As Filed With The Securities And Exchange Commission On December 8, 2000
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
MARINE PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
----------------------------------
Delaware 58-2572419
(State or Other I.R.S. Employer
Jurisdiction of Incorporation) Identification No.)
2170 Piedmont Road, NE, Atlanta, Georgia 30324
(Address of Principal Executive Offices) (Zip Code)
(404) 321-2140
(Registrant's telephone number, including area code)
----------------------------------
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Each
to be so Registered Class is to be Registered
---------------------------------------- -----------------------------------
Common Stock, $.10 Par Value Per Share American Stock Exchange
Securities to be registered pursuant to 12(g) of the Act: None.
<PAGE>
CROSS REFERENCE SHEET FOR INFORMATION INCLUDED
IN INFORMATION STATEMENT ATTACHED TO THIS FORM 10
AS ANNEX A AND INCORPORATED BY REFERENCE INTO
THE REGISTRATION STATEMENT ON FORM 10
Item 1. Business
The information required by this item is incorporated herein by reference
to the "Summary," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" sections of the Information Statement
dated ___________, 2000 and attached to this Form 10 as Annex A.
Item 2. Financial Information
The information required by this item is incorporated herein by reference
to the "Summary," "Capitalization," "Selected Financial Data," "Pro Forma
Combined Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections of the Information Statement dated
_____________, 2000 and attached to this Form 10 as Annex A.
Item 3. Properties
The information required by this item is incorporated herein by reference
to the "Business" section of the Information Statement dated ________________,
2000 and attached to this Form 10 as Annex A.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference
to the "Management" and "Principal Stockholders" sections of the Information
Statement dated ________________, 2000 and attached to this Form 10 as Annex A.
Item 5. Directors and Executive Officers
The information required by this item is incorporated herein by reference
to the "Management" section of the Information Statement dated ________________,
2000 and attached to this Form 10 as Annex A.
Item 6. Executive Compensation
The information required by this item is incorporated herein by reference
to the "Management" section of the Information Statement dated ________________,
2000 and attached to this Form 10 as Annex A.
Item 7. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference
to the "Summary," "The Spin-off," "Management" and "Certain Relationships and
Related Transactions" sections of the Information Statement dated
________________, 2000 and attached to this Form 10 as Annex A.
Item 8. Legal Proceedings
The information required by this item is incorporated herein by reference
to the "Business" section of the Information Statement dated ________________,
2000 and attached to this Form 10 as Annex A.
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Item 9. Market Price and Dividends on the Registrant's Common Equity and Related
Stockholder Matters
The information required by this item is incorporated herein by reference
to the "Summary", "The Spin-off," "Capitalization," "Dividend Policy,"
"Management" and "Description of Capital Stock" sections of the Information
Statement dated ________________, 2000 and attached to this Form 10 as Annex A.
Item 10. Recent Sales of Unregistered Securities
On August 31, 2000, in connection with the incorporation of Marine Products
Corporation ("Marine Products"), Marine Products issued 100 shares of its common
stock to RPC, Inc. in return for payment of $____________. The exemption from
registration was pursuant to Section 4(2) of the Securities Act and the rules
and regulations promulgated under the Securities Act on the basis that the
transaction did not involve a public offering.
On ____________, 2000, in connection with the spin-off, Marine Products
issued ___________ shares of its common stock to RPC, Inc. in return for RPC's
contribution to Marine Products of all of the issued and outstanding capital
stock of Chaparral Boats, Inc. The exemption from registration was pursuant to
Section 4(2) of the Securities Act and the rules and regulations promulgated
under the Securities Act on the basis that the transaction did not involve a
public offering.
Item 11. Description of Registrant's Securities To Be Registered
The information required by this item is incorporated herein by reference
to the "Description of Capital Stock" section of the Information Statement dated
________________, 2000 and attached to this Form 10 as Annex A.
Item 12. Indemnification of Directors and Officers
The information required by this item is incorporated herein by reference
to the "Management" section of the Information Statement dated ________________,
2000 and attached to this Form 10 as Annex A.
Item 13. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference
to the "Summary," "Selected Financial Data," "Pro Forma Combined Financial
Statements" and the "Combined Financial Data" sections of the Information
Statement dated ________________, 2000 and attached to this Form 10 as Annex A.
Item 14. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 15. Financial Statements and Exhibits
(a) Financial Statements.
The following Combined Financial Statements and supplemental schedules of
Marine Products are incorporated herein by reference to the Information
Statement dated ____________, 2000 and attached to this Form 10 as Annex A.
(1) Report of Independent Public Accountants
(2) Combined Statements of Income
(3) Combined Balance Sheets
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(4) Combined Statements of Stockholder's Equity
(5) Combined Statements of Cash Flows
(6) Notes to Combined Financial Statements
The following financial statement schedule for the years ended 1999, 1998
and 1997 is included as part of this Registration Statement immediately
following the signature page.
Schedule II - Valuation and Qualifying Accounts
(b) Exhibits
Exhibit
Number Description
--------- -----------
3.1 Articles of Incorporation of Marine Products Corporation
3.2 Bylaws of Marine Products Corporation
4.1 Form of Common Stock Certificate of Marine Products Corporation
10.1* Marine Products Corporation 2000 Employee Stock Incentive Plan
10.2* Form of Agreement Regarding Distribution and Plan of Reorganization,
dated __________, 2000, by and between RPC, Inc. and Marine Products
Corporation
10.3* Form of Employee Benefits Agreement, dated ___________, 2000, by and
between RPC, Inc., Chaparral Boats, Inc. and Marine Products
Corporation
10.4* Form of Transition Support Services Agreement, dated __________, 2000,
by and between RPC, Inc. and Marine Products Corporation
10.5* Form of Tax Sharing Agreement, dated __________, 2000, by and between
RPC, Inc. and Marine Products Corporation
10.6* Compensation Agreement between James A. Lane, Jr. and Chaparral Boats,
Inc.
21.1 Subsidiaries of Marine Products Corporation
27.1* Financial Data Schedule
99.1 Information Statement dated as of December ________, 2000 (attached to
this Registration Statement as Annex A)
---------------------
*To be filed by amendment.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the undersigned registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
MARINE PRODUCTS CORPORATION
By: /s/ Richard A. Hubbell
---------------------------------------
Richard A. Hubbell
Chief Executive Officer
Dated: December 7, 2000
4
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders of RPC, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the combined financial statements of RPC, Inc.'s Powerboat
Manufacturing Segment, to be reorganized as Marine Products Corporation, as of
December 31, 1999 and 1998, and for the three years in the period ended December
31, 1999 included in this Form 10 and Marine Products Corporation's Schedule
14C, and have issued our report thereon dated September 8, 2000. Our audits were
made for the purpose of forming an opinion on those financial statements taken
as a whole. The schedule listed in Item 15 of this Form 10 is the responsibility
of the Company's management, is presented for purposes of complying with the
Securities and Exchange Commission's rules, and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Atlanta, Georgia
September 8, 2000
5
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Marine Products Corporation
Schedule II Valuation and Qualifying Accounts
Accounts Receivable Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Charged to Net Balance at
Beginning of Costs and (Write-Offs) End of
Description Period Expenses Recoveries Period
------------------------------------ --------------- ----------------- ------------------ ------------------
(In thousands)
<S> <C> <C> <C> <C>
Year ended December 31, 1999 $ 77 $ - $ (8) $ 69
=============== ================= ================= ==================
Year ended December 31, 1998 $ 79 $ - $ (2) $ 77
=============== ================= ================= ==================
Year ended December 31, 1997 $ 80 $ - $ (1) $ 79
=============== ================= ================= ==================
</TABLE>
6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
--------- -----------
3.1 Articles of Incorporation of Marine Products Corporation
3.2 Bylaws of Marine Products Corporation
4.1 Form of Common Stock Certificate of Marine Products Corporation
10.1* Marine Products Corporation 2000 Employee Stock Incentive Plan
10.2* Form of Agreement Regarding Distribution and Plan of Reorganization,
dated __________, 2000, by and between RPC, Inc. and Marine Products
Corporation
10.3* Form of Employee Benefits Agreement, dated ___________, 2000, by and
between RPC, Inc., Chaparral Boats, Inc. and Marine Products
Corporation
10.4* Form of Transition Support Services Agreement, dated __________, 2000,
by and between RPC, Inc. and Marine Products Corporation
10.5* Form of Tax Sharing Agreement, dated __________, 2000, by and between
RPC, Inc. and Marine Products Corporation
10.6* Compensation Agreement between James A. Lane, Jr. and Chaparral Boats,
Inc.
21.1 Subsidiaries of Marine Products Corporation
27.1* Financial Data Schedule
99.1 Information Statement dated as of December ________, 2000 (attached to
this Registration Statement as Annex A)
---------------------
*To be filed by amendment.
7
<PAGE>
ANNEX A
PRELIMINARY COPY
INFORMATION STATEMENT
MARINE PRODUCTS CORPORATION
2170 Piedmont Road, NE
Atlanta, Georgia 30324
Dear Fellow Stockholders:
On December __________, 2000, the board of directors of RPC, Inc. ("RPC")
approved plans to spin-off Chaparral Boats, Inc. ("Chaparral"), the recreational
powerboat manufacturing business of RPC, to its stockholders. RPC will
accomplish the spin-off by contributing 100 percent of the issued and
outstanding common stock of Chaparral to Marine Products Corporation ("Marine
Products"), a newly formed wholly-owned subsidiary of RPC, and then distributing
the common stock of Marine Products to RPC stockholders. As a holder of RPC
common stock, you will receive 0.5 shares of Marine Products common stock for
each share of RPC common stock that you own at the close of business on
______________, the record date for the spin-off. We are sending you this
information statement to describe the spin-off of Marine Products from RPC. The
spin-off is intended to be tax-free to RPC stockholders, except for cash
received for any fractional shares. We expect the spin-off to occur on or about
__________, 2001. Immediately after the spin-off is completed, RPC will not own
any shares of Marine Products common stock, and Marine Products will be an
independent public company.
We believe that the division of RPC's businesses into a powerboat
manufacturing company and an oil and gas services company is in the best
interests of RPC's current stockholders. The spin-off is intended to facilitate
management focus, facilitate acquisitions by RPC and Marine Products as separate
companies, and set the stage for future growth.
A STOCKHOLDER VOTE IS NOT REQUIRED FOR THE SPIN-OFF TO OCCUR. WE ARE NOT
ASKING YOU FOR A PROXY, AND WE REQUEST THAT YOU DO NOT SEND US A PROXY. In
addition, to receive the shares of Marine Products common stock to which you are
entitled, you do not need to pay any cash or other consideration to RPC or to
Marine Products. You do not need to surrender any shares of RPC's common stock
that you own, and the number of shares of RPC common stock that you currently
own will not change as a result of the spin-off.
Marine Products, as a holding company, will initially exist primarily to
hold all of the outstanding stock of Chaparral. Chaparral will continue to
operate, up until the spin-off, as a wholly-owned subsidiary of RPC and will be
reported as RPC's powerboat manufacturing business segment until the spin-off is
effective. Subsequent to the spin-off, RPC will continue to own oil and gas
services businesses including Cudd Pressure Control, Patterson Services and
Patterson Tubular Services as well as other business operations and assets.
Currently, there is not a trading market for Marine Products common stock.
However, a limited market, commonly known as a "when issued" trading market, for
Marine Products common stock may develop on or shortly before the record date
for the spin-off, and Marine Products expects "regular way" trading of Marine
Products common stock will begin the first trading day after the spin-off. We
have applied to list Marine Products common stock on the American Stock Exchange
under the ticker symbol "MPX."
Sincerely,
MARINE PRODUCTS CORPORATION
By: /s/ R. Randall Rollins
----------------------------------------
R. Randall Rollins, Chairman of the
Board of Directors
As You Review This Information Statement, You Should Carefully Consider The
Matters Described In "Risk Factors" Beginning On Page 8. Neither The Securities
And Exchange Commission Nor Any State Securities Commission Has Approved Or
Disapproved Of These Securities, Or Determined If This Information Statement Is
Truthful Or Complete. Any Representation To The Contrary Is A Criminal Offense.
The date of this information statement is December _____, 2000, and it is
being mailed to stockholders on or about _________________, 2001. We encourage
you to read this document carefully.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY............................................................................. 1
Questions and Answers About the Spin-off and Marine Products.................... 1
SUMMARY COMBINED FINANCIAL DATA..................................................... 6
RISK FACTORS........................................................................ 8
FORWARD-LOOKING STATEMENTS.......................................................... 12
THE SPIN-OFF........................................................................ 13
Background and Reasons for the Spin-off......................................... 13
Mechanics of the Spin-off....................................................... 13
Relationship Between RPC and Marine Products After the Spin-off................. 14
Effect of the Spin-off on RPC Outstanding Options and Restricted Stock Awards... 17
U.S. Federal Income Tax Consequences of the Spin-off............................ 18
Listing and Trading of Marine Products and RPC Common Stock..................... 21
Federal Securities Law Consequences............................................. 22
CAPITALIZATION...................................................................... 22
DIVIDEND POLICY..................................................................... 23
SELECTED FINANCIAL DATA............................................................. 23
PRO FORMA COMBINED FINANCIAL DATA................................................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................................... 26
Results of Operations........................................................... 26
Liquidity and Capital Resources................................................. 28
Seasonality..................................................................... 28
New Accounting Pronouncement.................................................... 28
Quantitative and Qualitative Disclosures About Market Risk...................... 28
BUSINESS............................................................................ 29
MANAGEMENT.......................................................................... 37
PRINCIPAL STOCKHOLDERS.............................................................. 43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................... 45
DESCRIPTION OF CAPITAL STOCK........................................................ 46
WHERE YOU CAN FIND MORE INFORMATION................................................. 48
INDEX TO COMBINED FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
-i-
<PAGE>
SUMMARY
This summary highlights selected information from this document but does
not contain all details concerning the spin-off or Marine Products, including
information that may be important to you. To better understand the spin-off and
Marine Products, you should carefully read this entire document. References in
this document to "we," "our," "us," or "Marine Products," mean Marine Products
Corporation and its sole subsidiary, Chaparral Boats, Inc., after the spin-off
and RPC's powerboat manufacturing business segment prior to the spin-off.
Questions and Answers About the Spin-off and Marine Products
Q: Why Is RPC Separating Its Businesses?
A: RPC's board of directors has determined that the separation of its oil and
gas services businesses from its powerboat manufacturing business is in the
best interests of its stockholders. RPC's board of directors believes that
the oil and gas services and powerboat manufacturing businesses have
distinct financial and operating characteristics and that separating the
businesses will:
o enable each company's management team to focus exclusively on
improving each company's operations, strategic directions and core
business, thereby maximizing stockholder value over the long- term for
both RPC and Marine Products;
o separate management and ownership structures for the companies and
provide each company's management with direct stock-based incentives
and accountability to their respective public investors;
o enable investors and analysts to better measure the performance of
both RPC and Marine Products against other comparable companies in
similar businesses; and
o enable both RPC and Marine Products to more effectively pursue growth
opportunities through acquisitions and provide each company direct
access to capital markets and the ability to use its own stock as an
acquisition currency to acquire targeted companies. See "The Spin-off
-- Background and Reasons for the Spin-off."
Q: Why Is the Separation of the Two Companies Structured As A Spin-off?
A: RPC's board of directors believes that a tax-free distribution of shares of
the powerboat manufacturing business offers RPC and its stockholders the
greatest long-term value and is the most tax efficient way to separate the
companies.
Q: What Will the Spin-off Accomplish?
A: The spin-off will separate RPC's powerboat manufacturing business from its
other businesses, resulting in two independent companies, each focused on
its core business:
o RPC - provides a broad range of specialized oilfield services and
equipment primarily to independent and major oilfield companies
engaged in exploration, production and development of oil and gas
properties throughout the United States, including the Gulf of Mexico,
mid-continent, southwest and Rocky Mountain regions, and in selected
international locations.
o Marine Products - a leading supplier of powerboats to the recreational
boating industry through its wholly-owned subsidiary, Chaparral.
Marine Products manufactures three lines of powerboats, including
sportboats, deckboats and cruisers that are sold in the U.S. through a
nationwide network of independent dealers and in selected
international markets. See "Business."
1
<PAGE>
Q: Who Will Receive Marine Products Common Stock?
A: Holders of RPC common stock as of the close of business on ________, 2000
will receive Marine Products common stock.
Q: How Many Shares of Marine Products Common Stock Will I Receive?
A: You will receive 0.5 shares of Marine Products common stock for each share
of RPC common stock you hold as of the close of business on the record
date. We estimate that RPC will distribute approximately 14,132,128 shares
of Marine Products common stock, based on 28,264,255 RPC common shares
outstanding on September 30, 2000. The shares to be distributed will
constitute all of the outstanding shares of Marine Products common stock
immediately after the spin-off.
Q: When Will I Receive Shares of Marine Products Common Stock?
A: On the distribution date, RPC will deliver certificates representing the
shares of Marine Products common stock to the distribution agent for
distribution. The distribution agent will make the appropriate book-entry
or mail certificates representing the shares of Marine Products common
stock to holders of RPC common stock as soon as practicable thereafter. See
"The Spin-off - Mechanics of the Spin-off."
Q: Who Is Acting As the Distribution Agent?
A: SunTrust Bank N.A. of Atlanta, Georgia.
Q: Should I Send In My RPC Stock Certificates For Exchange?
A: No. Holders of RPC common stock should not send stock certificates to RPC,
Marine Products or the distribution agent. See "The Spin-off - Mechanics of
the Spin-off."
Q: What Do Stockholders Need To Do To Participate in the Spin-off?
A: Nothing. To effect the spin-off, RPC will declare and distribute to each of
its stockholders a dividend of 0.5 shares of Marine Products common stock
for each share of RPC common stock held as of the close of business on
________, 2000.
Q: Will the Spin-off Change the Number of Shares I Own in RPC?
A: No. The spin-off will not change the number of RPC common shares RPC
stockholders own. Immediately after the spin-off, RPC's stockholders will
continue to own their respective proportionate interest in RPC's oil and
gas services and powerboat manufacturing businesses. However, stockholders
will now own their interest in these businesses through their ownership of
stock in each of two independent public companies, RPC and Marine Products.
Q: Are There Risks To Owning Marine Products Common Stock?
A: Yes. Marine Products' business is subject to both general and specific
business risks relating to its operations. In addition, Marine Products'
separation from RPC presents risks relating to it being an independent
public company for the first time as well as risks relating to the nature
of the spin-off transaction itself. These risks are described in the "Risk
Factors" section beginning on page 8. We encourage you to read that section
carefully.
Q: Will RPC Retain Any Ownership Interest In Marine Products After the
Spin-off?
A: No. RPC will not own any shares of Marine Products common stock after the
spin-off and Marine Products will not own any shares of RPC common stock
after the spin-off.
2
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Q: Will My Dividends Change?
A: Yes. RPC has paid cash dividends on its common stock since December, 1997.
While both RPC and Marine Products expect to pay dividends to their
stockholders, the final determination will be made by the respective
companies' boards of directors. See "Dividend Policy."
Q: Will Marine Products Common Stock Be Publicly Traded?
A: On November 27, 2000, an application for listing the common stock of Marine
Products was made to the American Stock Exchange ("AMEX"). We expect that
Marine Products common stock will be approved for listing on the AMEX under
the ticker symbol "MPX" and that regular trading will begin on or about
___________, 2001. In addition, RPC's common stock will continue to be
listed on the NYSE under the symbol "RES." See "The Spin-off -- Listing and
Trading of Marine Products and RPC Common Stock."
Q. Will the Spin-off Affect the Trading Price Of My RPC Common Stock?
A: Probably. After the spin-off, the trading price of RPC common stock will
likely be lower than the trading price immediately prior to the spin-off.
Moreover, until the market has evaluated the operations of RPC without
Marine Products' operations, the trading price of RPC common stock may
fluctuate significantly. The combined trading prices of RPC common stock
and Marine Products common stock (adjusted for the distribution ratio)
after the spin-off may be less than the trading price of RPC common stock
prior to the spin-off. See "The Spin-off -- Listing and Trading of Marine
Products and RPC Common Stock."
Q: What Will Happen To My Outstanding Options and Restricted Stock Awards?
A: If, immediately following the spin-off, an RPC option or award holder is:
o an RPC employee - his or her outstanding options and performance
restricted stock awards that have not been earned and issued into
escrow will be adjusted to account for the spin-off, based on the
average trading price of RPC's common stock relative to that of the
combined daily average trading prices of one share of RPC and one-half
share of Marine Products, in each case during the 10 consecutive
trading days beginning on the trading day that is 10 trading days
after the effective date of the spin-off. Employees with time-lapse
restricted stock awards or performance restricted stock awards that
have been issued and are being held in escrow on their behalf as of
the close of business on the record date will receive 0.5 shares of
Marine Products common stock for each share of RPC common stock held
in escrow as of the close of business on the record date, pursuant to
the spin-off. Any shares of Marine Products common stock received by
an RPC employee as a dividend pursuant to the spin-off will also be
held in escrow on the same terms as the original award by RPC to such
employee.
o a Marine Products or Chaparral employee - his or her outstanding
options and performance restricted stock awards that have not been
earned and issued into escrow granted under RPC's 1994 Employee Stock
Incentive Plan (the "RPC 1994 Plan") will automatically terminate and
such employee will be granted replacement options and/or awards under
the Marine Products 2000 Employee Stock Incentive Plan (the "Marine
Products 2000 Plan"), equivalent in value to the RPC options and
awards that terminated as a result of the spin-off, based on the
average trading price of one-half share of Marine Products common
stock relative to that of the combined daily average trading price of
one share of RPC and one-half share of Marine Products, in each case
during the 10 consecutive trading days beginning on the trading day
that is 10 trading days after the effective date of the spin-off.
