SHAW GROUP INC, S-3/A, 1999-10-15

SHAW GROUP INC
S-3/A, 1999-10-15
MISCELLANEOUS FABRICATED METAL PRODUCTS

Previous: SHAW GROUP INC, 5, 1999-10-15

Next: STRONG EQUITY FUNDS INC, 485APOS, 1999-10-15

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1999

REGISTRATION STATEMENT NO. 333-88563

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------

AMENDMENT NO. 1 TO

FORM S-3
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
----------------------

THE SHAW GROUP INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
LOUISIANA
(State of Jurisdiction of Incorporation or 72-1106167
Organization) (I.R.S. Employer Identification No.)
</TABLE>

8545 UNITED PLAZA BOULEVARD
BATON ROUGE, LOUISIANA 70809
(225) 932-2500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------------
GARY P. GRAPHIA
SECRETARY AND GENERAL COUNSEL
THE SHAW GROUP INC.
8545 UNITED PLAZA BOULEVARD
BATON ROUGE, LOUISIANA 70809
(225) 932-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------

<TABLE>
<S> <C> <C>
Copies to:
ROBERT K. HATCHER JEFFREY A. CHAPMAN DAVID P. OELMAN
VINSON & ELKINS L.L.P. VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
2300 FIRST CITY TOWER 3700 TRAMMELL CROW CENTER 4200 CHASE TOWER
1001 FANNIN 2001 ROSS AVENUE 600 TRAVIS
HOUSTON, TEXAS 77002-6760 DALLAS, TEXAS 75201-2975 HOUSTON, TX 77002
(713) 758-2222 (214) 220-7700 (713) 220-4045
</TABLE>

----------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON THE DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities or an offer to buy these securities in any state where
the offer or sale is not permitted.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED OCTOBER 15, 1999

PROSPECTUS

2,500,000 SHARES

[THE SHAW GROUP INC. LOGO]

COMMON STOCK
----------------------

The Shaw Group Inc. is selling 2,500,000 shares of common stock.

The common stock trades on the New York Stock Exchange under the trading
symbol "SGR." On October 13, 1999 the last sale price of our common stock as
reported on the New York Stock Exchange was $22 1/8.

INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.

----------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Shaw.......................... $ $
</TABLE>

The underwriters may also purchase up to an additional 375,000 shares from
Shaw at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.

----------------------

MERRILL LYNCH & CO.
JEFFERIES & COMPANY, INC.
MORGAN KEEGAN & COMPANY, INC.
RBC DOMINION SECURITIES
CORPORATION
----------------------

The date of this prospectus is , 1999.
<PAGE> 3

[Series of photographs of operations and map of worldwide operating facilities
with The Shaw Group corporate logo]
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 7
Use of Proceeds...................... 13
Dividend Policy...................... 13
Capitalization....................... 14
Price Range of Common Stock.......... 15
Selected Consolidated Financial
Data............................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
Business............................. 27
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management........................... 37
Principal Shareholders............... 40
Description of Capital Stock......... 42
Underwriting......................... 47
Legal Matters........................ 49
Experts.............................. 49
Incorporation of Certain Documents by
Reference.......................... 50
Where You Can Find More
Information........................ 50
Index to Consolidated Financial
Statements......................... F-1
</TABLE>

----------------------

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE
NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL COMMON STOCK IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT
THE INFORMATION APPEARING IN THE DOCUMENTS INCORPORATED BY REFERENCE IS ACCURATE
AS OF THE DATE ON THE FRONT OF THOSE DOCUMENTS. INFORMATION INCLUDED IN THOSE
DOCUMENTS HAS NOT BEEN UPDATED OR CHANGED SINCE THEIR RESPECTIVE DATES, AND OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE
CHANGED SINCE THOSE DATES.

----------------------

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other
than statements of historical facts contained in this prospectus, including
statements regarding our future financial position, business strategy, budgets,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. Although we believe our expectations reflected
in these forward-looking statements are based on reasonable assumptions, we
cannot assure you that these expectations will prove to have been correct.
Risks, uncertainties and assumptions that could cause actual results to differ
materially from the expectations reflected in the forward-looking statements
include, among other things:

- the demand for our products and services is cyclical and vulnerable to
changes in the economy;

- the dollar amount of our backlog, as stated at any given time, is not
necessarily indicative of our future earnings;

- political and economic conditions in countries in which we operate could
adversely affect us; and

- our projects expose us to potential product liability and warranty
claims.

We undertake no obligation to update or revise our forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur. See "Risk Factors."
<PAGE> 5

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information and financial statements and notes appearing elsewhere in this
prospectus before making an investment decision. The terms "Shaw," "we," "us"
and "our" as used in this prospectus refer to The Shaw Group Inc., including our
subsidiaries. Unless we indicate otherwise, all information in this prospectus
assumes no exercise of the over-allotment option granted to the underwriters by
us.

THE SHAW GROUP INC.

We are the largest supplier of fabricated piping systems in the United
States and one of the leading suppliers of integrated piping systems and
services for new construction, site expansion and retrofit projects in the
world. We are a cost-effective, single-source provider of fabricated piping
systems and services for projects primarily in the following industries:

- power generation;
- chemical processing;
- crude oil refining;
- petrochemical processing; and
- oil and gas exploration and production.

By serving a diverse portfolio of industries worldwide, we reduce our
dependence on any one industry or geographic region. We are currently
benefitting from substantial demand for our products and services in the power
generation industry, particularly for activity related to the installation of
gas turbine power systems in the United States. We believe that we have provided
more piping systems for the power generation market worldwide than any other
domestic competitor, positioning us to capitalize on the significant and growing
demand in this sector.

We differentiate ourselves from our competition by offering our customers
comprehensive piping solutions consisting of integrated engineering, design,
fabrication, erection and maintenance of piping systems and the manufacture of
pipe fittings. Over the past several years, our customers have included:

<TABLE>
<S> <C>
AlliedSignal, Inc. Mitsubishi Heavy Industries, Inc.
Black & Veatch Corporation Monsanto
Chevron Chemical Raytheon Engineers & Constructors,
Duke/Fluor Daniel Inc.
FMC Corporation Rolls Royce
Hitachi Southern Companies Service, Inc.
Toshiba Corporation
</TABLE>

We have also formed strategic alliances with:

<TABLE>
<S> <C>
ABB AG The Dow Chemical Company
Air Products and Chemicals, Inc. General Electric Company
Alstom S.A. Orion Refining Corporation
BASF AG Parsons Corporation
Bechtel Corporation Praxair, Inc.
</TABLE>

We were founded in 1987 and have expanded rapidly through internal growth
and the completion and integration of a series of strategic acquisitions. We
have increased our revenues from $131.1 million for fiscal 1994 to $494.0
million for fiscal 1999, representing a 30% compound annual growth rate. Over
this same time period, we have also achieved a 30% compound annual growth rate
in earnings per share. In addition, our backlog has increased from $75.0 million
as of August 31, 1994 to $818.3 million as of August 31, 1999.

1
<PAGE> 6

OUR COMPETITIVE ADVANTAGES

Over the past several years, we have increased our pipe fabrication
capacity, expanded our products and services, and broadened the scope of our
projects to include engineering, pipe erection, maintenance and related
construction services. These initiatives have enabled us to become a
technologically advanced producer of complex piping systems, to achieve
substantial economies of scale in purchasing raw materials and to provide our
customers with a broad range of products and services. As a result, we benefit
from the following competitive advantages:

Coordination and integration of piping systems and services. Our
ability to provide our customers with a single source of comprehensive
piping products and services and to coordinate and integrate our products
and services allows us to maximize project efficiency and reduce lead time
and costs for our customers.

State-of-the-art induction pipe bending technology. We believe that we
offer our customers the most sophisticated and efficient induction pipe
bending machines and technology available in the world today. Induction
bending is a technique using simultaneous super-heating and compression of
pipe to produce tight-radius bends to our customers' specifications. When
compared to the traditional cut and weld method, our technology provides a
more uniform and cost-effective product that is generally considered to be
stronger and less prone to structural fatigue.

Established, diversified customer base. Our customers include a group
of large, multi-national companies with whom we have long-standing
relationships. Because many of our customers are active in more than one of
the industries we serve, they have historically remained significant
purchasers of our piping systems and services despite fluctuations in
activity within any particular industry.

Proprietary software technology. Our proprietary SHAW-DRAW(TM) and
SHAW-MAN(TM) software programs enhance our customers' ability to plan,
schedule and track their projects and reduce installation costs and cycle
times. Many of our customers have found our software to be of such value
that they have electronically linked their own planning and control
processes with our systems and software.

Specialty manufacturing capability. While our competitors are
generally dependent on third-party manufacturers of specialty fittings, we
have the capability to manufacture many of these products in-house. By
manufacturing these critical elements of the pipe fabrication process, we
are able to maintain greater control over the sourcing of fittings, which
reduces our supply costs and minimizes delays in fabrication.

OUR BUSINESS STRATEGY

Our business strategy is to enhance our leading position as a provider of
comprehensive piping solutions within existing markets and to enter select new
markets. We intend to achieve this goal by:

with a steady source of projects, minimize the impact of short-term pricing
volatility and enable us to anticipate a larger portion of our future
revenues.

Expanding our erection, maintenance and related construction
services. We have developed expertise in providing erection, maintenance
and construction services related to our core fabrication projects. We
believe that our ability to offer these services appeals to many of our
customers and provides us with significant growth opportunities.

Pursuing selective acquisitions. Since October 1996 we have completed
11 acquisitions for total consideration of approximately $93 million. We
intend to continue to pursue selective acquisitions of businesses that will
expand or complement our current portfolio of products and services.

We are a Louisiana corporation. Our principal executive offices are located
at 8545 United Plaza Boulevard, Baton Rouge, Louisiana 70809, and our telephone
number is (225)932-2500.

3
<PAGE> 8

THE OFFERING

<TABLE>
<S> <C>
Common stock offered(1)................ 2,500,000 shares
Common stock outstanding after the
offering(2)........................ 14,236,046 shares
Use of proceeds........................ We expect our proceeds from this sale of common stock
to be approximately $51.1 million, after deducting
underwriting discounts and commissions and estimated
expenses. We intend to use approximately $47.6 million
of the proceeds from this offering to repay borrowings
under our revolving credit facility and the remaining
proceeds for general corporate purposes. Following
this repayment, we will have approximately $100
million of borrowing capacity under this facility to
fund capital requirements including:
- expanding our domestic and international
operating capacity;
- increasing available working capital; and
- financing future acquisitions.
NYSE symbol............................ "SGR"
</TABLE>

- ---------------

(1) Does not reflect the underwriters' over-allotment option. If this option is
exercised in full we will sell 375,000 additional shares.

(2) Does not include 1,257,750 shares subject to options that have been granted
pursuant to our 1993 Employee Stock Option Plan and 1996 Non-Employee
Director Stock Option Plan.

4
<PAGE> 9

SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following table presents, for the periods and as of the dates
indicated, our summary statements of income data, other financial data and
balance sheet data on a consolidated basis. The summary selected consolidated
financial data for each of the three fiscal years in the period ended August 31,
1999 presented below have been derived from our audited consolidated financial
statements. The financial data includes results of our acquisitions after the
dates on which they were completed, except for the 1997 acquisition of NAPTech,
Inc., which was accounted for as a pooling of interests. This summary financial
data should be read in conjunction with the consolidated financial statements,
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------
1997(1) 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Sales..................................................... $ 335,734 $ 501,638 $ 494,014
Cost of sales............................................. 271,759 422,057 400,186
--------- --------- ---------
Gross profit............................................ 63,975 79,581 93,828
General and administrative expenses....................... 37,377 48,503 60,082
--------- --------- ---------
Operating income........................................ 26,598 31,078 33,746
Interest expense.......................................... (6,778) (8,471) (8,649)
Other income, net......................................... 155 698 978
--------- --------- ---------
Income before income taxes.............................. 19,975 23,305 26,075
Provision for income taxes................................ 6,112 7,033 8,635
--------- --------- ---------
Income before earnings (losses) from unconsolidated
entity.................................................. 13,863 16,272 17,440
Earnings (losses) from unconsolidated entity(2)........... 437 (40) 681
--------- --------- ---------
Income from continuing operations....................... 14,300 16,232 18,121
Discontinued operations, net of taxes:
Operating results....................................... (252) 298 --
Net gain on disposals................................... -- 2,647 --
--------- --------- ---------
Net income................................................ $ 14,048 $ 19,177 $ 18,121
========= ========= =========
Basic income per common share:
Continuing operations................................... $ 1.23 $ 1.29 $ 1.52
Discontinued operations................................. (.02) .23 --
--------- --------- ---------
Net income per common share............................. $ 1.21 $ 1.52 $ 1.52
========= ========= =========
Diluted income per common share:
Continuing operations................................... $ 1.20 $ 1.26 $ 1.47
Discontinued operations................................. (.02) .23 --
--------- --------- ---------
Net income per common share............................. $ 1.18 $ 1.49 $ 1.47
========= ========= =========
Weighted average common shares outstanding:
Basic................................................... 11,632 12,617 11,935
Diluted................................................. 11,901 12,832 12,355
OTHER FINANCIAL DATA:
EBITDA(3)............................................... $ 34,111 $ 42,056 $ 47,995
Depreciation and amortization........................... 7,358 10,280 13,271
Capital expenditures.................................... 15,832 14,616 17,967
</TABLE>

<TABLE>
<CAPTION>
AS OF AUGUST 31, 1999
------------------------
ACTUAL ADJUSTED(4)
--------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 113,975 $ 165,103
Total assets.............................................. 407,062 414,628
Short-term debt and current maturities of long-term
debt.................................................... 51,618 8,056
Long-term debt obligations, net of current maturities..... 87,841 87,841
Shareholders' equity...................................... 174,239 225,367
</TABLE>

5
<PAGE> 10

- ---------------

(1) Fiscal 1997 was restated to exclude the discontinued operations disposed of
in fiscal 1998. See note 18 to our consolidated financial statements.

(2) We own a 49% interest in Shaw-Nass, our Bahrain joint venture, and we
account for this investment on the equity basis.

(3) EBITDA is net income before interest expense, income tax and depreciation
and amortization. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating profit, as an indicator of liquidity or as a
substitute for net cash provided by operating activities. The way we
calculate EBITDA may not be comparable to the EBITDA calculations of other
entities.

(4) As adjusted to reflect the application of the net proceeds to us from the
offering at an assumed offering price of $22 per share.

6
<PAGE> 11

RISK FACTORS

Investing in our common stock will provide you with an equity ownership
interest in us. As our shareholder, you will be subject to risks inherent in our
business. The performance of your shares will reflect the performance of our
business relative to, among other things, general economic and industry
conditions, market conditions and competition. The value of your investment may
increase or decline and could result in a loss. You should carefully consider
the following factors as well as other information contained in this prospectus
before deciding to invest in shares of our common stock.

This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of many factors,
including the risk factors described below and the other factors described
elsewhere in this prospectus. See "Forward-Looking Statements."

DEMAND FOR OUR PRODUCTS AND SERVICES IS CYCLICAL AND VULNERABLE TO CHANGES IN
THE ECONOMY.

The demand for our products and services depends primarily on the existence
of erection and retrofit projects, particularly in the power generation,
chemical processing, crude oil refining and petrochemical processing industries.
These industries historically have been, and will likely continue to be,
cyclical in nature and vulnerable to general downturns in the economy. Our
results of operations have varied and may continue to vary depending on the
demand for future projects from these industries. For example, demand in the
petrochemical processing sector has declined significantly in recent periods.

THE DOLLAR AMOUNT OF OUR BACKLOG, AS STATED AT ANY GIVEN TIME, IS NOT
NECESSARILY INDICATIVE OF OUR FUTURE EARNINGS.

We cannot assure you that the revenues projected in our backlog will be
realized. To the extent that we experience significant terminations or
adjustments in the scope of our projects as reflected in our backlog contracts,
we could be materially adversely affected.

We define our backlog as a "working backlog," which includes projects for
which we have received a commitment from our customers. This commitment takes
the form of a written contract for a specific project, a purchase order or a
specific indication of the amount of time or material we need to make available
for a customer's anticipated project. In certain instances the engagement is for
a particular product or project for which we estimate anticipated revenue, often
based on engineering and design specifications that have not been finalized and
may be revised over time. Our backlog for maintenance work is derived from
maintenance contracts and our customers' historic maintenance requirements.

Approximately $300 million, or 37%, of our backlog at August 31, 1999 is
attributable to a contract with General Electric that requires us to fabricate
90% of the pipe necessary to install the combined-cycle gas turbines to be built
by General Electric domestically through 2004. Approximately 53% of this backlog
is for power generation projects for which General Electric has been engaged and
is in various stages of design, engineering and construction, and for which we
have received a work release or have been notified that a work release is
pending. The balance is for work for which General Electric has requested that
we reserve capacity. We cannot assure you that all of these projects will be
constructed or that they will be completed in our currently anticipated
time-frame.

On occasion, customers will cancel or delay projects for reasons beyond our
control. In the event of project cancellation, we may be reimbursed for certain
costs but typically have no contractual right to the total revenues reflected in
our backlog. In addition, projects may remain in our backlog for extended
periods of time. If we were to experience significant cancellations or delays of
our projects in backlog, our financial condition would be significantly
adversely affected.

OUR RESULTS OF OPERATIONS DEPEND ON OUR ABILITY TO OBTAIN FUTURE CONTRACTS.

In the case of large-scale domestic and international projects where timing
is often uncertain, it is particularly difficult to predict whether and when we
will receive a contract award. The uncertainty of our
7
<PAGE> 12

contract award timing can present difficulties in matching workforce size with
contract needs. In some cases, we maintain and bear the cost of a ready
workforce that is larger than called for under existing contracts in
anticipation of future workforce needs under expected contract awards. If an
expected contract award is delayed or not received, we would incur costs that
could have a material adverse effect on us.

Projects in the power generation, chemical processing, crude oil refining
and petrochemical processing industries frequently involve a lengthy and complex
bidding and selection process. Because a significant portion of our sales is
generated from large projects, our results of operations can fluctuate from
quarter to quarter. While our revenues are derived from a concentrated customer
base, our significant customers vary between years. The loss of any one or more
of our key customers could have a material adverse impact on us.

POLITICAL AND ECONOMIC CONDITIONS IN COUNTRIES IN WHICH WE OPERATE COULD
ADVERSELY AFFECT US.

In fiscal 1999, approximately 26% of our sales was attributable to projects
in international markets. We expect international sales and operations to
continue to contribute materially to our growth and earnings for the foreseeable
future. International contracts, operations and expansion expose us to risks
inherent in doing business outside the United States, including:

- uncertain economic conditions in the foreign countries in which we make
capital investments, operate and sell products and services;

- the lack of well-developed legal systems in some countries in which we
operate and sell products and services, which could make it difficult for
us to enforce our contractual rights;

- expropriation of property;

- restrictions on the right to convert or repatriate currency; and

- political risks, including risks of loss due to civil strife, acts of
war, guerrilla activities and insurrection.

The risks associated with operating internationally are reflected in the
recent decrease in our international sales from $215.1 million in fiscal 1998 to
$127.8 million in fiscal 1999. The decrease was primarily attributable to the
economic downturn in the Far East/Pacific Rim, resulting in fewer power
generation projects, and general economic conditions and political events in
South America, causing a reduction in sales to the petrochemical processing
sector.

FOREIGN EXCHANGE RISKS MAY AFFECT OUR ABILITY TO REALIZE A PROFIT FROM CERTAIN
PROJECTS.

While we attempt to denominate our contracts in United States dollars, from
time to time we enter into contracts denominated in a foreign currency without
escalation provisions. This practice subjects us to foreign exchange risks.
Foreign exchange controls may also adversely affect us. For instance, prior to
the lifting of foreign exchange controls in Venezuela in November 1995, these
controls adversely affected our ability to repatriate profits from our
Venezuelan subsidiary or otherwise convert local currency into United States
dollars. We generally do not obtain insurance for or hedge against foreign
exchange risks. In addition, our ability to obtain international contracts is
impacted by the relative strength or weakness of the United States dollar
relative to foreign currencies.

THE NATURE OF OUR CONTRACTS COULD ADVERSELY AFFECT US.

We enter into fixed price or lump-sum contracts on a significant number of
our domestic contracts and substantially all of our international projects. Our
profit for the projects could decrease, or we could experience losses, if we are
unable to secure fixed pricing commitments from our suppliers at the time the
contracts are entered into or if we experience cost increases for material or
labor during the performance of the contracts.

8
<PAGE> 13

We enter into contractual agreements with customers for some construction
services to be performed based on agreed upon reimbursable costs and labor
rates. In some instances, the terms of these contracts provide for the
customer's review of the accounting and cost control systems to verify the
completeness and accuracy of the reimbursable costs invoiced. These reviews
could result in proposed reductions in reimbursable costs and labor rates
previously billed to the customer.

OUR DEPENDENCE ON A FEW SPECIALIZED SUPPLIERS FOR SOME OF OUR MATERIALS COULD
ADVERSELY AFFECT US.

Our principal raw materials are carbon steel, stainless steel and other
alloy piping, which we obtain from a number of domestic and foreign primary
steel producers. To the extent that we cannot acquire raw materials, our ability
to complete a project in a timely fashion or at a profit may be jeopardized. In
addition, if a manufacturer is unable to deliver the materials according to the
negotiated terms, we may be required to purchase the materials from another
source at a higher price. This may reduce the profit to be realized or result in
a loss on a project for which the materials were needed.

OUR PROJECTS EXPOSE US TO POTENTIAL PRODUCT LIABILITY, WARRANTY CLAIMS AND
LIABILITY CLAIMS ARISING FROM OUR CONSTRUCTION PROJECTS.

Our products are typically installed in large industrial facilities in
which system failure can be disastrous. Any catastrophic occurrences in excess
of insurance limits at locations where our products are installed could result
in significant product liability or warranty claims against us. In addition,
under some of our contracts, we must use new metals or processes for producing
or fabricating pipe for our customers. The failure of any of these metals or
processes could result in warranty claims against us for significant replacement
or reworking costs.

The increasing number of erection and construction projects we are
performing exposes us to additional risk including cost overruns, equipment
failures, personal injuries, property damage, shortages of materials and labor,
work stoppages, labor disputes, weather problems and unforeseen engineering,
architectural, environmental and geological problems. In addition, once our
construction is complete, we may face claims with respect to the performance of
these facilities.

PROBLEMS INTEGRATING ACQUISITIONS AND MANAGING OUR GROWTH COULD ADVERSELY AFFECT
US.

We have experienced substantial growth through internal expansion and
acquisitions, and we plan to pursue select acquisitions in the future. Because
we pursue acquisitions around the world and may actively pursue a number of
opportunities simultaneously, we may encounter unforeseen expenses,
complications and delays, including difficulties in staffing and providing
operational and management oversight. As we expand our operations through
acquisitions, we may encounter difficulties integrating acquisitions and
successfully managing our growth. We cannot assure you that our current
management, personnel and other corporate infrastructure will be adequate to
manage our growth or that our systems, procedures and controls will be adequate
to support our expanding operations. To the extent we encounter problems in
integrating acquisitions and managing our growth, we could be materially
adversely affected.

We are currently operating at or near full capacity in all of our operating
facilities. Our production needs will likely exceed our current capacity in the
future. To satisfy our production needs, we plan to purchase or build additional
plants. We cannot assure you that we will complete the acquisition or
construction of these plants on a timely basis or at our budgeted costs.

OUR COMPETITORS MAY HAVE GREATER RESOURCES AND EXPERIENCE THAN WE DO.

In pipe engineering and fabrication, we experience significant competition
from competitors in both international and domestic markets. In the United
States, there are a number of smaller pipe fabricators. Internationally, our
principal competitors are divisions of large industrial firms. Some of our
competitors, primarily in the international sector, have greater financial and
other resources than we do.

9
<PAGE> 14

In our erection, maintenance and related construction services, we have
numerous regional, national and international competitors, many of which have
greater financial and other resources than we do. Moreover, we are a recent
entrant into this business, and many of our competitors also possess
substantially greater experience, market knowledge and customer relationships
than we do.

ENVIRONMENTAL FACTORS AND CHANGES IN LAWS AND REGULATIONS COULD INCREASE OUR
COSTS AND LIABILITIES.

We are subject to environmental laws and regulations, including those
concerning:

- emissions into the air;
- discharges into waterways;
- generation, storage, handling, treatment and disposal of waste materials;
and
- health and safety.

These laws and regulations generally impose limitations and standards for
certain pollutants or waste materials and require us to obtain a permit and
comply with various other requirements. Governmental authorities may seek to
impose fines and penalties on us, or revoke or deny the issuance or renewal of
operating permits, for failure to comply with applicable laws and regulations.

In addition, under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 and comparable state laws, we may be required to
investigate and remediate hazardous substances. CERCLA and these comparable
state laws typically impose liability without regard to whether a company knew
of or caused the release, and liability has been interpreted to be joint and
several unless the harm is divisible and there is a reasonable basis of
allocation. Our foreign operations are also subject to various requirements
governing environmental protection.

The environmental health and safety laws and regulations to which we are
subject are constantly changing, and it is impossible to predict the effect of
such laws and regulations on us in the future. We have not conducted
environmental audits of all of our properties. We cannot assure you that our
operations will continue to comply with future laws and regulations or that
these laws and regulations will not significantly adversely affect us.

WORK STOPPAGES AND OTHER LABOR PROBLEMS COULD ADVERSELY AFFECT US.

Some of our employees in the United States are represented by a union. We
experienced a strike, without material impact on production, by union members in
February 1997 relating to the termination of collective bargaining agreements
covering our facilities in Walker and Prairieville, Louisiana. A lengthy strike
or other work stoppage at any of our facilities could have a material adverse
effect on us. From time to time we have also experienced attempts to unionize
our non-union shops. While these efforts have achieved limited success to date,
we cannot assure you that we will not experience additional union activity in
the future.

PROTECTION OF OUR INDUCTION PIPE BENDING AND SOFTWARE TECHNOLOGY IS LIMITED AND
OUR COMPETITORS MAY DEVELOP OR OTHERWISE ACQUIRE EQUIVALENT OR SUPERIOR
TECHNOLOGY.

Our induction pipe bending technology and capabilities impact our ability
to compete successfully. This technology and our proprietary software are not
currently patented. While we may have some legal protections, litigation brought
by us in this regard could be time-consuming and expensive and could prove
unsuccessful. Likewise, although we protect some proprietary materials and
processes through non-disclosure and confidentiality agreements, we cannot
assure you that these agreements will not be breached. Finally, there is nothing
to prevent our competitors from independently attempting to develop or obtain
access to technologies that are similar or superior to our technology.

10
<PAGE> 15

OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT, INCLUDING J.M. BERNHARD,
JR.

Our success is dependent upon the continued services of J. M. Bernhard,
Jr., our founder, Chairman, President and Chief Executive Officer, and other key
officers. The loss of Mr. Bernhard or other key officers could adversely affect
us.

OUR ARTICLES OF INCORPORATION AND BY-LAWS AND LOUISIANA LAW CONTAIN PROVISIONS
THAT CONCENTRATE VOTING POWER IN MANAGEMENT AND COULD DISCOURAGE A TAKEOVER.

At September 30, 1999, our officers and directors beneficially owned
approximately 25% of our outstanding common stock but, due to the voting
provisions described below, controlled in excess of 56% of the voting power.
Consequently, these persons, in particular Mr. Bernhard, will be able to
exercise significant influence over corporate actions and the outcome of matters
requiring a shareholder vote, including the election of directors. See
"Principal Shareholders" and "Description of Capital Stock."

Our articles of incorporation provide that each share of common stock that
has been held by the same person for at least four consecutive years is entitled
to five votes on each matter to be voted upon at shareholders' meetings, and all
shares held for less than four years are entitled to one vote per share for each
matter. This charter provision concentrates control in current management and
could:

- increase the difficulty of removing the incumbent board of directors or
management;
- diminish the likelihood that a potential buyer would make an offer for
the common stock; and
- impede a transaction favorable to the interests of some shareholders.

Each purchaser of shares of common stock offered under this prospectus will be
entitled to one vote for each share of common stock at all shareholders'
meetings until the shares have been continuously owned for a period of four
years. After the shares have been continuously owned by the same person for a
period of four years, the holder will be entitled to five votes for each share
on all matters submitted to shareholders. See "Description of Capital
Stock -- Common Stock."

In addition, certain provisions of our articles of incorporation and
by-laws and Louisiana law may tend to deter potential unsolicited offers or
other efforts to obtain control of us that are not approved by our board of
directors. The provisions may deprive our shareholders of opportunities to sell
shares of common stock at prices higher than prevailing market prices. See
"Description of Capital Stock."

OUR ISSUANCE OF PREFERRED STOCK COULD ADVERSELY AFFECT YOUR RIGHTS AS A HOLDER
OF COMMON STOCK.

Our board of directors is authorized to issue up to 5,000,000 shares of
preferred stock without any further action on the part of our shareholders. In
the event we issue preferred stock in the future that has preference over the
common stock with respect to payment of dividends or upon our liquidation,
dissolution or winding up, your rights as holders of common stock could be
adversely affected. See "Description of Capital Stock -- Preferred Stock."

OUR COMPUTER SYSTEMS AND THOSE OF THIRD PARTIES MAY NOT BE YEAR 2000 COMPLIANT,
WHICH MAY CAUSE SYSTEM FAILURES AND DISRUPTIONS IN OPERATIONS.

The inability of some computer programs and embedded computer chips to
distinguish between the year 1900 and the year 2000 poses a serious threat of
business disruption to any organization that utilizes computer technology in its
business systems or equipment. If our information systems fail or if suppliers
on which we depend for essential goods and services experience information
system failures, we could be materially adversely affected. We could face
substantial claims by customers, as well as loss of revenues, due to:

- service interruptions;
- inability to fulfill contractual obligations;
- inability to account for transactions; and

11
<PAGE> 16

- increased expenses associated with
-- litigation;
-- harm to persons or to property;
-- stabilization of operations following system failures; and
-- the execution of contingency plans.

In addition:

- we depend on third parties, including customers, suppliers and service
providers, who may fail to address adequately their year 2000 problems;
and

- we rely on automated plant systems, computerized billing procedures and
other embedded chip technologies that could necessitate expensive
corrective actions.

Any or all of these consequences, should they materialize, could have a
material adverse effect on us. For a more detailed discussion on the state of
our year 2000 readiness, the costs we anticipate incurring to become year 2000
ready and our year 2000 contingency plans, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000."

