Document:

exv10w4

 

Exhibit 10.4

THE SHAW GROUP INC.

2001 EMPLOYEE INCENTIVE COMPENSATION PLAN

(As amended and restated through November 2, 2007)

1. Purpose of Plan.

     The Shaw Group Inc. 2001 Employee Incentive Compensation Plan has been established by the
Company to (i) attract and retain persons eligible to participate in the Plan; (ii) motivate
participants, by means of appropriate incentives, to achieve long-range goals; (iii) provide
incentive compensation opportunities that are competitive with those of other similar companies;
and (iv) further identify participants’ interests with those of the Company’s other shareholders
through compensation that is based on the Common Stock thereby promoting the long-term financial
interest of the Company and its Subsidiaries, including the growth in value of the Company’s equity
and enhancement of long-term shareholder return.

2. Definitions.

     Unless otherwise required by the context, the following terms when used in the Plan shall have
the meanings set forth in this Section 2:

	 	(a)	 	“Agreement”: An agreement evidencing an Award in such form as adopted from
time to time by the Committee pursuant to the Plan.
	 
	 	(b)	 	“Award”: Any award or benefit granted under the Plan, including without
limitation, the grant of Options, SARs, Restricted Stock, Restricted Stock Units,
Performance Shares or Incentive Bonuses, or any combination thereof, under the Plan.
	 
	 	(c)	 	“Board of Directors”: The Board of Directors of the Company.
	 
	 	(d)	 	“Cause”: For purposes of the Plan, whether the termination of a Participant’s
employment shall have been for Cause shall be determined by the Committee in its sole
discretion, if said Participant has: (i) been convicted of, or has pleaded guilty or
nolo contendere to, a charge that he committed a felony under the laws of the United
States or any state or a crime involving moral turpitude, including but not limited to
fraud, theft, embezzlement or any crime that results in or is intended to result in
personal enrichment at the expense of the Company or its Subsidiaries; (ii) perpetrated
a fraud against, or theft of property of, the Company or any of its Subsidiaries; (iii)
committed acts amounting to gross negligence, intentional neglect or willful misconduct
in carrying out his duties and responsibilities as an employee of the Company or one or
more of its Subsidiaries; (iv) willfully or persistently failed to attend to his duties
as an employee of the Company or one or more of its Subsidiaries; or (v) as a result of
his gross negligence or willful misconduct, committed any act that causes, or has
knowingly failed to take reasonable and appropriate action to prevent, any material
injury to the financial condition or business reputation of the Company or any of its
Subsidiaries.
	 
	 	(e)	 	“Change of Control”: For the purposes of the Plan, the term Change in Control
shall mean the happening of any of the following:

	 	(i)	 	any “person” as defined in Section 3(a)(9) of the
Exchange Act, and as used in Section 13(d) and 14(d) thereof, including a
“group” as defined in Section 13(d) of the Exchange Act (but excluding any
shareholder of record of the Company as of January 1, 2000, owning 10% or
more of the combined voting power of the Company’s securities which are
entitled to vote in the election of directors of the Company) directly or
indirectly becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), of securities of the Company representing 20% or more of
the combined voting power of the Company’s then outstanding securities
which are entitled to vote with respect to the election of directors;

 

 

	 	(ii)	 	When, during any period of 24 consecutive months, the
individuals who, at the beginning of such period, constitute the Board of
Directors of the Company (the “Incumbent Directors”) cease for any reason
other than death or disability to constitute at least a majority thereof;
provided, however, that a director who was not a director at the beginning
of such 24-month period shall be deemed to have satisfied such 24-month
requirement (and be an Incumbent Director) if such director was elected by,
or on the recommendation of or with approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors either actually
(because they were directors at the beginning of such 24-month period) or
by operation of this provision;
	 
	 	(iii)	 	The acquisition of the Company or all or substantially
all of the Company’s assets by an entity other than the Company (or a
Subsidiary) through purchase of assets, or by merger, or otherwise, except
in the case of a transaction pursuant to which, immediately after the
transaction, the Company’s shareholders immediately prior to the
transaction own immediately after the transaction at least a majority of
the combined voting power of the surviving entity’s then outstanding
securities which are entitled to vote with respect to the election of
directors of such entity; or
	 
	 	(iv)	 	The Company files a report or proxy statement with the
Commission pursuant to the Exchange Act disclosing in response to Form 8-K,
Form 10-K or Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction.

	 	(f)	 	“Code”: The Internal Revenue Code of 1986, as amended from time to time.
	 
	 	(g)	 	“Commission”: The Securities and Exchange Commission.
	 
	 	(h)	 	“Committee”: The Compensation Committee of the Board of Directors or such
other committee appointed by the Board of Directors which meets the requirements set
forth in Section 14.1 hereof.
	 
	 	(i)	 	“Company”: The Shaw Group Inc., a Louisiana corporation.
	 
	 	(j)	 	“Consultant”: Any professional advisor to the Company or its Subsidiaries as
well as any employee, officer or director of a corporation that serves as an advisor,
consultant or independent contractor to the Company or its Subsidiaries. The term
“Consultant” shall not, however, include any director, officer or employee of the
Company or its Subsidiaries.
	 
	 	(k)	 	“Effective Date”: The date on which the Plan shall become effective as set
forth in Section 16 hereof.
	 
	 	(l)	 	“Exchange Act”: The Securities Exchange Act of 1934, as amended, together with
all regulations and rules issued thereunder.
	 
	 	(m)	 	“Exercise Price”: (i) In the case of an Option, the price per Share at which
the Shares subject to such Option may be purchased upon exercise of such Option and
(ii) in the case of a SAR, the price per Share which upon grant, the Committee
determines shall be used in calculating the aggregate value which a Participant shall
be entitled to receive upon exercise of such SAR.
	 
	 	(n)	 	“Fair Market Value”: As applied to a specific date, the fair market value of a
Share on such date as determined in good faith by the Committee in the following
manner:

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	 	(i)	 	If the Shares are then listed on any national or regional stock
exchange, the Fair Market Value shall be the last quoted sales price of a Share
on the date in question, or if there are no reported sales on such date, on the
last preceding date on which sales were reported;
	 
	 	(ii)	 	If the Shares are not so listed, then the Fair Market Value
shall be the mean between the bid and ask prices quoted by a market maker or
other recognized specialist in the Shares at the close of the date in question;
or
	 
	 	(iii)	 	In the absence of either of the foregoing, the Fair Market
Value shall be determined by the Committee in its absolute discretion after
giving consideration to the book value, the revenues, the earnings history and
the prospects of the Company in light of market conditions generally.

	 	 	 	The Fair Market Value determined in such manner shall be final, binding and
conclusive on all parties.

	 	(o)	 	“Incentive Bonus”: An Award granted pursuant to Section 8 of the Plan.
	 
	 	(p)	 	“ISO”: An Option intended to qualify as an “incentive stock option,” as
defined in Section 422 of the Code or any statutory provision that may replace such
Section and designated as an incentive stock option by the Committee.
	 
	 	(q)	 	“Officer”: An officer of the Company or its Subsidiaries meeting the
definition of “officer” in Rule 16a-1(f) (or any successor provision) promulgated by
the Commission under the Exchange Act.
	 
	 	(r)	 	“NQSO”: An Option not intended to be an ISO and designated as a nonqualified
stock option by the Committee.
	 
	 	(s)	 	“Option”: Any ISO or NQSO granted under the Plan.
	 
