<PAGE>
MCDERMOTT INCORPORATED
1450 POYDRAS STREET
P. O. BOX 60035
NEW ORLEANS, LOUISIANA 70160-0035
----------------
NOTICE OF THE TAKING OF CORPORATE ACTION
WITHOUT A MEETING BY WRITTEN CONSENT
----------------
To the Stockholders of
McDERMOTT INCORPORATED:
In accordance with Section 228(d) of the Delaware General Corporation Law,
notice is hereby given that McDermott International, Inc., as holder of
approximately 93% of the voting power of the outstanding shares of capital
stock of McDermott Incorporated, a Delaware corporation (the "Company"), shall
on August 6, 1996 elect two Directors to the Company's Board of Directors.
The accompanying Information Statement is furnished pursuant to Section
14(c) of the Securities Exchange Act of 1934, as amended.
By Order of the Board of Directors,
S. WAYNE MURPHY
Secretary
Dated: July 12, 1996
WE ARE NOT ASKING FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
<PAGE>
MCDERMOTT INCORPORATED
1450 POYDRAS STREET
P. O. BOX 60035
NEW ORLEANS, LOUISIANA 70160-0035
----------------
INFORMATION STATEMENT
(PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED)
----------------
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement, which is first being mailed to stockholders on
or about July 12, 1996, is furnished by McDermott Incorporated (the "Company")
in connection with the taking of corporate action without a meeting by less
than unanimous written consent.
CORPORATE ACTION AND NOTICE
Subject to special voting rights granted to holders of the Company's
Preferred Stock, holders of the Company's Voting Common Stock, $1.00 par value
per share ("Voting Common Stock"), Series A $2.20 Cumulative Convertible
Preferred Stock, $1.00 par value per share ("Series A Preferred Stock"), and
Series B $2.60 Cumulative Preferred Stock, $1.00 par value per share ("Series
B Preferred Stock"), are entitled to vote as a single class on matters
presented to the Company's stockholders for approval. In that regard, each
share of Voting Common Stock entitles the holder thereof to 12,000 votes, and
each share of Series A Preferred Stock and each share of Series B Preferred
Stock entitles the holder thereof to one-half of a vote. McDermott
International, Inc. ("MII"), as holder of all of the outstanding 3,000 shares
of Voting Common Stock is entitled, in the aggregate, to 36,000,000 votes or
approximately 93% of the voting power of the outstanding shares of capital
stock of the Company entitled to vote on matters presented to its
stockholders. MII, as holder of all of the outstanding 3,000 shares of Voting
Common Stock, intends to take corporate action without a meeting on August 6,
1996 by electing the nominees named below to the Company's Board of Directors.
On July 10, 1996, there were outstanding 2,818,780 shares of Series A
Preferred Stock and 2,726,860 shares of Series B Preferred Stock. Only holders
of record of such Preferred Stock at the close of business on such date will
be entitled to receive a copy of this Information Statement.
ELECTION OF DIRECTORS
Pursuant to such corporate action without a meeting by less than unanimous
written consent, two Directors are to be elected to the Company's Board of
Directors, each to hold office for one year and until his successor is elected
and qualified. If any nominee named below should become unavailable for
election, MII intends to vote its shares for such substitute nominee as may be
proposed by the Board of Directors. No circumstances are now known, however,
that would prevent any of the nominees from serving.
<PAGE>
During the fiscal year ended March 31, 1996 ("fiscal year 1996"), there were
35 Board of Director actions taken without meetings. The Board does not
maintain audit, compensation or directors nominating committees.
Set forth below is certain information (ages as of August 6, 1996) with
respect to each nominee for election as a director.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
----------------------------- --- --------
NOMINEES
<S> <C> <C>
Brock A. Hattox................................................... 48 1993
Executive Vice President and Chief Financial Officer, and
President of the Engineering and Construction Group, of the
Company, and Executive Vice President and Chief Financial Officer
of MII since February 1995. Prior to assuming these positions, he
was Senior Vice President and Chief Financial Officer of the
Company and MII from March 1991; and prior
to that, Vice President, Controller and Planning of Eaton
Corporation (a manufacturer of engineered products for
automotive, industrial, commercial and defense markets). He is
also a director of MII and J. Ray McDermott, S.A., a publicly
traded subsidiary of MII ("J. Ray McDermott").
