The information presented here is intended to help investors understand NN, Inc.’s governance practices and, in particular, the composition, independence, and responsibilities of the board of directors.
To contact NN’s board of directors:
Board of Directors
6210 Ardrey Kell Road
Charlotte, NC 28277
To learn more about our corporate governance practices, click the links below.
AUDIT COMMITTEE CHARTER
The Audit Committee shall provide assistance to the board of directors of NN, Inc. (the “Corporation”) in fulfilling their responsibility to the shareholders, potential shareholders, and investment community relating to corporate accounting, reporting practices, and the quality and integrity of the financial reports of the Corporation. The Audit Committee's primary duties and responsibilities include:
- Providing oversight of the accounting and financial reporting processes of the Corporation and the audits of the financial statements of the Corporation.
- Overseeing that management has maintained the reliability and integrity of the accounting policies and financial reporting and disclosure practices of the Corporation.
- Overseeing that management has adequate resources and has established and maintains processes to ensure that an adequate system of internal control is functioning within the Corporation, including the formation and oversight of the internal audit function and internal controls regarding information security.
- Overseeing that management has established and maintains processes to assure compliance by the Corporation with all applicable laws, regulations and corporate policies including the Corporation’s Code of Conduct and Ethics.
- The appointment, compensation, retention and oversight of the work of the Corporation’s independent auditors engaged for the purpose of preparing and issuing an audit report and performing any other audit, review or attest services for the Corporation.
- Monitoring the independence and evaluating the performance of the Corporation’s independent auditors.
- Providing a communication link between the independent auditors, management and the Board.
- Overseeing that management has designed, implemented and maintains processes to assess and manage enterprise and event risk.
- Overseeing that management has established and maintains proper information system controls and security.
The Audit Committee will fulfill these responsibilities primarily by carrying out the activities enumerated in Section V of this Charter.
The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent as defined under the applicable rules of the Nasdaq Stock Market and the Sarbanes-Oxley Act of 2002 (the “Act”). All members of the Audit Committee shall be free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee. The members of the Audit Committee shall be elected by the Board at the annual organizational meeting of the Board and shall serve until their successors shall be duly elected and qualified. Unless a Chairperson is elected by the full Board, the members of the Audit Committee may designate a Chairperson by majority vote of the full Audit Committee membership.
All members of the Audit Committee shall have a working familiarity with basic finance and accounting practices in order to be able to read and understand fundamental financial statements (including the Corporation’s balance sheet, income statement and cash flow statement). At least one member of the Committee shall have past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background resulting in financial sophistication, as the Corporation’s board interprets such qualification in its business judgement. The Chairperson of the Audit Committee will meet the definition of an “Audit Committee financial expert” as set forth in the Act. Audit Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Corporation or an outside consultant.
The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee shall meet at least four times annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Audit Committee should meet with management as often as it deems necessary to discuss any matters that the Audit Committee or management believes should be discussed. In addition, the Audit Committee should meet with the independent auditors and management quarterly to review the Corporation’s financial statements and significant findings based upon the independent auditors’ review and auditing procedures. The Audit Committee will meet separately from management with each of the independent auditors and the Corporation’s Director of Internal Audit during or after each regularly scheduled quarterly Audit Committee meeting.
The Audit Committee should maintain minutes of its meetings and periodically report to the Board on significant matters relating to the Audit Committee.
- The independent auditors report directly to the Audit Committee.
- The Audit Committee has authority to engage outside advisers and counsel, as it determines necessary to carry out its duties.
- The Corporation must provide for appropriate funding, as determined by the Audit Committee, for payment of: (i) Compensation to any independent auditors for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation; (ii) Compensation to any advisers employed by the Audit Committee; and (iii) ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.
V. Responsibilities and Duties
To fulfill its responsibilities and duties the Audit Committee shall:
- Review and reassess, at least annually, the adequacy of this Charter and makerecommendations to the Board, as conditions dictate, to update this Charter.
- Prior to releasing year-end earnings, review with management and the independent auditors the financial results. It will also review the results of the audit with the independent auditors and will discuss certain matters as required to be communicated to Audit Committees in accordance with applicable accounting and auditing standardsincluding those of the Public Company Accounting Oversight Board (PCAOB).
- Review the Corporation’s annual audited financial statements and the disclosure under "Management's Discussion and Analysis of Financial Condition and Results of Operations" prior to filing with the SEC as part of Form 10-K. This review should include a discussion with management and the independent auditors of significant issues regarding accounting principles, practices and judgments and the effect of regulatory and accounting pronouncements and off-balance sheet structures on the Corporation's financial statements.