In addition, time-lapse restricted stock awards and performance
restricted stock awards that have been issued and are being held in
escrow on behalf of a Marine Products or Chaparral employee as of the
close of business on the record date will also automatically
terminate; however, prior to such termination, each such employee will
3
<PAGE>
be granted replacement awards under the RPC 1994 Plan substantially
identical to the original RPC awards except that employment by Marine
Products or Chaparral after the spin-off will continue the
effectiveness of the replacement grant. Immediately after the
spin-off, each employee that receives an RPC replacement grant will
also receive 0.5 shares of Marine Products common stock for each share
subject to the RPC replacement grant as of the close of business on
the record date, pursuant to the spin-off. Any shares received by a
Marine Products or Chaparral employee as a result of the RPC
replacement awards or as a dividend thereon pursuant to the spin-off
will also be held in escrow on the same terms as the original award by
RPC to such employee.
o an employee of both RPC and Marine Products - two-thirds of his or her
outstanding options and performance restricted stock awards that have
not been earned and issued into escrow will remain as RPC options and
awards and will be adjusted to account for the spin-off as discussed
in the first bullet point above, and the remaining one-third of such
options and performance restricted stock awards granted under the RPC
1994 Plan will be surrendered for cancellation and such employee will
be granted replacement options and/or awards under the Marine Products
2000 Plan, equivalent in value to the RPC options and awards that are
surrendered for cancellation, as discussed in the second bullet point
above. Employees with time-lapse restricted stock awards or
performance restricted stock awards that have been issued and are
being held in escrow on their behalf as of the close of business on
the record date will receive 0.5 shares of Marine Products common
stock for each such share of RPC common stock held in escrow, pursuant
to the spin-off. Any shares of Marine Products common stock received
by such employees as a dividend pursuant to the spin-off will also be
held in escrow on the same terms as the original award by RPC to such
employee.
See "The Spin-off -- Effect of the Spin-off on RPC Outstanding Options and
Restricted Stock Awards" and "Management -- Employee Benefit Plans" below.
Q: Will RPC And Marine Products Be Related In Any Way After the Spin-off?
A: Although RPC will no longer have any ownership interest in Marine Products
after the spin-off, RPC and Marine Products will initially have common
board members, including a common chairman of the board of directors, and
common executive officers. As of the record date, the executive officers
and directors of RPC and members of their family directly or indirectly
owned approximately 8,771,277 (or 61.7 percent) of the outstanding shares
of RPC common stock and will own the same percentage of outstanding shares
of Marine Products immediately following the spin-off. RPC and Marine
Products have also entered into various agreements to define their
continuing business relationships. See "The Spin-off -- Relationship
Between RPC and Marine Products After the Spin-off."
Q: When Will the Spin-off Become Effective?
A: The spin-off will be effective as of 5:00 p.m. E.S.T on ____________, 2001.
Q: What Are the Conditions To the Spin-off Becoming Effective?
A: The completion of the spin-off depends upon meeting a number of conditions,
including:
o There having been no change in circumstances that would negate the
effectiveness of the Internal Revenue Service ("IRS") letter ruling as
to the tax-free nature of the spin-off;
o the receipt of all necessary regulatory approvals;
o compliance with the rules and regulations of the Securities and
Exchange Commission and listing requirements of the NYSE and AMEX; and
o election of the board of directors for Marine Products and the
adoption of Marine Products' bylaws.
4
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Q: Can RPC Decide Not To Go Through With The Spin-off?
A: Yes. RPC can cancel the spin-off for any reason at any time before it is
completed.
Q: Will RPC or I Be Taxed On The Spin-off?
A: RPC has received a letter ruling from the IRS to the effect that, based on
the facts and representations made in connection with obtaining the letter
ruling, the spin-off will qualify as tax-free to RPC and its stockholders
for federal income tax purposes, except for cash received in lieu of
fractional shares. The tax ruling does not address state, local or foreign
tax consequences that may apply to RPC stockholders. You should consult
your tax advisor as to the particular tax consequences to you of the
spin-off. You should also review the discussion of the risks relating to
the tax-free qualification of the spin-off that begins on page 8 of this
document and the discussion under "U.S. Federal Income Tax Consequences of
the Spin-off" that begins on page 18 of this document.
Q: Where Can RPC Stockholders Get More Information?
A: You may direct questions to RPC's Investor Relations Department, 2170
Piedmont Road, NE, Atlanta, Georgia 30324, telephone number: 404-321-2140;
or you may contact the distribution agent for the spin-off, SunTrust Bank,
Stock Transfer Department, P.O. Box 4625, Atlanta, Georgia 30302, telephone
number: (404) 588-7817.
5
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SUMMARY COMBINED FINANCIAL DATA
The following summary combined financial data of Marine Products highlights
selected historical and pro forma financial data and should be read in
conjunction with the Combined Financial Statements and the pro forma combined
financial data included elsewhere in this document. The pro forma balance sheet
data has been derived from the unaudited combined balance sheet as of September
30, 2000 and the audited combined balance sheet as of December 31, 1999. The pro
forma statements of income data present the combined results of operations of
Marine Products assuming the transaction occurred at the beginning of the
applicable period. Except for share and per share information, management
believes no pro forma adjustments are required to the historical statement of
income data presented below, therefore, the pro forma and historical statement
of income data are the same. The capital structure that existed when Marine
Products' business operated as part of RPC is not meaningful because it does not
reflect Marine Products' expected capital structure after the spin-off.
Accordingly, share and per share information have been presented for pro forma
purposes only. The historical financial information presents information for
Marine Products for the periods in which it operated as the powerboat
manufacturing business of RPC. Neither the historical financial information nor
the pro forma data presented below is necessarily indicative of the results of
operations or financial position that Marine Products would have reported if it
had operated as an independent company during the periods presented, nor is it
necessarily indicative of Marine Products' future performance as an independent
company.
For management's explanation of the following results of operations and
financial condition, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months Ended September 30, Years Ended December 31,
------------------------------------- ----------------------------------------------
(Unaudited) (Audited)
--------------------------------------------------- -------------------------------
Pro Forma Pro Forma
2000 2000 1999 1999 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales $ 115,573 $ 115,573 $ 91,592 $ 122,878 $122,878 $103,497 $ 95,029
Cost of Goods Sold 89,422 89,422 69,289 93,247 93,247 77,776 72,899
------------------------------------------------------------------------------------
Gross Profit 26,151 26,151 22,303 29,631 29,631 25,721 22,130
Operating Income 12,582 12,582 10,910 14,484 14,484 12,143 10,414
Gain on Settlement of Claim (a) 6,817 6,817 -- -- -- -- --
Income before Income Taxes 19,595 19,595 11,077 14,717 14,717 12,383 10,628
------------------------------------------------------------------------------------
Net Income $ 12,149 $ 12,149 $ 6,868 $ 9,118 $ 9,118 $ 7,674 $ 6,561
====================================================================================
Pro Forma Earnings Per Share (b) $ 0.87 -- -- $ 0.65 -- -- --
Pro Forma Average Common
Shares Outstanding (b) 13,918 -- -- 14,089 -- -- --
OTHER DATA:
Adjusted EBITDA (c) (d) $ 13,874 $ 13,874 $ 12,054 $ 16,029 $16,029 $13,542 $ 11,710
Gross Profit Margin 22.6% 22.6% 24.4% 24.1% 24.1% 24.9% 23.3%
Operating Income Margin 10.9% 10.9% 11.9% 11.8% 11.8% 11.7% 11.0%
Net Cash Provided by Operating
Activities (d) 12,214 12,214 4,407 9,235 9,235 8,382 7,180
Depreciation and Amortization 1,292 1,292 1,144 1,545 1,545 1,399 1,296
Capital Expenditures $ 3,859 $ 3,859 $ 1,223 $ 1,810 $ 1,810 $ 2,192 $ 679
Number of Boats Sold 4,689 4,689 3,796 5,093 5,093(e) 4,704(e) 4,757(e)
Employees at End of Period 733 733 621 683 683(e) 579(e) 501(e)
BALANCE SHEET DATA:
Inventories $ 14,196 $ 14,196 $ 14,281 $ 13,703 $13,703 $10,688 $ 9,752
Working Capital 25,290 13,211 12,935 24,083 12,514 11,272 9,564
Property, Plant and Equipment, net 9,794 9,794 6,356 6,714 6,714 5,768 4,291
Total Assets 49,756 101,218 85,731 45,061 88,168 77,585 68,452
Total Stockholder's Equity 39,319 90,781 78,687 35,525 78,632 69,514 61,840
---------------------
</TABLE>
6
<PAGE>
(a) The gain on settlement of claim represents the settlement proceeds of an
antitrust allegation asserted against Brunswick Corporation by the American
Boatbuilders Association (ABA), of which Chaparral is a member. Under the
terms of the agreement Brunswick agreed to pay the ABA a nonrefundable $35
million payment, plus additional amounts contingent upon the final outcome
of a lawsuit brought by the Independent Boatbuilders Association (IBBI)
against Brunswick. In March 2000, the U.S. Court of Appeals entered a
verdict in favor of Brunswick thereby eliminating the possibility of any
additional payments under the ABA settlement. The $6,817,000 represents
Marine Products' pre-tax share of the settlement proceeds.
(b) Earnings per share information has been calculated using the pro forma
average outstanding common shares for Marine Products. The pro forma
average outstanding common shares were derived from RPC's basic common
shares outstanding for the periods presented using a distribution ratio of
0.5 shares of Marine Products common stock for every one share of RPC
common stock. Outstanding stock options and other stock awards of Marine
Products do not have a material dilutive effect in any of the periods
presented. Pro forma earnings per share excluding the effect of the gain on
settlement of claim (see footnotes (a) and (d)) would have been $0.57 for
the nine months ended September 30, 2000.
(c) Adjusted EBITDA represents income before income taxes, gain on settlement
of claim and interest income, plus depreciation and amortization. EBITDA is
not presented as a substitute for income from operations, net income or
cash flows from operating activities. Marine Products has presented EBITDA
data (which is not a measure of financial performance under accounting
principles generally accepted in the United States) because such data is
used by certain investors to analyze and compare companies on the basis of
operating performance, leverage and liquidity, and to determine a company's
ability to service debt.
(d) Excludes the effect of the gain on settlement of claim ($6,817,000 pretax,
$4,227,000 after tax). See footnote (a) for additional information.
(e) Unaudited data.
7
<PAGE>
RISK FACTORS
In addition to the other information included in this information
statement, you should be aware of the following risk factors in connection with
the spin-off and ownership of shares of Marine Products common stock.
RISKS RELATING TO THE SPIN-OFF
Marine Products Has No Operating History As An Independent Public Company
Although Marine Products' business will consist of the business operations
formerly constituting RPC's powerboat manufacturing business, Marine Products
does not have an operating history as an independent public company. Marine
Products has historically relied on RPC for financial, administrative and
managerial support. Except for certain services for which Marine Products will
reimburse RPC during a transition period following the effective time of the
spin-off, RPC will not support Marine Products after the spin-off. Following the
spin-off, Marine Products will maintain, as needed, its own lines of credit and
banking relationships and perform its own administrative functions. There can be
no assurance that Marine Products will be able to develop successfully the
financial, administrative and managerial structure necessary to operate as an
independent public company, or that the development of such structure will not
require a significant amount of management's time and other resources or that
the historical risks of Marine Products' business will not have a heightened
effect upon Marine Products due to the support and combined operations of RPC
not being available to Marine Products after the spin-off.
If The Spin-off is Taxable, You Could Be Required To Pay Tax On The Value of
Your Marine Products Shares And RPC Could Be Adversely Affected By Any Resulting
Corporate Tax Liability
RPC has received a letter ruling from the IRS confirming that the spin-off
will qualify as a tax-free distribution to RPC stockholders and to RPC. Whether
a spin-off qualifies as tax-free depends in part upon the reasons for the
spin-off and satisfaction of numerous other fact-based requirements. The IRS
letter ruling is based upon various factual representations made by RPC. If any
of those factual representations are incorrect or incomplete in any material
respect, or if the facts upon which the letter ruling is based are materially
different from the facts at the time of the spin-off, the spin-off could be
taxable to RPC stockholders, to RPC, or both.
If the spin-off fails to qualify as a tax-free distribution for U.S.
federal income tax purposes, RPC stockholders who receive shares of Marine
Products common stock in the spin-off would be treated as if they had received a
taxable distribution in an amount equal to the fair market value of Marine
Products common stock received. The amount of the taxable distribution would be
taxed as a dividend.
If the spin-off were to not qualify as a tax-free distribution for U.S.
federal income tax purposes to RPC stockholders, then, in general, a corporate
income tax could also be payable by the combined tax group of which RPC is the
common parent. Even if the spin-off qualifies as a tax-free distribution to RPC
stockholders, a corporate income tax would also be payable if, during the
four-year period beginning two years before the spin-off, one or more persons
acquires a 50 percent or greater interest in RPC or Marine Products as part of a
plan or series of related transactions that included the spin-off. See "The
Spin-off -- Tax Sharing Agreement" and "--U.S. Federal Income Tax Consequences
of the Spin-off."
There Is No Trading History For Marine Products Common Stock
There is no trading market for Marine Products common stock. However, a
limited market, commonly known as a "when issued" trading market, for its common
stock may develop on or shortly before the record date for the spin-off, and
Marine Products expects "regular way" trading will begin the first trading day
after the spin-off.
The market price of Marine Products common stock may fluctuate
significantly due to a number of factors, some of which may be beyond its
control, including:
o the possibility that its business profile may not fit the investment
objectives of RPC's stockholders, causing some of them to sell their
shares after the spin-off;
o the potential absence of securities analysts covering Marine Products
stock and distributing research and investment recommendations about
Marine Products stock;
8
<PAGE>
o changes in earnings estimates by securities analysts or Marine
Products' ability to meet those estimates;
o the operating results and stock price performance of other comparable
companies;
o overall stock market fluctuations; and
o economic conditions generally.
In particular, the occurrence of any of the risks described in these "Risk
Factors" could have a significant and adverse impact on the market price of
Marine Products common stock. In addition, the stock market in general has
experienced volatility that has often been unrelated or disproportionate to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the trading price of Marine Products common stock,
regardless of Marine Products' actual operating performance.
Trading In Marine Products Common Stock Is Subject To American Stock Exchange
Listing Approval and RPC Common Stock Is Subject To NYSE Continued Listing
Approval
On November 27, 2000, an application for listing the common stock of Marine
Products was made to the AMEX. Marine Products expects that Marine Products'
common stock will be approved for listing on the AMEX under the ticker symbol
"MPX" and that regular trading will begin on or about ___________, 2001. RPC
expects that its common stock will continue to be listed and traded under the
symbol "RES" following the spin-off. However, until the AMEX approves the
listing for Marine Products and the NYSE approves RPC for continued listing,
there can be no assurance that either company's common stock will be traded on
the AMEX or NYSE following the spin-off as applicable. See "The Spin-off --
Listing and Trading of Marine Products and RPC Common Stock."
Agreements Between RPC And Marine Products Were Not Negotiated On An
Arm's-Length Basis
The terms of the agreements between RPC and Marine Products relating to the
spin-off were not negotiated on an arm's length basis and were determined by RPC
as the sole stockholder of Marine Products. Although RPC's management believes
that the agreements are reasonable, the terms of these agreements may not
reflect the terms that would have been obtained from an unrelated third party.
RPC, as the sole stockholder of Marine Products, has ratified the terms of these
agreements, and Marine Products has acknowledged that the agreements will
constitute valid obligations.
Several persons associated with RPC will have a continuing relationship
with Marine Products. The current directors of RPC also comprise the board of
directors of Marine Products. The chief executive officer and chairman of the
board of directors, the president and chief operating officer, the chief
financial officer and the secretary of Marine Products will serve in similar
capacities for RPC. These persons, currently associated with RPC, were asked to
serve as directors or officers of Marine Products because of their knowledge and
experience with the business of Marine Products and its operations. Although
each of them will have a fiduciary responsibility to both RPC and Marine
Products, there can be no assurance that conflicts of interest will not arise
between these persons and Marine Products or between RPC and Marine Products.
See "Management."
RISKS RELATING TO THE BUSINESS OF MARINE PRODUCTS AFTER THE SPIN-OFF
Marine Products' Dependence On Its Network Of Independent Boat Dealers May
Affect Its Growth Plans And Revenues
Virtually all of Marine Products' revenue is derived from its network of
independent boat dealers. Marine Products has no long-term agreements with these
dealers. Dealer competition continues to increase based on the quality of
available products, the price and value of the products, and attention to
customer service. We face intense competition from other recreational powerboat
manufacturers in attracting and retaining independent boat dealers. The number
of independent boat dealers supporting the Chaparral trade name and the quality
of their marketing and servicing efforts are essential to Marine Products'
ability to generate revenue. A deterioration in the number or quality of Marine
Products' network of independent boat dealers would have a material adverse
9
<PAGE>
effect on its results of operations. Marine Products' inability to attract new
dealers and retain those dealers, or its inability to increase sales with
existing dealers could substantially impair its ability to execute its growth
plans.
Although Marine Products' management believes that the quality of its
products and services in the recreational powerboat market should permit it to
maintain its relationship with its dealers and its market position, there can be
no assurance that Marine Products will be able to sustain its current revenue
levels. In addition, independent dealers in the recreational boating industry
have experienced significant consolidation in recent years, which could result
in the loss of one or more of Marine Products' dealers in the future if the
surviving entity in any such consolidation purchases similar products from a
Marine Products competitor. See "Business -- Growth Strategies."
Marine Products Sales Are Affected By Weather Conditions
Marine Products' business is subject to weather patterns which may
adversely affect the results of its operations. For example, drought conditions,
or merely reduced rainfall levels, or excessive rain, may close area boating
locations or render boating dangerous or inconvenient, thereby curtailing
customer demand for our products. In addition, unseasonably cool weather and
prolonged winter conditions may lead to a shorter selling season in some
locations. These conditions will continue to represent potential material risks
to Marine Products and its future financial performance.
Marine Products Has Potential Liability for Personal Injury and Property Damage
Claims
The products we sell or service may expose Marine Products to potential
liabilities for personal injury or property damage claims relating to the use of
those products. Historically, the resolution of product liability claims has not
materially affected Marine Products' business. Marine Products will maintain
product liability insurance that it believes to be adequate. However, there can
be no assurance that Marine Products will not experience legal claims in excess
of its insurance coverage or that claims will be covered by insurance.
Furthermore, any significant claims against Marine Products could adversely
affect its business, financial condition and results of operations, and result
in negative publicity.
Because Marine Products Relies On Third Party Vendors, Marine Products May Be
Unable To Obtain Adequate Raw Materials
Marine Products is dependent on third party vendors to provide raw
materials and components essential to the construction of its various
powerboats. Especially critical are the availability and cost of marine engines
and commodity raw materials used in the manufacture of Marine Products' boats.
While Marine Products' management believes that vendor relationships currently
in place are sufficient to provide the materials necessary to meet present
production demands, there can be no assurance that these relationships will
continue or that the quantity or quality of materials available from these
vendors will be sufficient to meet Marine Products' future needs irrespective of
whether Marine Products successfully implements its growth and acquisition
strategies. Disruptions in current vendor relationships or the inability of
Marine Products to continue to purchase construction materials in sufficient
quantities and of sufficient quality to meet ongoing production schedules would
have a material adverse effect on operating results. Additionally, because of
this dependence, the volatility in commodity raw materials or current or future
price increases in construction materials or the inability of Marine Products'
management to purchase construction materials required to complete its growth
and acquisition strategies could have a material adverse effect on Marine
Products' business, financial condition and results of operations.
Marine Products May Be Unable To Identify Or Complete Acquisitions
Marine Products intends to pursue acquisitions and form strategic alliances
that will enable Marine Products to acquire complementary skills and
capabilities, offer new products, expand its customer base and obtain other
competitive advantages. There can be no assurance, however, that Marine Products
will be able successfully to identify suitable acquisition candidates or
strategic partners, obtain financing on satisfactory terms, complete
acquisitions or strategic alliances, integrate acquired operations into its
existing operations or expand into new markets. Once integrated, acquired
operations may not achieve anticipated levels of revenue, profitability or
otherwise perform as expected. Acquisitions also involve special risks,
including risks associated with unanticipated problems, liabilities and
contingencies, diversion of management resources and possible adverse effects on
earnings and earnings per share resulting from increased goodwill amortization,
increased interest costs, the issuance of additional securities and difficulties
10
<PAGE>
related to the integration of the acquired business. The risks associated with
acquisitions could have a material adverse effect on Marine Products' business,
financial condition and results of operations.
Marine Products Success Will Depend On Its Key Personnel, And The Loss Of Any
Key Personnel May Adversely Affect Its Business
Marine Products' success will depend to a significant extent on the
continued service of key management personnel. The loss or interruption of the
services of any senior management personnel or the inability to attract and
retain other qualified management, sales, marketing and technical employees
could also have an adverse effect on Marine Products.
Marine Products' Ability To Attract And Retain Qualified Employees Is Crucial To
Its Results Of Operations And Future Growth
Marine Products relies on the existence of an available hourly workforce to
manufacture its products. As with many businesses, we are challenged to find
qualified employees. There are no assurances that Marine Products will be able
to attract and retain qualified employees to meet current and/or future growth
needs.
If Marine Products Is Unable To Comply With Environmental And Other Regulatory
Requirements Its Business May Be Adversely Affected
Marine Products' operations are subject to extensive regulation,
supervision, and licensing under various federal, state, and local statutes,
ordinances, and regulations. While Marine Products believes that it maintains
all requisite licenses and permits and is in compliance with all applicable
federal, state, and local regulations, there can be no assurance that Marine
Products will be able to continue to maintain all requisite licenses and
permits. The failure to satisfy these and other regulatory requirements could
have a material adverse effect on its business, financial condition and results
of operations. The adoption of additional laws, rules and regulations could also
have a material adverse effect on its business.
As with boat construction in general, our manufacturing processes involve
the use, handling, storage, and contracting for recycling or disposal of
hazardous or toxic substances or wastes. Accordingly, we are subject to
regulations regarding such substances, and the misuse or mishandling of such
substances could have a material adverse effect on Marine Products' business,
financial condition and results of operations.
Additionally, certain states have required or are considering requiring a
license in order to operate a recreational boat. While such licensing
requirements are not expected to be unduly restrictive, regulations may
discourage potential first-time buyers, thereby impacting future sales, which
could adversely affect our business, financial condition and results of
operations.