	 	(t)	 	“Participant”: An officer or other employee of or Consultant to the Company or
any of its Subsidiaries who has been granted an Award under the Plan.
	 
	 	(u)	 	“Performance Measures”: The Performance Measures described in Section 9.1 of
the Plan.
	 
	 	(v)	 	“Performance Period”: For the purposes of the grant of Performance Shares, the
time period during which the applicable performance goal(s) must be met.
	 
	 	(w)	 	“Performance Shares”: An Award granted pursuant to Section 7 of the Plan.
	 
	 	(x)	 	“Plan”: This The Shaw Group Inc. 2001 Employee Incentive Compensation Plan, as
the same may be amended from time to time.
	 
	 	(y)	 	“Related”: (i) In the case of a SAR, a SAR that is granted in connection with,
and to the extent exercisable, in whole or in part, in lieu of, an Option or another
SAR; and (ii) in the case of an Option, an Option with respect to which and to the
extent a SAR is exercisable, in whole or in part, in lieu thereof, has been granted.
	 
	 	(z)	 	“Restricted Stock”: An Award of Shares granted to a Participant under Section
6 hereof.
	 
	 	(aa)	 	“Restricted Stock Unit”: A restricted stock unit Award granted to a
Participant under Section 6 hereof that represents an unfunded and unsecured promise to
deliver Shares, some other form of payment, or a combination thereof in accordance with
the terms of the applicable Agreement.

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	 	(bb)	 	“Restriction Period”: The time period during which Restricted Stock and
Restricted Stock Units awarded under the Plan must be held before they become fully
vested, unless additional conditions have been placed upon the vesting thereof.
	 
	 	(cc)	 	“SAR”: A stock appreciation right awarded to a Participant under Section 5.3
hereto.
	 
	 	(dd)	 	“Shares”: Shares of the Company’s authorized but unissued or reacquired no par
value per share common stock, or such other class or kind of shares or other securities
as may be applicable pursuant to the provisions of Section 4.4 hereof.
	 
	 	(ee)	 	“Subsidiary”: Any “subsidiary corporation” of the Company, as such term is
defined in Section 424(f) of the Code.

3. Participation.

     Participants shall be selected by the Committee from the officers (whether or not they are
directors), employees of the Company or its Subsidiaries (either full or part-time) and
Consultants. An Award may be granted to an employee, in connection with hiring, retention or
otherwise, prior to the date the employee first performs services for the Company or the
Subsidiaries, provided that such Awards shall not become vested prior to the date the employee
first performs such services.

4. Shares Subject to Plan.

     4.1 Shares Subject to the Plan. The maximum number of Shares that may be delivered to
Participants and their beneficiaries pursuant to the Plan shall be equal to 9.5 million shares of
Common Stock. The limitations established by the preceding sentence shall be subject to adjustment
as provided in Section 4.4 of the Plan.

     4.2 Accounting for Number of Shares. For purposes of determining the aggregate number of
Shares available for delivery to Participants pursuant to the Plan, any Shares granted under the
Plan which are forfeited back to the Company because of the failure to meet an award contingency or
condition shall again be available for delivery pursuant to new Awards granted under the Plan. Any
Shares covered by an Award (or portion of an Award) granted under the Plan, which is forfeited or
canceled, expires or is settled in cash, shall be deemed not to have been delivered for purposes of
determining the maximum number of Shares available for delivery under the Plan. Likewise, if any
Option is exercised by tendering Shares to the Company as full or partial payment in connection
with the exercise of an Option under this Plan or the Prior Plan, only the number of Shares issued
net of the Shares tendered shall be deemed delivered for purposes of determining the maximum number
of Shares available for delivery under the Plan. Further, Shares issued under the Plan through the
settlement, assumption or substitution of outstanding Awards or obligations to grant future Awards
as a result of acquiring another entity shall not reduce the maximum number of Shares available for
delivery under the Plan.

     4.3 Maximum Total Option and SAR Awards. Notwithstanding the provisions of Section 4.1, over
the term of the Plan, the total number of Shares that may be issued upon exercise of all Options
and SARs granted under the Plan shall not exceed 9.5 million shares of Common Stock (as adjusted to
reflect a two-for-one Common Stock split distributed on December 15, 2000). The limitations in this
Section 4.3 shall be subject to adjustment as provided in Section 4.4 below.

     4.4 Adjustments. In the event of a corporate transaction involving the Company (including,
without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares, or
other similar transactions or award), the Committee shall adjust Awards as well as the total number
of shares subject to the Plan to preserve the benefits or potential benefits of the Awards. Action
by the Committee may include: (i) adjustment of the number and kind of Shares (or other securities
or property) which may be delivered under the Plan; (ii) adjustment of the number and kind of
Shares (or the securities or property) subject to outstanding Awards; (iii) adjustment of the
Exercise Price of outstanding Options and SARs; and (iv) any other adjustments that the Committee
determines to be equitable, in its sole discretion.

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5. Awards of Options and SARs.

     5.1 General Terms and Conditions. The Committee shall have full and complete authority and
discretion, except as expressly limited by the Plan, to grant Options and SARs and to provide any
and all terms and conditions (which need not be identical among the Participants) thereof. In
particular, the Committee shall prescribe the following terms and conditions:

	 	(a)	 	The Exercise Price of the Option or SAR, which may not be less
than 100% of the Fair Market Value per Share at the date of grant of the Option
or SAR;
	 
	 	(b)	 	The number of Shares subject to, and the expiration date of,
the Option or SAR;
	 
	 	(c)	 	The manner, time and rate (cumulative or otherwise) of exercise
of the Option or SAR; provided, however, that except as otherwise specified in
the Plan, no Option or SAR awarded to a Participant who is an Officer shall
expressly provide for exercise prior to the expiration of six months from the
date of grant; and
	 
	 	(d)	 	The restrictions or conditions (such as performance goals), if
any, to be placed upon the Option or SAR, the exercisability of the Option or
SAR or upon the Shares which may be issued upon exercise of the Option or SAR.
The Committee may, as a condition of granting an Option or SAR, require that a
Participant agree not to thereafter exercise one or more Options or SARs
previously granted to such Participant.

     5.2 Maximum Award of Options and SARs. The number of Shares that may be allotted by the
Committee pursuant to Options and SARs awarded to any individual Participant shall not exceed, in
any fiscal year, 2.0 million Shares (as adjusted to reflect a two-for-one Common Stock Split
distributed on December 15, 2000) (subject to further adjustment pursuant to Section 4.4 of the
Plan). If an Option is in tandem with a SAR, such that the exercise of the Option or SAR with
respect to a Share cancels the tandem SAR or Option right, respectively, with respect to such
Share, the tandem Option and SAR rights with respect to such Share shall be counted as covering but
one Share for purposes of applying the limitations of this Section 5.2.

     5.3 SAR Awards.

	 	(a)	 	Grant of SARs. A SAR shall, upon its exercise, entitle the
Participant to whom such SAR was granted to receive a number of Shares or cash
or combination thereof, as the Committee in its discretion shall determine, the
aggregate value of which (i.e., the sum of the amount of cash and/or Fair
Market Value of such Shares on date of exercise) shall equal the amount by
which the Fair Market Value per Share on the date of such exercise shall exceed
the Exercise Price of such SAR multiplied by the number of Shares with respect
of which such SAR shall have been exercised. A SAR may be related to an Option
or may be granted independently of an Option, as the Committee shall from time
to time in each case determine. A Related SAR may be granted at the time of
grant of an Option or, in the case of an NQSO, at any time thereafter during
the term of the NQSO.
	 
