SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NN, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED APRIL 12, 2001
NN, INC.
2000 WATERS EDGE DRIVE
JOHNSON CITY, TN 37604
April 12, 2001
Dear Stockholder:
You are cordially invited to attend the 2001 Annual Meeting of NN, Inc., which
will be held on May 17, 2001 at 10:00 a.m., local time, at the Savannah Marriott
Riverfront Hotel, 100 General McIntosh Blvd., Savannah, GA 31401.
The business to be conducted at the Annual Meeting is described in the attached
Notice of Meeting and Proxy Statement. You are urged to read the Proxy Statement
carefully before completing the enclosed proxy card. The Annual Meeting will
include a report on the affairs of the Company presented by management and an
opportunity for questions and comments by stockholders.
To assure your representation at the meeting, please mark, date and sign the
proxy card and return it in the enclosed envelope at your earliest convenience,
whether or not you plan to attend the meeting. If you attend the Annual Meeting,
you may revoke your proxy and vote in person if you so desire.
Sincerely,
/s/ Richard D. Ennen
Richard D. Ennen
Chairman
NN, Inc.
2000 Waters Edge Drive
Johnson City, TN 37604
I. NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of NN, Inc., a
Delaware corporation, will be held on May 17, 2001, at 10:00 a.m., local time,
at the Savannah Marriott Riverfront Hotel, 100 General McIntosh Blvd., Savannah,
GA 31401, for the following purposes:
(1) To elect two Class I directors, each to serve for a term of three years;
(2) To consider and act upon a proposal that the stockholders approve an
amendment to the Company's Stock Incentive Plan.
(3) To ratify the selection of KPMG LLP as the Company's independent auditor
for the fiscal year ending December 31, 2001; and
(4) To conduct such other business as properly may come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THESE PROPOSALS.
Details regarding these matters are contained in the accompanying Proxy
Statement.
Holders of record of the Common Stock at the close of business on March 23,
2001, are entitled to notice of and to vote at the Annual Meeting.
Please mark, date and sign the enclosed proxy card and return it in the envelope
provided. You may revoke your proxy at any time before the votes are cast at the
Annual Meeting.
By Order of the Board of Directors,
/s/ William C. Kelly, Jr.
William C. Kelly, Jr.
Secretary
Johnson City, Tennessee
April 12, 2001
NN, INC.
PROXY STATEMENT
FOR
2001 ANNUAL MEETING OF STOCKHOLDERS
Proxies are being solicited by the Board of Directors of NN, Inc. (the
"Company"), in connection with the annual meeting of stockholders to be held on
May 17, 2001 at the Savannah Marriott Riverfront Hotel, 100 General McIntosh
Blvd., Savannah, Georgia, 31401 (the "Annual Meeting"), for the purpose of
considering and acting upon the matters set forth in the foregoing Notice of
Annual Meeting of Stockholders (the "Notice"). Stockholders of record of the
Company's common stock, par value $.01 per share ("Common Stock"), as of the
close of business on March 23, 2001, will be entitled to vote at the meeting. On
March 23, 2001 (the "Record Date"), 15,246,909 shares of Common Stock were
issued and outstanding.
The entire cost of the proxy solicitation is being paid by the Company.
In addition to solicitation by mail, officers and employees of the Company,
without additional remuneration, may solicit proxies by telephone, facsimile
transmission or personal contact. Brokerage houses, banks, nominees, fiduciaries
and other custodians will be requested to forward soliciting material to the
beneficial owners of shares held by them of record and will be reimbursed by the
Company for their expenses in so doing.
The mailing address of the Company's executive office is 2000 Waters
Edge Drive, Johnson City, Tennessee 37604. This Proxy Statement and the form of
proxy will be mailed to stockholders on or about April 12, 2001.
Voting; Quorum; Proxies
Each share of Common Stock outstanding on the Record Date is entitled to
one vote on each matter submitted to a vote of stockholders at the Annual
Meeting. A quorum for the conduct of business is established when the holders of
at least a majority of the outstanding shares of Common Stock entitled to vote
in the election of directors are present at the meeting or are represented by
proxy. Representatives of the Company will serve as inspectors of election for
the Annual Meeting.
Shares represented by a properly executed proxy will be voted at the
Annual Meeting in the manner specified. In the absence of specific instructions,
shares represented by a properly executed proxy will be voted for approval of an
amendment to the Company's Certificate of Incorporation, for each of the
nominees for election to the Board of Directors named herein and for the
proposal to ratify the selection of KPMG LLP to serve as the Company's
independent auditor for 2001.
The Board of Directors does not now intend to bring before the Annual
Meeting any matters other than those disclosed in the Notice, and it is not
aware of any business that any other persons intend to bring before the Annual
Meeting. Should any such matter requiring a vote of the stockholders arise, the
enclosed form of proxy confers upon the persons named therein the discretionary
authority to vote the shares represented by the proxy as they deem appropriate.
A proxy may be revoked at any time before it is exercised by delivery to
the Secretary of the Company of a written revocation or a subsequently dated
proxy and will be deemed revoked if the stockholder votes in person at the
Annual Meeting.
Voting Rights and Outstanding Shares
Approval of Proposals II and III requires the affirmative vote of a
majority of the shares of Common Stock represented in person or by proxy at the
meeting. Broker non-votes (i.e., shares present by proxy but for which no voting
authority has been given by the beneficial holder) will affect the vote on the
proposals in that they will be treated as a "no" vote and abstentions (shares
not voted by a stockholder present at the Annual Meeting) will be treated as
"no" votes. Because directors are elected by a plurality of the votes cast,
abstentions and broker non-votes will not affect the outcome of the election of
directors.
BENEFICIAL OWNERSHIP OF COMMON STOCK
Security Ownership of Management
The following table shows, as of March 23, 2001, the beneficial
ownership of Common Stock by each director, each executive officer named in the
Summary Compensation Table, and all directors and executive officers as a group,
in each case as reported to the Company by such persons.
