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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23486
______________________
NN, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1096725
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Waters Edge Drive
Johnson City, Tennessee 37604
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 743-9151
______________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Name of each exchange
each class on which registered
__________ ______________________
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The number of shares of the registrant's common stock outstanding on
March 25, 2002 was 15,340,806.
The aggregate market value of the voting stock held by non-affiliates
of the registrant at March 25, 2002, based on the closing price on the NASDAQ
National Market System on that date was approximately $158,010,302.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement with respect to the 2002 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Form 10-K.
Part 1
Item 1. Business
Overview
NN, Inc. (the "Company") is an independent manufacturer and supplier of
high quality, precision components to domestic and international anti-friction
bearing manufacturers, other original equipment manufactures, the automotive
industry, and other aftermarkets. The Company supplies high quality, precision
steel balls and rollers, both directly and indirectly through its sales to
bearing manufacturers, to automotive original equipment manufacturers ("OEMs")
and the automotive aftermarket, to the gas and mining industries, and to
producers of water, gas and oil well drilling bits and stainless steel valves
and pumps. Precision steel balls and rollers are critical moving parts of
anti-friction bearings, which in turn, are integral components of machines with
moving parts. In addition to balls and rollers, the Company provides
full-service design and manufacture of plastic injection molded components to
the bearing, automotive, electronic, leisure and consumer markets with an
emphasis on value-added products that take advantage of its capabilities in
product development, tool design and tight tolerance molding processes. With the
acquisition of The Delta Rubber Co. ("Delta") on February 16, 2001 the Company
now also provides precision bearing seals and other precision molded rubber
products to the bearing, automotive, industrial, agricultural, and aerospace
markets.
The Company was organized in October 1980 by a group of senior managers
of the ball and roller division of Hoover Precision Products, Inc. (formerly
Hoover Universal, Inc.), led by Richard Ennen, the Company's former Chairman.
The Company was founded in order to meet the bearings industry's need for a
dependable source of high quality, precision balls and rollers. During 2001, the
Company sold its products to over 500 customers located in over 24 different
countries. Its primary customers include AB SKF ("SKF"), FAG Kugelfisher Georg
Shafer AG ("FAG"), SNR Roulements, and the Torrington Company.
On July 4, 1999, the Company acquired substantially all of the assets
of Earsley Capital Corporation, formerly known as Industrial Molding Corporation
("IMC"). The Company currently operates the business under the name Industrial
Molding Corporation. Formed in 1947, IMC provides full-service design and
manufacture of plastic injection molded components to the bearing, automotive,
electronic, leisure and consumer markets with an emphasis on value-added
products that take advantage of its capabilities in product development, tool
design and tight tolerance molding processes. IMC operates two manufacturing
facilities in Lubbock, Texas.
On July 31, 2000, the Company formed a majority owned stand-alone
company in Europe, NN Euroball ApS ("Euroball"), for the manufacture and sale of
chrome steel balls used for ball bearings and other products. The Company owns
54% of Euroball. AB SKF and FAG Kugelfisher Georg Shafer AG, the parent
companies of SKF and FAG respectively each own 23%. As part of the transaction,
Euroball acquired the ball factories located in Pinerolo, Italy (previously
owned by SKF), Eltmann, Germany (previously owned by FAG), and Kilkenny, Ireland
(previously owned by the Company).
On August 31, 2000, the Company acquired a 51% ownership interest in NN
Mexico, LLC ("NN Mexico"), a Delaware limited liability company. NN Mexico holds
a 100% ownership interest in NN Arte, a manufacturer of plastic components
located in Guadalajara, Mexico.
On February 16, 2001, the Company acquired of all of the outstanding
stock of The Delta Rubber Company ("Delta"), a Connecticut corporation, for
$22.5 million in cash. Delta provides high quality engineered bearing seals and
other precision-molded rubber products to bearing and other original equipment
manufacturers. Delta operates two facilities in Danielson, Connecticut.
On September 11, 2001, the Company announced the closing of its
Walterboro, South Carolina ball manufacturing facility effective December 2001.
The closing was made as part of the Company's strategy to redistribute its
global production in order to better utilize capacity and serve the needs of its
worldwide customers. The precision ball production of the Walterboro facility
has been fully absorbed by the Company's remaining U.S. ball and roller
manufacturing facilities located in Erwin and Mountain City, Tennessee. The
Company recorded before tax charges associated with the closing of $1.9 million.
This amount includes a $1.1 million before-tax charge for the recording of
impairment on the Company's manufacturing facility located in Walterboro, South
Carolina and $0.8 million related to employee severance costs. These amounts are
reflected as restructuring and impairment costs in the accompanying Consolidated
Statements of Income. The building along with certain machinery and equipment
are held for sale as of December 31, 2001. These assets have an
2
aggregate net book value of $4.3 million. The financial results of this
operation have been reflected in the Balls and Rollers Segment. See Note 10 of
the Notes to Consolidated Financial Statements for additional financial
information.