	 	(b)	 	Related SARs. The Exercise Price of a Related SAR shall be the
same as the Exercise Price of the Related Option. A Related SAR shall be
exercisable only at such time or times and only to the extent that the Related
Option is exercisable and then only when the Fair Market Value per Share on the
date of exercise exceeds the Exercise Price. A Related SAR shall expire no
later than the Related Option. Upon exercise of a Related SAR, in whole or in
part, the Related Option shall be cancelled automatically to the extent of the
number of Shares covered by such exercise, and such Shares shall no longer be
available for delivery pursuant to future Awards. Conversely, if the Related
Option is exercised, in whole or in part, the Related SAR shall be cancelled
automatically to the extent of the number of Shares covered by the Option
exercise.

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     5.4 Exercise of Options and SARs.

	 	(a)	 	General Exercise Rights. Except as provided in Section 5.9, an
Option or SAR ranted under the Plan shall be exercisable during the lifetime of
the Participant to whom such Option or SAR was granted only by such
Participant, and except as provided in Section 5.4(c) and Section 5.9 hereof,
no Option or SAR may be exercised unless at the time such Participant exercises
such Option or SAR, such Participant is an employee of and has continuously
since the grant thereof been an employee of, the Company or an any of its
Subsidiaries. Transfer of employment between Subsidiaries or between Subsidiary
and the Company shall not be considered an interruption or termination of
employment for any purpose under this Plan. Neither shall a leave of absence at
the request, or with the approval, of the Company or Subsidiary be deemed an
interruption or termination of employment, so long as the period of such leave
does not exceed 90 days, or, if longer, so long as the Participant’s right to
re-employment with the Company or Subsidiary is guaranteed by contract. An
Option or SAR also shall contain such conditions upon exercise (including,
without limitation, conditions limiting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 (or any successor rule) promulgated
by the Commission.
	 
	 	(b)	 	Notice of Exercise. An Option or SAR may not be exercised with
respect to less than 100 Shares, unless the exercise relates to all Shares
covered by the Option or SAR at the date of exercise. An Option or SAR may be
exercised by delivery of a written notice to the Company, which shall state the
election to exercise the Option or SAR and the number of whole Shares in
respect of which it is being exercised, and shall be signed by the person or
persons so exercising the Option or SAR. In the case of an exercise of an
Option or SAR, such notice shall either: (i) if applicable, be accompanied by
payment of the full Exercise Price and all applicable withholding taxes, in
which event the Company shall deliver any certificate(s) representing Shares to
which the Participant is entitled as a result of the exercise as soon as
practicable after the notice has been received; or (ii) fix a date (not less
than 5 nor more than 15 business days from the date such notice has been
received by the Company) for the payment of the full Exercise Price and all
applicable withholding taxes, against delivery by the Company of any
certificate(s) representing Shares to which the Participant is entitled to
receive as a result of the exercise. Payment of such Exercise Price and
withholding taxes shall be made as provided in Sections 5.4(d) and 13,
respectively. In the event the Option or SAR shall be exercised pursuant to
Section 5.4(c)(i) or Section 5.9 hereof, by any person or persons other than
the Participant, such notice shall be accompanied by appropriate proof of the
right of such person or persons to exercise the Option or SAR.
	 
	 	(c)	 	Exercise after Termination of Employment. Except as otherwise
determined by the Committee at the date of grant of the Option or SAR and as is
provided in the applicable Agreement evidencing the Award, upon termination of
a Participant’s employment with the Company or any of its Subsidiaries, such
Participant (or in the case of death, the person(s) to whom the Option is
transferred by will or the laws of descent and distribution) may exercise such
Option or SAR during the following periods of time (but in no event after the
expiration date of such Option or SAR) to the extent that such Participant was
entitled to exercise such Option or SAR (or portion thereof) at the date of
such termination (i.e., the Option or SAR (or portion thereof) must be “vested”
at the time of termination to be exercisable thereafter):

	 	(i)	 	In the case of termination as a result of
death, disability or retirement of the Participant, the Option or SAR
shall remain exercisable for a one-year period following such
termination; for this purpose, “disability” shall exist when the
Participant is unable to engage in any substantial, gainful activity by
reason of

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	 	 	 	any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months, as
determined by the Committee in its sole discretion, and “retirement”
shall mean voluntary retirement at or after the Participant’s normal
retirement date as determined by the Committee in its sole
discretion; and
	 
	 	(ii)	 	In the case of termination for any other
reason, the Option or SAR shall remain exercisable for three months
after the date of termination.

	 	 	 	To the extent the Option or SAR is not exercised within the foregoing periods of
time, the Option or SAR shall automatically terminate at the end of the applicable
period of time. Notwithstanding the foregoing provisions, failure to exercise an ISO
within the periods of time prescribed under Sections 421 and 422 of the Code shall
cause an ISO to cease to be treated as an “incentive stock option” for purposes of
Section 421 of the Code.
	 
	 	(d)	 	Payment of Option Exercise Price. Upon the exercise of an Option, payment of
the Exercise Price shall be made either (i) in cash (by a certified check, bank draft
or money order payable in United States dollars), (ii) with the consent of the
Committee, by delivering Shares already owned by the Participant valued at Fair Market
Value as of the date of exercise, (iii) with the consent of the Committee, by
irrevocably authorizing a third party to sell shares of Common Stock (or a sufficient
portion of such shares) acquired upon exercise of the Option and remit to the Company a
sufficient portion of the sales proceeds to pay the entire Exercise Price and any tax
withholding resulting from such exercise, or (iv) by a combination of the foregoing
forms of payment.

     5.5 Settlement of Awards of Options and SARs. Settlement of Awards of Options and SARs is
subject to Section 10.

     5.6 Options or SARs Awarded to Consultants. Any provision of this Section 5 to the contrary
notwithstanding, (i) an Option or SAR may be exercised at any time by a Participant who is a
Consultant during the applicable period in the manner provided in Section 5.4(b) above; provided,
that in the event of the death of a Participant who is a Consultant, the Option or SAR may be
exercised by the executors or administrators of the estate of such Consultant or by the person or
persons who shall have acquired the Option or SAR directly by bequest or inheritance; and (ii) the
Exercise Price for an Option or SAR awarded to a Consultant must be paid in cash (by a certified
check, bank draft of money order).

     5.7 Rights as a Shareholder. A Participant shall have no rights as a shareholder with respect
to any Shares issuable on exercise of an Option or SAR until the date of the issuance of a stock
certificate to the Participant for such Shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued, except as provided
in Section 4.4 hereof.

     5.8 Special Provisions for ISOs. Any provision of the Plan to the contrary notwithstanding,
the following special provisions shall apply to all ISOs granted under the Plan:

	 	(a)	 	The Option must be expressly designated as an ISO by the
Committee and in the Agreement evidencing the Option;
	 
	 	(b)	 	No ISO shall be granted more than ten years from the Effective
Date of the Plan and no ISO shall be exercisable more than ten years from the
date such ISO is granted;
	 
	 	(c)	 	The Exercise Price of any ISO shall not be less than the Fair
Market Value per Share on the date such ISO is granted;

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	 	(d)	 	Any ISO shall not be transferable by the Participant to whom
such ISO is granted other than by will or the laws of descent and distribution
and shall be exercisable during such Participant’s lifetime only by such
Participant;
	 
	 	(e)	 	No ISO shall be granted to any individual who, at the time such
ISO is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary unless
the Exercise Price of such ISO is at least 110% of the Fair Market Value per
Share at the date of grant and such ISO is not exercisable after the expiration
of five years from the date such ISO is granted;
	 
	 	(f)	 	The aggregate Fair Market Value (determined as of the time any
ISO is granted) of any Company stock with respect to which any ISOs granted to
a Participant are exercisable for the first time by such Participant during any
calendar year (under this Plan and all other stock option plans of the Company
and any of its Subsidiary and any predecessor of any such corporations) shall
not exceed $100,000 as required under Section 422(d)(i) of the Code. (To the
extent the $100,000 limit is exceeded, the $100,000 in Options, measured as
described above, granted earliest in time will be treated as ISOs); and
	 
	 	(g)	 	any other terms and conditions as may be required in order that
the ISO qualifies as an “incentive stock option” under Section 422 of the Code
or successor provision.