Name and Address of Number of Shares Percentage
Beneficial Owner (1) Beneficially Owned Beneficially Owned (2)
-------------------- ------------------- ----------------------
Richard D. Ennen 2,843,420 18.6%
Michael D. Huff 645,217 (3) 4.2%
Roderick R. Baty 70,728 (4) *
47,461 (5) *
James L. Earsley 221,428 (6) 1.4%
Michael E. Werner 11,287 (7) *
G. Ronald Morris 11,000 (8) *
Steven T. Warshaw 8,000 (9) *
David L. Dyckman 14,099 (10) *
Robert R. Sams 9,316 (11) *
All directors and executive officers as a group 3,881,956 24.8%
- -------------------------------
* Less than 1%
(1) The address of the beneficial owner is c/o NN, Inc., 2000 Waters Edge
Drive, Tennessee 37604.
(2) The percentage shown as beneficially owned by each person or group
represents the total number of shares of Common Stock shown in the adjacent
column divided by the sum of (i) the number of issued and outstanding
shares of Common Stock as of March 23, 2001, and (ii) all shares of Common
Stock, if any, issuable upon the exercise of stock options held by such
person (but no other person) or group, as applicable, that were exercisable
on March 23, 2001, or which will become exercisable within 60 days
thereafter.
(3) Includes 6,000 shares of Common Stock that Mr. Huff holds as an option to
purchase and 225,000 shares of Common Stock registered in the name of Mr.
Huff's wife.
(4) Includes 68,333 shares of Common Stock that Mr. Baty holds as an option to
purchase.
(5) Includes 15,900 shares of Common Stock that Mr. Gentry holds as an option
to purchase.
(6) Includes 2,818 shares of Common Stock registered in the name of Mr.
Earsley's son.
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(7) Includes 6,000 shares of Common Stock that Mr. Werner holds as an option to
purchase and 5,287 shares of Common Stock reregistered in the name of Mr.
Werner's wife.
(8) Includes 6,000 shares of Common Stock that Mr. Morris holds as an option to
purchase.
(9) Includes 6,000 shares that Mr. Warshaw holds as an option to purchase.
(10) Includes 13,999 shares of Common Stock that Mr. Dyckman holds as an option
to purchase.
(11) Includes 9,266 shares of Common Stock that Mr. Sams holds as an option to
purchase.
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of December 31, 2000, the number of
shares of the Company's Common Stock beneficially owned by the only parties
known to the Company's management to own more than 5% of the Company's Common
Stock (other than Richard D. Ennen, for whom information is shown on the
preceding table).
Name and Address of Number of Shares Percentage
Beneficial Owner Beneficially Owned Beneficially Owned
---------------- ------------------- ------------------
Deprince, Race & Zollo, Inc 3,012,350 19.7%
201 S. Orange Avenue
Suite 850
Orlando, FL 32801
Wellington Management Company, LLP 1,211,150 (1) 8.6%
75 State Street
Boston, MA 02109
Capital Guardian Trust Company 895,200 5.9%
1110 Santa Monica Boulevard
Los Angeles, CA 90025
Royce & Associates, Inc. 914,000 6.0%
1414 Avenue of the Americas
New York, NY 10019
(1) Includes 839,150 shares for which Wellington Management Company, LLP, an
investment adviser, reports shared voting power with the beneficial owners
of such shares and 1,211,150 shares for which Wellington Management
Company, LLP reports shared dispositive power with the beneficial owners of
such shares. Wellington Management Company, LLP, holds all such shares on
behalf of its clients and disclaims any economic interest in the shares.
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Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
each of the Company's directors and executive officers, and any beneficial owner
of more than 10% of the Common Stock, is required to file with the Securities
and Exchange Commission (the "SEC") initial reports of beneficial ownership of
the Common Stock and reports of changes in beneficial ownership of the Common
Stock. Such persons also are required by SEC regulations to furnish the Company
with copies of all such reports.
Based solely on its review of the copies of such reports furnished to
the Company for the year ended December 31, 2000, and on the written
representations made by such persons that no other reports were required, the
Company is not aware of any instance of noncompliance with Section 16(a) by its
directors, executive officers or owners of more than 10% of the Common Stock.
PROPOSAL I
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the division of
the Board of Directors into three classes: Class I, Class II and Class III. Only
one class of directors is elected at each annual meeting. Each director so
elected serves for a three-year term and until his or her successor is elected
and qualified, subject to such director's earlier death, resignation or removal.
Nominees
Two Class I directors will be elected to the Board of Directors at the
Annual Meeting. The Company has nominated for election Michael D. Huff and
Michael E. Werner, each of whom currently is a director. Each of the nominees
has indicated a willingness to continue to serve as a director if elected, but
if either of them shall decline or be unable to serve, the persons named as
proxies intend to vote all shares in favor of the election of such other person
who may be nominated as a replacement by the Board of Directors. If no such
other person is nominated as a replacement, the Board of Directors will reduce
the number of directors to be elected at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
PROPOSAL II
AMEND THE COMPANY'S STOCK INCENTIVE PLAN.
The Company is submitting to a vote of the stockholders an amendment to the
Company's Stock Incentive Plan (the "Plan") to increase the number of shares
from 1,625,000 to 2,450,000.
The Plan was adopted in connection with the Company's initial public offering in
1994. The Plan has a ten-year term. Under the Plan, the Company may grant
various awards (including incentive stock options, nonqualified stock options,
stock appreciation rights, limited stock appreciation rights, restricted shares,
and other stock-based awards) to officers and key employees of the Company.
Currently, there are approximately 50 employees eligible to participate in the
Plan. The Plan is administered by a committee appointed by the Board (the
"Committee"). The Committee has authority, among other things, to determine who
will receive a grant and the amount of an award under the Plan.
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II. Options
No option granted under the Plan may have a term of greater than ten years from
the date of grant and the option price per share may not be less than the fair
market value of a share of the Company's Common Stock on the date of grant. If
the grantee's service for the Company is terminated for any reason other than
retirement, disability or death, options vested on the date of termination may
only be exercised within three months of termination. A grantee whose service
terminates because of retirement or disability has only 12 months from the date
of termination to exercise his or her vested options. If the grantee's service
for the Company is terminated because of death, or if the grantee dies after
termination but while an option is exercisable, options held on the date of
death are exercisable only within 24 months of the death. An option granted
under the Plan may be either (i) an incentive stock option that complies with
Section 422(b) of the Internal Revenue Code (an "Incentive Stock Option") or
(ii) a nonqualified stock option, which term encompasses any stock option that
does not qualify as an Incentive Stock Option (a "Nonqualified Stock Option").