- In consultation with management and the independent auditors, the Audit Committee shall consider the integrity of the Corporation’s financial reporting processes and controls and discuss significant risk exposures and the steps management has taken to monitor, control, and report such exposures. The Audit Committee shall review significant findings by the independent auditors together with management’s response.
- Confirm that the Corporation has implemented an internal policy that provides guidelines for determining how non-GAAP financial measures are generated, calculated, and disclosed.
- Prior to the public release of earnings, review with management and the independent auditors the Corporation’s quarterly financial results and earnings press releases, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussions may be general (consisting of discussing the types of information to be disclosed and the types of presentations to be made), and each instance in which the Corporation provides earnings guidance need not be discussed in advance.
- Review the Corporation’s quarterly financial statements and the disclosure under"Management's Discussion and Analysis of Financial Condition and Results of Operations" prior to filing with the SEC as part of Form 10-Q. This review and discussion will include any significant issues regarding accounting principles, practices and judgments and any items required to be communicated by the independent auditors in accordance with applicable accounting and auditing standards.
- Review disclosures by the Corporation’s principal executive officer and principal financial officer during the certification process for the SEC Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls over financial reporting or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Corporation's internal controls. The Audit Committee annually reviews and discusses management’s evaluation of the adequacy of disclosure controls and procedures and internal control over financial reporting, including any attestation of the same by the independent auditors.
- Once per year the Audit Committee will perform a self-evaluation and report the results to the Board of Directors.
- Review the performance of the independent auditors and make all decisions regarding the appointment or termination of the independent auditors. Review and evaluate the lead partner of the independent auditor team. The Audit Committee has the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent auditors. The independent auditors are ultimately accountable to the Audit Committee for their audit of the financial statements of the Corporation. On an annual basis, the Audit Committee should review and discuss with the independent auditors all significant relationships with the Corporation to determine the auditor’s independence.
- Pre-approve all audit and allowable non-audit services and fees to be performed by the independent auditors. Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.
- Oversee independence of the accountants by:
- The Audit Committee receives from the independent auditors a formal written statement delineating all relationships between the auditor and the Corporation, consistent with the applicable rules of the PCAOB. The Audit Committee actively engages in a dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and takes, or recommends that the full Board take, appropriate action to oversee the independence of the independent auditor.
- Reviewing, and actively discussing with the Board, if necessary, and the independent auditors, on a periodic basis, any disclosed relationships or services between the independent auditors and the Corporation or any other disclosed relationships or services that may impact the objectivity and independence of the independent auditors;
- At least annually, obtaining and reviewing a report by the Corporation's independent auditors that describes (1) the accounting firm's internal quality control procedures, and (2) any material issues raised by the most recent internal quality control review, peer review or Public Company Accounting Oversight Board review or inspection of the firm or by any other inquiry or investigation by governmental or professional authorities in the past five years regarding audits carried out by the firm and any steps taken to address any such issues raised during the reviews;
- Recommending, if necessary, that the Board take certain actions to satisfy itself of the auditor’s independence;
- Ensure the rotation of the audit partners as required by law. Consider whether, in order to ensure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis
- Reviewing and assessing policies relating to the Corporation’s employment of current or former employees of the Corporation’s independent auditors; and
- Confirming that the independent auditors are independent pursuant to Rule 201 of Regulation S-X and any requirements of the Act and reporting its conclusion to the Board.
- Based on the review and discussions referred to in section V.2 and V.5, determine whether to recommend to the Board that the Corporation's audited financial statements be included in the Corporation's Annual Report on Form 10-K for the latest fiscal year for filing with the Securities and Exchange Commission.
- Consider whether the engagement of the independent auditors for non-audit services is compatible with maintaining the independent auditor’s independence and review the fees for such services. The Audit Committee shall approve, in advance, the engagement and the payment of fees to the auditor for non-audit services. Such services will only be those permissible by the Act and any Nasdaq Stock Market requirements.
- In conjunction with the independent auditors and the internal auditors, review the integrity of the Corporation's financial reporting processes, both internal and external.
- Review the appointment and replacement of the senior internal auditing executive.
- Review the significant reports to management prepared by the internal auditing department and management’s responses.
- Discuss with the independent auditor and management the internal Audit department responsibilities, budget and staffing, and any recommended changes in the planned scope of the internal audit.