Marine Products Management Has A Substantial Ownership Interest; Public
Stockholders May Have No Effective Voice In Marine Products Management
Upon completion of the spin-off, Marine Products' executive officers,
directors and their affiliates will hold directly or through indirect beneficial
ownership, in the aggregate, approximately 62 percent of Marine Products'
outstanding common stock. As a result, these stockholders will effectively
control the operations of Marine Products, including the election of directors
and approval of significant corporate transactions such as acquisitions. This
concentration of ownership could also have the effect of delaying or preventing
a third party from acquiring control over Marine Products at a premium. In
addition, the availability of Marine Products common stock to the investing
public is limited to those shares not held by the executive officers, directors
and their affiliates, which could negatively impact Marine Products' stock
trading prices and affect the ability of minority stockholders to sell their
shares. Future sales by executive officers, directors and their affiliates of
all or a portion of their shares could also negatively affect the trading price
of Marine Products common stock. See "Principal Stockholders."
Provisions In Marine Products' Certificate of Incorporation And Bylaws May
Inhibit A Takeover Of Marine Products
Marine Products' certificate of incorporation, bylaws and other documents
contain provisions that may make more difficult or expensive, or that may
otherwise discourage, a tender offer, change in control or takeover attempt that
is opposed by Marine Products' board of directors. These provisions include:
11
<PAGE>
o limitation on the removal of directors only for "cause" and a
supermajority vote;
o limitations on who may call special meetings of stockholders;
o advance notice procedures to nominate candidates for election to
Marine Products' board of directors or to place stockholder proposals
on the agenda for consideration at annual or special meetings of
stockholders; and
o supermajority voting to amend or repeal certain provisions of Marine
Products' certificate of incorporation and bylaws.
The certificate of incorporation also authorizes the board to issue up to 1
million shares of preferred stock without stockholder approval, which would make
it difficult for anyone to acquire Marine Products without approval of the board
of directors because an issuance of preferred stock may contain conversion
rights, dividend and special voting rights which could inhibit such acquisition
attempts.
In addition, the Marine Products 2000 Employee Stock Incentive Plan
contains provisions permitting the acceleration or modification of benefits upon
a change in control of Marine Products.
Additionally, certain provisions of Marine Products' contractual
arrangements with RPC may also have anti-takeover effects. Marine Products has
agreed to indemnify RPC for any tax liability resulting from the sale of Marine
Products to a third party after it is spun off from RPC. This provision may
discourage or preclude an acquisition of Marine Products because it would make
the acquisition more expensive. See "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
Please carefully consider and evaluate all of the information provided in
this information statement, including the risk factors described in more detail
under "Risk Factors" above. In addition to historical information, this
information statement includes "forward-looking statements," as that term is
defined in Section 27A of the Securities Act and in Section 20A of the
Securities Exchange Act, and information that is based on Marine Products'
beliefs, plans, expectations and assumptions and on information currently
available to Marine Products and RPC. These forward-looking statements are
contained principally under the headings "Summary," "Risk Factors," "The
Spin-off," "Capitalization," "Pro Forma Combined Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business," and "Management." Although Marine Products believes that its
expectations reflected in these forward-looking statements are based on
reasonable assumptions, Marine Products' expectations may not prove to be
correct. The words "may," "should," "expect," "anticipate," "intend," "plan,"
"believe," "seek," "estimate," and similar expressions used in this information
statement that do not relate to historical facts are intended to identify
forward-looking statements.
The forward-looking statements in this information statement are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions, including but not limited to the risk factors described above under
"Risk Factors." Many of such factors are beyond Marine Products' ability to
control or predict. As a result, Marine Products' future actions, financial
condition, results of operations and stock price could differ materially from
those expressed in any forward-looking statements made by Marine Products. You
should not put undue reliance on forward-looking statements. Any such statement
speaks only as of the date of this information statement, and we do not have any
intention or obligation to update forward-looking statements after we distribute
this information statement, even if new information, future events or other
circumstances have made them incorrect or misleading. For those statements, we
claim the protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995.
12
<PAGE>
THE SPIN-OFF
BACKGROUND AND REASONS FOR THE SPIN-OFF
The RPC board of directors has determined that the spin-off is in the best
interest of RPC and its stockholders because following the spin-off the two
independent companies will be better positioned to adopt strategies and pursue
objectives appropriate to their respective needs. The powerboat manufacturing
business and the oil and gas services business each have different operating
objectives and growth opportunities. By separating the operations, RPC and
Marine Products can focus their attention and financial resources on their own
core business and on exploring and implementing the most appropriate business
opportunities. While RPC will continue to focus on oil and gas services, Marine
Products will focus on providing its customers with quality, innovative
powerboats and related products and services.
The expected benefits of the spin-off include:
o providing each company's management the ability to focus their efforts
and financial resources on their respective core business;
o providing each company the ability to develop employee compensation
and benefit programs more appropriate to its individual operations,
including stock-based and other incentive programs that reward
employees of each company based on the success of the individual
company's operations;
o providing each company access to capital markets independently without
the capital resource allocation issues present within the combined
RPC;
o providing stock-based acquisition currency particular to each of the
companies; and
o enabling investors to make investment decisions based on the separate
operations of the companies.
MECHANICS OF THE SPIN-OFF
RPC will accomplish the spin-off by distributing 100 percent of the shares
of Marine Products common stock to RPC's stockholders as a dividend. On
__________, 2000, the RPC board of directors formally declared the dividend
necessary to effect the spin-off. Each RPC stockholder as of the close of
business on ___________, 2000, which is the record date for the spin-off, will
automatically participate in the spin-off. On the spin-off date, those RPC
stockholders will each receive 0.5 shares of Marine Products common stock for
each share of RPC common stock held as of the record date. RPC and Marine
Products expect that the spin-off will take place on or about ___________, 2001,
although completion of the spin-off is contingent upon the satisfaction of
conditions described in the Agreement Regarding Distribution and Plan of
Reorganization. See "The Spin-off - Agreement Regarding Distribution and Plan of
Reorganization" below.
As soon as practicable on or about the spin-off date, RPC will deliver to
the distribution agent, SunTrust Bank, Atlanta, Georgia, as agent for the RPC
stockholders, certificates representing shares of Marine Products common stock.
The distribution agent will then mail, on or about the spin-off date,
certificates representing the shares of Marine Products common stock to
stockholders of RPC as of the record date. Where appropriate, these transactions
may take place as book-entry only, without the delivery of any certificates. The
distribution agent will not distribute any fractional shares of Marine Products
common stock. Instead, the distribution agent will aggregate all fractional
shares, sell them on behalf of RPC stockholders who would otherwise have been
entitled to receive a fractional interest in Marine Products common stock and
distribute the cash proceeds to RPC stockholders, less a pro rata portion of the
aggregate brokerage commission payable in connection with such sales.
No RPC stockholder will be required to pay cash or other consideration for
any shares of Marine Products common stock received in the spin-off, or to
surrender or exchange shares of RPC common stock to receive Marine Products
common stock.
After the spin-off, Marine Products will be an independent public company.
The number and identity of stockholders of Marine Products immediately after the
spin-off generally will be the same as the number and identity of stockholders
13
<PAGE>
of RPC immediately prior to the spin-off. As a result of the spin-off, Marine
Products expects to have approximately ________ holders of record and
approximately 14,132,000 shares of Marine Products common stock outstanding,
based on the number of record stockholders and issued and outstanding shares of
RPC common stock as of the close of business on September 30, 2000 and the
distribution ratio. The actual number of shares of Marine Products common stock
to be distributed will be determined as of the record date. The spin-off will
not affect the number of outstanding shares of RPC common stock or the rights of
RPC stockholders.
RELATIONSHIP BETWEEN RPC AND MARINE PRODUCTS AFTER THE SPIN-OFF
The relationship between RPC and Marine Products after the spin-off will be
governed by the Agreement Regarding Distribution and Plan of Reorganization and
other agreements which will be entered into in connection with the spin-off. A
description of the material provisions of each of these agreements is presented
below. You should also refer to the actual agreements, copies of which are
included as exhibits to the Form 10 registration statement of which this
document forms a part. These agreements are intended to facilitate the
separation of RPC's powerboat manufacturing business from its oil and gas
services business and the operation of RPC and Marine Products as separate
companies following the spin-off. See "Where You Can Find More Information"
below.
Agreement Regarding Distribution And Plan Of Reorganization
Before the spin-off, RPC will enter into an Agreement Regarding
Distribution and Plan of Reorganization with Marine Products. This agreement
will set forth the principal corporate transactions required to effect the
separation of the powerboat manufacturing business from the oil and gas services
business, the continuation of the powerboat manufacturing business following
such separation, including the allocation between RPC and Marine Products of
certain assets and liabilities, and the distribution of shares of Marine
Products common stock. After the spin-off, all assets and liabilities relating
to the powerboat manufacturing business shall be owned and assumed by Marine
Products or its subsidiaries, and all assets and liabilities relating to the oil
and gas services business shall be owned and assumed by RPC or its subsidiaries.
RPC and Marine Products will complete the spin-off after the satisfaction
or waiver of all of the conditions to the spin-off, as determined by RPC's board
of directors in its sole discretion. The conditions include:
o the continued effectiveness of the IRS letter ruling received by RPC
to the effect that for federal income tax purposes the spin-off will
be tax-free to RPC and its stockholders under Section 355 of the
Internal Revenue Code such that the spin-off will not result in
recognition of any income, gain or loss for federal income tax
purposes to RPC or its stockholders, except for cash received in lieu
of fractional shares;
o the receipt of all necessary regulatory approvals;
o the effectiveness of the Form 10 registration statement of which this
information statement is a part;
o the mailing of this information statement to all stockholders of RPC
of record as of the record date;
o the election of the board of directors of Marine Products, as named in
the Form 10 registration statement and the adoption of Marine
Products' bylaws;
o the continued listing of RPC common stock on the NYSE and the approval
for listing of Marine Products common stock on the AMEX, subject to
official notice of issuance, or such other quotation system as Marine
Products' board of directors deem appropriate; and
o the absence of any order, injunction or decree issued by any court of
competent jurisdiction or other legal restraint or prohibition
preventing the completion of the distribution.
Although RPC may waive the conditions described above to the extent
permitted by law, RPC's board of directors presently has no intention of
proceeding with the spin-off unless each of these conditions is satisfied.
Releases and Indemnification. The distribution agreement provides for
indemnification against and a full and complete release and discharge of all
liabilities arising from or due to a failure by either party to pay, perform, or
discharge any liabilities accepted from the other party in connection with the
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<PAGE>
separation, any untrue or misleading statement by either party in any Form 10
registration statement or information statement prepared in accordance with
Regulation 14C, or any litigation arising from the parties' corporate
affiliation prior to the separation and not as a result of or attributable to
the indemnified party's fault or participation.
Expenses. Prior to the effective time of the spin-off, all fees, costs and
expenses incurred by either party, or by all counsel, accountants, and financial
and other advisors, in connection with the separation and distribution will be
paid by RPC and all such costs incurred at or after the effective time shall be
paid by the party incurring such costs. Also, RPC will pay all the fees, costs
and expenses associated with obtaining the IRS letter ruling and the
preparation, printing and filing of the Form 10 registration statement and this
information statement.
Transition Support Services Agreement
In connection with the spin-off, RPC and Marine Products will enter into a
Transition Support Services Agreement. Under this agreement, each of RPC and
Marine Products will agree to provide the other with certain requested
administrative and operational services. Each party will provide these services
until terminated by the party receiving the service. The party receiving the
services will be required to pay for them at rates agreed upon by RPC and Marine
Products within 30 business days after an invoice for such services. Both RPC
and Marine Products shall indemnify each other for any liabilities to which they
become subject as a result of furnishing or failing to furnish the services
provided for in such agreement.
Employee Benefits Agreement
In connection with the spin-off, Marine Products and RPC will enter into an
Employee Benefits Agreement that will provide for the transition from employee
benefits under plans or programs sponsored by RPC for its employees to employee
benefits under plans or programs sponsored by Marine Products for those
employees who will become employed by Marine Products (or remain employed by
Chaparral) following the completion of the spin-off. Under this agreement,
Marine Products will be required to continue providing welfare and retirement
benefits for Marine Products' employees at and after the effective date of the
spin-off. These benefits include medical and life insurance plans, a 401(k)
plan, a defined benefit pension plan, and policies covering vacations, holidays,
sick leave and short-term disability.
In connection with the spin-off and pursuant to the terms of the Employee
Benefits Agreement, Marine Products will adopt, as a "multiple employer", the
defined benefit pension plan and the 401(k) plan currently sponsored by RPC,
which will remain the principal sponsor of both plans. Benefits accrued as of
__________, 2001 under the RPC Retirement Income Plan (the "RPC Pension Plan")
and the RPC 401(k) plan by employees who become employees of Marine Products (or
remain employed by Chaparral) after the spin-off will thus be unaffected by the
spin-off.
Tax Sharing Agreement
After the spin-off, Marine Products will no longer be included in RPC's
combined group for U.S. federal income tax purposes. Before the spin-off, Marine
Products will enter into a Tax Sharing and Indemnification Agreement with RPC to
reflect its separation from RPC with respect to tax matters. The primary purpose
of such agreement is to reflect each party's rights and obligations relating to
payments and refunds of taxes that are attributable to periods beginning before
and including the date of the spin-off and any taxes resulting from transactions
effected in connection with the spin-off. With respect to any period ending on
or before the spin-off or any tax period in which the spin-off occurs, RPC will:
o continue to be the sole and exclusive agent for Marine Products in all
matters relating to the income, franchise, property, sales and use tax
liabilities of Marine Products;
o subject to Marine Products' obligation to pay for items relating to
its powerboat manufacturing business, bear any costs relating to tax
audits, including tax assessments and any related interest and
penalties and any legal, litigation, accounting or consulting
expenses;
o continue to have the sole and exclusive responsibility for the
preparation and filing of combined federal and combined state income
tax returns; and
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<PAGE>
o subject to the right and authority of Marine Products to direct RPC in
the defense or prosecution of the portion of a tax contest directly
and exclusively related to any Marine Products tax adjustment,
generally have the powers, in RPC's sole discretion, to contest or
compromise any claim or refund on Marine Products' behalf.
The agreement will provide for payments between the two companies to
reflect tax liabilities that may arise before, after and because of the
spin-off. It will also cover the handling of audits, settlements, elections,
accounting methods and return filings in cases where both companies have an
interest in the results of these activities.
For periods during which Marine Products is included in RPC's combined
federal income tax return or state combined or unitary tax returns which will
include the tax periods ending on or before the spin-off, Marine Products will
be required to pay an amount of income tax equal to the tax liability
attributable to Marine Products. On the date of the spin-off, Marine Products
will represent that it does not owe any amount of tax liability to RPC for
periods ending on or before the spin-off. However, Marine Products will be
responsible in the future for any increases in tax liability attributable to
Marine Products for any prior tax periods. Marine Products will be responsible
for its own tax liabilities that are not determined on a combined basis with
RPC.
Marine Products will cease to be a member of RPC's federal combined group
on the date of the spin-off. Each corporation that is a member of a combined
group during any portion of the group's tax year is jointly and severally liable
for the federal income tax liability of the group for that year. While the
agreement allocates tax liabilities between Marine Products and RPC during the
periods ending on or before the spin-off in which Marine Products is included in
RPC's combined group, Marine Products could be liable in the event federal tax
liability allocated to RPC is incurred, but not paid, by RPC or any other member
of RPC's combined group for RPC's tax years that include such periods. In such
event, Marine Products may be entitled to seek indemnification from RPC in
accordance with the agreement.
Even if the spin-off qualifies as a tax-free distribution to RPC
stockholders, a corporate tax could also be payable in accordance with Section
355(e) if, during the four-year period beginning two years before the spin-off,
one or more persons acquire 50 percent or more, by vote or value, of the capital
stock of RPC or Marine Products as part of a plan or series of related
transactions that include the spin-off. There is a presumption that any stock
acquisition or issuance that occurs within two years before or after the
spin-off is part of a plan related to the spin-off. If this change-in-control
occurs, and RPC or Marine Products were unable to disprove or rebut the
presumption, RPC would recognize a gain, if any, on the shares of Marine
Products common stock that it distributes in the spin-off.
To minimize this and other risks, Marine Products will agree with RPC to
refrain from engaging in specified transactions unless:
o a ruling from the IRS is received to the effect that the proposed
transaction will not result in the spin-off being taxable to RPC or
its stockholders; and
o an opinion of counsel recognized as an expert in federal income tax
matters and designated by RPC is received to the same effect and is
satisfactory to RPC in its sole and absolute discretion.
Transactions that may be affected by these restrictions relating to an
acquisition of a 50 percent or greater interest and other restrictions required
to preserve the tax-free nature of the spin-off include:
o a liquidation;
o a merger or consolidation with, or acquisition by, another company;
o issuances and redemptions of shares of Marine Products common stock;
o the exercise of stock options;
o the sale, distribution or other disposition of assets in a manner that
would adversely affect the tax consequences of the spin-off; and
o the discontinuation of material businesses.
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<PAGE>
Other transactions could also jeopardize the tax-free nature of the
spin-off.
The agreement will allocate responsibility for the possible corporate-level
tax burden resulting from the spin-off, as well as other tax items. If the
spin-off is taxable under Code Section 355(e) as a result of a 50 percent
acquisition, then the resulting corporate-level tax burden will be borne by that
entity, either Marine Products or RPC, with respect to which the 50 percent
acquisition has occurred. Similarly, if the spin-off is taxable due to any other
action taken by Marine Products or RPC that is inconsistent with the factual
representations on which the IRS letter ruling is based, the entity taking that
action will be responsible for the resulting corporate-level tax liability. Any
corporate-level income tax liability that results from the spin-off, but which
is not due to either a 50 percent acquisition or any action taken by either
party that is inconsistent with the IRS letter ruling, will be shared equally by
Marine Products and RPC.
EFFECT OF THE SPIN-OFF ON RPC OUTSTANDING OPTIONS AND RESTRICTED STOCK AWARDS
RPC Employees
Each individual who continues as an RPC employee after the spin-off, is not
employed by Marine Products or Chaparral, and who holds options to purchase RPC
common stock will have the exercise price and the number of shares subject to
the options granted under RPC's 1994 Plan prior to the effective date adjusted.
The exercise price for all such outstanding options will be determined by
multiplying the exercise price set forth in an employee's option grant agreement
by the RPC Average Percentage (as defined below), and the number of shares
subject to each such option will be determined by dividing the number of shares
subject to the option by the RPC Average Percentage. "RPC Average Percentage"
means the average closing price on the NYSE of one share of RPC common stock, or
if RPC's common stock is not traded on the NYSE, such other exchange or
quotation system on which it is traded, during the 10 consecutive trading days
beginning on the trading day that is 10 trading days after the effective date of
the spin-off divided by the sum of:
o the daily average of the closing price of one share of common stock of
RPC; and
o one-half of the daily average of the closing price on the AMEX of one
share of common stock of Marine Products,
in each case during the 10 consecutive trading days beginning on the trading day
that is 10 trading days after the effective date of the spin-off.
In addition, the number of shares set forth in each such RPC employee's
performance restricted stock grant agreements that have not been earned and
issued into escrow shall be adjusted such that the number of such shares shall
equal the number determined by dividing the number of shares set forth in the
agreement by the RPC Average Percentage, and each related stock price condition
shall be modified to be the number obtained by multiplying such average stock
price condition by the RPC Average Percentage.
No adjustment shall be made for any shares of RPC's common stock held in
escrow on behalf of an employee pursuant to a time-lapse restricted stock award
or performance restricted stock award that has been earned and issued. Employees
with time-lapse restricted stock awards or performance restricted stock awards
that have been issued and are being held in escrow on their behalf as of the
close of business on the record date will receive 0.5 shares of Marine Products
common stock for each share of RPC common stock held as of the close of business
on the record date as a dividend, pursuant to the spin-off. Such shares will
also be held in escrow on the same terms as the original award by RPC to such
employee.
All other provisions and terms of any stock option agreement and restricted
stock agreement previously entered into by RPC and its employees shall continue
to apply on and after the effective time of the spin-off with respect to any
options or awards previously granted under RPC's 1994 Plan, to the extent that,
prior to the effective time, they have not been exercised or become void under
the terms of such agreements under which such options or awards were granted.
Marine Products and Chaparral Employees
In connection with the spin-off, Marine Products will establish the Marine
Products 2000 Employee Stock Incentive Plan (the "Marine Products 2000 Plan"),
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<PAGE>
which will be substantially similar to RPC's 1994 Plan. Each employee of Marine
Products or Chaparral who will not remain an employee of RPC and who has
outstanding RPC options that will terminate at the effective time of the
spin-off will be granted Marine Products replacement options. The exercise price
will be determined by multiplying the Marine Products Average Percentage (as
defined below) by the original exercise price and multiplying the result times
two, and the number of shares subject to such replacement grant will be
determined by dividing the number of shares subject to options currently held by
the Marine Products Average Percentage and dividing the result by two. "Marine
Products Average Percentage" means one-half of Marine Products' average closing
price on the AMEX of one share of Marine Products common stock, or if the Marine
Products common stock is not traded on the AMEX, such other exchange or
quotation system on which it is traded, during the 10 consecutive trading days
beginning on the trading day that is 10 trading days after the effective date of
the spin-off divided by the sum of:
o the daily average of the closing price on the NYSE of one share of
common stock of RPC; and
o one-half of the daily average of the closing price of one share of
common stock of Marine Products,
in each case during the 10 consecutive trading days beginning on the trading day
that is 10 trading days after the effective date of the spin-off.
In addition, each employee of Marine Products or Chaparral who has
outstanding RPC performance restricted stock awards that have not been earned
and issued into escrow and that will terminate at the effective time of the
spin-off will be granted replacement Marine Products performance restricted
stock awards, the number of which will be determined by dividing the number of
shares subject to such RPC awards that have not been earned and issued into
escrow by the Marine Products Average Percentage and dividing the result by two.
The average stock price condition for each grant of replacement performance
restricted stock will be determined by multiplying each original average stock
price condition by the Marine Products Average Percentage and multiplying the
result times two.
Each such employee's outstanding time-lapse restricted stock awards and
performance restricted stock awards that have been issued and are being held in
escrow as of the close of business on the record date will automatically
terminate and, prior to such termination, such employee will be granted
substantially identical replacement awards under RPC's 1994 Plan that allow
employment by Marine Products or Chaparral after the spin-off to continue the
effectiveness of the replacement grant. Immediately after the spin-off, each
employee that receives an RPC replacement grant will also receive 0.5 shares of
Marine Products common stock for each share subject to the RPC replacement grant
as of the close of business on the record date as a dividend, pursuant to the
spin-off. Any shares received by an employee as a result of the RPC replacement
awards or as a dividend thereon pursuant to the spin-off will also be held in
escrow on the same terms as the original award by RPC to such employee.
