<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[_] Preliminary Information Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14c-5(d)(2))
[x] Definitive Information Statement
McDermott Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
MCDERMOTT INCORPORATED
1450 POYDRAS STREET
[LOGO OF MCDERMOTT P. O. BOX 60035
APPEARS HERE] 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 on August 11, 1998 McDermott International, Inc.,
as holder of approximately 96% of the voting power of the outstanding shares
of capital stock of McDermott Incorporated, a Delaware corporation (the
"Company"), shall elect three 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/ S. Wayne Murphy
---------------------------
S. WAYNE MURPHY
Secretary
Dated: July 9, 1998
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 9, 1998, is furnished by McDermott Incorporated (the "Company")
in connection with the taking of corporate action without a meeting by less
than unanimous written consent. Such Information Statement is being mailed to
holders of record of the Company's 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") as of July 2, 1998. As of such date, there were 2,818,679
shares of Series A Preferred Stock and 2,152,766 shares of Series B Preferred
Stock outstanding. The Company announced on June 17, 1998 that all of the
outstanding Series B Preferred Stock will be redeemed by the Company for
$31.25 per share plus accrued and unpaid dividends of $.1156 on July 17, 1998.
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 Preferred Stock and 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, intends to take corporate action without a meeting on August 11, 1998
by electing the nominees named below to the Company's Board of Directors. As
of such date, all of the outstanding Series B Preferred Stock will have been
redeemed and MII, as holder of all of the outstanding 3,000 shares of Voting
Common Stock will be entitled, in the aggregate, to 36,000,000 votes or
approximately 96% of the voting power of the outstanding shares of capital
stock of the Company entitled to vote on matters presented to its
stockholders.
ELECTION OF DIRECTORS
Pursuant to such corporate action without a meeting by less than unanimous
written consent, three 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, 1998 ("fiscal year 1998"), there were
15 Board of Director actions taken without meetings. The Board does not
maintain audit, compensation or directors nominating & governance committees.
Set forth below is certain information (ages as of August 11, 1998) with
respect to each nominee for election as a director.
NOMINEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
- ----------------------------- --- --------
<S> <C> <C>
Daniel R. Gaubert................................................ 49 --
Senior Vice President and Chief Financial Officer of the Company
and MII since February 1997. Prior thereto, he was Vice
President and Chief Financial Officer of the Company and MII
from September 1996; Vice President, Finance and Controller of
the Company and MII from February 1995; and Vice President and
Controller of the Company and MII from February 1992. Mr.
Gaubert has also been Senior Vice President and Chief Financial
Officer of J. Ray McDermott, S.A. ("J. Ray McDermott"), a
publicly traded subsidiary of MII, since August 1997, prior to
which, he was Vice President, Finance, of J. Ray McDermott from
August 1995 and Acting Controller of J. Ray McDermott from
February 1995.
S. Wayne Murphy.................................................. 63 1996
Senior Vice President, General Counsel and Corporate Secretary of
the Company and MII since February 1997. Prior thereto, he was
Vice President, General Counsel and Corporate Secretary of the
Company and MII from June 1996; Acting General Counsel and
Acting Corporate Secretary of the Company and MII from February
1996; and Associate General Counsel of the Company and MII from
August 1993. Mr. Murphy has also been Senior Vice President,
General Counsel and Corporate Secretary of J. Ray McDermott
since August 1997, prior to which, he was Acting General Counsel
and Acting Corporate Secretary of J. Ray McDermott from February
1996.
Roger E. Tetrault................................................ 55 1997
Chairman of the Board since June 1997 and Chief Executive Officer
since March 1997 of the Company, MII and J. Ray McDermott. Prior
thereto, Mr. Tetrault was a Senior Vice President of General
Dynamics Corporation (a supplier of weapons systems and services
to the U.S. government and its allies) and President of its Land
Systems Division from April 1993; Vice President of General
Dynamics Corporation and President of its Electric Boat Division
from August 1992 until April 1993; Vice President and General
Manager of General Dynamics Corporation's Electric Boat Division
from August 1991 until August 1992; and prior to that, he served
as a Vice President and Group Executive of the Company's
subsidiary The Babcock & Wilcox Company since 1990.