12
<PAGE> 17

USE OF PROCEEDS

We estimate that we will receive approximately $51.1 million from this
offering, after deducting the underwriting discount and estimated expenses of
the offering and assuming an offering price of $22 per share. If the
underwriters' over-allotment option is exercised, we estimate that we will
receive an additional $7.8 million. We intend to use approximately $47.6 million
of the proceeds to repay borrowings under our revolving credit facility and the
remaining proceeds for general corporate purposes. Following this repayment, we
will have approximately $100 million of borrowing capacity under this facility
to fund capital requirements including:

- expanding our domestic and international operating capacity;
- increasing available working capital; and
- financing future acquisitions.

The amount outstanding under the revolving credit facility at September 30,
1999 was $47.6 million, bore interest at a weighted average rate of 6.53% for
fiscal 1999 and matures on May 31, 2002. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

DIVIDEND POLICY

We have not paid any dividends on the common stock and currently anticipate
that any earnings will be retained for the development of our business.
Accordingly, no dividends are expected to be declared or paid on the common
stock for the foreseeable future. The declaration of dividends is at the
discretion of our board of directors. Our dividend policy will be reviewed by
our board of directors as may be appropriate in light of relevant factors at the
time. We are, however, subject to limitations on the payment of dividends under
the terms of our revolving credit facility.

13
<PAGE> 18

CAPITALIZATION

The following table sets forth our capitalization at August 31, 1999 and as
adjusted to give effect to the application of the net proceeds from the offering
assuming an offering price of $22 per share. The table should be read in
conjunction with our consolidated financial statements and related notes thereto
and other financial data included elsewhere in this prospectus. See "Use of
Proceeds."

<TABLE>
<CAPTION>
AT AUGUST 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 6,901 $ 14,467
======== ========
Short-term borrowings and current maturities of long-term
debt:
Short-term borrowings (revolving line of credit)(1)....... $ 43,562 $ --
Current maturities of long-term debt(2)................... 8,056 8,056
-------- --------
Total short-term borrowings and current maturities
of long-term debt............................... $ 51,618 $ 8,056
======== ========
Long-term debt, excluding current portion(2)................ $ 87,841 $ 87,841
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized
; no shares issued and outstanding..................... -- --
Common stock, no par value; 50,000,000 shares authorized;
19,960,282 shares issued; 11,736,046 shares
outstanding; 14,236,046 shares outstanding, as
adjusted(3)............................................ 119,353 170,481
Retained earnings......................................... 77,071 77,071
Accumulated other comprehensive income.................... (1,535) (1,535)
Unearned restricted stock compensation.................... (125) (125)
Less: 8,224,236 shares held in treasury, at cost.......... (20,525) (20,525)
-------- --------
Total shareholders' equity........................ 174,239 225,367
-------- --------
Total capitalization.............................. $262,080 $313,208
======== ========
</TABLE>

- ---------------

(1) At September 30, 1999, amounts outstanding under our revolving line of
credit totaled $47.6 million.

(2) Includes obligations under capital leases.

(3) Does not include 1,257,750 shares subject to options that have been granted
pursuant to our 1993 Employee Stock Option Plan and 1996 Non-Employee
Director Stock Option Plan. See "Description of Capital Stock."

14
<PAGE> 19

PRICE RANGE OF COMMON STOCK

The common stock is traded on the New York Stock Exchange under the symbol
"SGR." The following table sets forth the high and low sales prices per share of
the common stock as reported on the New York Stock Exchange for the periods
shown.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year ended August 31, 1998
First quarter............................................. $24 3/8 $17 3/4
Second quarter............................................ 26 3/8 18 1/2
Third quarter............................................. 25 5/8 22 1/8
Fourth quarter............................................ 27 15/16 8 1/16
Fiscal year ended August 31, 1999
First quarter............................................. 10 15/16 6 3/8
Second quarter............................................ 16 3/16 7 3/16
Third quarter............................................. 14 5/8 11 1/8
Fourth quarter............................................ 22 1/2 12 1/8
Fiscal year ended August 31, 2000
First quarter (through October 13, 1999).................. 24 3/8 19 3/4
</TABLE>

On October 13, 1999, the closing sales price of the common stock on the New
York Stock Exchange was $22 1/8 per share. As of October 13, 1999, we had
approximately 151 shareholders of record.

15
<PAGE> 20

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following table presents, for the periods and as of the dates
indicated, our selected statements of income data, other financial data and
balance sheet data on a consolidated basis. The selected historical consolidated
financial data for each of the five fiscal years in the period ended August 31,
1999 presented below have been derived from our audited consolidated financial
statements. The financial data includes results of our acquisitions which have
been accounted for as purchases after the dates on which they were completed,
except for the 1997 acquisition of NAPTech, Inc., which was accounted for as a
pooling of interests. This selected financial data should be read in conjunction
with the consolidated financial statements, "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
1995(1)(2) 1996(1)(2) 1997(2) 1998 1999
---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Sales............................ $ 156,921 $ 248,969 $ 335,734 $ 501,638 $ 494,014
Cost of sales.................... 130,714 208,473 271,759 422,057 400,186
--------- --------- --------- --------- ---------
Gross profit.................. 26,207 40,496 63,975 79,581 93,828
General and administrative
expenses...................... 16,460 26,569 37,377 48,503 60,082
--------- --------- --------- --------- ---------
Operating income.............. 9,747 13,927 26,598 31,078 33,746
Interest expense................. (3,465) (4,823) (6,778) (8,471) (8,649)
Other income, net................ 244 923 155 698 978
--------- --------- --------- --------- ---------
Income before income taxes.... 6,526 10,027 19,975 23,305 26,075
Provision for income taxes....... 2,027 3,215 6,112 7,033 8,635
--------- --------- --------- --------- ---------
Income before earnings (losses)
from unconsolidated entity.... 4,499 6,812 13,863 16,272 17,440
Earnings (losses) from
unconsolidated entity(3)...... (588) 103 437 (40) 681
--------- --------- --------- --------- ---------
Income from continuing
operations.................. 3,911 6,915 14,300 16,232 18,121
Discontinued operations, net of
taxes:
Operating results............. -- (298) (252) 298 --
Net gain on disposals......... -- -- -- 2,647 --
--------- --------- --------- --------- ---------
Income before extraordinary
item........................ 3,911 6,617 14,048 19,177 18,121
Extraordinary item, less taxes... 491 -- -- -- --
--------- --------- --------- --------- ---------
Net income....................... $ 4,402 $ 6,617 $ 14,048 $ 19,177 $ 18,121
========= ========= ========= ========= =========
Basic income per common share(4):
Continuing operations......... $ .44 $ .71 $ 1.23 $ 1.29 $ 1.52
Discontinued operations....... -- (.03) (.02) .23 --
Extraordinary item............ .06 -- -- -- --
--------- --------- --------- --------- ---------
Net income per common share... $ .49 $ .68 $ 1.21 $ 1.52 $ 1.52
========= ========= ========= ========= =========
Diluted income per common
share(4):
Continuing operations......... $ .44 $ .69 $ 1.20 $ 1.26 $ 1.47
Discontinued operations....... -- (.03) (.02) .23 --
Extraordinary item............ .05 -- -- -- --
--------- --------- --------- --------- ---------
Net income per common share... $ .49 $ .66 $ 1.18 $ 1.49 $ 1.47
========= ========= ========= ========= =========
Weighted average common shares
outstanding:
Basic(4):..................... 8,916 9,758 11,632 12,617 11,935
Diluted(4):................... 8,959 10,013 11,901 12,832 12,355
</TABLE>

16
<PAGE> 21

BALANCE SHEET DATA:
Working capital.................. $ 37,086 $ 47,880 $ 92,957 $ 130,455 $ 113,975
Total assets..................... 116,771 218,503 262,459 389,844 407,062
Short-term debt and current
maturities of long-term
debt.......................... 22,176 57,661 35,538 30,212 51,618
Long-term debt obligations, net
of current maturities......... 9,855 36,840 39,039 91,715 87,841
Shareholders' equity............. 59,356 76,045 137,815 170,695 174,239
</TABLE>

- ---------------

(1) Restated to account for our acquisition of NAPTech, Inc. on January 27,
1997, using the pooling-of-interests method of accounting.

(2) We restated fiscal 1996 and 1997 to exclude the discontinued operations that
we disposed of in fiscal 1998. The effect of the disposition in fiscal 1995
is immaterial. See note 18 of our consolidated financial statements.

(3) We own a 49% interest in Shaw-Nass, our Bahrain joint venture, and we
account for this investment on the equity basis.

(4) Earnings per share amounts for fiscal 1995, 1996 and 1997 have been restated
to reflect the adoption of Statement of Financial Accounting Standards No.
128, "Earnings Per Share."

(5) EBITDA is net income before interest expense, income tax and depreciation
and amortization. EBITDA is not a measure recognized by generally accepted
accounting principles and should not be considered in isolation or as a
substitute for operating profit, as an indicator of liquidity or as a
substitute for net cash provided by operating activities. The way we
calculate EBITDA may not be comparable to the EBITDA calculations of other
entities.

17
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This prospectus contains forward-looking statements regarding Shaw's
performance, strategy, plans, objectives, expectations, beliefs and intentions.
When used in this prospectus, the words "intend," "anticipate," "believe,"
"estimate," "plan" and "expect" and similar expressions as they relate to us are
included to identify forward-looking statements. Our actual results could differ
materially from the results discussed in the forward-looking statements as a
result of the risk factors set forth elsewhere in this prospectus. See
"Forward-Looking Statements" and "Risk Factors." The following discussion and
analysis should be read in conjunction with "Selected Consolidated Financial
Data" and our consolidated financial statements and the notes thereto included
elsewhere in this prospectus.

GENERAL

We are the largest supplier of fabricated piping systems in the United
States and one of the leading providers of integrated piping systems and
services for new construction, site expansion and retrofit projects in the
world. We were founded in 1987 and have expanded rapidly through both internal
growth and a series of strategic acquisitions. Most of our operations are
conducted through wholly-owned subsidiaries, although we own a 49% interest in
Shaw-Nass, a joint venture for pipe fabrication in Bahrain. We provide our
products and services to customers in the power generation, chemical processing,
crude oil refining, petrochemical processing, oil and gas exploration and
production and other industries, including pulp and paper, food processing and
pharmaceuticals. We serve our customers on a worldwide basis and have
established a leading market position in the United States as well as select
international markets in South America, Europe, Asia and Australia.

As discussed below, our financial performance is impacted by the broader
economic trends affecting our customers. All of the major industries in which we
operate are cyclical. Because our customers participate in a broad portfolio of
industries, our experience has been that downturns in one of our sectors may be
mitigated by opportunities in others. The domestic power generation market
currently represents our most significant growth opportunity. Despite a
softening in the international power generation market, our operating results in
the fourth quarter of fiscal 1999 show significant additional activity primarily
attributable to combined-cycle gas turbines being built by General Electric.
Because the outlook for power generation investments is strong (the Energy
Information Agency estimates that $1.4 trillion will be spent globally between
1995 and 2010), we believe that we are well positioned to capitalize on these
opportunities. While our chemical processing and crude oil refining customers
have experienced limited growth in recent years, we continue to experience
relatively steady activity in those sectors as our customers complete retrofit
and expansion work required to produce new products, modernize aging facilities
and meet increasingly stringent environmental requirements. The petrochemical
processing sector accounted for a declining percentage of our revenues in 1999
as that sector has experienced a significant downturn over the past several
years. We do not expect increased activity in this sector in the near-term.
Finally, we entered the oil and gas exploration and production sector in July
1998 and expect our activity in this sector to increase after oil and gas
companies increase capital spending based on recent increases in prices of oil
and gas.

Due to increased demand for our services, our backlog has increased from
$75.0 million as of August 31, 1994 to $818.3 million as of August 31, 1999.
Approximately 64% of this backlog is attributable to the power generation
sector, 12% to the chemical processing sector, 19% to the crude oil refining
sector, 4% to the oil and gas exploration and production sector and 1% for other
industries. Our backlog is largely a reflection of the broader economic trends
being experienced by our customers and is important to us in anticipating our
operational needs. Backlog is not a measure defined in generally accepted
accounting principles and our backlog may not be comparable to backlog of other
companies. While we believe backlog information may be helpful in understanding
our business, it is not necessarily indicative of our future earnings. See "Risk
Factors" and "Business -- Backlog."

Since our formation in 1987, we have experienced significant growth both
from internal expansion and the completion and integration of a series of
strategic acquisitions. While we did not complete any
18
<PAGE> 23

acquisitions in fiscal 1999, from October 1996 through July 1998 we completed 11
acquisitions for aggregate consideration of approximately $93 million. As
discussed below, these acquisitions continue to have a significant impact on our
results of operations. The acquisitions reflected in the discussion of our
results of operations presented below include:

- Pipe Shields, an industrial pipe insulation company located in
California, purchased in October 1996;
- NAPTech, a pipe fabricator and pipe module engineering firm located in
Utah, purchased in January 1997;

- United Crafts, an industrial erection and maintenance company located in
Louisiana, purchased in February 1997;

- MERIT Industrial Constructors, an industrial erection and maintenance
firm located in Louisiana, purchased in March 1997;

- Pipework Engineering and Development, a pipe fabrication company located
in the United Kingdom, purchased in October 1997;
- Prospect, a power piping contractor headquartered in the United Kingdom
with operations in Australia and Virginia, purchased in November 1997;
- Lancas, a construction company located in Venezuela, purchased in January
1998;
- Cojafex, a manufacturer of induction bending equipment, purchased in
January 1998; and
- Bagwell, an offshore fabrication and construction firm located in
Louisiana, purchased in July 1998.

RESULTS OF OPERATIONS

The following table presents certain income and expense items as a
percentage of our sales for the years ended August 31, 1997, 1998 and 1999:

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Sales....................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 80.9 84.1 81.0
----- ----- -----
Gross profit.............................................. 19.1 15.9 19.0
General and administrative expenses......................... 11.2 9.7 12.2
----- ----- -----
Operating income.......................................... 7.9 6.2 6.8
Interest expense............................................ (2.0) (1.7) (1.8)
Other income, net........................................... -- 0.1 0.3
----- ----- -----
Income before income taxes................................ 5.9 4.6 5.3
Provision for income taxes.................................. 1.8 1.4 1.8
----- ----- -----
Income from continuing operations before earnings (losses)
from unconsolidated entity................................ 4.1 3.2 3.5
Earnings (losses) from unconsolidated entity................ 0.2 -- 0.2
----- ----- -----
Income from continuing operations......................... 4.3 3.2 3.7
Discontinued operations, net of tax:
Operating results......................................... (0.1) 0.1 --
Net gain on disposals..................................... -- 0.5 --
----- ----- -----
Net income.................................................. 4.2% 3.8% 3.7%
===== ===== =====
</TABLE>

FISCAL 1999 COMPARED TO FISCAL 1998

Revenues decreased slightly to $494.0 million in fiscal 1999 from $501.6
million in fiscal 1998. Gross profit increased 17.8% to $93.8 million in fiscal
1999 from $79.6 million in fiscal 1998. These variances are discussed below.

19
<PAGE> 24

Our sales to customers in the following geographic regions approximated the
following amounts and percentages:

<TABLE>
<CAPTION>
GEOGRAPHIC REGION FISCAL 1998 FISCAL 1999
- ----------------- --------------------- ---------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
United States................................. $286.5 57.1% $366.2 74.1%
Far East/Pacific Rim.......................... 100.6 20.0 41.1 8.3
Europe........................................ 55.8 11.1 49.7 10.1
South America................................. 31.9 6.4 18.7 3.8
Middle East................................... 18.4 3.7 10.2 2.1
Other......................................... 8.4 1.7 8.1 1.6
------ ----- ------ -----
$501.6 100.0% $494.0 100.0%
====== ===== ====== =====
</TABLE>

Revenues from domestic projects increased $79.7 million, or 28%, from
$286.5 million for fiscal 1998 to $366.2 million for fiscal 1999. Increases were
experienced in all domestic industry sectors except petrochemical processing.
Revenues from international projects decreased $87.3 million, or 41%, from
$215.1 million for fiscal 1998 to $127.8 million for fiscal 1999. The decline in
international sales was primarily attributable to decreases in activity in the
power generation sector in the Far East/Pacific region, in the crude oil
refining sector in South America and the Middle East and in the chemical
processing sector in South America.

Our sales to customers in the following industries approximated the
following amounts and percentages:

<TABLE>
<CAPTION>
INDUSTRY SECTOR FISCAL 1998 FISCAL 1999
- --------------- --------------------- ---------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
Power Generation.............................. $193.5 38.6% $161.8 32.8%
Chemical Processing........................... 132.6 26.4 141.0 28.5
Crude Oil Refining............................ 83.9 16.7 109.3 22.1
Petrochemical Processing...................... 42.4 8.5 20.8 4.2
Oil and Gas Exploration and Production........ 23.1 4.6 29.0 5.9
Other......................................... 26.1 5.2 32.1 6.5
------ ----- ------ -----
$501.6 100.0% $494.0 100.0%
====== ===== ====== =====
</TABLE>

Although our total revenues from power generation projects declined in
fiscal 1999 compared to fiscal 1998, revenues from domestic power generation
projects increased nearly 51% for fiscal 1999 compared to fiscal 1998 due to new
domestic power generation projects, including the start-up of our announced $300
million, five-year contract for General Electric in August 1999. In fiscal 1999,
we experienced a decline in international power generation project revenues,
particularly in the Far East/Pacific Rim market due to general economic
conditions. Revenues associated with international power generation projects
declined 33% in fiscal 1999 compared to fiscal 1998.

Revenues from the chemical processing industry increased in fiscal 1999
over the prior year due to increased domestic activity offset in part by
decreased international activity. The decrease in international chemical
processing revenues was due primarily to weak activity in the South American
region as a result of general economic conditions.

Revenues from the crude oil refining industry for fiscal 1999 increased
over the prior year due to increases in domestic project activity exceeding
declines in international project activity. Domestically, our activity was
positively impacted by a large construction project for a refinery in Norco,
Louisiana that accounted for approximately 14% of our revenues in fiscal 1999.
We experienced a decrease in revenues from international crude oil refining
primarily due to weak activity in South America (resulting from general economic
conditions and recent political events, particularly in Venezuela) and the
Middle East.

20
<PAGE> 25

Revenues from the petrochemical processing industry decreased significantly
in both the domestic and international markets during fiscal 1999 compared to
the prior year. The decrease in revenues from petrochemical processing was
primarily attributable to weak global demand.

Revenues from the oil and gas exploration and production industry increased
in fiscal 1999 over fiscal 1998 due to the results of a subsidiary that we
acquired in July 1998 and were partially offset by reductions in oil and gas
project work performed by our other subsidiaries. Most of our revenues from this
sector are domestic.

Our gross profit margin for fiscal 1999 increased to 19.0% from 15.9% for
the prior year. The gross profit margin was positively impacted by increased
revenues from higher-margin projects in the domestic power generation, chemical
processing and crude oil refining industries. The overall increase in demand for
domestic power generation related projects has had a favorable impact on margins
for those projects. We anticipate that margins on domestic power generation
projects should remain stable provided that the current level of demand for
these projects remains steady. We have historically realized lower overall
margins on our erection and construction services because we generally assume
responsibility for providing all materials and subcontractor costs on these
projects. These costs are typically passed through to the customer with minimal
profit recognized by us. During fiscal 1999, we entered into a contract for the
expansion of a refinery in Norco, Louisiana which excluded materials and
subcontractor costs from the scope of our services. We do not expect to continue
to enter into erection and construction contracts which exclude a significant
amount of customer furnished material or subcontractor costs in the future. The
increase in the gross profit margin was partially offset by continued lower
margins on our manufactured products due to pricing pressures from foreign
imports and lower margins from our foreign operations due to reduced activity in
the foreign power generation and petrochemical processing industries. During the
second half of fiscal 1999, we began to experience easing of pricing pressures
for foreign imports. As previously discussed, we do not expect to see short-term
improvements in our various foreign operating locations and anticipate margins
will remain unchanged in our foreign operating locations.

General and administrative expenses were $60.1 million for fiscal 1999, up
24% from $48.5 million for fiscal 1998. The increase primarily related to growth
of our erection and construction services and the integration of Shaw Bagwell,
Inc., our oil and gas services subsidiary, and Shaw Lancas, C.A., our Venezuelan
construction subsidiary, into our business for all of fiscal 1999. We believe
that general and administrative expenses as a percentage of revenues will trend
downward toward historical levels as revenues from Shaw Bagwell, Inc. and Shaw
Lancas, C.A. increase, but we cannot assure you that this will occur.

For fiscal 1999, interest expense was $8.6 million, up $0.1 million from
$8.5 million in the previous year. Interest expense varies in relation to the
balances in, and variable interest rates under, our principal revolving line of
credit facility, which has generally been used to provide working capital and
fund fixed asset purchases and subsidiary acquisitions. Additionally, during
fiscal 1999, we used our line of credit facility to purchase treasury stock
totaling $13.7 million.

Our effective tax rates for fiscal 1998 and fiscal 1999 were 30.2% and
33.1%, respectively. The increase in our effective tax rate from fiscal 1998 to
fiscal 1999 was due to the reduced amount of foreign export sales and a reduced
amount of income earned in foreign jurisdictions with lower tax rates than the
United States Federal rate.

FISCAL 1998 COMPARED TO FISCAL 1997

Revenues increased 49.4% for fiscal 1998 to $501.6 million from $335.7
million for fiscal 1997. Gross profit increased 24.4% to $79.6 million for
fiscal 1998 from $64.0 million for fiscal 1997. Approximately $112 million of
the increase in revenues related to sales of subsidiaries that we acquired
during fiscal 1998.

21
<PAGE> 26

Our sales to customers in the following geographic regions approximated the
following amounts and percentages:

<TABLE>
<CAPTION>
GEOGRAPHIC REGION FISCAL 1997 FISCAL 1998
- ----------------- ------------------------ ------------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
United States........................ $232.5 69.3% $286.5 57.1%
Far East/Pacific Rim................. 62.6 18.6 100.6 20.0
Europe............................... 4.8 1.4 55.8 11.1
South America........................ 18.4 5.5 31.9 6.4
Middle East.......................... 12.8 3.8 18.4 3.7
Other................................ 4.6 1.4 8.4 1.7
------ ----- ------ -----
$335.7 100.0% $501.6 100.0%
====== ===== ====== =====
</TABLE>

Revenues from domestic projects increased $54.0 million, or 23%, from
$232.5 million for fiscal 1997 to $286.5 million for fiscal 1998. Revenues in
fiscal 1998 from all geographic areas increased over fiscal 1997 levels
primarily due to our continued expansion through acquisitions. The increase in
revenues from Europe in fiscal 1998, compared to the prior year, was primarily
due to the acquisition of our United Kingdom operations (Pipework Engineering
and Development and Prospect) in the first quarter of fiscal 1998. During fiscal
1998, we began streamlining our United Kingdom operations.

Our sales to customers in the following industry sectors approximated the
following amounts and percentages:

<TABLE>
<CAPTION>
INDUSTRY SECTOR FISCAL 1997 FISCAL 1998
- --------------- ------------------------ ------------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
Power Generation..................... $101.2 30.1% $193.5 38.6%
Chemical Processing.................. 130.4 38.9 132.6 26.4
Crude Oil Refining................... 47.8 14.2 83.9 16.7
Petrochemical Processing............. * * 42.4 8.5
Oil and Gas Exploration and
Production......................... * * 23.1 4.6
Other................................ 56.3 16.8 26.1 5.2
------ ----- ------ -----
$335.7 100.0% $501.6 100.0%
====== ===== ====== =====
</TABLE>

- ---------------

* Sales for our petrochemical processing and oil and gas exploration and
production sectors are not segregated and are included in the other sectors
in the above chart for fiscal 1997.

Revenues from the power generation sector in fiscal 1998 increased over the
prior year primarily due to increased revenues from the international power
generation market. Revenues from the international power generation market
increased primarily as a result of the acquisitions of Pipework Engineering and
Development and Prospect. Domestic power generation revenues also increased
primarily due to the expansion of construction services performed by our
subsidiaries that were acquired in February and March of 1997.

Revenues from the chemical processing sector increased slightly over fiscal
1997 as a result of increased activity in both the domestic and international
markets.

Revenues from the crude oil refining sector for fiscal 1998 increased over
fiscal 1997 due to increased activity in the international markets.

Revenues from the petrochemical processing and oil and gas exploration and
production sectors were not segregated during fiscal 1997; therefore,
explanations of variances are not available. The decline in other sector
revenues in fiscal 1998 is the result of a decline in revenues from our pipe
fabrication and bending operations in 1998 due to the substantial completion of
a large mining contract in fiscal 1997.

22
<PAGE> 27

Gross profit margins in fiscal 1998 decreased to 15.9% from 19.1% for
fiscal 1997 due primarily to the following factors:

- a higher volume of pipe erection, maintenance and related construction
services work in fiscal 1998, which typically produces a lower gross
profit margin;
- reduced gross profit margins on our manufactured products due to pricing
pressure from foreign imports in fiscal 1998; and
- lower profit margins realized from our United Kingdom operations since
the acquisition of Pipework Engineering and Development and Prospect.

General and administrative expenses were $48.5 million for fiscal 1998, up
29.7% from $37.4 million for fiscal 1997. Approximately $9 million of the
increase relates to general and administrative expenses of newly acquired
subsidiaries, including those owned for only part of fiscal 1997. The remaining
increase is related to increased corporate overhead costs due to the general
expansion of our operations. However, as a percentage of revenues, general and
administrative expenses decreased from 11.2% in fiscal 1997 to 9.7% in fiscal
1998.

Interest expense for fiscal 1998 was $8.5 million, up 25.0% from $6.8
million in fiscal 1997, primarily due to increased borrowings to expand our
business and to complete the acquisitions of Prospect, Cojafex, Pipework
Engineering and Development and Lancas in 1998.

Our effective tax rates for fiscal 1997 and fiscal 1998 were 30.6% and
30.2%, respectively. The decrease in the fiscal 1998 rates from fiscal 1997 was
primarily due to additional tax savings from higher foreign export sales and
foreign sourced income taxed at lower rates, partially offset by lower state
income tax incentives and refunds.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operations was $26.9 million for fiscal 1999, compared
to net cash used in operations of $3.2 million for fiscal 1998. For fiscal 1999,
net cash was favorably impacted primarily by net income of $18.1 million,
depreciation and amortization of $13.3 million, deferred income taxes of $3.7
million, a decrease in receivables of $15.6 million and an increase in accrued
liabilities of $4.3 million. Offsetting these positive factors were increases of
$12.2 million in inventories and $4.5 million in cost and estimated earnings in
excess of billings on uncompleted contracts and decreases of $7.7 million in
accounts payable and $4.0 million in advanced billings and billings in excess of
cost and estimated earnings on uncompleted contracts.

The decrease in receivables was primarily attributable to increased
collection efforts. The increase in inventory was due to the recent purchase of
a large quantity of materials from foreign markets at favorable prices and a
higher amount of work-in-progress inventory at year-end due to the increased
volume of work on hand, particularly in our fabrication facilities. Accounts
payables and accrued liabilities changed due to normal operating activities and
the timing of receipts and payment of invoices from vendors. Changes in cost and
estimated earnings in excess of billings, advanced billings and billings in
excess of cost and estimated earnings on uncompleted contracts relate to the
changes in contractual terms negotiated with customers each year.

Net cash used in investing activities was $30.3 million for fiscal 1999,
compared to $38.0 million for fiscal 1998. During fiscal 1999, we purchased
$18.0 million of property and equipment, including $6.5 million for a new
corporate facility in Baton Rouge, Louisiana, $5.7 million of construction
equipment and $5.8 million of other property and equipment. During fiscal 1999,
we also embarked on our first significant project financing participation. In
connection with our construction and maintenance work on a refinery project in
Norco, Louisiana, we acquired $12.5 million of 15% senior secured notes due
December 1, 2003 and shares of preferred stock. The notes are secured by a first
priority security interest in some of the refinery's assets. Through December 1,
2000, we expect to receive additional notes in lieu of interest. Our investment
in the notes was $13.8 million as of August 31, 1999. This investment represents
a one-time investment, although we may from time to time pursue similar
investments on a

23
<PAGE> 28

selective basis. This type of investment will generally be limited in size to
the profit we expect to receive from the projects and will carry a return that
we believe reflects the risk inherent in our investment. These uses of cash were
partially offset by proceeds from the sale of property and equipment of $1.5
million. In fiscal 1998, in addition to $14.6 million of purchases of property
and equipment, we invested $27.7 million, net of cash received, in the Pipework
Engineering and Development, Prospect, Lancas, Cojafex and Bagwell acquisitions.

Net cash provided by financing activities totaled $6.8 million for fiscal
1999, compared to $40.8 million provided in fiscal 1998. Net borrowings from our
revolving lines of credit totaled $22.7 million in fiscal 1999. Our revolving
line of credit has been generally used to provide working capital and fund fixed
asset and subsidiary acquisitions. During fiscal 1999, we also used our
revolving credit facility to repurchase 1,561,320 shares of our common stock for
$13.7 million (including brokerage commissions) through open market and block
transactions in accordance with a plan adopted by our board of directors. In
September 1999, our board of directors voted to terminate our stock repurchase
plan. Cash was also provided by $5.6 million of new debt and a $2.6 million
increase in short-term liabilities while funds of $10.7 million were used to
repay outstanding debt. In fiscal 1998, $62.2 million of cash was provided from
the issuance of new debt, primarily $60 million of senior secured notes funded
in May 1998. The proceeds from the senior secured notes were used primarily to
pay down our revolving line of credit, which had reached a balance of $69.5
million. Cash provided by financing activities in fiscal 1998 was $40.8 million,
primarily from the $62.2 million of new debt, net repayments on the revolving
lines of credit of $10.2 million and the repayment of debt and leases of $13.8
million.

In September 1999, the maturity date of our revolving line of credit was
extended to May 31, 2002. The amendment also modified the interest rate spread
not to exceed, at our election, 2.50% over the London Interbank Offering Rate or
1.75% over the Prime Rate. The facility permits us to borrow up to $100 million
in principal amount subject to our satisfaction of the conditions to borrowing
set forth in the facility. The credit facility contains covenants that are
customary for revolving loan agreements of this nature. Our credit facility and
senior secured notes are equally ranked and are secured by domestic subsidiary
accounts receivable, inventory, intangible assets and bank deposits, as well as
by the pledge of the capital stock of some of our domestic subsidiaries. We
believe that our current financing arrangements are sufficient to support our
operations for the next twelve months.