Effective December 21, 2001, the Company sold its minority interest in
Jiangsu General Ball & Roller Company, LTD, a Chinese ball and roller
manufacturer located in Rugao City, Jiangsu Province, China. To effect the
transaction, the Company sold its 50% ownership in NN General, LLC, which owns a
60% interest in the Jiangsu joint venture to its partner, General Bearing
Corporation for cash of $0.6 million and notes of $3.3 million. The notes are due
on December 21, 2006 with annual installments of $0.2 million. The notes bear
interest at average LIBOR (1.88% at December 31, 2001) plus 1.5%. In 2001, the
Company recorded a non-cash after-tax loss on sale of the investment in this joint
venture of $144,000.
For managerial and financial analysis purposes, management views the
Company's operations in three segments. The domestic ball and roller operations
of Erwin, Tennessee and Mountain City, Tennessee ("Domestic Ball and Roller
Segment"), the Euroball facilities of Kilkenny, Ireland, Eltmann, Germany and
Pinerolo, Italy ("Euroball Segment") and the "Plastics Segment" which consists
of IMC, Delta Rubber and NN Arte.
Products
At its ball and roller facilities in Erwin, Tennessee and Mountain
City, Tennessee, the Company produces and sells high quality, precision steel
balls in sizes ranging in diameter from 3/16 of an inch to 2 1/2 inches and
rollers in a limited variety of sizes. At its Euroball facilities, the Company
produces and sells high quality steel balls in sizes ranging from 1/8 of an inch
to 12 1/2 inches in diameter. The Company produces and sells balls in a variety
of grades ranging from grade 3 to grade 1000 and rollers in a variety of grades
ranging from grade 50 to grade 1000. The grade number for a ball or a roller
indicates the degree of spherical or cylindrical precision of the ball or
roller; for example, grade 3 balls are manufactured to within three millionths
of an inch of roundness and grade 50 rollers are manufactured to within fifty
millionths of an inch of roundness. At its Domestic Ball and Roller Segment,
sales of steel balls accounted for approximately 92%, 92% and 89% of the
segment's net sales in 1999, 2000 and 2001, respectively. Sales of rollers
accounted for the balance of the segment's sales in these years.
Precision Steel Balls. The Company manufactures high quality, precision
balls in three different types of steel: 52100 steel, 440C stainless steel and
S2 rock bit steel. Each of the different types of steel has unique
characteristics that make it suitable for particular applications.
During 2001, approximately 98% of the balls produced by the Company's
domestic ball and roller operations were made from 52100 steel ("52100 Steel").
100% of the balls produced by the Company's Euroball joint venture were made
from 52100 Steel. See also "Business--Raw Materials." The 52100 Steel balls have
a high degree of hardness and provide excellent resistance to wear and
deformation. The 52100 Steel balls are used primarily by manufacturers of
anti-friction ball bearings where precise spherical and tolerance accuracy are
required. The Company produces and sells 52100 Steel balls in eleven grades
ranging from grade 1000 to grade 3 (highest precision), and in sizes ranging in
diameter from 1/8 of an inch to 12 1/2 inches. The primary grades of the 52100
Steel balls are grade 16, grade 10, and grade 5 and grade 3.
Precision Steel Rollers. The Company manufactures rollers at its Erwin,
Tennessee facility in three types of steel: 52100 Steel, 440C stainless steel
and S2 rock bit steel. Rollers are the primary components of anti-friction
bearings, which are subjected to heavy load conditions. The Company's roller
products are used primarily for applications similar to those of its ball
product lines, plus hydraulic pumps and motors.
Bearing Seals. Delta manufactures and sells a wide range of precision
bearing seals. Delta utilizes a variety of compression, transfer and injection
molding processes and adhesion technologies to create rubber to metal bonded
bearing seals. The seals are used in applications for automotive, industrial,
agricultural, mining and aerospace markets. In 2001, 45% of Delta's sales were
to the automotive industry.
Precision Plastic Components. IMC manufactures and sells a wide range
of plastic molded products through its two facilities in Lubbock, Texas. IMC's
products can be classified into three primary market segments - bearing
retainers, automotive under the hood components and other precision components
which include automotive components, electronic instrument cases and precision
electronic connectors and lenses as well as a variety of other specialized
parts.
Bearing Retainers. IMC manufactures and sells high precision plastic
retainers for ball and roller bearings used in a wide variety of applications,
including industrial automotive products. During 2001, sales of bearing
retainers accounted for approximately 38% of IMC's sales.