- Consider and approve, if appropriate, major changes to the Corporation's accounting principles and practices proposed by management. Discuss with the independent auditors any significant changes in auditing standards or their audit scope. Discuss with the independent auditor material issues on which the national office of the independent auditor was consulted by the Corporation’s audit team.
- Establish regular systems of reporting to the Audit Committee by each of management and the independent auditors regarding any significant judgments made in management's preparation of the financial statements. Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 114 relating to any significant difficulties encountered during the course of the review or audit, including any restrictions on the scope of the work or access to required information.
- Review any significant disagreement among management and the independent accountants in connection with the preparation of the financial statements.
- As appropriate, obtain advice and assistance from independent legal, accounting or other advisors or consultants selected and retained by the Audit Committee.
- Establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
- Review with the Corporation’s general counsel legal matters that may have a material impact on the financial statements, the Corporation’s related compliance programs and internal controls, and any material reports or inquiries received from regulators or governmental agencies that raise material issues regarding the Corporation’s financial statements or accounting policies.
- Review with management and advise the board with respect to the Corporation’s policies and procedures regarding compliance with applicable laws and regulations and with the Corporation’s Code of Ethics, and obtain reports concerning the monitoring of compliance with such policies.
- Discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.
- Approve the report of the Audit Committee required by the rules of the SEC to be included in the Corporation’s annual proxy statement.
- Review and approve in advance or ratify all related party transactions.
- Discuss with management and the internal audit department the adequacy of controls over information systems and cybersecurity.
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Corporation's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditors. Nor is it the duty of the Audit Committee to conduct investigations, or to assure compliance with laws and regulations.
NN, INC. COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee is appointed by the Board of Directors to discharge the Board’s responsibilities relating to compensation of the Company’s directors and officers. The Committee has overall responsibility with respect to evaluating, approving, and monitoring the executive compensation plans, policies, and programs of the Company, and to advise and counsel with management on succession planning and other significant human resource matters.
The Compensation Committee is also responsible for producing an annual report on executive compensation for inclusion in the Company’s proxy statement.
II. COMMITTEE MEMBERSHIP
The Compensation Committee shall consist of no fewer than three members. The members of the Compensation Committee shall be independent directors as defined under any applicable rules of the Nasdaq Stock Market (or other market system in which the Company’s shares are traded) and the Sarbanes-Oxley Act of 2002 (the “Act”) and the rules promulgated under the Act.
The members of the Compensation Committee shall be appointed by the Board on the recommendation of the Governance Committee. Compensation Committee members may be replaced by the Board.
III. COMMITTEE AUTHORITY AND RESPONSIBILITIES
- The Compensation Committee has the authority, in its sole discretion, to retain or obtain the advice of such compensation consultants, legal counsel, or other advisers as it determines appropriate to assist it in the full performance of its functions, and is directly responsible for the appointment, compensation, and oversight of the work of such consultant, counsel, or other adviser retained by the Compensation Committee. The Company shall provide for appropriate funding, as determined by the Compensation Committee, for payment of compensation to any such consultant, counsel, or other adviser. The Compensation Committee may select, or receive advice from, a compensation consultant, legal counsel (other than in-house legal counsel), or other adviser only after taking into consideration the factors prescribed by Nasdaq Stock Market rules.
- The Compensation Committee shall annually review and approve corporate goals and objectives relevant to CEO compensation, evaluate the CEO’s performance in light of those goals and objectives, and make recommendations to the Board regarding the CEO’s compensation levels based on this evaluation. In determining the long-term incentive component of CEO compensation, the Compensation Committee will consider the Company’s performance and relative shareholder return, the value of similar incentive awards to CEOs at comparable companies, and the awards given to the CEO in past years. The full Board will be involved in the approval process relative to the CEO’s annual goals, objectives and overall performance. The CEO may not be present during voting or deliberations on the CEO’s compensation.
- The Compensation Committee shall annually review and make recommendations to the Board with respect to the compensation of all directors, officers, and other key executives, including incentive-compensation plans and equity-based plans.
- The Compensation Committee shall annually review and approve, for the senior executives of the Company: (a) the annual base salary level, (b) the annual incentive opportunity level, (c) the long-term incentive opportunity level, (d) employment agreements, severance arrangements, and change in control agreements/provisions, in each case as, when and if appropriate, and (e) and special or supplemental benefits.
- The Compensation Committee shall annually review the risks that arise from the Company’s compensation policies and determine whether such risks are reasonably likely to have a material adverse effect on the Company. If the Compensation Committee determines that the Company’s compensation policies do create an unreasonable amount of risk for the Company, the Committee shall inform the Board of such determination and make appropriate recommendations.