YEAR 2000 COMPLIANCE

The year 2000 or Y2K issue is the result of computerized systems being
written to store and process the year portion of dates using two digits rather
than four. Date-sensitive systems may fail or produce erroneous results because
the year 2000 may be interpreted as the year 1900. During 1998, we began
implementation of a program to identify, evaluate and address our Y2K risks to
ensure that our information technology systems and non-information technology
systems are able to process dates from and after January 1, 2000 without
critical systems failure. In addition to evaluating our own systems, we assessed
the Y2K risks associated with our significant customers and suppliers.

In general, our program for identifying, evaluating and addressing our Y2K
risks for all of our systems involved preliminary assessments by our personnel
and detail audits and assessments by consultants. We completed this phase in the
fourth quarter of fiscal 1999. Total outside costs of approximately $412,000,
consisting primarily of consultant expenses, were incurred and expensed in
fiscal 1999 during this evaluation and assessment process. We incurred no
outside costs in fiscal 1998.

We segmented the analysis of our systems into local, national and
international categories. We divided each category into major business areas
consisting of systems, products, facilities, and suppliers. We divided these
business areas into smaller categories for data collection and evaluation, such
as computers, network equipment, production equipment, manufacturing equipment,
alarm systems and phone systems.

24
<PAGE> 29

We entered the data into a repository that was created to track evaluation and
remediation efforts. The following is an example of the methodology and results
gathered during our year 2000 program:

Systems

We identified our proprietary and off-the-shelf systems during the
inventory phases of our Y2K program. Our proprietary software has been
remediated and tested for year 2000 problems. Year 2000 compliant software has
been installed on all production systems. A testing methodology used for these
proprietary systems, in an identical but separate environment, was established
to evaluate operational functionality and current, future and crossover dates
between the years 1999 and 2000. We upgraded other business critical
off-the-shelf applications according to the directions of manufacturers to meet
year 2000 compliance specifications.

Products

After an inventory and evaluation, we believe that the majority of our
products are generally not vulnerable to year 2000 problems. Design
modifications are being implemented to our Cojafex bending machines, our only
significant products with imbedded technology, to assure Y2K compliance of
future machines. We believe that, while certain reporting functions may be
impacted, the production functionality of Cojafex machines previously sold will
not be adversely affected by Y2K problems.

Facilities

We have evaluated our facilities for Y2K purposes, including phone systems,
HVAC, alarm systems, fire systems, elevators and electrical power. We evaluated
these items because of their potential impact on business operations if they
were to fail. To date, we have not discovered that any of our business
facilities are materially noncompliant with our Y2K requirements.

Suppliers

We believe the most likely Y2K problem that we may experience would be a
temporary disruption in certain materials and services provided to us by third
parties. These disruptions could have a material adverse effect on us. We have
attempted to identify and classify business suppliers based on relevant priority
factors and have contacted numerous suppliers and potential suppliers regarding
their Y2K compliance. We believe that we will be able to replace non-compliant
vendors; however, certain types of raw materials are available from only one or
a few specialized suppliers. To date, we believe that we have contacted all
suppliers material to our operations about their compliance efforts and status.
We have not discovered any problems that we believe will materially adversely
affect us, but we cannot assure you that problems of this nature will not arise.

Current Assessment

We will continue our Y2K contingency planning and compliance monitoring
through January 2000.

Based upon the outcome of our assessments and the information derived from
our significant customers and suppliers, we are currently developing contingency
plans to address certain risks. However, we cannot assure you that we will not
be materially adversely affected by Y2K problems.

We also believe that the cost to modify or replace our non-compliant
systems should not exceed $700,000, bringing our total expected Y2K expenditures
paid to outside sources to a maximum of $1,112,000. We have incurred
approximately $435,000 in Y2K-related expenses to date. We cannot assure you,
however, that such costs will not escalate and materially and negatively impact
us.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, SFAS No. 131 -- "Disclosures about Segments of an Enterprise
and Related Information" was issued. SFAS 131 requires us to report financial
and descriptive information about our
25
<PAGE> 30

operating segments in our financial statements. The required disclosures are
made for the first time in our fiscal 1999 financial statements included in this
prospectus.

In early 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." The statement is effective for fiscal years beginning after
December 15, 1998 and will require costs of start-up activities and organization
costs to be expensed as incurred. Any unamortized costs on the date of adoption
of the new standard will be written off and reflected as a cumulative effect of
a change in accounting principle. As of August 31, 1999, we had total deferred
organizational costs of approximately $492,000. We intend to adopt this new
requirement in fiscal 2000.

During fiscal 1999, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Changes in a derivative's
fair value are to be recognized currently in earnings unless specific hedge
accounting criteria are met. We will be required to adopt SFAS No. 133, as
amended by SFAS No. 137 which defers the effective date, on September 1, 2000.
We have not yet quantified the impact on our financial statements that may
result from adoption of SFAS No. 133; however, we do not use derivative
instruments or hedging activities extensively in our business.

26
<PAGE> 31

BUSINESS

THE SHAW GROUP INC.

We are the largest supplier of fabricated piping systems in the United
States and one of the leading suppliers of integrated piping systems and
services for new construction, site expansion and retrofit projects in the
world. We are a cost-effective single-source provider of fabricated piping
systems and services for projects primarily in the following industries:

- power generation;
- chemical processing;
- crude oil refining;
- petrochemical processing; and
- oil and gas exploration and production.

<TABLE>
<S> <C>
AlliedSignal, Inc. Mitsubishi Heavy Industries, Inc.
Black & Veatch Corporation Monsanto
Chevron Chemical Raytheon Engineers & Constructors, Inc.
Duke/Fluor Daniel Rolls Royce
FMC Corporation Southern Companies Service, Inc.
Hitachi Toshiba Corporation
</TABLE>

We have also formed strategic alliances with:

OUR COMPETITIVE ADVANTAGES

27
<PAGE> 32

and to provide our customers with a broad range of products and services. As a
result, we benefit from the following competitive advantages:

State-of-the-art induction pipe bending technology. Traditionally,
pipe fabricators cut and connect pipe through the use of fittings that are
welded into place. While a significant amount of our fabrication is still
based on this method, pipe bending techniques such as ours have grown in
acceptance in recent years. Pipe bending techniques require fewer cut and
weld connections than the traditional method and as a result require less
labor and material expenditures. Induction bending is a technique using
simultaneous super-heating and compression of pipe to produce tight-radius
bends to our customers' specifications. We believe that we offer our
customers the most sophisticated and efficient induction pipe bending
machines and technology available in the world today. Our induction pipe
bending machines are capable of bending pipe as large as 66 inches in
diameter with a wall thickness of up to five inches. In addition, when
compared to the traditional cut and weld method, our technology provides a
more uniform and cost-effective product that is generally considered to be
stronger and less prone to structural fatigue.

Established, diversified customer base. Our customers include a group
of large, multi-national companies with whom we have long-standing
relationships. In some cases, these relationships have taken the form of
strategic alliances through which we provide a significant portion of our
customers' piping requirements. Because many of our customers are active in
more than one of the industries we serve, they have historically remained
significant purchasers of our piping systems and services despite
fluctuations in activity within any particular industry.

Strategically positioned worldwide operations. We have established a
leading market position in the United States and have devoted substantial
resources to select international markets in South America, Europe, Asia
and Australia. Our pipe fabrication facilities currently include eight
locations in the United States and four in international markets. These
facilities consist of over 1.5 million square feet of fabrication space and
can produce more than 97,000 tons of fabricated pipe annually. In the past
two fiscal years, we have fabricated products in our overseas facilities
representing approximately one-half of our international sales. We believe
that our international presence strengthens our ability to pursue new
markets and customers on a global basis, particularly multi-national
customers seeking suppliers who can provide worldwide solutions for their
piping requirements. For example, in the past six years one of our alliance
partners has installed our systems in 24 power plants in 13 countries on
three continents.

Proprietary software technology. Our proprietary SHAW-DRAW(TM) and
SHAW-MAN(TM) software programs enhance our customers' ability to plan,
schedule and track their projects and reduce installation costs and cycle
times. SHAW-DRAW(TM) converts customer designs into production drawings
while SHAW-MAN(TM) manages and controls the movement of project materials.
Many of our customers have found our software to be of such value that they
have electronically linked their own planning and control processes with
our systems and software.

28
<PAGE> 33

OUR BUSINESS STRATEGY

Our business strategy is to enhance our leading position as a provider of
comprehensive piping solutions within existing markets and to enter select new
markets. We intend to achieve this goal by:

Growing through internal development. Our fabrication facilities are
currently operating at or near capacity while our backlog has more than
tripled in the last year. In order to meet projected demand, we anticipate
developing or acquiring one or more facilities in the next year. We will
also hire additional sales, marketing and project maintenance personnel
worldwide as well as purchase and upgrade equipment and technology. In
addition to increasing our plant capacity and strengthening our sales,
manufacturing and technology infrastructure, we intend to evaluate
opportunities to enter new international markets, particularly those in
which significant power plant construction is anticipated.

Pursuing alliance agreements. We intend to enter into additional
alliance agreements with current and future customers. Our alliance
agreements enhance our ability to obtain contracts for individual projects
by eliminating formal bid preparation. The alliance process involves joint
steering committees in which we work closely with our customers to achieve
process improvements and systems integration. We believe that our ongoing
dialogue with our alliance partners greatly enhances our customer
relationships. These agreements have tended to provide us with a steady
source of projects, minimize the impact of short-term pricing volatility
and enable us to anticipate a larger portion of our future revenues.

Strengthening our technological position. We will continue to
strengthen our technological position through investment in new equipment,
technology and information systems, which we believe will allow us to
increase our fabrication and manufacturing capabilities and capacity,
better integrate our product and service offerings and improve overall
project efficiency. In addition, to address our customers' desire to share
project information with us electronically, we are developing information
systems to enable our customers to monitor closely the progress of their
piping projects and to integrate fully the installation and erection of the
entire piping project.

INDUSTRY OVERVIEW

Our industry provides piping systems and services for projects in the power
generation, chemical processing, crude oil refining, petrochemical processing,
oil and gas exploration and production, and other industries including pulp and
paper, food processing and pharmaceutical industries. Because these industries
have historically been cyclical and affected by general downturns in the
economy, our revenues and the revenues of our competitors have fluctuated with
the demand by these industries for new construction and site expansions, while
maintenance work has typically been more recurring in nature.

Power Generation

According to the Department of Energy, demand for domestic electricity
generation has increased 17% since 1990 while capacity has increased less than
one percent. This imbalance, coupled with deregulation of the power industry and
decommissioning of nuclear plants, has resulted in a surge in domestic
construction of power plants. According to the Energy Information
Administration, or EIA, a projected 1,344 new plants with a total of 403
gigawatts of capacity will be needed by 2020 to meet growing demand and to
offset retirements of nuclear and fossil fuel plants. Approximately 85% of new
capacity is projected to be combined-cycle or combustion turbine technology
fueled by natural gas or both
29
<PAGE> 34

oil and gas. The EIA estimates that between 1995 and 2010 approximately $1.4
trillion will be spent on electricity generation investments worldwide. Our
backlog reflects this activity; at August 31, 1999, we had approximately $527
million in backlog attributable to the power generation industry, representing
approximately 64% of our total backlog on that date.

Chemical Processing

While our chemical processing customers have experienced limited growth
overall, we have continued to experience relatively steady activity in this
sector. We anticipate that the majority of our work in this sector in the
near-term will consist of maintenance and retrofit work necessary to modernize
existing facilities and to comply with increasingly stringent environmental
requirements. Approximately 12% of our backlog at August 31, 1999 consisted of
work in the chemical processing industry.

Crude Oil Refining

Demand for our services in the crude oil refining industry has remained
steady in recent years. The consistent demand for our services in this industry
has been driven by refiners' need to process a broader spectrum of crude and to
produce a greater number of products. In addition, increasingly stringent
environmental regulations, including significantly reduced emissions allowances
required by the Clean Air Act, have increased retrofit activity. The refining
industry represented approximately 19% of our backlog at August 31, 1999.

Petrochemical Processing

The petrochemical processing industry has experienced a downturn over the
past several years and our activity in this sector also diminished in fiscal
1999. Similar to the chemical processing industry, most of our work in this
sector will be driven by maintenance and retrofit requirements. Projects in the
petrochemical processing sector represented an insignificant percentage of our
backlog at August 31, 1999.

Oil and Gas Exploration and Production

We entered the domestic offshore oil and gas exploration and production
market with the acquisition of Bagwell Brothers, Inc. in fiscal 1998. Although
demand in this industry is directly related to capital spending in the oil and
gas sector which, in turn, is directly influenced by the levels of oil and gas
prices, demand for our products and services lags behind significant commodity
price increases. Since January 1, 1999, West Texas Intermediate crude oil and
Henry Hub natural gas prices have increased approximately 86% and 35%,
respectively. As a result of the improving commodity price outlook, a number of
independent and major oil and gas companies have increased capital expenditure
budgets for the second half of 1999 and for 2000. As a result of increases in
capital expenditures, our bidding activity in this sector has increased in
recent months. Approximately four percent of our backlog at August 31, 1999
consisted of projects in the oil and gas exploration and production industry.
While we do not expect to experience significantly higher activity rates in this
sector in the near-term, we believe we are well positioned to take advantage of
significant opportunities for growth both domestically and internationally.

PRODUCTS AND SERVICES

We have set forth below a brief description of each of our major products
and services.

Fabrication

Our primary service is the fabrication of complex piping systems from raw
materials including carbon steel, stainless steel and other alloys, nickel,
titanium and aluminum. We fabricate pipe by cutting it to length, welding
fittings on the pipe and bending the pipe, each to precise customer
specifications. We currently operate pipe fabrication facilities in Louisiana,
Oklahoma, South Carolina, Texas, Utah, Virginia,

30
<PAGE> 35

the United Kingdom, Venezuela and Bahrain, where we have a 49% interest in a
joint venture. Our fabrication facilities are capable of fabricating pipe
ranging in diameter from 1/2 inch to 72 inches, with overall wall thicknesses
from 1/8 inch to 7 inches. We can fabricate pipe assemblies up to 100 feet in
length and weighing up to 45 tons.

A significant portion of our work consists of the fabrication of critical
piping systems for use in high pressure, high temperature or corrosive
applications, including systems designed to withstand pressures of up to 2,700
pounds per square inch and temperatures of up to 1,020 degrees Fahrenheit. In
order to ensure that our products can withstand these types of extreme
conditions, we have set rigid quality control standards for all of our products.
In addition to visual inspection, we use other advanced methods to confirm that
our products meet specifications such as:

- radiography;
- hydro testing;
- dye penetration; and
- ultrasonic flaw detection.

Induction Pipe Bending

In fiscal 1994, we began purchasing state-of-the-art induction pipe bending
equipment, which significantly increased our capacity to fabricate piping
systems in both volume and complexity. In addition, this equipment enables us to
substitute pipe bending for the more traditional cutting and welding techniques
on certain projects, resulting in labor, time and raw material savings. In
January 1998, we acquired Cojafex B.V. of Rotterdam, Holland. Cojafex owns the
technology for certain induction pipe bending machines used for bending pipe and
other carbon steel and alloy items for industrial, commercial and architectural
applications.

Primarily because of the significant reductions in labor, time and material
costs associated with pipe bending techniques, the market for pipe fabrication
is increasingly moving in the direction of bending according to customer
specifications. We believe that our technology is the most advanced of its kind
available in the world and gives us a technological advantage in this growing
segment of the market.

We currently have eight induction pipe bending machines in operation
capable of bending pipe up to 66 inches in diameter with wall thicknesses of up
to five inches. Their model numbers, locations and pipe bending capabilities are
presented in the following table:

<TABLE>
<CAPTION>
PIPE BENDING CAPABILITIES
-------------------------
MAXIMUM MAXIMUM
PIPE PIPE WALL
MODEL LOCATION DIAMETER THICKNESS
- ----- -------- --------- ----------
<S> <C> <C> <C>
Cojafex PB Special 16 Walker, Louisiana 16 inches 2.5 inches
Cojafex PB Special 16 Laurens, South Carolina 16 inches 2.5 inches
Cojafex PB Special 16 Tulsa, Oklahoma 16 inches 2.5 inches
Cojafex PB Special 16 Manama, Bahrain 16 inches 2.5 inches
Cojafex PB-1200 Walker, Louisiana 48 inches 4.0 inches
Cojafex PB-1600 Clearfield, Utah 66 inches 5.0 inches
Cojafex PB-850 Clearfield, Utah 34 inches 3.0 inches
Cojafex PB Special 12 Clearfield, Utah 12 inches .75 inches
</TABLE>

Engineering and Design

In 1994, as an integral part of our strategy to offer comprehensive piping
solutions, we expanded our services to include engineering and design
capabilities for power projects, primarily for our customers outside the United
States. We also design and engineer pipe hangers and pipe support systems and
specialize in engineering analyses of complex piping systems and related
services, primarily for the power generation industry. These engineering, design
and pipe support capabilities complement our fabrication

31
<PAGE> 36

services, particularly for power generation projects, enabling us to provide
more comprehensive piping packages with reduced overall lead times and lower
total installed costs.

We use sophisticated plant design software to create virtual
three-dimensional piping system models. The models provide customers with a
clear, understandable picture of the complete project, enabling them to "walk
through" the project on a three-dimensional basis to accurately review designs.
We currently operate approximately 25 workstations that utilize this plant
design software.

Our engineering capabilities are directly linked to our fabrication shops
and our proprietary computer aided design system, SHAW-DRAW(TM). SHAW-DRAW(TM)
converts customer design drawings into our detailed production drawings in
seconds, significantly reducing the lead-time required before fabrication can
begin and substantially eliminating detailing errors. We have also implemented
SHAW-MAN(TM), which efficiently manages and controls the movement of all
required materials through each stage of the fabrication process utilizing bar
code technology. These proprietary programs enhance our customers' planning and
scheduling, reducing total installed costs and project cycle times.

Erection and Maintenance

Our acquisition of several industrial erection and maintenance businesses
in fiscal 1997 and 1998 has enabled us to expand our piping solutions to include
on-site piping system erection services and total project construction and plant
maintenance services. We currently offer erection and maintenance services in
the Gulf Coast region of the United States and in the United Kingdom, Australia
and Venezuela.

Our erection projects are generally capital-intensive and include the
construction of new facilities, plant expansions and upgrades. Our services
incorporate most of the construction disciplines, including:

- civil, structural and steel erection;
- mechanical and equipment installation and assembly;
- piping erection;
- skid and modular unit fabrication and assembly;
- constructability reviews;
- materials and labor procurement and management;
- American Society of Mechanical Engineers code work; and
- plant maintenance.

Specialty Fittings Manufacturing and Distribution

We manufacture specialty stainless, alloy and carbon steel pipe fittings
for use in pipe fabrication. These pipe fittings include stainless and other
alloy elbows, tees, reducers and stub ends ranging in size from 1/2 inch to 48
inches and heavy wall carbon and chrome elbows, tees, caps and reducers with
wall thicknesses of up to 3 1/2 inches. We operate a manufacturing facility in
Shreveport, Louisiana, which distributes our fittings to our pipe services
operations and to third parties. We also operate several distribution centers in
the United States, which distribute our products as well as products
manufactured by third parties. Manufacturing pipe fittings enables us to realize
greater efficiencies in the purchase of raw materials, reduces overall lead
times and lowers total installed costs. Our manufacturing capabilities also
reflect our commitment to be a comprehensive piping solution for our customers.

MARKETS

Our principal markets are the erection of new systems and retrofits in the
power generation, chemical processing, crude oil refining, petrochemical
processing and oil and gas exploration and production industries, both in the
United States and internationally. We also have supplied piping systems to other
industries including the pulp and paper, food processing and pharmaceutical
industries.

32
<PAGE> 37

Our sales by industry in our two most recent fiscal years approximated the
following amounts:

<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
----------------
INDUSTRY 1998 1999
- -------- ------ ------
(IN MILLIONS)
<S> <C> <C>
Power Generation............................................ $193.5 $161.8
Chemical Processing......................................... 132.6 141.0
Crude Oil Refining.......................................... 83.9 109.3
Petrochemical Processing.................................... 42.4 20.8
Oil and Gas Exploration and Production...................... 23.1 29.0
Other....................................................... 26.1 32.1
------ ------
$501.6 $494.0
====== ======
</TABLE>

Our sales by geographic region in our two most recent fiscal years
approximated the following amounts:

<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
----------------
GEOGRAPHIC REGION 1998 1999
- ----------------- ------ ------
(IN MILLIONS)
<S> <C> <C>
United States............................................... $286.5 $366.2
Far East/Pacific Rim........................................ 100.6 41.1
Europe...................................................... 55.8 49.7
South America............................................... 31.9 18.7
Middle East................................................. 18.4 10.2
Other....................................................... 8.4 8.1
------ ------
$501.6 $494.0
====== ======
</TABLE>

Prior to February 1994, we conducted our international business exclusively
from our plants in the United States. Critical or high pressure piping systems
are typically fabricated in industrialized nations that tend to have greater
capacity for manufacturing piping that satisfies stringent tolerance and
consistency requirements. United States pipe fabricators have generally
fabricated these systems more efficiently than their Western European and
Japanese competitors due to lower labor costs and greater availability of raw
materials. However, geographical sourcing requirements, local labor rates and
transportation considerations may make it difficult for us to use our domestic
facilities to compete on many international projects, particularly those
involving non-critical piping systems. Therefore, we have established facilities
abroad to allow us to bid more competitively for international projects. We
currently operate facilities in Venezuela, the United Kingdom, Australia and
Bahrain.

In November 1993, we entered into a joint-venture agreement to construct
and operate a fabrication facility in Bahrain. Our joint venture partner is
Abdulla Ahmed Nass, a Bahrainian industrialist. Our Bahrainian joint-venture
facility is one of the first modern pipe fabrication facilities in the Middle
East and has received the Gulf States Certification from the Gulf Cooperation
Council. The Gulf States Certification enables the joint venture to export
products to other Arab countries without paying additional tariffs. In fiscal
1999, the joint venture had sales of approximately $9.6 million and our share of
the joint venture's net income was approximately $681,000.

In the future, our pursuit of joint-venture relationships to conduct
foreign operations will be determined on a case-by-case basis depending on
market, operational, legal and other relevant factors.

BACKLOG

We define our backlog as a "working backlog," which includes projects for
which we have received a commitment from our customers. This commitment
typically takes the form of a written contract for a

33
<PAGE> 38

specific project, a purchase order or a specific indication of the amount of
time or material we need to make available for a customer's anticipated project.
In certain instances the engagement is for a particular product or project for
which we estimate anticipated revenue, often based on engineering and design
specifications that have not been finalized and may be revised over time. Our
backlog for maintenance work is derived from maintenance contracts and our
customers' historic maintenance requirements. We estimate that our backlog was
approximately $818.3 million at August 31, 1999, compared to $253.4 million and
$254.3 million at August 31, 1997 and 1998, respectively. We estimate that
$403.5 million, or 49%, of our backlog at August 31, 1999 will be completed in
fiscal 2000.

Approximately $300 million, or 37%, of our backlog at August 31, 1999 was
attributable to a contract with General Electric that requires us to fabricate
90% of the pipe necessary to install the combined-cycle gas turbines to be built
by General Electric domestically through 2004. Approximately 53% of this backlog
is for power generation projects for which General Electric has been engaged and
is in various stages of design, engineering and construction and for which we
have received a work release or have been notified that a work release is
pending. The balance is for work for which General Electric has requested that
we reserve capacity. We cannot assure you that all of these projects will be
constructed or that they will be completed in our currently anticipated time
frame.

On occasion, customers will cancel or delay projects for reasons beyond our
control. Most of our contracts provide for cancellation fees in the event
projects in backlog are canceled but we typically have no contractual right to
the total revenues reflected in our backlog. These fees typically provide for
reimbursement of our out-of-pocket costs, revenue associated with work performed
to date and a varying percentage of the profits we would have realized had the
contract been completed. Where we do not have a written agreement, we often have
been able to recover similar amounts from our clients. In addition to
cancellation risks, projects may remain in our backlog for extended periods of
time. Historically, delays have impacted our operations from time to time, but
cancellations have been immaterial. Cancellation is more likely to occur during
the initial phases of projects, when erection and related construction services
are provided, than during later phases, when fabrication services are provided.
Accordingly, cancellation rates for projects reflected in our backlog may
increase in the future if our business mix includes a larger percentage of
erection and related construction services.

The following table breaks out the percentage of our backlog in the
following industry sectors and geographic regions for the periods indicated:

<TABLE>
<CAPTION>
AT
AUGUST 31,
-----------
INDUSTRY 1998 1999
- -------- ---- ----
<S> <C> <C>
Power Generation............................................ 30% 64%
Chemical Processing......................................... 39 12
Petrochemical Processing.................................... 11 0
Crude Oil Refining.......................................... 8 19
Oil and Gas Exploration and Production...................... 9 4
Other....................................................... 3 1
--- ---
100% 100%
=== ===
GEOGRAPHIC REGION
- ------------------------------------------------------------
Domestic.................................................... 65% 75%
International............................................... 35 25
--- ---
100% 100%
=== ===
</TABLE>

TYPES OF CONTRACTS

Our contracts are generally priced on a unit price, fixed price or lump-sum
or cost-plus basis.

34
<PAGE> 39

A significant portion of our contracts, particularly for domestic piping
fabrication, are bid on a unit price basis under which the customer pays a
negotiated rate for the product or service, such as a weld, radiograph
inspection, bend or engineering revision. We generally bill raw materials to
customers at published prices in effect on the date of the contract, and we
generally obtain fixed pricing commitments from our suppliers at that time for
most of the items necessary to complete the project in order to minimize the
risk of raw material price increases during the fabrication process.

We quote many of our projects on a fixed price or lump-sum basis. To
minimize the risk of increases in the cost of our supplies, we generally do not
quote the actual contract price until we have secured fixed pricing commitments
from our suppliers for most of the items necessary to complete the project.

Additionally, a significant portion of our erection contracts are bid on a
cost-plus basis. Revenues are recognized on the basis of costs incurred plus the
fee earned.

We obtain orders through competitive bidding, negotiated contracts and
awards under alliance agreements. In addition to price, the awarding of
contracts is often based on other factors, including reputation, experience and
ability to meet project deadlines.

We also obtain orders under alliance agreements entered into with our
customers to expedite individual project contract negotiations through means
other than the formal bidding process. These agreements typically contain a
standardized set of purchasing terms and pre-negotiated pricing provisions and
often provide for annual price adjustments. Our current alliance partners
include ABB AG, Air Products and Chemicals, Inc., Alstom S.A., BASF AG, Bechtel
Corporation, The Dow Chemical Company, General Electric, Orion Refining
Corporation, Parsons Corporation and Praxair, Inc. These agreements are
typically implemented by establishing a joint steering committee to provide
guidance and direction on alliance issues. Normally this committee meets on a
periodic basis to monitor alliance progress and assign resources to effect
continuous improvements in the various work processes associated with project
execution. Alliance agreements allow our customers to achieve greater cost
efficiencies and reduced cycle times in the design and fabrication of complex
piping systems for power, chemical and refinery projects. In addition, we
believe that these agreements provide us with a steady source of new projects
and help minimize the impact of short-term pricing volatility. The recurring
nature of our alliance agreements also enables us to anticipate a larger portion
of our future revenues. In fiscal 1999, approximately 35% of our revenues were
generated under our alliance agreements.

CUSTOMERS AND MARKETING

Our customers are principally major multi-national engineering and
construction firms, equipment manufacturers and industrial corporations. For
fiscal 1999, Orion Refining Corporation represented 14% of our sales while no
other customer represented more than ten percent of our sales.

We conduct our marketing efforts principally through a sales force
comprised of 35 employees at August 31, 1999. In addition, we engage independent
contractors to cover certain customers and territories. We pay our sales force a
base salary plus, when applicable, an annual bonus, while we pay independent
contractors commissions.

RAW MATERIALS AND SUPPLIERS

Our principal raw materials are carbon steel, stainless steel and other
alloy piping, which we obtain from a number of domestic and foreign primary
steel producers. The market for most raw materials is extremely competitive and
our relationships with our suppliers are good. Certain types of raw materials,
however, are available from only one or a few specialized suppliers. Our
inability to obtain materials from these suppliers could jeopardize our ability
to timely complete a project or realize a profit.

We purchase directly from manufacturers, or manufacture ourselves, a
majority of our pipe fittings. This generally lowers our pipe fabrication costs.
Because of the volume of piping we purchase, we are often able to negotiate
advantageous purchase prices. If a manufacturer is unable to deliver the
materials according to the negotiated terms, we may be required to purchase the
materials from another source at a
35
<PAGE> 40

higher price. We keep items in stock at each of our facilities and transport
items between our facilities as required. We obtain more specialized materials
from suppliers when required for a project.

COMPETITION

In pursuing piping engineering and fabrication projects, we experience
significant competition from competitors in both international and domestic
markets. In the United States, there are a number of smaller pipe fabricators
while, internationally, our principal competitors are divisions of large
industrial firms. Some of our competitors, primarily in the international
sector, have greater financial and other resources than we do.

In erection, maintenance and related construction services, we have
numerous regional, national and international competitors, many of which have
greater financial and other resources than we do. Moreover, we are a recent
entrant into this business, and many of our competitors also possess
substantially greater experience, market knowledge and customer relationships
than we do.

36
<PAGE> 41

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table provides information regarding our executive officers
and directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
J. M. Bernhard, Jr. ................. 45 Chairman of the Board of Directors, President and
Chief Executive Officer
Richard F. Gill...................... 55 Executive Vice President and Chief Operating Officer
Robert L. Belk....................... 50 Executive Vice President, Chief Financial Officer and
Treasurer
G. Ray Wilkie, Jr. .................. 53 Senior Vice President -- U.S. Operations
George P. Bevan...................... 51 Senior Vice President
N. Andrew Dupuy, Jr. ................ 44 Senior Vice President -- International and
Construction Operations
Michael H. Wootton................... 51 Senior Vice President of Business Development
Albert McAlister..................... 48 Director
L. Lane Grigsby...................... 57 Director
David W. Hoyle....................... 60 Director
John W. Sinders, Jr. ................ 43 Director
William H. Grigg..................... 66 Director
</TABLE>

J. M. Bernhard, Jr., our founder, has been our President and Chief
Executive Officer since our inception in September 1987. He has also been one of
our directors since our 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 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.