Notwithstanding the provisions of Section 5.4(c)(i), the favorable tax treatment available pursuant
to Section 422 of the Code upon the exercise of an ISO will not be available to a Participant who
exercises any ISO more than (i) 12 months after the date of termination of employment due to the
Participant’s disability, or (ii) three months after the date of termination of employment due to
retirement of the Participant.

     5.9 Limited Transferability. No Option or SAR, nor any interest therein, may be assigned,
encumbered or transferred except, in the event of the death of a Participant, by will or the laws
of descent and distribution. Notwithstanding the foregoing, the Committee shall have the
discretionary authority to grant NQSOs and SARs (that are not Related to an ISO) that are
transferable by the Participant to the Participant’s children, grandchildren, spouse, one or more
trusts for the benefit of such family members, or a partnership in which such family members were
the only partners. The holder of an NQSO or SAR transferred pursuant to this Section 5.9 shall be
bound by the terms and conditions that govern the NQSO or SAR during the period that it was held by
the Participant; provided, however, that such transferee may not transfer the NQSO or SAR except by
will or the laws of descent and distribution.

6. Restricted Stock and Restricted Stock Units.

     6.1 General Terms/Conditions. The Committee may, in its discretion, grant one or more Awards
of Restricted Stock and/or Restricted Stock Units to any Participant. Each Award of Restricted
Stock and Restricted Stock Units shall be evidenced by an Agreement which shall specify the number
of Shares of Restricted Stock to be issued or the number of Restricted Stock Units granted to the
Participant, the date of such issuance, the price, if any, to be paid by the Participant, the
Restriction Period and any other conditions as the Committee, in its discretion, shall determine.
Notwithstanding the foregoing, the Committee shall impose upon each Award of Restricted Stock and
Restricted Stock Units made after April 6, 2006, a minimum Restriction Period of three (3) years
provided that over such three (3) year period, vesting of the Award may be in three (3) equal
annual installments of
331/3% each, beginning not less than one (1) year from the date of grant;
provided, however, that such minimum Restriction Period shall not apply to Restricted Stock Awards
or Restricted Stock Unit Awards made in connection with a Participant’s hiring by the Company or
any of its Subsidiaries. Restricted Stock Awards or Restricted Stock Unit Awards made in connection
with a Participant’s hiring and not subject to the three-year minimum Restricted Period shall not,
in the aggregate, exceed five (5%) percent of the total number of Shares reserved for issuance
under the Plan.

     6.2 Maximum Award. The maximum number of Shares that may be allotted by the Committee pursuant
to Restricted Stock or Restricted Stock Units awarded to any individual Participant shall not
exceed, in any fiscal year, 300,000 Shares (subject to further adjustment as provided in Section
4.4 of the Plan).

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     6.3 Restrictions and Forfeitures.

	 	(a)	 	Shares included in Restricted Stock Awards and Restricted Stock Units may not
be sold, assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until such Awards have fully vested.
	 
	 	(b)	 	Participants holding shares of Restricted Stock granted hereunder may be
granted the right to exercise full voting rights with respect to those Shares during
the Restriction Period. A Participant shall have no voting rights with respect to any
Restricted Stock Units granted hereunder. During the Restriction Period, Participants
holding shares of Restricted Stock granted hereunder may be credited with regular cash
dividends paid with respect to the underlying Shares while they are so held. The
Committee may apply any restrictions to the dividends that the Committee deems
appropriate. Without limiting the generality of the preceding sentence, if the grant or
vesting of Restricted Stock is designed to comply with one or more of the Performance
Measures set forth in Section 9.1, the Committee may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such Restricted Stock,
such that the dividends and/or the Restricted Stock maintain eligibility under Section
162(m) of the Code.
	 
	 	(c)	 	In the event that the Participant shall have paid any cash for Restricted Stock
or Restricted Stock Units, the Agreement shall specify whether and to what extent such
cash shall be returned upon a forfeiture (with or without an earnings factor).
	 
	 	(d)	 	Restricted Stock shall be evidenced by a stock certificate registered only in
the name of the Participant, which stock certificate shall be held by the Company until
the Restricted Stock has fully vested.
	 
	 	(e)	 	The occurrence of any of the following events shall cause the immediate vesting
of Restricted Stock and Restricted Stock Units:

	 	(i)	 	the death of the Participant;
	 
	 	(ii)	 	the retirement of the Participant on or after the Participant’s
normal retirement date; and
	 
	 	(iii)	 	the disability of the Participant.

	 	 	 	For the purposes of this Subsection, the term “disability” shall be defined as such
term is defined in Section 5.4(c)(i). Notwithstanding the foregoing, to the extent a
condition(s) other than a Restriction Period has been imposed by the Committee upon
the Restricted Stock or Restricted Stock Unit Award, the occurrence of the foregoing
shall not cause immediate vesting unless and until such condition(s) has been met.
	 
	 	(f)	 	Restricted Stock Awards and Restricted Stock Unit Awards shall be entirely
forfeited by the Participant in the event that prior to vesting, the Participant
breaches any terms or conditions of the Plan, the Participant resigns from or is
terminated by the Company, or any condition(s) imposed upon the vesting are not met.
In the event of a conflict between the Plan and an employment agreement entered into
between the Company and a Participant, the terms set forth in such employment agreement
shall control with respect to such Participant.

     6.4 Legend on Certificates. Each certificate evidencing a Restricted Stock Award under the
Plan shall be registered in the name of the Participant and deposited by the Participant, together
with a stock power endorsed in blank, with the Company and shall bear the following (or a similar)
legend:

	 	 	 	“The transferability of this certificate and the shares of Common Stock represented
hereby are subject to the terms and conditions (including forfeiture) contained in
The Shaw Group Inc. 2001 Employee Incentive Compensation Plan and a Restricted Stock
Agreement entered into between the registered owner and The Shaw Group Inc. Copies
of such Plan and Agreement are on file in

9

 

	 	 	 	the offices of the Secretary of The Shaw Group Inc., 4171 Essen Lane, Baton Rouge,
Louisiana 70809.”

     6.5 Section 83(b) Elections. Within 30 days after the issuance of shares of Restricted Stock
to a Participant under the Plan, the Participant shall decide whether or not to file an election
pursuant to Section 83(b) of the Code and Treasury Regulation Section 1.83-2 (and state law
counterparts) with respect to such Restricted Stock. If the Participant does file such an election,
the Participant shall promptly furnish the Company with a copy of such election.

     6.6 Payment In Consideration of Restricted Stock Units. Each Restricted Stock Unit shall have
a value equal to the Fair Market Value of a Share. When and if Restricted Stock Units become
vested and payable, a Participant having received the grant of such units shall be entitled to
receive payment from the Company in cash, Shares, in some combination thereof, or in any other form
determined by the Committee at its sole discretion. The Committee’s determination regarding the
form of payout shall be set forth or reserved for later determination in the Agreement pertaining
to the grant of the Restricted Stock Units.