III. Stock Appreciation Rights
The Company may also award stock appreciation rights ("SARs") under the Plan. An
SAR may be issued in tandem with a stock option, or it may be issued independent
of a stock option. An SAR entitles the holder to receive upon exercise cash in
an amount equal to the difference between the market price of a share of Common
Stock and the exercise price of the SAR. The Committee may impose a prohibition
on the exercise of SARs for such periods as it may determine is in the best
interest of the Company. The right of a grantee to exercise a tandem SAR shall
be canceled if the shares subject to the SAR are purchased upon the exercise of
the related option. A grantee's rights upon termination of service with regard
to SARs are the same as a grantee's rights with regard to stock options under
the Plan.
IV. Restricted Shares
The Company may award restricted shares under the Plan. The Committee may
determine the terms and conditions of each grant of restricted shares. To the
extent required by law, the purchase price of a restricted share shall not be
less than the par value per share of the Company's Common Stock on the date of
grant. A grantee of a restricted share will have beneficial ownership of the
shares, including the right to receive dividends and the right to vote.
Restricted shares may not be transferred until the restrictions imposed by the
Committee lapse or are removed. A grantee's rights to restricted shares
terminates on his termination of employment with the Company, except as
determined by the Committee.
V. Other Awards
The Company may grant other awards that are based on or related to the Company's
Common Stock. Such awards may include phantom shares, performance units, or
performance bonus awards.
VI. Tax Consequences of Options
In general, a grantee of a Nonqualified Stock Option or an Incentive Stock
Option will not recognize income on the grant of that option. When a grantee
exercises a Nonqualified Stock Option and pays the purchase price of the shares,
the grantee generally will recognize ordinary income (or loss) equal to the
excess (or shortfall) of the fair market value of the stock on the exercise date
over the purchase price of the stock. A grantee generally will not recognize
income for purposes of regular federal income tax liability when he or she
exercises an Incentive Stock Option, unless the employee makes a "disqualifying
disposition" of the Incentive Stock Option shares.
The Company generally will be entitled to a tax deduction in an amount equal to
the ordinary income that a grantee recognizes under an option, provided that the
amount qualifies as an ordinary and necessary business expense. The Company also
will be entitled to a deduction in the amount of ordinary income that the
grantee recognizes when he or she makes a so-called "disqualifying disposition"
of Incentive Stock Option shares. The
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Company ordinarily will not be entitled to a deduction when it grants an option,
or when the grantee exercises an Incentive Stock Option.
VII. Reasons for the Amendment
When the Plan was adopted, it provided for the issuance of up to 500,000 shares
of the Company's Common Stock. As a result of two 3-for-2 stock splits, this
number was increased to 1,125,000 shares. Subsequently, in May 1999,
shareholders approved an amendment to increase the number of shares to
1,625,000. The only awards that have been made under the Plan have consisted of
Nonqualified Stock Options. Through the date of this proxy statement,
approximately 1,608,000 shares have been issued or reserved for issuance upon
the exercise of stock options granted under the Plan. Accordingly, only
approximately 17,000 shares remain available for future awards. On February 22,
2001, the Board of Directors of the Company approved, subject to stockholder
approval, an amendment to increase the number of shares of Common Stock
authorized for issuance under the Stock Incentive Plan from 1,625,000 to
2,450,000. The fair market value of a share of the Company's Common Stock on
March 23, 2001 was $7.1875.
The amendment has been proposed to assure that the Company has sufficient shares
available under the Stock Incentive Plan to provide proper inducements to
encourage grantees to either serve or remain employed with the Company, perform
in a superior manner, and to share in the future success of the Company's
business. Additionally, over the last two years, the number of employees
eligible for stock option awards has increased due to the Company's acquisition
and joint venture activity. No awards have been made with respect to the shares
of Common Stock that are subject to the proposed amendment. Because all awards
under the Plan are subject to the discretion of the Committee, any future awards
are not determinable at this time.
Approval of the amendment requires the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock that are present in person or
represented by proxy and entitled to vote at a meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
PROPOSAL III
RATIFICATION OF SELECTION OF AUDITORS
The firm of KPMG LLP has been selected by the Board of Directors as the
Company's outside auditors for 2001. On November 27, 2000, the Company retained
the services of KPMG LLP as its principle accountant to audit the Company's
consolidated financial statements, replacing PricewaterhouseCoopers LLP. The
decision to retain KPMG was based upon a reevaluation by the Company of its
current professional relationships and was approved by the Company's Board of
Directors at the recommendation of the Company's Audit Committee. Although it is
not required to do so, the Board has determined that it is desirable to seek
stockholders' ratification of the selection of KPMG LLP.
During the Company's two most recent fiscal years and through November
27, 2000, there have been no disagreements with PricewaterhouseCoopers LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. PricewaterhouseCoopers LLP reports
on the financial statements of the Company for the past two years contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
At the Company's request, PricewaterhouseCoopers LLP furnished it with a
letter addressed to the SEC stating that PricewaterhouseCoopers LLP agrees with
the above statements. A copy of this letter was filed as Exhibit 16 to Form 8-K
filed with the SEC on December 4, 2000.
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A representative of KPMG LLP is expected to be present at the Annual
Meeting and will have an opportunity to make a statement, if he or she so
desires, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at next year's Annual
Meeting must be received by the Company at its executive offices not later than
December 14, 2001 in order to be considered for inclusion in the Company's proxy
statement and form of proxy for such meeting. All notices should be sent to NN,
Inc., Attention: Secretary, 2000 Waters Edge Drive, Johnson City, Tennessee
37604. If the proposal is received by the Company 45 days or fewer prior to the
anniversary of the mailing date of this proxy statement, the persons named as
proxy in the Company's 2001 proxy materials will have the discretionary
authority to vote on the proposal in accordance with their best judgment without
disclosure in this proxy statement of how they intend to vote on the proposal.
INFORMATION ABOUT THE DIRECTORS
The following table sets forth the names of each current director
(including the nominees for election), their age, their years of service as a
director, the year in which their current term expires and their current
positions with the Company. The table is followed by a more detailed
biographical description for each director.