Richard F. Gill has been employed by us since 1997, when we acquired
certain assets of MERIT Industrial Constructors, Inc. and other affiliated
entities. Mr. Gill served as the President of Shaw Process and Industrial Group,
Inc., a wholly-owned subsidiary of ours, from March 1997 until August 1998, and
as Senior Vice President in charge of Construction and International Operations,
one of our two principal operating divisions, from September 1998 to May 1999.
In May 1999, Mr. Gill was appointed Executive Vice President and Chief Operating
Officer. Mr. Gill served as President of MERIT from its founding in January 1982
until its sale to us in 1997. MERIT was an industrial construction and
maintenance firm based in Baton Rouge, Louisiana. Mr. Gill has over 31 years of
experience in the industrial construction and maintenance industry.

Robert L. Belk joined us in October 1998 as Executive Vice President, Chief
Financial Officer and Treasurer. 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, Inc., Mr. Belk was engaged in public accounting with national and local
firms and as a sole-practitioner.

G. Ray Wilkie, Jr. joined us in March 1988 and served as Vice President of
B. F. Shaw, Inc., a wholly-owned subsidiary of ours, from September 1990 until
May 1993, as President of B. F. Shaw, Inc. from May 1993 until November 1995,
and as our Executive Vice President from November 1995 until August 1998. In
September 1998, Mr. Wilkie was appointed our Senior Vice President in charge of
our U.S. Operations, one of our two principal operating divisions. Mr. Wilkie
also served as one of our directors from January 1993 until March 1995. Mr.
Wilkie has spent the last 31 years in the pipe fabrication business.

37
<PAGE> 42

George P. Bevan has been employed by us since September 1994 and served as
a Vice President until April 1997 and as an Executive Vice President from April
1997 to August 1998. In September 1998, he was appointed a Senior Vice
President. Prior to joining us, Mr. Bevan was a senior partner in the law firm
of Bevan-Hernandez, which he formed in 1991. He also served as President of
Southern United Financial Corporation, an insurance and financial services
company, from 1987 to 1994.

N. Andrew Dupuy, Jr. has been employed by us since February 1997 when we
acquired certain assets of United Crafts, Inc. and served as its President until
December 1997. Mr. Dupuy served as President of Shaw Power Services, Inc., one
of our subsidiaries, from December 1997 until August 1998 and as Vice President
of our international and construction operations from August 1998 until May
1999. In May 1999, Mr. Dupuy was appointed Senior Vice President of
International and Construction Operations. Mr. Dupuy co-founded United Crafts,
Inc. in 1978 and was its President from 1986 until its sale to us. Mr. Dupuy has
over 25 years of experience in the industrial construction and maintenance
industry.

Michael H. Wootton joined us in September 1990 and served as our Vice
President of Power and Business Development from 1990 until 1992 and as
President of Shaw International, one of our subsidiaries, from 1992 until 1999.
In May 1999, we appointed Mr. Wootton as our Senior Vice President of Business
Development. Prior to joining us, Mr. Wootton served as President of the pipe
fabrication division of Dravo Corporation from 1973 until 1990. Mr. Wootton has
over 29 years of experience in the pipe fabrication and construction industry.

Albert McAlister 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 also served as Chairman of the Democratic
Party in South Carolina from 1990 until 1994.

L. Lane Grigsby has served as one of our directors since January 1995. Mr.
Grigsby is also 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 has served on our board of directors since January 1995. For
the past 12 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 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. has served on our board of directors since March 1995.
He has served as Managing Director of RBC Dominion Securities Corporation, an
investment banking firm, since August 1999. From 1993 to 1999, Mr. Sinders
served as an Executive Vice President and as a managing director of Jefferies &
Company, Inc., an investment banking firm. Mr. Sinders served as a Managing
Director of Howard Weil Labouisse Friedrichs Incorporated, an investment banking
firm, from 1987 to 1993. He was 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 in New Orleans.

William H. Grigg has served on our board of directors since January 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 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., a mutual
fund company, Nations Fund, Inc., a mutual fund company, Associated Electric and
Gas Insurance Services Ltd., a mutual casualty insurance company, and the
Charlotte-Mecklenburg Hospital Authority, a local hospital. He is a member of
several civic and charitable organizations, serving as Chairman of the Board of
Foundation for the Carolinas.

38
<PAGE> 43

BOARD OF DIRECTORS

All of the members of our board of directors are elected each year. Our
articles of incorporation provide that if the number of our directors is
increased to twelve or more members, then at the next meeting of our
shareholders at which directors are to be elected, the board of directors will
be divided into three classes, the members of which will serve staggered
three-year terms, with four directors being elected each year.

COMMITTEES OF THE BOARD

Our board of directors has established an audit committee and a
compensation committee. Our board has no nominating committee or other committee
performing similar functions at this time.

Audit Committee. The audit committee is composed of Messrs. Grigg and
Grigsby. The audit committee reports on its activities to the board of directors
and is responsible for reviewing:

- the scope and timing of the audit and non-audit services performed by our
independent accountants;
- the appropriateness of our accounting policies;
- the adequacy of our financial controls; and
- the reliability of the financial information we report to the public.

Compensation Committee. The compensation committee is composed of Messrs.
Hoyle and Sinders. The primary functions of the compensation committee are to:

- provide a general review of our compensation and benefit plans to
determine if they meet corporate objectives;

- evaluate and make recommendations regarding the chief executive officer's
compensation; and

- review our chief executive officer's recommendations on:

-- compensation of all of our officers;

-- granting of awards under our benefit plans; and
-- the adoption of, and changes to, our major compensation policies and
practices.

39
<PAGE> 44

PRINCIPAL SHAREHOLDERS

The following table presents the beneficial ownership of our common stock,
and the number of votes relating to the common stock, as of September 30, 1999,
and as adjusted to reflect the sale of the common stock being offered hereby, by
(1) each person, or group of affiliated persons, known by us to own beneficially
more than five percent of our common stock, (2) each of our directors, (3) each
of our executive officers, and (4) all of our directors and executive officers
as a group. Unless stated otherwise, the persons or entities in this table have
sole voting and investment power with respect to all the shares of common stock
owned by them. Our articles of incorporation provide that each share of common
stock that has been held by the same person for at least four consecutive years
is entitled to five votes on each matter to be voted on at shareholders'
meetings, and all shares held for less than four years are entitled to one vote
per share for each matter. See "Description of Capital Stock--Common Stock."
Accordingly, some of our directors and officers possess a number of votes in
excess of their number of shares owned.

<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
NUMBER ------------------ ------------------
OF PERCENT VOTING PERCENT VOTING
NAME OF OWNER SHARES OWNERSHIP POWER OWNERSHIP POWER
- ------------- --------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
J.M. Bernhard, Jr.(1)....................................... 1,510,566 12.4% 34.6% 10.3% 31.3%
G. Ray Wilkie, Jr.(2)....................................... 334,863 2.7 7.4 1.9 5.6
Richard F. Gill(3).......................................... 81,250 * * * *
Albert McAlister(4)......................................... 75,792 * 1.7 * 1.6
Michael H. Wootton(5)....................................... 47,600 * * * *
George P. Bevan(6).......................................... 34,646 * * * *
John W. Sinders, Jr.(7)..................................... 23,750 * * * *
Robert L. Belk(8)........................................... 23,750 * * * *
David W. Hoyle(9)........................................... 16,750 * * * *
N. Andrew Dupuy, Jr.(10).................................... 12,500 * * * *
L. Lane Grigsby(11)......................................... 11,600 * * * *
William H. Grigg(12)........................................ 3,500 * * * *
All directors and executive officers (13)................... 2,176,567 17.8% 44.9% 14.4% 39.5%
</TABLE>

- ---------------

* less than 1%

(1) Includes 50,000 shares of which Mr. Bernhard may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.

(2) Includes 40,625 shares of which Mr. Wilkie may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days. In October 1999, Mr. Wilkie sold 50,000 shares. His
percentage ownership and voting power after the offering reflect that sale.

(3) Includes 40,000 shares owned by a company in which Mr. Gill has an
ownership interest and 18,750 shares of which Mr. Gill may be deemed to be
beneficial owner as a result of rights that he may exercise to acquire
ownership within 60 days.

(4) Includes 6,750 shares of which Mr. McAlister may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.

(5) Includes 23,750 shares of which Mr. Wootton may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days, and 15,000 shares of which Mr. Wootton may vote but not
sell or otherwise transfer until July 1, 2001.

(6) Includes 5,740 shares owned of record by Mr. Bevan's spouse and 28,906
shares of which Mr. Bevan may be deemed to be beneficial owner as a result
of rights that he may exercise to acquire ownership within 60 days.

40
<PAGE> 45

(7) Includes 6,750 shares of which Mr. Sinders may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.

(8) Includes 18,750 shares of which Mr. Belk may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.

(9) Includes 2,500 shares owned of record by Mr. Hoyle's spouse and 6,750
shares of which Mr. Hoyle may be deemed to be beneficial owner as a result
of rights that he may exercise to acquire ownership within 60 days.

(10) Includes 12,500 shares of which Mr. Dupuy may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.

(11) Includes 6,750 shares of which Mr. Grigsby may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.

(12) Includes 1,500 shares of which Mr. Grigg may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire ownership
within 60 days.

(13) Includes 7,740 shares owned of record by spouses of executive officers and
directors and 221,781 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 ownership within 60 days.

41
<PAGE> 46

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 50,000,000 shares of common stock,
no par value, and 5,000,000 shares of preferred stock, no par value. The
following summary of certain provisions of our capital stock does not purport to
be complete and is subject to and is qualified in its entirety by our articles
of incorporation and by-laws, which are incorporated in this prospectus by
reference as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable law.

COMMON STOCK

At August 31, 1999, there were 11,736,046 shares of common stock
outstanding. In addition, at August 31, 1999, 1,645,000 shares of common stock
were reserved for issuance pursuant to our 1993 Employee Stock Option Plan and
50,000 shares of common stock were reserved for issuance under our 1996
Non-Employee Director Stock Option Plan. Cumulative voting is prohibited in the
election of directors. Our common stock is not redeemable, does not have any
conversion rights and is not subject to call by us. Holders of our common stock
have no preemptive rights to maintain their respective percentage of ownership
in future offerings or sales of stock by us. In addition to the voting rights
described below, ownership of our common stock entitles holders to the right:

- to receive ratably such dividends, if any, as may be declared from time
to time by our board of directors out of funds legally available for
dividends; and

- in the event of our liquidation, dissolution or winding up, to share
equally and ratably in the assets available for distribution after
payment of all liabilities and subject to any prior rights of any holders
of preferred stock then outstanding.

The shares of common stock presently outstanding are fully paid and
non-assessable. Our common stock trades on the New York Stock Exchange under the
symbol "SGR."

Each outstanding share of common stock for which there has been no change
in beneficial ownership during the four years preceding the record date will
entitle its holder to five votes on each matter properly submitted to our
shareholders for their vote, waiver, release or other action. Holders of shares
that have changed beneficial ownership within the four-year period will be
entitled to only one vote per share. A change in beneficial ownership of an
outstanding share of common stock is 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:

- voting power, which includes, without limitation, the right to vote or
the power to direct the voting power of the share of common stock;

- investment power, which includes, without limitation, the power to direct
the sale or other disposition of the share of common stock;

- the right to receive or to retain the proceeds of any sale or other
disposition of the share of common stock; or

- the right to receive or to retain any distributions, including, without
limitation, cash dividends, in respect of the share of common stock.

Applying the general rules set forth above, the following events or
conditions are specifically deemed to involve a change in beneficial ownership
of a share of common stock:

- in the absence of proof to the contrary provided in accordance with
procedures set forth below, an outstanding share of common stock is
transferred of record into the name of any other person, or upon the
issuance of shares in a public offering;

- 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

42
<PAGE> 47

clearing agency, if it has not been established according to the
procedures set forth below that there has been no change in the person or
persons who direct the exercise of the rights referred to in the
preceding set of bullet points with respect to the outstanding share of
common stock during the four years immediately preceding the record date;

- 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, there is a
change in the beneficiary of the trust, the principal of the agent, the
ward of the guardian, the minor for whom the custodian is acting or a
change in the trustee, agent, guardian or custodian; or

- 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 five percent of the outstanding shares of
common stock, fails to notify us of the person's or group's ownership
within ten days after the acquisition.

Contrary provisions in our articles of incorporation aside, no change in
beneficial ownership of an outstanding share of common stock will be deemed to
have occurred solely as a result of:

- any transfer without valuable consideration, including, without
limitation, transfers effected by:

-- bequest or inheritance;

-- operation of law upon the death of an individual; or

-- other transfers without valuable consideration, such as gifts made in
good faith and not for the purpose of circumventing provisions of our
articles of incorporation;

- any changes in the beneficiary of a trust, or any distribution of an
outstanding share of common stock from the trust, by reason of the birth,
death, marriage or divorce of any natural person;

- the adoption of any natural person prior to the age of 18;

- the passage of a given period of time;

- the attainment by any natural person of a specific age;

- the creation or termination of any guardianship or custodial arrangement;

- any appointment of a successor trustee, agent, guardian or custodian with
respect to an outstanding share of common stock if neither the successor
has nor its predecessor had the power to vote or to dispose of the share
of common stock without further instructions from others;

- 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;

- 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 of
the share, unless otherwise determined by the board of directors at the
time of authorizing the issuance or transfer;

- 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 thereunder;

- any transfer, whether or not with consideration, among individuals
related or formerly related by blood, marriage or adoption, defined as
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;

- any appointment of a successor trustee as a result of the death of the
predecessor trustee who was a natural person;

- any appointment of a successor trustee who was specifically named in a
trust instrument prior to the effective date of this offering; or

43
<PAGE> 48

- 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 the percentage the appointment of
the successor trustee, during the four-year period preceding the
appointment of the successor trustee.

All determinations concerning changes in beneficial ownership, or the
absence of any change, are made by our board of directors or by a transfer agent
for our common stock at our request. Written procedures designated to facilitate
the determinations have been established and may be amended by our board of
directors. These procedures should provide 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 information
concerning beneficial ownership of the outstanding shares of our common stock
coming to our attention from any source and in any manner reasonably deemed by
us to be reliable. However, neither we nor any transfer agent will be charged
with any other knowledge concerning the beneficial ownership of outstanding
shares of our common stock.

In the event of any stock split or stock dividend of our common stock, each
share acquired by reason of the split or dividend will be deemed to have been
beneficially owned by the same person from the acquisition date of the share
from which it originated.

Each outstanding share of our 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 our common stock in all respects, and together
the outstanding shares of common stock will constitute a single class of our
shares.

PREFERRED STOCK

Our board of directors is authorized to provide for the issuance of
5,000,000 shares of preferred stock in one or more series. Our board may,
without any further vote or action by our shareholders, fix for any series the:

- number of shares;
- voting powers;
- designations;
- preferences; and
- relative, participating, optional or other special rights and
qualifications including:
-- dividend rights;
-- the dividend rate;
-- terms of redemption;
-- the redemption price or prices;
-- conversion rights; and
-- liquidation preferences.

The issuance of preferred stock by our board of directors could adversely
affect the rights of holders of our common stock. For example, issuance of
preferred stock could result in a series of securities having preferences over
our common stock with respect to dividends and in liquidation or that could,
upon conversion or otherwise, enjoy all of the rights appurtenant to our common
stock. Our board of directors has the authority to issue preferred stock that
could be used to discourage attempts by others to obtain control of us through
merger, tender offer, proxy, consent or otherwise by making these attempts more
difficult to achieve or more costly. Our board may issue preferred stock without
shareholder approval and with voting and conversion rights that could adversely
affect the voting power of holders of common stock. There are no agreements or
understandings for the issuance of preferred stock, and our board has no present
intention to issue any shares of preferred stock.

LOUISIANA FAIR PRICE AND CONTROL ACQUISITION STATUTES

Under Louisiana law, the acquisition of voting power, which is called a
"control share acquisition," of an "issuing public corporation" that results in
the purchaser acquiring voting power in excess of 20%, 33%
44
<PAGE> 49

or 51% of the total voting power of the issuing public corporation requires
approval of a majority of the voting power of the issuing public corporation and
each class entitled to vote separately on the proposal, excluding the shares of
the acquiring person, any officer of the issuing public corporation and any
employee of the issuing public corporation who is also a director of the
corporation. Shares acquired in a control share acquisition without such
approval will have no voting rights and under certain circumstances may be
subject to redemption by the corporation. The restrictions imposed under the law
are applicable to all Louisiana corporations that fall within the definition of
an "issuing public corporation," as we do, unless the issuing public
corporation's articles of incorporation or by-laws contain a provision expressly
disclaiming them, which ours do not. Therefore, these restrictions contained in
Louisiana law apply to us.

In addition, if particular elections were to be made by our board of
directors under the Louisiana Business Corporation Law, unless specified price
and procedural requirements were met, business combinations involving us and any
holder of 20% or more of our outstanding voting stock could be required to be
approved by at least:

- 80% of the votes entitled to be cast by holders of the outstanding voting
stock; and

- two-thirds of the votes entitled to be cast by holders of our voting
stock other than the voting stock of the 20% holder.

This provision could be regarded as a deterrent to a takeover of us and could be
applied selectively by our board of directors.

LIMITATION OF DIRECTOR AND OFFICER LIABILITY

Our articles of incorporation contain provisions that eliminate the
personal liability of our directors and officers for:

- monetary damages resulting from breaches of their fiduciary duty other
than liability for breaches of the duty of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of law;

- violations under Section 92(D) of the Louisiana Business Corporation Law,
relating to unlawful distributions; or

- any transaction from which the director or officer derived an improper
personal benefit.

Our articles of incorporation contain provisions requiring the indemnification
of our directors and officers to the fullest extent permitted by Section 83 of
the Louisiana Business Corporation Law, including circumstances in which
indemnification is otherwise discretionary. We believe that these provisions are
necessary to attract and retain qualified persons as directors and officers.

CLASSIFIED BOARD OF DIRECTORS

Our articles of incorporation provide that if the number of directors
constituting our entire board of directors is increased to twelve or more
members, then at the next meeting of our shareholders at which directors are to
be elected, the board of directors will be divided into three classes, the
members of which will serve staggered three-year terms. We believe that a
classified board of directors could help to ensure the continuity and stability
of our board and the business strategies and policies determined by them. The
classified board provision, if implemented, could have the effect of making the
removal of incumbent directors more time-consuming and could discourage a third
party from making a tender offer or otherwise attempting to obtain control of
us, even though an attempt might be beneficial to us and our shareholders.

ADVANCE NOTICE PROVISIONS FOR PARTICULAR SHAREHOLDER ACTIONS

Our by-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of our board or a committee
thereof, of candidates for election as directors. This is called the

45
<PAGE> 50

"nomination procedure" with respect to the election of directors, or with
respect to other matters to be brought before an annual meeting of our
shareholders, the "business procedure."

The nomination procedure requires that a shareholder give prior written
notice, in proper form, of a planned nomination for our board of directors to
our secretary. The requirements as to the form and timing of that notice are
specified in our by-laws. If the election inspectors determine that a person was
not nominated in accordance with the nomination procedure, the person will not
be eligible for election as a director.

Although our by-laws do not give our board any power to approve or
disapprove shareholder nominations for the election of directors or of any other
business desired by shareholders to be conducted at an annual or any other
meeting, our by-laws may:

- have the effect of precluding a nomination for the election of directors
or precluding the conduct of business at a particular annual meeting if
the proper procedures are not followed; and

- may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to
obtain control of us, even if the conduct of the solicitation or the
attempt might be beneficial to us and our shareholders.

Under the business procedure, a shareholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to our secretary. The requirements as to the form and timing of that notice are
specified in our by-laws. If the chairman or other officer presiding at a
meeting determines that an item of business was not properly brought before the
meeting in accordance with the business procedure, then that item of business
will not be conducted at the meeting.

SUPER MAJORITY PROVISIONS

Our articles of incorporation contain provisions requiring the affirmative
vote of the holders of at least 75% of the voting power of our capital stock to
amend specific provisions of the articles, including provisions relating to the
removal of directors.

Our articles of incorporation require the approval of the holders of at
least 75% of our outstanding shares of our common stock, not including shares
held by a related person, to approve some business combinations and related
transactions. The term "related person" includes any individual, corporation,
partnership or other entity which owns beneficially, directly or indirectly,
more than five percent of the outstanding shares of our common stock. The term
"business combination" includes, among other things:

- any merger or consolidation of us or a subsidiary of ours which
constitutes more than 50% of our assets, other than a merger or
consolidation which results in our voting securities outstanding
immediately prior to the merger or consolidation continuing to represent
more than 50% of the combined voting power of the voting securities of
the surviving entity;

- any sale, lease, exchange, transfer or other disposition of more than 50%
of our assets;

- any reclassification of our common stock; and

- our liquidation or dissolution.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is First Union
National Bank, Charlotte, North Carolina.

46
<PAGE> 51

UNDERWRITING

GENERAL

We intend to offer our common stock through a number of underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Jefferies & Company, Inc.,
Morgan Keegan & Company, Inc. and RBC Dominion Securities Corporation are acting
as representatives of each of the underwriters named below. Under a purchase
agreement between us and the underwriters, we have agreed to sell to the
underwriters, and each of the underwriters severally and not jointly has agreed
to purchase from us, the number of shares of our common stock set forth opposite
its name below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Jefferies & Company, Inc. ..................................
Morgan Keegan & Company, Inc. ..............................
RBC Dominion Securities Corporation.........................

--------
Total..........................................
========
</TABLE>

In the purchase agreement, the underwriters have agreed to purchase all of
the shares of our common stock being sold under the agreement if any of the
shares of our common stock being sold under the agreement are purchased. In the
event of a default by an underwriter, the purchase agreement provides that, in
some circumstances, the purchase commitments of nondefaulting underwriters may
be increased or the purchase agreement may be terminated.

We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.

The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to receipt of legal opinions and officers certificates, or waiver of these
conditions, as specified in the purchase agreement. The underwriters reserve the
right to withdraw, cancel or modify offers and to reject orders in whole or in
part.

COMMISSIONS AND DISCOUNTS

The representatives have advised us that the underwriters propose initially
to offer the shares of our common stock to the public at the offering price set
forth on the cover page of this prospectus, and to certain dealers at such price
less a concession not in excess of $ per share. The underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.

47
<PAGE> 52

The following table shows the per share and total public offering price,
the underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the underwriters of their over-allotment option.

<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------- ------
<S> <C> <C> <C>
Public offering price....................................... $ $ $
Underwriting discount....................................... $ $ $
Proceeds, before expenses, to Shaw.......................... $ $ $
</TABLE>

The expenses of this offering, exclusive of the underwriting discount, are
estimated at $600,000 and are payable by us.

OVER-ALLOTMENT OPTION

We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 375,000
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered by this prospectus. To the extent
that the underwriters exercise this option, each underwriter will be obligated,
subject to receipt of legal opinions and officers certificates, or waiver of
these conditions, as specified in the purchase agreement, to purchase a number
of additional shares of our common stock proportionate to the underwriter's
initial amount reflected in the foregoing table.

NO SALES OF SIMILAR SECURITIES

We, our executive officers and our directors have agreed, with exceptions
specified in the lock-up agreements, not to directly or indirectly engage in the
following activities for a period 90 days after the date of this prospectus
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file a registration statement under
the Securities Act of 1933 relating to any shares of our common stock; or

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities in cash or otherwise.

PRICE STABILIZATION AND SHORT POSITIONS

Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase our common stock. As an exception
to these rules, the representatives are permitted to engage in certain
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.

If the underwriters create a short position in our common stock in
connection with this offering, i.e., if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing our common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.

48
<PAGE> 53

Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters make any representation that the representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.

John W. Sinders, Jr., one of our directors, is Managing Director of RBC
Dominion Securities Corporation. As noted above, RBC Dominion Securities
Corporation is one of the representatives. Mr. Sinders beneficially owns 23,750
shares of our common stock.

Jefferies & Company, Inc. has provided us with brokerage services in
connection with our stock repurchase program. As noted above, Jefferies &
Company, Inc. is one of the representatives.

LEGAL MATTERS

Legal matters in connection with this offering will be passed upon for us
by Vinson & Elkins L.L.P., Dallas, Texas. The validity of the issuance of the
common stock under Louisiana law is being passed upon by Kantrow, Spaht, Weaver
& Blitzer (A Professional Law Corporation), Baton Rouge, Louisiana. Legal
matters in connection with this offering will be passed upon for the
underwriters by Andrews & Kurth L.L.P., Houston, Texas.

EXPERTS

The financial statements included in and incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in its report
with respect thereto, and are included in this prospectus in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.

The financial statements included in and incorporated by reference in this
prospectus and elsewhere in the registration statement to the extent and for the
periods indicated in their reports have been audited by Arthur Andersen LLP and
Hannis T. Bourgeois, LLP, independent public accountants, and are included in
this prospectus in reliance upon the authority of said firms as experts in
accounting and auditing in giving said reports. The single jointly signed
auditors' report is considered to be the equivalent of two separately signed
auditors' reports. Thus each firm represents that it has complied with generally
accepted auditing standards and is in a position that would justify being the
only signatory of the report.

49
<PAGE> 54

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information we incorporate by reference is considered to be part of this
prospectus, and later information that we file with the Commission will
automatically update and supersede this information. We incorporate by
reference:

- our Annual Report on Form 10-K for the fiscal year ended August 31, 1998,
filed with the Commission on November 30, 1998;

- our Quarterly Report on Form 10-Q for the quarter ended November 30,
1998, filed with the Commission on January 14, 1999;

- our Quarterly Report on Form 10-Q for the quarter ended February 28,
1999, filed with the Commission on April 14, 1999;

- our Quarterly Report on Form 10-Q for the quarter ended May 31, 1999,
filed with the Commission on July 15, 1999;

- our Current Report on Form 8-K filed with the Commission on September 22,
1999; and

- any future filings we make with the Commission under the Securities
Exchange Act of 1934 until the offering made by this prospectus
terminates.

You may request a copy of these filings (other than exhibits to the filings
unless we have specifically incorporated that exhibit by reference into the
filings), at no cost, by writing or telephoning us at the following address:

The Shaw Group Inc.
Attention: Director of Investor Relations
8545 United Plaza Boulevard
Baton Rouge, Louisiana 70809
(225) 932-2500
http://www.shawgrp.com

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934. The registration statement of which this
prospectus is a part and those reports, proxy statements and other information
can be inspected and copied at the Public Reference Room maintained by the
Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of the materials may also be
obtained from the Public Reference Room of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549 at prescribed
rates. You may obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330.

We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 under the Securities Act of 1933 with respect to the
common stock offered under this prospectus. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement and the attached exhibits and schedules.
Statements contained in this prospectus as to the contents of any documents
filed as an exhibit to the registration statement are summaries of the material
provisions of the documents. The summaries are qualified in all respects by
reference to the full text of the documents.

The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding us. The reports, proxy and information statements
and other information concerning us also can be inspected and copied at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005, on which the common stock is listed.