Robert E. Howson.................................................. 64 1981
Chairman of the Board and Chief Executive Officer of the Company
and MII since August 1988 and Chairman of the Board and Chief
Executive Officer of J. Ray McDermott since
January 31, 1995. Previously, President and Chief Operating
Officer of the Company and MII from August 1987. He is also a
director of MII, J. Ray McDermott, The Louisiana Land and
Exploration Company and Whitney Holding Corporation.
</TABLE>
2
<PAGE>
EXECUTIVE OFFICERS
Set forth below is the age (as of August 6, 1996), positions held with the
Company and certain affiliated companies, and certain other business
experience information for each of the Company's executive officers who are
not Directors.
Walter E. Boomer, 57, President, Babcock & Wilcox Power Generation Group, of
Babcock & Wilcox Investment Company and The Babcock & Wilcox Company and
Executive Vice President of MII since February 1995. Before assuming his
present position, Mr. Boomer was Senior Vice President and Chief Project
Management Officer of MII from August 1994; and prior to that, he was a
General of the U.S. Marine Corps from 1986.
Daniel R. Gaubert, 47, Vice President, Finance and Controller of the Company
and MII since February 1995. During the past five years and before assuming
his present position, he was Vice President and Controller of the Company and
MII from February 1992; Corporate Controller of the Company and MII from July
1991; and prior to that, Group Controller, Power Generation Group, of Babcock
& Wilcox Investment Company and The Babcock & Wilcox Company.
Joe J. Stewart, 58, President, Babcock & Wilcox Government Group, of Babcock
& Wilcox Investment Company and The Babcock & Wilcox Company and Executive
Vice President and Chief Project Management Officer of MII since February
1995. Before assuming his present position, Mr. Stewart was President and
Chief Operating Officer of Babcock & Wilcox Investment Company and The Babcock
& Wilcox Company from February 1993; and prior to that, Executive Vice
President and Group Executive, Power Generation Group, of Babcock & Wilcox
Investment Company and The Babcock & Wilcox Company from August 1990.
E. Allen Womack, Jr., 53, Senior Vice President, Shipbuilding and Industrial
Group, of the Company since August 1995, and Senior Vice President and Chief
Technical Officer of the Company and MII since February 1993. Before assuming
these positions, Mr. Womack was Senior Vice President, Research and
Development and Contract Research Divisions, of Babcock & Wilcox Investment
Company and The Babcock & Wilcox Company from August 1991; and prior to that,
Vice President, Research and Development and Contract Research Divisions, of
Babcock & Wilcox Investment Company and The Babcock & Wilcox Company.
Richard E. Woolbert, 62, Executive Vice President and Chief Administrative
Officer of the Company and MII since February 1995. He also has been Executive
Vice President and Chief Administrative Officer of J. Ray McDermott since
February 1995. Before assuming these positions, Mr. Woolbert was Senior Vice
President and Chief Administrative Officer of the Company and MII from August
1991; and prior to that, Vice President and Chief Administrative Officer of
the Company and MII from November 1988.
3
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Series A Preferred
Stock, Series B Preferred Stock and MII's Common Stock, par value $1.00 per
share ("MII Common Stock"), beneficially owned by each nominee as a Director,
each Named Executive Officer, as defined in "COMPENSATION OF EXECUTIVE
OFFICERS", and all nominees as a Director and executive officers of the
Company as a group, as of June 5, 1996, except as otherwise noted. No nominee
as a Director or executive officer beneficially owned, as of June 5, 1996, any
other equity security of the Company or of its parent or subsidiaries.