Director Term
Name Age Since Expires Positions with the Company
- ---- --- ----- ------- --------------------------
Richard D. Ennen 73 1980 2003 Chairman of the Board and
Director
Roderick R. Baty 47 1995 2003 Chief Executive Officer,
President and Director
Michael D. Huff 53 1980 2001 Director
Michael E. Werner 56 1995 2001 Director
G. Ronald Morris 64 1994 2002 Director
Steven T. Warshaw 52 1997 2002 Director
James L. Earsley 55 1999 2002 Director
Richard D. Ennen is the principal founder of the Company and has been the
Chairman of the Board and a director of the Company since its formation in 1980.
He served as Chief Executive Officer of the Company from its inception until
1997 and as President of the Company from its inception until 1990. In recent
years, Mr. Ennen has focused on the development and implementation of the
Company's business strategy rather than the day-to-day operations of the
Company. Prior to forming the Company, Mr. Ennen held various management and
executive positions with Hoover Precision Products, Inc. (formerly Hoover
Universal, Inc.), a division of Tsubakimoto Precision Products Co. Ltd,
including Corporate Vice President and General Manager of the ball and roller
division. Mr. Ennen has over 40 years of experience in the anti-friction bearing
industry.
Roderick R. Baty became President and Chief Executive Officer in July 1997.
He joined the Company in July 1995 as Vice President and Chief Financial Officer
and was elected to the Board of Directors to fill a vacant seat in August 1995.
Prior to joining the Company, Mr. Baty served as President and Chief Operating
Officer of Hoover Precision Products from 1990 to January 1995, and as Vice
President and General Manager of Hoover Precision Products from 1985 to 1990.
Michael D. Huff has served as a director of the Company since its formation
in 1980. From 1980 until his retirement in January 1995, Mr. Huff served as the
Chief Financial Officer, Treasurer and Secretary of the
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Company. Before joining the Company, Mr. Huff served as a division controller of
Hoover Precision Products, Inc. from 1975 until 1980. Mr. Huff is a member of
the American Institute of Certified Public Accountants and the Tennessee Society
of Certified Public Accountants.
Michael E. Werner is a management consultant with Werner Gershon
Associates, a management consulting firm specializing in manufacturing companies
that Mr. Werner co-founded in 1982. During the five years prior to starting his
business, Mr. Werner served as Director of Strategic Planning and Business
Development for the Uniroyal Chemical Company. He also has held positions with
the New York Central Company, Western Electric Company and the Continental
Group.
G. Ronald Morris retired during 1999 from Western Industries, Inc., a
contract manufacturer of metal and plastic products. Mr. Morris had served as
President, Chief Executive Officer and director of Western Industries, Inc.
since July 1991. From 1989 to 1991, Mr. Morris served as Chairman of the Board
of Integrated Technologies, Inc., a manufacturer of computer software, and from
1988 to 1989, he served as Vice Chairman of Rexnord Corporation, a manufacturer
of mechanical power transmission components and related products, including
anti-friction bearings. From 1982 to 1988, Mr. Morris served as President and
Chief Executive Officer of PT Components, Inc., a manufacturer of mechanical
power transmission components and related products that was acquired by Rexnord
Corporation in 1988.
Steven T. Warshaw has served as President of Hexcel Schwebel , a global
producer of advanced structural materials, since April 2000. Prior to his
current position, he served from February 1999 as Senior Vice President of
Photronics, Inc., a global supplier to the semiconductor industry. From 1996 to
1999, he served as President of Olin Microelectronic Materials, a company
supplying technologically advanced chemicals, products, and services to
semiconductor manufacturers. Prior to his current position, Mr. Warshaw served
in a variety of positions at Olin since 1974, including President of OCG
Microelectronic Materials and Vice President of Olin's Chemicals Division.
James L. Earsley was elected to the Board effective August 1, 1999. Mr.
Earsley has spent his entire career with Industrial Molding Corporation (IMC)
and was Chairman of the Board at the time of the Company's acquisition of IMC on
July 4, 1999. Mr. Earsley remains involved with the business in a non-employee
consulting role.
Compensation Committee Interlocks and Insider Participation
Michael E. Werner, a director of the Company, is a principal of Werner
Gershon Associate. Werner Gershon Associates was retained by the Company to help
develop a long-range business strategy for IMC. During the latter part of 1999,
Werner Gershon Associates worked with the Company to study their markets and
competitors, and defining new business opportunities. The result of this work
was a long-range business plan for IMC. The Company paid Werner Gershon
Associates approximately $114,115 for its services in 2000.
James L. Earsley, past Chairman of Industrial Molding Corporation, was
elected to the Board of Directors effective August of 1999. Although no longer
involved in the day-to-day business of IMC, Mr. Earsley was retained by the
Company in a non-employee consulting role to Industrial Molding Corporation and
is involved with strategic development. Mr. Earsley was paid approximately
$54,950 for his services in 2000.
Stockholders Agreement
The Company and the persons who were stockholders of the Company prior to
its initial public offering are parties to an agreement which provides that, so
long as the Ennen family continues to hold at least 10 percent of the Common
Stock, in the event that Mr. Ennen for any reason ceases to serve as a director
of the Company, such individuals will vote their shares of Common Stock in favor
of a director nominee who is designated by the Ennen family. To the Company's
knowledge, as of March 23, 2001, members of the Ennen family held, in the
aggregate, approximately 20.0 percent of the outstanding shares of Common Stock,
and the other parties to the Agreement held, in the aggregate, approximately 7.0
percent of the outstanding shares of Common Stock.
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Compensation of Directors
Directors who are not employees of the Company are paid an annual retainer
of $17,000 and a fee of $1,000 for each Board meeting attended, $750 for each
committee meeting attended and $500 for each teleconference meeting attended.
Directors who are employees of the Company do not receive any compensation for
their service as directors. Directors may elect to defer some or all of the
compensation they are provided by the Company. In addition, each Director who is
not an employee of the Company received 3,000 stock options on October 10, 2000.