50
<PAGE> 55

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Public Accountants................... F-2
Consolidated Balance Sheets as of August 31, 1998 and
1999...................................................... F-4
Consolidated Statements of Income for the years ended August
31, 1997, 1998 and 1999................................... F-5
Consolidated Statements of Shareholders' Equity for the
years ended August 31, 1997, 1998 and 1999................ F-6
Consolidated Statements of Cash Flows for the years ended
August 31, 1997, 1998 and 1999............................ F-7
Notes to Consolidated Financial Statements.................. F-9
</TABLE>

F-1
<PAGE> 56

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of The Shaw Group Inc.:

We have audited the accompanying consolidated balance sheet of The Shaw
Group Inc. (a Louisiana corporation) and subsidiaries as of August 31, 1999, and
the related consolidated statements of income, shareholders' equity and cash
flows for the year ended August 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Shaw Group Inc. and
subsidiaries as of August 31, 1999, and the results of their operations and
their cash flows for the year ended August 31, 1999, in conformity with
generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

New Orleans, Louisiana
October 1, 1999

F-2
<PAGE> 57

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of The Shaw Group Inc.:

We have audited the accompanying consolidated balance sheet of The Shaw
Group Inc. (a Louisiana corporation) and subsidiaries as of August 31, 1998, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the two years in the period ended August 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Shaw Group Inc. and
subsidiaries as of August 31, 1998, and the results of their operations and
their cash flows for each of the two years in the period ended August 31, 1998,
in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP /s/ HANNIS T. BOURGEOIS, LLP

New Orleans, Louisiana Baton Rouge, Louisiana
October 22, 1998

F-3
<PAGE> 58

THE SHAW GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 1998 AND 1999
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,743 $ 6,901
Accounts receivable, net.................................. 140,631 122,053
Receivables from unconsolidated entity, net............... 1,758 4,310
Inventories............................................... 65,861 78,464
Cost and estimated earnings in excess of billings on
uncompleted contracts................................... 19,797 24,277
Prepaid expenses.......................................... 4,948 4,131
Deferred income taxes..................................... 4,697 992
Other current assets...................................... 9,559 10,942
-------- --------
Total current assets................................ 250,994 252,070
Investment in unconsolidated entity......................... 3,965 4,646
Investment in securities available for sale................. -- 13,830
Property and equipment:
Transportation equipment.................................. 3,153 3,704
Furniture and fixtures.................................... 10,756 10,487
Machinery and equipment................................... 65,158 73,060
Buildings and improvements................................ 32,920 36,471
Land...................................................... 5,923 7,038
-------- --------
117,910 130,760
Less: Accumulated depreciation.............................. (25,050) (35,252)
-------- --------
92,860 95,508
Goodwill, net of accumulated amortization of $1,430 and
$3,276 at August 31, 1998 and 1999, respectively.......... 33,356 32,134
Other assets................................................ 8,669 8,874
-------- --------
$389,844 $407,062
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Outstanding checks in excess of bank balance.............. $ 4,009 $ 6,633
Accounts payable.......................................... 45,307 37,714
Accrued liabilities....................................... 24,831 28,407
Current maturities of long-term debt...................... 9,314 8,056
Revolving lines of credit................................. 20,898 43,562
Deferred revenue-prebilled................................ 1,813 3,576
Advanced billings and billings in excess of cost and
estimated earnings on uncompleted contracts............. 14,367 10,147
-------- --------
Total current liabilities........................... 120,539 138,095
Long-term debt, less current maturities..................... 91,715 87,841
Deferred income taxes....................................... 6,895 6,887
Commitments and contingencies............................... -- --
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common stock, no par value, 50,000,000 shares authorized;
19,942,782 and 19,960,282 shares issued, respectively;
13,279,866 and 11,736,046 shares outstanding,
respectively............................................ 119,360 119,353
Retained earnings......................................... 58,950 77,071
Accumulated other comprehensive income.................... (420) (1,535)
Unearned restricted stock compensation.................... (367) (125)
Treasury stock, 6,662,916 and 8,224,236 shares
respectively............................................ (6,828) (20,525)
-------- --------
Total shareholders' equity.......................... 170,695 174,239
-------- --------
$389,844 $407,062
======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 59

THE SHAW GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED AUGUST 31, 1997, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Sales....................................................... $335,734 $501,638 $494,014
Cost of sales............................................... 271,759 422,057 400,186
-------- -------- --------
Gross profit.............................................. 63,975 79,581 93,828
General and administrative expenses......................... 37,377 48,503 60,082
-------- -------- --------
Operating income.......................................... 26,598 31,078 33,746
Interest expense............................................ (6,778) (8,471) (8,649)
Other income, net........................................... 155 698 978
-------- -------- --------
(6,623) (7,773) (7,671)
-------- -------- --------
Income before income taxes................................ 19,975 23,305 26,075
Provision for income taxes.................................. 6,112 7,033 8,635
-------- -------- --------
Income from continuing operations before earnings (losses)
from unconsolidated entity............................. 13,863 16,272 17,440
Earnings (losses) from unconsolidated entity................ 437 (40) 681
-------- -------- --------
Income from continuing operations......................... 14,300 16,232 18,121
Discontinued operations, net of taxes:
Operating results......................................... (252) 298 --
Net gain on disposals..................................... -- 2,647 --
-------- -------- --------
Net income.................................................. $ 14,048 $ 19,177 $ 18,121
======== ======== ========
Basic income per common share:
Continuing operations..................................... $ 1.23 $ 1.29 $ 1.52
Discontinued operations................................... (.02) .23 --
-------- -------- --------
Net income per common share............................... $ 1.21 $ 1.52 $ 1.52
======== ======== ========
Diluted income per common share:
Continuing operations..................................... $ 1.20 $ 1.26 $ 1.47
Discontinued operations................................... (.02) .23 --
-------- -------- --------
Net income per common share............................... $ 1.18 $ 1.49 $ 1.47
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 60

THE SHAW GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1997, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNEARNED ACCUMULATED
COMMON STOCK RESTRICTED TREASURY OTHER
--------------------- STOCK -------------------- COMPREHENSIVE RETAINED
SHARES AMOUNT COMPENSATION SHARES AMOUNT INCOME EARNINGS
---------- -------- ------------ --------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 1, 1996......... 16,619,099 $ 56,849 $ -- 6,662,916 $ (6,828) $ -- $26,024
Comprehensive income:
Net income..................... -- -- -- -- -- -- 14,048
Comprehensive income.............
Shares issued in public
offering....................... 2,398,000 46,986 -- -- -- -- --
Shares issued to acquire certain
assets of MERIT Industrial
Constructors, Inc. and certain
of its affiliates.............. 62,500 1,266 -- -- -- -- --
Exercise of options.............. 71,710 433 -- -- -- -- --
Pooled entity:
Purchase of treasury stock..... -- (664) -- -- -- -- --
Distributions to members of
Freeport Properties, L.C. ... -- -- -- -- -- -- (168)
Net loss not included in
reporting period............... -- -- -- -- -- -- (131)
---------- -------- ----- --------- -------- ------- -------
Balance, August 31, 1997........... 19,151,309 104,870 -- 6,662,916 (6,828) -- 39,773
Comprehensive income:
Net income..................... -- -- -- -- -- -- 19,177
Other comprehensive income:
Foreign translation
adjustments................ -- -- -- -- -- (420) --
Comprehensive income.............
Restricted stock compensation.... 30,000 581 (581) -- -- -- --
Amortization of restricted stock
compensation................... -- -- 214 -- -- -- --
Shares issued to acquire
Bagwell........................ 645,000 13,033 -- -- -- -- --
Exercise of options.............. 116,473 876 -- -- -- -- --
---------- -------- ----- --------- -------- ------- -------
Balance, August 31, 1998........... 19,942,782 119,360 (367) 6,662,916 (6,828) (420) 58,950
Comprehensive income:
Net income..................... -- -- -- -- -- -- 18,121
Other comprehensive income:
Foreign translation
adjustments................ -- -- -- -- -- (1,115) --
Comprehensive income.............
Restricted stock cancellation.... (15,000) (255) 145 -- -- -- --
Amortization of restricted stock
compensation................... -- -- 97 -- -- -- --
Exercise of options.............. 32,500 248 -- -- -- -- --
Purchases of treasury stock...... -- -- -- 1,561,320 (13,697) -- --
---------- -------- ----- --------- -------- ------- -------
Balance, August 31, 1999........... 19,960,282 $119,353 $(125) 8,224,236 $(20,525) $(1,535) $77,071
========== ======== ===== ========= ======== ======= =======

TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance, September 1, 1996......... $ 76,045
Comprehensive income:
Net income..................... 14,048
--------
Comprehensive income............. 14,048
Shares issued in public
offering....................... 46,986
Shares issued to acquire certain
assets of MERIT Industrial
Constructors, Inc. and certain
of its affiliates.............. 1,266
Exercise of options.............. 433
Pooled entity:
Purchase of treasury stock..... (664)
Distributions to members of
Freeport Properties, L.C. ... (168)
Net loss not included in
reporting period............... (131)
--------
Balance, August 31, 1997........... 137,815
Comprehensive income:
Net income..................... 19,177
Other comprehensive income:
Foreign translation
adjustments................ (420)
--------
Comprehensive income............. 18,757
Restricted stock compensation.... --
Amortization of restricted stock
compensation................... 214
Shares issued to acquire
Bagwell........................ 13,033
Exercise of options.............. 876
--------
Balance, August 31, 1998........... 170,695
Comprehensive income:
Net income..................... 18,121
Other comprehensive income:
Foreign translation
adjustments................ (1,115)
--------
Comprehensive income............. 17,006
Restricted stock cancellation.... (110)
Amortization of restricted stock
compensation................... 97
Exercise of options.............. 248
Purchases of treasury stock...... (13,697)
--------
Balance, August 31, 1999........... $174,239
========
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 61

THE SHAW GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1997, 1998 AND 1999
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 14,048 $ 19,177 $ 18,121
Net loss not included in reporting period................... (132) -- --
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................... 7,358 10,280 13,271
Provision for deferred income taxes......................... 2,231 40 3,697
(Earnings) losses from unconsolidated entity................ (437) 40 (681)
Transaction losses.......................................... 6 702 533
Gain on sale of discontinued operations..................... -- (3,010) --
Other....................................................... 290 246 (462)
Changes in assets and liabilities, net of effects of
acquisitions:
(Increase) decrease in receivables........................ (2,817) (38,291) 15,640
Increase in cost and estimated earnings in excess of
billings on uncompleted contracts...................... (1,050) (7,530) (4,485)
(Increase) decrease in inventories........................ (5,833) 4,211 (12,243)
(Increase) decrease in other current assets............... (1,847) 848 (471)
(Increase) decrease in prepaid expenses................... 257 (2,708) 564
(Increase) decrease in other assets....................... 311 (1,317) (954)
Increase (decrease) in accounts payable................... 274 5,842 (7,688)
Increase (decrease) in deferred revenue -- prebilled...... 1,742 (1,769) 1,763
Increase (decrease) in accrued liabilities................ (3,467) 1,660 4,326
Increase (decrease) in advanced billings and billings in
excess of cost and estimated earnings on uncompleted
contracts.............................................. (3,330) 8,355 (4,046)
-------- -------- --------
Net cash provided by (used in) operating activities......... 7,604 (3,224) 26,885
Cash flows from investing activities:
Investment in unconsolidated entity....................... (1,647) -- --
Investment in subsidiaries, net of cash received.......... (11,651) (27,738) --
Proceeds from sale of property and equipment.............. 622 3,167 1,530
Proceeds from sale of discontinued operations............. -- 1,208 --
Purchase of property and equipment........................ (15,832) (14,616) (17,967)
Purchase of securities available for sale................. -- -- (13,830)
Payment of note receivable by a related party............. 87 -- --
-------- -------- --------
Net cash used in investing activities....................... (28,421) (37,979) (30,267)
</TABLE>

F-7
<PAGE> 62
THE SHAW GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds (repayments) from revolving credit
agreement.............................................. (23,890) (10,182) 22,720
Proceeds from issuance of debt............................ 15,031 62,154 5,571
Repayment of debt and leases.............................. (13,107) (13,817) (10,690)
Increase (decrease) in outstanding checks in excess of
bank balance........................................... (2,414) 1,725 2,614
Distributions to members of Freeport Properties, L.C...... (168) -- --
Purchase of treasury stock................................ (664) -- (13,697)
Issuance of common stock.................................. 47,419 876 248
-------- -------- --------
Net cash provided by financing activities................. 22,207 40,756 6,766
Effects of exchange rate changes on cash.................... -- (168) (226)
-------- -------- --------
Net increase (decrease) in cash............................. 1,390 (615) 3,158
Cash and cash equivalents -- beginning of year.............. 2,968 4,358 3,743
-------- -------- --------
Cash and cash equivalents -- end of year.................... $ 4,358 $ 3,743 $ 6,901
======== ======== ========
Supplemental disclosures:
Cash payments for:
Interest.................................................. $ 6,663 $ 7,048 $ 9,151
======== ======== ========
Income taxes.............................................. $ 5,784 $ 2,873 $ 5,592
======== ======== ========
Noncash investing and financing activities:
Property and equipment acquired through issuance of
debt................................................... $ 83 $ 85 $ --
======== ======== ========
Investment in subsidiaries acquired through issuance of
common stock........................................... $ 1,266 $ 13,033 $ --
======== ======== ========
Other current assets acquired through issuance of debt.... $ 134 $ -- $ --
======== ======== ========
Purchase of inventory and payment of liabilities through
cancellation of notes receivable to a related party.... $ 538 $ -- $ --
======== ======== ========
Investment in subsidiaries acquired through issuance of
debt................................................... $ -- $ 4,702 $ --
======== ======== ========
Sale of subsidiaries financed through issuance of notes
receivables............................................ $ -- $ 8,792 $ --
======== ======== ========
Sale of building for noncash consideration................ $ -- $ -- $ 1,400
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-8
<PAGE> 63

THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of The Shaw
Group Inc. (a Louisiana corporation) and its wholly-owned subsidiaries
(collectively, the Company). All material intercompany accounts and transactions
have been eliminated in these financial statements.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Nature of Operations

The Company is a supplier of fabricated piping systems, integrated piping
systems and related services for new construction, site expansion and retrofit
projects throughout the world, primarily in the United States, the Far
East/Pacific Rim, Europe, South America and the Middle East for customers in the
power generation, chemical processing, crude oil refining, petrochemical
processing, oil and gas exploration and development and other industries. The
Company offers comprehensive design and engineering services, piping system
fabrication, industrial construction and maintenance services, manufacturing and
sale of specialty pipe fittings and design and fabrication of pipe support
systems. The Company's operations are conducted primarily through wholly-owned
subsidiaries and one joint venture.

Cash and Cash Equivalents

For purposes of reporting cash flows, all highly liquid investments with a
maturity of three months or less when purchased are cash equivalents. At August
31, 1998 and 1999, the Company included in cash and cash equivalents
approximately $1,200,000 and $1,300,000, respectively, the proceeds of which
came from industrial development bond financing. These funds are required to be
invested in short-term marketable securities until used for other capital
improvements.

Accounts Receivable and Credit Risk

The Company's customers include major multi-national construction and
engineering firms and industrial corporations. Work is performed under contract
and the Company believes that its credit risk is normally minimal. The Company
grants short-term credit to its customers.

At August 31, 1998 and 1999, accounts receivable included approximately
$18,000,000 and $13,000,000, respectively, of receivables and claims due under
contracts which are subject to contract renegotiations or legal proceedings and
which are recorded at estimated net realizable value. At August 31, 1999,
contracts with seven customers made up the $13,000,000 balance discussed above.
Management believes that the ultimate resolution of these disputes will not have
a significant impact on future results of operations.

Allowance for Uncollectable Receivables and Contract Adjustments

The allowance for uncollectable receivables and contract adjustments of
approximately $7,100,000 and $5,800,000 at August 31, 1998 and 1999,
respectively, is based on management's estimate of the amount expected to be
uncollectable considering historical experience and the information management
is able to obtain regarding the financial condition of significant customers.
The Company includes contract

F-9
<PAGE> 64
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

adjustments as a reduction of sales. Net provisions to this allowance were
approximately $1,700,000 in fiscal 1998. Increases to the allowance for the year
ended August 31, 1999 were $4,600,000 with total reductions of $5,900,000.
Provisions for uncollectible receivables included in bad debt expense was not
material for 1997, 1998 and 1999.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) or weighted-average cost methods.

Property and Equipment

Property and equipment are recorded at cost. Additions and improvements are
capitalized. Maintenance and repair expenses are charged to income as incurred.
The cost of property and equipment sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any gain or loss is credited or charged
to income.

For financial reporting purposes, depreciation is provided by utilizing the
straight-line method over the following estimated useful service lives:

<TABLE>
<S> <C>
Transportation equipment................................ 5-15 Years
Furniture and fixtures.................................. 3-7 Years
Machinery and equipment................................. 3-18 Years
Buildings and improvements.............................. 8-40 Years
</TABLE>

At August 31, 1999, the Company had equipment not yet placed into service
of $5,267,000.

Income Taxes

The Company provides for deferred taxes in accordance with Statement of
Financial Accounting Standards No. 109 -- "Accounting for Income Taxes," which
requires an asset and liability approach for measuring deferred tax assets and
liabilities due to temporary differences existing at year end using currently
enacted tax rates.

Revenues

For unit-priced pipe fabrication contracts, the Company recognizes revenues
upon completion of individual spools of production. A spool consists of piping
materials and associated shop labor to form a prefabricated unit according to
contract specifications. Spools are generally shipped to job site locations when
complete. During the fabrication process, all direct and indirect costs related
to the fabrication process are capitalized as work in progress. For lump-sum
fabrication contracts, the Company recognizes revenues based on the percentage
of completion method, measured primarily by the cost of materials for which
production is complete compared with the total estimated material costs of the
contract.

For project management and construction services, the Company recognizes
revenues under the percentage of completion method measured primarily on
contract costs incurred to date, excluding the costs of any purchased but
uninstalled materials, compared with total estimated contract costs. Revenues
from cost-plus-fee contracts are recognized on the basis of costs incurred
during the period plus the fee earned.

The Company recognizes revenues for pipe fittings, manufacturing operations
and other services primarily at the time of shipment or upon completion of the
services.

F-10
<PAGE> 65
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Provisions for estimated losses for uncompleted contracts are made in the
period in which such losses are identified. Other changes, including those
arising from contract penalty provisions, final contract settlements and reviews
performed by customers, are recognized in the period in which the revisions are
identified. To the extent that these adjustments result in a reduction or
elimination of previously reported profits, the Company would report such a
change by recognizing a charge against current earnings, which might be
significant depending on the size of the project or the adjustment.

Goodwill

Goodwill represents the excess of the purchase price of acquisitions over
the fair value of the net assets acquired. Such excess costs are being amortized
on a straight-line basis over a twenty-year period. The Company periodically
assesses the recoverability of the unamortized balance based on expected future
profitability and undiscounted future cash flows of the acquisitions and their
contribution to the overall operation of the Company.

Financial Instruments, Forward Contracts -- Non-Trading Activities

When considered appropriate, the Company utilizes forward foreign exchange
contracts to hedge firm purchases and sales of certain pipe bending machines.
Financial instruments are designated as a hedge at inception where there is a
direct relationship to the price risk associated with the Company's future sales
and purchases. Gains and losses on the early termination or maturity of forward
contracts designated as hedges are deferred and included in revenues in the
period the hedged transaction is recorded. If the direct relationship to price
risk ceases to exist, the difference in the carrying value and fair value of a
forward contract is recognized as a gain or loss in revenues in the period the
direct relationship ceases to exist. Future changes in fair value of the forward
contracts are recognized as gains or losses in revenues in the period of change.

Comprehensive Income

SFAS No. 130, "Reporting Comprehensive Income," which was required to be
adopted by the Company in the first quarter of fiscal 1999, establishes
standards for the reporting and display of comprehensive income as part of a
full set of financial statements. Comprehensive income for a period encompasses
net income and all other changes in a company's equity other than from
transactions with the company's owners.

The foreign currency translation adjustments relate to the varying strength
of the U.S. dollar in relation to the British pound, Australian dollar and Dutch
guilder. The Company's comprehensive income is included in the consolidated
statements of shareholders' equity.

Reclassifications

Certain reclassifications have been made to the prior years' financial
statements in order to conform to current reporting practices.

New Accounting Standards

In early 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP"). The SOP is effective for fiscal years beginning after
December 15, 1998 and will require costs of start-up activities and organization
costs to be expensed as incurred. Any such unamortized costs on the date of
adoption of the new standard will be written off and reflected as a cumulative
effect of a change in accounting principle. As of August 31, 1999, the Company
had total deferred organizational costs of approximately $492,000.

F-11
<PAGE> 66
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During fiscal 1999, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Changes in a
derivative's fair value are to be recognized currently in earnings unless
specific hedge accounting criteria are met. The company will be required to
adopt SFAS No. 133, as amended by SFAS No. 137 which defers the effective date,
on September 1, 2000. The Company has not yet quantified the impact on its
financial statements that may result from adoption of SFAS No. 133, however, the
Company does not use derivative instruments or hedging activities extensively in
its business.

NOTE 2 -- PUBLIC OFFERING OF COMMON STOCK

On December 23, 1996, the Company closed the sale of 2,000,000 shares of
its common stock, no par value (the "Common Stock"), in an underwritten public
offering at a price of $21.00 per share less underwriting discounts and
commissions. On January 10, 1997, the underwriters for such offering exercised
an option to purchase an additional 398,000 shares of Common Stock from the
Company pursuant to such terms to cover over-allotments. The net proceeds to the
Company, less underwriting discounts and other expenses of the offering, totaled
approximately $47,000,000 and were used to pay down amounts outstanding under
the Company's revolving line of credit. The Company's revolving line of credit
has been used to provide working capital, as well as to fund fixed asset and
subsidiary acquisitions.

NOTE 3 -- ACQUISITIONS

Effective October 1, 1996, the Company acquired all of the outstanding
capital stock of Pipe Shields Incorporated (Pipe Shields), an industrial pipe
insulation company located in Vacaville, California, for approximately
$2,500,000 in cash, net of cash received. The purchase method was used to
account for the acquisition. The excess of cost over the estimated fair value of
the assets acquired (goodwill) was approximately $2,000,000 and is being
amortized on a straight-line basis over 20 years. The operating results of Pipe
Shields have been included in the consolidated statements of income of the
Company from the effective date of the acquisition. The pro-forma effect of the
acquisition of Pipe Shields, had it occurred on September 1, 1996, is not
material to the operations of the Company.

On January 27, 1997, the Company completed the acquisition of NAPTech,
Inc., a fabricator of industrial piping systems and engineered piping modules
located in Clearfield, Utah. The Company issued 432,881 shares of its Common
Stock in exchange for NAPTech, Inc. and the 335,000 square foot facility that
NAPTech, Inc. had leased from a related entity, Freeport Properties, L.C.
(Freeport). The acquisition was accounted for using the pooling-of-interests
method; accordingly, the Company's financial information for all prior periods
presented herein has been restated to include financial information of NAPTech,
Inc. and Freeport, (collectively, NAPTech). Summarized results of operations of
the separate companies for the period from September 1, 1996 through January 27,
1997, the date of acquisition, are as follows (in thousands):

<TABLE>
<CAPTION>
SHAW NAPTECH
-------- -------
<S> <C> <C>
Sales....................................................... $106,555 $24,482
======== =======
Net income.................................................. $ 2,505 $ 584
======== =======
</TABLE>

Net income of the combined companies for the fiscal year ended August 31,
1997 has been reduced by approximately $700,000 of merger and business
combination costs of the NAPTech acquisition.

F-12
<PAGE> 67
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Because the fiscal periods of the Company and NAPTech were not the same,
the 1996 fiscal year financial statements of NAPTech were recast from the twelve
months ended March 31, 1996 to the twelve months ended June 30, 1996. As a
result, the following sales and losses of NAPTech have been excluded from the
respective statements of income (in thousands):

<TABLE>
<CAPTION>
FISCAL PERIOD MONTHS EXCLUDED SALES NET LOSSES
- ------------- --------------- ------ ----------
<S> <C> <C> <C>
1997....................................... July and August, 1996 $5,194 $132
====== ====
</TABLE>

Effective February 1, 1997, the Company purchased all of the outstanding
capital stock of United Crafts, Inc., now named Shaw Constructors, Inc. ("Shaw
Constructors"), an industrial construction and maintenance company based in
Baton Rouge, Louisiana, for cash of $8,000,000. Acquisition costs of
approximately $192,000 were incurred by the Company. The purchase method was
used to account for the acquisition. Goodwill of approximately $4,800,000 is
being amortized on a straight-line basis over 20 years. The estimated fair value
of the assets and liabilities of Shaw Constructors as of February 1, 1997 are as
follows (in thousands):

<TABLE>
<S> <C>
Accounts receivable........................................ $6,040
Property and equipment..................................... 2,992
Other assets............................................... 4,832
Accounts payable & accrued liabilities..................... (3,502)
Advanced billings.......................................... (1,277)
Notes payable.............................................. (1,101)
Deferred income taxes...................................... (146)
------
Purchase price (net of cash received of $354).............. $7,838
======
</TABLE>

The operating results of Shaw Constructors have been included in the
consolidated statements of income from the effective date of the acquisition.

On March 20, 1997, the Company, through a newly-formed, wholly-owned
subsidiary, completed the purchase of certain assets and the assumption of
certain liabilities of MERIT Industrial Constructors, Inc. (MERIT), an
industrial construction and maintenance firm based in Baton Rouge, Louisiana,
and certain of its affiliates. Total consideration paid by the Company was
approximately $1,300,000 in cash (including acquisition costs), 62,500 shares of
the Company's Common Stock valued at approximately $1,300,000, options to
purchase 25,000 shares of the Company's Common Stock at $20.25 per share, as
well as the assumption of approximately $340,000 of debt. The purchase method
was used to account for the acquisition. Goodwill of approximately $1,100,000 is
being amortized on a straight-line basis over 20 years. The operating results
related to the acquired MERIT assets have been included in the consolidated
statements of income from the date of the acquisition. The pro-forma effect of
the acquisition of the MERIT assets, had it occurred on September 1, 1996, is
not material to the operations of the Company.

On October 8, 1997, the Company purchased the capital stock of Pipework
Engineering and Developments Limited (PED), a pipe fabrication company in
Wolverhampton, United Kingdom, for $539,000 in cash, net of cash received, and
notes payable to former stockholders of $1,078,000. Acquisition costs of
approximately $160,000 were incurred by the Company. The purchase method was
used to account for the acquisition. Goodwill, which is being amortized over 20
years using the straight-line method, was approximately $1,600,000. The
operating results of PED have been included in the consolidated statements of
income of the Company from the date of acquisition. The pro-forma effect of the
acquisition of PED, had it occurred on September 1, 1996, is not material to the
operations of the Company.

F-13
<PAGE> 68
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On November 14, 1997, the Company purchased all of the capital stock or
substantially all of the assets of the principal operating businesses of
Prospect Industries plc (Prospect) of Derby, United Kingdom, for approximately
$14,600,000 in cash, net of cash received. Acquisition costs of approximately
$2,000,000 were incurred by the Company. Excluded from the purchase price is
$1,438,000, which represents the fair value of the assets and liabilities of a
discontinued operation, CBP Engineering Corp. (CBP). The sale of CBP was
completed in 1998 at no gain or loss. Prospect, a mechanical contractor and
provider of turnkey piping systems serving the power generating and process
industries worldwide, operated through several wholly-owned subsidiaries
including Connex Pipe Systems, Inc. (Connex), a piping systems fabrication
business located in Troutville, Virginia; Aiton Australia Pty Limited (Aiton
Australia), a piping systems, boiler refurbishment and project management
company based near Sydney, Australia; and Prospect Engineering Limited (PEL), a
mechanical contractor and a provider of turnkey piping systems located in Derby,
United Kingdom. Under the terms of the acquisition agreement, the Company
acquired all of the outstanding capital stock of Prospect Industries Overseas
Limited, a United Kingdom holding company that held the entire ownership
interest in Connex and CBP, all of the capital stock of Aiton Australia and
certain assets of PEL, as well as Prospect's entire ownership interest in Inflo.
The Company also assumed certain liabilities of PEL and Prospect relating to its
employees and pension plans including approximately $3,800,000 of costs related
to the Company's plan to reduce the workforce at Prospect. These costs relate to
amounts due to employees under statutory and contractual severance entitlements.
All amounts related to the severance entitlements have been paid as of August
31, 1999. The purchase method was used to account for the acquisition. Goodwill,
which is being amortized over 20 years using the straight-line method, was
approximately $2,400,000. The estimated fair value of the assets acquired and
liabilities assumed as of November 14, 1997 are as follows (in thousands):

<TABLE>
<S> <C>
Accounts receivable......................................... $15,288
Inventories................................................. 2,087
Cost and estimated earnings in excess of billings on
uncompleted contracts..................................... 7,588
Property and equipment...................................... 11,339
Other assets................................................ 5,907
Outstanding checks in excess of bank balance................ (1,527)
Accounts payable and accrued liabilities.................... (19,331)
Revolving line of credit.................................... (318)
Advanced billings and billings in excess of cost and
estimated earnings on uncompleted contracts............... (4,456)
-------
Purchase price (net of cash received of $99)................ $16,577
=======
</TABLE>

The operating results of the Prospect businesses have been included in the
consolidated statements of income from the date of the acquisition.

In connection with the Prospect acquisition, the Company incurred certain
contingent liabilities (see Note 12 of Notes to Consolidated Financial
Statements).

On January 15, 1998, the Company purchased all of the outstanding capital
stock of Lancas, C.A. (Lancas), a construction company in Punto Fijo, Venezuela
for approximately $2,600,000 in cash, net of cash received. The Company also
incurred approximately $100,000 of acquisition costs. Goodwill of approximately
$400,000 is being amortized over 20 years, using the straight-line method. The
purchase method was used to account for this acquisition. The operating results
of Lancas have been included in the consolidated statements of income from the
date of acquisition. The pro-forma effect of the acquisition of Lancas, had it
occurred on September 1, 1996, is not material to the operations of the Company.

F-14
<PAGE> 69
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On January 19, 1998, the Company completed the acquisition of all of the
outstanding capital stock of Cojafex, B.V. of Rotterdam, Holland (Cojafex) for
approximately $8,500,000; $4,547,000 (net of cash received) of which was paid at
closing. The balance of the purchase price will be paid through December 31,
2003. Acquisition costs of approximately $60,000 were incurred by the Company.
Cojafex owns the technology for certain induction pipe bending machines used for
bending pipe and other carbon steel and alloy items for industrial, commercial
and agricultural applications, and using such technology, Cojafex designs,
engineers, manufactures, markets and sells such induction bending machines.
Goodwill, which is being amortized over 20 years using the straight-line method,
was approximately $8,500,000. The purchase method was used to account for this
acquisition. The operating results of Cojafex have been included in the
consolidated statements of income from the date of acquisition. The pro-forma
effect of the acquisition of Cojafex, had it occurred on September 1, 1996, is
not material to the operations of the Company.

On July 28, 1998, the Company completed the acquisition of all of the
outstanding capital stock of Bagwell Brothers, Inc. and a subsidiary
(collectively, Bagwell). Total consideration paid was $1,600,000 cash and
645,000 shares of the Company's Common Stock valued at $13,033,000. The Company
also incurred $163,000 of acquisition costs. The purchase method was used to
account for the acquisition. Goodwill of approximately $11,300,000 is being
amortized on a straight-line basis over 20 years. The operating results of
Bagwell have been included in the consolidated statements of income from the
date of acquisition. The pro-forma effect of the acquisition of Bagwell, had it
occurred on September 1, 1996, is not material to the operations of the Company.

The following summarized unaudited income statement data reflects the
impact the Shaw Constructors and Prospect acquisitions would have had on 1997;
and the Prospect acquisition would have had on 1998, if such acquisitions had
taken place at the beginning of the applicable fiscal year (in thousands, except
per share data):

<TABLE>
<CAPTION>
UNAUDITED PRO-FORMA
RESULTS FOR THE
YEARS ENDED AUGUST 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Gross revenue............................................... $476,384 $531,329
======== ========
Income from continuing operations........................... $ 10,196 $ 16,193
======== ========
Basic earnings from continuing operations per common
share..................................................... $ .88 $ 1.28
======== ========
Diluted earnings from continuing operations per common
share..................................................... $ .86 $ 1.26
======== ========
</TABLE>

NOTE 4 -- INVENTORIES

The major components of inventories consist of the following (in
thousands):

<TABLE>
<CAPTION>
AUGUST 31,
-----------------------------------------------------------
1998 1999
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE FIFO TOTAL AVERAGE FIFO TOTAL
-------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Finished Goods.............. $28,671 $ -- $28,671 $29,244 $ 642 $29,886
Raw Materials............... 3,162 25,937 29,099 3,686 32,869 36,555
Work In Process............. 1,914 6,177 8,091 1,306 10,717 12,023
------- ------- ------- ------- ------- -------
$33,747 $32,114 $65,861 $34,236 $44,228 $78,464
======= ======= ======= ======= ======= =======
</TABLE>

F-15
<PAGE> 70
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- INVESTMENT IN UNCONSOLIDATED ENTITIES

During the years ended August 31, 1998 and 1999, the Company has not made
any additional investments in Shaw-Nass Middle East, W.L.L., the Company's
Bahrain joint venture (Shaw-Nass). The Company owns 49% of Shaw-Nass and
accounts for this investment on the equity basis. As such, during the years
ended August 31, 1997, 1998, and 1999, the Company recognized earnings (losses)
of $437,000, $(40,000), and $681,000, respectively, from Shaw-Nass. No
distributions have been received through August 31, 1999 from Shaw-Nass. As of
August 31, 1998 and 1999, the Company had outstanding receivables from Shaw-Nass
totaling $1,758,000 and $4,310,000, respectively. These receivables relate to
inventory and equipment sold and net short-term advances to Shaw-Nass. In
addition, at August 31, 1998, the Company had a note receivable from Shaw-Nass
of $436,000 included in other assets.