<TABLE>
<CAPTION>
SERIES A SERIES B MII
PREFERRED PREFERRED COMMON
NAME STOCK STOCK STOCK*
- ---- --------- --------- ---------
<S> <C> <C> <C>
Walter E. Boomer................................. 0 0 27,660
Brock A. Hattox.................................. 0 0 120,189
Robert E. Howson................................. 0 0 525,747
Joe J. Stewart................................... 0 0 161,524
Richard E. Woolbert.............................. 171 164.673 133,960
All Directors and executive officers as a group
(7 persons)...................................... 175 168.673 1,086,917
</TABLE>
- --------
* With respect to Messrs. Boomer, Hattox, Howson, Stewart and Woolbert,
includes 9,957, 77,754, 307,670, 94,460 and 80,557 shares, respectively, of
MII Common stock that may be acquired within 60 days of June 5, 1996 upon
the exercise of stock options granted under MII's 1983 and 1987 Long-Term
Performance Incentive Compensation Programs or 1992 Officer Stock Incentive
Program. With respect to Messrs. Boomer, Hattox, Howson, Stewart and
Woolbert, also includes 17,460, 39,410, 196,470, 57,955 and 40,430
restricted shares, respectively, of MII Common Stock, as to which such
individuals have sole voting power but no dispositive power, granted under
MII's 1987 Long-Term Performance Incentive Compensation Program or 1992
Officer Stock Incentive Program. With respect to Messrs. Boomer, Hattox,
Howson, Stewart and Woolbert, also includes the equivalent of 243, 1,025,
1,022, 1,074 and 1,158 shares, respectively, of MII Common Stock held for
such individuals' accounts in The Thrift Plan for Employees of McDermott
Incorporated and Participating Subsidiary and Affiliated Companies (the
"McDermott Thrift Plan") as of March 31, 1996.
Total shares beneficially owned in all cases constituted less than one
percent of the outstanding shares of the applicable security, except that the
1,086,917 shares of MII Common Stock beneficially owned by all Directors and
executive officers as a group constituted approximately 1.89% of the
outstanding MII Common Stock on June 5, 1996, less shares held by the Company,
plus those shares deemed to be outstanding pursuant to Rule 13d-3(d)(1) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table furnishes information concerning all persons known to
the Company to beneficially own 5% or more of any class of voting stock of the
Company as of June 5, 1996:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
- -------------- ----------------------------- ---------- -------
<S> <C> <C> <C>
Voting Common Stock(1)......... McDermott International, Inc. 3,000(2) 100%
1450 Poydras Street
New Orleans, LA 70112
</TABLE>
- --------
(1) Entitles the holder thereof to 12,000 votes per share, voting as a single
class with holders of the Series A Preferred Stock and the Series B
Preferred Stock, each share of which entitles the holder thereof to one-
half of a vote. Accordingly, MII holds approximately 92.9% of the voting
power of the outstanding capital stock of the Company.
(2) Sole voting and investment power.
5
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the annual and long-term compensation of the
Company's Chief Executive Officer and four highest paid executive officers
(collectively, the "Named Executive Officers") for fiscal years 1996, 1995 and
1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
-------------------------- --------------------------------
AWARDS PAYOUTS
------------------------ -------
SECURITIES
OTHER UNDERLYING ALL
FISCAL ANNUAL RESTRICTED STOCK LTIP OTHER
NAME PRINCIPAL POSITION YEAR SALARY BONUS COMP.(2) STOCK(3) OPTIONS PAYOUTS COMP.(4)
- ---- ------------------ ------ -------- -------- -------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R.E. Howson............ Chairman & Chief 1996 $902,335 $218,388 $123,656 $ 746,515 100,470 $ 0 $30,705