- The Compensation Committee may form and delegate authority to subcommittees when appropriate.
- The Compensation Committee shall make regular reports to the Board.
- The Compensation Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. The Compensation Committee shall annually review its own performance.
- The Compensation Committee shall review and assess the Company’s management succession plan on an annual basis.
Meetings of the Compensation Committee will be held at the pleasure of the Board or the members of the Compensation Committee, from time to time, but no less than one time annually.
GOVERNANCE COMMITTEE OF
THE BOARD OF DIRECTORS
The Corporate Governance Committee, under powers delegated to it by the Board of Directors, shall have the responsibility for the functioning of the Board and its Committees. The Governance Committee’s primary duties and responsibilities are to:
- Recommend nominees to the Board and the appointment of Directors to Committees of the Board
- Oversee and review the processes for providing information to the Board
- Develop and recommend to the Board a set of Corporate Governance Principles applicable to the Corporation
- Oversee an annual evaluation of Board and Board Committee performance
The Governance Committee will fulfill these responsibilities primarily by carrying out the activities enumerated in Section IV of this Charter.
The Governance Committee shall be comprised of three or more Directors as determined by the Board, each of whom shall be independent directors as defined under any applicable rules of the Nasdaq Stock Market (or other market system in which the Company’s shares are traded) and the Sarbanes-Oxley Act of 2002 (the “Act”) and the rules promulgated under the Act.
The members of the Governance Committee shall be nominated by the Board at the annual organizational meeting of the Board and serve until their successors shall be duly elected and qualified. The Chairperson(s) are elected to provide important continuity to the role.
Unless a Chairperson is elected by the full Board, the members of the Governance Committee may designate a Chairperson by majority vote of the full Governance Committee membership.
The Governance Committee will meet periodically, but not less than once annually. The Governance Committee will report to the Board of Directors immediately following the meetings of the Committee.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Governance Committee shall:
- Review and assess, at least annually, the adequacy of this Charter. Make recommendations to the Board, as appropriate, to update this Charter.
Board and Committee Nominees
2. Review and recommend candidates for membership to the Board of Directors
- Establish procedures for the retirement or replacement of Board members
- Establish a process and criteria for Board membership
- Review candidate’s qualifications and any potential conflicts with the Corporation’s interests
- In evaluating director nominees, including candidates submitted by shareholders, the Governance Committee will consider the candidate’s experience, qualifications, attributes, and skills. The Governance Committee will also consider the candidate’s integrity, ability to make independent analytical inquiries, understanding of our business environment and willingness to devote adequate time to board duties. The Governance Committee will also consider whether a candidate meets the definition of “independent director” under Nasdaq rules.
- Assess the contributions and qualifications of current Directors in connection with their re-nomination to the Board of Directors
- This will be facilitated by the development of a process for evaluating individual Board members, their skills, expertise, contribution and effectiveness in working with other Board members and management
- Develop the process and qualifications profile that a shareholder may use to nominate a Director at Annual Meetings
3. Review and recommend candidates for membership on Committees of the Board
- Establish a process and criteria for Committee membership and each Committee’s chairperson
4. Develop a process by which stockholder suggestions for Board nominees are considered
5. Periodically review the content, quality and timeliness of information furnished by management to Directors for Board meetings and at other such times as Director input or approval is appropriate
- Also, periodically review the structure, content and dynamics of Board meetings, for overall effectiveness in meeting fiduciary responsibilities
6. Develop and recommend to the Board a set of Corporate Governance Principles, applicable to the Corporation
- These Principles should be communicated to the Corporation’s stockholders and should be readily available to prospective investors and other interested parties
Board and Committee Evaluation
7. Develop the process and criteria for and oversee an annual evaluation of Board, Board Committee and individual Director performance
Orientation of New Directors and Board Continuing Education
8. Sponsor appropriate continuing Board seminars in legal and financial issues to insure a complete and “real time” understanding of relevant issues in these fields
9. Develop a comprehensive process to orient a new Director to the Corporation, its long-term strategy and Corporate Governance approach
Code of Ethics
10. Periodically review and evaluate the effectiveness of the NN, Inc. Code of Business Conduct and Ethics
Director and Officer Insurance
11. Review D&O insurance coverage, indemnification provisions and policies relating to the advancement of expenses, review developments in law regarding D&O insurance, exculpatory charter provisions and indemnification/advancement of expenses and make recommendations to the full Board
PRINCIPLES OF CORPORATE GOVERNANCE
NN’s Principles of Corporate Governance should be viewed in the context of the role of the Board of Directors.