Employees of Both RPC and Marine Products
Messrs. R. Randall Rollins, Richard A. Hubbell, Ben M. Palmer and Ms. Linda
H. Graham will serve as executive officers of both RPC and Marine Products
immediately after the spin-off. Two-thirds of each such executive officer's RPC
options and performance restricted stock awards that have not been earned and
issued into escrow will remain subject to the RPC 1994 Plan and will be adjusted
as discussed above under "RPC Employees," and one-third of such options and
awards will be surrendered for cancellation and replaced with options and awards
under the Marine Products 2000 Plan in the manner discussed above under "Marine
Products and Chaparral Employees." Employees with time-lapse restricted stock
awards or performance restricted stock awards that have been issued and are
being held in escrow on their behalf as of the close of business on the record
date will receive 0.5 shares of Marine Products common stock for each share of
RPC common stock held as of the close of business on the record date as a
dividend pursuant to the spin-off, and such shares will also be held in escrow
on the same terms as the original award by RPC to such employee.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
General
The following is a summary description of the material federal income tax
aspects of the spin-off. This summary is not intended as a complete description
of all of the tax consequences of the spin-off and does not discuss tax
consequences under the laws of state, local or foreign governments or any other
jurisdiction. Moreover, the tax treatment of a stockholder may vary, depending
upon his, her or its particular situation. In this regard, special rules not
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<PAGE>
discussed in this summary may apply to some of RPC's stockholders. In addition,
this summary applies only to shares that are held as capital assets. The
following discussion may not be applicable to a stockholder who acquired his,
her or its shares by exercising stock options or otherwise as compensation.
The following discussion is based on currently existing provisions of the
IRS Code, existing, proposed and temporary treasury regulations promulgated
under the IRS Code and current administrative rulings and court decisions. All
of the foregoing are subject to change, which may or may not be retroactive, and
any of these changes could affect the validity of the following discussion.
Each stockholder is urged to consult his, her or its own tax advisor as to
the particular tax consequences to him, her or it of the spin-off described
herein, including the applicability and effect of any state, local or foreign
tax laws, and the possible effects of changes in applicable tax laws.
Consequences If the Spin-off Is Tax-Free
RPC expects that the spin-off will qualify as a tax-free distribution under
Section 355 of the IRS Code. Assuming that the spin-off so qualifies:
o except for cash received in lieu of fractional shares, the holders of
RPC common stock will not recognize gain or loss upon receipt of
shares of Marine Products common stock;
o each holder of RPC common stock will allocate his, her or its
aggregate tax basis in the RPC common stock immediately before the
spin-off among RPC common stock, after giving effect to the spin-off,
and Marine Products common stock in proportion to each of their fair
market values on the spin-off date;
o the holding period for each holder of RPC common stock receiving
Marine Products common stock will include the holding period for his,
her or its RPC common stock, provided that RPC common stock is held as
a capital asset at the time of the spin-off; and
o RPC will not recognize any gain or loss on its distribution of Marine
Products common stock to RPC stockholders.
RPC has received a letter ruling from the IRS to the effect that the
spin-off will qualify as a tax-free distribution and have the federal income tax
consequences noted above. A letter ruling from the IRS, while generally binding
on the IRS, may under certain circumstances be retroactively revoked or modified
by the IRS. A letter ruling is based on the facts and representations presented
in the request for that ruling. Generally, an IRS letter ruling will not be
revoked or modified retroactively if there has been no misstatement or omission
of material facts, the facts at the time of the transaction are not materially
different from the facts upon which the IRS letter ruling was based and there
has been no change in the applicable law. Neither RPC nor Marine Products is
aware of any facts or circumstances that would cause the representations to be
untrue or incomplete in any material respect.
Current Treasury Department regulations require each holder of RPC common
stock who receives Marine Products common stock in the spin-off to attach to
his, her or its federal income tax return for the year in which the spin-off
occurs a statement setting forth information as may be appropriate in order to
show the applicability of Section 355 of the Code to the spin-off.
Consequences If the Spin-off Is Taxable
If the spin-off fails to qualify as a tax-free distribution under Section
355 of the IRS Code, then each holder of RPC common stock who receives shares of
Marine Products common stock in the spin-off generally would be treated as if
such stockholder received a taxable distribution in an amount equal to the fair
market value of Marine Products common stock received, which would result in:
(a) a dividend to the extent paid out of RPC's current and accumulated
earnings and profits; then
(b) a reduction in such stockholder's basis in RPC's common stock to the
extent the amount received exceeds the amount referenced in clause (a); and then
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(c) gain from the sale or exchange of RPC common stock to the extent the
amount received exceeds the sum of the amounts referenced in clauses (a) and
(b). Each stockholder's basis in his, her or its Marine Products common stock
would be equal to the fair market value of such stock at the time of the
spin-off.
If the spin-off fails to qualify as a tax-free distribution under Section
355 of the IRS Code, then a corporate level federal income tax could be payable
by the combined group of which RPC is the common parent. The tax would be based
upon the gain, if any, computed as the difference between the fair market value
of the Marine Products common stock and RPC's adjusted basis in such stock. If
the spin-off otherwise qualifies as a tax-free distribution under Section 355 of
the IRS Code, this corporate income tax would also be payable if either Marine
Products or RPC experiences a prohibited change-in-control as determined under
Section 355(e) of the IRS Code.
Section 355(e) of the IRS Code, which was enacted in 1997, generally
provides that a company that distributes shares of a subsidiary in a spin-off
that is otherwise tax-free will incur federal income tax liability if 50 percent
or more, by vote or value, of the capital stock of either the company making the
distribution or the spun-off subsidiary is acquired by one person or more than
one person pursuant to a plan or series of related transactions that includes
the spin-off. This provision can be triggered by certain reorganizations
involving the acquisition of the assets or stock of the company making the
distribution or of the spun-off subsidiary, or issuances or redemptions of the
stock of the distributing company or of the spun-off subsidiary. There is a
presumption that any stock acquisition or issuance that occurs within two years
before or after the spin-off is part of a plan relating to the spin-off and one
or more of such stock acquisitions or issuances could produce a prohibited 50
percent acquisition. However, the presumption may be rebutted by establishing
that the spin-off and the acquisitions are not part of a plan or series of
related transactions. In August 1999, the Treasury Department published proposed
regulations that would clarify when a spin-off is part of a plan, or series of
related transactions, where one or more persons acquire stock of the
distributing or spun-off subsidiary resulting in a 50 percent acquisition. The
proposed regulations rely on a variety of factors to determine the existence of
such a plan, or series of related transactions, including the following:
o the business purpose or purposes for the distribution;
o the intentions of the parties;
o the existence of agreements, understandings, arrangements or
negotiations relating to acquisitions;
o the timing of transactions or acquisitions; and
o the causal connection or relationship between the spin-off and the
acquisitions.
The proposed regulations would be effective for spin-offs occurring after
the date the regulations become final. It is not known whether the final
regulations will contain the provisions contained in the proposed regulations or
whether the effective date of the final regulations would apply to the spin-off
of Marine Products shares of common stock to RPC's stockholders.
If the spin-off is taxable solely under Section 355(e) of the IRS Code, RPC
will recognize gain equal to the difference between the fair market value of
Marine Products common stock and RPC's adjusted tax basis in that stock.
However, holders of RPC common stock who receive Marine Products common stock
would not recognize gain or loss as a result of the spin-off if it is taxable
solely by reason of Section 355(e) of the IRS Code.
The tax sharing and indemnification agreement to be entered into between
Marine Products and RPC will allocate responsibility for the possible corporate
tax burden resulting from the spin-off, as well as other tax items. For example,
if the spin-off is taxable under Section 355(e) of the IRS Code as a result of a
50 percent acquisition, then the resulting corporate tax burden will be borne by
that entity, either RPC or Marine Products, with respect to which the 50 percent
acquisition has occurred. Similarly, if the spin-off is taxable due to any other
action taken by RPC or Marine Products that is inconsistent with the factual
representations on which the IRS letter ruling is based, that entity, either RPC
or Marine Products, will be responsible for the resulting tax liability. Any
income tax liability that results from the spin-off, but which is not due to
either a 50 percent acquisition or any action taken by either company that is
inconsistent with the IRS letter ruling, will be shared equally by RPC and
Marine Products.
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Back-up Withholding Requirements
United States information reporting requirements and backup withholding may
apply with respect to dividends paid on, and proceeds from the taxable sale,
exchange or other disposition of, Marine Products common stock unless the
stockholder:
o is a corporation or comes within certain other exempt categories, and,
when required, demonstrates these facts; or
o provides a correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
A stockholder who does not supply RPC with his, her or its correct taxpayer
identification number may be subject to penalties imposed by the IRS. Any amount
withheld under these rules will be creditable against the stockholder's federal
income tax liability. Stockholders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption. If information reporting requirements apply to a
stockholder, the amount of dividends paid with respect to the stockholder's
shares will be reported annually to the IRS and to the stockholder.
LISTING AND TRADING OF MARINE PRODUCTS AND RPC COMMON STOCK
Currently, there is no trading market for Marine Products common stock.
Marine Products has applied to list its common stock on the AMEX, and if
approved, its common stock will trade on the AMEX under the ticker symbol "MPX."
A when-issued trading market for Marine Products common stock may develop on or
about the record date. The term "when-issued" means that shares can be traded
prior to the time certificates are actually available or issued. Even though
when-issued trading may develop, none of these trades would settle prior to the
effective date of the spin-off, and if the spin-off does not occur, all
when-issued trading will be null and void. Prices at which Marine Products
common stock may trade on a when-issued basis or after the time certificates are
actually available or issued cannot be predicted. Until Marine Products common
stock is fully distributed, an orderly trading market develops, and the market
has fully analyzed the operations of Marine Products, the prices at which
trading in such stock take place may fluctuate significantly. The prices at
which Marine Products common stock trades will be determined by the market and
may be influenced by many factors, including, the depth and liquidity of the
market for Marine Products common stock, investor perception of Marine Products
and its business, Marine Products' financial results, Marine Products' dividend
policy, sales of substantial amounts of Marine Products common stock or the
perception that such sales could occur, and general economic and market
conditions.
RPC expects that its common stock will continue to meet the continued
listing standards of the NYSE and that its common stock will continue to trade
on a regular basis under the symbol "RES" following the spin-off. RPC's common
stock may also trade on a when-issued basis, reflecting an assumed post-spin-off
value for RPC common stock. When-issued trading in RPC common stock, if
available, could last from on or about the record date through the effective
date of the spin-off. If when-issued trading in RPC common stock is available,
RPC stockholders may trade their existing RPC common stock prior to the
effective date of the spin-off in either the when-issued market or in the
regular market for RPC common stock. If a stockholder trades in the when-issued
market, he will have no obligation to transfer to a purchaser of RPC common
stock the Marine Products common stock such stockholder receives in the
spin-off. If a stockholder trades in the regular market, the shares of RPC
common stock traded will be accompanied by due bills representing the Marine
Products common stock to be distributed in the spin-off. If when-issued trading
in RPC common stock is not available, neither the RPC common stock nor the due
bills may be purchased or sold separately during the period from the record date
through the effective date of the spin-off.
If a when-issued market for RPC common stock develops, an additional
listing for RPC common stock, identifiable by the trading symbol RESwi, will
appear on the NYSE. Differences may exist between the combined value of
when-issued Marine Products common stock plus when-issued RPC common stock and
the price of RPC common stock during this period. Until the market has fully
analyzed the operations of RPC without the operations of Marine Products, the
prices at which RPC common stock trades may fluctuate significantly.
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FEDERAL SECURITIES LAW CONSEQUENCES
Marine Products common stock distributed to RPC stockholders in the
spin-off will be freely transferable under the Securities Act, except for
securities received by persons who may be deemed to be affiliates of Marine
Products under Securities Act rules. Persons who may be deemed to be affiliates
of Marine Products after the spin-off generally include individuals or entities
that control, are controlled by, or are under common control with Marine
Products, such as directors and executive officers of Marine Products. Persons
who are affiliates of Marine Products generally will be permitted to sell their
shares of Marine Products common stock received in the spin-off only pursuant to
Rule 144 under the Securities Act, except that the holding period requirement of
Rule 144 will not apply. As a result, Marine Products common stock received by
Marine Products affiliates pursuant to the spin-off may be sold if certain
provisions of Rule 144 under the Securities Act are complied with (e.g., the
amount sold within a three-month period does not exceed the greater of one
percent of the outstanding Marine Products common stock or the average weekly
trading volume for Marine Products common stock during the preceding four week
period, and the securities are sold in "broker's transactions" and in compliance
with certain notice provisions under Rule 144).
CAPITALIZATION
The following table sets forth the capitalization of Marine Products as of
September 30, 2000 and after giving pro forma effect to the spin-off.
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------------------
Actual Pro forma(1)
--------------- -------------------------
(Unaudited)
(In thousands, except per share data)
--------------------------------------------
<S> <C> <C>
Long-term debt (2)............................................... $ -- $ --
Stockholder's Equity:
RPC, Inc. equity investment (3)......................... 90,781 --
Preferred Stock, $.10 par value, 1,000,000
shares authorized, no shares issued or outstanding. -- --
Common Stock, $.10 par value, 50,000,000
shares authorized, 14,132,128 issued and outstanding (4)(5) -- 1,413
Paid in Capital......................................... -- 37,906
------------------- ---------------------
Total Stockholder's Equity......................... 90,781 39,319
------------------- ---------------------
Total Capitalization............................... $ 90,781 $ 39,319
=================== =====================
</TABLE>
(1) See "Pro Forma Combined Financial Data" and notes thereto.
(2) Marine Products has no outstanding long-term debt.
(3) See Note 5 to the Combined Financial Statements and Notes 2 and 3 to the
"Pro Forma Combined Financial Data."
(4) See Note 3 to "Pro Forma Combined Financial Data."
(5) The number of shares issued after giving effect to the spin-off was
determined based upon the number of shares of RPC common stock outstanding
at September 30, 2000 and reflects the assumed distribution of 0.5 shares
of Marine Products common stock ($0.10 par value) for every one share of
RPC common stock.
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DIVIDEND POLICY
While it is anticipated that dividends will be paid to Marine Products'
stockholders, the final determination will be at the discretion of Marine
Products' board of directors and will be dependent upon Marine Products'
financial condition, operating results, capital requirements and such other
factors as Marine Products' board of directors deems relevant.
SELECTED FINANCIAL DATA
The following table summarizes certain selected combined financial data of
Marine Products, which has been derived from the Combined Financial Statements
of Marine Products for the nine months ended September 30, 2000 and 1999 and for
each of the five years ended December 31, 1999. The historical information may
not be indicative of Marine Products' future performance as an independent
company. This information set forth below should be read in conjunction with
"Management's Discussion And Analysis of Financial Condition And Results of
Operations," the Combined Financial Statements and the notes thereto and the Pro
Forma Combined Financial Data and the notes thereto, included elsewhere in this
document. Per share data has not been presented since the companies that
comprise Marine Products were wholly owned subsidiaries of RPC and will be
recapitalized as part of the spin-off.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
-------------------- --------------------------------------------------------
(Unaudited) (Audited) (Unaudited)
-------------------- --------------------------------- ---------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net Sales $115,573 $91,592 $ 122,878 $ 103,497 $95,029 $86,225 $70,218
Cost of Goods Sold 89,422 69,289 93,247 77,776 72,899 67,426 55,826
-------- ------- ---------- ---------- ------- ------- -------
Gross Profit 26,151 22,303 29,631 25,721 22,130 18,799 14,392
Selling, General and
Administrative Expenses 13,569 11,393 15,147 13,578 11,716 10,765 8,414
-------- ------- ---------- ---------- ------- ------- -------
Operating Income $12,582 $10,910 $14,484 $12,143 $10,414 $ 8,034 $ 5,978
Interest Income 196 167 233 240 214 133 151
Gain on Settlement of Claim 6,817 -- -- -- -- -- --
-------- ------- ---------- ---------- ------- ------- -------
Income before Income Taxes 19,595 11,077 14,717 12,383 10,628 8,167 6,129
Income Tax Provision 7,446 4,209 5,599 4,709 4,067 3,103 2,329
-------- ------- ---------- ---------- ------- ------- -------
Net Income $ 12,149 $ 6,868 $ 9,118 $ 7,674 $ 6,561 $ 5,064 $ 3,800
======== ======= ========== ========== ======= ======= =======
OTHER FINANCIAL DATA:
Net Cash Provided by Operating
Activities $ 12,214 $ 4,407 $ 9,235 $ 8,382 $ 7,180 (a) (a)
Net Cash Used for Investing
Activities 3,859 1,072 1,665 2,192 667 (a) (a)
Net Cash Used for Financing
Activities 8,865 5,123 7,619 5,414 7,555 (a) (a)
BALANCE SHEET DATA:
Total Assets $101,218 $85,731 $ 88,168 $ 77,585 $68,452 $61,719 $55,844
Total Stockholder's Equity 90,781 78,687 78,632 69,514 61,840 55,279 50,318
---------------------
</TABLE>
(a) Not readily available.
23
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
The following unaudited combined balance sheet as of September 30, 2000
presents the combined financial position of Marine Products assuming the
spin-off had been completed as of September 30, 2000 and reflects all
adjustments that as of such date in the opinion of management, are necessary to
present fairly the pro forma financial position of Marine Products. No pro forma
statement of income has been presented because no pro forma adjustments are
required to the historical results of operations. No adjustment has been made to
the selling, general and administrative expenses because such expenses included
in the historical statements include an allocation of corporate administrative
expenses which Marine Products believes, based upon current circumstances, will
not materially differ from actual selling, general and administrative expenses
to be incurred following the spin-off.
The Pro Forma Combined Financial Data of Marine Products should be read in
conjunction with the Combined Financial Statements of Marine Products included
elsewhere in this document. The pro forma financial information presented below,
as well as that found in the Summary Combined Financial Data, Selected Financial
Data and Capitalization sections presented elsewhere in this document, are not
necessarily indicative of the financial position or results of operations that
Marine Products would have reported if it had operated as an independent company
during the periods presented, nor is it necessarily indicative of Marine
Products' future performance as an independent company.
Marine Products Corporation
Pro Forma Combined Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------------------------
Historical Pro Forma Pro Forma
Adjustments
-------------- --------------- -------------
(in thousands)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,921 $ 12,079(1) $ 15,000
Accounts receivable, net 3,419 -- 3,419
Inventories 14,196 -- 14,196
Deferred Income taxes 2,642 -- 2,642
Prepaid expenses and other current assets 164 -- 164
-------------- --------------- -------------
Total Current Assets 23,342 12,079 35,421
Property, plant and equipment, net 9,794 -- 9,794
Goodwill, net 4,163 -- 4,163
Receivable from RPC, Inc. 63,541 (63,541)(2) --
Other assets 378 -- 378
-------------- ------------------ -------------
Total Assets $ 101,218 $ (51,462) $ 49,756
============== ================== =============
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------------------------
Historical Pro Forma Pro Forma
Adjustments
-------------- --------------- -------------
(in thousands)
<S> <C> <C> <C>
Liabilities And Stockholder's Equity
Current Liabilities:
Accounts payable $ 2,160 $ -- $ 2,160
Other accrued expenses 7,971 -- 7,971
-------------- --------------- -------------
Total Current Liabilities 10,131 -- 10,131
Deferred Income Taxes 306 -- 306
-------------- --------------- -------------
Total Liabilities 10,437 -- 10,437
-------------- --------------- -------------
Stockholder's Equity
RPC, Inc. equity investment 90,781 (90,781)(3) --
Preferred Stock -- -- --
Common Stock -- 1,413 (3) 1,413
Paid-in Capital -- 12,079 (1) 37,906
-- (63,541)(2) --
-- 89,368 (3) --
-------------- --------------- -------------
Total Stockholder's Equity 90,781 (51,462) 39,319
-------------- --------------- -------------
Total Liabilities and Stockholder's Equity $101,218 $ (51,462) $ 49,756
-------------- --------------- -------------
</TABLE>
(1) To reflect the cash payment to Marine Products by RPC immediately prior to
the spin-off as required by the Agreement Regarding Distribution and Plan
of Reorganization. As set forth in the Agreement Regarding Distribution and
Plan of Reorganization, RPC is required to establish a cash balance at
Marine Products of approximately $15 million. See Note 5 to the Combined
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) To record cancellation of the remaining receivable from RPC.
(3) To reflect the distribution of RPC's 100 percent equity interest in Marine
Products to RPC stockholders:
o Elimination of RPC's equity investment in Marine Products
($90,781,000).
o The par value of the common shares issued after giving effect to the
spin-off ($1,413,000) based upon the number of shares of RPC common
stock outstanding at September 30, 2000 (28,264,255), and reflecting
the assumed distribution of 0.5 shares of Marine Products common stock
($0.10 par value) for every one share of RPC common stock ($0.10 par
value). The actual number of shares of Marine Products stock
distributed will depend on the number of shares of RPC common stock
outstanding on the record date.
o Reclassification of that portion of RPC's equity investment not
allocated to the par value of the outstanding Marine Products common
stock ($89,368,000).
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is based upon and should be read in conjunction
with "Selected Financial Data," "Combined Financial Statements," "Pro Forma
Combined Financial Data" and the notes thereto. See also "Forward-Looking
Statements" above.
Marine Products, through its wholly-owned subsidiary Chaparral, is a
leading manufacturer of recreational fiberglass powerboats in the stern-drive,
sportboat, deckboat and cruiser markets. Marine Products' mission is to maximize
the boating experience by providing its customers with high quality, innovative
powerboats and related products and services.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 Compared To Nine Months Ended September 30,
1999
Net Sales. Marine Products generated net sales of $115,573,000 for the
first nine months of 2000 compared to $91,592,000 for the first nine months of
1999, a $23,982,000 or 26 percent increase. Despite recent industry sales
weakness, Chaparral has continued to generate sales increases by gaining market
share. The net sales increase for the nine months ended September 30, 2000
compared to the nine months ended September 30, 1999 resulted primarily from a
43 percent increase in the volume of boats sold coupled with a 1 percent
increase in the average sales price. Recent weakness in consumer confidence
caused by higher consumer borrowing costs and stock market volatility is putting
pressure on industry sales.