Executive Officer 1995 $814,301 $294,977 $ 48,630 $1,870,833(5) 385,450 $ 0 $27,078
1994 $729,210 $325,264 $ 41,496 $ 567,025 65,820 $ 0 $29,652
W.E. Boomer(6)......... President, Babcock 1996 $302,000 $ 53,355 $ 62,003 $ 150,230 18,640 $ 0 $10,650
& Wilcox Power 1995 $130,114 $ 64,562 $ 3,160 $ 250,590 29,870 $ 0 $ 2,525
Generation Group 1994 -- -- -- -- -- -- --
B.A. Hattox............ Executive VP & 1996 $364,335 $ 26,677 $ 68,158 $ 75,115 22,490 $ 0 $ 5,622
Chief Financial 1995 $326,335 $ 83,440 $ 10,549 $ 199,241 15,870 $ 0 $ 5,424
Officer 1994 $306,325 $ 92,008 $ 5,126 $ 178,756 18,860 $ 0 $27,980(7)
J.J. Stewart........... President, Babcock 1996 $383,885 $477,663 $ 39,143 $ 218,705 23,710 $ 0 $ 9,162
& Wilcox 1995 $364,995 $ 93,868 $ 10,772 $ 172,358 15,870 $ 0 $ 9,162
Government Group 1994 $344,615 $119,849 $ 4,487 $ 217,838 24,060 $ 0 $ 9,913
R.E. Woolbert.......... Executive VP & 1996 $344,945 $ 59,559 $ 44,724 $ 224,910 24,505 $ 0 $ 9,905
Chief Adminis- 1995 $301,685 $ 76,948 $ 4,335 $ 191,674 14,400 $ 0 $ 9,905
trative Officer 1994 $280,085 $ 84,848 $ 13,569 $ 163,262 17,230 $ 0 $10,605
</TABLE>
- --------
(1) Includes amounts earned in the fiscal year, whether or not deferred.
(2) For fiscal year 1996, with respect to Mr. Howson, includes $78,551 for
cost of personal use of Company aircraft; with respect to Mr. Boomer,
includes $44,527 for relocation expenses; with respect to Mr. Hattox,
includes $51,855 for relocation expenses; with respect to Mr. Stewart,
includes $31,805 for relocation expenses; and with respect to Mr.
Woolbert, includes $43,584 for cost of personal use of Company aircraft.
6
<PAGE>
(3) Restricted stock awards are valued at the closing market price of MII
Common Stock on the date of grant less any cash paid by the executive
officers for such awards. As of March 31, 1996 (which is prior to the date
of restricted stock awards for fiscal year 1996), the total number of
restricted shares of MII Common Stock held by the Named Executive Officers
and their market values (based upon the closing market price on March 29,
1996 of $19.25) are as follows: Mr. Howson held 169,650 shares of MII
Common Stock valued at $3,096,113; Mr. Hattox held 35,790 shares of MII
Common Stock valued at $653,168; Mr. Stewart held 47,415 shares of MII
Common Stock valued at $865,324; Mr. Boomer held 10,220 shares of MII
Common Stock valued at $186,515; and Mr. Woolbert held 32,350 shares of
MII Common Stock valued at $590,388. Dividends are paid on restricted
shares at the same time and at the same rate as dividends paid to all
stockholders. Grants of restricted stock generally vest fifty percent in
five years with the remaining fifty percent vesting in three to ten years
based on performance. In the event of a change of control of MII, the
Compensation Committee of MII may cause all restrictions to lapse.
(4) Amounts shown for fiscal year 1996 relate to company matching
contributions to the McDermott Thrift Plan for each of the Named Executive
Officers in the amount of $4,500, and the value of insurance premiums paid
by the Company for Messrs. Howson, Boomer, Hattox, Stewart and Woolbert in
the amounts of $26,205, $6,150, $1,122, $4,662 and $5,405, respectively.
(5) Includes 50,000 restricted shares of MII Common Stock awarded under his
employment agreement that will vest less than three years from the date of
grant if the Board of Directors approves a successor to Mr. Howson during
such time.
(6) Mr. Boomer became employed as an executive officer of the Company in
August 1994.
(7) Includes $20,000 for fiscal year 1994 representing amounts paid to Mr.
Hattox as a signing bonus.
