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LORETTA G,YTE

Yy

UNITED STATES DISTRICT COURTFOR THE EASTERN fIS'l'1RTCT OF LOUISIANA

ANDREW TARICA, Individually And On Behalf O f All X Civil Action No. 99-CV-3831Others Similarly Situated,

Lcid Ccntsolidated Case

Plaintiff , Sec. "R " MA(1_5

V, This Filing Relates Lo All ()thcr

Cases

M(:1)hRMU"t'T INTERNAT.IONAI., INC., DANIEL R. 'GALIBER and RO(.GFR'1')•:'l'RAULT, JURY TRIAL DEMANDED

Dcfcntlants.

x

CONSOLIDA.TEI) AMENDED CLASS ACTION COMPLAINT

Plaintiffs, by theirattorneys, allege the following based upon knowledge, with respect to

their own ac ts, and upon other facts obtained through an invest i gation made by and through their

attorncys, tt review of the public filings of McDcrineitt internatio nal, Inc.

("McLermuu" or the "Company") with the United Slates Securities and Exchange Commission

(the "SI?("), the bankruptcy filings of McDermott's subsidiary, The Babcock car. Wilc<,x

Company ("B&W"), press releases, published reports, news articles, arnalyst reports and Other

publications . Plaintiffs believe that further Substantial evidentiary support will exist for the

00000422

allegations alter a reasonable opportunity for discovery. Much of the evidence supporting the

allegations contained herein is within the exclusive control of the defendants.

SUMMARY OF THE COMPLAINT

Plaintiffs bring this action as a class action under the Securities Exchange Act of

1934 (the "Hxchange Act") on behalf of themselves and a class (the "Class") consisting of all

purchasers of the common stock of McDermott during the period from May 21, 1909 through

November 11. 1999, inclusive (the "Class Period")

2- McDermott, a maker of oilfield and power. generation equipment, is the parent of

a number of companies, including B&W. B&.W, it ruanufacttu'er of steam-generation systems,

comprises a substantial portion of McDermott's "Power Generation Systems" husincss segment,

which segment was responsible for more than one-third of the Company 's $3.15 billion in total

Cevetmes for fiscal 1999.

3. Since the late 1970s, B&W has been named as n defendant in approximately

17,000 asbestos-related personal injury lawsuits. According to 13&W, . shestos insulation was

used in its boiler systems to protect workers and etluipnment from high temperatures generated in

the boilers and to assure the thermal efficiency of the boiler systems it) meeting the requirements

of B&.W's customers. By 1999, the total number ofasbestos claims filed against B&W exceeded

4(1(),000.

4. Despite its self-proclaimed lack of culpability, B&W adopted a policy of settling

asbestos claims on relatively modest terms . The average settlement value, approximately $4,800

through 1999, was less than the transaction costs of litigating any given claim, B^&.W's

settlement program allowed it to resolve a massive number of asbestos claims. By the end of

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1999, this settlement program resulted in B&W dispensing with over 340,000 claims on terms

that were generally within the limits of 13&W's insurance.

Nonetheless , on February 212, 2000, Ei&W (along with subsidiarie s of li&Wj filed

for (,hapler I 1 rettrganizatiort, claiming that a recent increase in settlement demands posed it

"real threat" to the long-term financial health of B&W. During the Class Period, however,

defendants continually Understated the risk for asbestos claims that had been asserted against

8&W.

6. For example, on May 21, 1999 (the first clay of the Class Period), McDermott

announced that earnings for its fourth quarter ended March 31, 1999, decreased because of

special charges tied to asbestos claims. McDermott reported $85 mullion in charges that were

assigned to asbe stos-related products liability claims, eliminating over $1.62 per share in

earnings . [)elcndants falsely a the investment community that , although asbestos claims

had been "tracking in-line with projections Fur the past two years, an expected improvement in

March did not occur so the company [took] whal they helieve[d] In he a conservative posture."

However, at all relevant times, defenda nts omitted to disclose materially adverse facts regarding

the true extent of the Company's exposure for tishc,^ios claims, causing the price of McDermott's

stock to reach a Class Period high of $29.625 per share on June 19, 1999

7. In regard to its recently filed petition for Chapter 11 reorganization , F3&W has

claimed that., although it had been B&W's practice to settle asbestos churns out of court, a "sharp

increase in the price demanded by some claimants' lawyers to Settle asbestos claims against

13&.W" has forced 13&W to seek judicial involvement in determining its total asbestos liability.

I luwever, as 13&W has conceded, "[t]hosc increases were not justified by any change in the facts,

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the law, or in B&W's liability posture ." Moreover, 13&W had retained the law firm of Kirkland

& Ellis by October 1999 -- i.Q., during the Class Period -- to represent it during its restructuring

effort , which included the preparation and filing of a Chapter l 1 petition and related documents.

In fact , Kirkland & Ellis received approximately $2.35 million for professional services rendered

even before the Chapter 1 I petition was filed. These admissions demonstrate that the Company's

publicly -fi led financial statements , including statements about the asbestos claims, were

materially false- and misleading,

8. Defendants had a strong motivation to conceal the truth . During the Class Period,

McDermott acquired the35%%% minority inleresi in its .1. Ray McDermott, S.A. ("JRM") subsidiary

that it did not already own so that it had access to $600 million in cash held by JRM.

McDermott financed the acquisition with a $525 million loan obtained from Citibank, N.A.

According to the Senior Secured Term Loan Agreement between McDermott and Citibank, N.A.,

dated June 7, 1999 (the "Loan Agrccurcttt"), McDermott agrced that neither it nor any subsidiary

(including B&W) would voluntarily commence any bankruptcy proceeding. Accordingly, if

McDermott had disclosed during the Class Period what it knew to be the true slate of affairs at

B&W, McDermott would not have been able to acquire the minority interest in JRM. Moreover,

had B&.W filed for bankruptcy during the Class Period, McDermott would have defaulted under

[lie Loan Agreement, resulting in an acceleration of the loan.

9. On November 11, 1999, the Company stunned investors by issuing a press release

that warned investors that financial results for the second fiscal cluttrrer would tall materially

short of analysts' expectations (expectalions that were generated by the Company) because of

significant uncertainly related to the settlement of asbestos claims. Asa result of these

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disclosures, the price. of McDermott stock fell on November 11 to $13.5625 per share, down

almost 551k from its inflated high of $29.625 during the Class Period, on volume of almost 3

trtiliiun shares, or more than six times the three-month daily average. However, the full impact

of defendants' shocking disclosures was not absorbed by the market until November 12, 1999,

when the price of McDermott stock plummeted an additional $4.8125, or another 36%. on

volume of almost 14 million shares. This two-day drop in the price of McDermott stock

represents a decrease cal' almost 71 % from the stock's inflated Class Period high.

If). 13y this Complaint, plaintiffs seek recovery for themselves and alI other class

members to compensate for the severe and substantial losses and damages that they have each

suffered because of defendants' violations of the securities laws and their full disclosure

responsibilitics thereunder.

,IURISI)ICl'1ON AND VENEJF.

1. The claims ass erted herein u ric: undor and pursuant to Sectio ns 10(h) and 20(a) of

the fi.xchange Act (I5 U.S.C. §**' 78j(b) and 78t( u)] and Rule LOb-5 promulgated thereunder by

the SEC [17 C.P.R. § 240.1Ob-5t.

12. This Court has j urisdic t ion over the subject matter of this aelion pursurrni to 28

I J.S,t'_ Sections 1331 and 1337 and Section 27 of the Exchange Act [ 15 U.S,C. § 78a.,11,

13, Venue is proper in this District pursuant to Section 27 of the Exchange Act, and

28 U.S .C. § 139 1(b). Many of the acts charged herein , including the preparation and

dissemination of materially false and misleading statements , occurred in substantial part in this

District . Additionally , defendants maintain their chief execrative offices and principal place of

business within this District.