During 1997, 1998 and 1999, revenues of $782,000, $1,626,000, and
$1,188,000 were recognized on sales of products from the Company to Shaw-Nass.
The Company's 49% of profit on these sales was eliminated. At August 31, 1999,
undistributed earnings of Shaw-Nass included in the consolidated retained
earnings of the Company amounted to approximately $960,000.

NOTE 6 -- INVESTMENT FOR SECURITIES AVAILABLE FOR SALE

In connection with its construction services, the Company embarked on its
first significant project financing participation. As a result, the Company
acquired $12,500,000 of 15% Senior Secured Notes (the "Notes") due December 1,
2003, from a customer, together with certain preferred stock related thereto.
The Notes are secured by a first priority security interest in some of the
refinery's assets. The amount and value of the preferred stock is not material.
Through December 1, 2000, additional bonds are expected to be received in lieu
of interest, increasing the Company's investment in the Notes. Since these
securities are available for sale, SFAS No. 115 -- "Accounting for Certain
Investments in Debt and Equity Securities" requires that the securities be
measured at fair value in the balance sheet and that unrealized holding gains
and losses, net of taxes, for these investments be reported in a separate
component of shareholders equity until realized. Based on sales of additional
securities by the debtor during fiscal 1999 and the estimates obtained by the
Company from an investment banking firm, the securities had an aggregate value
approximating the outstanding principal amount of $13,830,000 at August 31,
1999. As a result, no unrealized gain or loss is recognized in shareholders'
equity. Since the financing arrangement is related to construction services, the
interest income of $1,330,000 in 1999 from the Notes is included in sales and
the interest cost of $621,000 in 1999 associated with carrying the Notes is
included in cost of sales in the statement of income. The interest cost was
calculated at the Company's estimated effective borrowing rate of 7%.

F-16
<PAGE> 71
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- LONG-TERM DEBT

Long-term debt consisted of:

<TABLE>
<CAPTION>
AUGUST 31,
--------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to insurance companies; variable interest
rates based on 30-day commercial paper rates plus 190 to
235 basis points ranging from 7.04% to 7.49% as of August
31, 1999; payable in monthly installments based on
amortization over the respective note lives; maturing from
2001 to 2006; secured by property and equipment with an
approximate net book value of $20,139 as of August 31,
1999 and guaranties by the Company and certain
subsidiaries of the Company............................... $13,638 $11,827
Note payable to a bank; interest payable quarterly based
upon London Interbank Offering Rate (LIBOR) plus 1.6%;
payable in quarterly principal installments of $264 with
remaining balance due in 2003; secured by equipment with
an approximate net book value of $9,233 as of August 31,
1999...................................................... 5,286 4,229
South Carolina Revenue Bonds payable; principal due in 2005;
interest paid monthly accruing at a variable rate of 3.60%
as of August 31, 1999; secured by $4,000 letter of
credit.................................................... 4,000 4,000
Note payable to a bank; variable interest rate based upon
London Interbank Offering Rate (LIBOR) plus 1.4%; payable
in quarterly principal installments of $143 through March
25, 2004 plus interest; secured by equipment with an
approximate net book value of $2,067 as of August 31,
1999...................................................... 3,286 2,714
Mortgages payable to a bank; interest payable monthly at
8.38%; monthly payments of $10 and $27 with remaining
balance due on June 1, 2002; secured by real property with
an approximate net book value of $2,350 as of August 31,
1999...................................................... 3,107 2,922
Mortgage payable to an insurance company; variable interest
rate based on average weekly yield of 30 day commercial
paper plus 2.35%; payable in monthly installments of $40
through June 30, 2007, secured by land and buildings with
an approximate net book value of $1,787 as of August 31,
1999...................................................... 3,036 2,773
Notes payable to employees relating to non-competition
agreements; Interest payable monthly at 7.125% and 7%;
monthly payments of $21 and $5 until April 2004 and August
2000 respectively; unsecured; see Note 16 -- Related Party
Transactions.............................................. 1,274 1,047
Mortgage payable to a bank; interest payable monthly at
8.63%; monthly installments of $8 with remaining balance
due on November 7, 2001; secured by real property with an
approximate net book value of $661 as of August 31,
1999...................................................... 524 479
Senior secured notes payable primarily to insurance
companies; interest payable semi-annually at 6.44% and
6.93% respectively; payable in annual principal
installments of $2,857 beginning May, 1999 and $5,714
beginning May 2002, respectively; rank in pari passu with
the Company's U.S. revolving credit facility (see Note
8 -- Revolving Lines of Credit); secured by domestic
subsidiary accounts receivable, inventory, intangible
assets, and bank deposits with an approximate net book
value of $212,000 as of August 31, 1999, as well as the
pledge of the capital stock of certain of the Company's
domestic subsidiaries..................................... 60,000 57,143
</TABLE>

F-17
<PAGE> 72
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
AUGUST 31,
--------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to former owners in conjunction with an
acquisition; payable in annual installments of $750
(including interest imputed at 6.56%) through December 31,
2003; secured by the stock of the acquired subsidiary..... 3,624 3,112
Note payable to a bank; interest payable quarterly at 7.23%;
quarterly payments of $52 through April 1, 2005; secured
by equipment with an approximate net book value of $1,506
as of August 31, 1999..................................... 1,100 969
Notes payable to employees in conjunction with an
acquisition; interest payable semi-annually at 7.00%;
payable on April 30th or October 31st of any year with
balance due no later than April 30, 2002.................. 1,078 --
Note Payable to an insurance company, interest payable
monthly, at 7.20%; monthly payments of $35 through June 1,
2019 secured by land, buildings and equipment with an
approximate net book value of $7,029 at August 31, 1999... -- 4,383
Other notes payable; interest rates ranging from 5.50% to
8.25%; payable in monthly installments based on
amortization over the respective note lives; maturing from
1999 through 2003......................................... 1,076 299
------- -------
Total debt........................................ 101,029 95,897
Less: current maturities.................................... (9,314) (8,056)
------- -------
Total long-term portion of debt................... $91,715 $87,841
======= =======
</TABLE>

Annual maturities of long-term debt during each year ending August 31, are
as follows (in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 8,056
2001........................................................ 9,352
2002........................................................ 10,854
2003........................................................ 13,941
2004 and thereafter......................................... 53,694
-------
$95,897
=======
</TABLE>

Certain of the debt agreements contain restrictive covenants which the
Company is required to meet including financial ratios and minimum capital
levels among other restrictions. As of August 31, 1999, the Company was in
compliance with the covenants or had obtained the required waivers.

The estimated fair value of long-term debt as of August 31, 1998 and 1999
was approximately $103,700,000 and $91,712,000 respectively, based on borrowing
rates currently available to the Company for notes with similar terms and
average maturities.

NOTE 8 -- REVOLVING LINES OF CREDIT

In May 1998, the Company entered into a three-year revolving credit
facility with its U.S. banks, which allows the Company to borrow up to
$100,000,000 at an interest rate not to exceed 2% over the London Interbank
Offering Rate (LIBOR) or .75% over the Prime rate. The index used to determine
the interest rate is selected by the Company and the spread over the index is
dependent upon certain financial ratios of the Company. During fiscal 1998 and
1999, the maximum amount outstanding under the revolving credit facility was
approximately $87,873,000 and $80,532,000 respectively, and the average amount
outstanding was approximately $51,523,000 and $55,006,000 respectively, at
weighted average interest rates of 7.19% and 6.53% respectively. The revolving
credit facility ranks in pari passu with the

F-18
<PAGE> 73
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's Senior Secured Notes and is secured by the Company's domestic accounts
receivable, inventory, intangible assets and bank deposits, as well as by the
pledge of the capital stock of certain of the Company's domestic subsidiaries.

In September 1999, the Company's revolving credit facility was amended to
extend the expiration date to May 31, 2002. The amendment also modified the
interest rate spread, not to exceed 2.50% over the London Interbank Offering
Rate (LIBOR) or 1.75% over the Prime rate, and certain financial covenants and
ratios.

In 1998, a foreign subsidiary of the Company initiated an overdraft credit
facility with a bank for up to L3.0 million ($4.9 million), with interest at the
bank's base rate plus 1.25%. The facility is secured by the assets of the
subsidiary and a L10.0 million ($16.3 million) limited guarantee given by the
Company. The facility expired December 17, 1998 and was extended for one year in
January 1999. The extension reduced the facility to L2.0 million ($3.3 million)
at the same interest rate spread as the previous facility. The outcome of the
negotiations to renew or replace this overdraft credit facility is not expected
to have any material adverse effect on the future operations of the Company.

NOTE 9 -- INCOME TAXES

The significant components of net deferred taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
AUGUST 31,
-----------------
1998 1999
------- -------
<S> <C> <C>
Assets:
Tax basis of inventory in excess of book basis............ $ 946 $ 371
Receivable reserves not currently deductible.............. 1,649 177
Self insurance reserves not currently deductible.......... 667 620
Net operating loss and tax credit carry forwards.......... 2,505 1,457
State tax credits......................................... 720 628
Other expenses not currently deductible................... 693 1,248
Less: valuation allowance................................. (932) (937)
------- -------
Assets................................................. 6,248 3,564
Liabilities:
Excess of financial reporting over tax basis of assets.... (6,462) (7,456)
Excess of financial reporting over tax basis of
receivables............................................ (1,279) (1,298)
Pension................................................... (705) (705)
------- -------
Liabilities............................................ (8,446) (9,459)
------- -------
Net deferred tax liabilities................................ $(2,198) $(5,895)
======= =======
</TABLE>

Income (loss) before provision for income taxes for the years ended August
31 was as follows (in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Domestic................................................ $17,544 $12,764 $27,663
Foreign................................................. 2,431 10,541 (1,588)
------- ------- -------
Total......................................... $19,975 $23,305 $26,075
======= ======= =======
</TABLE>

F-19
<PAGE> 74
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes for the years ended August 31 was as follows
(in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Current.................................................. $4,313 $6,874 $4,534
Net operating loss utilized.............................. (890) (200) --
Deferred................................................. 2,231 40 3,697
State.................................................... 458 319 404
------ ------ ------
Total.......................................... $6,112 $7,033 $8,635
====== ====== ======
</TABLE>

A reconciliation of Federal statutory and effective income tax rates for
the years ended August 31 was as follows:

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................................. 35% 35% 35%
State taxes provided........................................ 1 1 1
Foreign income taxed at different rates..................... (4) (6) (2)
Other....................................................... 2 3 1
State tax credits........................................... (3) (3) (2)
-- -- --
31% 30% 33%
== == ==
</TABLE>

As of August 31, 1999, for Federal income tax return purposes, the Company
had approximately $1,900,000 of U.S. net operating loss carryforwards available
to offset future taxable income of its Connex subsidiary. The carryforwards
expire beginning in 2011 through 2013. As of August 31, 1999, the Company's
United Kingdom operations had net operating loss carryforwards of approximately
L1.6 million, ($2.6 million), which can be used to reduce future taxable income
in the United Kingdom. As of August 31, 1999, no benefit had been given to these
losses in the accompanying financial statements due to the current operating
environment in that market. Therefore, a valuation allowance is provided for
these loss carryforwards.

Unremitted foreign earnings reinvested abroad upon which deferred income
taxes have not been provided aggregated approximately $7,000,000 at August 31,
1999. Due to the timing and circumstances of repatriation of such earnings, if
any, it is not practicable to determine the unrecognized deferred tax liability
relating to such amounts. Withholding taxes, if any, upon repatriation would not
be significant.

NOTE 10 -- COMMON STOCK

The Company has one class of common stock. Each outstanding share of common
stock which has been held for four consecutive years entitles its holder to five
votes on each matter properly submitted to the Company's shareholders for their
vote, waiver, release or other action. Each outstanding share of common stock
which has been held for less than four consecutive years entitles its holder to
only one vote. Also, the Board of Directors is authorized to approve the
issuance of preferred stock.

F-20
<PAGE> 75
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- LEASES

Operating Leases -- The Company leases certain offices, fabrication shops,
warehouse facilities, office equipment and machinery under non-cancelable
operating lease agreements which expire at various times and which require
various minimum rentals. The non-cancelable operating leases which were in
effect as of August 31, 1999 require the Company to make the following future
minimum lease payments:

For the year ending August 31 (in thousands):

<TABLE>
<S> <C>
2000...................................................... $ 3,578
2001...................................................... 2,404
2002...................................................... 1,679
2003...................................................... 1,192
2004 and thereafter....................................... 2,728
-------
Total minimum lease payments................................ $11,581
=======
</TABLE>

The Company enters into short-term lease agreements for equipment needed to
fulfill the requirements of specific jobs. Any payments owed or committed under
these lease arrangements as of August 31, 1999 are not included as part of total
minimum lease payments. Rent expense for the fiscal years ended August 31, 1997,
1998 and 1999 was $3,587,000, $7,902,000 and $8,297,000, respectively.

NOTE 12 -- COMMITMENTS AND CONTINGENCIES

In the normal course of business activities, the Company enters into
contractual agreements with customers for certain construction services to be
performed based on agreed upon reimbursable costs and labor rates. In some
instances, the terms of these contracts provide for the customer's review of the
accounting and cost control systems to verify the completeness and accuracy of
the reimbursable costs invoiced. These reviews could result in proposed
reductions in reimbursable costs and labor rates previously billed to the
customer. The Company does not believe that any such reviews will result in a
material change to the Company's financial position or results of operations.

The Company has posted letters of credit aggregating approximately
$5,600,000 as of August 31, 1999 to secure its performance under certain
contracts and insurance arrangements.

During 1998 and 1999, the Company was self-insured for workers'
compensation claims in certain states up to certain policy limits. Claims in
excess of $250,000 per incident are insured by third party reinsurers. The
Company has accrued a liability for outstanding and incurred, but not reported,
claims based on historical experience totaling approximately $780,000 and
$821,000 at August 31, 1998 and 1999, respectively.

During 1998 and 1999, certain subsidiaries of the Company were self-insured
for health claims up to certain policy limits. Claims in excess of $125,000 per
incident and approximately $10,000,000 in the aggregate per year are insured by
third party reinsurers. The Company had accrued a liability of $812,000 and
$1,198,000, respectively, for outstanding and incurred, but not reported, claims
based on historical experience.

In connection with the acquisition of the principal operating businesses of
Prospect (see Note 3 of Notes to Consolidated Financial Statements), the Company
entered into several indemnification agreements in favor of Prospect, PEL, and
Prospect's principal lender (the Lender). The first agreement required the
Company to indemnify the Lender for any losses that the Lender may incur in
connection with certain letters of credit, bonds and guarantees previously
issued by the Lender relating to projects entered into by PEL, Connex, CBP,
Aiton Australia and other subsidiaries of Prospect. The Company has

F-21
<PAGE> 76
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

determined that its exposure for indemnity under the agreement with the Lender
as of August 31, 1999 was approximately $400,000.

Additionally, the Company has agreed to indemnify each of Prospect, PEL and
the Lender with respect to certain preferential creditors of Prospect and PEL.
Immediately after the closing of the acquisition by the Company of Prospect, the
Lender had an administrative receiver appointed for Prospect, PEL and the
subsidiaries not acquired by the Company. The Company is obligated to indemnify
Prospect and PEL for preferential debts of PEL and Prospect in connection with
the receivership proceedings. Further, the Company has agreed to indemnify the
Lender for any loss the Lender may suffer as a result of the Company's failure
to perform its indemnity obligations under the Company's agreement with Prospect
and PEL concerning preferential creditors. As of August 31, 1999, the Company
estimates the aggregate preferential debt of Prospect and PEL to be
approximately $3,800,000; this amount is included in accrued liabilities in the
accompanying financial statements.

In the normal course of its business, the Company becomes involved in
various litigation matters including, among other things, claims by third
parities for alleged property damages, personal injuries, and other matters.
While the Company believes it has meritorious defenses against these claims,
management has used estimates in determining the Company's potential exposure
and has recorded reserves in its financial statements related thereto where
appropriate. It is possible that a change in the Company's estimates of that
exposure could occur, but the Company does not expect such changes in estimate
costs will have a material effect on the Company's financial position or results
of operations.

NOTE 13 -- BUSINESS SEGMENTS, OPERATIONS BY GEOGRAPHIC REGION AND MAJOR
CUSTOMERS

Business Segments

The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information," as of August 31, 1999. SFAS 131 establishes standards for the way
public business enterprises report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 defined
operating segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company has aggregated its business activities into two
operating segments: pipe services and manufacturing.

The pipe services segment of the Company supplies integrated systems,
products and services for piping systems, primarily for the power generation,
chemical processing, crude oil refining, petrochemical processing, oil and gas
exploration and production and other industries. As a "total piping resource",
the Company also offers comprehensive design and engineering services related to
piping systems and pipe support fabrication and manufacturing, and final on-site
erection, turnkey construction and piping project maintenance.

The manufacturing segment offers its capabilities primarily to the power
generation, chemical processing, crude oil refining, petrochemical processing,
oil and gas exploration and production and other industries, including the pulp
and paper, and food processing industries, by manufacturing and distributing
specialty stainless, alloy and carbon steel pipe fittings. These fittings
include stainless and other alloy elbows, tees, reducers and stub ends. The
Company has one manufacturing facility which distributes its products to the
pipe services segment of the Company enhancing the Company's piping package, as
well as to third parties. The Company also has several distribution centers in
the United States, which distribute its products primarily to third parties.

F-22
<PAGE> 77
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Business Segment Data

The following table presents information about segment profit and assets
(in thousands):

<TABLE>
<CAPTION>
PIPE
SERVICES MANUFACTURING CORPORATE TOTAL
-------- ------------- --------- --------
<S> <C> <C> <C> <C>
FISCAL 1997
Sales to external customers............. $272,180 $63,554 $ -- $335,734
Intersegment sales...................... -- 19,523 501 20,024
Corporate overhead allocations.......... 7,695 1,580 (9,275) --
Interest income......................... 122 59 138 319
Interest expense........................ 4,673 1,568 537 6,778
Depreciation and amortization........... 4,854 1,867 637 7,358
Earnings from unconsolidated entity..... 437 -- -- 437
Income tax expense...................... 4,111 1,974 27 6,112
Income (loss) from discontinued
operations............................ 94 (346) -- (252)
Net income.............................. 10,021 3,979 48 14,048
Total assets............................ 187,755 54,487 20,217 262,459
Investment in unconsolidated entity..... 4,005 -- -- 4,005
Purchases of property and equipment..... 6,333 6,386 3,113 15,832
Other increases in long-lived assets,
net................................... 10,762 -- 211 10,973
FISCAL 1998
Sales to external customers............. $445,866 $55,772 $ -- $501,638
Intersegment sales...................... -- 22,538 569 23,107
Corporate overhead allocations.......... 4,800 2,340 (7,140) --
Interest income......................... 174 17 60 251
Interest expense........................ 4,520 1,477 2,474 8,471
Depreciation and amortization........... 7,272 2,264 744 10,280
Earnings (loss) from unconsolidated
entity................................ (40) -- -- (40)
Income tax expense...................... 8,198 707 (1,872) 7,033
Income (loss) from discontinued
operations............................ 3,563 (618) -- 2,945
Net income.............................. 21,544 689 (3,056) 19,177
Total assets............................ 312,145 55,675 22,024 389,844
Investment in unconsolidated entity..... 3,965 -- -- 3,965
Purchases of property and equipment..... 12,564 1,201 851 14,616
Other increases in long-lived assets,
net................................... 25,196 15 2,142 27,353
FISCAL 1999
Sales to external customers............. $446,708 $47,306 $ -- $494,014
Intersegment sales...................... -- 19,914 566 20,480
Corporate overhead allocations.......... 9,214 1,586 (10,800) --
Interest income......................... 234 4 227 465
Interest expense........................ 3,906 1,323 3,420 8,649
Depreciation and amortization........... 10,431 2,028 812 13,271
Earnings from unconsolidated entity..... 681 -- -- 681
Income tax expense...................... 10,196 (64) (1,497) 8,635
Net income.............................. 20,449 (165) (2,163) 18,121
Total assets............................ 319,904 54,833 32,325 407,062
Investment in unconsolidated entity..... 4,646 -- -- 4,646
Purchases of property and equipment..... 9,441 869 7,657 17,967
Other increases in long-lived assets,
net................................... 66 -- 48 114
</TABLE>

F-23
<PAGE> 78
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Operations by Geographic Region

The following tables present geographic sales and long-lived assets (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Sales:
United States.................................... $232,500 $286,574 $365,942
China............................................ 27,342 56,069 30,795
England.......................................... 2,496 52,219 49,822
Other Far East/Pacific Rim countries............. 35,283 47,025 10,257
Other European countries......................... 1,562 1,057 160
South America.................................... 18,359 31,877 18,736
Middle East...................................... 12,777 18,374 10,181
Other............................................ 5,415 8,443 8,121
-------- -------- --------
$335,734 $501,638 $494,014
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
AUGUST 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Long-lived assets:
United States.................................... $ 78,749 $105,741 $109,466
England.......................................... -- 13,167 12,639
Other foreign countries.......................... 10,408 19,942 19,057
-------- -------- --------
$ 89,157 $138,850 $141,162
======== ======== ========
</TABLE>

Sales are attributed to geographic regions based on location of customer.
Long-lived assets include all long-term assets except those specifically
excluded under SFAS No. 131, such as deferred income taxes and securities
available for sale.

Information about Major Customers

The Company's customers are principally major multi-national engineering
and construction firms, equipment manufacturers and industrial corporations. For
the year ended August 31, 1997, no one customer represented more than 10% of
sales. For the year ended August 31, 1998, sales to one customer totaled $51.7
million, or 10% of sales. For the year ended August 31, 1999, sales to a
different customer were $67.7 million, or 14% of sales.

Export Sales

For the years ended August 31, 1997, 1998 and 1999, the Company has
included as part of its international sales approximately $89 million, $111
million and $60 million, respectively, of exports from its domestic facilities.

NOTE 14 -- EARNINGS PER COMMON SHARE

In 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128 replaced
the previously reported primary and fully-diluted earnings per share with basic
and diluted earnings per share.

Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share were

F-24
<PAGE> 79
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

determined on the assumptions that all dilutive stock options (see Note 15 of
Notes to Consolidated Financial Statements) were exercised and stock was
repurchased using the treasury stock method, at the average price for each year.
The Company adopted SFAS No. 128 effective December 15, 1997. The following
table sets forth the computation of basic and diluted income from continuing
operations per share:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Income from continuing operations (dollars in
thousands).................................. $ 14,300 $ 16,232 $ 18,121
=========== =========== ===========
Shares:
Weighted average number of common shares
outstanding.............................. 11,632,068 12,616,997 11,934,595
Net effect of stock options................. 269,253 214,980 420,831
----------- ----------- -----------
Weighted average number of common shares
outstanding, plus assumed exercise of
stock options............................ 11,901,321 12,831,977 12,355,426
=========== =========== ===========
Income from continuing operations:
Basic earnings per share.................... $ 1.23 $ 1.29 $ 1.52
=========== =========== ===========
Diluted earnings per share.................. $ 1.20 $ 1.26 $ 1.47
=========== =========== ===========
</TABLE>

At August 31, 1997, 1998 and 1999, the Company had dilutive stock options
of 427,003, 343,905, and 1,188,500 respectively, which were assumed exercised
using the treasury stock method. The resulting net effect of stock options was
used in the calculation of diluted income per common share for each period.
Additionally, the Company had 28,341, 74,341, and 53,000 of stock options at
August 31, 1997, 1998 and 1999, respectively, which were excluded from the
calculation of diluted income per share because they were antidilutive.

NOTE 15 -- EMPLOYEE BENEFIT PLANS

The Company has a Stock Option Plan (the Plan) under which both qualified
and non-qualified options and restricted stock may be granted. As of August 31,
1999, 1,645,000 shares of common stock are reserved for issuance under the Plan.
The Plan is administered by a committee of the Board, which selects persons
eligible to receive options and determines the number of shares subject to each
option, the vesting schedule, the exercise price, and the duration of the
option. The exercise price of any option granted under the Plan cannot be less
than 100% of the fair market value on the date of grant and its duration cannot
exceed 10 years. Only qualified options have been granted under the Plan.

Shares of restricted stock are subject to risk of forfeiture during the
vesting period. Restrictions related to these shares and the restriction terms
are determined by the committee. Holders of restricted stock have the right to
vote the shares. During the year ended August 31, 1998, the Company issued
30,000 shares of restricted stock which had a weighted average grant-date fair
value of $19.38. During fiscal 1999, 15,000 shares were cancelled, and at August
31, 1999, 15,000 shares remain outstanding.

In connection with the Company's acquisition of FCI and PSSI during 1994,
options to acquire 5,000 shares with an exercise price of $18.00 were issued. In
January 1995, the exercise price of these options was amended to $5.875 per
share, which was the fair market value of the common stock at the date of such
amendment. These options were exercised in 1998. In addition, in 1994 the
Company granted options contingent upon the ability of FCI, PSSI and certain
other subsidiaries to generate consolidated

F-25
<PAGE> 80
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

net income in excess of certain thresholds during the fiscal years ended August
31, 1995, 1996 and 1997. The maximum number of shares related to these options
issuable under this plan was 19,000 per year or 57,000. These options expire in
2004 and have an exercise price equal to the closing price quoted on the last
business day of the immediately preceding fiscal year to which the grant of
options relate. The minimum threshold for the year ended August 31, 1995 was not
met, and therefore, no options were issued for that year. For the year ended
August 31, 1996, options to acquire 12,000 shares with an exercise price of
$9.59 per share were earned and subsequently issued. For the year ended August
31, 1997, options to acquire an additional 12,000 shares with an exercise price
of $32.875 were earned and were issued in fiscal 1998.

In fiscal 1997, the Company adopted a Non-Employee Director Stock Option
Plan. Each member of the Board of Directors who is not, and who has not been
during the one year period immediately preceding the date the director is first
elected to the Board, an officer or employee of the Company or any of its
subsidiaries or affiliates, is eligible to participate in the Plan. A committee
of two or more members of the Board who are not eligible to receive grants under
the Option Plan administers the Plan. Upon adoption, options to acquire an
aggregate of 20,000 shares of Common Stock were issued. Additionally, each
eligible director will be granted an option to acquire 1,500 shares of Common
Stock on an annual basis upon his election or re-election to the Board of
Directors. An aggregate of 50,000 shares of Common Stock have been reserved for
issuance under the Option Plan.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS No. 123) which is effective for the Company's fiscal year
beginning September 1, 1996. Under SFAS No. 123, companies can either record
expense based on the fair value of stock-based compensation upon issuance or
elect to remain under the APB 25 method whereby no compensation cost is
recognized upon grant if certain requirements are met. The Company has elected
to continue to account for its stock-based compensation under APB 25. However,
pro-forma disclosures, as if the Company adopted the cost recognition
requirements under SFAS No. 123, are presented below.

Had compensation cost been determined based on the fair value at the grant
date consistent with the provisions of SFAS No. 123, the Company's net income
and earnings per common share would have approximated the pro-forma amounts
below:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income from continuing operations (in thousands):
As reported........................................... $14,300 $16,232 $18,121
======= ======= =======
Pro-forma............................................. $14,086 $15,751 $17,398
======= ======= =======
Basic earnings per share from continuing operations:
As reported........................................... $ 1.23 $ 1.29 $ 1.52
======= ======= =======
Pro forma............................................. $ 1.21 $ 1.25 $ 1.46
======= ======= =======
Diluted earnings per share from continuing operations:
As reported........................................... $ 1.20 $ 1.26 $ 1.47
======= ======= =======
Pro-forma............................................. $ 1.18 $ 1.23 $ 1.41
======= ======= =======
</TABLE>

The pro-forma effect on net earnings for 1998 and 1999 is not
representative of the pro-forma effect on net earnings in future years because
it does not take into consideration pro-forma compensation expense related to
grants prior to September 1, 1995.

F-26
<PAGE> 81
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the activity in the Company's stock option
plans:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES OPTION PRICE
--------- ------------
<S> <C> <C>
Outstanding at September 1, 1996............................ 529,615 $ 8.962
Granted................................................... 83,689 $18.116
Exercised................................................. (71,710) $ 5.984
Canceled.................................................. (86,250) $15.755
--------- -------
Outstanding at August 31, 1997.............................. 455,344 $ 9.827
Granted................................................... 87,000 $23.920
Exercised................................................. (116,473) $ 7.511
Canceled.................................................. (7,625) $ 6.449
--------- -------
Outstanding at August 31, 1998.............................. 418,246 $13.465
Granted................................................... 1,086,250 $ 8.820
Exercised................................................. (32,500) $ 7.654
Canceled.................................................. (214,246) $16.925
--------- -------
Outstanding at August 31, 1999.............................. 1,257,750 $ 9.053
--------- -------
Exercisable at August 31, 1999.............................. 262,750 $ 9.324
========= =======
</TABLE>

As of August 31, 1997, 1998 and 1999, the number of shares relating to
options exercisable under the stock option plans was 160,344; 191,996; and
262,750, respectively, and the weighted average exercise price of those options
was $10.023, $20.608 and $9.324, respectively.

The weighted average fair value at date of grant for options granted during
1997, 1998 and 1999 was $12.72, $13.21 and $5.23 per share, respectively. The
fair value of options granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions in 1997, 1998 and 1999, respectively: (a) dividend yield of 0.00%,
0.00% and 0.00%; (b) expected volatility of 54%, 59% and 65% (c) risk-free
interest rate of 6.7%, 5.8% and 5.1%; and (d) expected life of 5 years, 5 years
and 5 years.

The following table summarizes information about stock options outstanding
as of August 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACT LIFE PRICE EXERCISABLE PRICE
-------------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 5.875 - $ 6.750............. 184,125 5.3 Yrs $ 6.332 184,125 $ 6.332
$ 8.375 - $ 8.375............. 961,875 9.0 Yrs $ 8.375 38,125 $ 8.375
$13.188 - $19.813............. 66,250 9.7 Yrs $15.678 7,500 $15.313
$21.500 - $22.375............. 33,500 7.3 Yrs $21.845 21,000 $21.679
$32.875 - $32.875............. 12,000 8.0 Yrs $32.875 12,000 $32.875
--------- -------
1,257,750 8.5 Yrs $ 9.053 262,750 $ 9.324
========= =======
</TABLE>

During 1994, the Company, excluding NAPTech, adopted a voluntary 401(k)
profit sharing plan for substantially all employees who are not subject to
collective bargaining agreements. The plan provides for the eligible employee to
contribute from 1% to 15% of annual compensation, subject to an annual limit,
with the Company matching 50% of the employee's eligible contribution up to 6%.
The Company's expense for this plan during 1997, 1998 and 1999 was approximately
$480,000, $813,000 and $1,278,000, respectively.