The exercise price of the options was $7.63 per share, which was the closing
price of the stock on Nasdaq on the date the option was granted. The term of the
options is ten years from the date of grant. These options become fully vested
on October 10, 2001. In the event of termination of service due to death or
disability, the options become fully vested. The Company also reimburses all
directors for out-of-pocket expenses incurred in attending Board and Committee
meetings.
Committees of the Board
Audit Committee. The Audit Committee of the Board of Directors consists of
Michael D. Huff, Michael E. Werner, and Steven T. Warshaw. The Audit Committee
is responsible for recommending the independent certified public accountants to
be selected by the Board of Directors to conduct the annual audit of the books
and accounts of the Company and for reviewing the adequacy and effectiveness of
the internal auditing, accounting and financial controls of the Company with the
independent certified public accountants and the Company's internal financial
and accounting staff. The Audit Committee met one time in 2000.
Compensation Committee. The Compensation Committee of the Board of
Directors consists of G. Ronald Morris, Michael E. Werner, James L. Earsley and
Steven T. Warshaw. The Compensation Committee is responsible for reviewing and
approving the Company's executive compensation policies and practices and
supervising the administration of the Company's employee benefit plans,
including the NN, Inc. Stock Incentive Plan. The functions of the Compensation
Committee are discussed in further detail in the section entitled "Report of the
Compensation Committee" herein. The Compensation Committee met two times in
2000.
Attendance at Board and Committee Meetings
The Board of Directors held seven meetings in 2000. Each director of the
Company was present for all of the meetings of the Board of Directors and each
Committee on which such director served.
EXECUTIVE COMPENSATION
The following table sets forth for the years ended December 31, 1998, 1999
and 2000, certain information concerning the compensation paid for services
rendered in all capacities by the Company, to each individual who served as the
Chief Executive Officer and to each of the other four most highly compensated
executive officers of the Company whose annual salary and bonus in 2000 exceeded
$100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Name and (1) Awards All Other
Principal --- Options/ Compensation
Position Year Salary ($) Bonus($) SARs (#) ($) (1)
- -------- ---- ------------------- -------- -------
Roderick R. Baty 2000 248,312 80,000 141,300 1,023(2)
Chief Executive Officer/President 1999 210,137 45,000 85,000 1,057
1998 200,000 0 0 1,196
Richard D. Ennen 2000 200,604 40,000 0 2,220(2)(3)
Chairman 1999 200,000 40,000 0 46,352
1998 200,000 0 0 47,408
Frank T. Gentry III 2000 152,252 38,000 57,450 770(2)
Vice President - Manufacturing 1999 124,667 21,000 650
1998 114,000 0 15,900 733
0
David L. Dyckman 2000 161,202 38,000 32,950 633(2)
Chief Financial Officer/Vice President 1999 132,478 23,000 18,000 609
1998 78,269 0 40,000 0
Robert R. Sams 2000 136,200 29,000 32,400 40(2)
Vice President - Market Services 1999 103,285 19,000 16,600 810
1998 118,894 0 0 611
- --------------------------------------------------------------------------------
(1) For all named executives other than Mr. Ennen, amounts for 2000 include
$500 in Company matching contributions under a "401(k)" savings plan that
is open to substantially all of the Company's employees and officers who
have met certain service and age requirements.
(2) Amounts reported for 2000 include $523, $5,237, $270, $133 and $140 in
premiums paid by the Company for supplemental life insurance for the
benefit of Messrs. Baty, Ennen, Gentry, Dyckman and Sams.
(3) This amount for 2000 includes of $36,983 in premiums paid by the Company on
a $1,200,000 life insurance policy for Mr. Ennen, the proceeds of which are
payable to his named beneficiaries.
9
OPTION GRANTS IN FISCAL YEAR 2000
The following table sets forth information with respect to options
granted during fiscal 2000 to Executive Officers named in the Summary
Compensation Table above.
Potential Realizable
Value At Assumed
Individual Grants Annual Rates Of Stock
Price Appreciation
For Option Term (2)
Shares % Of Total
Underlying Options Granted Exercise
Options To Employees in Price Per Expiration
Name Granted (#) Fiscal 2000 Share (1) Date 5% 10%
---- ----------- ----------- --------- ---- -- ---
Roderick R. Baty 141,300 25.4% $ 7.63 10/10/10 $ 678,240 $2,736,327
Frank T. Gentry III 57,450 10.3% $ 7.63 10/10/10 $ 275,760 $ 698,592
David L. Dyckman 32,950 5.9% $ 7.63 10/10/10 $ 158,160 $ 400,672
Robert R. Sams 32,400 5.8% $ 7.63 10/10/10 $ 155,520 $ 393,984
(1) The exercise price is based on the Fair Market Value at the date of the
grant of the option. The options have various vesting periods, ranging from
one to three years, and the options terminate ten years from the date of
grant, subject to earlier termination in certain conditions. The
exercisability of the options is accelerated in the event of a change of
control (as defined in the option agreements).
(2) The amounts shown as potential realizable values are based on assumed
annualized rates of appreciation in the price of Common Stock of five
percent and ten percent over the term of the options, as set forth in the
rules of the Securities and Exchange Commission. Actual gains, if any, on
stock option exercises are dependent upon the future performance of the
Common Stock. There can be no assurance that the potential realizable
values reflected in this table will be achieved.
TEN YEAR OPTION REPRICING
Number of
Securities Length Of
Number Of Underlying Original
Securities Options/SARS Option Term
Name Underlying Repriced Exercise Price At New Remaining At
---- Date Of Surrendered Or Amended Time Of Repricing Exercise Date Of
Repricing Options (#) (#)(1) Or Amendment ($)(2) Price ($) Repricing(3)
--------- ----------- ------ ---------------- ------ ------------
Roderick R. Baty 1/5/00 150,000 60,000 $11.92 $5.94 72 months
Frank T Gentry III 1/5/00 39,750 15,900 $9.39 - $15.50 $5.94 79 - 84 months
David L. Dyckman 1/5/00 20,000 8,000 $11.25 $5.94 105 months
Robert R. Sams 1/5/00 14,000 5,600 $12.50 - $15.50 $5.94 84 - 96 months
(1) Represents number of shares subject to replacement stock options. In
exchange for options representing 89,500 shares issued on July 4, 1999,
the Named Executive Officers collectively surrendered stock options
representing a total of 223,750 shares on January 5, 2001.