7
<PAGE>
OPTION GRANT TABLE
Executive officers of the Company are granted options to acquire MII Common
Stock. Options to acquire shares of MII Common Stock generally vest in equal
installments of one-third beginning on the first anniversary of the date of
grant through the third anniversary of the date of grant and expire ten years
from the date of grant; provided, however, that with respect to half of the
options granted, they only vest on such anniversary dates of grant if certain
targeted earnings per share of the Company are achieved for the applicable
fiscal years. In general, vesting is contingent on continuing employment with
the Company or MII. In the event of a change in control of MII, the
Compensation Committee of MII may accelerate the exercisability of any
outstanding options. The following table provides information about option
grants to the Named Executive Officers during fiscal year 1996. Neither the
Company nor MII granted any stock appreciation rights to its executive
officers during fiscal year 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(1)
------------------------------------------- -------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS 5% 10%
OPTIONS GRANTED TO EXERCISE EXPIRATION ------------ --------------
NAME GRANTED EMPLOYEES(2) PRICE(3) DATE DOLLAR GAINS DOLLAR GAINS
- ---- ---------- ------------ -------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
R.E. Howson
MII Common Stock....... 100,470 14.34 $19.3125 02/07/06 $1,220,258 $3,092,386
W.E. Boomer
MII Common Stock....... 18,640 2.66 $19.3125 02/07/06 $226,392 $573,724
B.A. Hattox
MII Common Stock....... 22,490 3.21 $19.3125 02/07/06 $273,152 $692,224
J.J. Stewart
MII Common Stock....... 23,710 3.38 $19.3125 02/07/06 $287,970 $729,775
R.E. Woolbert
MII Common Stock....... 24,505 3.50 $19.3125 02/07/06 $297,626 $754,244
All Stockholders(4)
MII Common Stock....... -- -- $19.3125 -- $662,364,838 $1,678,569,003
Named Executive Officers' gains as a % of all stockholders' gains... .35% .35%
</TABLE>
- --------
<TABLE>
<S> <C>
</TABLE>
(1) At a five percent and ten percent annual rate of appreciation, the stock
price would be approximately $31.4580 and $50.0917 per share of MII Common
Stock, respectively, if the assumed annual rates of stock price
appreciation shown were to be achieved over a ten year option term.
(2) Based on 700,745 options granted to all employees of the Company during
fiscal year 1996.
(3) Fair market value on date of grant.
(4) Total dollar gains based on the assumed annual rates of appreciation shown
here and calculated on 54,535,823 outstanding shares of MII Common Stock
on March 31, 1996.
8
<PAGE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information concerning the exercise of options
to acquire MII Common Stock during fiscal year 1996 by each of the Named
Executive Officers and the value at March 31, 1996 of unexercised options held
by such individuals. The value of unexercised options reflects the increase in
market value of MII Common Stock from the date of grant through March 31, 1996
(when the fair market value of MII Common Stock was $19.25 per share). The
value actually realized upon exercise of the options by the Named Executive
Officers will depend on the value of MII Common Stock at the time of exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
TOTAL NUMBER OF
NUMBER OF SECURITIES UNDERLYING TOTAL VALUE OF UNEXERCISED,
SHARES UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS HELD
ACQUIRED AT FISCAL YEAR-END AT FISCAL YEAR-END
ON VALUE ------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- -------- ----------- ------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
R.E. Howson
MII Common Stock....... 0 $ 0 307,670 487,710 $97,953 $ 0
W.E. Boomer
MII Common Stock....... 0 $ 0 9,957 38,553 $ 0 $ 0
B.A. Hattox
MII Common Stock....... 0 $ 0 77,754 39,356 $ 0 $ 0
J.J. Stewart
MII Common Stock....... 0 $ 0 96,460 42,310 $17,306 $ 0
R.E. Woolbert
MII Common Stock....... 0 $ 0 80,557 39,848 $41,952 $ 0
</TABLE>
RETIREMENT PLANS
Pension Plans. MII maintains several funded retirement plans covering
substantially all regular full-time employees, except certain non-resident
alien employees who are not citizens of a European Community country or who do
not earn income in the United States, Canada or the United Kingdom. All
officers who are employees of the Company are covered under The Retirement
Plan for Employees of McDermott Incorporated (the "McDermott Retirement
Plan"). Officers who are employed by The Babcock & Wilcox Company ("B&W") or
certain of its subsidiaries or affiliates are covered under The Employee
Retirement Plan of The Babcock & Wilcox Company (the "B&W Retirement Plan").