Cost of Goods Sold. Cost of goods sold was $89,422,000 for the nine months
ended September 30, 2000 compared to $69,289,000 for the nine months ended
September 30, 1999. The increase in cost of goods sold, as a percent of net
sales, from 76 percent in 1999 to 77 percent in 2000 is due primarily to lower
manufacturing efficiency caused by manufacturing space constraints. During the
third quarter of 2000, additional manufacturing space was opened to provide
needed capacity to efficiently build a larger number of boats.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $13,569,000 for the nine months ended September 30,
2000 compared to $11,393,000 for the nine months ended September 30, 1999, an
increase of $2,176,000 or 19 percent. Selling, general and administrative
expenses were 12 percent of net sales for the nine months ended September 30,
2000 and 1999. Compensation costs increased $959,000 or 18 percent from
$5,331,000 for the nine months ended September 30, 1999 to $6,290,000 for the
nine months ended September 30, 2000. The increases in compensation costs result
from an increase in commissions expense consistent with the increase in net
sales and an increase in officers' bonuses due to the increase in operating
income. The remaining increase relates to higher warranty expense consistent
with the higher net sales.
Operating Income. Operating income was $12,582,000 for the nine months
ended September 30, 2000, an increase of $1,672,000 or 15 percent compared to
$10,910,000 for the nine months ended September 30, 1999. The increase in
operating profit results from the improvement in net sales and gross margin
offset slightly by the increase in selling, general and administrative expenses.
Gain on Settlement of Claim. In the first quarter of 2000, Marine Products
recorded a pre-tax gain of $6,817,000 relating to settlement of a claim. The
gain is a result of Marine Products' receipt of its share of a non-refundable
$35 million settlement payment made by Brunswick Corporation, a major engine
supplier, to the members of the American Boatbuilders Association, a buying
group which includes Chaparral.
Interest Income. Interest income was $196,000 for the nine months ended
September 30, 2000 compared to $167,000 for the nine months ended September 30,
1999. Marine Products generates interest income from investment of its available
cash primarily in overnight securities.
Net Income. Net income was $12,149,000 for the nine months ended September
30, 2000 compared to $6,868,000 for the nine months ended September 30, 1999.
The improvement in net income was due to the increase in operating profit and
the impact of the after-tax gain on settlement of claim totaling $4,227,000
recognized in the first quarter of 2000. The income tax rate of 38 percent was
the same in both periods.
26
<PAGE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Marine Products generated net sales of $122,878,000 in 1999
compared to $103,497,000 in 1998, a $19,381,000 or 19 percent increase. The
total number of boats sold by Marine Products in 1999 increased 8 percent
compared to 1998 while the average sales price also increased 8 percent. The
average sales price increase resulted from selling a larger number of higher
priced Cruisers and Sunestas in 1999 compared to 1998. Lastly, there were price
increases in July 1999 and December 1999 that averaged approximately 2 percent
each, as a result of higher materials costs, product upgrades and other product
changes. In addition, net sales in 1999 increased compared to 1998 as a result
of increased sales of parts and accessories and the favorable response to the
dealer incentive programs designed to encourage sales during the off season
periods. The increase in net sales during 1999 was similar to the overall
industry growth.
Cost of Goods Sold. Cost of goods sold was $93,247,000 in 1999 compared to
$77,776,000 in 1998. Cost of goods sold in 1999 increased $15,471,000 or 20
percent compared to 1998, which is comparable to the increase in net sales. As a
percent of net sales, cost of goods sold was 76 percent in 1999 compared to 75
percent in 1998. The one percent increase in cost of goods sold as percentage of
net sales in 1999 compared to 1998 can be attributed to the introduction of
several new boat models with enhanced features, which were more expensive to
manufacture.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $15,147,000 in 1999 compared to $13,578,000 in
1998, a $1,569,000 or 12 percent increase. Compensation costs increased $963,000
or 15 percent from $6,325,000 in 1998 to $7,288,000 in 1999. Compensation costs
include payroll, sales commissions, and officers' bonuses. The increases in
compensation costs result from an increase in commissions expense consistent
with the increase in net sales and an increase in officers' bonuses due to the
increase in operating income. In addition, research and development expenses
increased $481,000 or 47 percent from $1,018,000 to $1,500,000 due to the
introduction of several new boat models with enhanced features. As a percent of
net sales, selling, general and administrative expenses was 12 percent in 1999
compared to 13 percent in 1998.
Operating Income. Operating income was $14,484,000 in 1999, an increase of
$2,341,000 or 19 percent compared to $12,143,000 in 1998. The increase in 1999
operating income resulted from increased net sales, particularly offset by a
decrease in the gross margin percentage. However, operating income was also
favorably impacted by the percent increase in Marine Products' selling, general,
and administrative expenses, which was lower than the increase in net sales.
Interest Income. Interest income was $233,000 in 1999 compared to $240,000
in 1998. Marine Products has generated interest income from investment of its
available cash primarily in overnight securities. The amount of cash available
for investment has varied depending upon the cash requirements of Marine
Products and RPC.
Net Income. Net income was $9,118,000 for 1999 compared to $7,674,000 for
1998. The increase in net income can be primarily attributed to the improvement
in 1999 operating income compared to 1998. The income tax rate of 38 percent was
the same in 1999 and 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Marine Products generated net sales of $103,497,000 in 1998
compared to $95,029,000 in 1997, a $8,468,000 or 9 percent increase. The total
number of boats sold by Marine Products in 1998 decreased 1 percent compared to
1997 while the average sales price increased 10 percent. The average sales price
increase resulted from increased sales of larger, higher priced boats coupled
with a favorable response to the dealer incentive programs.
Cost of Goods Sold. Cost of goods sold was $77,776,000 in 1998 compared to
$72,899,000 in 1997. Cost of goods sold in 1998 increased $4,877,000 or 7
percent compared to 1997. As a percent of net sales, cost of goods sold was 75
percent in 1998 compared to 77 percent in 1997. The two percent decrease in cost
of goods sold as a percentage of net sales in 1998 compared to 1997 can be
attributed to an emphasis on inventory controls and increased sales of larger
boats that generated higher gross margins.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $13,578,000 in 1998 compared to $11,716,000 in
1997, a $1,862,000 or 16 percent increase. Compensation costs increased $820,000
or 15 percent from $5,505,000 in 1997 to $6,325,000 in 1998. Compensation costs
include payroll, sales commissions, and officers' bonuses. The increases in
compensation costs result from an increase in salesmen commissions expense
related to the increase in net sales, the increase in the cost of certain
27
<PAGE>
employee benefits, and the increase in officers' bonuses due to the increase in
operating income. In addition, research and development expenses increased
$291,000 or 40 percent from $727,000 in 1997 to $1,018,000 in 1998 due to the
introduction of several new boat models during the year. Advertising and boat
show expenses increased $226,000 or 16 percent from $1,441,000 in 1997 to
$1,667,000 in 1998 due to higher costs incurred for product recognition programs
through print advertising and Marine Products sponsored boat show costs. As a
percent of net sales, selling, general, and administration expenses was 13
percent in 1998 compared to 12 percent in 1997.
Operating Income. Operating income was $12,143,000 in 1998, an increase of
$1,729,000 or 17 percent compared to $10,414,000 in 1997. The increase in 1998
operating income resulted from increased net sales coupled with an improvement
in the gross margin percentage.
Interest Income. Interest income was $240,000 in 1998 compared to $214,000
in 1997. Marine Products has generated interest income from investment of its
available cash primarily in overnight investments. The amount of cash available
for investment has varied depending upon the cash requirements of Marine
Products and RPC.
Net Income. Net income was $7,674,000 for 1998 compared to $6,561,000 for
1997. The increase in net income can be primarily attributed to the improvement
in 1998 operating income compared to 1997. The income tax rate of 38 percent was
the same in 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $12,214,000 for the nine
months ended September 30, 2000 compared to $4,407,000 for the nine months ended
September 30, 1999. The increase is primarily due to the increase in net income
for the nine months of 2000 which included the $4,227,000 after tax gain on
settlement of claim.
Net cash used for investing activities increased from $1,072,000 at
September 30, 1999 to $3,859,000 at September 30, 2000. This increase is due
primarily to an increase in capital expenditures relating to the purchase and
renovation of an additional manufacturing facility which opened on September 1,
2000. The remaining capital expenditures relate to purchases of various other
manufacturing equipment and transport vehicles. Funding for future capital
requirements over the next twelve months is expected to be provided by available
cash and marketable securities and cash flow from operations.
Net cash used for financing activities was $8,865,000 at September 30, 2000
compared to $5,123,000 at September 30 1999. The increase is due to the increase
in the receivable from RPC. See Footnote 5 to the Combined Financial Statements.
SEASONALITY
Marine Products' quarterly operating results are affected by weather and
the general economic conditions in the U.S. Although quarterly operating results
for the second quarter have historically recorded the highest sales volume for
the year, our quarterly operating results are generally distributed evenly
throughout the year. However, the results for any quarter are not necessarily
indicative of results to be expected in any future period.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." As amended SFAS No. 133 will be required to
be adopted for the Company as of January 1, 2001. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Adoption of SFAS No. 133 is not expected to have a material impact on our
financial condition or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Marine Products does not utilize financial instruments for trading purposes
and holds no derivative financial instruments which could expose Marine Products
to significant market risk. Marine Products primary market risk is interest rate
risk. Marine Products currently minimizes such risk by investing its available
cash in overnight securities. As a result, Marine Products believes it has no
material interest rate risk to manage.
28
<PAGE>
BUSINESS
GENERAL
Marine Products, through its wholly-owned subsidiary Chaparral, designs,
manufactures and sells recreational fiberglass powerboats in the sportboat,
deckboat and cruiser markets. Available industry statistics measure Chaparral as
the third largest sterndrive boatbuilder in the United States.
Chaparral has a reputation for superior quality evidenced by twenty-one
Powerboat Magazine Awards for Product Excellence, including seven coveted "Boat
of the Year" awards.
<TABLE>
<CAPTION>
POWERBOAT MAGAZINE AWARDS
Year Award Year Award
<S> <C> <C> <C>
2000 Boat Of The Year 1989 Best Value
1999 Boat Of The Year 1988 Best New Model
1997 Best Performance 1987 Best New Model
1996 Best Performance 1987 Best Off Shore Value
1995 Boat Of The Year 1986 Best Value
1995 Best Value 1985 Best New Model
1994 Best Styling 1984 Best New Model
1993 Boat Of The Year 1983 Boat Of The Year
1992 Best Value 1982 Best Value
1991 Boat Of The Year 1981 Best Value
1990 Boat Of The Year
</TABLE>
Chaparral sells its three lines of powerboats to an international network
of independent authorized dealers. These lines consist of sportboats, deckboats
and cruisers. A variety of new models are introduced each year; however; models
are generally in production for several years before being replaced, updated or
discontinued. Chaparral's dealer network now includes approximately 150 domestic
dealers and 30 international dealers.
Chaparral was founded in 1965 in Ft. Lauderdale, Florida. Chaparral's first
boat was a 15-foot tri-hull design with a retail price of less than $1,000. Over
time the company grew by offering exceptional quality and consumer value. In
1976 Chaparral moved to Nashville, Georgia where a manufacturing facility of a
former boat manufacturing company was available for purchase. This provided
Chaparral an opportunity to obtain additional manufacturing space and access to
a trained work force. With 35 years of boatbuilding experience, Chaparral is now
regarded as a world-class manufacturer of recreational powerboats that continues
to improve the design and manufacturing of its product offerings to meet the
growing needs of discriminating recreational boaters. Chaparral has found the
right combination of high-quality construction, innovative designs, and
exceptional value to make it one of the largest independent boatbuilders in the
world.
Since its founding, Chaparral has been operated by the same management
team. Since RPC's purchase of Chaparral in 1986, Chaparral has been able to
focus primarily on improving operations and profitability without concerns about
the availability of capital. The management team has consistently improved
manufacturing efficiency, refined current products and evaluated future product
offerings, all of which have led to increasing revenue and profits. For the five
years ended December 31, 1999, Marine Products has generated an 11 percent
compounded annual growth in net sales.
Marine Products' basic mission is to enhance its customers' boating
experience by providing them with high quality, innovative powerboats. Marine
Products intends to remain a leading manufacturer of recreational powerboats for
sale to a broad range of consumers worldwide.
29
<PAGE>
INDUSTRY OVERVIEW
The National Marine Manufacturers Association ("NMMA") estimates that the
total U.S. recreational boating industry generated approximately $23 billion in
sales in 1999, including retail sales of new and used boats, motors and engines,
accessories, and related boating expenditures, such as fuel, insurance, docking,
storage, and repairs.
Most boat purchasers are in the 35 to 54 age group. Although these
individuals account for 36 percent of the U.S. population over age 16, they
account for over 50 percent of discretionary income and represent the fastest
growing segment of the U.S. population. The recreational boat manufacturing
market remains highly fragmented with little consolidation having occurred to
date. We estimate that the boat manufacturing industry includes more than 400
manufacturers, most of whom are small privately held companies with varying
degrees of professional management and manufacturing skills.
The share of recreational dollars that U.S. consumers spend on boating
declined from 3 percent in 1988, the boating industry's peak year, to 2 percent
in 1996. We believe this decline in boating can be attributed to several
factors, including a recession, the Gulf War, and the imposition throughout 1991
and 1992 of a luxury tax on boats sold at prices in excess of $100,000. In
addition, we believe that the general decline in boating sales is attributable
to poor customer service throughout the industry, lack of boater education, and
the perception that boating is time consuming and costly, and that boats are
difficult to operate.
Statistical Surveys, Inc. tracks retail boater registration information
from 40 states or 92 percent of the total boating market. According to
Statistical Surveys, new boat registrations were down in the second quarter of
2000 by 4 percent when compared to the same period in the prior year. Fiberglass
sterndrive boat sales were down 6 percent for the first six months of 2000 when
compared to the same period in the prior year. Despite these industry sales
decreases, Chaparral's revenue has increased and accordingly its market share
has grown from 5.53 percent in 1998 to 6.99 percent for the six months ending
June 30, 2000.
The NMMA also conducts various surveys of boating industry trends.
According to NMMA published reports, 50 percent to 70 percent of boaters do so
to be outdoors, to relax, to relieve stress, to escape from worries, and to
socialize with friends. Boating ranked higher than camping, snowskiing, hiking,
golf, and tennis with recent buyers. Recent buyers would rather go boating than
attend sports events, exercise at home, go to a movie, or work with a home
computer. It is estimated that 78 million people in the United States
participate in recreational boating. There are currently over 16 million boats
owned in the U.S. of which 1.7 million are equipped with sterndrive engines.
According to Statistical Surveys, sales of boats with sterndrive engines
totaled 96,200 units in 1999 with a total retail value of $2.5 billion, or an
average retail price per boat of approximately $26,000. During the period July
1, 1999 to June 30, 2000, sales of sterndrive boats in the 18 to 24 foot size
range represented 52 percent of the units and 34 percent of the factory value
sold. Eight of the twenty-five boat models currently offered by Chaparral fall
within this range of sizes. Management believes that the five largest states for
boat sales are Michigan, California, Florida, Minnesota, and Texas. Chaparral
has dealers in each of these states.
The following information provides demographics of both boat buyers in
general as well as Chaparral boat buyers:
Industry Boat Buyer Demographics
Boat buyer:
Median age 48 years
Median income $71,000
Married 86%
Children 18 and younger 37%
Managerial, Professional, Executive 14%
30
<PAGE>
Chaparral Boat Buyer Demographics
41 to 45 age group 17.8%
45 to 50 15.7
36 to 40 15.7
51 to 55 13.0
Of Chaparral boat buyers responding to surveys, 61 percent are college
graduates, and 72 percent have annual incomes of at least $75,000. Chaparral
believes it is selling to an educated consumer.
Sales trends in the recreational boating industry are influenced by several
factors, including general economic growth, consumer confidence, household
incomes, tax laws, and demographics. Interest rates and fuel prices also have a
direct impact on boat sales, as well as trends at the local, regional and
national level. Competition from other leisure and recreational activities, such
as vacation properties and travel, can also affect sales of recreational boats.
Management believes Chaparral is well positioned to take advantage of the
following conditions, which continue to characterize the industry despite its
recent growth:
o labor-intensive manufacturing processes that remain largely
unautomated;
o increasingly strict environmental standards derived from governmental
regulations and customer sensitivities;
o a lack of focus on coordinated customer service and support by dealers
and manufacturers; and
o a high degree of fragmentation and competition among the hundreds of
recreational boat manufacturers.
GROWTH STRATEGIES
Marine Products' operating strategy emphasizes innovative designs and high
quality manufacturing processes, allowing it to:
o Deliver A Superior Quality Product. Chaparral's commitment to building
high quality products has resulted in boat designs that we believe
yield increased performance, structural integrity and consistency. All
Chaparral boats feature the Extended V-Plane running surface that was
originally developed for Chaparral's SS series of sportboats. This
type of hull provides for better tracking, increased stability, and
quicker planing times.
o Lower Manufacturing Costs Through Increased Efficiencies In Our
Facilities. We hope to reduce costs by shortening our product
changeover and new product development time frames, and continuously
improve the manufacturing processes to reduce unit labor costs and
improve quality control, thereby lowering warranty costs.
o Leverage Our Buying Power Through Economies Of Scale. Chaparral is one
of the largest independent boat manufacturers that does not
manufacture its own engines. Management believes this, together with
its membership in the American Boatbuilders Association, Inc. (ABA),
positions Chaparral as a significant third party customer of major
engine suppliers. Chaparral is a founding member of the ABA which
collectively represents 13 percent of manufacturers of over 14 feet
propulsion boats. The ABA is a group of 13 independent boat
manufacturers which have formed a buying group to pool their
purchasing power in order to gain improved pricing on engines,
fiberglass, resin, and many other components. Chaparral intends to
continue seeking the most advantageous purchasing arrangements from
its suppliers. Chaparral is also a significant consumer of fiberglass
materials, and management intends to capitalize on relationships with
fiberglass suppliers to assist Marine Products' growth. As Marine
Products grows internally through Chaparral and through anticipated
31
<PAGE>
acquisitions, increased production volumes should result in additional
opportunity to leverage benefits in our purchasing programs.
Our marketing strategy seeks to increase market share by enabling Marine
Products to:
o Expand Marine Products' International Presence By Continuing To Build
Dedicated Sales, Marketing And Distribution Systems. Historically,
Chaparral's international sales have not been significant in relation
to overall sales, and Marine Products has traditionally relied on
independent sales representatives to market our products
internationally. Recognizing the opportunity for international growth,
management recently appointed an International Sales Manager and began
expanding its international dealer relationships. Management believes
that Marine Products' dedicated sales force, a stronger international
dealer network and its increased commitment to the international
market for motorized recreational boats will enable Chaparral to
substantially increase its presence in the international market place.
o Strengthen Marine Products' Dealer Organization Through Expansion Of
Its Network And Providing Superior Customer Service And Support.
Marine Products has a distribution network of approximately 180
dealers located throughout the U.S. and internationally. Our strategy
is to increase the number and quality of its dealers. Marine Products
seeks to capitalize on this strong dealer network by educating its
dealers on the sales and servicing of our products and helping them
provide more comprehensive customer service, with the goal of
increasing customer satisfaction, customer retention and future sales.
Marine Products provides promotional and incentive programs to help
its dealers increase product sales. Marine Products intends to
continue to strengthen its dealer network and build brand loyalty with
both dealers and customers.
As part of Marine Products' overall strategy, Marine Products will also
consider making strategic acquisitions in order to:
o Complement Existing Product Lines, Expand Marine Products' Geographic
Presence In The Marketplace And Strengthen Capabilities. Historically,
Marine Products has chosen to pursue internal growth rather than
expand its business and product lines through strategic acquisitions.
This strategy has been successful to date as evidenced by expansion of
models within existing product lines, introduction of new product
lines, and growing net sales and operating income. In addition to its
continuing focus on internal growth, management believes that
strategic acquisitions will provide new avenues for growth by allowing
Marine Products to potentially expand into recreational fishing boats,
performance boats for watersports enthusiasts and luxury cruisers
larger than those currently produced by Chaparral. Marine Products
will seek to acquire other high quality well-respected boat
manufacturers. In addition to greater exposure to a broader customer
base, strategic acquisitions would allow an expanded dealer network,
increased leveraging of overlapping suppliers, potentially greater
efficiency of marketing efforts and increased manufacturing capacities
and technologies.
PRODUCTS
Marine Products offers a comprehensive range of motorized recreational
boats. Marine Products distinguishes itself by offering a wide range of products
to the family recreational market and cruiser market.
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<PAGE>
The following table provides a brief description of each of our brands and its
particular market focus:
<TABLE>
<CAPTION>
Approximate
Number of Overall Retail
Brand Models Length Price Range Description
--------------------------- ------------- -------------- ------------------ -----------------------------------------
<S> <C> <C> <C> <C>
Signature -- Cruisers 5 24'-35' $45,000 - Fiberglass, accommodation-focused
$201,000 cruisers. Marketed to experienced boat
owners through trade magazines and boat
show exhibitions.
SS -- Sportboats 15 18'-28' $16,000 - Fiberglass runabouts, cruisers and
$94,000 performance boats. Encompasses
affordable, entry-level to mid-range
sportboats. Marketed as high value
runabouts for family groups.
Sunesta -- Deckboats 5 21'-26' $30,000 - Fiberglass deck boats. Encompasses
$53,000 affordable, entry-level to mid-range
deck boats. Marketed as high value family
pleasure boats with the handling of a
runabout, the style of a sport boat and
the roominess of a cruiser.
</TABLE>
MANUFACTURING
All of Chaparral's manufacturing facilities are located in Nashville,
Georgia. A total of five different plants are utilized to manufacture the
interiors, design new models and to create the fiberglass hulls and decks and to
assemble the various end products. Quality control is conducted throughout the
manufacturing process. When a boat has been fully assembled and inspected, the
boats are loaded onto either company owned trailers or third party marine
transport trailers for delivery to the dealers.
The manufacturing process begins with design of the ultimate product. Plugs
are constructed in the research and development area from designs. Plugs are
used to create a mold from which prototype boats can be built. Adjustments are
made to the plug design until acceptable parameters are met. The final plug is
used to create the necessary number of production molds. Molds are used to
produce the fiberglass hulls and decks. Fiberglass components are made by
applying the outside finish or gelcoat to the mold. Then numerous layers of
fiberglass and resin are applied during the lamination process over the gelcoat.