</TABLE>
2
<PAGE>
EXECUTIVE OFFICERS
Set forth below is the age (as of August 11, 1998), 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.
E. Allen Womack, Jr., 55, Executive Vice President of the Company and MII
and President of BWX Technologies, Inc. since April 1998 and Chief Technical
Officer of the Company and MII since February 1993. Prior thereto, he was
Senior Vice President and Group Executive, Industrial Group, of the Company
since September 1996; Senior Vice President and Group Executive, Shipbuilding
and Industrial Group, of the Company from August 1995; and Senior Vice
President, Research and Development and Contract Research Divisions, of the
Company's Babcock & Wilcox unit from August 1991.
James F. Wood, 56, Executive Vice President of the Company and MII and
President of the Company's Power Generation Group since October 1996, prior to
which, he was Vice President and General Manager, Global Ventures and Power,
of the Babcock & Wilcox Power Generation Group from June 1996. From January
1989 until January 1996, he was an officer of Wheelabrator Technologies, Inc.
and certain of its subsidiaries.
Richard E. Woolbert, 64, Executive Vice President and Chief Administrative
Officer of the Company and MII since February 1995 and MII's Compliance
Director since June 1997. 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. He is also a
director of J. Ray McDermott.
3
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 5, 1998 (except as otherwise
noted), 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 executive
officers of the Company as a group, including shares which such persons have
the right to acquire within 60 days pursuant to the exercise of stock options.
<TABLE>
<CAPTION>
SERIES A SERIES B MII
PREFERRED PREFERRED COMMON
NAME STOCK STOCK STOCK*
- ---- --------- --------- -------
<S> <C> <C> <C>
Daniel R. Gaubert.................................. 0 0 53,065
S. Wayne Murphy.................................... 0 0 20,289
Joe J. Stewart..................................... 0 0 211,775
Roger E. Tetrault.................................. 0 0 124,431
E. Allen Womack.................................... 4 4 91,381
James F. Wood...................................... 0 0 5,566
Richard E. Woolbert................................ 171 165 155,843
All Directors and executive officers as a group (7
persons).......................................... 175 169 662,350
</TABLE>
- --------
* With respect to Messrs. Gaubert, Murphy, Tetrault, Womack, Wood and
Woolbert, includes 36,224, 17,363, 104,747, 52,599, 5,147, and 101,980
shares respectively, of MII Common stock that may be acquired upon the
exercise of stock options as described above. Shares owned by Mr. Stewart
are provided as of April 1, 1998, the date of his retirement from the
Company, and include 149,760 shares of MII Common Stock that may be
acquired upon the exercise of stock options as described above. With
respect to Messrs. Gaubert, Murphy, Tetrault, Womack and Woolbert, also
includes 11,785, 2,400, 18,900, 23,820 and 33,175 restricted shares,
respectively, of MII Common Stock, as to which such individuals have sole
voting power but no dispositive power. With respect to Messrs. Gaubert,
Murphy, Tetrault, Womack, Wood and Woolbert, also includes the equivalent
of 856, 501, 259, 1,945, 394 and 1,593 shares, respectively, of MII Common
Stock held in 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, 1998.
Total shares beneficially owned in all cases constituted less than one
percent of the outstanding shares of the applicable security, except that the
662,350 shares of MII Common Stock beneficially owned by all Directors and
executive officers as a group constituted approximately .1% of the outstanding
MII Common Stock on June 5, 1998, 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, 1998:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
-------------- ------------------- ---------- -------
<C> <S> <C> <C>
Voting Common Stock(1)..................... McDermott International, 3,000(2) 100%
Inc.