I. ROLE OF THE BOARD
- The Board of Directors is responsible for determining the Corporation’s long-term strategy and monitoring management on behalf of the Corporation’s shareholders.
- The single most important function of the Board is the selection, evaluation and compensation of a well-qualified and ethical CEO.
- Directors will represent the interests of the Corporation and all of the shareholders and will not represent the interests of particular constituencies.
- Directors will be committed to the corporation, its business plans and long-term shareholder value enhancement.
- The Board will hold managers and advisors accountable.
- Other Board oversight functions include:
- Planning for management succession,
- Understanding and reviewing annual operating plans and budgets,
- Focusing on the integrity and clarity of the Corporation’s financial statements and financial reporting,
- Engaging outside auditors and considering independence issues,
- Advising management on significant issues facing the Corporation,
- Reviewing and approving significant Corporate actions,
- Nominating Directors and committee members and overseeing effective Corporate governance,
- Providing effective, independent judgment, and
- Provide guidance and authorization for compensation policies and structure for executive officers of the Corporation.
II. CORPORATE GOVERNANCE PRINCIPLES
- The Board intends that, except during periods of temporary vacancies, a substantial majority of the Directors will be independent.
- Each standing Board committee is composed of entirely independent Directors.
- The Board will consist of three standing committees; Governance, Audit and Compensation.
- Each standing Board committee will have a written Charter.
- The Governance Committee is charged with the oversight of corporate governance, including the selection of candidates for the Board.
- The Board should be composed of directors chosen on the basis of their character, integrity, judgment, skills, background and experience of particular relevance to the Corporation. Directors should also represent the balanced, best interests of the stockholders as a whole rather than special interest groups or constituencies. At the same time, in addressing the overall composition of the Board, characteristics such as diversity (including gender and race), age, international background, and expertise should be considered as well. When searching for new directors, the Board should actively seek out qualified women and individuals from minority groups to include in the pool from which Board nominees are chosen. Each director should be an individual of the highest character and integrity, with the ability to work well with others and with sufficient time available to devote to the affairs of the Corporation in order to carry out the responsibilities of a director
- The Audit Committee has sole authority to hire and fire the independent auditor and to approve all audit engagement fees and terms, as well as any significant non-audit engagements with the independent auditors.
- The Audit Committee meets regularly with the independent auditors and has a financial expert as its chairperson.
- The Compensation Committee has four interrelated responsibilities; overseeing the Corporation’s overall compensation programs, evaluating the performance of the CEO, review of the succession plan for the CEO and key Officers of the Corporation and setting CEO and senior management compensation.
- Standing Board committees are permitted to hire outside advisors.
- The Board and each standing committee perform annual self-evaluations.
- Non-management Directors meet regularly in executive session.
- The Chairman of the Governance Committee presides at the executive sessions.
- NN has a clear policy regarding a code of business conduct and ethics that has been communicated to all employees.
- We have a means for employees to alert management and/or Directors of misconduct without fear of retribution.
- Directors have appropriate access to senior management.
- Officer Directors receive no compensation for their service as Directors.
- Materials relevant to Board meetings are provided to Directors in advance.
- The Board receives regular reports on succession planning.
- NN will not re-price stock options.
- The Corporation will hire only investment banking firms with complete separation between banking and analyst functions.
- Shareholders will be given the opportunity to approve the adoption of all equity based compensation plans.
- The Corporation will sponsor education for the Board in legal and financial areas on a regular basis.
- All new Board members will receive orientation regarding the Corporation, its areas of business.
- Serving on other boards of directors broadens the knowledge and experience of a Director and enhances the ability of a Director to contribute and participate effectively on the Board. At the same time, however, no Director can serve the Corporation effectively without dedicating substantial time and energy to Board duties. Therefore, Directors are encouraged to limit the number of other boards on which they serve. Unless otherwise approved by a majority of the Board of Directors (excluding the affected member), the following specific restrictions apply to other public company board and committee service:
- A non-management Director may not serve on more than four public companies' boards of directors, including the Corporation’s Board.
- Directors who are also full-time employees of a public company may not serve on more than three public companies' boards of directors, including the Corporation’s Board.
- Directors who are full-time employees of the Corporation may not serve on more than two public companies' boards of directors, including the Corporation’s Board.
- Due to the demanding nature of service on the Audit Committee, the members of the Audit Committee may not serve on the audit committee of more than three public companies, including the Corporation’s Audit Committee.