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00000426

I'l_ Tn connection with the acts alleged in this complaint, defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, hut not

limited to, the mails, interstate telephone communications and the facilities of the national

SCCLrrrticS markets.

PARTIES

Plaintiffs

15. Lead Plaintiffs . Lead plaintiffs Andrew Tnrica, Great Fish & Co., .SSOA World-

Funds US Matrix and Grady Hobbs purchased the securities of McDermott at artificially inflated

prices during the Class Period, as set forth in their previously filed certifications, and were

damaged thereby. The Court has designated these plaintiffs as lead plaintiffs pursuant to an

Order dated April 13, 2000.

16. Additional Plaintiffs . Numerous additional plaintiffs herein purchased

McDermott securities in the open market during the. Class Period and were tlarnaged therehy.

These plaintiffs are willing and ihle to *erve as Class representatives. The certifications of these

plrrintil'fs have previously bcuri tiled with the Court.

Defendants

A. Defendant McDermott

17. Defendant McDerinott is incorporated under the laws of the Republic of Panama,

but maintains its chief CxeCLrtive offices and principal place of business at 1115t) Poydras Street

New Orleans, Louisil na, 70112. According to the Company's press releases, McDermott

manufactures steam- enc: rating equipment , environmental equipment., and products for the U.S.

Gove rnment : provides engineering and construction services for industrial , utilit.y and

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hydrocarbon processing facilities; and providc engineering and construction services to the

offshore oil and natural gas industry.

B. Individual Defendants

19, Defendant Roger Tumult ("' t'etrault ") is President , Chief Executive Officer (since

March 1997) and Chairman of the Board of Directors of the Company (since June 1997). At

relevant times , ' I'etrault . hits also been the. Chief Executive Officer of 13&W, and was a Vice

President and Group Executive of B&W from 1.990 until August 1991.

19. Defendant Daniel R. Gaubert ("Gaubert") has been Chief F'inanc i;tl Officer and

Senior Vice President of the Company (Princip al Financial Officer) since FehniQfy 1997. Prior

thereto, he was Vice President and Chie f Financial Officer from September 19%; Vice President,

Finance, and Controller from February 1995; and Vice President and Controller from February

1992- Defendant Gaubert has also been Senior Vice President and Chief Financial Officer of

M(:l)ermoit'S J. Ray McDen-nc^tt subsidiary since August 1997, prior to which he was Vice

Presidlent, Finance, of J. Ray McDermott from August 1995 and Acting Controller of J. Ray

Nlc1)crrnntt l'ro.orn February 1995.

20. Defendants'l'etrault and Gaubeii (collectively, the "individual Defendants") were

at till relevant times during the Class Period controlling persons o1 ' McDermott within the

meaning of Section 20(a) of the Exchange Act. Because of the Individual Defendants' positions

with the Company, they had access, to unlhscto ed adverse information about its business,

operations, financial condition, and present aril future business prospects through access to

internal corporate documents (Including the Company's operating plans, budgets, forecasts, and

reports Of ac.tu;ul nl)Craticros compared thereto), conversations and connections with i>tlicr

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corporate officers and employees, attendance at mmlagernerlt meetings and meetings of the board

and enmmiuees thereof, and through reports and other information provided to there in

connection therewith.

21. It is appropriate to treat the Individual Defendants as a group for pleading

purposes and to presume that the false, misleading and incomplete information conveyed in the

C'urnluirny'S lnthlic filings, press releases and other publications as alleged herein are the

collective actions of the narrowly-defined group of defendants icient.itied above . Each of the

Individual Defendants, by virtue of his high-level position with the Company, directly

participated in the management of the Company, was directly involved in the day-to-day

operations of the Company at the highest level and was privy to confidential proprietary

information concerning the Company and its business, operations, prospects, growth, I inances,

and financial condition is alleged herein. Said defendants were involved in drafting, producing,

reviewing, approving and/or dissertunating the materially false and misle uiiog sitrtcrnents alleged

herein, including SEC things, press releases, and other puhlications, were aware of or recklessly

disregarded that materially false or misleading statement. were heing issued rcgarding the

C'umpany, and approved of ratified these statements in violation of the federal securities laws.

22. As officers. directors, and controlling persons of it publicly-held company whose

common stock was, and is, registered with the SEC, traded on the New York Stock Exchange

('NYSE'), and governed by the provisions of the federal securities laws, the Individual

Defendants each had it duty to disseminate accurate and truthful information promptly with

respect to the Company's financial condition and pcr7oi'rnance, growth, operations, financial

statcrrrents, business, earnings, management, and present and future husiness prospects, and to

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Correct any previously-issued stalcments that had become materially misleading or untrue, so that

the market price of the Company's publicly-traded securities would be based upon truthful and

accurate information. The Individual 'Defendants' misrepresentations and orniesions during the

[.,lass Period violated these. specific 1'equireitlCiltS and obligations.

23. The I ndividual Defendants participated in the drafting , preparation , and/or

approval of the various reports and other communications complained of herein and were aware

of, or recklessly disregarded, the misstatements contained therein and the omissions therefrom,

and were aware of their materially false and misleading nature . Because of their positions with

McDermott, each of the Individual Defendants had access to adverse undisclosed information

about McDermott's business prospects and financial condition and performance as particularized

herein and knew ( or reck lessly disregarded ) that these adverse facts rendered the positive

representations made by or about McDermott and its business issued or adopted by the. Company

materially false and misleading.

24. The Individual Defendants , because. of their positions of control and authority as

officers and controlling persons of the Company, were able to and did control the content of the

various SEC filings, press releases and other public statements pertaining to the Company during

the Class Period. Each of the Individual Defendants was provided with copies of the documents

alleged herein to he misleading prior to or shortly after their issuance and/or had the ability

and/or opportunity to prevent their issuance or Cause them to he corrected. Accordingly, each of

the llldiVidual Defendants is responsible for the accuracy ol'the public reports, releases, and

titatemenis det a iled herein a nd is therefore primarily liable for the representations contained

therein.

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CLASS A('rJON ALLEGAT IONS

25- Plaintiffs brim; this action as a class action pursuant to Rule 23 of the Federal

Rules of Civil Procedure on beh a lf of themselves and all purchasers of the common stock of

McDermott during the Class Period seeking to pursue remedies under the 1- xchange Act.

Excluded from the Class are defendants , members of the immediate fancily of each of the

Individual Defendants , any subsidiary or affilimtte of the Company and the directors , officers crud

employees of the Company or it, subsidiaries or affiliates, or any entity in which any excluded

person has a controlling interest , and the legal representatives, heirs, suCCCSSurs and assigns of

any excluded person.

26. This action is properly maintainable as a class action because;

(a) During the Class Period, more than ¶1 million shares of Mc!)er mots

common stock were outstandin g- McDermott is actively traded on the NYSE. The members of

the {:lass are dispersed throughout the United States and arc so numerous that joinder of a I I ('lass

members is impracticable - Millions of shares of the Company's common stock were publicly

traded during the Class Period and, based upon the Company's SEC filings and other public

disclosures, plaintill's believe that there are thousands of rncrnbet:s of the Class;

(h) There are questions of law and I 'act which are common to plaintiffs and the

Class ,roil predominate over any individual issues in this case. The common questions include,

among others: (i) whether the federal securities laws were violated by defendants' acts and

omissions as alleged herein; (ii) whether documents, press releases, and other statements

disseminated to the investing public and the Company's shareholders during the Class Period

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00000431

ntisrepresentecl material facts about the business, finances, financial condition and prospects of

the Company: (iii) whether defendants have acted with knowledge. or with reckless disregard

for the truth in omitting to state and/or misrepresenting material facts; (iv) whether, during the

Class Period, the market price of the Company' s securities was artificially inflated due to the

omissions and/or material misrepresentations complained of herein; and (v) whether the

members of the Class have sustained damages and, if'so, what is the extent of such damages.