F-27
<PAGE> 82
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has a qualified, contributory 401(k) savings plan covering all
employees of NAPTech who belong to the Certified Metal Trades Journeymen
collective bargaining unit. The Company is required to make a contribution of 3%
of participants' compensation on an annual basis. The Company's expense for this
plan was approximately $52,000, $61,000 and $18,000 for the years ended August
31, 1997, 1998 and 1999, respectively.

The Company has a defined benefit pension plan for employees of Connex.
Effective January 1, 1994, no new participants were admitted to the plan. The
pension plan's benefit formulas generally base payments to retired employees
upon their length of service and a percentage of qualifying compensation during
their final year of employment. The pension plan's assets are invested in fixed
income assets, equity based mutual funds, and money market funds. At August 31,
1999, the fair market value of the plan assets was $1,509,000, which exceeded
the estimated projected benefit obligation.

The Company has two pension plans (Plan A and Plan B) for employees of one
of its United Kingdom subsidiaries. Plan A is a money purchase plan in which the
employer and employee make matching contributions between 3% and 6% of
employees' salaries depending on age. From date of acquisition through August
31, 1998, the Company's expense for this plan was $98,000. For the year ended
August 31, 1999, the expense was $78,000. Plan B is a salary-related plan for
certain employees; admittance to this plan is now closed. The employees in Plan
B contribute 7%. The Company contribution depends on length of service, the
employee's salary at retirement, and the earnings of the fund investments. If
the plan's earnings are sufficient, the Company makes no contributions. From the
date of acquisition to August 31, 1998 the Company expensed $111,000 for this
plan. For the year ended August 31, 1999, the Company reflected a credit of
$18,000. The following table sets forth Plan B's pension cost from the date of
acquisition (November 14, 1997) to August 31, 1999, and the plan's funded status
as of August 31, 1998 and 1999 in accordance with the provisions of Statement of
Financial Accounting Standards No. 132 -- "Employers' Disclosure about Pensions
and Other Postretirement Benefits":

<TABLE>
<CAPTION>
FOR THE YEARS
ENDED AUGUST 31,
-----------------
1998 1999
------- -------
<S> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at the start of the year....... $14,593 $17,133
Service cost................................................ 284 253
Interest cost............................................... 711 914
Member's contributions...................................... 153 132
Actuarial loss/(gain)....................................... 1,053 --
Benefits paid............................................... (330) (452)
Foreign currency exchange rate changes...................... 669 (831)
------- -------
Projected benefit obligation at the end of the year......... 17,133 17,149
------- -------
</TABLE>

F-28
<PAGE> 83
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FOR THE YEARS
ENDED AUGUST 31,
-----------------
1998 1999
------- -------
<S> <C> <C>
CHANGE IN PLAN ASSETS
Fair value of the assets at the start of the year........... $15,582 $17,437
Actual return on plan assets................................ 1,333 2,949
Employer contributions...................................... -- 111
Employee contributions...................................... 153 132
Benefits Paid............................................... (330) (452)
Foreign currency exchange rate changes...................... 699 (881)
------- -------
Fair value of the assets at the end of the year............. $17,437 $19,296
======= =======
Funded status............................................... 304 2,147
Unrecognized net loss/(gain)................................ 615 (1,146)
------- -------
Prepaid benefit cost........................................ $ 919 $ 1,001
======= =======
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate at end of the year............................ 5.5% 5.5%
Expected return on plan assets for the year................. 7.0% 7.0%
Rate of compensation increase at end of the year............ 4.5% 4.5%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................................ $ 284 $ 253
Interest cost............................................... 711 914
Expected return on plan assets.............................. (884) (1,185)
------- -------
Total net periodic benefit cost (credit).................... $ 111 $ (18)
======= =======
</TABLE>

The Company contributes to a Group Employee superannuation fund for its
employees in Australia. This fund is a defined contribution fund with both
employees and the Company contributing a fixed percentage of salary each week.
The Company also contributes to Industry Funds for its employees. These Funds
are also defined contribution funds with the Company contributing a fixed amount
each week for each employee. All members are entitled to benefits on termination
due to retrenchment, retirement, death or disability. The Company is under no
obligation to make up any shortfall in the funds assets to meet payments due to
employees. From the date of acquisition to August 31, 1998, the Company expensed
$139,000 (US dollars) for this plan. For the year ended August 31, 1999, the
Company expensed $82,000 (US dollars) for this plan.

NOTE 16 -- RELATED PARTY TRANSACTIONS

During 1994, the Company entered into an employment agreement with the
President and Chief Executive Officer (CEO) of the Company. Under terms of the
agreement, the President and CEO will receive, among other things, an annual
base salary of $575,000 (subsequently adjusted to $650,000), participation in
the Company's annual bonus plan as determined by the Compensation Committee of
the Board of Directors, and other benefits such as health and life insurance. In
the event the President and CEO's employment is terminated due to events as
defined in the agreement, the President and CEO will receive a lump-sum payment
equal to the full amount payable under the agreement. The employment agreement
was amended on August 25, 1997 to extend the expiration date to December 31,
2007. The term shall be automatically extended for an additional one-year period
upon each December 31, unless a party electing not to extend the agreement
provides written notice to the other party at least three months prior to such
December 31.

F-29
<PAGE> 84
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has entered into several loan agreements with key management,
some of which were non-interest bearing. The impact of discounting such loans to
record interest income was not significant. The balance of these employee loan
receivables as of August 31, 1997, 1998, and 1999 was approximately $416,000,
$996,000 and $1,579,000, respectively. These balances are included in other
assets.

During 1996 and 1997, in connection with certain acquisitions discussed in
Note 3, the Company has entered into non-competition agreements with several key
employees. Related assets totaling approximately $930,000 (net of accumulated
amortization of $1,338,000) are included in other assets and is being amortized
over five to eight years using the straight-line method. Any corresponding
liabilities are included in long-term debt as further discussed in Note 7 of
Notes to Consolidated Financial Statements.

A director of the Company was a managing director of the investment banking
firm that was an underwriter and acted as one of the representatives of the
underwriters for the public offering of 2,000,000 shares of Common Stock
discussed in Note 2 of Notes to Consolidated Financial Statements. The Company
also granted to the underwriters an option to purchase up to an additional
398,000 shares of Common Stock pursuant to such terms to cover over-allotments,
which over-allotment option was exercised. The closing of such public offering
was completed in December 1996 and January 1997, at a price of $21.00 per share,
less the underwriting discounts and commissions of approximately $2,500,000.
Approximately 40% of these commissions were earned by the director's investment
banking firm. In connection with this public offering, certain officers and
directors of the Company sold 494,118 shares of stock. The same investment
banking firm handled the repurchase of some of the shares of the Company's
common stock which began in fiscal 1999, earning $74,330 in commissions.

A director of the Company is an owner of construction companies that were
used primarily as a sub-contractor by the Company. During fiscal 1998, the
Company paid these construction companies approximately $4,000,000 for work
performed. During fiscal 1999, payments to these construction companies was not
material.

In connection with the acquisition of a subsidiary in fiscal 1998, the
Company financed $1,078,000 of the purchase with two of the former owners, who
are now employees of the Company. This debt was paid off in 1999.

NOTE 17 -- FOREIGN CURRENCY TRANSACTIONS

The Company's wholly-owned subsidiaries in Venezuela had net assets of
approximately $16,300,000 and $16,700,000 denominated in Venezuelan Bolivars as
of August 31, 1998 and 1999, respectively. In accordance with SFAS 52, "Foreign
Currency Translation," the U.S. dollar is used as the functional reporting
currency since the Venezuelan economy is defined as highly inflationary.
Therefore, the asset and liabilities must be translated into U.S. dollars using
a combination of current and historical exchange rates.

During 1996, the Venezuelan government lifted its foreign exchange
controls. Subsequent to this action, the Bolivar devalued from 170 to 620 (at
August 31, 1999) to the U.S. dollar. During 1998 and 1999, the Company recorded
losses of approximately $734,000 and $652,000 respectively, in translating the
assets and liabilities of its Venezuelan subsidiaries into U.S. dollars. Because
these losses were partially offset by inflationary billing provisions in certain
Company contracts, the $734,000 and $652,000 were offset against sales.

Other foreign subsidiaries maintain their accounting records in their local
currency (primarily British Sterling, Australian Dollar and Dutch Guilder). The
currencies are converted to U.S. dollars with the effect of the foreign currency
translation reflected in "accumulated other comprehensive income," a component
of shareholders' equity, in accordance with SFAS No. 52 and SFAS No
130 -- "Reporting Comprehensive Income." Foreign currency transaction gains or
losses are credited or charged to income. There were no material transaction
gains or losses incurred in fiscal 1997. At August 31, 1998 and 1999
F-30
<PAGE> 85
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

respectively, cumulative foreign currency translation adjustments related to
these subsidiaries reflected in shareholders' equity amounted to $420,000 and
$1,535,000; transaction gains reflected in income amounted to $32,000 and
$119,000.

At August 31, 1998 and 1999, the Company's subsidiaries in the United
Kingdom had net assets of approximately $12,100,000 and $13,900,000; the
Company's subsidiary in Australia had net assets of approximately $1,300,000 and
$900,000; and the Company's subsidiary in the Netherlands had net assets of
approximately $9,600,000 and $9,100,000, respectively.

NOTE 18 -- DISCONTINUED OPERATIONS

In June 1998, the Company adopted a plan to discontinue its operations of
the following subsidiaries: Weldtech, a seller of welding supplies; Inflo
Control Systems Limited (Inflo), a manufacturer of boiler steam leak detection,
acoustic mill and combustion monitoring equipment and related systems; Greenbank
(a division of PEL), an abrasive and corrosion resistant pipe systems
specialist; and NAPTech Pressure Systems Corporation, a manufacturer of pressure
vessels and truck tanker trailers. The Company sold and/or discontinued its
investment in each of these operations prior to August 31, 1998. Proceeds from
the sale of these operations totaled approximately $1,200,000 in net cash and
notes receivable of approximately $7,400,000, which resulted in a net gain on
the disposal of $2,647,000, net of tax. The results of these operations have
been classified as discontinued operations in the consolidated financial
statements of the Company. Revenues of these discontinued operations totaled
approximately $2,600,000 and $7,700,000 in 1997 and 1998, respectively.

NOTE 19 -- UNBILLED RECEIVABLES, RETAINAGE RECEIVABLE AND COSTS AND ESTIMATED
EARNINGS ON UNCOMPLETED CONTRACTS

Included in accounts receivable is $10,841,000 and $12,338,000 at August
31, 1998 and 1999, respectively, related to unbilled receivables. Advanced
billings on contracts as of August 31, 1998 and 1999 was $5,476,000 and
$7,025,000, respectively. Balances under retainage provisions totaled $9,222,000
and $4,554,000 at August 31, 1998 and 1999, respectively, and are also included
in accounts receivable in the accompanying consolidated balance sheets.

The components of costs and estimated earnings in excess of billings and
billings in excess of costs and estimated earnings on uncompleted contracts as
of August 31, 1998 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
AUGUST 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $115,334 $149,115
Estimated earnings thereon.................................. 10,159 17,907
-------- --------
125,493 167,022
Less billings applicable thereto............................ (114,587) (145,867)
-------- --------
$ 10,906 $ 21,155
======== ========
Included in the accompanying balance sheet under the
following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 19,797 $ 24,277
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (8,891) (3,122)
-------- --------
$ 10,906 $ 21,155
======== ========
</TABLE>

F-31
<PAGE> 86
THE SHAW GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 20 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998
Sales............................................. $ 98,030 $132,200 $143,561 $127,847
======== ======== ======== ========
Gross profit...................................... $ 17,854 $ 22,223 $ 22,640 $ 16,864
======== ======== ======== ========
Net income from continuing operations............. $ 4,633 $ 5,481 $ 5,769 $ 349
======== ======== ======== ========
Basic net income from continuing operations per
share........................................... $ .37 $ .44 $ .46 $ .03
======== ======== ======== ========
Diluted net income from continuing operations per
share........................................... $ .36 $ .43 $ .45 $ .03
======== ======== ======== ========
1999
Sales............................................. $116,032 $112,660 $125,211 $140,111
======== ======== ======== ========
Gross profit...................................... $ 20,717 $ 22,385 $ 24,101 $ 26,625
======== ======== ======== ========
Net income from continuing operations............. $ 2,822 $ 4,324 $ 5,225 $ 5,750
======== ======== ======== ========
Basic net income from continuing operations per
share........................................... $ .23 $ .37 $ .45 $ .49
======== ======== ======== ========
Diluted net income from continuing operations per
share........................................... $ .23 $ .36 $ .43 $ .47
======== ======== ======== ========
</TABLE>

F-32
<PAGE> 87

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

2,500,000 SHARES

[THE SHAW GROUP INC. LOGO]

COMMON STOCK

-----------------------

PROSPECTUS
-----------------------

MERRILL LYNCH & CO.

JEFFERIES & COMPANY, INC.
MORGAN KEEGAN & COMPANY, INC.
RBC DOMINION SECURITIES
CORPORATION

, 1999

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 88

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses estimated to be incurred by the
registrant in connection with the sale and distribution of the securities being
registered. All amounts are estimated, except the Securities and Exchange
Commission registration fee, the filing fee with the National Association of
Securities Dealers, Inc., and the New York Stock Exchange listing fee:

<TABLE>
<S> <C>
SEC registration fee........................................ $ 17,583.50
NASD filing fee............................................. 6,825.00
NYSE listing fee............................................ 10,062.50
Printing expenses........................................... 200,000.00
Accountants' fees and expenses.............................. 100,000.00
Legal fees and expenses..................................... 200,000.00
Transfer agent and registrar fees........................... 15,000.00
Miscellaneous............................................... 50,529.00
-----------
Total............................................. $600,000.00
===========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 83 of the Louisiana Business Corporation Law or the LBCL, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
business, foreign or nonprofit corporation, partnership, joint venture or other
enterprise. The indemnity may include expenses, including attorney fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Section
83 further provides that a Louisiana corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions except that no indemnification is permitted without judicial approval
if the director or officer shall have been adjudged to be liable for willful or
intentional misconduct in the performance of his duty to the corporation. Where
an officer or director is successful on the merits or otherwise in any defense
of any action referred to above or any claim therein, the corporation must
indemnify him against such expenses that such officer or director actually
incurred. Section 83 permits a corporation to pay expenses incurred by the
officer or director in defending an action, suit or proceeding in advance of the
final disposition thereof if approved by the board of directors.

Pursuant to Section 83 of the LBCL, the registrant has adopted provisions
in its articles of incorporation which require the registrant to indemnify its
directors and officers to the fullest extent permitted by the LBCL.

The registrant has entered into indemnification agreements with its
directors and certain of its officers which provide that the registrant will, if
certain conditions are met and the director or officer acted in accordance with
the applicable standards and subject to certain procedures and exceptions,
indemnify the persons for claims, judgments and related expenses resulting from
their service on behalf of the registrant and its affiliated entities in any
pending, threatened or completed action, suit or proceeding, whether civil
administrative or criminal, except where (1) the registrant is prohibited by law
from providing such indemnification; (2) payment of the indemnification amounts
has been made under an insurance policy; or

II-1
<PAGE> 89

(3) the director or officer gained a personal profit to which he or she was not
legally entitled including profits arising from the violation of certain
securities laws.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Restated Articles of Incorporation(1)
3.2 -- Amended and Restated By-Laws(2)
4.1 -- Form of Common Stock Certificate(3)
5.1 -- Opinion of Kantrow, Spaht, Weaver & Blitzer (A
Professional Law Corporation)*
23.1 -- Consent of Vinson & Elkins L.L.P.*
23.2 -- Consent of Kantrow, Spaht, Weaver & Blitzer (A
Professional Law Corporation) (included in Exhibit 5.1)*
23.3 -- Consent of Arthur Andersen LLP*
23.4 -- Consent of Hannis T. Bourgeois, LLP*
24.1 -- Powers of Attorney from members of the registrant's board
of directors (included in signature page to the
registration statement)(4)
27.1 -- Financial Data Schedule(4)
</TABLE>

- ---------------

(1) Filed previously as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1998 and incorporated herein by
reference.

(2) Filed previously as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1998 and incorporated herein by
reference.

(3) Filed previously as an exhibit to the registrant's Registration Statement on
Form S-1 filed on October 22, 1993, as amended and incorporated herein by
reference.

(4) Filed previously as an exhibit to the registrant's Registration Statement on
Form S-3 filed on October 7, 1999.

* Filed herewith.

ITEM 17. UNDERTAKINGS

The registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

II-2
<PAGE> 90

(c)(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
determined to be part of this registration statement as of the time it was
declared effective.

(c)(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 91

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the city of Baton Rouge, State of Louisiana, on
October 15, 1999.

THE SHAW GROUP INC.

By: /s/ J. M. BERNHARD, JR.*

------------------------------------
J. M. Bernhard, Jr.
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>

/s/ J. M. BERNHARD, JR.* President, Chief Executive October 15, 1999
--------------------------------------------------- Officer and Director
J. M. Bernhard, Jr. (principal executive
officer)

/s/ ROBERT L. BELK* Executive Vice President, October 15, 1999
--------------------------------------------------- Chief Financial Officer and
Robert L. Belk Treasurer (principal
financial officer and
principal accounting
officer)

/s/ ALBERT MCALISTER* Director October 15, 1999
---------------------------------------------------
Albert McAlister

/s/ L. LANE GRIGSBY* Director October 15, 1999
---------------------------------------------------
L. Lane Grigsby

/s/ DAVID W. HOYLE* Director October 15, 1999
---------------------------------------------------
David W. Hoyle

/s/ JOHN W. SINDERS, JR.* Director October 15, 1999
---------------------------------------------------
John W. Sinders, Jr.

/s/ WILLIAM H. GRIGG* Director October 15, 1999
---------------------------------------------------
William H. Grigg

*By: /s/ GARY P. GRAPHIA
----------------------------------------------
Gary P. Graphia
Attorney-in-Fact
</TABLE>

<PAGE> 92

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Restated Articles of Incorporation(1)
3.2 -- Amended and Restated By-Laws(2)
4.1 -- Form of Common Stock Certificate(3)
-- Opinion of Kantrow, Spaht, Weaver & Blitzer (A
5.1 Professional Law Corporation)*
23.1 -- Consent of Vinson & Elkins L.L.P.*
-- Consent of Kantrow, Spaht, Weaver & Blitzer (A
23.2 Professional Law Corporation) (included in Exhibit 5.1)*
23.3 -- Consent of Arthur Andersen LLP*
23.4 -- Consent of Hannis T. Bourgeois, LLP*
-- Powers of Attorney from members of the registrant's board
of directors (included in signature page to the
24.1 registration statement)(4)
27.1 -- Financial Data Schedule(4)
</TABLE>

- ---------------

(1) Filed previously as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1998 and incorporated herein by
reference.

(2) Filed previously as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1998 and incorporated herein by
reference.

(3) Filed previously as an exhibit to the registrant's Registration Statement on
Form S-1 filed on October 22, 1993, as amended and incorporated herein by
reference.

(4) Filed previously as an exhibit to the registrant's Registration Statement on
Form S-3 filed on October 7, 1999.

* Filed herewith.

<PAGE> 1
EXHIBIT 1.1
================================================================================

THE SHAW GROUP INC.

(a Louisiana corporation)

2,500,000 Shares of Common Stock

PURCHASE AGREEMENT

Dated: , 1999

================================================================================

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
SECTION 1. Representations and Warranties .......................................3
(a) Representations and Warranties by the Company ........................3
(i) Compliance with Registration Requirements ...................3
(ii) Incorporated Documents ......................................4
(iii) Independent Accountants .....................................4
(iv) Financial Statements ........................................4
(v) No Material Adverse Change in Business ......................4
(vi) Good Standing of the Company ................................5
(vii) Good Standing of Subsidiaries ...............................5
(viii) Capitalization ..............................................5
(ix) Authorization of Agreement ..................................5
(x) Authorization and Description of Securities .................5
(xi) Absence of Defaults and Conflicts ...........................6
(xii) Absence of Labor Dispute ....................................6
(xiii) Absence of Proceedings ......................................6
(xiv) Accuracy of Exhibits ........................................7
(xv) Possession of Intellectual Property .........................7
(xvi) Absence of Further Requirements .............................7
(xvii) Possession of Licenses and Permits ..........................7
(xviii) Title to Property ...........................................8
(xix) Compliance with Cuba Act ....................................8
(xx) Investment Company Act ......................................8
(xxi) Environmental Laws ..........................................8
(b) Officer's Certificates ...............................................9
SECTION 2. Sale and Delivery to Underwriters; Closing ...........................9
(a) Initial Securities ...................................................9
(b) Option Securities ....................................................9
(c) Payment .............................................................10
(d) Denominations; Registration .........................................10
SECTION 3. Covenants of the Company ............................................10
(a) Compliance with Securities Regulations and Commission Requests ......10
(b) Filing of Amendments ................................................11
(c) Delivery of Registration Statements .................................11
(d) Delivery of Prospectuses ............................................11
(e) Continued Compliance with Securities Laws ...........................12
(f) Blue Sky Qualifications .............................................12
(g) Rule 158 ............................................................12
(h) Use of Proceeds .....................................................12
(i) Listing .............................................................12
(j) Restriction on Sale of Securities ...................................13
(k) Reporting Requirements ..............................................13
</TABLE>

-i-

<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4. Payment of Expenses .................................................13
(a) Expenses ............................................................13
(b) Termination of Agreement ............................................14
SECTION 5. Conditions of Underwriters' Obligations .............................14
(a) Effectiveness of Registration Statement .............................14
(b) Opinion of Counsel for Company ......................................14
(c) Opinion of Counsel for Underwriters .................................14
(d) Officers' Certificate ...............................................15
(e) Accountant's Comfort Letter .........................................15
(f) Bring-down Comfort Letter ...........................................15
(g) Approval of Listing .................................................15
(h) No Objection ........................................................15
(i) Lock-up Agreements ..................................................15
(j) Conditions to Purchase of Option Securities .........................15
(i) Officers' Certificate ......................................15
(ii) Opinion of Counsel for Company .............................16
(iii) Opinion of Counsel for Underwriters ........................16
(iv) Bring-down Comfort Letter ..................................16
(k) Additional Documents ................................................16
(l) Termination of Agreement ............................................16
SECTION 6. Indemnification .....................................................16
(a) Indemnification of Underwriters .....................................16
(b) Indemnification of Company, Directors and Officers ..................17
(c) Actions against Parties; Notification ...............................18
(d) Settlement without Consent if Failure to Reimburse ..................18
SECTION 7. Contribution ........................................................19
SECTION 8. Representations, Warranties and Agreements to Survive Delivery ......20
SECTION 9. Termination of Agreement ............................................20
(a) Termination; General ................................................20
(b) Liabilities .........................................................20
SECTION 10. Default by One or More of the Underwriters ..........................21
SECTION 11. Default by the Company ..............................................21
SECTION 12. Notices .............................................................22
SECTION 13. Parties .............................................................22
SECTION 14. GOVERNING LAW AND TIME ..............................................22
SECTION 15. Effect of Headings ..................................................22
</TABLE>

SCHEDULES
Schedule A - List of Underwriters Sch A-1
Schedule B - Pricing Information Sch B-1
Schedule C - List of Subsidiaries Sch C-1
Schedule D - List of Persons and Entities Subject to Lock-up Sch D-1

EXHIBITS
Exhibit A - Form of Opinion of Vinson & Elkins, L.L.P. A-1
Exhibit B - Form of Opinion of Kantrow, Spaht, Weaver
and Blitzer, a professional corporation B-1
Exhibit C - Form of Lock-up Letter C-1

ii
<PAGE> 4
DRAFT OF OCTOBER 11, 1999

THE SHAW GROUP INC.

(A Louisiana corporation)

2,500,000 Shares of Common Stock

(No Par Value Per Share)

PURCHASE AGREEMENT

November , 1999

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Morgan Keegan & Company, Inc.
RBC Dominion Securities Corporation
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209

Ladies and Gentlemen:

The Shaw Group Inc., a Louisiana corporation (the "Company"), confirms
its agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch is acting as representative (in such capacity,
the "Representative"), with respect to (i) the sale by the Company, and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, no par value per share, of the
Company ("Common Stock") set forth in Schedule A hereto and (ii) the grant by
the Company to the Underwriters, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of 375,000
additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 2,500,000 shares of Common Stock (the "Initial Securities") to be
purchased by the Underwriters and all or any part of the 375,000 shares of
Common Stock subject to the option described in Section 2(b) hereof (the
"Option Securities") are hereinafter called, collectively, the "Securities".

1
<PAGE> 5

The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333- ) covering the
registration of the Securities under the Securities Act of 1933, as amended
(the "1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will
either (i) prepare and file a prospectus in accordance with the provisions of
Rule 430A ("Rule 430A") of the rules and regulations of the Commission under
the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule
424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely
upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term
sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule
424(b). The information included in such prospectus or in such Term Sheet, as
the case may be, that was omitted from such registration statement at the time
it became effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information,
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto, schedules thereto, if
any, and the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the 1933 Act, at the time it became effective and including the
Rule 430A Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus, including the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is
herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus"
shall refer to the preliminary prospectus dated ________, 1999 together with
the Term Sheet and all references in this Agreement to the date of the
Prospectus shall mean the date of the Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").

All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any

2
<PAGE> 6

document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.

SECTION 1. Representations and Warranties.

(a) Representations and Warranties by the Company. The
Company represents and warrants to each Underwriter as of the date hereof, as
of the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
Underwriter, as follows:

(i) Compliance with Registration Requirements. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Each of
the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and no stop order suspending
the effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or,
to the knowledge of the Company, are contemplated by the Commission,
and any request on the part of the Commission for additional
information has been complied with.

At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectus nor any amendments or supplements thereto, at
the time the Prospectus or any such amendment or supplement was issued
and at the Closing Time (and, if any Option Securities are purchased,
at the Date of Delivery), included or will include an untrue statement
of a material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434
is used, the Company will comply with the requirements of Rule 434.
The representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement or Prospectus.

Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically

3
<PAGE> 7

transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.

(ii) Incorporated Documents. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement
and the Prospectus, at the time they were or hereafter are filed with
the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectus, at the time the
Registration Statement became effective, at the time the Prospectus
was issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.

(iii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.

(iv) Financial Statements. The financial statements included
in the Registration Statement and the Prospectus, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated
and the statement of operations, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated
therein. The selected financial data and the summary financial
information included in the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that
of the audited financial statements included in the Registration
Statement.

(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.

(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Louisiana

4
<PAGE> 8

and has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus
and to enter into and perform its obligations under this Agreement;
and the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.

(vii) Good Standing of Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) (each a "Subsidiary" and, collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital
stock of each such Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none
of the outstanding shares of capital stock of any Subsidiary was
issued in violation of the preemptive or similar rights of any
securityholder of such Subsidiary. The only subsidiaries of the
Company are (a) the subsidiaries listed on Schedule C hereto and (b)
certain other subsidiaries which, considered in the aggregate as a
single Subsidiary, do not constitute a "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X.

(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except
for subsequent issuances, if any, pursuant to this Agreement, pursuant
to reservations, agreements or employee benefit plans referred to in
the Prospectus or pursuant to the exercise of convertible securities
or options referred to in the Prospectus). The shares of issued and
outstanding capital stock, have been duly authorized and validly
issued and are fully paid and non-assessable; none of the outstanding
shares of capital stock, was issued in violation of the preemptive or
other similar rights of any securityholder of the Company.

(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.

(x) Authorization and Description of Securities. The
Securities to be purchased by the Underwriters from the Company have
been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the
Company

5
<PAGE> 9

pursuant to this Agreement against payment of the consideration set
forth herein, will be validly issued and fully paid and
non-assessable; the Common Stock conforms to all statements relating
thereto contained in the Prospectus and such description conforms to
the rights set forth in the instruments defining the same; no holder
of the Securities will be subject to personal liability by reason of
being such a holder; and the issuance of the Securities is not subject
to the preemptive or other similar rights of any securityholder of the
Company.

(xi) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company or any
subsidiary is subject (collectively, "Agreements and Instruments")
except for such defaults that would not result in a Material Adverse
Effect; and the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein and in
the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities
as described in the Prospectus under the caption "Use of Proceeds")
and compliance by the Company with its obligations hereunder have been
duly authorized by all necessary corporate action and do not and will
not, whether with or without the giving of notice or passage of time
or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to, the Agreements
and Instruments (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not result in a Material
Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any subsidiary
or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any
subsidiary or any of their assets, properties or operations. As used
herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require
the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any subsidiary.

(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
or any subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.

(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or

6
<PAGE> 10

foreign, now pending, or, to the knowledge of the Company, threatened,
against or affecting the Company or any subsidiary, which is required
to be disclosed in the Registration Statement (other than as disclosed
therein), or which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or
the consummation of the transactions contemplated in this Agreement or
the performance by the Company of its obligations hereunder; the
aggregate of all pending legal or governmental proceedings to which
the Company or any subsidiary is a party or of which any of their
respective property or assets is the subject which are not described
in the Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.

(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement, the Prospectus or the documents incorporated by reference
therein or to be filed as exhibits thereto which have not been so
described and filed as required.

(xv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property")
necessary to carry on the business now operated by them, and neither
the Company nor any of its subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property or of any
facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of
its subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.

(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance
or sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations or state securities laws.

(xvii) Possession of Licenses and Permits. The Company and
its subsidiaries possess such permits, licenses, approvals, consents
and other authorizations (collectively, "Governmental Licenses")
issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated by
them; the Company and its subsidiaries are in compliance with the
terms and conditions of all such Governmental

7
<PAGE> 11

Licenses, except where the failure so to comply would not, singly or
in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except
when the invalidity of such Governmental Licenses or the failure of
such Governmental Licenses to be in full force and effect would not
have a Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.