3
Automotive Components. IMC manufacturers and sells high precision
plastic automotive under the hood parts. These parts utilize high performance
engineered polymers that draw upon IMC's ability to mold highly technical
dimension parts. These components include hydraulic cylinders, clutch systems,
seat belts, gears and transmission components. During 2001, sales of automotive
parts accounted for approximately 33% of IMC's sales.
Other. IMC also manufactures and sells a variety of high precision
molded parts including plastic instrument cases, precision end connectors and
lenses for fiber optics as well as other specialized parts. During 2001, sales
for these items accounted for 29% of IMC's sales.
NN Arté manufactures and sells a variety of precision and molded
components including gearing, gearing assemblies and automotive components to
office automation manufacturers and the automotive industry.
Sales and Marketing
The Company markets balls and rollers in the United States and abroad
primarily through seven salaried sales employees. Additional internal sales
employees handle customer orders and provide sales support.
The Plastics Segment markets its products through commissioned sales
representatives or directly through salaried marketing and sales employees.
Additional internal customer service employees handle customer orders and
provide sales and design support. Additionally, certain engineers and
manufacturing employees provide sales and design support due to the technical
nature of the products.
The following table presents a breakdown of the Company's net sales for
fiscal years 1999 through 2001:
(In Thousands)
2001 2000 1999
------------ ------------ ------------
Domestic Ball and Roller
Segment $52,692 $67,637 $67,736
29.3% 51.2% 79.4%
Euroball Segment 86,719 33,988 --
48.1% 25.7% --
Plastics Segment 40,740 30,504 17,558
22.6% 23.1% 20.6%
---- ---- ----
Total $ 180,151 $ 132,129 $85,294
========= ========= =======
100% 100% 100%
=== === ===
The Company's marketing strategy relative to the Domestic Ball and
Roller Segment is to increase its share of the domestic and international market
for bearing components by offering a wide variety of high quality, precision
balls and rollers to existing and prospective customers on a timely basis and in
a cost-effective manner. In marketing its products, the Company has focused its
efforts on bearing manufacturers with their own ball and/or roller manufacturing
capabilities. The Company's sales staff traditionally emphasizes the potential
quality advantages and cost savings associated with the outsourcing of such
bearing manufacturers' needs by purchasing precision components from the Company
instead of manufacturing such components internally.
The Plastics Segment's marketing strategy is to increase its share of
the market by offering custom manufactured, high quality, precision parts in a
cost-effective manner. This strategy focuses on relationships with key customers
that require technically difficult parts, which enable the Plastics Segment to
take advantage of its strengths in product development, tool design and tight
tolerance molding processes. The Plastics Segment has historically focused on
the North American market. However, management believes certain synergies exist
between its various segments that will allow the Company to further penetrate
the North American market as well as broaden its European and Asian presence by
working with the Company's global customer base.
The Company's arrangements with its domestic customers typically
provide that payments are due within 30 days following the date of shipment of
goods. With respect to foreign customers (other than foreign customers that
participate in the Company's inventory management program), payments generally
are due within 90 to 120 days following the date of shipment in order to allow
for additional freight time and customs clearance. For customers that
participate in the Company's inventory management program, sales are recorded
when the customer uses the product, and payments typically
4
are due 30 days thereafter. See "Business -- Customers" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Customers
During 2001, the Company's ten largest customers accounted for
approximately 73% of its consolidated net sales. Sales to various U.S. and
foreign divisions of SKF, which is one of the largest bearing manufacturers in
the world, accounted for approximately 35% of net sales in 2001 and sales to FAG
accounted for approximately 19% of net sales in 2001. None of the Company's
other customers accounted for more than 5% of its net sales in 2001.
During 2001, the Domestic Ball and Roller Segment sold its products to
more than 500 customers located in more than 20 different countries.
Approximately 50% of ball and roller net sales in 2001 were to customers outside
the United States. Sales to the Domestic Ball & Roller Segment's top ten
customers accounted for approximately 74% of the segments' net sales in 2001.
Sales to SKF and FAG accounted for approximately 35% and 14% of the segment's
net sales in 2001 respectively. Sales to SKF and FAG are made pursuant to the
terms of the sales agreements which expire in 2006.
During 2001, the Euroball Segment sold its products to more than 40
customers located in 28 different countries. Approximately 87% of its net sales
in 2001 were to customers within Europe. Sales to the segment's top ten
customers accounted for approximately 94% of the segment's net sales in 2001.
Sales to SKF and FAG accounted for approximately 49% and 27% of the segment's
net sales in 2001, respectively. Sales to SKF and FAG are made pursuant to the
terms of sales agreements which expire in 2006.