(2) Represents exercise price of surrendered stock options.
(3) Represents remaining term of surrendered stock options. The replacement
stock options vest and are exercisable in one year and have a term of ten
years from the grant date of the replacement stock option.
10
AGGREGATED OPTION EXERCISES IN 2000
AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning stock
option exercises during 2000 and option values at year-end, with respect to
stock options granted to the executive officers named in the Summary
Compensation Table.
Value of Unexercised
In-The-Money
Number of Unexercised Options
Shares Options at Year-End (#) at Year-End ($)(1)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ------------ --------- ---------------------- -------------
Roderick R. Baty 0 - 68,333/157,967 226,183/$284,074
Richard D. Ennen 0 - - -
Frank T. Gentry III 0 - 15,900/57,450 52,692/$93,069
David L. Dyckman 0 - 13,999/59,951 42,817/$127,542
Robert T. Sams 0 - 9,266/39,734 30,670/$76,764
(1) On December 31, 2000, the market price of the Common Stock was $9.25 per
share.
Employment Agreement With Mr. Baty
Mr. Baty has a written agreement to serve as President and Chief Executive
Officer until July 31, 2001 which extends automatically for successive one-year
terms unless either party gives notice of termination. The Company may terminate
the employment of Mr. Baty with or without cause, but if terminated without
cause, Mr. Baty would continue to receive his annual salary, paid on a monthly
basis, for one year from the date of termination. Mr. Baty has also agreed to a
non-competition agreement that ends two years after the conclusion of his
employment with the Company.
Employment Agreement With Mr. Gentry
Mr. Gentry has a written employment agreement to serve as Vice President -
Manufacturing until March 31, 2001 that extends automatically for successive
one-year terms unless either party gives notice of termination. The Company may
terminate Mr. Gentry's employment with or without cause, but if Mr. Gentry is
terminated without cause, he would continue to receive his annual salary, paid
on a monthly basis, for one year from the date of termination. Mr. Gentry has
also agreed to a non-competition agreement that ends two years after the
conclusion of his employment with the Company.
BOARD OF DIRECTOR'S AUDIT COMMITTEE
REPORT TO SHAREHOLDERS
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing and financial
reporting practices of the Company. Management has responsibility for
preparation of the Company's financial statements and the independent auditors
have responsibility for the examination of those statements. Each of the members
of the Audit Committee meets the independence requirements of the NASDAQ Stock
Market.
The Audit Committee has reviewed and discussed with the Company's
management and KPMG LLP, the Company's independent auditor, the audited
financial statements of the Company for 2000; has discussed with
11
KPMG LLP matters required to be discussed by Statement on Auditing Standards No.
61; has received from the independent auditors the written disclosures and
letter required by Independence Standards No. 1; and has discussed with the
independent auditor the auditor's independence, including whether KPMG LLP's
provision of non-audit services to the Company was compatible with maintaining
KPMG LLP's independence. Based on the review and discussions described above,
the Audit Committee recommended to the Company's Board of Directors that the
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 for filing with the Securities and
Exchange Commission.
On June 5, 2000, the Audit Committee presented to the Board, and the
Board adopted, a written charter for the Audit Committee. A copy of the
Company's current Audit Committee charter is attached to this Proxy Statement
as Exhibit A.
Michael D. Huff
Michael E. Werner
Steven T. Warshaw
FEES PAID TO INDEPENDENT AUDITORS
Fees billed to the Company by KPMG LLP may be summarized as follows:
Audit Fees. Audit fees billed or expected to be billed to the Company by
KPMG LLP for review of the Company's annual financial statements and those
financial statements included in the Company's quarterly reports on Form 10-Q
should total approximately $177,800.
Financial Design and Implementation. The Company did not engage KPMG
during 2000 to provide service regarding financial information systems.
All Other Fees. Non-audit fees billed to the Company by KPMG LLP for other
non-audit related work performed in 2000 approximated $24,500 which included
billings for tax consulting.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is responsible for the
oversight of the Company's compensation policies. The membership of the
Compensation Committee during 2000 consisted of G. Ronald Morris, Michael E.
Werner, Steven T. Warshaw and James L. Earsley. The report of the Committee on
executive officer compensation for 2000 is set forth below.
Compensation Principles
The goal of the Company is to structure its compensation arrangements for
executive officers in a manner that will promote the Company's profitability and
enhance stockholder value. In designing its compensation arrangements to achieve
this goal, the Company is guided by the following objectives:
o attracting and retaining qualified and dedicated executives who are
essential to the long-term success of the Company;
o providing compensation packages that are competitive with the
compensation arrangements offered by comparable companies, including
the Company's competitors;
o tying a significant portion of an executive officer's compensation to
the Company's and the individual's performance; and
o directly aligning the interests of management with the interests of
the stockholders through stock-based compensation arrangements.
12
In 2000, the components of the Company's executive compensation arrangements
consisted of salary, cash bonuses and stock option awards pursuant to the Stock
Incentive Plan.
Executive Officer Compensation
As a general matter, the Company believes that the interests of the Company
and its stockholders are best served by maintaining a flexible approach to
executive compensation. In this regard, the Company tends to rely on subjective
criteria rather than a preestablished formula. The Committee currently is
considering, however, the implementation of a more formal compensation structure
whereby, for example, specific salary ranges would be prescribed for particular
positions within the Company and bonus awards would be tied to preestablished
criteria.
In 2000, the Compensation Committee requested that Mr. Ennen, the Chairman
of the Company, and Mr. Baty, the Chief Executive Officer of the Company, make
recommendations as to the appropriate salary and number of stock options, if
any, to be granted to each of the Company's executive officers. The Compensation
Committee, following due consideration, adopted substantially all such
recommendations. The Committee delegated authority to Mr. Baty to set the annual
bonus amounts for each of the executive officers of the Company, other than Mr.
Ennen and himself, without further formal approval by the Committee.