(xviii) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) do not,
singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be
made of such property by the Company or any of its subsidiaries; and
all of the leases and subleases material to the business of the
Company and its subsidiaries, considered as one enterprise, and under
which the Company or any of its subsidiaries holds properties
described in the Prospectus, are in full force and effect, and neither
the Company nor any subsidiary has any notice of any material claim of
any sort that has been asserted by anyone adverse to the rights of the
Company or any subsidiary under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company
or such subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease.

(xvix) Compliance with Cuba Act. The Company has complied
with, and is and will be in compliance with, the provisions of that
certain Florida act relating to disclosure of doing business with
Cuba, codified as Section 517.075 of the Florida statutes, and the
rules and regulations thereunder (collectively, the "Cuba Act") or is
exempt therefrom.

(xx) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").

(xxi) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the
Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance,
code, policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative
order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws
and regulations relating to the release or threatened release of
chemicals, pollutants, contaminants, wastes,

8
<PAGE> 12

toxic substances, hazardous substances, petroleum or petroleum
products (collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any
of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.

(b) Officer's Certificates. Any certificate signed by any
officer of the Company or any of its subsidiaries delivered to the
Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.

SECTION 2. Sale and Delivery to Underwriters; Closing.

(a) Initial Securities. On the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the Initial
Securities, set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof, bears to
the total number of Initial Securities, subject, in each case, to such
adjustments among the Underwriters as the Representatives in their sole
discretion shall make to eliminate any sales or purchases of fractional
securities.

(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company, hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional
375,000 shares of Common Stock, as set forth in Schedule A, at the price per
share set forth in Schedule B. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice by the
Representatives to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for such Option Securities. Any such time and
date of delivery (a "Date of Delivery") shall be determined by the
Representatives, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of the
Option Securities, each of the Underwriters, acting severally and not

9
<PAGE> 13

jointly, will purchase that proportion of the total number of Option Securities
then being purchased which the number of Initial Securities set forth in
Schedule A opposite the name of such Underwriter bears to the total number of
Initial Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares.

(c) Payment. Payment of the purchase price for, and delivery
of certificates for, the Initial Securities shall be made at the offices of
Andrews & Kurth L.L.P., 600 Travis, Suite 4200, Houston, Texas 77002, or at
such other place as shall be agreed upon by the Representatives and the
Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Eastern time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date as shall be
agreed upon by the Representatives and the Company (such time and date of
payment and delivery being herein called "Closing Time").

In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Representatives and the Company, on each Date of Delivery as specified in the
notice from the Representatives to the Company.

Payment shall be made to the Company by wire transfer of immediately
available funds to bank accounts designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.

(d) Denominations; Registration. Certificates for the
Initial Securities and the Option Securities, if any, shall be in such
denominations and registered in such names as the Representatives may request
in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
Securities and the Option Securities, if any, will be made available for
examination and packaging by the Representatives in The City of New York not
later than 10:00 A.M. (Eastern time) on the business day prior to the Closing
Time or the relevant Date of Delivery, as the case may be.

SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:

(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as

10
<PAGE> 14

applicable, and will notify the Representatives immediately, and confirm the
notice in writing, when any post-effective amendment to the Registration
Statement shall become effective, or any supplement to the Prospectus or any
amended Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any amendment
to the Registration Statement or any amendment or supplement to the Prospectus
or for additional information, and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary prospectus, or of
the suspension of the qualification of the Securities for offering or sale in
any jurisdiction, or of the initiation or threatening of any proceedings for
any of such purposes. The Company will promptly effect the filings necessary
pursuant to Rule 424(b) and will take such steps as it deems necessary to
ascertain promptly whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the event that it
was not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.

(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term Sheet
or any amendment, supplement or revision to either the prospectus included in
the Registration Statement at the time it became effective or to the
Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will
furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall object.

(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein and documents incorporated or
deemed to be incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the
Representatives, without charge, a conformed copy of the Registration Statement
as originally filed and of each amendment thereto (without exhibits) for each
of the Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.

(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents to
the use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be

11
<PAGE> 15

identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution of
the Securities as contemplated in this Agreement and in the Prospectus. If at
any time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or condition
shall exist as a result of which it is necessary, in the opinion of counsel for
the Underwriters or for the Company, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not
include any untrue statements of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a purchaser,
or if it shall be necessary, in the opinion of such counsel, at any such time
to amend the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.

(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and other
jurisdictions as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which
it is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any
Rule 462(b) Registration Statement.

(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally available
to its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.

(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds".

(i) Listing. The Company will use its best efforts to effect
the listing of the Securities on the New York Stock Exchange.

12
<PAGE> 16

(j) Restriction on Sale of Securities. During a period of 90
days from the date of the Prospectus, the Company will not, without the prior
written consent of Merrill Lynch, directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or file any
registration statement under the 1933 Act with respect to any of the foregoing
or (ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder, (B) any
shares of Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof and
referred to in the Prospectus, (C) any shares of Common Stock issued or options
to purchase Common Stock granted pursuant to existing employee benefit plans of
the Company referred to in the Prospectus or (D) any shares of Common Stock
issued pursuant to any non-employee director stock plan or dividend
reinvestment plan.

(k) Reporting Requirements. The Company, during the period
when the Prospectus is required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the 1934
Act Regulations.

SECTION 4. Payment of Expenses.

(a) Expenses. The Company will pay or cause to be paid all
expenses incident to the performance of their obligations under this Agreement,
including the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon
the sale, issuance or delivery of the Securities to the Underwriters, (iv) the
fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees
and the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectus and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities and (ix) the filing fees
incident to, and the reasonable fees and disbursements of counsel to the
Underwriters in connection with, the review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the

13
<PAGE> 17

Securities and (x) the fees and expenses incurred in connection with the
listing of the Securities on the New York Stock Exchange.

(b) Termination of Agreement. If this Agreement is
terminated by the Representatives in accordance with the provisions of Section
5, Section 9(a)(i) or Section 11 hereof, the Company shall reimburse the
Underwriters for all of their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Underwriters.

SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:

(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule
434, a Term Sheet shall have been filed with the Commission in accordance with
Rule 424(b).

(b) Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinions, dated as of Closing
Time, of each of Vinson & Elkins, LLP and Kantrow, Spaht, Weaver and Blitzer, a
professional corporation, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, together with signed or
reproduced copies of such letters for each of the other Underwriters to the
effect set forth in Exhibits A and B hereto and to such further effect as
counsel to the Underwriters may reasonably request.

(c) Opinion of Counsel for Underwriters. At Closing Time,
the Representatives shall have received the favorable opinion, dated as of
Closing Time, of Andrews & Kurth L.L.P., counsel for the Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses (i), (ii), (iii)
and (iv) (solely as to the information in the Prospectus under "Description of
Capital Stock--Common Stock") and the penultimate paragraph of Exhibit A
hereto. In giving such opinion such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of New
York and the federal law of the United States, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that, insofar
as such opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its subsidiaries
and certificates of public officials.

14
<PAGE> 18

(d) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that there has been no
such material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or are contemplated by the
Commission.

(e) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the Representatives shall have received from Arthur Andersen
LLP a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.

(f) Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from Arthur Andersen LLP a letter, dated as
of Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to Closing Time.

(g) Approval of Listing. At Closing Time, the Securities
shall have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.

(h) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.

(i) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit D hereto signed by the persons listed on Schedule D hereto.

(j) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations and
warranties of the Company contained herein and the statements in any
certificates furnished by the Company, any subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the relevant Date
of Delivery, the Representatives shall have received:

(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of
the chief financial or chief accounting

15
<PAGE> 19

officer of the Company confirming that the certificate delivered at
the Closing Time pursuant to Section 5(e) hereof remains true and
correct as of such Date of Delivery.

(ii) Opinion of Counsel for Company. The favorable opinion of
each of Vinson & Elkins LLP and Kantrow, Spaht, Weaver and Blitzer, a
professional corporation, counsel for the Company, each in form and
substance satisfactory to counsel for the Underwriters, dated such
Date of Delivery, relating to the Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the opinions
required by Section 5(b) hereof.

(iii) Opinion of Counsel for Underwriters. The favorable
opinion of Andrews & Kurth L.L.P., counsel for the Underwriters, dated
such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(d) hereof.

(iv) Bring-down Comfort Letter. A letter from Arthur
Andersen, LLP, in form and substance satisfactory to the
Representatives and dated such Date of Delivery, substantially in the
same form and substance as the letter furnished to the Representatives
pursuant to Section 5(g) hereof, except that the "specified date" in
the letter furnished pursuant to this paragraph shall be a date not
more than five days prior to such Date of Delivery.

(k) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
reasonably satisfactory in form and substance to the Representatives and
counsel for the Underwriters.

(l) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the purchase of
Option Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Company
at any time at or prior to Closing Time or such Date of Delivery, as the case
may be, and such termination shall be without liability of any party to any
other party except as provided in Section 4 and except that Sections 1, 6, 7
and 8 shall survive any such termination and remain in full force and effect.

SECTION 6. Indemnification.

(a) Indemnification of Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act to the extent and in the manner set forth in clauses
(i), (ii) and (iii) below as follows:

16
<PAGE> 20

(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;

(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and

(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); provided, further, that
this indemnity agreement shall not apply to any loss, liability, claim, damage
or expense to the extent arising out of any untrue statement or omission made
in any preliminary prospectus that is corrected in the Prospectus (or any
amendment or supplement thereto) if the person asserting any such loss,
liability claim, damage or expense purchased shares from such Underwriter but
was not sent or given a copy of the Prospectus (as amended or supplemented) at
or prior to the written confirmation of the sale of such shares to such person
in any case where the delivery of Prospectus (as amended or supplemented) is
required by the Act, and where the Company has delivered the Prospectus to the
several Underwriters in requisite quantity and on a timely basis to permit such
delivery.

(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the

17
<PAGE> 21

meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in this Section, as incurred, but only with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).

(c) Actions against Parties; Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified pursuant to
Section 6(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.

(d) Settlement without Consent if Failure to Reimburse. If
at any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.

18
<PAGE> 22

SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one hand and
of the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.

The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters,
in each case as set forth on the cover of the Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet bear to the aggregate
initial public offering price of the Securities as set forth on such cover.

The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

19
<PAGE> 23

No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company, as the case may be.
The Underwriters' respective obligations to contribute pursuant to this Section
7 are several in proportion to the number of Initial Securities set forth
opposite their respective names in Schedule A hereto and not joint.

SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Underwriters.

SECTION 9. Termination of Agreement.

(a) Termination; General. The Representatives may terminate
this Agreement, by notice to the Company, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Prospectus,
any material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the New
York Stock Exchange, or if trading generally on the American Stock Exchange or
the New York Stock Exchange or in the Nasdaq National Market has been suspended
or materially limited, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by either Federal or New York
authorities.

(b) Liabilities. If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any party to any
other party except as provided in Section

20
<PAGE> 24

4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such
termination and remain in full force and effect.

SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but
not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the terms herein set forth; if, however, the Representatives
shall not have completed such arrangements within such 24-hour period, then:

(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or

(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the Underwriters to purchase and of the Company to sell the
Option Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting Underwriter.

No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the
obligation of the Underwriters to purchase and the Company to sell the relevant
Option Securities, as the case may be, either (i) the Representatives or (ii)
the Company and any Selling Shareholder shall have the right to postpone
Closing Time or the relevant Date of Delivery, as the case may be, for a period
not exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
As used herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.

SECTION 11. Default by the Company. If the Company shall fail at
Closing Time or at the Date of Delivery to sell the number of Securities that
it is obligated to sell hereunder, then this Agreement shall terminate without
any liability on the part of any nondefaulting party; provided, however, that
the provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and
effect. No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of such default.

21
<PAGE> 25

SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of ;
notices to the Company shall be directed to it at , attention
of .

SECTION 13. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters and the Company
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such
purchase.

SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

SECTION 15. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.

22
<PAGE> 26

If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company and the Attorney-in-Fact
for the Selling Shareholders a counterpart hereof, whereupon this instrument,
along with all counterparts, will become a binding agreement among the
Underwriters and the Company in accordance with its terms.

Very truly yours,

THE SHAW GROUP INC.

By
-------------------------------

Title:
----------------------------

CONFIRMED AND ACCEPTED,
as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
JEFFERIES & COMPANY, INC.
MORGAN KEEGAN & COMPANY, INC.
RBC DOMINION SECURITIES CORPORATION

By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By
----------------------------------
Authorized Signatory

For themselves and as Representatives of the other Underwriters named
in Schedule A hereto.

23
<PAGE> 27

SCHEDULE A

<TABLE>
<CAPTION>
Number of Number of
Name of Underwriter Initial Securities Option Securities
- ------------------- ------------------ -----------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ........................
Jefferies & Company, Inc. ........................
Morgan Keegan & Company, Inc. ....................
RBC Dominion Securities Corporation ..............

--------- -------

Total ............................................ 2,500,000 375,000
========= =======
</TABLE>

Sch A-1
<PAGE> 28

SCHEDULE B

THE SHAW GROUP, INC.
2,500,000 Shares of Common Stock
(No Par Value Per Share)

1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $ .

2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $ , being an amount equal to the initial
public offering price set forth above less $ per share; provided that
the purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be
reduced by an amount per share equal to any dividends or distributions declared
by the Company and payable on the Initial Securities but not payable on the
Option Securities.

Sch B-1
<PAGE> 29

SCHEDULE C
List of Subsidiaries

B.F. Shaw, Inc.
Shaw Sunland Fabricators, Inc.
Shaw Word Industries Fabricators, Inc.
Shaw Process Fabricators, Inc.
Shaw Naptech, Inc.
Shaw Fronely Engineering and Consulting, Inc.
Shaw Alloy Piping Products, Inc.
Shaw Constructors, Inc.
Manufacturas Shaw South America, C.A.
Shaw Lancas, C.A.
Shaw Group U.K. Ltd.
Cojafex B.V.

Sch C-1
<PAGE> 30

SCHEDULE D

List of persons and entities
subject to lock-up

[To Come]

Sch D-1
<PAGE> 31

Exhibit A

FORM OF OPINION OF VINSON & ELKINS, L.L.P.
TO BE DELIVERED PURSUANT TO
SECTION 5(b)

(i) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and, to the best of
our knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are
pending or threatened by the Commission.

(ii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434 Information,
as applicable, the Prospectus, excluding the documents incorporated by
reference therein, and each amendment or supplement to the Registration
Statement and Prospectus, excluding the documents incorporated by reference
therein, as of their respective effective or issue dates (other than the
financial statements and supporting schedules included therein or omitted
therefrom, as to which we need express no opinion) complied as to form in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.

(iii) The form of certificate used to evidence the Common
Stock complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and by-laws of
the Company and the requirements of the New York Stock Exchange.

(iv) The information in the Prospectus under "Description of
Capital Stock--Common Stock", "Description of Capital Stock--Preferred Stock"
and in the Registration Statement under Item 15, to the extent that it
constitutes matters of law, summaries of legal matters, the Company's charter
and bylaws or legal proceedings, or legal conclusions, has been reviewed by us
and is correct in all material respects.

(v) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are not
described as required.

(vi) All descriptions in the Registration Statement of
contracts and other documents to which the Company or its subsidiaries are a
party are accurate in all material respects; to the best of our knowledge,
there are no franchises, contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed or incorporated

A-1
<PAGE> 32

by reference as exhibits thereto, and the descriptions thereof or references
thereto are correct in all material respects.

(vii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under the
1933 Act and the 1933 Act Regulations, which have been obtained, or as may be
required under the securities or blue sky laws of the various states, as to
which we need express no opinion) is necessary or required in connection with
the due authorization, execution and delivery of the Purchase Agreement or for
the offering, issuance, sale or delivery of the Securities.

(viii) The Company is not an "investment company" as such
terms are defined in the 1940 Act.

(ix) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement (including the issuance and sale of
the Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use Of Proceeds") and compliance
by the Company with its obligations under the Purchase Agreement do not and
will not, whether with or without the giving of notice or lapse of time or
both, conflict with or constitute a breach of, or default or Repayment Event
(as defined in Section 1(a)(xi) of the Purchase Agreement) under or result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument, filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended August 31, 1999 (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any subsidiary, or any
applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any subsidiary or any of
their respective properties, assets or operations.

Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included or incorporated by
reference therein or omitted therefrom, as to which we need make no statement),
at the time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules and other financial data
included or incorporated by reference therein or omitted therefrom, as to which
we need make no statement), at the time the Prospectus was issued, at the time
any such amended or supplemented prospectus was issued or at the Closing Time,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

A-2
<PAGE> 33

In rendering such opinion, such counsel may rely, as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it
is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).

A-3
<PAGE> 34

Exhibit B

FORM OF OPINION OF KANTROW, SPAHT, WEAVER
AND BLITZER, A PROFESSIONAL CORPORATION
TO BE DELIVERED PURSUANT TO
SECTION 5(b)

(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the State of Louisiana.

(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Purchase Agreement.

(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each
jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material
Adverse Effect.

(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column
entitled "Actual" under the caption "Capitalization" (except
for subsequent issuances, if any, pursuant to the Purchase
Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to
the exercise of convertible securities or options referred to
in the Prospectus); the shares of issued and outstanding
capital stock of the Company, including the Securities to be
purchased by the Underwriters from the Selling Shareholders,
have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares
of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder
of the Company.

(v) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.

(vi) The Securities to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreement and, when
issued and delivered by the Company pursuant to the Purchase
Agreement against payment of the consideration set forth in
the Purchase Agreement, will be validly issued and fully paid
and

B-1
<PAGE> 35

non-assessable and no holder of the Securities is or will be
subject to personal liability by reason of being such a
holder.

(vii) The issuance and sale of the Securities by the Company and
the sale of the Securities by the Selling Shareholders is not
subject to the preemptive or other similar rights of any
securityholder of the Company.

(viii) Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power
and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the
issued and outstanding capital stock of each Subsidiary has
been duly authorized and validly issued, is fully paid and
non-assessable and, to the best of our knowledge, is owned by
the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; none of the outstanding shares
of capital stock of any Subsidiary was issued in violation of
the preemptive or similar rights of any securityholder of
such Subsidiary. To the best of our knowledge, the Company
does not have any subsidiaries.

(ix) The documents incorporated by reference in the Prospectus
(other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we need
express no opinion), when they were filed with the Commission
complied as to form in all material respects with the
requirements of the 1934 Act and the rules and regulations of
the Commission thereunder.

(x) All descriptions in the Registration Statement of contracts
and other documents to which the Company or its subsidiaries
are a party are accurate in all material respects; to the
best of our knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the
descriptions thereof or references thereto are correct in all
material respects.

(xi) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or
investigation, to which the Company or any subsidiary is a
party, or to which the property of the Company or any

B-2
<PAGE> 36

subsidiary is subject, before or brought by any court or
governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially
and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in the Purchase
Agreement or the performance by the Company of its
obligations thereunder.

(xii) To the best of our knowledge, neither the Company nor any
subsidiary is in violation of its charter or by-laws and no
default by the Company or any subsidiary exists in the due
performance or observance of any material obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument that is described or referred to in
the Registration Statement or the Prospectus or filed or
incorporated by reference as an exhibit to the Registration
Statement.

(xiii) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions
contemplated in the Purchase Agreement and in the
Registration Statement (including the issuance and sale of
the Securities and the use of the proceeds from the sale of
the Securities as described in the Prospectus under the
caption "Use Of Proceeds") and compliance by the Company with
its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined in Section 1(a)(xi) of
the Purchase Agreement) under or result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary pursuant
to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or any other agreement or
instrument, known to us, to which the Company or any
subsidiary is a party or by which it or any of them may be
bound, or to which any of the property or assets of the
Company or any subsidiary is subject (except for such
conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect),
nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any
subsidiary, or any applicable law, statute, rule, regulation,
judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any
subsidiary or any of their respective properties, assets or
operations.

B-3
<PAGE> 37

included or incorporated by reference therein or omitted therefrom, as to which
we need make no statement), at the time such Registration Statement or any such
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto (except for financial statements and schedules
and other financial data included or incorporated by reference therein or
omitted therefrom, as to which we need make no statement), at the time the
Prospectus was issued, at the time any such amended or supplemented prospectus
was issued or at the Closing Time, included or includes an untrue statement of
a material fact or omitted or omits to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

B-4
<PAGE> 38

Exhibit C

, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Jefferies & Company, Inc.
Morgan Keegan & Company, Inc.
RBC Dominion Securities Corporation
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209

Re: Proposed Public Offering by The Shaw Group Inc.

Dear Sirs:

The undersigned, a stockholder [and an officer and/or director] of The
Shaw Group Inc., a Louisiana corporation (the "Company"), understands that
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") Jefferies & Company, Inc., Morgan Keegan & Company, Inc. And
RBC Dominion Securities Corporation proposes to enter into a Purchase Agreement
(the "Purchase Agreement") with the Company and the Selling Shareholders
providing for the public offering of shares (the "Securities") of the Company's
common stock, no par value per share (the "Common Stock"). In recognition of
the benefit that such an offering will confer upon the undersigned as a
stockholder [and an officer and/or director] of the Company, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each underwriter to be named in the
Purchase Agreement that, during a period of 180 days from the date of the
Purchase Agreement, the undersigned will not, without the prior written consent
of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction is to be settled by delivery of Common Stock or
other securities, in cash or otherwise.

Very truly yours,

Signature:
-------------------------------

Print Name:
------------------------------

C-1
<PAGE> 39

Annex A

[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(g)]

We are independent public accountants with respect to the Company
within the meaning of the 1933 Act and the applicable published 1933 Act
Regulations

(i) in our opinion, the audited financial statements [and the
related financial statement schedules] included or incorporated by
reference in the Registration Statement and the Prospectus comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder;

(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim [consolidated] financial statements
of the Company for the [three month periods ended _________, 19___ and
_________, 19___ , the three and six month periods ended _________,
19___ and _________, 19___ and the three and nine month periods ended
_________, 19___ and _________, 19___, included or incorporated by
reference in the Registration Statement and the Prospectus
(collectively, the "10-Q Financials")] [, a reading of the unaudited
interim [consolidated] financial statements of the Company for the
_____-month periods ended _________, 19___ and _________, 19___,
included in the Registration Statement and the Prospectus (the
"____-month financials")] [, a reading of the latest available
unaudited interim [consolidated] financial statements of the Company],
a reading of the minutes of all meetings of the stockholders and
directors of the Company [and its subsidiaries] and the ____________
and ____________ Committees of the Company's Board of Directors [and
any subsidiary committees] since [day after end of last audited
period], inquiries of certain officials of the Company [and its
subsidiaries] responsible for financial and accounting matters, a
review of interim financial information in accordance with standards
established by the American Institute of Certified Public Accountants
in Statement on Auditing Standards No. 71, Interim Financial
Information ("SAS 71"), with respect to the [description of relevant
periods] and such other inquiries and procedures as may be specified
in such letter, nothing came to our attention that caused us to
believe that:

[(A) the 10-Q Financials incorporated by reference
in the Registration Statement and the Prospectus do not
comply as to form in all material respects with the
applicable accounting requirements of the 1934 Act and the
1934 Act Regulations applicable to unaudited financial
statements included in Form 10-Q or any material
modifications should be made to the 10-Q Financials
incorporated by reference in the Registration Statement and
the Prospectus for them to be in conformity with generally
accepted accounting principles;]

[( ) the _____-month financials included in the
Registration Statement and the Prospectus do not comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations
applicable

Annex A-1
<PAGE> 40

to unaudited interim financial statements included in
registration statements or any material modifications should
be made to the _____-month financials included in the
Registration Statement and the Prospectus for them to be in
conformity with generally accepted accounting principles;]

( ) at [_________, 19___ and at] a specified date
not more than five days prior to the date of this Agreement,
there was any change in the ___________ of the Company [and
its subsidiaries] or any decrease in the __________ of the
Company [and its subsidiaries] or any increase in the
__________ of the Company [and its subsidiaries,] in each
case as compared with amounts shown in the latest balance
sheet included in the Registration Statement, except in each
case for changes, decreases or increases that the
Registration Statement discloses have occurred or may occur;
or

( ) [for the period from _________, 19___ to
_________, 19___ and ] for the period from _________, 19___
to a specified date not more than five days prior to the date
of this Agreement, there was any decrease in _________,
__________ or ___________, in each case as compared with the
comparable period in the preceding year, except in each case
for any decreases that the Registration Statement discloses
have occurred or may occur;

(iii) based upon the procedures set forth in clause (ii)
above and a reading of the [Selected Financial Data] included in the
Registration Statement [and a reading of the financial statements from
which such data were derived], nothing came to our attention that
caused us to believe that the [Selected Financial Data] included in
the Registration Statement do not comply as to form in all material
respects with the disclosure requirements of Item 301 of Regulation
S-K of the 1933 Act [, that the amounts included in the [Selected
Financial Data] are not in agreement with the corresponding amounts in
the audited [consolidated] financial statements for the respective
periods or that the financial statements not included in the
Registration Statement from which certain of such data were derived
are not in conformity with generally accepted accounting principles];

(iv) we have compared the information in the Registration
Statement under selected captions with the disclosure requirements of
Regulation S-K of the 1933 Act and on the basis of limited procedures
specified herein. Nothing came to our attention that caused us to
believe that this information does not comply as to form in all
material respects with the disclosure requirements of Items 302, 402
and 503(d), respectively, of Regulation S-K;

[(v) based upon the procedures set forth in clause (ii)
above, a reading of the unaudited financial statements of the Company
for [the most recent period] that have not been included in the
Registration Statement and a review of such financial statements in
accordance with SAS 71, nothing came to our attention that caused us
to believe that the unaudited amounts for _____________ for the [most
recent period] do not agree with the

Annex A-2
<PAGE> 41

amounts set forth in the unaudited consolidated financial statements
for those periods or that such unaudited amounts were not determined
on a basis substantially consistent with that of the corresponding
amounts in the audited [consolidated] financial statements;]

[(vi)] we are unable to and do not express any opinion on the
[Pro Forma Combining Statement of Operations] (the "Pro Forma
Statement") included in the Registration Statement or on the pro forma
adjustments applied to the historical amounts included in the Pro
Forma Statement; however, for purposes of this letter we have:

(A) read the Pro Forma Statement;

(B) performed [an audit] [a review in accordance
with SAS 71] of the financial statements to which the pro
forma adjustments were applied;

(C) made inquiries of certain officials of the
Company who have responsibility for financial and accounting
matters about the basis for their determination of the pro
forma adjustments and whether the Pro Forma Statement
complies as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of
Regulation S-X; and

(D) proved the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the Pro Forma Statement; and

(E) on the basis of such procedures and such other
inquiries and procedures as specified herein, nothing came to
our attention that caused us to believe that the Pro Forma
Statement included in the Registration Statement does not
comply as to form in all material respects with the
applicable requirements of Rule 11-02 of Regulation S-X or
that the pro forma adjustments have not been properly applied
to the historical amounts in the compilation of those
statements; and

[(vii)] in addition to the procedures referred to in clause
(ii) above, we have performed other procedures, not constituting an
audit, with respect to certain amounts, percentages, numerical data
and financial information appearing in the Registration Statement,
which are specified herein, and have compared certain of such items
with, and have found such items to be in agreement with, the
accounting and financial records of the Company; and

[(viii) in addition, we [comfort on a financial forecast that
is included in the Registration Statement].

Annex A-3

<PAGE> 1
Exhibit 5.1

October 15, 1999

The Shaw Group Inc.
III United Plaza
2nd Floor
8545 United Plaza Boulevard
Baton Rouge, LA 70809

Re: The Shaw Group Inc. - Registration Statement on Form S-3

Ladies and Gentlemen:

We have acted as special, Louisiana counsel to The Shaw Group Inc., a
Louisiana corporation (the "Company") in connection with the preparation of the
Registration Statement on Form S-3, SEC File No. 333-88563, as amended by
Amendment No. 1 dated October 15, 1999, (the "Registration Statement") filed
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, covering 2,500,000 shares of the Company's common stock, no par
value per share (the "Common Stock") and up to 375,000 shares of Common Stock
that may be sold in the event the Underwriters (as defined below) for the
offering elect to exercise their overallotment option, to be offered upon the
terms and subject to the conditions set forth in a Purchase Agreement (the
"Underwriting Agreement") to be entered into by and among the Company and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Jefferies & Company, Inc.,
Morgan Keegan & Company, Inc. and RBC Dominion Securities Corporation, as
representatives of the several underwriters to be listed therein (the
"Underwriters").

We have examined the Registration Statement, as amended, the
originals, or copies certified or otherwise identified to our satisfaction, of
the Restated Articles of Incorporation of the Company, its Amended and Restated
By- Laws, resolutions of its Board of Directors, and such other documents and
corporate records as we have deemed necessary as the basis for the opinions
expressed herein. Based upon the foregoing and in reliance thereon, and after
examination of such matters of law as we deem applicable or relevant hereto, it
is our opinion that:
<PAGE> 2
The Shaw Group Inc.
October 15, 1999
Page 2

(1) The Company has been duly incorporated under the laws of the
State of Louisiana and is validly existing and in good
standing under the laws of that State.

(2) The 2,875,000 shares of the Common Stock proposed to be
offered by the Company have been duly authorized and, when
duly issued in accordance with the resolutions of the Board of
Directors of the Company and delivered against payment
therefor as provided in the Underwriting Agreement, will be
validly issued, fully paid and non-assessable.

We have relied for purposes of the opinion set forth in Paragraph 1 with
respect to the valid existence and good standing of the Company, solely on
Certificate of Good Standing issued by the Secretary of State of Louisiana
dated October 13, 1999.

We are members of the Bar of the State of Louisiana and we do not
express any opinion herein concerning any law other than the law of the State
of Louisiana or the federal law of the United States.

We hereby expressly consent to the reference to our firm under the
caption "Legal Matters," in the Prospectus forming a part of the Registration
Statement, to the inclusion of this opinion as an exhibit to the Registration
Statement, and to the filing of this opinion with any appropriate governmental
agency.

Very truly yours,

/s/ KANTROW, SPAHT, WEAVER & BLITZER
(A PROFESSIONAL LAW CORPORATION)

<PAGE> 1

EXHIBIT 23.1

We hereby consent to the references to us under the heading "Legal Matters"
in the prospectus that forms a part of the Registration Statement. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.

/s/ Vinson & Elkins L.L.P.

October 14, 1999

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made part of this registration
statement.

/s/ ARTHUR ANDERSEN LLP

New Orleans, Louisiana
October 14, 1999

<PAGE> 1
EXHIBIT 23.4

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.

/s/ HANNIS T. BOURGEOIS, LLP

October 14, 1999