After curing, the hulls and deck are removed from the molds and are trimmed and
prepared for final assembly, which includes the installation of electrical and
plumbing systems, engines, upholstery, accessories and graphics.
COMPETITION
The recreational boat industry is highly fragmented, resulting in intense
competition for customers, quality products and boat show space. There is
significant competition both within markets we currently serve and in new
markets that we may enter. Chaparral competes with several large national or
regional manufacturers that have substantial financial, marketing and other
resources. However, we believe that our corporate infrastructure and marketing
and sales capabilities, our cost structure and our nationwide presence enable us
to compete effectively against these companies. In each of our markets, Marine
Products competes on the basis of responsiveness to customer needs and the
quality and range of products and services offered. Additionally, Marine
Products faces general competition from all other recreational businesses
seeking to attract consumers' leisure time and discretionary spending dollars.
According to Statistical Surveys, the following is a list of the top ten
(largest to smallest) sterndrive boat manufacturers in the United States based
on unit sales for the six months ended June 30, 2000. Several of these
manufacturers are part of larger integrated boat building companies and are
marked with asterisks. Management believes the companies set forth below
represent approximately 65 percent of all U.S. retail sterndrive boat
registrations.
1. Bayliner*
2. Sea Ray*
3. Chaparral
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4. Four Winns**
5. Crownline
6. Maxum*
7. Glastron***
8. Rinker
9. Stingray
10. Regal
-------------------------------
* a subsidiary of Brunswick Corporation
** a subsidiary of Outboard Marine Corporation
*** a subsidiary of Genmar Industries
SUPPLIERS
Marine Products does not manufacture the engines installed in its boats.
Engines are generally specified by the dealers at the time of ordering, usually
on the basis of anticipated customer preferences or actual customer orders.
Chaparral, through the ABA, has entered into engine supply agreements with
Mercury Marine and Volvo Penta; these represent the only current suppliers of
sterndrive engines. These contracts contain incentives and discount provisions,
which may reduce the cost of the engines purchased, if specified purchased
volumes are met during specified periods of time.
In the event of a sudden interruption in the supply of engines from these
suppliers, our sales and profitability could be negatively impacted.
SALES AND DISTRIBUTION
Sales are made through approximately 150 dealers throughout the United
States. Marine Products also has approximately 30 international dealers. Most of
these dealers are not exclusive to Marine Products and carry the boats of other
companies, including some which may be competitive with Marine Products'
products. The territories served by any dealer are not exclusive to the dealer.
However, Marine Products uses discretion in locating new dealers in an effort to
protect the interests of the existing dealers. Eight independent field sales
representatives call upon existing dealers and develop new dealer relationships.
The field sales force is directed by Chaparral's National Sales Coordinator, who
is responsible for developing a full dealer organization for SS sportboats,
Signature Cruisers and Deckboats.
All boats are pre-sold to a dealer before entering the production line. In
the past, Marine Products has been able to resell any boat for which the order
has been cancelled. To date, cancellations have not had any material effect on
Marine Products. Marine Products normally does not manufacture boats for
inventory.
Marine Products continues to seek new dealers in many areas throughout
Europe, South America, Asia and the Mideast. In general, Marine Products
requires payment in full or an irrevocable letter of credit from a domestic bank
before it will ship a boat overseas. Consequently, there is no credit risk
associated with its foreign sales nor risk related to foreign currency
fluctuation. Marine Products believes that within several years, foreign sales
could produce additional sales growth.
Most of Marine Products' shipments are made pursuant to commercial dealer
"floor plan financing" programs in which Marine Products participates on behalf
of its dealers. Under these arrangements, a dealer establishes lines of credit
with one or more third-party lenders for the purchase of showroom inventory.
When a dealer purchases a boat pursuant to a floor plan arrangement, it draws
against its line of credit and the lender pays the invoice cost of the boat
directly to Marine Products. Generally, payment is made to Marine Products
within 5 business days. When the dealer in turn sells the boat to a retail
customer, the dealer repays the lender, thereby restoring its available credit
line. Each dealer's floor plan credit facilities are secured by the dealer's
inventory, letters of credit, and perhaps, other personal and real property. In
connection with the dealer's floor plan arrangements, Marine Products (together
with substantially all other major manufacturers) has agreed to repurchase any
of its boats which a lender repossesses from a dealer and returns to Marine
Products. In the event that a dealer defaults under a credit line, the lender
may then invoke the manufacturers' repurchase agreements with respect to that
dealer. In that event, all repurchase agreements of all manufacturers supplying
a defaulting dealer are generally invoked regardless of the boat or boats with
respect to which the dealer has defaulted. Marine Products participates in floor
34
<PAGE>
plan arrangements with several major third-party lenders on behalf of its
dealers, most of whom have financing arrangements with more than one lender.
Except as described above, or where it has a direct repurchase agreement with a
dealer, Marine Products is under no material obligation to repurchase boats from
its dealers. The marketing of boats to retail customers is primarily the
responsibility of the dealer, whose efforts are supplemented by Marine Products
through advertising in boating magazines and participation in regional,
national, and international boat shows.
Marine Products' dealer incentive programs are designed to promote early
replenishment of the stock in dealer inventories depleted throughout the prime
spring and summer selling seasons and level out Marine Products manufacturing
between the peak and offpeak periods. For the 2000 model year (which commenced
July 1, 1999), dealers had an option whereby Marine Products made arrangements
to pay all interest charged to dealers by certain floor plan lenders until March
1, 2000. This and other incentives to the dealers have resulted in relatively
level month to month production and sales. After the free interest program ends,
interest costs revert to the dealer at the rates set by the lender. The dealers
will make curtailment payments (principal payments) on the boats as required by
their particular commercial lenders. Similar sales promotion programs were in
effect during fiscal 1999, 1998, 1997 and 1996.
The sales order backlog grew to approximately 2,400 boats during the
August-October 2000 dealer allocation period, at an estimated sales value of
$59,520,000. Chaparral's sales orders represent an indication of interest by its
dealers and are cancelable at any time. Historically, dealers have in most cases
taken delivery of all their orders. Backlog is generally shipped within 20 weeks
based on current production levels.
PRODUCT WARRANTY
Marine Products provides a five year transferable hull and deck structural
warranty against defects in material and workmanship. A one year warranty on
components is provided as well. The engine manufacturer warrants engines
included in the boats. Warranty costs of $1,475,000 or 1 percent of sales were
recorded in fiscal 1999. A reserve for warranty expenses estimated to be
incurred in future years had been recorded and amounted to $2,073,000 as of
September 30, 2000. In 1998, warranty costs were $1,449,000 or 1 percent of
sales. Marine Products' warranty costs as a percentage of sales are considered
low relative to the marine industry, reflecting Marine Products' superior
construction of its boats.
RESEARCH AND DEVELOPMENT / FIBERGLASS MANUFACTURING TECHNOLOGY
Essentially the same technologies and processes are used to produce
fiberglass boats by all boat manufacturers. The most common method is open-face
molding. This is usually a labor-intensive, manual process whereby employees
hand spray and apply fiberglass and resin in layers on open molds to create boat
hulls, decks, stringers and other smaller fiberglass components. This process
can result in inconsistencies in the size and weight of parts, which may lead to
higher warranty costs. Open-face molding is typically capable of producing
approximately 3 hulls per week.
Chaparral has been a leading innovator in the recreational boating
industry. One of the Company's most innovative designs is the full-length
Extended V-Plane running surface. Typically, sterndrive boats have a several
foot gap on the bottom rear of the hull where the engine enters the water. With
Chaparral's design, the running surface extends the full length to the rear of
the boat. The benefit of this innovation is more space, better performance and a
more comfortable ride.
ENVIRONMENTAL AND REGULATORY MATTERS
Certain materials used in boat manufacturing, including the resins used to
make the decks and hulls, are toxic, flammable, corrosive or reactive and are
classified by the federal and state governments as "hazardous materials."
Control of these substances is regulated by the Environmental Protection Agency
and state pollution control agencies which require reports and inspect
facilities to monitor compliance with their regulations. The Occupational Safety
and Health Administration standards limit the amount of emissions to which an
employee may be exposed without the need for respiratory protection or upgraded
plant ventilation. Marine Products' manufacturing facilities are regularly
inspected by OSHA and by state and local inspection agencies and departments.
Marine Products believes that its facilities comply with substantially all
regulations. Marine Products' cost of compliance with environmental regulations
has not been material.
35
<PAGE>
Recreational powerboats must be certified by the manufacturer to meet U.S.
Coast Guard specifications. In addition, their safety is subject to federal
regulation under the Boat Safety Act of 1971, pursuant to which boat
manufacturers may be required to recall products for replacement of parts or
components that have demonstrated defects which affect safety. In addition,
boats manufactured for sale in the European Community must meet CE Certification
standards.
PROPERTIES
Marine Products' principal executive office is located in Atlanta, Georgia.
This office is currently shared with RPC and is leased from a third party. The
monthly rent paid to the third party is allocated proportionately between Marine
Products and RPC. See "Certain Relationships and Related Transactions."
Chaparral owns and maintains approximately 670,000 square feet of manufacturing,
research and development, warehouse, and sales office and operations in
Nashville, Georgia.
EMPLOYEES
After the spin-off is complete, Marine Products will have approximately 740
employees, of which five (5) are management and 27 are administrative. None of
Marine Products' employees are party to a collective bargaining agreement. All
of Marine Products' workforce are currently employed in the U.S., and Marine
Products believes that its relations with its employees are good.
PROPRIETARY MATTERS
Marine Products owns a number of trademarks and trade names that Marine
Products believes are important to its business. Except for the Chaparral
trademark, however, Marine Products is not dependent upon any single trademark
or trade name or group of trademarks or trade names. The Chaparral trademark is
currently registered in the U.S.. The current duration for such registration
ranges from seven to 15 years in the U.S., but each registration may be renewed
an unlimited number of times. Other trademarks and trade names used in Marine
Products' business are registered and maintained in the U.S.
LEGAL PROCEEDINGS
Marine Products is involved in litigation from time to time in the ordinary
course of its business. Marine Products does not believe that the outcomes of
such litigation will have a material adverse effect on the financial position or
results of operations of Marine Products.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Immediately following the spin-off, Marine Products' directors and
executive officers will be:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
R. Randall Rollins (1)(4)....................69 Chairman of the Board of Directors
Richard A. Hubbell (1)(4)....................56 President, Chief Executive Officer and Director
James A. Lane, Jr. (1) ......................58 Executive Vice President and Director
Linda H. Graham..............................64 Vice President, Secretary and Director
Ben M. Palmer................................40 Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary
Wilton Looney (1)(2)(3)......................81 Director
Henry B. Tippie (1)(2)(3)....................73 Director
James B. Williams (1)(2)(3)..................67 Director
Gary W. Rollins (1)(4).......................56 Director
</TABLE>
(1) Current director of RPC
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Executive Committee
Each director was originally elected as a director of RPC shortly after
incorporation of RPC in January 1984, with the exception of James A. Lane, Jr.
and Richard A. Hubbell, who were elected as directors of RPC on January 27,
1987, and Ms. Graham, who will be elected to serve as a director of both RPC and
Marine Products as of the effective date of the spin-off. Ms. Graham has served
as Vice President and Secretary of RPC since January 27, 1987. Each of the
directors will continue to serve as a director of RPC except Mr. Lane, who will
resign as a director of RPC and will serve only as a director of Marine Products
following the effective date of the spin-off. Each of the directors has held the
positions of responsibility set out above with RPC, but not necessarily his or
her present title, for more than five years. In addition to the directorships
listed above, the following individuals also serve on the boards of directors of
the following companies:
o Henry B. Tippie: Rollins Truck Leasing Corp., Matlack Systems, Inc.,
Dover Downs Entertainment, Inc. and Safety Kleen Corp.;
o Wilton Looney: Honorary Chairman of the Board of Genuine Parts
Company;
o James B. Williams: SunTrust Banks, Inc., The Coca-Cola Company,
Genuine Parts Company, and Georgia-Pacific Corporation;
o Gary W. Rollins: Rollins Truck Leasing Corp.; and
o R. Randall Rollins: SunTrust Banks, Inc., SunTrust Banks of Georgia,
and Dover Downs Entertainment, Inc.
Additionally, each of the following directors have also served in the
following capacity for more than the last five years:
o Henry B. Tippie: Chairman of the Board and Chief Executive Officer of
Tippie Services, Inc. which provides management services;
o Wilton Looney: Honorary Chairman of the Board of Genuine Parts Company
- an automotive parts distributor;
37
<PAGE>
o James B. Williams: Chairman of the Executive Committee of SunTrust
Banks, Inc. - a bank holding company; and
o Gary W. Rollins: President and Chief Operating Officer of Rollins,
Inc. which provides pest and termite control services to both
residential and commercial customers.
All of the directors shown in the above table, with the exception of
Messrs. Hubbell and Lane and Ms. Graham, are also directors of Rollins, Inc.
Messrs. R. Randall Rollins and Gary W. Rollins are brothers.
Ben M. Palmer has served as Chief Financial Officer of RPC since 1996.
Prior to joining RPC, Mr. Palmer served as Chief Financial Officer of EQ
Services, a mortgage loan servicing and asset management company, from 1992 to
1996, and as a certified public accountant with Arthur Andersen & Co. from 1982
to 1992.
BOARD OF DIRECTORS
Presently, Mr. Richard A. Hubbell serves as the sole director of Marine
Products. However, immediately before the spin-off, the size of the board of
directors will be enlarged to eight directors, and pursuant to Marine Products'
certificate of incorporation, the board members will be divided into three
classes of directors - Class I, Class II and Class III. R. Randall Rollins and
James B. Williams will serve as Class I directors and will stand for election at
the annual meeting of stockholders to be held in 2001. Henry B. Tippie, Richard
A. Hubbell and Linda H. Graham will serve as Class II directors and will stand
for election at the annual meeting of stockholders to be held in 2002. Gary W.
Rollins, James A. Lane, Jr. and Wilton Looney will serve as Class III directors
and will stand for election at the annual meeting of stockholders to be held in
2003. Following these elections, directors in each class will serve for a term
of three years, or until their successors have been elected and qualified, and
will be compensated at the discretion of the board of directors. Executive
officers are ordinarily elected annually and serve at the discretion of the
board of directors.
BOARD COMMITTEES
Upon completion of the spin-off, Marine Products will establish three
committees of the board of directors, an executive committee, a compensation
committee and an audit committee.
Upon completion of the spin-off, the executive committee will consist of
Messrs. R. Randall Rollins, Gary W. Rollins and Richard A. Hubbell, and have the
authority to take corporate actions as permitted by the Delaware General
Corporation Law ("DGCL") without the need to call a meeting of the full board of
directors.
Upon completion of the spin-off, the compensation committee will consist of
three of Marine Products' "non-employee directors," as that term is defined in
Rule 16b-3(3)(i) under the Exchange Act. The compensation committee will be
responsible for determining the compensation payable to Marine Products'
executive officers and for administering and making grants under the Marine
Products 2000 Plan. Marine Products expects that Messrs. Henry B. Tippie, Wilton
Looney and James B. Williams will be non-employee directors and serve on its
compensation committee.
Upon completion of the spin-off, the audit committee will consist of three
of Marine Products' "independent directors." The audit committee will be
responsible for considering the independence of Marine Products' independent
public accountants and for performing various oversight roles in connection with
Marine Products' operations as described in the SEC's regulations. Marine
Products expects that Messrs. Henry B. Tippie, Wilton Looney and James B.
Williams will be independent directors and serve on its audit committee.
DIRECTOR COMPENSATION
Directors who are salaried employees of Marine Products will receive no
additional compensation for services as a director or as a member of a committee
of the board of directors. Each non-employee director of Marine Products will
receive $1,000 for each meeting of the board of directors or committee meeting
attended, plus $10,000 per year.
38
<PAGE>
LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Marine Products' bylaws provide that it shall indemnify, to the fullest
extent permitted by Section 145 of the DGCL, each person who is involved in any
litigation or other proceeding because of his or her position as a director or
officer of Marine Products, against all expense, loss or liability reasonably
incurred or suffered in connection with that litigation. Marine Products' bylaws
provide that it shall pay expenses of a director or officer incurred in
defending any proceeding in advance of its final disposition upon its receipt of
an undertaking, by or on behalf of the director or officer, to repay all amounts
so advanced if it is ultimately determined that the director or officer is not
entitled to indemnification.
Section 145 of the DGCL permits a Delaware corporation to indemnify any
director or officer of the corporation against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding brought by reason of
the fact that the person is or was a director or officer of the corporation, if
the person acted in good faith and in a manner that he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, if he or she had no reason to
believe his or her conduct was unlawful. In a derivative action, indemnification
may be made only for expenses actually and reasonably incurred by any director
or officer in connection with the defense or settlement of an action or suit if
the person acted in good faith and in a manner that he reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification shall be made if the person shall have been adjudicated to be
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought determines that the defendant is fairly and
reasonably entitled to indemnity for these expenses despite an adjudication of
liability.
As provided for in Section 102(b)(7) of the DGCL, Marine Products'
certificate of incorporation eliminates the liability of a director to the
corporation or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except for liabilities arising:
o from any breach of the director's duty of loyalty to the corporation
or its stockholders;
o from acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the DGCL in connection with the payment of
unlawful dividends or unlawful stock purchases or redemptions; or
o from any transaction from which the director derived an improper
personal benefit.
At present, there is no pending or threatened litigation or proceeding
involving any of our directors or officers, employees or agents where
indemnification will be required or permitted.
39
<PAGE>
EXECUTIVE COMPENSATION
The following table presents information with respect to those persons who
will serve as Marine Products' chief executive officer and four other most
highly compensated executive officers following the spin-off. In this document,
Marine Products refers to these executive officers as the "Named Officers."
Marine Products is presenting executive compensation on a prospective basis. The
compensation received by the Named Officers while employees of RPC was based on
substantially different executive responsibilities and may not be indicative of
the compensation to be received from Marine Products, and therefore we have
excluded that information from this table.
<TABLE>
<CAPTION>
Long -Term
Annual Compensation Compensation
----------------------------------------------- -----------------------
Securities Underlying
Options and
Other Annual Restricted Stock All Other
Name And Principal Position Salary (1) Bonus Compensation Awards Compensation
-------------------------------- ---------- --------- ------------------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C>
R. Randall Rollins............ $ 150,000 (3) (4) -- --
Chairman of the Board of
Directors
Richard A. Hubbell............ $ 150,000 (3) (4) (5) --
President and Chief Executive
Officer
James A. Lane, Jr.(2)......... $ 67,841 (3) (4) (5) --
Executive Vice President
Ben M. Palmer................. $ 57,000 (3) (4) (5) --
Vice President, Chief
Financial Officer, Treasurer
and Secretary
Linda H. Graham............... $ 42,000 (3) (4) (5) --
Vice President and Secretary
</TABLE>
_______________________
(1) Represents currently approved salaries for the year 2000. Individuals may
be eligible for an annual increase in subsequent years following the
spin-off.
(2) See "Employee Agreements" below.
(3) This Named Officer may be eligible for an annual bonus if Marine Products
exceeds its budget objectives or the particular business unit in which the
Named Officer works achieves certain performance criteria established by
the compensation committee, except for Mr. Lane who is eligible for an
annual bonus of 10 percent of pre-tax profit of Chaparral in accordance
with his employment agreement, as discussed under the heading "Employment
Agreements" below.
(4) Value of perquisites and other personal benefits paid is not expected to
exceed the lesser of $50,000 or 10 percent of the total annual salary and
bonus reported for the executive officer.
(5) On the effective date of the spin-off, each Named Officer will receive
replacement grants under the Marine Products 2000 Employee Stock Incentive
Plan for one-third of his or her RPC options and restricted stock awards
that have not been earned and issued into escrow and that will be
surrendered for cancellation in connection with the spin-off. See
"Principal Stockholders" below.
EMPLOYMENT AGREEMENTS
Chaparral has entered into a compensation agreement with James A. Lane, Jr.
that was first entered into as part of RPC's acquisition of Chaparral. This
agreement provides that Mr. Lane shall serve as Chaparral's President, Chief
Executive Officer, Chief Financial Officer and Treasurer until ____________,
unless earlier terminated or amended. Under this agreement, Mr. Lane receives a
base salary of $67,841 per year paid in approximately equal weekly installments
in arrears and an annual incentive cash bonus of ten (10 percent) percent of
pre-tax profits, as therein defined, of Chaparral. The pre-tax profits for each
fiscal year, or part thereof, during the term of this agreement shall be
estimated at the end of each calendar month and an advance payment of the amount
of the estimated incentive cash bonus which has been earned during such fiscal
year (less previous advances) will be paid to Mr. Lane following such
determination and prior to the end of the next following month. The definitive
amount of the incentive cash bonus will be determined by certified public
accountants in connection with their examination of the financial statements of
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<PAGE>
Marine Products for each fiscal year during the term of this agreement, which
determination shall be final and binding on Mr. Lane and Marine Products.
Following such determination Marine Products will pay Mr. Lane any additional
incentive cash bonus due him, or Mr. Lane shall reimburse Marine Products for
any over-payments, of the incentive cash bonus, as the case may be. This
incentive cash payment was approximately 97 percent of the total cash
compensation paid to Mr. Lane in 1999, which amount was approximately $2.2
million.
EMPLOYEE BENEFIT PLANS
2000 Employee Stock Incentive Plan
On or before the effective date of the spin-off, Marine Products will adopt
the Marine Products 2000 Employee Stock Incentive Plan (the "Marine Products
2000 Plan"). Marine Products intends that the Marine Products 2000 Plan will
encourage its key employees, through their individual efforts, to improve its
overall performance and to promote profitability by providing them an
opportunity to participate in the increased value they help create. Options
granted under the Marine Products 2000 Plan may be in the form of "incentive
stock options" as defined under Section 422 of the IRS Code or options that are
not incentive stock options or other awards. The plan will be administered by
the compensation committee of the board of directors.