Salary. The salary level for the Company's executive officers generally is
determined biannually. A base salary level is established for each executive
officer by reference to salaries historically paid by the Company to its
executive officers and to salaries paid to executive officers holding comparable
positions with comparable companies in the Company's geographic region. From
time to time the Company also consults published reports that compile salary and
bonus information for small-to-medium sized companies (some but not all of which
may be companies that comprise the Value Line Machinery Industry Stock Index the
performance of which are presented in the "Stock Performance Graph"). The
Company typically targets its base salary levels approximately at the midpoint
of the competitive salary range. The target levels are then adjusted based on a
number of subjective factors, including the executive's scope of responsibility
and individual performance, and to maintain equity within the Company's overall
salary structure.
Annual Bonus. Decisions regarding bonuses to executives are made annually.
As with the Company's other compensation practices, the receipt of a bonus is
dependent, for the most part, upon a subjective evaluation of corporate
performance and of the contribution of the particular individual to the
attainment of such performance.
The bonuses paid to the named executive officers for 2000 are set forth in
the Summary Compensation Table. The most significant considerations underlying
the award of bonuses for 2000 were continued improvement in the quality of the
Company's products and services and the Company's continued profitability.
Stock Incentive Plan. Prior to its initial public offering in 1994, the
Company adopted the Stock Incentive Plan under which 1,125,000 shares of the
Company's Common Stock have been reserved for issuance to executive officers and
other key employees, as determined by the Compensation Committee. The Stock
Incentive Plan was amended at the 1999 Annual Meeting by an affirmative vote of
the holders of a majority of the outstanding shares of the Common Stock to
increase the number of shares available for issuance pursuant to awards made
under the plan from 1,125,000 to 1,625,000. The Company awarded options to
purchase, in the aggregate, 555,750 shares of Common Stock to six of its
executive officers and other key employees during 2000. With respect to the
options awarded, the Committee determined, on a subjective basis, and based upon
the recommendations of Messrs. Ennen and Baty, that such awards were appropriate
to reward such officers and other key employees for superior performance and to
provide financial incentives for such officers and employees to continue to
perform in a superior manner.
13
Compensation of the Chief Executive Officer
The Company's decisions regarding compensation of its Chief Executive
Officer are guided by the same policies and considerations that govern
compensation of the Company's other executive officers. Mr. Baty's salary was
set at a level that the Committee determined was appropriate in light of the
Company's performance.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended, precludes
any public corporation from taking a deduction for compensation in excess of $1
million paid to its chief executive officer or any of its other executive
officers. Certain performance-based compensation, however, is exempt from the
deduction limit. No formal policy has been adopted by the Company with respect
to minimizing the risk that compensation paid to its executive officers will
exceed the deduction limit. The Company does not anticipate that any
compensation paid to its executive officers in 2000 will exceed the limit
imposed by Section 162(m).
Report On Option Repricing
On July 4, 1999, the Compensation Committee of the Board of Directors of
the Company authorized the grant of new stock options to officers and employees
holding stock options with exercise prices significantly in excess of the then
current market price of the Common Stock of the Company. The grant of each
replacement stock option was contingent upon the voluntary cancellation by the
officer or employee of a previously granted stock option. The replacement stock
options have an exercise price equal to the closing price of the stock on the
date of the grant but are for a lesser number of shares than the surrendered
options. On January 5, 2000, officers and employees of the Company voluntarily
cancelled the previously granted stock options. The Named Executive Officers
collectively surrendered stock options representing a total of 223,750 shares
and collectively received replacement stock options representing a total of
89,500 shares. It was subsequently determined that the cancellation of these
shares and the previous grant of shares on July 4, 1999 constituted a repricing
of stock options. The Compensation Committee of the Board of Directors
authorized the grant of such options, subject to the cancellation of the
previously granted stock options, because it considered such action appropriate
in order for the options to serve their intended use as incentives.
G. Ronald Morris
Michael E. Werner
Steven T. Warshaw
James L Earsley
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock (consisting of stock price performance and reinvested
dividends) from December 31, 1995 with the cumulative total return (assuming
reinvestment of all dividends) of (i) the Value Line Machinery Industry Stock
Index and (ii) the Standard & Poor's 500 Stock Index, for the period December
31, 1995 through December 31, 2000. The Value Line Machinery Industry Index is
an industry index comprised of 49 companies engaged in manufacturing of
machinery and machine parts, a list of which is available from the Company. The
comparison assumes $100 was invested in the Company's Common Stock and in each
of the foregoing indices on December 31, 1995. There can be no assurances that
the performance of the Common Stock will continue in the future with the same or
similar trend depicted on the graph.
[PERFORMANCE GRAPH OMITTED]
Cumulative Total Stockholder Return
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
NN, Inc 100.00 88.69 53.17 36.43 47.97 66.07
Value Line Machinery Index 100.00 123.25 164.21 210.85 253.61 227.89
Standard & Poor's 500 100.00 127.20 194.78 166.39 226.62 233.21
ANNUAL REPORT
The Company's 2000 Annual Report to Stockholders, which includes its
Annual Report on Form 10-K for the year ended December 31, 2000, is being mailed
together with this Proxy Statement.
By Order of the Board of Directors,
/s/ William C. Kelly, Jr.
William C. Kelly, Jr.
Secretary
STOCKHOLDERS ARE REQUESTED TO MARK, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. YOUR PROMPT RESPONSE WILL BE
HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HERIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR EACH OF THE DIRECTOR NOMINEES, FOR THE AMENDMENT TO THE STOCK
INCENTIVE PLAN AND FOR THE RATIFICATION OF THE SELECTION OF KPMG LLP AS
INDEPENDENT AUDITORS.
In their discretion, the proxies are authorized to vote upon such other matters
as may properly come before the meeting.
Note: Please sign exactly as name appears heron. Joint owners should each sign.
When signing as an attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
SIGNATURE (S)_________________________
DATE:_________________________________
SIGNATURE (S)_________________________
DATE:_________________________________
NN, Inc.
2000 Waters Edge Drive, Bldg. C., Ste. 12
Johnson City, TN 37604
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON MAY 17, 2001, AT THE SAVANNAH MARRIOTT RIVERFRONT, 100 GENERAL MCINTOSH
BOULEVARD, SAVANNAH, GEORGIA 31401.
The undersigned stockholder hereby appoints Richard D. Ennen and Roderick R.