(e) Plaintiff:.' c:lairns ttre typical of the claims of the other members of the

Class. Plaintiffs and all members of the Class purchased and/or acquired their Company

secarifies in reliance upon the integiity of the open market and sustained damages as a result of

defendants' wrongful conduct complained of herein;

(d) Plaintiffs are representative parties who will fairly and adequately protect

the intere s t, of the other memhers off the ('Ias, a nd have relairrecl entunsel compete It anti

experienced in Class action securities litig.trtiort. hlinintllls hILVe no Itltere is antagonistic to those

nt" the miler members of the (:lass;

(e) A class action is superior to other available methods for the fair and

efficient adjudication of the claims asserted herein. Furthermore, because the clarnagcs suffered

by the individual Class members may be relatively small, the expense and burden of individual

litigation make it virtually impossible for the Class members to individually redress the wrongs

(lone to them. The likelihood of individual Class mcmbcrs-prosceuting separate claims is

rcnrrotc; and

(f) Plaintiffs anticipate no unusual difficulties in the managenient of this

action as a class action.

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FRAUD-ON-THE-MARKET DOCTRINE

27. Plaintiffs rely on the presumption of reliance established by the fraud -on-thc-

market doctrine. The market for the Company's seeuriticS was at all times an el'licient market for

the following reasons, among others:

(a) The Company nict the. requirements for listing, and is listed on the NYSE,

it highly efficient market that quickly reflects all publicly available inlorrnalion concerning a

listed company;

(h) As a regulated issuer, the Company tiled periodic public reports with the

S1:(' that contained material rnisrcprescntations and/or omitted material facts during the Class

Period, as alleged herein, causing the price of the Company 's stock to trade at artificially inflated

prices;

(c) The trading vnlurnc of the Company's CUTTIrnr.m stock Was substantial

during the (.lass Period, indicating that there was a liquid market fr the Company%, stock durin4- b

the Class Period,

(d) The Company was followed by various analysis employed by major

brokerage firms, including , among others, CI13C World Markets Corp., DU Securities, Lazard

Freres aril Prudential Securities, who issued reports which were distributed to their sales force

and customers of their respective brokerage firms and which were available to the investing

public on various automated data retrieval services. In writing their reports, analysts reflected

information provided by defendants;

(e) The market price of the Company's securilies reacted efficiently to new

infartnatian entering the market.; and

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(I) I'laintiffs and ether members of the Class acquired the Company's stock

after the time that defendants made the ltlisrcpresentations or omissions and before the time that

the truth was revealed, without knowledge of the falsity of the misrepresentations.

2X. The foregoing fuctw demonstrate the existence of in efficient market for the

trading of the Company's securilies and, consequently, the applicability of the fraud-on-the-

market presumption of reliance. Accordingly, plaintiffs and the other members of the Class are

entitled to a presumption of reliance with respect to the irnsstateinetlts and (lltlmssioris alleged in

This (ni'nplaittt.

B&W'S A,SIII+.STOS CRISIS

29. Mc[)errnott was incorporated under the laws of the Republic of Panama in 1959

andI is the parent company of the McDermott group of companies , which includes B&W and

JRM. Mc1-)crnmott operates in full' business segments:

(a) Power Generation Systems includes the results of the. operations of the

Power Generation Group, which is conducted primarily through B&.W, and providesservices and

equipment and systems to generate steam and electric power at energy facilities worldwide. The

Power Generation Systems business segment was responsible br approximately $1.1 billion o['

the Company's $3.15 billion in total revenues for the fiscal year ended March 31, 1999-

( b) Marine Construction Services includes the result; of the operations of

JkM1, which supplies worldwide services fisr the offshore oil and gas exploration and produelion

and hydrocarbon processing industries, and to other marine construction companies. Principal

activities include the design, engineering, fabrication and installation of offshore drilling and

prochlction pl atforms and other specialized StruCturCS, modular facilities. uterine pipelines and

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sub-sea Production systems and procurement activities. The Marine Construction Services

business segment was rtesponsible for approximately $1.3 billion of the Company's $3.15 billion

in total revenues for the fiscal year ended March 31, 1999.

(c) (rover'nment Operations includes the results of the operations of a

subsidiary of McDermott, BWX Technologies, Inc., which supplies nuclear reactor components

and nuclear fuel assemblies to the United States Navy and various other equipment and services

to the United States Government and manages various U.S. Government -awned facilities. The

Governme nt Operations business segment was responsible for approximately $383 million of the

Company's $3.15 billion in total revenues for the fiscal year coded March 31, 1999.

(ci) Industrial Operations includes the results of the operations of McDermott

Engineers & Constructors (Canada) l.td., Hudson Products Corporation, McDermott

Teel neologies, Inc. and other smaller businesses . The Industrial Operations business segment

was responsible. for approximately $427 million of* the Company's $3.15 billion in total revenues

f or the fiscal year ended March 31, 1999.

30. R&W, which was acquired by McDermott in 1978, provides service for and

manufactures power'-generation equipment, including boilers. For many decades, B&W

designed and constructed large commercial boiler Systems used in electric power plants,

mantrfacatnin , facilities and ships. Asbestos, which is a naturally-occurring libruus mineral that

is strong, flexible and resistant to fire, heat and corrosion, was incorporated as insulation into

B&W boiler systems to 1)rotccl workers and equipment From the hig h temperatures generated in

the but leis and to assure the thermal el'l iciency of the holler systems.

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31. In 1971, the federal government began promulgating regulations limiting asbestos

exposure based on studies that demonstrated that asbestos can lead to hung diseases (e.g.,

asbestosis and lun g cancer). Ashestos plaintiffs beg -tin tiling lawsuits naming B&.W as a

defendant in the late 1970s. A few years later, I3&W received the first wave of several thousand

claims brought by persons claiming damages attributable to asbestos used in B&W boiler

systems. By 1999, the total number of claims made against B&W exceeded 400,000.

32. Despite its self-proclaimed lac( of culpability, B&W adopted a policy of settling

the asserted claims for modest sums. In contrast to most of the other defendants who have

litigated asbestos cases in the tort system, B&W decided that it was more cost-efleetive to settle

claims, rather than incurring the costs associated with litigation. Accordingly, beginning in the

1980s, B&W developed a settlement program pursuant to which B&W catered into informal

arrangements with various law firms throughout the county to settle, rather than litigate, the

asbestos claims.

33. By the end of 1999, this strategy had enabled B&W to settle more than 340 ,000

claims on terms that were generally within the limits of l3&W's insurance policies. As a r :sult of

this settlement program, $&W avoided litigating all but a handful of claims.

34_ Despite the Company's publicized strategy of settling usbeslos claims, B&W was

facing severe, undisclosed, financial difficulties during the Class Period related to its asbestos

exposure. Although B&W filed for Chapter 11 bankruptcy reorganization on February 22, 2000

i.e.. after the Class Period - an affidavit filed in the bankruptcy proceeding by James H.M_

Sprayregen, Esq., of Kirkland tYr. Ellis ("Sprayregen Affidavit") reveals (at 7 5) that B&W

retained Kirkland Sr Ellis as early as October 1999 -- Lc., during the Class Period -- " to represent

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(its in [itsi resttltcturing efforts, including the preparation and filing of [13 :W'sI chapter

petition[ and related documents."

35. On the same day that R&.W filed its bankruptcy petition (February 22, 20(10),

McDermott confirmed in a press release that the financial difficulties that i3&W was

encountering as a result of asbestos claims and that were responsible for forcing 13&\k' to file for

bankruptcy protection had existed during the Class Period.

(it) According to the Company's February 22, 2000 press release:

B&W is taking this action because it offers the only viable legal process by whichit can seek to determine and comprehensively resolve asbestos liability claims-

"I.intortun,rlely, the other avenues through which we might reasonably

resolve this issue appear to have been closed," said Roger Tetrault, chairman of

the board and chic( executive officer of McDermott Inteniational, Inc.

