NOTE 2—BUSINESS COMBINATION AGREEMENT WITH CHICAGO BRIDGE & IRON COMPANY N.V. (“CB&I”)

On December 18, 2017, McDermott International, Inc. (“McDermott”), Chicago Bridge & Iron Company N.V. (“CB&I”) and certain of their respective subsidiaries entered into a Business Combination Agreement (as amended, the “Business Combination Agreement”) pursuant to which CB&I and McDermott have agreed to combine their businesses through a series of transactions (the “Combination”). The Business Combination Agreement has been approved by the McDermott Board, the Management Board of CB&I and the Supervisory Board of CB&I.

Upon completion of the Combination, McDermott stockholders will own approximately 53 percent of the combined business on a fully diluted basis and CB&I shareholders will own approximately 47 percent. Under the terms of the Business Combination Agreement, we will exchange all issued and outstanding shares of CB&I common stock for shares of McDermott common stock at the exchange ratio described below. As a result CB&I shareholders will be entitled to receive 2.47221 shares of McDermott Common Stock for each share of CB&I Common Stock owned (or 0.82407 shares if McDermott effects a proposed three-to-one reverse stock split prior to the closing of the Combination), together with cash in lieu of fractional shares.

The Combination would be accounted for using the acquisition method of accounting in accordance with Accounting Standards Codifications (“ASC”) Topic 805, Business Combinations. McDermott would be considered the accounting acquirer based on the following facts: (1) upon completion of the Combination, McDermott’s stockholders will own approximately 53 percent of the combined business on a fully diluted basis; (2) a group of McDermott’s current directors, including Chairman of the Board, will constitute a majority of the Board of Directors; and (3) McDermott’s current President and Chief Executive Officer and current Executive Vice President and Chief Financial Officer will continue in those roles following the closing of the Combination. CB&I’s President and Chief Executive Officer will remain with the combined business for a transition period.

In connection with the Business Combination Agreement, we entered into or received commitment letters (including the exhibits and other attachments thereto, and together with any amendments, modifications or supplements thereto, the “Commitment Letters”) from certain financial institutions to provide debt financing for the Combination. Pursuant to the Commitment Letters, as amended and restated through the date of this report, we expect the following financing arrangements to be reflected in a new credit agreement to be entered into by certain of our subsidiaries (the “Borrowers”) on or before the closing of the Combination (the “New Credit Agreement”):

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a senior secured revolving credit facility providing for revolving credit borrowings and letters of credit in an aggregate principal or face amount of $1.0 billion outstanding at any one time (the “Revolving Facility”);

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a senior secured letter of credit facility providing for letters of credit in the aggregate face amount of $1.39 billion outstanding at any one time (the “LC Facility”); and

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a senior secured term loan facility providing for borrowings in the aggregate principal amount of $2.26 billion (the “Term Facility”), $319 million of which will be deposited into a cash collateral account to secure reimbursement obligations in respect of up to $310 million of letters of credit issuable under the Term Facility.

In addition, on April 18, 2018, McDermott Escrow 1, Inc. and McDermott Escrow 2, Inc. (together, the “Escrow Issuers”) completed the previously announced offering of $1.3 billion in aggregate principal amount of 10.625% senior unsecured notes due 2024 (the “2024 Notes”). The Escrow Issuers represent variable interest entities which will be consolidated by McDermott International, Inc. beginning in the second quarter of 2018. The 2024 Notes were offered to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act. The 2024 Notes were issued pursuant to an Indenture, dated April 18, 2018 (the “Indenture”), by and among the Escrow Issuers and Wells Fargo Bank, National Association, as trustee. The 2024 Notes are scheduled to mature on May 1, 2024.

Pursuant to an escrow agreement (the “Escrow Agreement”), by and among the Escrow Issuers and Wells Fargo Bank, National Association, as escrow agent (the “Escrow Agent”), the proceeds of the offering of the 2024 Notes, together with approximately $28 million, to provide funds sufficient to pay interest on the 2024 Notes through June 29, 2018, were deposited into a segregated escrow account with the Escrow Agent. The funds will remain in escrow until the date on which certain escrow conditions are satisfied and the escrow proceeds are released (the “Escrow Conditions”). Concurrent with the satisfaction of the Escrow Conditions, the Escrow Issuers will merge with and into McDermott Technology (Americas), Inc. (“McDermott Technology (Americas)”) and McDermott Technology (US), Inc. (together with McDermott Technology (Americas), the “Post-Merger Co-Issuers”), with each Post-Merger Co-Issuer being a surviving entity that will assume, by operation of law, the obligations of the applicable Escrow Issuer under the 2024 Notes. Each of the Post-Merger Co-Issuers is a wholly owned subsidiary of McDermott International, Inc.

The 2024 Notes will be subject to a special mandatory redemption at a redemption price equal to 100% of the initial issue price of the 2024 Notes plus accrued interest to, but not including, the redemption date if the Escrow Conditions are not satisfied or the Escrow Issuers determine in their discretion that the Escrow Conditions are incapable of being satisfied on or prior to June 29, 2018.

The proceeds of the offering of the 2024 Notes and loans under the New Credit Agreement are intended to be used: (a) on the closing date for the Combination (the “Effective Date”) to (1) consummate the Combination, including the repayment of certain existing indebtedness of CBI and its subsidiaries, (2) redeem Outstanding Senior Secured Notes, (3) prepay existing indebtedness under, and to terminate in full, the Current Credit Agreement (as defined in Note 8, Debt), and (4) pay fees and expenses in connection with the Combination, the New Credit Agreement and the issuance of the 2024 Notes; and (b) for working capital and other general corporate purposes. On the Effective Date, certain existing letters of credit outstanding under the Current Credit Agreement and certain existing letters of credit outstanding under CBI’s existing credit facilities will be deemed issued under the New Credit Agreement, and letters of credit will be issued under the New Credit Agreement to backstop certain other existing letters of credit issued for the account of McDermott International, Inc., CBI and their respective subsidiaries and affiliates.