Baty and each of them, with full power of substitution and revocation, the
proxies of the undersigned to vote all shares registered in the name of the
undersigned on all matters set forth in the proxy statement and on any other
matters that may property come before the Annual Meeting and all adjournments
thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO DIRECTION IS GIVEN, SHARES WILL BE VOTED FOR EACH OF THE
DIRECTOR NOMINEES, FOR THE AMENDMENT TO THE COMPANY'S STOCK INCENTIVE PLANAND
FOR THE RATIFICATION OF THE SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE DIRECTOR NOMINEES, FOR
THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION AND FOR THE
RATIFICATION OF THE SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS.
Please mark your votes as indicated in the example |X|
1. Election of Directors.
Nominees: Michael D. Huff, Michael E. Werner. For, except vote withheld
from the following nominee(s).
[ ] For [ ] Withheld
2. To approve the amendment to the Company's Stock Incentive Plan to increase
the number of shares from 1,625,000 to 2,450,000.
[ ] For [ ] Against [ ] Abstain
3. For ratification of the selection of KPMG LLP as independent auditors.
[ ] For [ ] Against [ ] Abstain
EXHIBIT A
NN, INC.
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The Audit Committee shall provide assistance to the corporate directors
in fulfilling their responsibility to the shareholders, potential shareholders,
and investment community relating to corporate accounting, reporting practices
of the Corporation, and the quality and integrity of the financial reports of
the Corporation. The Audit Committee's primary duties and responsibilities are
to:
o Oversee that management has maintained the reliability and integrity
of the accounting policies and financial reporting and disclosure
practices of the Corporation.
o Oversee that management has established and maintained processes to
assure that an adequate system of internal control is functioning
within the Corporation.
o Oversee that management has established and maintained processes to
assure compliance by the Corporation with all applicable laws,
regulations and corporate policy.
The Audit Committee will fulfill these responsibilities primarily by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors, and 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, however, the following persons shall not be considered independent:
1. a director who is employed by the Company or any of its affiliates for
the current year or any of the past three years;
2. a director who accepts compensation from the Company or any of its
affiliates, in excess of $60,000 during the previous fiscal year,
other than compensation for Board service, benefits under a
tax-qualified retirement plan, or non-discretionary compensation;
3. a director who is a member of the immediate family of an individual
who is, or has been in any of the past three years, employed by the
Company or any of its affiliates as an executive officer;
4. a director who is a partner in, or a controlling stockholder or an
executive officer of, any for-profit business organization to which
the Company made, or from which the Company received, payments (other
than those arising solely from investments in the Company's
securities) that exceed 5% of the Company or business organization's
consolidated gross revenues for that year, or $200,000, whichever is
more, in any of the past three years; or
5. a director who is employed as an executive of another entity where any
of the Company's executives serve on that entity's compensation
committee.
All members of the Audit Committee shall have, or within a reasonable time after
their appointment, a working familiarity with basic finance and accounting
practices (including the Company's balance sheet, income statement and cash flow
statement). At least one member of the Audit Committee shall have accounting or
related financial management expertise. 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 members of the Audit Committee shall be elected by the Board at the
annual organizational meeting of the Board or 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.
III. MEETINGS
The Audit Committee shall meet at least twice times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Audit Committee should meet at least annually with management
and the independent accountants separately to discuss any matters that the Audit
Committee or each of these groups believes should be discussed privately. In
addition, the Audit Committee or at least its Chairperson should meet with the
independent accountants and management quarterly to review the Corporation's
financials consistent with Section IV.4 below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and reassess, at least annually, the adequacy of this Charter. Make
recommendations to the Board, as conditions dictate, to update this
Charter.
2. Review with management and the independent accountants the Corporation's
annual financial statements, including a discussion with the independent
accountants of the
2
matters required to be discussed by Statement of Auditing Standards No. 61
("SAS No. 61") as amended.
3. Review with management and the independent accountants the 10-Q prior to
its filing or prior to the release of earnings, including a discussion with
the independent accountants of the matters to be discussed by SAS No. 61,
as amended and Statement of Auditing Standards No. 71.("SAS No. 71"). The
Chairperson of the Audit Committee may represent the entire Audit Committee
for purposes of this review.
Independent Accountants
4. Review the performance of the independent accountants and make
recommendations to the Board regarding the appointment or termination of
the independent accountants. The Audit Committee and the Board have the
ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the outside auditor. The independent accountants are
ultimately accountable to the Audit Committee and the entire Board for such
accountants' audit of the financial statements of the Corporation. On an
annual basis, the Audit Committee should review and discuss with the
accountants all significant relationships the accountants have with the
Corporation to determine the accountants' independence.
5. Oversee independence of the accountants by:
o receiving from the accountants, on a periodic basis, a formal written
statement delineating all relationships between the accountants and
the Corporation consistent with Independence Standards Board Standard
1 ("ISB No. 1");
o reviewing, and actively discussing with the Board, if necessary, and
the accountants, on a periodic basis, any disclosed relationships or
services between the accountants and the Corporation or any other
disclosed relationships or services that may impact the objectivity
and independence of the accountants; and
o recommending, if necessary, that the Board take certain action to
satisfy itself of the auditor's independence.
6. Based on the review and discussions referred to in section IV.2 and IV.5,
the Audit Committee shall 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 last fiscal year for
filing with the Securities and Exchange Commission.
Financial Reporting Process
7. In conjunction with the independent accountants and the internal auditors,
review the integrity of the Corporation's financial reporting processes,
both internal and external.
3
8. Consider and approve, if appropriate, major changes to the Corporation's
accounting principles and practices proposed by management. Discuss with
the Independent Accountants any significant changes in auditing standards
or their audit scope.
9. Establish regular systems of reporting to the Audit Committee by each of
management and the independent accountants regarding any significant
judgments made in management's preparation of the financial statements and
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.
10. Review any significant disagreement among management and the independent
accountants in connection with the preparation of the financial statements.
Legal Compliance/General
11. Review with the Corporation's counsel, any legal matter that could have a
significant impact on the Corporation's financial statements.
12. Report through its Chairperson to the Board following meetings of the Audit
Committee.
13. Maintain minutes or other records of meetings and activities of the Audit
Committee.
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 Company'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, resolve disagreements, if any,
between management and the independent auditors or to assure compliance with
laws and regulations.