Employees do not contribute to either plan and company contributions are
determined on an actuarial basis. An employee must be employed by the Company
or B&W or certain of its subsidiaries or affiliates for one year prior to
participating in the plans and must have five years of continuous service to
vest in any accrued benefits under the plans. Pension benefits will be paid
directly by the applicable company under the terms of the unfunded excess
benefit plans maintained by them (the "Excess Plans") to the extent that
benefits payable under these qualified plans are limited by Section 415(b) or
401(a)(17) of the Internal Revenue Code.
9
<PAGE>
The following table shows the annual benefit payable under the McDermott
Retirement Plan at age 65 (the normal retirement age) to employees retiring in
1996 in accordance with the lifetime only method of payment and before profit
sharing plan offsets. Benefits are based on the formula of a specified
percentage (dependent on years of service) of average annual basic earnings
(exclusive of bonus and allowances) during the 60 consecutive months out of
the ten years prior to retirement in which such earnings were highest ("Final
Average Earnings") less a specified percentage of anticipated social security
benefits. Final Average Earnings and credited service under the McDermott
Retirement Plan at December 31, 1995 (the end of the last plan year) for
Messrs. Howson, Boomer and Hattox were $726,060 and 24 years, $280,566 and 1
year, and $304,060 and 4 years, respectively. Unless elected otherwise by the
employee, payment will be made in the form of a joint and survivor annuity of
equivalent actuarial value to the amount shown below.
MCDERMOTT RETIREMENT PLAN
<TABLE>
<CAPTION>
FINAL ANNUAL BENEFITS AT AGE 65 FOR YEARS OF SERVICE INDICATED
AVERAGE --------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
-------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
100,000 $14,171 $21,256 $28,341 $35,427 $43,354 $51,282 $58,623
150,000 22,504 33,756 45,008 56,260 67,512 78,764 90,016
200,000 30,837 46,256 61,675 77,093 92,512 107,931 123,349
250,000 39,171 58,756 78,341 97,927 117,512 137,097 156,683
300,000 47,504 71,256 95,008 118,760 142,512 166,264 190,016
400,000 64,171 96,256 128,341 160,427 192,512 224,597 256,683
500,000 80,837 121,256 161,675 202,093 242,512 282,931 323,349
600,000 97,504 146,256 195,008 243,760 292,512 341,264 390,016
700,000 114,171 171,256 228,341 285,427 342,512 399,597 456,683
800,000 130,837 196,256 261,675 327,093 392,512 457,931 523,349
</TABLE>
10
<PAGE>
The following table shows the annual benefit payable under the B&W
Retirement Plan at age 65 (the normal retirement age) to employees retiring in
1996 in accordance with the lifetime only method of payment. Benefits are
based on the formula of a specified percentage (dependent on the level of
wages subject to social security taxes during the employee's career) of
average annual earnings (inclusive of bonuses) during the 60 consecutive
months out of the ten years prior to retirement in which such earnings were
highest ("B&W Final Average Earnings"). B&W Final Average Earnings and
credited service under the B&W Retirement Plan at December 31, 1995 (the end
of the last plan year) for Messrs. Stewart and Woolbert were $457,008 and 23
years, and $367,652 and 40 years, respectively. Unless elected otherwise by
the employee, payment will be made in the form of a joint and survivor annuity
of equivalent actuarial value to the amount shown below.