The Revolving Facility and the LC Facility are expected to mature on the fifth annual anniversary of the Effective Date. The Term Facility is expected to mature on the seventh annual anniversary of the Effective Date, unless on the date that is six months prior to the scheduled maturity date of the 2024 Notes, more than $350 million of the 2024 Notes are outstanding and our secured leverage ratio (as defined in the New Credit Agreement) is greater than or equal to 1.00 to 1.00, in which case the Term Facility will mature on such date.

From and after the Effective Date the indebtedness and other obligations under the New Credit Agreement, the 2024 Notes and the Indenture will be unconditionally guaranteed on a senior secured basis by McDermott International, Inc. and substantially all of its wholly owned subsidiaries, including wholly owned subsidiaries resulting from the consummation of the Combination (collectively, the “Guarantors”), other than its captive insurance subsidiary and certain other designated or immaterial subsidiaries. From and after the Effective Date, the obligations under the New Credit Agreement will be secured by first-priority liens on substantially all of the Borrowers’ and the Guarantors’ assets.

The New Credit Agreement is expected to include provisions for mandatory commitment reductions and prepayments in connection with, among other events and circumstances, certain asset sales and casualty events. In addition, we will be required to make an annual prepayment of term loans under the Term Facility and thereafter cash collateralize letters of credit issued under the Revolving Facility and the LC Facility with 75% of excess cash flow (as defined in the New Credit Agreement), reducing to 50% of excess cash flow and 25% of excess cash flow depending on our secured leverage ratio. The New Credit Agreement is expected to require the Borrowers to prepay the term loans made under the Term Facility on the last day of each fiscal quarter in an amount equal to approximately $6 million. The New Credit Agreement is expected to otherwise only require periodic interest payments until maturity.

Revolving loans under the Revolving Facility are expected to bear interest at the Borrowers’ option at either the Eurodollar rate (as defined in the New Credit Agreement) plus a margin ranging from 3.75% to 4.25% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, the 30-day Eurodollar rate plus 1.0%, or the administrative agent’s prime rate) plus a margin ranging from 2.75% to 3.25% per year. The applicable margin will vary depending on our leverage ratio (as defined in the New Credit Agreement). Term loans under the Term Facility are expected to bear interest at the Borrowers’ option at either the Eurodollar rate plus a margin of 5.00% per year or the base rate plus a margin of 4.00%, subject to a 1.0% floor with respect to the Eurodollar rate. The Borrowers are expected to be charged a commitment fee of 0.50% per year on the daily amount of the unused portions of the commitments under the Revolving Facility and the LC Facility. Additionally, with respect to all letters of credit outstanding under the New Credit Agreement, the Borrowers are expected to be charged a fronting fee of 0.25% per year and, with respect to all letters of credit outstanding under the New Credit Agreement, a participation fee of (1) between 3.75% to 4.25% per year in respect of financial letters of credit and (2) between 1.875% to 2.125% per year in respect of performance letters of credit, in each case depending on our leverage ratio. The Borrowers are also expected to be required to pay customary issuance fees and other fees and expenses in connection with the issuance of letters of credit under the New Credit Agreement. On the Effective Date, we will be required to pay upfront fees, ticking fees, commitment fees, arrangement fees and other fees to certain lenders, arrangers and agents of the New Credit Agreement.

The New Credit Agreement is expected to include the following financial covenants that will be tested on a quarterly basis, commencing September 30, 2018:

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a minimum permitted fixed charge coverage ratio (as defined in the New Credit Agreement) of 1.50 to 1.00;

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a maximum permitted leverage ratio of (1) 4.25 to 1.00 for each fiscal quarter ending on or before September 30, 2019, (2) 4.00 to 1.00 for the fiscal quarter ending December 31, 2019, (3) 3.75 to 1.00 for each fiscal quarter ending after December 31, 2019 and on or before December 31, 2020, (4) 3.50 to 1.00 for each fiscal quarter ending after December 31, 2020 and on or before December 31, 2021 and (5) 3.25 to 1.00 for each fiscal quarter ending after December 31, 2021; and

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a minimum liquidity (as defined in the New Credit Agreement, but generally meaning the sum of our cash and cash equivalents plus unused commitments under the New Credit Agreement available for revolving borrowings) requirement of $200 million.

In addition, the New Credit Agreement and the Indenture contain various covenants that, among other restrictions, will limit the ability of McDermott International, Inc. and each of its restricted subsidiaries to:

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incur or assume indebtedness;

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grant or assume liens;

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make acquisitions or engage in mergers;

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sell, transfer, assign or convey assets;

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make investments;

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repurchase equity and make dividends and certain other restricted payments;

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change the nature of its business;

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engage in transactions with affiliates;

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enter into burdensome agreements;

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modify its organizational documents;

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enter into sale and leaseback transactions;

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make capital expenditures;

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enter into speculative hedging contracts; and

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make prepayments on certain junior debt.

The Indenture contains, and the New Credit Agreement is expected to contain, provisions relating to events of default that we believe are customary for similar financing arrangements.

During the first quarter of 2018, $11 million of costs associated with the Combination were expensed as incurred and were reported in Other operating (income) (expense) in our Consolidated Statements of Operations. Those costs included advisors’ professional fees and integration costs related to the Combination.