"Historically it has been 13 :W's practice to settle asbestos claims out of court.

't'his has been a reasori,rhlc and responsible approach for nearly 20 years, which

rninirniccd costs to 13^W and maximized payments to claimants. However,

recent increases in set.tlerncnt demands from claimants, coupled with a lack of

legislative relief from the financial burden presented by the increased demands,

have forced us to reexamine that approach. The asbestos claims, in the context in

which they are now presented, represent a serious threat to B&W's future. This

filing is the only means available to resolve them."

[Tlhc recent increased demands for settlement of asbestos claims represent a realthreat to 13&W's long-tern( health unless we take this step now," said James F.Wood, president of B&W.

( b) The press release further r'epar'tee:

In recent nurnthti, tiettlernent demands from Claimants' lawyers have spiked

to levels dramatically above the historical pattern. R&.W's effort to negotiate theinrreaases clown to t+rlerablc levels has been unsuccessful, which has precipitatedtoday's filing.

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(c) The press release a lso quoted Wood's statement that the increased amounts

demanded by asbestos c laimants "were nit justified by any change in the facts, the law, or in

13&.W's liability posture."

(d) Finally, the press release reported that B&W had obtained a commitment

of up to $300 million in debtor-in-possession financing "[t[o ensure that it has the capital

necessary to meet letter of credit and cash needs to continue to operate its business," and that

McDermott and certain of its other subsidiaries "have obtained an additional $500 million of

financing."

36. In its "Complaint for Declaratory Relief and Injunctive Relief and Application for

1'emporary Restraining Order," dated February 22, 2000, which was filed in the bankruptcy

proceeding, 13&W also stated (at 19123-24):

Recent sharp increases in settlement ile rmuds from asbestos plaintiffs' lawyers

have further hurt B&W by imposing high costs, affecting efforts to obtain

financing, and distracting management, among other detrimental effects.

'l'hc Debtors cannot continue to meet. the real threat to their health posed

by these unreasonable settlement demands without further impairing their ability

to operate.

_37. Moreover, in its "Informational Brief," dated February *22, 2000, which was also

filed on the first day of the bankruptcy proceeding , B&W stated (at page 40):

Uncertainty about the scope and impact of the increased demands contributed, in

the fall of 1999, to the deferral of hank financing that would have provided B&W

with cheaper credit and more flexibility, both financially and operationally, than

prior hank l'inancing.

38. In fact, Kirkland & Ellis had performed so much work in relation to B&W's

' restructurin efforts" prier to the filing of the bankruptcy petition that, as revealed its the

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Sprayregan Affidavit ( at r1[ 28), B&W had already paid Kirkland &. Ellis approximately

$2,350,000 "for prepe t]tion services."

DEFENDANT.' MATERIALLY FALSE AND MISLEADING

S'l'ATEMEN!'S DURING TIIL CLASS PERIOD

39. On May ? 11 1999, the first day of the Class Period, McDermott issued a press

release , announcing financial results for the fourth quatler and fiscal year ended March 31, 1999.

The Company announced revenues of $749.4 million, and a loss of $611 million, or $1.06 per

share, for the fourth quarter 1999, compared with revenues O f $91-4.8 million, and net income of

$16.7 million, or $0.26 per share for the fourth quarter of 1998. The t:onmpany also announced

so-called "non-recurring charges," including "a provision for asbestos claims of $85.2 million."

40. In the press release, defendant Tetrault was quoted as follows:

"We tits: exploring a number of initiatives, both internal and external. that will

help us continue the development of McDermott International into a stronger and

more valuable company."

Tetratilt said the business outlook for fiscal 2000 is unchanged.... The

company continues to expect revenues from its Marine Construction Services

business unit to be. 35 1% ; to 40% below fiscal 1999, while the revenues from the

remainder of the company are expected to he about the same as in fiscal 1999. "It

our expectations hold, we will see some strengthening toward the end of the fiscal

year, which should provide the basis for a level of activity in fiscal 2001 equal to

or better than in fiscal 1999," Tetrault said.

41. The foregoing press release was materially false and misleading for the following.

reasons:

(a) it I'ailed to disclose the risk of B&W's exposure for asbestos claims;

(h) it tailed to disclose that 13&W was facing a dramatic increase in the

anio>unts tlcrrrarrded by asbestos claimants to settle claims; and

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00, 000 4 39

(c) it failed to disclose that B&W's financial viability was threatened by the

increased demands by asbestos claimants.

42. The following day, May 22, 1999,' I'he 'limes Picayune published a news article

reporting McDermott's fourth quarter and fiscal year end 1999 results. The Times Picayune

Cuticle quoted defendant Tctrault as follows:

"It's been a mixed bag as opposed to an all-had hag," McDermott CFX) Roger

Tetrault said. "The good news is that there's a lack of had news, and that some

project, that have been held up fora substantial amount of time are trickling taut."

In response to de€endants' positive statements, the price of McDermott's stock rase $().375 to

close the trading day at $2(i.75 per share.

13. Tetrault's statement iv; reported by The Times Picayune on May 22, 1999 was

materially false and misleading because:

(a) it failed to disclose the risk of B&W's exposure for asbestos Claims;

(h) it failed to disclose that B&W was facing a dramatic increase in the amounts

demanded by asbestos claimants to settle claims; and

(c) it failed to disclose that 13&W's financial viability was threatened by the

itwrori. ed tletnunds by asbestos claimants.

44. Defendants continued to mislead the investment community by diiSCITILI'llill rig

false. and misleading statements to ,analysts . For example . on May 24, 1999, based substantially

upon the Company's re1wese.nl.ttt.inns regarding its purported reorganization plan, Lazard Freres ,&

Company, LLC ("Lazard Freres") issues an analyst report on McDermott in which it rated

McDermott common Stick .a "Buy," encouraging investors to Purchase: stock in the Company. In

making its recumrncndation . Lazard Frcres relied in part, on the following:

19-

Oni1nn, , n

*For the I-ow-th quarter, pre-t ax non -recurring charges were $161 million, or about

$95 million after tax. 't'hese charges included an ($87) million provision for

asbestos claims... Management also stated that while the asbestos claims have

been tracking in-line with prt jc.ctions forthe past two years, an expected

improvement in March did not occur SO the company is taking what they believe

to be it conservative posture by adding to the claims provision.

We are maintaining our I=Y00 pro- forma earnings estimate of $1.52 per share and

our FY01 estimate of $2.40. Our rating of MI)R stock remains a Buy at these

price levels with a price target of $;35.00 per Share, or about 6.Ox our FY00

iall'IDA estimate cal' $212 million...

45. The same day , May 24, 1999, Donaldson Lutkin & Jenrette ("fI,J") also i stied

an analyst report on the Company in which it too rated McDermott 's stock a "Buy." The DLJ

report. stilted:

MDR has reported one of the steadiest and most complex diets of non-rccuiriugnumbers in tour coverage universe. While RogerTetratilt has introduced a new

operating ethos at the company, the numbers reporting seems to he stuck in the"old MDR" vein....

Charges should clear some off-balance sheet conceals: Ml)R look reserves ofover $90 MM for unreserved asbestos liabilities and we estimate another chargeof less Than $25 MM to reserve for price fixing claims settlement, These shouldhelp alleviate concerns about off-balance sheet liabilities and help investors heatervalue MDR for its business upside.

46. On June 9 , 1.999, the Company filed with the SFC its Form 10-K fur the Fiscal

Year ended March 31, 1999 (the "Form l0-K")_ The Form 10-K (at pages 68-70), which was

signed by defendants l'elrault and Gaubert, described McDermott's asbestos exposure:

Products Liability - McDermott has personal injury claims related topreviously sold asbestos-containing products, and expects that it will continue toreceive claillIS in the future, The personal injury claims are similar in nature, theprimary difference being the type of alleged injury or illness suffered by the

plaintiff.