7. Performance Shares.

     7.1 Grant of Performance Shares. Subject to the terms of the Plan, Performance Shares may be
granted to Participants in such amounts and upon such terms, and at any time and from time to time,
as shall be determined by the Committee, provided that no more than 50,000 Shares (as adjusted to
reflect a two-for-one Common Sock split distributed on December 15, 2000) (subject to further
adjustment as provided in Section 4.4 of the Plan) may be subject to any Performance Share Awards
granted to any individual Participant in any fiscal year.

     7.2 Value of Performance Shares. Each Performance Share shall have an initial value equal to
the Fair Market Value of a Share on the date of grant. The Committee shall set performance goals in
its discretion which, depending on the extent to which they are met, will determine the number
and/or value of Performance Shares that will be paid out to the Participant.

     7.3 Earning of Performance Shares. Subject to the terms of the Plan, after the applicable
Performance Period has ended, the holder of Performance Shares shall be entitled to receive payout
on the number and value of Performance Shares earned by the Participant over the Performance
Period, to be determined as a function of the extent to which the corresponding performance goals
have been achieved.

     7.4 Form and Timing of Payment of Performance Shares. Payment of earned Performance Shares
shall be made in a single lump sum following the close of the applicable Performance Period.
Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned
Performance Shares in the form of cash or in Shares (or in a combination thereof) which have an
aggregate Fair Market Value equal to the value of the earned Performance Shares at the close of the
applicable Performance Period. Such Shares may be granted subject to any restrictions deemed
appropriate by the Committee. The determination of the Committee with respect to the form of payout
of such Awards shall be set forth in the Agreement pertaining to the grant of the Award of
Performance Shares.

     At the discretion of the Committee, Participants may be entitled to receive any dividends
declared with respect to Shares which have been earned in connection with grants of Performance
Shares which have been earned, but not yet distributed to Participants (such dividends shall be
subject to the same accrual, forfeiture, and payout restrictions as apply to dividends earned with
respect to Shares of Restricted Stock, as set forth in Section 6 hereof). In addition, Participants
may, at the discretion of the Committee, be entitled to exercise their voting rights with respect
to such Shares.

     7.5 Termination of Employment Due to Death, Disability, or Retirement. Unless determined
otherwise by the Committee and set forth in the Agreement evidencing an Award of Performance
Shares, in the event the employment of a Participant is terminated by reason of death, disability,
or retirement during a Performance Period, the Participant or his legal representative shall
receive a payout of the Performance Shares which is prorated, as specified by the Committee, in its
sole discretion. For purposes of this Section 7.5, the term “disability” shall be defined as such
term is defined in Section 5.4(c)(i).

10

 

     Payment of earned Performance Shares shall be made at a time specified by the Committee in its
sole discretion and set forth in the Agreement evidencing such Award. Notwithstanding the
foregoing, with respect to Performance Shares that have been awarded with the intention of
qualifying as “performance-based compensation” under Section 162(m) of the Code to a Participant
who retires during a Performance Period, payment shall be made pursuant to such Performance Share
Award at the same time as payments are made to Participants who did not terminate employment during
the applicable Performance Period.

     7.6 Termination of Employment for Other Reasons. In the event that a Participant’s employment
terminates for any reason other than those reasons set forth in Section 7.5 above, all Performance
Shares shall be forfeited by the Participant to the Company unless determined otherwise by the
Committee, as set forth in the Agreement evidencing such Award.

     7.7 Non-Transferability. Except as otherwise provided in an Agreement evidencing such Award of
Performance Shares, Performance Shares may not be sold, assigned, transferred, pledged or otherwise
disposed of or encumbered, either voluntarily or involuntarily, until such Performance Shares have
fully vested. Further, except as otherwise provided in an Agreement evidencing such Award of
Performance Shares, a Participant’s rights under the Plan shall be exercisable during the
Participant’s lifetime only by the Participant or the Participant’s legal representative.

8. Incentive Bonuses.

     8.1 Awards of Incentive Bonuses. The Committee shall have the discretionary authority to
designate Participants to whom Incentive Bonuses are to be paid. Incentive Bonuses shall be
determined exclusively by the Committee pursuant to procedures established by the Committee;
provided, however, that for any fiscal year, no individual Participant may receive Incentive
Bonuses aggregating more than $5 million.

     8.2 Terms and Conditions. The Committee, at the time an Incentive Bonus is made, shall specify
the terms and conditions that govern the granting thereof. Such terms and conditions may include,
by way of example and not limitation, requirements that the Participant complete a specified period
of employment with the Company or a Subsidiary, or that the Company or Subsidiary or the
Participant attain stated objectives or goals as a prerequisite to payment under an Incentive
Bonus. The Committee, at the time the Incentive Bonus is granted shall also specify what amount
shall be payable under the Incentive Bonus and whether amounts shall be payable in the event of the
Participant’s death, disability or retirement.

     8.3 Settlement of Incentive Bonuses. Settlement of Incentive Bonuses is subject to Section 1

9. Performance-Based Compensation.

     9.1 Performance Measures. The Committee may designate whether an Award being granted to any
Participant is intended to be “performance-based compensation” as that term is used in Section
162(m) of the Code. Any such Awards designated by the Committee to be “performance-based
compensation” shall be conditioned on the achievement of one or more Performance Measures, to the
extent required by Code Section 162(m). The Performance Measures that may be used by the Committee
for such Awards shall be based on any one or more of the following, as selected by the Committee:

	 	(a)	 	Earnings per share;
	 
	 	(b)	 	Net income (before or after taxes);
	 
	 	(c)	 	Return measures (including, but not limited to, return on assets, capital,
equity or sales);
	 
	 	(d)	 	Earnings before or after taxes;
	 
	 	(e)	 	Share price (including, but not limited to, growth measure and total
shareholder return);
	 
	 	(f)	 	Gross revenues;

11

 

	 	(g)	 	Working capital measures; or
	 
	 	(h)	 	Backlog.

For Awards under this Section 9 intended to be “performance-based compensation”, (i) the grant of
the Awards and the establishment of the Performance Measures shall be made during the period
required by Section 162(m) of the Code and (ii) the Committee shall certify in writing that the
Performance Measure has been met. The Committee shall have the discretion to define the Performance
Measures on a corporation or subsidiary or business division basis or in comparison with peer group
performance.

     9.2 Board Authority. In the event that applicable tax and/or securities laws change to permit
the Committee discretion to alter the governing Performance Measures without obtaining shareholder
approval of such changes, the Board of Directors of the Company shall have the sole discretion to
make changes in the Performance Measures without shareholder approval.

10. Settlement of Awards.

     The obligation to make payments and distributions with respect to Awards may be satisfied
through cash payments, the delivery of shares of Common Stock, the granting of replacement Awards,
or combination thereof as the Committee shall determine, in its sole discretion. Satisfaction of
any such obligations under an Award, which is sometimes referred to as “settlement” of the Award,
may be subject to such conditions, restrictions, and contingencies as the Committee shall
determine. The Committee may permit or require the deferral of any Award payment, subject to such
rules and procedures as it may establish, which may include provisions for the payment or crediting
of interest or dividend equivalents. Each Subsidiary shall be liable for payment of cash due under
the Plan with respect to any Participant to the extent that such benefits are attributable to the
services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a
Subsidiary for cash payments shall be resolved by the Committee.

