filed a lorettag, yte yy -...
Post on 05-Aug-2020
2 Views
Preview:
TRANSCRIPT
FILEDL,1S1f?l^r CC '̂ J1
OV 1,tT
AE
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
1
flfnnnA-qq
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,
-3-
00006424
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
-4-
onnnnt2c
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.
-5-
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
-6-
00000427
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
-i-
i fflfflG 9Q
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
-$.,
nnnnn&7u
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.
-J-
nnnnn r. ')n
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
-]U-
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.
nnnnntn4
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
-12-
11fitiIA r. !41
(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
-13-
A(AfA 1_ +] L_
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.
-14-
000004 35
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
-15-
00000436
(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.
-16-
00000437
(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
-17-
00000438
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
-18-
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
-36-
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
-31-
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
-39-
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.
-39-
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
-40-
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
top related