Marine Products will reserve 1,500,000 shares of its common stock for
issuance under the Marine Products 2000 Plan. In general, all options granted
under the Marine Products 2000 Plan will lapse ten years from the date of grant,
five years in the case of a 10 percent stockholder of Marine Products or one of
its subsidiaries. Also, the exercise price of an incentive stock option will be
determined by the compensation committee at the time the option is granted and
will not be less than 100 percent of the fair market value per share of Marine
Products common stock on the date the option is granted (110 percent in the case
of a 10 percent stockholder of Marine Products or one of its subsidiaries). The
exercise price of an option that is not incentive stock option will not be less
than 90 percent of the fair market value per share of Marine Products common
stock on the date the option is granted. Replacement options granted for RPC
options that terminate as a result of or are surrendered for cancellation in
connection with the spin-off may be granted at less than fair market value. The
compensation committee may provide in the option agreement that an option may be
exercised in whole immediately or is exercisable in increments. The Marine
Products 2000 Plan will expire in _________ 2010.
Following completion of the spin-off, Messrs. R. Rollins, Hubbell, Lane,
Palmer and Ms. Graham will surrender to RPC for cancellation one-third of their
options and performance restricted stock awards that have not been earned and
issued into escrow. These options and awards will be replaced with options
and/or awards under the Marine Products 2000 Plan as discussed under the heading
"The Spin-off--Effect Of The Spin-off on RPC Outstanding Options And Restricted
Stock Awards."
Also, employees of Marine Products or Chaparral with outstanding time-lapse
restricted stock awards and performance restricted stock awards that have been
issued and are being held in escrow on behalf of a Marine Products or Chaparral
employee as of the close of business on the record date will also automatically
terminate; however, prior to such termination, each such employee will be
granted replacement awards under RPC's 1994 Plan substantially identical to the
original RPC awards except that employment by Marine Products or Chaparral after
the spin-off will continue the effectiveness of the replacement grant. See "The
Spin-off--Effect Of The Spin-off on RPC Outstanding Options And Restricted Stock
Awards."
In addition, employees of Marine Products or Chaparral with outstanding
options and awards that have not been earned and issued into escrow granted
under RPC's 1994 Plan will be granted replacement options and/or awards under
the Marine Products 2000 Plan, equivalent in value to the RPC options and awards
that terminated as a result of the spin-off. See "The Spin-off--Effect Of The
Spin-off on RPC Outstanding Options And Restricted Stock Awards."
401(k) Plan
RPC's employees (including Chaparral's employees) are currently eligible to
participate in RPC's 401(k) plan. On the effective date of the spin-off, Marine
Products will adopt the RPC 401(k) Plan and its related trust, making it a
multiple employer plan.
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Pension Plan
RPC's employees (including Chaparral's employees) are currently eligible to
participate in RPC's pension plan. On the effective date of the spin-off, Marine
Products will adopt the RPC Retirement Income Plan and its related trust, making
it a multiple employer plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the directors who are expected to serve on Marine Products'
compensation committee has ever been an employee of Marine Products. No
executive officer of Marine Products serves on a compensation committee of
another company. R. Randall Rollins, an executive officer of Marine Products,
serves on the boards of directors of both SunTrust Banks, Inc. and SunTrust
Banks of Georgia, a subsidiary of SunTrust Banks, Inc. Mr. Williams is the
chairman of the executive committee of SunTrust Banks, Inc. Mr. Rollins is not
on the compensation committee of SunTrust Banks, Inc. or SunTrust Banks of
Georgia.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of the date of this
document, regarding the anticipated beneficial ownership of Marine Products
common stock as a result of the spin-off by:
o each person or entity Marine Products expects to own beneficially more
than 5 percent of its common stock;
o each of its directors;
o each of its Named Officers; and
o all directors and executive officers as a group.
Marine Products has based the share amounts on each person's beneficial
ownership of RPC as of the date of this document, unless some other basis for
the share amounts is indicated. Unless otherwise indicated, each person or
entity named in the table has sole voting power and investment power or shares
voting and/or investment power with his or her spouse, with respect to all
shares of capital stock listed as owned by that person or entity. Except as
otherwise noted below, the address of each person listed below is the address of
Marine Products.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission. The
information is not necessarily indicative of beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting power or investment power and
any shares as to which the individual or entity has the right to acquire
beneficial ownership within 60 days of the date of this document through the
exercise of any stock option or other award. The inclusion in the following
table of those shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of those shares.
Shares to be
Name of Beneficial Owner Beneficially Owned
--------------------
Number Percent
R. Randall Rollins(1)...................................... 7,780,456 55.1
Gary W. Rollins(2)......................................... 7,776,001 55.0
Richard A. Hubbell(3)...................................... 178,407 1.3
James A. Lane, Jr.(4)...................................... 34,065 *
Linda H. Graham(5)......................................... 40,845 *
Ben M. Palmer(6)........................................... 19,650 *
Wilton Looney.............................................. 600 *
Henry B. Tippie(7)......................................... 837,339 5.9
James B. Williams.......................................... 20,000 *
FMR Corporation(8)......................................... 1,391,400 9.7
All directors and executive officers
as a group (9 persons)(9) ............................ 8,771,277 61.7
..................
* Less than one percent.
(1) Includes 214,258 shares of Marine Products held as trustee, guardian, or
custodian for his children or as custodian for the children of his brother,
Gary W. Rollins. Also includes 692,780 shares of Marine Products in four
trusts of which he is a co-trustee and as to which he shares voting and
investment power. Also includes 6,246,914 shares owned by LOR, Inc. Mr.
Rollins is an officer, director and stockholder of LOR, Inc. Also includes
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172,800 shares owned by Rollins Holding Company, Inc. Mr. Rollins is an
officer, director and stockholder of Rollins Holding Company, Inc. Also
includes 155,252 shares held by Rollins Investment Fund, a Georgia general
partnership, of which Mr. Rollins is a general partner. Also includes
36,715 shares held by RWR Investment partnership, a Georgia limited
partnership, of which Mr. Rollins is a general partner. Does not include
10,890 shares of Marine Products held by his wife, in which Mr. Rollins
disclaims any beneficial interest.
(2) Includes 184,054 shares of Marine Products held as trustee or custodian for
his children or as custodian for the grandchildren of his brother, R.
Randall Rollins. Also includes 679,340 shares of Marine Products in four
trusts of which he is co-trustee and as to which he shares voting and
investment power. Also includes 6,246,914 shares owned by LOR, Inc. Mr.
Rollins is an officer, director and stockholder of LOR, Inc. Also includes
172,800 shares owned by Rollins Holding Company, Inc. Mr. Rollins is an
officer, director and stockholder of Rollins Holding Company, Inc. Also
includes 155,252 shares held by Rollins Investment Fund, a Georgia general
partnership, of which Mr. Rollins is a general partner. Does not include
50,002 shares of Marine Products held by his wife, in which Mr. Rollins
disclaims any beneficial interest.
(3) Includes 67,600 shares subject to options which are presently exercisable
or will become exercisable within 60 days after the date of this
information statement subject to certain adjustments as set forth under the
heading "The Spin-off -- Effect of the Spin-off on RPC Outstanding Options
and Restricted Stock Awards." Also includes 71,000 shares of restricted
stock awards.
(4) Includes 20,000 shares of restricted stock awards.
(5) Includes 8,000 shares subject to options which are presently exercisable or
will become exercisable within 60 days after the date of this information
statement subject to certain adjustments as set forth under the heading
"The Spin-off -- Effect of the Spin-off on RPC Outstanding Options and
Restricted Stock Awards." Also includes 9,600 shares of restricted stock
awards.
(6) Includes 9,600 shares subject to options which are presently exercisable or
will become exercisable within 60 days after the date of this information
statement subject to certain adjustments as set forth under the heading
"The Spin-off -- Effect of the Spin-off on RPC Outstanding Options and
Restricted Stock Awards." Also includes 9,000 shares of restricted stock
awards.
(7) Includes 712,339 shares in trusts of which Mr. Tippie is a trustee or
co-trustee and as to which he shares voting and investment power.
(8) Based on Schedule 13G/A filed with the Securities and Exchange Commission
on February 14, 2000. The business address of FMR Corporation is: 82
Devonshire Street, Boston, Massachusetts 02109.
(9) Includes 85,200 shares subject to options which are presently exercisable
or will become exercisable within 60 days after the date of this
information statement subject to certain adjustments as set forth under the
heading "The Spin-off -- Effect of the Spin-off on Outstanding RPC Options
and Restricted Stock Awards." Also includes 109,600 shares of restricted
stock awards.
44
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Marine Products' principal executive office is located in Atlanta, Georgia.
This office is currently shared with RPC and is leased from a third party. The
monthly rent paid to the third party is allocated proportionately between Marine
Products and RPC. Marine Products believes that this lease arrangement is on
terms no less favorable to Marine Products than would have been obtained from a
non-affiliated third party.
For a description of the agreements and transactions between RPC and Marine
Products, you should review the section of this document under the heading "The
Spin-off -- Relationship Between RPC and Marine Products After the Spin-off."
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
INTRODUCTION
The following summary description of Marine Products' capital stock is
qualified by reference to the provisions of its certificate of incorporation and
bylaws.
The authorized capital stock of Marine Products consists of 50 million
shares of Marine Products common stock, par value $.10 per share, and 1 million
shares of preferred stock, par value $.10 per share. On the distribution date,
Marine Products will have approximately ____ million shares of its common stock
outstanding, based on RPC's outstanding common stock of ______ shares as of
______________, 2000 and approximately ____ holders of record. No shares of
preferred stock will be distributed in the spin-off.
COMMON STOCK
Subject to the rights of stockholders of Marine Products preferred stock,
the stockholders of Marine Products common stock:
o are entitled to dividends if they are declared by our board of directors
out of funds legally available therefor;
o are entitled to one vote per share on all matters brought before them
(voting is noncumulative in the election of directors);
o have no preemptive or conversion rights;
o are not subject to, or entitled to the benefits of, any redemption or
sinking fund provision; and
o are entitled upon liquidation to receive the remainder of our assets after
the payment of corporate debts and the satisfaction of the liquidation
preference of our preferred stock.
PREFERRED STOCK
Marine Products' board of directors is empowered, without approval of the
stockholders, to cause shares of preferred stock to be issued in one or more
series, with the number of shares of each series and the rights, preferences and
limitations of each series to be determined by it at the time of issuance. Among
the specific matters that our board of directors may determine are the rate of
dividends, redemption and conversion prices and terms and amounts payable in the
event of liquidation and special voting rights. Such rights of the board of
directors' to issue preferred stock may be viewed as having an anti-takeover
effect.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
As a public Delaware corporation, Marine Products is subject to Section 203
of the Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15 percent or
more of a corporation's outstanding voting stock) from engaging in a "business
combination" with a Delaware corporation for three years following the time such
person became an interested stockholder unless:
o before such person became an interested stockholder, the board of directors
of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination;
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85 percent of the voting stock of the corporation outstanding at the
46
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time the transaction commenced (excluding stock held by directors who are
also officers of the corporation and by employee stock plans that do not
provide employees with the rights to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer); or
o following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors
of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting
stock of the corporation not owned by the interested stockholder.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS OF MARINE
PRODUCTS
General
A number of provisions of the certificate of incorporation and bylaws deal
with matters of corporate governance and the rights of stockholders. Certain of
these provisions may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the board of directors,
including takeovers which certain stockholders may deem to be in their best
interest. These provisions also could delay or frustrate the removal of
incumbent directors or the assumption of control by stockholders, even if such
removal or assumption would be beneficial to stockholders of Marine Products.
These provisions also could discourage or make more difficult a merger, tender
offer or proxy contest, even if they could be favorable to the interests of
stockholders, and could potentially depress the market price of the common
stock. The board of directors believes that these provisions are appropriate to
protect the interests of Marine Products and all of its stockholders.
Meetings of Stockholders
The certificate of incorporation and bylaws provide that a special meeting
of stockholders may be called only by the chairman of the board of directors,
the president or a majority of the whole board, unless otherwise required by
law. The bylaws provide that only those matters set forth in the notice of the
special meeting may be considered or acted upon at that special meeting, unless
otherwise provided by law. In addition, the bylaws set forth certain advance
notice and informational requirements and time limitations on any director
nomination or any new business which a stockholder wishes to propose for
consideration at an annual meeting or special meeting of stockholders.
Indemnification and Limitation of Liability
The bylaws provide that directors and officers shall be, and at the
discretion of the board of directors, others serving at the request of Marine
Products may be, indemnified by Marine Products to the fullest extent authorized
by Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with service for or
on behalf of Marine Products and further requires the advancing of expenses
incurred in defending claims. The bylaws also provide that the right of
directors and officers to indemnification shall not be exclusive of any other
right now possessed or hereafter acquired under any bylaw, agreement, vote of
stockholders or otherwise. The certificate contains a provision permitted by
Delaware law that generally eliminates the personal liability of directors for
monetary damages for breaches of their fiduciary duty. This provision does not
alter a director's liability under the federal securities laws. In addition,
this provision does not affect the availability of equitable remedies, such as
an injunction or rescission, for breach of fiduciary duty.
Amendment of the Certificate
The certificate of incorporation provides that an amendment relating to the
limitation of liability of directors, amending the certificate of incorporation,
changing persons eligible to call special meetings, changing provisions
regarding effecting action by stockholders by written consent, removing the
47
<PAGE>
staggered and classified board or amending the bylaws must first be approved by
a majority of the members of the board of directors and thereafter approved by
the affirmative vote of 66.7 percent of the outstanding shares of capital stock,
voting together as single class.
Amendment of Bylaws
The certificate of incorporation provides that Marine Products' bylaws may
be adopted, amended or repealed by the board of directors and any bylaws adopted
by the directors may be altered, amended or repealed by the directors or by the
stockholders. Such action by the board of directors requires the affirmative
vote of a majority of the whole board of the directors. Such action by the
stockholders requires the affirmative vote of 66.7 percent of the total
outstanding shares of capital stock, voting together as a single class.
Transfer Agent
SunTrust Bank, N.A., will be the distribution agent for the spin-off and
will be the transfer agent and registrar for Marine Products common stock
following the spin-off.
WHERE YOU CAN FIND MORE INFORMATION
Following the spin-off, Marine Products will be subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act"). Under the Exchange Act, Marine Products will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). The reports, proxy statements and other information we file with
the SEC may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information regarding
the public reference room. Marine Products SEC filings are also available to the
public at the SEC's web site at http://www.sec.gov. Marine Products has applied
to list its common stock on the AMEX.
Marine Products has filed with the SEC a registration statement on Form 10
under the Exchange Act covering its common stock. This information statement
does not contain all of the information in that registration statement and the
related exhibits and schedules. Statements in this information statement as to
the contents of any contract, agreement or other document are summaries only and
are not necessarily complete. For complete information as to these matters,
refer to the applicable exhibit or schedule to the registration statement. The
registration statement and the related exhibits filed by Marine Products with
the SEC may be inspected at the public reference facilities of the SEC listed
above.
No person is authorized to give any information or to make any
representations with respect to the matters described in this information
statement other than those contained in this information statement or in the
documents incorporated by reference in this information statement and, if given
or made, such information or representation must not be relied upon as having
been authorized by Marine Products or RPC. Neither the delivery of this
information statement nor consummation of the spin-off contemplated hereby
shall, under any circumstances, create any implication that there has been no
change in Marine Products' affairs or those of RPC since the date of this
information statement, or that the information in this information statement is
correct as of any time after its date.
48
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants...................................F-2
Combined Balance Sheets....................................................F-3
Combined Statements of Income..............................................F-4
Combined Statements of Stockholder's Equity................................F-4
Combined Statements of Cash Flows..........................................F-5
Notes to Combined Financial Statements.....................................F-6
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders of RPC, Inc.:
We have audited the accompanying combined balance sheets of the business
conducted through RPC's Powerboat Manufacturing Segment, to be reorganized as
Marine Products Corporation (a Delaware corporation), as of December 31, 1999
and 1998, and the related combined statements of income, stockholder's equity
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the business conducted
through RPC's Powerboat Manufacturing Segment as of December 31, 1999 and 1998,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
September 8, 2000
F-2
<PAGE>
COMBINED BALANCE SHEETS
--------------------------------------------------------------------------------
MARINE PRODUCTS CORPORATION (in thousands)
--------------------------------------------------------------------------------
December 31,
1999 1998
--------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 3,431 $ 3,480
Accounts receivable, less allowance for
doubtful accounts of $69 and $77 in 1999 and 1998 1,417 2,186
Inventories 13,703 10,688
Deferred income taxes 2,642 2,443
Prepaid expenses and other current assets 551 273
--------------------------------------------------------------------------------
Current assets 21,744 19,070
Property, plant and equipment, net 6,714 5,768
Goodwill, net of accumulated amortization
of $9,011 and $8,326 in 1999 and 1998 4,676 5,361
Receivable from RPC, Inc. 54,676 47,057
Other assets 358 329
--------------------------------------------------------------------------------
Total assets $88,168 $77,585
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable $ 2,372 $ 1,720
Other accrued expenses 6,858 6,078
--------------------------------------------------------------------------------
Current liabilities 9,230 7,798
Deferred income taxes 306 273
--------------------------------------------------------------------------------
Total liabilities 9,536 8,071
--------------------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
RPC, Inc. equity investment 78,632 69,514
--------------------------------------------------------------------------------
Total stockholder's equity 78,632 69,514
--------------------------------------------------------------------------------
Total liabilities and stockholder's equity $88,168 $77,585
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
COMBINED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
MARINE PRODUCTS CORPORATION (in thousands)
--------------------------------------------------------------------------------
Year ended December 31,
1999 1998 1997
--------------------------------------------------------------------------------
NET SALES $122,878 $103,497 $95,029
Cost of goods sold 93,247 77,776 72,899
Selling, general and administrative
expenses 15,147 13,578 11,716
--------------------------------------------------------------------------------
Operating income 14,484 12,143 10,414
Interest income 233 240 214
--------------------------------------------------------------------------------
Income before income taxes 14,717 12,383 10,628
Income tax provision 5,599 4,709 4,067
--------------------------------------------------------------------------------
Net income $ 9,118 $7,674 $6,561
--------------------------------------------------------------------------------
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
--------------------------------------------------------------------------------
MARINE PRODUCTS CORPORATION (in thousands)
--------------------------------------------------------------------------------
RPC, Inc.
Equity
Investment
--------------------------------------------------------------------------------
Balance December 31, 1996 $55,279
Net income 6,561
--------------------------------------------------------------------------------
Balance December 31, 1997 61,840
Net income 7,674
--------------------------------------------------------------------------------
Balance December 31, 1998 69,514
Net income 9,118
--------------------------------------------------------------------------------
Balance December 31, 1999 $78,632
================================================================================
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
MARINE PRODUCTS CORPORATION (in thousands)
--------------------------------------------------------------------------------
Year ended December 31,
1999 1998 1997
--------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 9,118 $ 7,674 $ 6,561
Noncash charges (credits) to earnings:
Depreciation and amortization 1,545 1,399 1,296
Gain on sale of equipment and property (141) - (8)
Deferred income tax benefit (166) (436) (270)
(Increase) decrease in assets:
Accounts receivable 769 (583) (131)
Inventories (3,015) (936) (375)
Prepaid expenses and other current assets (278) 109 (40)
Other noncurrent assets (29) (31) (25)
Increase (decrease) in liabilities:
Accounts payable 652 548 (596)
Other accrued expenses 780 638 768
--------------------------------------------------------------------------------
Net cash provided by operating activities 9,235 8,382 7,180
--------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (1,810) (2,192) (679)
Proceeds from sale of equipment and property 145 - 12
--------------------------------------------------------------------------------
Net cash used for investing activities (1,665) (2,192) (667)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in receivable from RPC, Inc. (7,619) (5,414) (7,555)
--------------------------------------------------------------------------------
Net cash used for financing activities (7,619) (5,414) (7,555)
--------------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (49) 776 (1,042)
Cash and cash equivalents at beginning of
year 3,480 2,704 3,746
--------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,431 $ 3,480 $ 2,704
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
MARINE PRODUCTS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1: RPC INC.'S PROPOSED SPIN-OFF OF ITS POWERBOAT MANUFACTURING BUSINESS
In January 2000, the Board of Directors of RPC, Inc. announced that it planned
to spin off to RPC, Inc. stockholders the business conducted through Chaparral
Boats, Inc. ("Chaparral"), RPC, Inc.'s Powerboat Manufacturing Segment (the
"spin-off"). RPC, Inc. will accomplish the spin-off by contributing 100% of the
issued and outstanding stock of Chaparral to Marine Products Corporation (a
Delaware corporation) ("Marine Products"), a newly formed wholly-owned
subsidiary of RPC, Inc., and then distributing the common stock of Marine
Products to RPC, Inc. stockholders. RPC, Inc. stockholders will receive one-half
of one share of Marine Products Common Stock for each share of RPC, Inc. Common
Stock owned as of the Record Date. Based on an Internal Revenue Service Private
Letter ruling, the spin-off will be tax-free to RPC, Inc. and RPC, Inc.
stockholders, except for cash received for any fractional shares. If the facts
upon which the letter ruling is based are materially different from the facts at
the time of the spin-off, the spin-off could be taxable to RPC stockholders, to
RPC, or to both. Immediately after the spin-off is completed, RPC, Inc. will not
own any shares of Marine Products Common Stock, and Marine Products will be an
independent public company. The actual number of shares of Marine Products
Common Stock to be distributed will depend on the number of shares of RPC, Inc.
Common Stock outstanding on the Record Date.
In conjunction with the spin-off, RPC, Inc. and Marine Products have entered
into various agreements that address the allocation of assets and liabilities
between the two companies and that define the companies' relationship after the
separation. These include the Distribution Agreement and Plan of Reorganization,
the Transition Support Services Agreement, the Employee Benefits Agreement, and
the Tax Sharing and Indemnification Agreement.
The Distribution Agreement and Plan of Reorganization provides for, among other
things, the principal corporate transactions required to effect the spin-off
including the distribution ratio of Marine Products shares to RPC, Inc. shares,
the contribution of cash by RPC, Inc. to Marine Products at the date of the
spin-off, and the cancellation of any remaining intercompany balances.
The Transition Support Services Agreement provides for RPC, Inc. to provide
certain services, including financial reporting and income tax administration,
acquisition assistance, etc. to Marine Products until the agreement is
terminated by either party.
The Employee Benefits Agreement provides for, among other things, Marine
Products to continue participating subsequent to the spin-off in two RPC, Inc.
sponsored benefit plans, specifically, the defined contribution 401(k) plan and
the defined benefit retirement income plan. It also sets forth the method of
handling the stock options and other stock incentive awards issued to RPC, Inc.
employees that will be employed by Marine Products subsequent to the spin-off.