BABCOCK & WILCOX RETIREMENT PLAN
<TABLE>
<CAPTION>
B&W
FINAL ANNUAL BENEFITS AT AGE 65 FOR YEARS OF SERVICE INDICATED
AVERAGE --------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
-------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
100,000 $11,810 $17,715 $23,620 $29,525 $35,430 $41,335 $47,240
150,000 18,060 27,090 36,120 45,150 54,180 63,210 72,240
200,000 24,310 36,465 48,620 60,775 72,930 85,085 97,240
250,000 30,560 45,840 61,120 76,400 91,680 106,960 122,240
300,000 36,810 55,215 73,620 92,025 110,430 128,835 147,240
400,000 49,310 73,965 98,620 123,275 147,930 172,585 197,240
500,000 61,810 92,715 123,620 154,525 185,430 216,335 247,240
600,000 74,310 111,465 148,620 185,775 222,930 260,085 297,240
</TABLE>
Supplemental Executive Retirement Plan. An unfunded supplemental retirement
plan called the Supplemental Executive Retirement Plan (the "SERP") was
established in June 1980 by the Company and was amended to become a plan of
MII in September 1989. The SERP covers certain officers of the Company and
other designated companies, including B&W. Generally, benefits are based upon
a specified percentage (determined by age, years of service and date of
initial participation in the SERP) of final 3-year average cash compensation
(salary plus supplemental compensation for the highest three out of the last
ten years of service) or 3-year average cash compensation prior to SERP
scheduled retirement date, whichever is greater. Except for the benefit
payable to Mr. Howson, the maximum benefit shall not exceed 60-65% (dependent
upon date of initial participation in the SERP) of such 3-year average cash
compensation. Under an employment agreement between Mr. Howson and MII, the
maximum benefit payable to Mr. Howson is 73% of his final 3-year average cash
compensation (based upon his highest three years, consecutive or
nonconsecutive, of base salary and bonus during the last ten years of his
employment). Payments under the SERP will be reduced by an amount equal to
pension benefits payable under any other retirement plan maintained by MII or
any of its subsidiaries, including the Company, or any previous employer. A
death benefit is also provided under the SERP. Before giving effect to such
reductions, the approximate annual benefit payable under the SERP to Messrs.
Boomer, Hattox, Howson, Stewart and Woolbert at retirement age as stated in
the SERP is 27.25%, 60.0%, 73.0%, 60.0% and 65.0%, respectively, of each such
person's final 3-year average cash compensation.
11
<PAGE>
A trust (assets of the trust constitute corporate assets) has been
established which is designed to ensure the payment of benefits arising under
the SERP, the Excess Plans and certain other contracts and arrangements
(collectively, the "Plans") in the event of an effective change in control of
MII. Although MII would retain primary responsibility for such payments, the
trust would provide for payments to designated participants, in the form of
lump sum distributions, if certain events occur following an effective change
in control of MII, including but not limited to failure by MII to make such
payments and the termination of a participant's employment under certain
specified circumstances. In addition, with respect to benefits which otherwise
would have been paid in the form of an annuity, the trust provides for certain
lump sum equalization payments which, when added to the basic lump sum
payments described above, would be sufficient, after payment of all applicable
taxes, to enable each active participant receiving a lump sum distribution to
purchase an annuity which would provide such participant with the same net
after-tax stream of annuity benefits that such participant would have realized
had he retired as of the date of the lump sum distribution and commenced to
receive annuity payments at that time under the terms of the applicable Plan,
based on salary and service factors at the time of the effective change in
control. With respect to designated participants who retire prior to an
effective change in control and who receive a basic lump sum distribution
under the circumstances described above, the trust provides for similar lump
sum equalization payments, based on salary and service factors at the time of
actual retirement.
CERTAIN TRANSACTIONS
As an approximately 93% owned (based upon voting power) subsidiary of MII,
the Company and its subsidiaries and MII and its other subsidiaries, from time
to time, provide various services and products to, and engage in various
transactions with, each other, substantially all of which the Company deems to
have been effected on an arms length basis.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own 10% or more of the Company's voting
stock to file reports of ownership and changes in ownership of the Company's
equity securities with the Securities and Exchange Commission ("SEC") and the
New York Stock Exchange. Directors, executive officers and 10% or more
stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on a review of the
copies of such forms furnished to the Company, or written representations that
no forms were required, the Company believes that its directors, executive
officers and 10% or more stockholders complied with all Section 16(a) filing
requirements during fiscal year 1996.
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OTHER MATTERS
No business other than that set forth in the accompanying Notice of the
taking of corporate action without a meeting is expected to be acted upon.
By Order of the Board of Directors,
S. WAYNE MURPHY
Secretary
Dated: July 12, 1996
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