11. Consultants.

     An Award made to a Consultant hereunder must be supported by bona fide services actually
rendered by the Company to the Consultant. However, in no event shall an Award be made to a
Consultant (i) for services rendered by the Consultant in connection with the offer or sale of
securities in a capital raising transaction or (ii) who directly or indirectly promotes or
maintains a market for the Company’s securities.

12. Government Regulations.

     This Plan, the granting of Awards under this Plan and the issuance or transfer of Shares
(and/or the payment of money) pursuant thereto are subject to all applicable federal and state
laws, rules and regulations and to such approvals by any regulatory or governmental agency
(including without limitation “no action” positions of the Commission) which may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith. Without limiting the
generality of the foregoing, no Awards may be granted under this Plan, and no Shares shall be
issued by the Company, pursuant to or in connection with any such Award, unless and until, in each
such case, all legal requirements applicable to the issuance or payment have, in the opinion of
counsel to the Company, been complied with. In connection with any stock issuance or transfer, the
person acquiring the Shares shall, if requested by the Company, give assurances satisfactory to
counsel to the Company in respect of such matters as the Company may deem desirable to assure
compliance with all applicable legal requirements. The Company shall not be required to deliver any
Shares under the Plan prior to (i) the admission of such Shares to listing or for quotation on any
stock exchange or automated quotation system on which Shares may then be listed or quoted, and (ii)
the completion and effectiveness of such registration or other qualification of such Shares under
any state or federal law, rule or regulation, as the Committee shall determine to be necessary or
advisable.

12

 

13. Tax Withholding.

     The Company shall have the right to withhold from amounts due Participants, or to collect from
Participants directly, the amount which the Company deems necessary to satisfy any taxes required
by law to be withheld at any time by reason of participation in the Plan, and the obligations of
the Company under the Plan shall be conditional on payment of such taxes. The Participant may,
prior to the due date of any taxes, pay such amounts to the Company in cash, or with the consent of
the Committee, in Shares (which shall be valued at their Fair Market Value on the date of payment).
There is no obligation under this Plan that any Participant be advised of the existence of the tax
or the amount required to be withheld. Without limiting the generality of the foregoing, in any
case where it determines that a tax is or will be required to be withheld in connection with the
issuance or transfer or vesting of Shares under this Plan, the Company may pursuant to such rules
as the Committee may establish, reduce the number of such Shares so issued or transferred by such
number of Shares as the Company may deem appropriate in its sole discretion to accomplish such
withholding or make such other arrangements as it deems satisfactory. Notwithstanding any other
provision of this Plan, the Committee may impose such conditions on the payment of any withholding
obligation as may be required to satisfy applicable regulatory requirements, including, without
limitation, Rule 16b-3 (or successor provision) promulgated by the Commission.

14. Administration of Plan.

     14.1 The Committee. The Plan shall be administered by the Committee, which shall be comprised
of two or more members of the Board of Directors, each of whom shall be a “Non-Employee Director”
as defined in Rule 16b-3(b)(3) (or any successor provision) promulgated by the Commission and each
of whom shall qualify as an “outside director” as defined in Section 162(m) of the Code.

     14.2 Committee Action. A majority of the members of the Committee at the time in office shall
constitute a quorum for the transaction of business, and any determination or action may be taken
at a meeting by a majority vote or may be taken without a meeting by a written resolution signed by
all members of the Committee. All decisions and determinations of the Committee shall be final,
conclusive and binding upon all Participants and upon all other persons claiming any rights under
the Plan with respect to any Award. Members of the Board of Directors and members of the Committee
acting under the Plan shall be fully protected in relying in good faith upon the advice of counsel
and shall incur no liability except for willful misconduct in the performance of their duties.

     14.3 Committee Authority. In amplification of the Committee’s powers and duties, but not by
way of limitation, the Committee shall have full authority and power to:

	 	(a)	 	Construe and interpret the provisions of the Plan and establish, amend and
rescind rules and regulations relating to the Plan and to make all other determinations
that may be necessary or advisable for the administration of the Plan not inconsistent
with the Plan;
	 
	 	(b)	 	Decide all questions of eligibility for Plan participation and for the grant of
Awards;
	 
	 	(c)	 	Determine the types of Awards and the number of Shares covered by the Awards,
if any, to be granted to any Participant, to establish the terms, conditions,
Performance Measures, restrictions and other provisions of such Awards, and (subject to
the restrictions imposed by Section 17) to cancel or suspend Awards;
	 
	 	(d)	 	Adopt forms of agreements and other documents consistent with the Plan;
	 
	 	(e)	 	Engage agents to perform legal, accounting and other such professional services
as it may deem proper for administering the Plan; and
	 
	 	(f)	 	Take such other actions as may be reasonably required or appropriate to
administer the Plan or to carry out the Committee activities contemplated by other
sections of this Plan.

     14.4 Indemnification. In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the Board of Directors and the members of the Committee
shall be indemnified by the Company against the reasonable expenses, including court costs and
reasonable attorneys’ fees, actually incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which

13

 

they or any of them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted hereunder, and against all amounts paid by them in
settlement thereof or paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except where such indemnification is expressly prohibited by applicable law.

15. Change of Control.

     Subject to the provisions of Section 4.4 (relating to the adjustment of Shares), or except as
otherwise provided in the Agreement evidencing the Award, upon the occurrence of a Change of
Control:

	 	(a)	 	all outstanding Options (regardless of whether in tandem with SARs) shall
become fully exercisable,
	 
	 	(b)	 	all outstanding SARs (regardless of whether in tandem with Options) shall
become fully exercisable,
	 
	 	(c)	 	all Restricted Stock, Restricted Stock Units and Performance Shares shall
become fully vested, and
	 
	 	(d)	 	All Incentive Bonuses that have been approved and accrued shall become fully
payable.

16. Effective Date and Shareholder Approval.

     The Effective Date of the Plan shall be November 27, 2000 (the date the Plan was approved by
the Board of Directors) subject to receipt within one year of such date the approval of the Plan by
the holders of a majority of the total voting power of the voting securities of the Company present
in person or represented by proxy at a meeting of shareholders at which the approval of such Plan
is considered.

17. Amendment and Termination.

     17.1 The Plan

	 	(a)	 	Amendment. The Board of Directors may amend the Plan from time to time in its
sole discretion, provided that, unless the requisite approval of shareholders is
obtained, no amendment shall be made to the Plan if such amendment would (i) increase
the number of Shares available for issuance under the Plan or increase the limits
applicable to Awards under the Plan, in each case, except as provided in Section 4.4;
(ii) lower the Exercise Price of an Option or SAR grant value below 100% of the Fair
Market Value of one Share on the date of the Award, except as provided in Section 4.4;
(iii) remove the repricing restriction set forth in Section 17.2; or (iv) require
shareholder approval pursuant to applicable federal, state or local law or under rules
of the New York Stock Exchange, if the Shares are then listed on such exchange. No
amendment shall adversely affect the rights of any Participant under any Award
theretofore made under the Plan, without the Participant’s consent.
	 
	 	(b)	 	Termination. The Plan shall terminate automatically on the tenth anniversary of
the Effective Date, and the Board of Directors may suspend or terminate the Plan at any
earlier time. Upon termination of the Plan, no additional Awards shall be granted under
the Plan; provided, however, that the terms of the Plan shall continue in full force
and effect with respect to outstanding Awards and Shares issued under the Plan.