The Tax Sharing and Indemnification Agreement provides for, among other things,
the treatment of income tax matters for periods through the date of the spin-off
and responsibility for any adjustments as a result of audit by any taxing
authority. The general terms provide for the indemnification for any tax
detriment incurred by one party caused by the other party's action.
F-6
<PAGE>
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination and Presentation-The combined financial statements
include the accounts of Marine Products and substantially all of the assets,
liabilities, revenues, and expenses of Chaparral (collectively "Marine Products"
or the "Company"). Marine Products, through Chaparral, operates in a single
industry segment as a leading manufacturer of recreational powerboats and
related products and services to a broad range of consumers worldwide.
The combined financial statements have been prepared on the historical cost
basis, and present the Company's financial position, results of operations and
cash flows directly related to RPC, Inc.'s Powerboat Manufacturing Segment
operations.
The combined financial statements included herein may not necessarily be
indicative of the results of operations, financial position and cash flows of
Marine Products in the future or had it operated as a separate, independent
company during the periods presented. The combined financial statements included
herein do not reflect any changes that may occur in the financing and operations
of Marine Products as a result of the spin-off.
During 1999, 1998, and 1997, Marine Products was allocated $1,966,000,
$1,777,000 and $1,341,000, respectively, of RPC, Inc. corporate costs. The
allocation was based on Marine Products' revenue as a percent of RPC, Inc.'s
total revenue and the allocated costs are included in Selling, General, and
Administrative expenses in the accompanying combined statements of income.
Management believes that such allocation methodology is reasonable. The costs
allocated to Marine Products for these services are not necessarily indicative
of the costs that would have been incurred if Marine Products had been a
separate, independent entity and had otherwise independently managed these
functions. Subsequent to the spin-off, Marine Products will reimburse RPC, Inc.
for its allocable share of costs incurred for services rendered on behalf of
Marine Products. The Company and RPC, Inc. have entered into a Transitions
Support Services Agreement that sets forth the basis for these cost allocations.
Nature of Operations--Marine Products is principally engaged in
manufacturing powerboats and providing related products and services. Previously
the boat manufacturing segment of RPC, Inc., Marine Products manufactures and
distributes fiberglass stern-drive boats through a network of domestic and
foreign independent dealers.
Use of Estimates in the Preparation of Financial Statements--The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Segment Reporting-The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and
Related Information." As the Company has only one reportable segment - its power
boat manufacturing business - the majority of the disclosures required by SFAS
No. 131 do not apply to the Company. In regard to the general disclosures
required by SFAS No. 131, the Company's results of operations and its financial
condition are not significantly reliant upon any single customer or the
Company's foreign operations.
Revenue Recognition-Revenue from product sales is recognized upon delivery to
customers.
Cash Equivalents--Highly liquid investments with original maturities of 3 months
or less are considered to be cash equivalents.
Inventories--Inventories are stated at the lower of cost (first-in, first-out
basis) or market value.
Long-Lived Assets--Long-lived assets and goodwill are reviewed whenever events
or changes in circumstances indicate that the carrying amount of an asset may
F-7
<PAGE>
not be recoverable. The Company periodically reviews the values assigned to
long-lived assets, such as property, plant and equipment and goodwill, to
determine if any impairments are other than temporary. Management believes that
the long-lived assets in the accompanying balance sheets are appropriately
valued.
Property, Plant and Equipment--Property, plant, and equipment is carried at
cost. Depreciation is provided principally on a straight-line basis over the
estimated useful lives of the assets. The cost of assets retired or otherwise
disposed of and the related accumulated depreciation are eliminated from the
accounts in the year of disposal with the resulting gain or loss credited or
charged to income. Expenditures for additions, major renewals, and betterments
are capitalized. Depreciation expense on operating equipment used in production
is included in the "cost of goods sold" caption in the accompanying statements
of income. All other depreciation is included in the "selling, general and
administrative" caption.
Goodwill--Goodwill represents the excess of the purchase price over the fair
value of net assets of businesses acquired. Goodwill is presented net of
accumulated amortization and is being amortized using the straight-line method
over 20 years.
Stock-Based Compensation--SFAS No. 123, "Accounting for Stock-Based
Compensation" defines a fair value-based method of accounting for an employee
stock option plan or similar equity instrument. However, it also allows an
entity to continue to measure compensation cost for those plans using the method
of accounting prescribed in Accounting Principles Board ("APB") Opinion No. 25.
Entities electing to use APB No. 25 must make pro forma disclosures of net
income and earnings per share, as if the fair value-based method of accounting
defined in the statement had been applied.
Accrued Dealer Discounts-Provision for sales incentives including dealer
discounts are provided for in the period the related sales are recorded.
Allowance for Boat Repurchases-The Company is obligated under certain
circumstances to repurchase boats from finance companies where dealers have
financed boats under floor plan finance arrangements. The Company maintains an
allowance for estimated losses on boats repurchased.
Warranty Accruals-The Company warrants the entire deck and hull, including its
bulkhead and supporting stringer system, against defects in materials and
workmanship for a period of five years. The Company accrues for these estimated
future warranty costs at the time of the sale.
Insurance Accruals--The Company fully insures its risks related to general
liability, product liability, workers' compensation, and vehicle liability,
whereas the health insurance plan is self funded up to a maximum annual claim
amount for each covered employee and related dependents. The estimated cost of
claims under the self-insurance program is accrued as the claims are incurred
and may subsequently be revised based on developments relating to such claims.
Research and Development Costs-The Company expenses research and development
costs for new products and components as incurred. Research and development
costs are included in selling, general and administrative expenses and totaled
$1,500,000 in 1999, $1,018,000 in 1998, and $727,000 in 1997.
Income Taxes--Deferred tax liabilities and assets are determined based on the
difference between the financial and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Income tax expense was calculated as if Marine Products filed
separate income tax returns. As Marine Products manages its tax position, the
effective tax rate for Marine Products could vary from its historical effective
tax rates presented herein.
New Accounting Standards--SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," establishes accounting and reporting standards for
derivative instruments including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires entities to recognize
F-8
<PAGE>
all instruments as either assets or liabilities in the balance sheet and measure
those instruments at fair value. As amended, SFAS No. 133 will be effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. Marine
Products does not anticipate the adoption of this statement to have a material
impact on its financial position or results of operations.
NOTE 3: INVENTORIES
Inventories consist of the following:
December 31,
1999 1998
--------------------------------------------------------------------------------
(in thousands)
Raw Materials $ 7,584 $ 5,958
Work in process 417 419
Finished goods 5,702 4,311
--------------------------------------------------------------------------------
Total inventories $ 13,703 $ 10,688
================================================================================
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Estimated December 31,
Useful Lives 1999 1998
--------------------------------------------------------------------------------
(in thousands)
Operating equipment 5-10 $ 3,842 $ 3,329
Buildings 20 5,109 5,040
Furniture and fixtures 5-7 363 306
Vehicles 5 2,655 2,448
Land N/A 278 278
Construction in progress N/A 603 -
--------------------------------------------------------------------------------
Gross property, plant and equipment 12,850 11,401
Less: accumulated depreciation 6,136 5,633
--------------------------------------------------------------------------------
Net property, plant and equipment $ 6,714 $ 5,768
================================================================================
Depreciation expense was $860,000 in 1999, $715,000 in 1998, and $611,000 in
1997.
NOTE 5: RECEIVABLE FROM RPC, INC.
At December 31, 1999 and 1998, the combined balance sheets reflect a Receivable
from RPC, Inc. This represents the amount of cash transferred from the Company
to RPC, Inc. since RPC, Inc.'s acquisition of Chaparral in 1986. At the
spin-off, RPC, Inc. will establish a cash balance at Marine Products of
approximately $15 million. The remaining Receivable from RPC, Inc. after the $15
million cash balance is established will be cancelled and RPC, Inc.'s equity
investment will be reduced by an equal amount.
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<PAGE>
NOTE 6: OTHER ACCRUED EXPENSES
Other accrued expenses at December 31, 1999 and 1998 consisted of the following:
December 31,
1999 1998
--------------------------------------------------------------------------------
(in thousands)
Accrued payroll and related expenses $ 967 $ 874
Accrued dealer discounts 2,285 1,944
Accrued insurance expenses 597 565
Accrued warranty expenses 2,214 1,981
Allowance for repurchases 500 500
Other 295 214
--------------------------------------------------------------------------------
Other accrued expenses $ 6,858 $ 6,078
================================================================================
NOTE 7: INCOME TAXES
The following table lists the components of the provision for income taxes:
Year ended December 31,
1999 1998 1997
--------------------------------------------------------------------------------
(in thousands)
Current:
Federal $5,304 $ 4,753 $4,005
State 461 392 332
Deferred (166) (436) (270)
--------------------------------------------------------------------------------
Total income tax provision $5,599 $ 4,709 $4,067
================================================================================
A reconciliation between the federal statutory rate and Marine Products'
effective tax rate is as follows:
Year ended December 31,
1999 1998 1997
--------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes 2.0 2.1 2.0
Goodwill amortization 3.0 3.6 4.2
Benefit of foreign
sales corporation (1.2) (1.5) (1.8)
Other (0.5) (1.2) (1.1)
--------------------------------------------------------------------------------
Effective tax rate 38.3% 38.0% 38.3%
================================================================================
F-10
<PAGE>
The components of the net deferred tax assets (liabilities) are as follows:
December 31,
1999 1998
--------------------------------------------------------------------------------
(in thousands)
Current deferred tax assets:
State, local & other taxes $269 $346
Accrued warranty expenses 1,139 1,051
Accrued dealer discounts 235 191
Allowance for repurchases 190 190
All others 809 665
--------------------------------------------------------------------------------
Net current deferred tax assets $2,642 $2,443
================================================================================
Non-current deferred tax assets (liabilities):
Self-insurance reserves $172 $210
Depreciation (478) (483)
--------------------------------------------------------------------------------
Net non-current deferred tax liabilities $ (306) $ (273)
================================================================================
RPC, Inc. has paid substantially all income taxes historically on behalf of
Marine Products.
The Company and RPC, Inc. have entered into a tax-sharing and indemnification
agreement whereby any subsequent income tax adjustments resulting in a change in
income tax assets or liabilities of either RPC, Inc. or Marine Products prior to
spin-off will be settled through an exchange of cash.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Lawsuits-The Company is a defendant in a number of lawsuits, which allege that
plaintiffs have been damaged as a result of the use of the Company's products.
The Company is vigorously contesting these actions. Management is of the opinion
that the outcome of these lawsuits will not have a material adverse effect on
the financial position or results of operations or liquidity of Marine Products.
Dealer Floor Plan Financing-To assist dealers in obtaining financing for the
purchase of its boats, the Company has entered into agreements with various
dealers and financing institutions to guarantee varying amounts of the dealers'
purchase debt obligations. The Company's obligation under its guarantee becomes
effective in the case of default in payments by the dealer. The agreements
provide for the return of all repossessed boats to the Company in new condition,
in exchange for the Company's assumption of the unpaid debt obligation on those
boats. As of December 31, 1999, guarantees outstanding totaled $1,308,000.
Employment Agreements-The Company has an agreement with two employees which
provides for a monthly payment to each of the employees equal to 10% of profits
(defined as pretax income before goodwill amortization and certain allocated
corporate expenses). During the years ended December 31, 1999, 1998, and 1997
the expense associated with this profit-sharing plan totaled $4,342,000,
$3,711,000, and $3,163,000, respectively, and is classified in selling, general
and administrative expenses.
NOTE 9: EMPLOYEE BENEFIT PLANS
Retirement Plan--Marine Products participates in a tax-qualified defined
benefit, noncontributory, trusteed retirement income plan sponsored by RPC, Inc.
that covers substantially all employees with at least one year of service.
Benefits are based on an employee's years of service and compensation near
F-11
<PAGE>
retirement. RPC has the right to terminate or modify the plan at any time. The
Company's funding policy is to contribute to the retirement income plan the
amount required, if any, under the Employee Retirement Income Security Act of
1974. No contributions to the retirement plan were made in 1999, 1998, and 1997.
401(k) Plan--Marine Products participates in a defined contribution 401(k) plan
sponsored by RPC, Inc. that is available to substantially all full-time
employees with more than six months of service. This plan allows employees to
make tax-deferred contributions of up to 15 percent of their annual
compensation, not exceeding the permissible deduction imposed by the Internal
Revenue Code. The Company matches 40 percent of each employee's contributions up
to 3 percent of the employee's compensation. Employees vest in the Company
contributions after five years of service. The charges to expense for Marine
Products' contributions to the 401(k) plan were $74,000 in 1999, $74,000 in
1998, and $55,000 in 1997.
Employee Stock Incentive Plan--Historically, certain RPC, Inc. employees,
including employees of Marine Products, have participated in the RPC, Inc.
Employee Stock Incentive Plan. In conjunction with the spin-off, Marine Products
has adopted a ten year Employee Stock Incentive Plan under which 1,500,000
shares of common stock have been reserved for issuance to Marine Products
employees. This plan provides for the issuance of various forms of stock
incentives, including, among others, incentive stock options and restricted
stock. Following the spin-off, outstanding stock option grants under the RPC,
Inc. Employee Stock Incentive Plan held by Marine Products employees will be
replaced with Marine Products stock option grants. The Marine Products grants
will have the same relative ratio of the exercise price per option to the market
value per share, the same aggregate difference between market value and exercise
price and the same vesting provisions, option periods and other applicable terms
and conditions as the RPC, Inc. stock option grants being replaced. At December
31, 1999 there were 246,664 RPC stock options held by Marine Products employees
subject to replacement with Marine Products stock option grants. Marine Products
cannot determine the number of shares of its common stock that will be subject
to substitute grant until after the spin-off.
Marine Products adopted the disclosure provisions of SFAS No.123, "Accounting
for Stock-Based Compensation," but continues to measure stock-based compensation
cost in accordance with APB Opinion No. 25 and its related interpretations. If
Marine Products had measured compensation cost for the RPC, Inc. stock options
granted to its employees under the fair value based method prescribed by SFAS
123, the Marine Products reported net income and pro forma net income would have
been as follows:
1999 1998 1997
-------- ------- ------
Net income
as reported $9,118 $7,674 $6,561
Pro forma 9,022 7,599 6,528
The fair value of RPC, Inc. stock options granted to Marine Products employees
used to compute pro forma net income disclosures was estimated on the date of
grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123
based on the following weighted average assumptions used by RPC, Inc:
1999 1998 1997
-------- ------- ------
Risk free interest rate 4.6% 5.4% 6.2%
Expected life 7 years 7 years 7 years
Expected volatility 34-37% 31-34% 26-31%
Expected dividend yield 1% 2% 0%
The weighted-average fair value of RPC, Inc. stock options granted to Marine
Products employees during 1999 was $159,000, during 1998 was $361,000 and during
1997 was $247,000. The pro forma amounts above are not necessarily
representative of the effects of stock-based awards on future pro forma net
income because (1) future grants of employee stock options by Marine Products
management may not be comparable to awards made to employees while Marine
Products was a part of RPC, Inc. and (2) the assumptions used to compute the
fair value of any stock option awards will be specific to Marine Products and
therefore may not be comparable to the RPC, Inc. assumptions used.
F-12
<PAGE>
NOTE 10: UNAUDITED QUARTERLY DATA
----------------------------------------------------------------
Quarter First Second Third Fourth
----------------------------------------------------------------
(in thousands except per share data)
1999
Net sales $ 31,233 $ 35,135 $ 25,244 $31,266
Net income 2,382 2,866 1,614 2,256
1998
Net sales $ 26,487 $ 29,056 $ 22,420 $ 25,534
Net income 2,043 2,245 1,566 1,820
NOTE 11: SUBSEQUENT EVENT
In the first quarter of 2000, RPC recorded an after-tax gain of $4,227,000. The
gain is a result of Chaparral Boats' receipt, in the first quarter of 2000, of
its share of a non-refundable $35 million settlement payment made by Brunswick
Corporation (Brunswick), a major engine supplier, to the members of the American
Boatbuilders Association (ABA), a buying group which includes Chaparral Boats.
Under the terms of this agreement between the ABA and Brunswick, additional
payments were to be made to the ABA depending on the final judgment or
settlement of a lawsuit brought by Independent Boatbuilders Association (IBBI),
another buying group supplied engines by Brunswick. In March 2000, the U.S.
Court of Appeals for the Eighth Circuit ordered the trial court to enter a
judgment for Brunswick, thereby reversing the initial decision in favor of IBBI.
It is unlikely that any additional payments will be received by the Company in
connection with this settlement.
F-13
<PAGE>
COMBINED BALANCE SHEETS
--------------------------------------------------------------------------------
MARINE PRODUCTS CORPORATION (in thousands) Unaudited
--------------------------------------------------------------------------------
September December
30, 31,
2000 1999
--------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 2,921 $ 3,431
Accounts receivable, less allowance for
doubtful accounts of $69 in 2000 and 1999 3,419 1,417
Inventories 14,196 13,703
Deferred income taxes 2,642 2,642
Prepaid expenses and other current assets 164 551
--------------------------------------------------------------------------------
Current assets $ 23,342 $21,744
Property, plant and equipment, net 9,794 6,714
Goodwill, net of accumulated amortization
of $9,354 in 2000 and $9,011 in 1999 4,163 4,676
Receivable from RPC, Inc. 63,541 54,676
Other assets 378 358
--------------------------------------------------------------------------------
Total assets $ 101,218 $88,168
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable $ 2,160 $ 2,372
Other accrued expenses 7,971 6,858
--------------------------------------------------------------------------------
Current liabilities 10,131 9,230
Deferred income taxes 306 306
--------------------------------------------------------------------------------
Total liabilities 10,437 9,536
--------------------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
RPC, Inc. equity investment 90,781 78,632
--------------------------------------------------------------------------------
Total stockholder's equity 90,781 78,632
--------------------------------------------------------------------------------
Total liabilities and stockholder's equity $101,218 $ 88,168
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
F-14
<PAGE>
COMBINED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
MARINE PRODUCTS CORPORATION (in thousands)
--------------------------------------------------------------------------------
(UNAUDITED)
Nine months ended September 30, 2000 1999
--------------------------------------------------------------------------------
NET SALES $115,573 $ 91,592
Cost of goods sold 89,422 69,289
Selling, general, and administrative expenses 13,569 11,393
--------------------------------------------------------------------------------
Operating income 12,582 10,910
Gain on settlement of claim 6,817 -
Interest income 196 167
--------------------------------------------------------------------------------
Income before income taxes 19,595 11,077
Income tax provision 7,446 4,209
--------------------------------------------------------------------------------
Net income $ 12,149 $6,868
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
F-15
<PAGE>
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
MARINE PRODUCTS CORPORATION (in thousands)
--------------------------------------------------------------------------------
Nine months ended September 30, 2000 1999
--------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 12,149 $ 6,868
Noncash charges (credits) to earnings:
Depreciation and amortization 1,292 1,144
Gain on sale of equipment and property - (141)
(Increase) decrease in assets:
Accounts receivable (2,002) (1,205)
Inventories (493) (3,593)
Prepaid expenses and other current assets 387 74
Other noncurrent assets (20) (12)
Increase (decrease) in liabilities:
Accounts payable (212) 777
Other accrued expenses 1,113 495
--------------------------------------------------------------------------------
Net cash provided by operating activities 12,214 4,407
--------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (3,859) (1,223)
Proceeds from sale of equipment and property - 151
--------------------------------------------------------------------------------
Net cash used for investing activities (3,859) (1,072)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in receivable from RPC, Inc. (8,865) (5,123)
--------------------------------------------------------------------------------
Net cash used for provided by financing activities (8,865) (5,123)
--------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (510) (1,788)
Cash and cash equivalents at beginning of period 3,431 3,480
--------------------------------------------------------------------------------
Cash and cash equivalents at end of period $2,921 $ 1,692
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
F-16
<PAGE>
0
MARINE PRODUCTS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NOTE 1. GENERAL
The combined financial statements included herein have been prepared by the
Company, without audit, but prepared in accordance with accounting principles
generally accepted in the United States.
In the opinion of management, the combined financial statements included herein
contain all adjustments, consisting of normal recurring adjustments, necessary
to present fairly the financial position of the Company as of September 30,
2000, the results of operations and the cash flows for the nine months ended
September 30, 2000 and 1999.
The results of operations for the nine months ended September 30, 2000, are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. NEW ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires entities to recognize all instruments as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. As amended, SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Marine Products does not anticipate
the adoption of this standard to have a material impact on its financial
position or results of operations.
NOTE 3. OTHER ACCRUED EXPENSES
Other accrued expenses are detailed as follows:
September 30, December 31,
2000 1999
--------------------------------------------------------------------------------
Accrued payroll and related expenses $ 1,350 $ 967
Accrued dealer discounts 2,090 2,285
Accrued insurance expenses 1,026 597
Accrued warranty expenses 2,623 2,214
Allowance for repurchases 500 500
Other accrued expenses 382 295
--------------------------------------------------------------------------------
Total other accrued expenses $ 7,971 $ 6,858
NOTE 4. SPIN-OFF TRANSACTION
In January 2000, the Board of Directors of RPC, Inc. announced that it planned
to spin-off of its 100% ownership in Chaparral to stockholders. Also, a
favorable tax ruling from the Internal Revenue Service was received in May 2000.
The private letter ruling provides that the proposed spin-off to its
stockholders of the stock of its powerboat manufacturing company will be
tax-free to RPC and its stockholders. If the facts upon which the letter ruling
is based are materially different from the facts at the time of the spin-off,
the spin-off could be taxable to RPC stockholders, to RPC, or to both. The
spin-off is intended to improve management focus, facilitate additional
acquisitions, and set the stage for enhanced future growth opportunities for
both of the separate companies.
NOTE 5. GAIN ON SETTLEMENT OF CLAIM
During the first quarter ended March 31, 2000, Marine Products recorded a
pre-tax gain of $6,817,000 related to settlement of a claim. The gain is a
result of Chaparral's receipt of its share of a non-refundable $35 million
settlement payment made by Brunswick Corporation (Brunswick), a major engine
supplier, to the members of the American Boatbuilders Association (ABA), a
buying group which includes Chaparral.
F-17