W;i,*;P

-20-

00000441

Estimated liabilities for Pending and future non-employee products

liability asbestos claims are derived from McDermott's claims history and

constitute management's best estimate of such future cost, including recoverability

from insurers. Inherent in the estimate of such liabilities are expected trend claim

severity and frequency and other factors which may vary significantly as claims

are filed and settled.

By the end of fiscal year 1999, McDermott concluded that its forecast

decline in claims in the next fiscal year was not likely. As a result, during fiscal

year 1999, McDermott revised its estimate of liability for pending and future non-

employee products liability asbestos claims and recorded an additional liability of

$817,662,000, additional estimated insurance recoveries o(1732,477,000 and a

loss of $95,195,0(0 for estimated future claims in which recovery from insurance

carriers was not determined to he probable. The revised forecast includes

management's expectation that new claims will conclude. within the next thirteen

years, that there will be a significant decline in new claims received after four

years, and that the average cost per claim will continue to increase only

moderately.

Future costs to settle claims, as well as the number of claims. could he

adversely affected by change` in judicial rulings and influences beyond

McDermott's control. Accordingly, changes in the estimates of future'Ishestos

products liability and insurance recnverable:s and differences between the

proportion of-any additional asbestos products liabilities covered by insurance,

and that experienced in the lrrtit couki result in in;rtenul ailjusurients to the results

at operations fur any fiscal quarter or year, and the ultimate loss may clifl'er

materially from amounts provided in the consolidated financial stalemenls.

47. The corm I0•K was materially false and misleading because defendants

unclcr'stated the risk of the Company's exposure for asbestos claims. Moreover , such estimates

utilized by management did not reflect managements' best estimates of asbestos liability, and in

fact. management had no reasonable. basis upon which to state that the Company's exposure to

asbestos liability and the amount of those claims were increasing ''only moderately." It was also

materially false. and misleading to warn that future result', "could he adversely affected" by

-"21-

(Iflfo"442

changes in the Company's exposure to asbestos Ii ability, when, in fact., by this lime such adverse

events had already occurred. Additionally, the statements in the Form 10-K were materially false

and misleading because they: (t) failed to disclose the risk of B&W's exposure I*or asbestos

claims; (h) failed to disclose that H&W was facing a dramatic increase in the amounts demanded

by asbestos claimants to settle claims; and (c) failed to disclose that R&W's financial viability

was threatened by the increased demands by asbestos claimants.

48. On June 30, 1999, the Company filed its Annual Report to Shareholders for the

fiscal year ended March 31, 1999 (the "Annual Report"). The Letter to Shareholders ("Letter")

contained in the Annual Report was signed by defendant Tettault and dated dune 1999. The

Letter (at page 3 of the Annual Report) contained the materially false affirmative

misrepresentation that, "gals we continue to simplify McDermott, we expect non-recurring gains

and losses to diminish and our financial reporting to become more straightforward."

19. With respect to the Company's liability for ashestn, claims, the Annual Report (at

pages b8-7O) stared, among other things:

Products l.iahiIity - McDermott has personal injury claims related to

previously sold asbestos-containing products, and expects that it will continue to

receive claims in the future. The. personal injury claims are similar in mature, the

primary difference being the type of alleged injury or illness suffered by the

plaintiff.

* x :k *

Future costs to settle claims, as well as the number of claims, could be

adversely affected by changes in ,judicial rulings and influences beyond

McDermott's control, Accordingly, changes in the estimates of future asbestos

products liability and insurance recoverables and differences between the

proportion of any additional asbestos products liabilities covered by insurance,

and that experienced in the past could result in material adjustments to the results

of operations for any fiscal quarter or year, and the ultimate loss may differ

materially from amounts provided in the consolidated financial statements.

-'2-

n1IA1kt F &'I

SO- The Annual Report. was materially false and misleading because

(a) it failed to disclose the risk of B&W's exposure for asbestos claims;

(h) it failed to disclose that B&W was facing it dramatic increase in the amounts

demanded by asbestos claimants Lo settle claims; and

(c) it failed to disclose that.13&W's financial viability was threatened by the

increased demands by asbestos claimants.

51. On or about August fi, 1999, McDermott filed its Form lif-Q for the first fiscal

quarter of 1999 (ending June, 30, 1999). The Form 10-Q was signed by defendant Gaubert. The

Form 10 Q stated (at pages 10-1 l );

McDermott has personal injury claims related to previously sold asbestos-

containing products , and expects that it will continue to receive claims in the

future. The personal injwy claims are similar in nature , the primary difference

being the type of alleged injury or illness suffered by the plaintiff,

Mc[ermolt has insurance coverage fur asbestos products liability clairns,

which is -^ubjcct it) varying irrsur:tnec limits that are dependent upon the year

involved.

Future costs to settle claims, as well as the number of claims, could he

adversely affected by changes in judicial rulings 11111d inuiucnt:cs beyond

McDernlott's control. Accordingly, changes in the estimates of future asbestos

products liability and insurance recuverables and differences between the

proportion of any additional asbestos products liabilities covered by insurance,

and that experienced in the past could result in material adjustments to the results

of operations for any fiscal quarter or year, and the ultimate loss may differ

materially front amounts provided in the consolidated financial statements.

52. The statements in the above-described Form lO-Q were materially false and

misleading because:

(a) they failed In tlisclnst: tht: risk of R&W',y exposure for asbestos ulaintx;

00000444

(h) they fttile.c1 to disclose that B&W was facing a dramatic increase in the

fntioLEnts demanded by asbestos claimants to settle claims; and

(c) they failed to disclose that 13& W' s financial viability was threatened by the

in ceased demands by asbestos claimants.

53. On October 17, 1999, The Times I'icavuno published an article quoting a

McDermott spokesperson concerning the Company',,stock price. As reported in the article;

Company of ficcials, noting recent progress in meeting the bottom line after

years in the red, are maintaining in air of confidence even as they bemoan their

low marks in the Wall Street beauty contest.

"We. always think the price should he higher," company spokesman Don

Washington said. "Wc continue to be very optimistic. There's a whole lot

positive going on in this company."

The article also quoted Morrill Lynch -analyst Kurt 1-lallead: "It looks to me like Roger (Tetrztult)

has executed on his promises .... It's really hard to pinpoint why the stock's acting like this,

e,,I)cci ally when there's no impending had news. I think it ' s an interesting Qj)portunity."

54. De fendants' sLutcrnents as reported by The Times Picayune on October 17, 1999

were rna teflally false and misleading because:

(a) they failed to disclose the risk of 13&Ws exposure for asbestos claims;

(b) they failed to disclose that. 13&W was Facing a dramatic increase in the

Ettttounts demanded by asbestos claimants to settle elaiiris; and

(c) they failed to disclose that 13&.W' s financial viability was threatened by the

increased demands by asbestos ciaimath s.

TI!K'FRUTH BEGINS TO EMKR(;K

-24-

00000 4 45

55_ On November l 1, 1999, less than one month after The Times Picayune reported

defendants' optimistic comments regarding the Company's outlook, the Company shocked the

market by issuing a press release in which it announced that the results for the quarter ended

September 30, 1999 would fall far short of an.tly.ts' expectations (expectations that were

generated by the Company). In the press release, McDermott reported net income of a mere $3.6

million or $0.06 per share for the qu arter, compared with net income f)['$5 I _G million or $0.85

per share reported in the same quarter the prior year -- a drop of more than 93%. The press

release went on to partially disclose the. significant impact that the asbestos claims were having,

:mcl would continue to have, on the Company:

Settlement of these claims, which are related to the company's Babcock & Wilcox

subsidiary, requires a growing amount of B&W's operating cash Flow. Recently,

B&W has seen an increase in amounts demanded for settletnent of certain claims.

If these demanded amounts cannot he reduced, 13&W may he forced to settle at

higher amounts, litigate claims or take other available courses of action. Any of

these could have a material adverse impact on B&W's ultimate exposure for

asbest^^ liability Claims and McDermott's, including B&W, consolidated financial

position, results of operations and (business prospects.