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. On August 11, 1998, MII will hold approximately 96% 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 ("CEO"), the four highest paid executive
officers other than the CEO and a former executive officer (collectively, the
"Named Executive Officers") for fiscal years 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
----------------------------- -----------------------------
AWARDS PAYOUTS
--------------------- -------
SECURITIES
OTHER UNDERLYING ALL
PRINCIPAL FISCAL ANNUAL RESTRICTED STOCK LTIP OTHER
NAME POSITION YEAR SALARY BONUS COMP.(2) STOCK(3) OPTIONS PAYOUT COMP.(4)
---- ----------------- ------ -------- -------- -------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R.E. Tetrault(5)........ Chairman & Chief 1998 $550,000 $756,000 $122,031 $ 0 40,000 $ 0 $5,550
Executive Officer 1997 $ 45,000 $336,000(6) $ -- $582,863 314,240 $ 0 $1,413
D.R. Gaubert............ Senior VP & 1998 $272,160 $272,160 $ -- $ 0 12,010 $ 0 $4,914
Chief Financial 1997 $242,280 $ 0 $ -- $ 0 14,550 $ 0 $4,614
Officer 1996 $190,150 $ 27,488 $ -- $ 72,878 10,100 $ 0 $4,974
J.J. Stewart(7)......... Former Executive 1998 $408,360 $408,360 $ -- $ 0 0 $ 0 $7,923
VP 1997 $408,360 $285,852 $ -- $ 0 34,390 $ 0 $6,930
1996 $383,885 $ 77,663 $ -- $218,705 23,710 $ 0 $9,162
E.A. Womack, Jr......... Executive VP 1998 $332,140 $329,640 $ -- $ 0 14,540 $ 0 $7,230
1997 $300,315 $ 0 $ 32,530 $ 0 17,290 $ 0 $5,594
1996 $265,820 $ 47,096 $ -- $126,203 16,410 $ 0 $4,619
J.F. Wood(8)............ Executive VP 1998 $275,040 $275,040 $ -- $ 0 12,130 $ 0 $5,550
1997 $186,472 $ 0 $ 29,192 $ 0 15,440 $ 0 $4,890
R.E. Woolbert........... Executive VP & 1998 $410,040 $410,040 $ -- $ 0 18,090 $ 0 $9,372
Chief Adminis- 1997 $373,410 $ 0 $ -- $ 0 20,780 $ 0 $7,956
trative Officer 1996 $344,945 $ 59,559 $ 44,724 $224,910 24,505 $ 0 $9,905
</TABLE>
- --------
(1) Includes amounts earned in the fiscal year, whether or not deferred.
(2) The aggregate value of perquisites and other personal benefits are not
included if they do not exceed the lesser of $50,000 or 10 percent of the
total amount of annual salary and bonus for the applicable fiscal year.
For fiscal year 1998, includes relocation expenses of $111,754 for Mr.
Tetrault. For fiscal year 1997, includes $20,439 for cost of personal use
of Company aircraft for Mr. Womack and $29,192 for relocation expenses for
Mr. Wood. For fiscal year 1996, includes $43,584 for cost of personal use
of Company aircraft for Mr. Woolbert.
(3) Restricted stock awards were not granted to officers of the Company for
fiscal years 1998 and 1997, except for Mr. Tetrault, who received a grant
of 18,900 restricted shares of MII Common Stock in fiscal year 1997 in
connection with his joining the Company and MII. Restricted stock awards
are valued at the closing
6
<PAGE>
market price of MII Common Stock on the date of grant less any amounts paid
by the executive officers for such awards ($1.00 per share). As of March 31,
1998, the total number of restricted shares of MII Common Stock held by the
Named Executive Officers and their market values (based upon closing market
prices on March 31, 1998 of $41.3125) are as follows: Mr. Tetrault held
18,900 shares of MII Common Stock valued at $761,906; Mr. Gaubert held
11,785 shares of MII Common Stock valued at $475,083; Mr. Stewart held
35,100 shares of MII Common Stock valued at $1,414,969; Mr. Womack held
23,820 shares of MII Common Stock valued at $960,244; Mr. Wood held 0 shares
of MII Common Stock; Mr. Woolbert held 33,175 shares of MII Common Stock
valued at $1,337,367. 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 50% in five years with the remaining 50%
vesting in three to ten years based on performance. In the event of a change
of control of the Company, the Compensation Committee may cause all
restrictions to lapse. Upon Mr. Stewart's retirement on April 1, 1998, all
of his restricted shares of MII Common Stock vested. In fiscal year 1998,
instead of granting restricted stock awards, the Company granted performance
stock awards, which are more fully described in the table entitled "Long-
Term Incentive Plan--Performance Stock Awards in Fiscal Year 1998".
