to timely file a Form 5 report in connection with his
appointment as a executive officer. Mr. Wilkie failed to timely file a Form 5
report with respect to two gifts of shares of Common Stock. Solely as a result
of a clerical error, Mr. Bernhard failed to timely file a Form 4 report with
respect to three purchases of Common Stock. Messrs. McAlister, Hoyle and Sinders
failed to timely file Form 5 reports with respect to grants of options to
purchase Common Stock under the Company's 1996 Non-Employee Director Stock
Option Plan in connection with their re-election to the Company's Board of
Directors at the 1998 Annual Meeting of Shareholders. Messrs. Pagano and Dupuy
failed to timely file Form 5 reports with respect to grants of options to
purchase Common Stock under the Company's 1993 Employee Stock Option Plan.
AUDITOR SERVICES
The Company's consolidated financial statements for the fiscal year ended
August 31, 1998 were audited by the firms of Arthur Andersen LLP and Hannis T.
Bourgeois & Co., L.L.P., and such firms will remain as the Company's auditors
until replaced by the Board of Directors. A representative of each such firm
will be present at the 1999 Annual Meeting of Shareholders to respond to any
appropriate questions and will have the opportunity to make a statement, if
either of them so desires.
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered by the Company for inclusion in
the proxy materials for the 2000 Annual Meeting of Shareholders must be
submitted in accordance with applicable regulations of the Securities and
Exchange Commission and received by the Company at its principal executive
offices no later than August 31, 1999.
In order for a shareholder to bring any business or nominations before the
1999 Annual Meeting of Shareholders, certain conditions set forth in Section
7(b) of the amended and restated by-laws of the Company must be complied with,
including, but not limited to, the delivery of a notice to the Secretary of the
Company not less than 30 nor more than 60 days in advance of the 1999 Annual
Meeting, or if fewer than 40 days notice or prior disclosure of the date of the
1999 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 1999 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 Section 7(b) of the
Company's amended and restated by-laws, a copy of which may be obtained by
contacting the Company's Secretary at (225) 296-1140.
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DETERMINATION 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 when 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 does not change. The Company's articles of incorporation, as
restated, states the exceptions where beneficial ownership is deemed not to have
changed upon the transfer of shares of Common Stock.
The Company's articles of incorporation, as restated, provide that each
outstanding share of Common Stock will entitle the holder thereof to five votes
on each matter properly submitted to the shareholders of the Company for their
vote, waiver, release or other action; except that no holder of outstanding
shares of Common Stock will be entitled to exercise more than one vote on any
such matter in respect of any share of Common Stock with respect to which there
has been a change in beneficial ownership during the four years immediately
preceding the date on which a determination is made of the shareholders of the
Company who are entitled to vote or to take any other action. A change in
beneficial ownership of an outstanding share of Common Stock will be deemed to
have occurred whenever a change occurs in any person or persons who, directly or
indirectly, through any contract, agreement, arrangement, understanding,
relationship or otherwise has or shares any of the following:
(a) voting power, which includes, without limitation, the power to vote or
to direct the voting power of such share of Common Stock;
(b) investment power, which includes, without limitation, the power to
direct the sale or other disposition of such share of Common Stock;
(c) the right to receive or to retain the proceeds of any sale or other
disposition of such share of Common Stock; or
(d) the right to receive or retain any distributions, including, without
limitation, cash dividends, in respect of such share of Common Stock.
Without limiting the generality of the foregoing, the following events or
conditions will be deemed to involve a change in beneficial ownership of a share
of Common Stock:
(a) in the absence of proof to the contrary provided in accordance with
certain procedures set forth below, a change in beneficial ownership
will be deemed to have occurred (i) whenever an outstanding share of
Common Stock is transferred of record into the name of any other person
and (ii) upon the issuance of shares in a public offering;
(b) in the case of an outstanding share of Common Stock held of record in
the name of a corporation, general partnership, limited partnership,
voting trustee, bank, trust company, broker, nominee or clearing
agency, if it has not been established pursuant to the procedures set
forth below that there has been no change in the person or persons who
or that direct the exercise of the rights referred to in subparagraphs
(a) through (d), inclusive, of the preceding paragraph with respect to
such outstanding share of Common Stock during the four years
immediately preceding the date on which a determination is made of the
shareholders of the Company entitled to vote or to take any other
action, then a change in beneficial ownership of such share of Common
Stock shall be deemed to have occurred during such period;
(c) in the case of an outstanding share of Common Stock held of record in
the name of any person as a trustee, agent, guardian or custodian under
the Uniform Gifts to Minors Act as in effect in any jurisdiction, a
change in beneficial ownership will be deemed to have occurred whenever
there is a change in the beneficiary of such trust, the principal of
such agent, the ward of such guardian, the minor for whom such
custodian is acting or a change in such trustee agent, guardian or
custodian; or
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(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 the Company's articles of
incorporation, as restated, to the contrary, no change in beneficial ownership
of an outstanding share of Common Stock shall be deemed to have occurred solely
as a result of:
(a) any transfer of any interest in an outstanding share of Common Stock
pursuant to a bequest or inheritance, by operation of law upon the
death of any individual, or by any other transfer without valuable
consideration, including, without limitation, a gift that is made in
good faith and not for the purpose of circumventing the provisions of
the Company's articles of incorporation, as restated;
(b) any changes in beneficiary of any trust, or any distribution of an
outstanding share of Common Stock from trust, by reason of the birth,
death, marriage or divorce of any natural person; the adoption of any
natural person prior to age 18; or the passage of a given period of
time or the attainment by any natural person of a specific age; or the
creation or termination of any guardianship or custodial arrangement;
(c) any appointment of a successor trustee, agent, guardian or custodian
with respect to an outstanding share of Common Stock if neither such
successor has, nor its predecessor had, the power to vote or to dispose
of such share of Common Stock without further instructions from others;
(d) any change in the person to whom dividends or other distributions in
respect of an outstanding share of Common Stock are to be paid pursuant
to the issuance or modification of a revocable dividend payment order;
(e) any issuance of a share of Common Stock by the Company or any transfer
by the Company of a share of Common Stock held in treasury other than
in a public offering thereof, unless otherwise determined by the Board
of Directors at the time of authorizing such issuance or transfer;
(f) any giving of a proxy in connection with a solicitation of proxies
subject to the provisions of Section 14 of the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated
thereunder;
(g) any transfer, whether or not with consideration, among individuals
related or formerly related by blood, marriage or adoption
("relatives") or between a relative and any person controlled by one or
more relatives where the principal purpose for the transfer is to
further the estate tax planning objectives of the transferor or of
relatives of the transferor;
(h) any appointment of a successor trustee as a result of the death of the
predecessor trustee (which predecessor trustee shall have been a
natural person);
(i) any appointment of a successor trustee who or which was specifically
named in a trust instrument prior to December 8, 1993; or
(j) any appointment of a successor trustee as a result of the resignation,
removal or failure to qualify of a predecessor trustee or as a result
of mandatory retirement pursuant to the express terms of a trust
instrument; provided, that less than 50% of the trustees administering
any single trust will have changed (including in such percentage the
appointment of the successor trustee) during the four-year period
preceding the appointment of such successor trustee.