14

 

     17.2 Awards. Subject to the terms and conditions and the limitations of the Plan, the
Committee may in the exercise of its sole discretion modify, extend or renew the terms of
outstanding Awards granted under the Plan, or accept the surrender of outstanding Awards (to the
extent not theretofore exercised); provided, however, that the Committee shall not have the
authority to accept the surrender or cancellation of any Options and any SARs that relate to such
Options outstanding hereunder (to the extent not theretofore exercised) and grant new Options and
any SARs that relate to such new Options hereunder in substitution therefore (to the extent not
theretofore exercised) at an Exercise Price that is less than the Exercise Price of the Options
surrendered or canceled. The foregoing shall not limit any adjustments made under Section 4.4 of
the Plan. Notwithstanding the provisions of this Section 17.2, no modification of an Award shall,
without the consent of the Participant, impair any rights or obligations under any Awards
theretofore granted under the Plan.

18. Miscellaneous.

     18.1 No Individual Rights. No person shall have any claim or right to be granted an Award
under the Plan, or having been selected as a Participant for one Award, to be so selected again.
Neither the establishment of the Plan nor any amendments thereto, nor the granting of any Award
under the Plan, shall be construed as in any way modifying or affecting, or evidencing any
intention or understanding with respect to, the terms of the employment of any Participant with the
Company or any of its Subsidiaries.

     18.2 Multiple Awards. Subject to the terms and restrictions set forth in the Plan, a
Participant may hold more than one Award.

     18.3 Written Notice. As used herein, any notices required hereunder shall be in writing and
shall be given on the forms, if any, provided or specified by the Committee. Written notice shall
be effective upon actual receipt by the person to whom such notice is to be given; provided,
however, that in the case of notices to Participants and their transferees, heirs, legatees and
legal representatives, notice shall be effective upon delivery if delivered personally or three
business days after mailing, registered first class postage prepaid to the last known address of
the person to whom notice is given. Written notice shall be given to the Committee and the Company
at the following address or such other address as may be specified from time to time:

The Shaw Group Inc.

4171 Essen Lane

Baton Rouge, Louisiana 70809

Attention: Secretary

     18.4 Unfunded Plan. The Plan shall be unfunded and shall not create (and shall not be
construed to create) a trust or a separate fund or funds. The Plan shall not establish any
fiduciary relationship between the Company and any Participant. To the extent any person holds any
obligation of the Company by an Award granted under the Plan, such obligation shall merely
constitute a general unsecured liability of the Company and accordingly, shall not confer upon such
person any right, title or interest in any assets of the Company.

     18.5 Applicable Law; Severability. The Plan shall be governed by and construed in all respects
in accordance with the laws of the State of Louisiana. If any provision of the Plan shall be held
by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions of
the Plan shall continue to be fully effective.

15exv10w5

 

Exhibit 10.5

THE SHAW GROUP INC.

2005 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN

(As amended and restated through November 2, 2007)

1. Purpose of the Plan.

     This 2005 Non-Employee Director Stock Incentive Plan (the “Plan”) is intended to assist The
Shaw Group Inc. (the “Company”) in attracting and retaining highly qualified and experienced
persons, who are not officers or employees of the Company or any of its subsidiaries or affiliates,
for service as directors of the Company by providing such directors with a proprietary interest in
the Company’s success through the grant to such directors of Phantom Stock Awards (as described in
Section 6 hereof) and nonqualified stock options (the “Options”) (collectively, “Awards”) to
acquire shares of the common stock, no par value per share, of the Company (the “Shares”).

     The Plan as set forth herein constitutes an amendment and restatement of The Shaw Group Inc.
2005 Non-Employee Director Stock Option Plan (as amended and restated through April 6, 2006) (the
“Existing Plan”).

2. Participation.

     Each member of the Company’s Board of Directors (the “Board”) who is not, and who has not been
during the one-year period immediately preceding the Effective Date (as defined below), or the date
the director is first elected to the Board, whichever is later, an officer or employee of the
Company or of any of its subsidiaries or affiliates (each, an “Eligible Director”) shall be
eligible to participate in the Plan.

3. Administration of Plan.

     The Plan shall be administered, construed and interpreted by a committee (the “Committee”)
which shall be comprised of one or more members of the Board appointed by the Board, who are not
eligible under Section 2 hereof to receive grants of Awards under the Plan. The Committee shall
prescribe the form of Award agreement to be used to evidence grants of Awards under the Plan,
consistent with the terms of the Plan and all applicable laws and regulations, including, without
limitation, Rule 16b-3 (or successor provision) promulgated by the Securities and Exchange
Commission.

4. Shares Subject to the Plan; Fair Market Value.

     (a) Maximum Shares. The number of Shares which are hereby reserved for purposes of the Plan
shall be, in the aggregate, 300,000 Shares, subject to further adjustment as provided in Section
4(b) hereof. Shares issued under the Plan may be either authorized but unissued Shares or Shares
which have been or may be reacquired by the Company, including treasury shares. Any Shares
released upon forfeiture of an Award shall again be available for grants of future Awards under the
Plan.

 

 

     (b) Adjustments in Event of Changes in Capitalization. In the event that the Shares are
changed into or exchanged for a different kind or number of shares of stock or securities of the
Company as the result of any stock dividend, stock split, combination of shares, exchange of
shares, merger, consolidation, reorganization, recapitalization or other change in capital
structure of the Company (each, a “Capitalization Change”), then the number of Shares subject to
this Plan and the number of Shares subject to Awards previously granted hereunder shall be
equitably adjusted by the Committee to prevent the dilution or enlargement of such previously
granted Awards, and any new stock or securities into which the Shares are changed or for which they
are exchanged shall be substituted for the Shares subject to this Plan and to Awards granted
hereunder; provided, however, that fractional shares may be deleted from any such adjustment or
substitution. There shall be no such equitable adjustment for the number of Shares subject to
Awards in the event the effective date of the Capitalization Change occurs prior to the grant of
the Award.

     (c) Fair Market Value. The term “Fair Market Value” means the fair market value of a Share as
determined in good faith by the Committee in the following manner:

     (i) If the Shares are then listed on any national or regional stock exchange or traded
in the over-the-counter market and prices are quoted on the NASDAQ National Market, the Fair
Market Value shall be the last quoted sales price of a Share on the date in question or, if
there are no reported sales on such date, on the last preceding date on which sales were
reported;

     (ii) If the Shares are not so listed or quoted, then the Fair Market Value shall be the
mean between the bid and ask prices quoted by a market maker or other recognized specialist
in the Shares at the close of the date in question; or

     (iii) In the absence of either of the foregoing, the Fair Market Value shall be
determined by the Committee in its absolute discretion after giving consideration to the
book value, the revenues, the earnings history and the prospects of the Company in light of
market conditions generally.

The Fair Market Value determined in such manner shall be final, binding and conclusive on all
parties.

5. Options Granted Under the Plan.

     (a) Option Grants.

	 	      (i)   As of the date of the annual meeting of the shareholders of the Company in each
year that the Plan is in effect, beginning with the 2008 annual meeting, each Eligible
Director who is elected to the Board or re-elected to the Board at such meeting shall be
granted Options having a fair market value, in the aggregate, equal to the product of: (i)
        .5 and (ii) $85,000, as determined by the Black-Scholes valuation model utilizingthe Fair
Market Value of a Share on the date of such annual meeting, with any fractional Share being
rounded up to the next whole Share. Each Option granted pursuant to this Section 5(a)(i)
shall be referred to in the Plan as an “Annual Option.”
	 