The press release also reported that the Company had used $69.7 million related to the settlement

of asbestos claims, net of insurance proceeds.

56. The stock market's reaction to McDermott's disclosure was severe. On November

l I , 19')!) , McDermott shares fell as mu ncIh as 26%70. or $4.6 3 per share, in close at $ 13.88 per

share , a new 52-weeek low closing price: over 2.92 million shares of McDermott stock traded on

this day. or more than six tirtres the three-month daily average - According to First Call , analysts'

latest pre-announced consensus earnings per share estimates for the second fiscal quarter were at

$0.19, versus announced earnings eel $0.06 per share.

?5-

00000446

57. On November 12, 1999, following the Company's stunning disclosure, The'l'imes

Pica 'one , in an article entitled "Asbestos News Jolts Stock fly 250/v; McDermott Could Face

More Clairns," reported:

The stock market Thursday pummeled McDermott International Inc. in a

dramatic sell-off that saw the energy conglomer'ate's stock drop more than 25

percent to a new 52-week low.

McDermott, which has been slumping on Wall Street for weeks, fell $4

15/16 `1'hursduy to close at $13 9/16 in trading seven times the average volume.

That tide-dtty plunge amounts to a drop of nearly $300 million as measured by

market capitalization.

McDermott's free fall coincided with the company's release of iL_s quarterly

earnings Thursday- But while the company's profits registered short of Wall

Street expectations, analysts said a bigger factor in the company's descent was the

disclosure that the company could be liable for millions ol` dollars more in

asbestos liability claims than first appeared.

"It's the asbestos liability -- it has very little to do with the earnings,"Arvine Sanger, an analyst with Donaldson Lufkin & Jenrette, a New Yorkinvestment hank, said of the company's dismal run "Thursday.

* 4c **

[McDermott spokesman Don] Washington declined to say how much

McDermott has paid to settle asbestos claims overall , but since 1994 the company

has written off $307 million in reserves set up for paying off asbestos claims. In

addition , the company Thursday said it spent $69.7 million more for the first six

months of fiscal year 1999, alt ough Washington said a portion of that money is

covered by insurance, McDermott settled more than 26,000 claims in the fiscal

year that ended March 3 1, 1999, he said-

Rut Of oven greater concern to many investors than the money paid out is

the possibility of even greater liabilities down the road.

In a news release Thursday, (defendants .McDermott said the sums of

outstanding claims have increased, it situation that could force the company to

litigate claitns, settle for more money or take another course of action. Any of

these moves could "have a material adverse impact," the company said.

-26-

00000447

During a conference call with financial analysts and investor's, McDermott

Cl 'O Roger`letrault declined to elaborate further on the potential losses involved.

He said the company is negotiating with opposing law firms and would have a

clearer sense of the. consequences early next year.

-k * .4. *

Sanger was troubled because McDermott officials would not offer any hint

of the potential impact of the asbestos litigation beyond the chance it would have

a "material" effect. Such a disclosure suggests the possible loss of hundreds of

millions of dollars, he said.

x. m :k

Asked about the languishing stock during the conference call, Tctrault

sh rugged.

"I think you'd have to explain to me what's going on in the marketplace

rather than me explaining it to you, because f don't understand it," he said.

58. Analysts were shocked by the Company's November 1 i announcement . The day

following the publication ol'the Company's second liscal quarter results, DLJ issued an analyst

report stating:

ASR dropped an unexpected srnj7risc about its asbestos liability growing at an

alarming rate. Coupled with the company's unwillingness to buy back stock until

it understands the size of this liability, this caused the stock 1o sell of dramatically.

At this point Our analysis indicates that on a comparable basis to IGlohal

Industries], MDR is discounting over $1 billion of liabilities .... We are lowering

our rating to Market Peiform from Buy since at this point Ml)R has switched

from being an earnings recovery play to being an asbestos liability play, and while

we believe that the total liability is unlikely to exceed $1 billion, we do not have

enough data or expertise to have an informed opinion.

;P M * :j

Management performance has been wanting: We believe that management at

MDR has recent [sici fallen woefully short in terms of guiding expectatio ns and

delivering on a multitude. of issues including acquisitions, earnings forec asts and

now this liability scare. Treating shareholders its irritants rather than as the

ultimatc owners ol'the. cnrtmp; ny is not going to build the company much goodwill

in this period of uncertainly.

27

nnfnhl44g

59. The Full impact ni defendants ' disclosure was not absorbed by the market until

November 12, 1999, when the price of McDermott stuck plummeted an additional 36%, to close

at $9.75, on volume of almost ICI million shares. The full two-day drop on November I l and 12

rt:pre enls ,3 decrease of almosi 71 %/, i'rorn the stock's Class Period high.

60. After the Company's "stock nose-dived to new depths Friday as company officials

came under fire for poor communication w ith the investment community ," The Times Picayune

reported on November 13, 1999 that:

McDermott's Friday tumble of 4 1i/l6 followed a decline of a comparahle

margin Thursday, leaving the stock at $8 3/4 at week's close . In just 4 8 hours oftorrid trading, McDennott took a jump off the cliff that sliced its stock valuationin half and cost it nearly $600 million as measured by market capitalization.

But while company officials took steps to maintain st.raf morale, they

faced criticism from shareholder interests over the company ' s disclosures of the

previous cti,yS.

One leading McDcrtncitt shareholder faulted Tetruult for being "tIefrtlyivcand arrogant" when Wall S treet analysts pressed him during a conference callThursday, 01' particular concern was McDermott' s announcement that it facedgreater potential losses due to asbestos liability, without any specifics as to how

great the potential losses could be , or any concrete plan for dealing with it.

The disclosure created the possibility that the liability would he a"bottomless pit" in investors' tuinds, precipitating the remarkable sell-off of thepast two days, said Bob Anton, whose Oregon-based investment firm holds600,0(X) shares of McDermott stock. Anton said Tenriult has excelled atmanaging McDermott's sprawling operations, but has stumbled in showing

shareholders he. cares about their investfilents.

"The, guy's done, a great job of restructuring the company, but he made agrievous mistake in handling the information they released and the way theydisseminated the information," said Anton, whose firm lost about $6 million onthe stock in two day's.

6 * _ f

28

00000449

Lazard Freres & Co. of New York issued a reprn1 criticizing the

"disappointing" earnings purfurrnanc e, and calling the news about the asbestos

liability "a major concern."

Anton too said asbestos was the top concern, particularly now that

McDermott's stock is trading at such a low price that foreign companies or

governments might thiTlk twice about signing deals with a company whose

valuation raises fears it might not be on "ongoing entity."

POST-CLASS PFRIOT) EVENTS

61. As stilted above, B&W filed for bankruptcy protection on February 22, 20(X)

62. On February 2:3, 2000, The Times Picayune , reported that, during a conference

cart with investors and financial analysts concerning the. bankruptcy tiling;

McDermott officials were careful to describe the company's problems as isolated

to Babcock & Wilcox and to underscore the unit's independence within the

corporate slrueturc. McDermott considers the subsidiary to represent about one

third of the company's holdings.

During the conference call.'1'ctrault also pointedly stated the company

kept its plans to have Babcock & Wilcox file for bankruptcy under wraps,

requiring staff to sigri nondisclosure agreements on the matter.

63. The bankruptcy filing surprised asbesto s claimants' attorneys . A one ashestns

claim;rots' attorney, Mark Wintering, stated in a Crams C leveland 13usine_ss article, dated March

6, 20(X):

"I think most attorneys who handle these cases find it odd that a company

that has been meeting its asbestos obligations without it hitch for nearly two

decades would wake up one morning and declare hankmptcy"

VIOLATIONS OF SEC REPORTING RULES

-29-

00000450

64. During the Class Period , defendants materially misled the investing public,

therehy inflating the price of the Company's stock, by publicly issuing false and misleading

statements and omitting to disclose material (acts necessary to make defendants' statements, as

set forth herein, not false and misleading. These statements and omissions were materially false

and tnisleatding because they failed to disclose material adverse information and misrepresented

the truth about the Company, its financial performance, accounting, reporting and financial

condition, in violation of the federal securities laws.

