GULF ISLAND FABRICATION INC
FORM OF STOCK OPTION AGREEMENT
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<TYPE>EX-10.7
<SEQUENCE>4
<FILENAME>d03961exv10w7.txt
<DESCRIPTION>FORM OF STOCK OPTION AGREEMENT
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                                                                    EXHIBIT 10.7


                             STOCK OPTION AGREEMENT
                                FOR THE GRANT OF
                      NON-QUALIFIED STOCK OPTIONS UNDER THE
                          GULF ISLAND FABRICATION, INC.
                          2002 LONG-TERM INCENTIVE PLAN

         THIS AGREEMENT is entered into and effective as of __________, 20__, by
and between Gulf Island Fabrication, Inc., a Louisiana corporation (the
"Company"), and ________________ "Optionee").

         WHEREAS Optionee is a key employee of the Company and the Company
considers it desirable and in its best interest that Optionee be given an
inducement to acquire a proprietary interest in the Company and an incentive to
advance the interests of the Company by possessing an option to purchase shares
of the common stock of the Company, no par value per share (the "Common Stock")
in accordance with the Gulf Island Fabrication, Inc. 2002 Long-Term Incentive
Plan (the "Plan").

         NOW, THEREFORE, in consideration of the premises, it is agreed by and
between the parties as follows:

                                       I
                                 Grant of Option

         In exchange for future services, the Company hereby grants to Optionee
effective as of the date hereof (the "Date of Grant") the right, privilege and
option to purchase ______ shares of Common Stock (the "Option") at an exercise
price of $_______ per share (the "Exercise Price"). The Option shall be
exercisable at the time specified in Section II below. The Option is a
non-qualified stock option and shall not be treated as an incentive stock option
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

                                       II
                                Time of Exercise

         2.1 Subject to the provisions of the Plan and the other provisions of
this Section II, the Option shall become exercisable as to one-fifth of the
shares covered thereby on the first anniversary of the Date of Grant, an
additional one-fifth of the shares covered thereby on the second anniversary of
the Date of Grant, an additional one-fifth of the shares covered thereby on the
third anniversary of the Date of Grant, an additional one-fifth of the shares
covered thereby on the fourth anniversary of the Date of Grant, and an
additional one-fifth of the shares covered thereby on the fifth anniversary of
the Date of Grant.

         2.2 During Optionee's lifetime, the Option may be exercised only by him
or his guardian if he has been declared incompetent. In the event of death, the
Option may be exercised as provided herein by the Optionee's estate or by the
person to whom such right devolves as a result of the Optionee's death.

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         2.3 If an Optionee ceases to be an employee because of death,
disability within the meaning of Section 22(e)(3) of the Code ("Disability") or
retirement, the Option may be exercised, but only to the extent otherwise
exercisable at the time of termination of employment, within one year from the
date on which the Optionee ceases to be an employee, but in no event later than
ten years following the Date of Grant. Any portion of the Option that is not
exercisable at the time of termination of employment as a result of death,
Disability or retirement shall terminate immediately upon termination of
employment.

         2.4 If Optionee's employment is terminated, other than as a result of
death, Disability or retirement, the Option may be exercised, but only to the
extent otherwise exercisable at the time of termination of employment, within
three months from the date on which Optionee ceases to be an employee, but in no
event later than ten years following the Date of Grant.

         2.5 The Option shall expire and may not be exercised later than ten
years following the Date of Grant.

                                      III
                          Method of Exercise of Option

         3.1 Optionee may exercise all or a portion of the Option by delivering
to the Company a signed written notice of his intention to exercise the Option,
specifying therein the number of shares to be purchased. Upon receiving such
notice, and after the Company has received full payment of the Exercise Price,
the appropriate officer of the Company shall cause the transfer of title of the
shares purchased to Optionee on the Company's stock records and cause to be
issued to Optionee a stock certificate for the number of shares being acquired.
Optionee shall not have any rights as a shareholder until the stock certificate
is issued to him.

         3.2 The Option may be exercised by the payment of the Exercise Price in
cash, in shares of Common Stock held for six months or in a combination of cash
and shares of Common Stock held for six months. The Optionee may also pay the
Exercise Price by delivering a properly executed exercise notice together with
irrevocable instructions to a broker approved by the Company (with a copy to the
Company) to promptly deliver to the Company the amount of sale or loan proceeds
to pay the Exercise Price.

                                       IV
                       No Contract of Employment Intended

         Nothing in this Agreement shall confer upon Optionee any right to
continue in the employment of the Company or any of its subsidiaries, or to
interfere in any way with the right of the Company or any of its subsidiaries to
terminate Optionee's employment relationship with the Company or any of its
subsidiaries at any time.


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                                       V
                                 Binding Effect

         This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
successors.

                                       VI
                               Non-Transferability

         The Option granted hereby may not be transferred, assigned, pledged or
hypothecated in any manner, by operation of law or otherwise, other than by
will, by the laws of descent and distribution or pursuant to a domestic
relations order, as defined in the Code, and shall not be subject to execution,
attachment or similar process.

                                      VII
                             Inconsistent Provisions

         The Option granted hereby is subject to the provisions of the Plan as
in effect on the date hereof and as it may be amended. In the event any
provision of this Agreement conflicts with such a provision of the Plan, the
Plan provision shall control.

         IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed on the day and year first above written.


                                       GULF ISLAND FABRICATION, INC.



                                       By:
                                           -------------------------------------
                                                         Member
                                                  Compensation Committee


                                           -------------------------------------
                                                        Optionee


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