(4) Amounts shown for fiscal year 1998 include (a) company matching
contributions to the McDermott Thrift Plan in the amount of $4,800 for
each Named Executive Officer and (b) the value of insurance premiums paid
by the Company for Messrs. Tetrault, Gaubert, Stewart, Womack, Wood and
Woolbert in the amounts of $750, $114, $3,123, $2,430, $750 and $4,572,
respectively.
(5) Compensation information for fiscal year 1997 only reflects the amounts
received by Mr. Tetrault from the time he joined the Company on March 1,
1997 to March 31, 1997.
(6) Bonus paid in June 1997 to Mr. Tetrault in connection with his election as
the Company's Vice Chairman of the Board and CEO on March 1, 1997. See
"Tetrault Employment Agreement".
(7) Mr. Stewart retired from the Company effective April 1, 1998.
(8) Compensation information for fiscal year 1997 only reflects the amounts
received by Mr. Wood from the time he joined the Company on June 3, 1996
to March 31, 1997.
7
<PAGE>
OPTION GRANT TABLE
Options granted in fiscal year 1998 vest in equal installments of one-half
on the first and second anniversaries of the date of grant and expire five
years from the date of grant. In general, vesting is contingent on continuing
employment with the Company. In the event of a change in control of the
Company, the Compensation Committee may accelerate the exercisability of any
outstanding options. The following table provides information about option
grants to the Named Executive Officers during fiscal year 1998. The Company
did not grant any stock appreciation rights to its executive officers during
fiscal year 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
------------------------------------------- ---------------------------
NUMBER OF
SECURITIES % OF TOTAL 5% 10%
UNDERLYING OPTIONS ------------ --------------
OPTIONS GRANTED TO EXERCISE EXPIRATION DOLLAR
NAME GRANTED EMPLOYEES(2) PRICE(3) DATE DOLLAR GAINS GAINS
- ---- ---------- ------------ -------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
R.E. Tetrault
MII Common Stock....... 40,000 8.87 $34.00 02/06/03 $ 375,743 $ 830,294
D.R. Gaubert
MII Common Stock....... 12,010 2.66 $34.00 02/06/03 $ 112,817 $ 49,296
J.J. Stewart
MII Common Stock....... 0 -- -- -- -- --
E.A. Womack, Jr.
MII Common Stock....... 14,540 3.22 $34.00 02/06/03 $ 136,583 $ 301,812
J.F. Wood
MII Common Stock....... 12,130 2.69 $34.00 02/06/03 $ 113,944 $ 251,787
R.E. Woolbert
MII Common Stock....... 18,090 4.01 $34.00 02/06/03 $ 169,930 $ 375,500
All Stockholders (4)
MII Common Stock....... 56,607,247 -- $34.00 -- $531,744,314 $1,175,015,872
</TABLE>
- --------
(1) Potential Realizable Value is based on the assumed annual growth rates for
each of the grants shown over their five-year option term. For example, if
the exercise price is $34.00, a 5% annual growth rate over five years
results in a stock price of $43.39 per share and a 10% rate results in a
price of $54.76 per share. Actual gains, if any, on stock option exercises
are dependent on the future performance of the stock. Zero percent
appreciation in stock price will result in no gain.
(2) Based on options to acquire 450,970 shares of MII Common Stock granted to
all employees of the Company and MII during fiscal year 1998.
(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 56,607,247 outstanding shares of MII Common Stock
on March 31, 1998. The Named Executive Officers' gains as a percentage of
the total dollar gains shown for all stockholders are .17% for MII Common
Stock.