65. I.tern 303 0l' Regulation S-K requires that, for interim periods, the Management

Discussion and Analysis Section ("1v1D&A") include, among other things, ;t discussion of any

material changes in the. registrant's results of operations with respect to the most recent fiscal

year- to-date period for which an income statement is provided. Instruc tions to Item 303 require

that this discussion identify any significant elements of the registrant's income or loss ft'ottr

Corttirruing operations Thal do not arise from or are. not necessarily representative ul' the.

registrant', ongoing business. item 303(a)(3)(ii) to Regulation S-K requires the following

discussion in the M1)&A of a company's publicly filed reports with the SEC:

Uescrihe any known trends or uncertainties that have had or that the registrant

reasonably expects will have a material favorable or unfavorable impact on net

sales or revenues or income from continuing operations. If the registrant knows

off events that will cause a material change in the relationship between costs and

revenues (such as known future increases in CUsl% of labor or materials or price

increascs or inventory adjustments), the change in relationship shall he disclosed.

Paragraph 3 of the Instructions to Rein 303(a) states in relevant part:

The discussion and analysis shall locus specifically on material events and

uncertainties known io management that would cause reported financial

information not to he necessarily indicative of future operating results car of future

financial condition. This would include descriptions and amounts of (A ) matters

30

00000451

that would have an impact on futut^. operations and have not had an impact in the

past....

66. During the Class Period, defendants violated St-C disclosure rules in that

defendants failed to disclose the existence of known trends , cvcnts or uncertainties that they

reasonably expected would have a material, unfavorable impact on net revenues or income or

that were reasonably likely to result in the Company's liquidity decreasing in a material way, in

violation of Item 303 of Regulation S-K under the federal securities laws (17 C.F.R. § 229.303),

and that failure to disclose the information rendered the statements that were made during the

Class Period materially false and misleading.

67. Defendants were required to disclose, in the Company' s financial statements, the

existence of the material facts described herein . The Company failed to make such disclosures.

l)efcridants know, or were reckless in not knowing , the facts which indicated that all ol'the

Cornpany' s interim financial statements . press releases, public statements , and filing s with the

SF.C, which were disseminated to the investin g public during the Class Period, were materially

false and misleading for the reasons set fotih herein. Had the true financial position and results

of operations of the Company been disclosed during the Class Period, the Company's common

'stock would have traded at prices well below those which it did.

AIN)I'l'IONAL ALLEGATIONS O SC:Il' Ni'I,R

69. As set forth above, defendants acted with scienter because they (i) knew or

recklessly disregarded that the public documents and statements issued ut disseminated in the

matte of the Company were materially false and misleading, (ii) knew or recklessly disregarded

that such statements or documents would be issued or disseminated to the investing liuhlic. and

-31

66000452

(iii) knowingly participated in the issuance or dissemination of such statemcrit% or documents CIS

primary violations of the federal securities laws.

69. In addition, the Individual Defendants, by virtue of their receipt of information

reflecting the true facts regarding the Company and/or their control over the Company, making

them privy to confidential proprietary information , participated in the fraudulent scheme alleged

herein. With respec t to non forward- looking statements turtl/or omissions, defendants knew

and/or recklessly disregarded the falsity and misleading nature of the information which they

caused to be disseminated to the investing public.

70. llcfcndant5' sciertter is also established by virtue of their efforts to obtain funding

for the Company's acquisition of the 35'/'( . minority interest of its subsidiary , JRM. Prior to the

Class Period, McDermott announced its intention to acquire the minority inte rest in exchange for

shares of McDermott common stock . It was critical to the Company's success to acquire the 35%

minority interest in JRM so that McDennotl could access the $600 million in cash held by.IRM.

Once ivtcDermott acquired JRM, defendants would have access to all of it. Although in March

1999 McDcrrnott reported $ 1.4 billion in cash, or $20 per share, this included cash from JRM

that McD)ertnutt was not able to touch.

71. 'the structure of the acquisition, however, was changed from an acquisition for

stock to one li,r cash. On May 7, 1999, McDermott and JRM entered into a merger agreement

(the "Merger Agreement".), pursuant to which McDermott agreed to lay .IRM shareholders

$35,62 cash per share, or a total of $520 million in cash.

72. To fund the aciluisition, Mcl )ermnlt harrowed $525 million from a .syndicate led

by Citihank, N.A. racer a senior secured term loan agreement (the "Loan Agreenment") dated

-32-

ftlfl1lf4ri3

Juno 7, 1999. The I..oan Agreement (in Article VI1) provided that any bankruptcy filing by the

Company or any of its subsidiaries (including; B&W) would constitute an event of default,

thereby permitting Citibank, N.A. to declare the entire, loan immediately due and payable.

73. The .JRM acquisition , and the towns of the Loan Agreement that enabled

McDermott to consummate the acquisition, provided defendants with strung motivation to

fraudulently conceal the severe fina ncial difficulties that B&W was encountering during the

Class Period. 1i' defendants had revealed the truth during the Class Periud, McDermott would not

have been able to secure the $525 million in financing that it needed to fund the acquisition;

moreover, any bankruptcy filing during the Class Period would have placed the Company in

default under the Loan Agreement.

-$3-

0.0000454

NO STATUTORY SAFE HARBOR

74. The statutory safe harbor does not apply to any of the allegedly false statements

pleaded in this complaint. '['he safe harbor does nut apply to false financial statements.

Moreover, the specific statements pleaded herein were not identified as "forward-looking

statements" when made. Nor was it stated with respect to any of the statements forrnirng the basis

of this complaint that actual results 'could differ materially from those projected-" To the extent

there were any forward-looking st;rtements, there were no meaningful cautionary statements

identifying important factors that could cause'. actual results to differ materially from those in the

purportedly Foward-looking statements. Alternatively, to the extent that . the statutory salt

harhor does apply to any forward-looking statements pleaded herein, defendants are liable for

those false forward-looking statements because at the time each of those forward-looking

suttoittcrrts was made the particular speaker knew that the particular forward-looking, statement

was false, and/or the forward- looking statement was authorized and/or approved by ail execur.1VC

officer cif the Company who knew that those statements were false when made,

F I RST C1 ,A I M

Violation of Section 10(b) of

The Exchange Act And Rule IOh-5

P'runtulgatcd Thereunder Against All I)el'endtrnti

75. Plaintiffs repeat and rcallegc each and every alkgution contain above as if fully

set torth herein.

76. During the Class Period, McDermott and the Individual Defendants. and each of

there. carried out a plan, scherlle and course of conduct which was intended to and, throughout

the Class Period, did (i) decoolvc. the investing public, including plaintiff s and other Class

34-

00000455

members, as allct;cd herein, ( ii) artificially inflate and maintain the market price of McDermott's

common stock, and (iii) cause plaintiffs and other members of the (:.lass to purchase

McDermott's common tiloek at urhticially inflated prices. In furtherance of this unlawful

scheme, plan and course of ccmduct, defendants , and each cif them, took the actions set forth

herein.

77. Defendants (a) employed devices, schemes, and artifices to del'raud; (h) made

untrue statements of material fact and/or omitted to state materi al facts necessary to make the

statements not misleading; and (c) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to

maintain artil'cially high market prices for McDermott's stock in violation of Section 10(h) of the

Exchange Act and Rule 10b-5. All defendants are sued either as primary pttrticipaittts in 1he

wrongful and 111Ggal conduc t charged herein or us controlling persons us alleged below.