All determinations concerning changes in beneficial ownership, or the
absence of any such change, shall be made by the Board of Directors of the
Company or, at any time when the Company employs a transfer agent with respect
to the shares of Common Stock, at the Company's request, by such transfer agent
on the Company's behalf. In accordance with the Company's articles of
incorporation, as restated, written procedures
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<PAGE> 23
designated to facilitate such determinations are to be established and may be
amended from time to time by the Board of Directors. Such procedures will
provide, among other things, the manner of proof of facts that will be accepted
and the frequency with which such proof may be required to be renewed. The
Company and any transfer agent will be entitled to rely on any and all
information concerning beneficial ownership of the outstanding shares of Common
Stock coming to their attention from any source and in any manner reasonably
deemed by them to be reliable, but neither the Company nor any transfer agent
shall be charged with any other knowledge concerning the beneficial ownership of
outstanding shares of Common Stock.
In the event of any stock split or stock dividend with respect to the
outstanding shares of Common Stock, each share of Common Stock acquired by
reason of such split or dividend will be deemed to have been beneficially owned
by the same person from the same date as that on which beneficial ownership of
the outstanding share or shares of Common Stock, with respect to which such
share of Common Stock was distributed, was acquired. Each outstanding share of
Common Stock, whether at any particular time the holder thereof is entitled to
exercise five votes or one vote, shall be identical to all other shares of
Common Stock in all respects, and together the outstanding shares of Common
Stock constitute a single class of shares of the Company.
By resolution duly adopted by the Board of Directors of the Company
pursuant to the foregoing provisions of the Company's articles of incorporation,
as restated, the following procedures have been adopted for use in determining
the number of votes to which a shareholder is entitled:
(i) The Company may accept the written and signed statement of a
shareholder to the effect that no change in beneficial ownership has
occurred during the period following December 7, 1994, and until the
date (December 7, 1998) 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 as to which such shareholder is
entitled to exercise five votes or one vote.
(ii) In the event the General Counsel of the Company, in his sole
discretion, taking into account the standards set forth in the
Company's articles of incorporation, as restated, deems any such
statement to be inadequate or for any reason deems it in the best
interest of the Company to require further evidence of the absence of
change of beneficial ownership during such period preceding the record
date, he may require such additional evidence and, until it is
provided in form and substance satisfactory to him, a change in
beneficial ownership during such period shall be deemed to have taken
place.
(iii) Information supplementing that contemplated by paragraph (i) and
additional evidence contemplated by paragraph (ii) may be provided by
a shareholder at any time but must be furnished at least three
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.
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OTHER MATTERS
The Board of Directors knows of no other matters, which may be properly, or
are likely to be, brought before the meeting. However, if any proper matters are
brought before the meeting, the persons named in the enclosed Proxy will vote
thereon as the Board of Directors recommends.
BY ORDER OF THE BOARD OF DIRECTORS
[/s/ T.A. BARFIELD, JR.]
T.A. Barfield, Jr.
Secretary
Baton Rouge, Louisiana
December 28, 1998
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<PAGE> 25
THE SHAW GROUP, INC.
11100 MEAD ROAD, SECOND FLOOR, BATON ROUGE, LA 70816
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J. M. Bernhard, Jr. and Robert L. Belk as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of common
stock of The Shaw Group Inc. held of record by the undersigned on December 7,
1998, at the annual meeting of shareholders to be held on January 29, 1999, or
any adjournment hereof.
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: Albert McAlister, J.M. Bernhard, Jr., William H. Grigg,
L. Lane Grigsby, David W. Hoyle and John W. Sinders, Jr.
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below:
- --------------------------------------------------------------------------------
2. Approval of an amendment to The Shaw Group Inc. 1993 Employee Stock
Option Plan to increase the number of shares of Common Stock reserved
for issuance thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Please Date and Sign on Reverse)
<PAGE> 26
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" PROPOSALS 1, 2 AND 3.
I PLAN TO ATTEND MEETING [ ]
Dated , 199_
------------------------------------
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Signature
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Signature (if held jointly)
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Title
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE. Please sign exactly as name
appears below. When shares are held by joint tenants, both
should sign. When signing as an attorney, as executor,
administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