8
<PAGE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information concerning the exercise of stock
options during fiscal year 1998 by each of the Named Executive Officers and
the value at March 31, 1998 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, 1998 (when the fair
market value of Common Stock was $41.3125 per share). The actual value
realized upon option exercise will depend on the value of the Common Stock at
the time of exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
TOTAL VALUE OF
NUMBER OF TOTAL NUMBER OF UNEXERCISED, IN-THE-MONEY
SHARES UNEXERCISED OPTIONS HELD OPTIONS HELD AT FISCAL
ACQUIRED AT FISCAL YEAR-END YEAR-END
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R.E. Tetrault
MII Common Stock....... 0 $ -- 104,747 249,493 $2,009,833 $4,312,147
D.R. Gaubert
MII Common Stock....... 1,530 $ 26,345 34,539 28,450 $ 632,784 $ 429,497
J.J. Stewart*
MII Common Stock....... 19,590 $246,321 111,028 38,732(2) $2,051,002 $ 804,819
E.A. Womack, Jr.
MII Common Stock....... 15,272 $228,686 49,864 37,006 $ 903,056 $ 576,803
J.F. Wood
MII Common Stock....... 0 $ -- 5,147 22,423 $ 102,618 $ 293,917
R.E. Woolbert
MII Common Stock....... 9,830 $180,724 97,896 48,279 $1,855,398 $ 767,869
</TABLE>
- --------
* Upon his retirement on April 1, 1998, all options held by Mr. Stewart
vested and became exercisable.
9
<PAGE>
PERFORMANCE STOCK AWARDS IN FISCAL YEAR 1998
The following table provides information concerning performance stock awards
of restricted shares made to each of the Named Executive Officers during fiscal
year 1998.
LONG-TERM INCENTIVE PLAN--PERFORMANCE STOCK AWARDS IN FISCAL YEAR 1998*
<TABLE>
<CAPTION>
NUMBER OF
PERFORMANCE PERFORMANCE
NAME SHARES PERIOD
- ---- ----------- -----------
<S> <C> <C>
R.E. Tetrault
MII Common Stock....................................... 15,000 2 years
D.R. Gaubert
MII Common Stock....................................... 4,800 2 years
J.J. Stewart
MII Common Stock....................................... 0 --
E.A. Womack, Jr.
MII Common Stock....................................... 5,820 2 years
J.F. Wood
MII Common Stock....................................... 4,850 2 years
R.E. Woolbert
MII Common Stock....................................... 7,240 2 years
</TABLE>
- --------
* No shares are issued at the time of the performance stock award (2/6/98).
Actual number of shares issued to an executive will be based on the change
in the market price of the MII Common Stock two years after the date of the
award. The number of shares to be received by an executive, if any, is
determined on the second anniversary of the award date by calculating the
difference between the fair market value of the stock (based upon the
preceding 30 trading day average) and the fair market value of the stock on
the award date. The difference is multiplied by that number of shares in an
executive's award, and the resulting product is divided by the fair market
value of the stock as of the second anniversary of the award date,
calculated as described above. The resulting number is added to (in the
case of an increase in share price) or subtracted from (in the case of a
decrease in share price) the number of shares in an executive's applicable
award. The award, as adjusted (to the extent not reduced to zero), is then
issued to the executive as restricted stock as of the second anniversary of
the award date, for which the executive is required to pay $1.00 per share.
The restricted stock vests two years thereafter. Prior to vesting, such
restricted stock is nontransferable and subject to forfeiture under certain
circumstances.
10
<PAGE>
TETRAULT EMPLOYMENT AGREEMENT
MII entered into an employment agreement with Mr. Tetrault effective as of
March 1, 1997, whereby he agreed to serve as the Company's and MII's Vice
Chairman of the Board and CEO through February 28, 2000, subject to earlier
termination as described below. On June 1, 1997, he also became the Company's
and MII's Chairman of the Board. The employment agreement provides Mr.
Tetrault with an annual base salary of $540,000 subject to increase by the
Compensation Committee in accordance with Company practices based upon Mr.
Tetrault's performance. Under the employment agreement, Mr. Tetrault was also
granted options to purchase 314,240 shares of MII Common Stock, which options
will vest in equal installments of one-third on the first, second and third
anniversaries of the date of grant. In addition, Mr. Tetrault was granted
18,900 restricted shares of MII Common Stock for which he paid $1.00 per
share. He also received a cash bonus of $336,000 in June 1997 in accordance
with the terms of the agreement, and is entitled to annual cash bonuses (if
any, as determined by the Compensation Committee based upon MII's achievement
of certain pre-established performance goals) and to participate in all
retirement or other benefit plans, policies and programs maintained or
provided by the Company, MII, or its subsidiaries for its officers. Under the
agreement, MII also purchased Mr. Tetrault's home and agreed to pay his
reasonable relocation expenses according to MII's relocation policy.