78. In addition to the duties of full diSclosurc imposed on defendants as a result 01

their making of affirrnativc statements and reports, or participation in the making Of affirmative

slufernient.s and repex'ts to the investing public, defend ant, had a duty to promptly disseminate

truthful inf4wmatiort ih;rt. would he material to investors in compliance with the integrated

disclosure provisions of the S1:(; a-, embodied in SEC Regulation S-X (17 C.h'-R- § 210.01 ct

seq.) and Regulation S-K (17 (;J-.l(. § 2219.10 et seq .) and other SEC regulations , including

<i CuruIe and trut.hlul in[i rmution with request to the Company's operations, financial condition

and earnings so that the market price of the Company's securities would he based on truthful,

complete and accurate information.

00000456

79. vlcl )ermoll . and the Individual Defendants , individually and in concert, directly

and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,

engaged and participated in a continuous course of conduct to conceal ,adverse FflUICT1UI

information about the business, operations and future prospects of McDermott as specified

herein.

80, These defendants employed devices, schemes and artifices to defraud, while in

possession of material adverse non-public information and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of Mcl)erYnott's value and

performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and omitting or state material

facts necessary in order to make the sultefile nt.s made about McDermott and its husinecs

operations and I uture prospects in the light of the circumstances under which they were ry ade,

not misleading, as set forth more particularly herein, and engaged in transactions, f'rttcriceti and a

course of business which operated as a fraud and deceit upon the purchasers of McDermott's

common stock during the Class Period.

81. Each of the Individual Defendants' primary liability, and controlling person

liability, arises from the following facts: (1) the Individual Defendants were high-level executives

and/or directors at the C'outpany during the Class Period and members of the Company*s

management team or had control thereof (ii) each of these defentl,ints, by virtue cif his or her

responsihilities and activities as it senior officer and/or director of the Company was privy to and

participated in the creation, deve lopment and reporting of the Company's internal budge ts, plans,

projection, and/or repurrls. (iii) each of these defendants enjoyed significant personal contact and

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AnnAAI Ci

familiarity with the other det'end ant:s and was advised of and had access to other merrtbcrs of the

Company's management ream , internal reports and other data and inl'ormaliun about the

Company's finances , operations , and sales at all relevant times ; and {iv) each of these defendants

was await: of the Company's dissemination of information to the investing public which they

knew or recklessly disregarded was materially false and misleading.

82. The defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, evt:n though such facts were available to theta. Such

defendant s' rttatenal misrepresentations and/or omissions were done knowing ly or recklessly and

for the purpose and effect of concealing McDermott's liability for ctshesios-related products

liability claims from the investing public and supporting the artificially inflated price of its

securities. Del`endants, it they did not have actual knowledge nt' the misrepresentations and

omissions alleged, were reckless in failing to Obtain such knowietiyc by deliberately refraining

from taking those steps ncecssary to discover whether those statements were false or misleading.

83. As a result of the dissemination of the materially false and misleading information

and Failure to disclose material facts, as set forth above, the market price el Mc:f)crrnutt's

common stuck was artificially inlIated during the Class Period. In ignorance of the Fact that the

market price of Mcl.)ermott stock was artificially inflated, and relying, upon the integrity of the

market, plaintiffs and the other members of the Class acquired McDer'illott common stock during

the Class Period it artificially high prices and were damaged thereby.

8,1- At the, time of said nrisrcpresenl.ations and omissions, plaintiffs and other

members of the Class were. Ignorant ref their falsity, and believed them to be true . Had plaintiffs

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00000458

and the other members cif the Class and the marketplace known of the true financial condition

and business prospects of McDermott, which were not disclosed by defendants, plaintiffs and

other members of the Class would not have purchased or otherwise acquired their McDermott

common stock , or, if they had acquired such common stock during the Class Period, they would

not have done so at the artificially inflated prices which they paid.

85. By virtue of the foregoing, clefendttnts have violated Section 10(h) of the

Exchange Act, and Rule 1 Ob-S promulgated (hereunder,

86. As a direct and proximate result of defendants' wrongful conduct, plaint Its and

the other members of the Class suffered damages in connection with their respective purchases

and sales of the Company's common stock cluring the Class Period.

SECOND CLAIM

Violation of Secti on 20(a) of

The Exchange Act Atainst the Individual Defendants

87. Plaintiffs repeat and reallege each and every allegation contained above as if fully

set forth herein.

$K. The Individual I efcrtclants acted as controlling persons of McDermott within the

meaning of Section 20(a) of the Exchange. Act as alleged herein . By virtue of their high-level

positions, and their ownership and contractual rights, participation in .aid/or awareness of the

Company's operations and/or intimate knowledge of the Company's long- and near-term liability

for ashestos-related products liability claims and any material changes in such liability, the

Individual 1.)01'endants had the power to influence and control and did influence and control,

directly or indirectly, the decision-making of the Company, including the content and

clis,crtiintrtiun of the various statements that plaintiffs contend are lake and mislestrlinL. The

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00000459

Individual Defendants were. provided with or had unlimited access to copies of the C.ompany's

reports, press releases, public filings and other statements alleged by plaintiffs to he misleading

prior to talc!/or shortly after these statements were issued and had the ability to prevent the

issuance of the statements or cause the statements to be corrected.

89. In particular, each ol'these del'endants had direct and supervisory involvement in

the day-to-day operations of the Company and, therefore, is presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations as alleged

heroin, and exorcised the same.

90. As set forth ahove, Mcl)ermot.t and the Inch victual Defendants each violated

Suction 10(b) and Rule, lOh-5 by their ac ts and omissions its alleged in this Corrtlrlaint. By virtue

of their positions as persons, the Individual Defendants are liable, pursuant to Section

20(a) of the Exchange Act, for McDermott 's violations of Section 10(b) and Rule l Oh-5, as

alleged herein.

WI IEREFORI:, plaintiffs fray for relief and judgment, as follows:

(a) Delerrrlinlrig that this action is a proper class acti rr;

(h) Awarding uompe n . atnry damages in favor Of plaintiffs and the other' Class

members a^^ inst all llefendiartls liir all durtlilges sustained us a resort( o defendants' wrongdoing.

Ill an ar nun[ 10 be proven at trial, including interest thereon;

(c) Awarding plaintiffs and the Class their reasonable costs and expenses

incurred in this action, including counsel fees and expel[ fees; and

(d) Such other and further relief as the Court may dee m just and proper.

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00000460

JURY TRIM. DEM.ANDE1)

Plaintiffs hereby demand a trial by jury.

DATED: New York, New YorkJune 14, ?000

Respectfully suubmitied,

GAtVI'IIIEK, DOWNING, LABARRK,REIISER & D1, N, PLC

By: Lewis Kahn (1-3805)

Wendell Gauthier (5984)

3500 North I Iullen Street

Metairie , LA 70002

(504) 456-8600

Liaison Counsel for Plaintiffs

MILBERGT WEISS BLRSHAI)

HHY_NES & LERACII LLP

Robert A . Wallner

Brian C . KC:n•One Pennsylvania Plaza

New York, NY 101 19

(212) 594-5300

WEISS & YOURMAN

Joseph H. WeissRichard Acocclli

551 Fifth Avenue , Suite 1600

New York , NY 10176

(212) 692-3025

Co-Lead Counsel for Plaintiffs

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00000461

STONE, PIGMAN , WALTHER,

WIT'I'MAN & 1IUTCI1INSON, LLPRachel W. Wisdom

546 Carondclut StreetNew Orleans , LA 70130(504) 581 .3 200

KELL.ER RCIHRRACK , LLPElizabeth A. LelandLynn L. Sarko

Juli 1-i_ Farris

1201 Third Avenue

Ste. 3200

Seattle, WA 98101-3052(206) 623-1900Counsel for Plaintiffs

(. ER'i'II+IC ATE OF SERVICE

I hereby certify that a copy o!'the foregoing pleading has been served on all counsel of'

record, via facsiiiile. and first class mail, postage prepaid, on this 14`x' day of June, 2000.

Lewis S. Kahn