	 	      (ii)   The price at which Shares may be acquired pursuant to each Option (the “Exercise
Price”) shall be the Fair Market Value of the Shares, as defined in Section 4(c) hereof, as
of the date such Option is granted.

2

 

     (b) Exercise Rights.

	 	      (i)   Each Annual Option shall be fully exercisable one year after the date of grant.
	 
	 	      (ii)   Once vested, each Option (or vested portion thereof) shall be fully exercisable,
and shall remain exercisable for a period of ten years from the date such Option is granted,
at which time any unexercised portion of the Option shall terminate. In the event that the
optionee ceases to be a member of the Board prior to the vesting of the Option (or
applicable portion thereof), the Option (or the unvested portion thereof) shall be
forfeited.

     (c) Exercise of Options. Subject to Section 5(b), an Option may be exercised with respect to
all or part of the Shares covered by the Option, but in no event with respect to less than 100
Shares, unless the exercise relates to all Shares covered by the Option at the date of exercise.
Options may be exercised by delivery of a signed written notice to the Company, which notice shall
state the election to exercise the Option and the number of whole Shares in respect to which it is
being exercised, together with payment in full of the Exercise Price, which payment shall be made
either (i) in cash (by a certified check, bank draft or money order); (ii) with the consent of the
Committee, by constructively delivering Shares already owned by the optionee valued at Fair Market
Value; (iii) with the consent of the Committee, by irrevocably authorizing a third party to sell
Shares (or a sufficient portion thereof) acquired upon exercise of the Option and remit to the
Company a sufficient portion of the sales proceeds to pay the entire Exercise Price; or (iv) by a
combination of the foregoing forms of payment. Notice of exercise and payment of the Exercise Price
shall be delivered to the Company at the following address:

The Shaw Group Inc.

4171 Essen Lane

Baton Rouge, La 70809

Attn: Secretary

6. Phantom Stock Awards Granted Under the Plan.

     (a) Phantom Stock Awards. Phantom Stock Awards are rights to receive Shares. As of the date
of the annual meeting of the shareholders of the Company in each year that the Plan is in effect,
beginning with the 2008 annual meeting, each Eligible Director who is elected to the Board or
re-elected to the Board at such meeting shall be granted a Phantom Stock Award with rights to
receive a number of Shares equal to the product of: (i) .5 and (ii) the quotient of $85,000 divided
by the Fair Market Value of a Share on the date of such annual meeting, with any fractional Share
being rounded up to the next whole Share.

     (b) Award Period. Each Phantom Stock Award made after April 6, 2006, shall vest in three (3)
equal annual installments of 331/3% each, beginning one year after the date of grant.

     (c) Payment. Upon vesting of a Phantom Stock Award, the holder of a Phantom Stock Award shall
be entitled to receive a number of Shares equal to the number of Phantom Stock shares then vesting.

     (d) Termination of Award. In the event that the Eligible Director ceases to be a member of
the Board prior to the one year anniversary of the date of grant of the Phantom Stock

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Award, the Phantom Stock Award shall be automatically forfeited unpaid. In the event that the
Eligible Director ceases to be a member of the Board at any time after the one year anniversary of
the date of grant of the Phantom Stock Award, the vesting of the Phantom Stock Award (or applicable
unvested portion thereof) shall be automatically accelerated and thereupon entitle the holder of
such Phantom Stock Award to receive a number of Shares equal to the number of Phantom Stock shares
then vesting

7. Restrictions on Transfers.

     (a) Limitations on Transfer. Except as provided by the Committee, no Award granted under the
Plan may be assigned, encumbered or transferred, except (i) by will or the laws of descent and
distribution or (ii) pursuant to a qualified domestic relation order as defined by the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act or the
rules thereunder. The Committee shall have the discretionary authority to grant Options that would
be transferable to members of an Eligible Director’s immediate family, including trusts for the
benefit of such family members and partnerships in which such family members are the only partners.
For purposes of Section 5(c), a transferred Option may be exercised by the transferee to the extent
that the Eligible Director would have been entitled had the Option not been transferred.

     (b) Government Regulations. This Plan and Awards granted under the Plan are subject to all
applicable federal and state laws, rules and regulations and to such approvals by any regulatory or
governmental agency (including without limitation “no action” positions of the Securities and
Exchange Commission) which may, in the opinion of counsel for the Company, be necessary or
advisable in connection therewith. Without limiting the generality of the foregoing, no Awards may
be granted, satisfied, or exercised under the Plan unless and until all applicable legal
requirements have, in the opinion of counsel to the Company, been complied with. In connection with
any Shares issued pursuant to Awards, the person acquiring such Shares shall, if requested by the
Company, give assurances satisfactory to counsel to the Company in respect to such matters as the
Company may deem desirable to assure compliance with all applicable legal requirements. The Company
shall not be required to deliver any Shares under the Plan prior to (i) the admission of such
Shares to listing on any stock exchange or NASDAQ Stock Market, as applicable, on which Shares may
then be listed and (ii) the completion of such registration or other qualification of such Shares
under any state or federal law, rule or regulation, as the Committee shall determine to be
necessary or advisable.

8. Termination.

     The Plan shall terminate automatically on the tenth anniversary of the Effective Date (as
defined in Section 11), and the Board may suspend or terminate the Plan at any earlier time. Upon
termination of the Plan, no additional Awards shall be granted under the Plan; provided, however,
that the terms of the Plan shall continue in full force and effect until all Options granted under
the Plan have been exercised or expired and all Phantom Stock Awards have been satisfied or
expired.

9. Amendment.

     (a) The Plan. The Board of Directors may amend the Plan from time to time in its sole
discretion, provided that, unless the requisite approval of shareholders is obtained, no amendment
shall be made to the Plan if such amendment would (i) increase the number of Shares available for
issuance under the Plan or increase the limits applicable to Awards under the Plan, in each case,
except as provided in Section 4(b); (ii) lower the

4

 

Exercise Price of an Option below 100% of the fair market value of one share on the date of grant,
except as provided in Section 4(b); (iii) remove the repricing restriction set forth in Section
9(b); or (iv) require shareholder approval pursuant to applicable federal, state or local law or
under rules of the New York Stock Exchange, if the Shares are then listed on such exchange. No
amendment shall adversely affect the rights of any Eligible Director under any Award theretofore
made under the Plan, without the Eligible Director’s consent.

     (b) Awards. Notwithstanding any provision of the Plan to the contrary, the Committee shall
not have the authority to accept the surrender or cancellation of any Options that relate to such
Options outstanding hereunder (to the extent not theretofore exercised) and grant new Options that
relate to such new Options hereunder in substitution therefore (to the extent not theretofore
exercised) at an Exercise Price that is less than the Exercise Price of the Options surrendered or
canceled. The foregoing shall not limit any adjustments made under Section 4(b) of the Plan.

10. Indemnification.

     In addition to such other rights of indemnification as they may have, the members of the
Committee and the officers and employees of the Company who may take actions relating to the Plan
shall be indemnified by the Company to the fullest extent permitted by law against the reasonable
expenses, including attorney’s fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal thereof, to which they
or any of them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such action, suit or proceeding
that such Committee member, officer or employee is liable for gross negligence or willful
misconduct in the performance of his duties, provided that within sixty (60) days after institution
of any such action, suit or proceeding, a Committee member, officer or employee shall in writing
offer the Company the opportunity, at its own expense, to handle and defend the same.

11. Effective Date.

     The Effective Date of the Plan shall be January 24, 2005.

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