The employment agreement may be terminated prior to February 28, 2000 under
certain circumstances, including death, disability and voluntary retirement.
However, in the event of termination by the Board of MII without cause, Mr.
Tetrault will continue to receive his annual base salary (which was increased
to $660,000 in March 1998) and other benefits and rights under the agreement
during the remaining term thereof and all stock options and restricted stock
will vest 100% on February 28, 2000. During the term of the agreement and for
the greater of 24 months following the expiration of the agreement or any
other period during which amounts are paid to him under the agreement, Mr.
Tetrault may not engage, directly or indirectly, in any business or enterprise
which is in competition with MII or induce any employee of the Company or MII
to accept employment with any competitor of MII.
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 of these plans and company contributions
are determined on an actuarial basis. An employee must be employed by the
applicable company or a subsidiary 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. 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, pension benefits will be paid directly by the applicable company
or a subsidiary under the terms of the unfunded excess benefit plans
maintained by them (the "Excess Plans").
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<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
1998 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. As of March 31, 1998, Mr. Gaubert had Final Average Earnings of
$204,409 and 26.6 years of credited service under the McDermott Retirement
Plan. 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 $ 14,106 $ 21,097 $ 28,088 $ 35,080 $ 42,071 $ 49,062 $ 56,054
150,000 22,439 33,597 44,755 55,913 67,071 78,229 89,387
200,000 30,772 46,097 61,422 76,746 92,071 107,396 122,720
250,000 39,106 58,597 78,088 97,580 117,071 136,562 156,054
</TABLE>
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<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
prior to April 1, 1998 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 March 31, 1998 for Messrs.
Tetrault, Stewart, Womack, Wood and Woolbert were $224,748 and 22.7 years,
$631,959 and 25.11 years, $319,017 and 22.6 years, and $138,153 and 25.7, and
$421,677 and 42.9 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.
B&W 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>
125,000 $16,321 $ 23,744 $ 31,166 $ 38,589 $ 46,011 $ 53,434 $ 60,856
150,000 19,446 28,431 37,416 46,401 55,386 64,371 73,356
200,000 25,696 37,806 49,916 62,026 74,136 86,246 98,356
250,000 31,946 47,181 62,416 77,651 92,886 108,121 123,356
300,000 38,196 56,556 74,916 93,276 111,636 129,996 148,356
400,000 50,696 75,306 99,916 124,526 149,136 173,746 198,356
500,000 63,196 94,056 124,916 155,776 186,636 217,496 248,356
600,000 75,696 112,806 149,916 187,026 224,136 261,246 298,356
650,000 81,946 122,181 162,416 202,651 242,886 283,121 323,356
</TABLE>
Supplemental Executive Retirement Plan. MII maintains an unfunded
Supplemental Executive Retirement Plan (the "SERP"). 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 the SERP scheduled retirement date, whichever is
greater. The maximum benefit may not exceed 60-65% (dependent upon date of
initial participation in the SERP) of such 3-year average cash compensation.
Payments under the SERP will be reduced by an amount equal to pension benefits
payable under any other retirement plan maintained by MII, any of its
subsidiary companies 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. Tetrault,
Gaubert, Stewart, Wood and Womack at retirement age as stated in the SERP is
60% of each such person's final 3-year average cash compensation. At such
retirement age, Mr. Woolbert would receive an annual benefit of 65% of his
final 3-year average cash compensation.
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<PAGE>
A trust (the assets of which 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 that 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 96% owned subsidiary of MII (based upon voting power as
of August 11, 1998), 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 beneficial owners complied with all Section 16(a)
filing requirements during fiscal year 1998.
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<PAGE>
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/ S. Wayne Murphy
--------------------------------
S. WAYNE MURPHY
Secretary
Dated: July 9, 1998
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