During 2001, the Plastics Segment sold its products to more than 100
customers located in more than 10 different countries. Approximately 8% of
plastic net sales were to customers outside the United States. Sales to the
segment's top ten customers accounted for approximately 74% of the segments' net
sales in 2001. See Note 4 of the Notes to Consolidated Financial statements for
additional financial information.
See Note 10 of the Notes to Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations" for additional segment financial information. In both the
foreign and domestic markets, the Company principally sells its products
directly to manufacturers and not to distributors.
The Company ordinarily ships its products directly to customers within
60 days, and in some cases, during the same calendar month, of the date on which
a sales order is placed. Accordingly, the Company generally has an insignificant
amount of open (backlog) orders from customers at month end. Certain of the
Company's customers have entered into contracts with the Company pursuant to
which they have agreed to purchase all of their requirements of specified balls
and rollers and plastic molded products from the Company, but under which they
are not obligated to purchase any specific amounts. While firm orders generally
are received only monthly, the Company normally is aware of reasonably
anticipated future orders well in advance of the placement of a firm order.
Certain agreements are in effect with some of the Company's largest customers,
which provide for targeted, annual cost adjustments that may be offset by
material cost fluctuations. The Company has installed a computerized, bar coded
inventory management system with most of its major ball and roller customers
pursuant to which the Company, through a direct computer link, automatically
monitors the customer's ball and roller inventories. This system permits the
Company to determine on a day-to-day basis the amount of balls and/or rollers
remaining in a customer's inventory. When such inventories fall below certain
levels, the Company automatically ships additional goods. The Company follows
industry practice in handling its inventory, which is a first in, first out
policy.
Employees
As of December 31, 2001, the Company had 1,316 full-time employees of
whom 1,173 were engaged in production/maintenance. Of these 1,316 employees, 235
were employed at the Domestic Ball and Roller Segment facilities, 677 at the
Euroball Segment, 399 at the Plastics Segment and 5 are considered Corporate.
The Company believes that relations with its employees are good.
Competition
The precision ball and roller industry is intensely competitive, and
many of the Company's competitors have greater financial resources than the
Company. The Company's primary domestic competitor is Hoover Precision Products,
Inc., a division of Tsubakimoto Precision Products Co. Ltd. The Company's
primary foreign competitors are Amatsuji Steel Ball Manufacturing Company, Ltd.
and Tsubakimoto Precision Products Co. Ltd.
5
The Company believes that competition within the precision ball and
roller market is based principally on quality, price and the ability to
consistently meet customer delivery requirements. Management believes that the
Company's competitive strengths are its precision manufacturing capabilities,
its reputation for consistent quality and reliability, and the productivity of
its workforce.
The markets for IMC's and NN Arte's products are intensely competitive.
Since the industry is currently very fragmented, IMC and NN Arte must compete
with numerous companies in each of their marketing segments. Many of these
companies have substantially greater financial resources than the Company and
many currently offer competing products nationally and internationally. IMC's
primary competitor in the bearing retainer segment is Nakanishi Manufacturing
Corporation. Domestically, Nypro, Inc. and Key Plastics are the main competitors
in the automotive segment. NN Arte primarily competes with various suppliers in
Mexico.
The Company believes that competition within the plastic injection
molding industry is based principally on quality, price, design capabilities and
speed of responsiveness and delivery. Management believes that IMC's competitive
strengths are product development, tool design and fabrication and tight
tolerance molding processes, as well as its reputation in the marketplace as a
quality producer of technically difficult products.
The markets for Delta's products are also intensely competitive. The
bearing seal market is comprised of approximately six major competitors that
range from small privately held companies to Fortune 500 global enterprises.
Bearing seal manufacturers compete on the design, service, quality and price.
Delta's primary competitors in the United States bearing seal market are
Freindenburg-NOK, Chicago Rawhide Industries and Trostel, LTD.
Raw Materials
The primary raw material used by the Company in its Domestic Ball and
Roller Segment and Euroball Segment is 52100 Steel. During 2001, approximately
98% and 100% of the steel used by these two segments, respectively, was 52100
Steel. The Company's other steel requirements include type 440C stainless steel
and type S2 rock bit steel. The Domestic Ball and Roller Segment purchases
substantially all of its 52100 Steel requirements from foreign mills because of
the lack of domestic producers of such steel at the quality level required by
the Company. The Euroball Segment purchases all of its 52100 Steel requirements
from European mills. The other steel requirements of the Company also are
purchased principally from foreign steel manufacturers.
The Company allocates its steel purchases among suppliers on the basis
of price and quality. Generally, the Domestic Ball & Roller Segment does not
enter into written supply agreements among its suppliers or commit itself to
maintain minimum monthly purchases of steel, except for the consignment
arrangements among Ascometal and Euroball (see Note 14). The Company's pricing
arrangements with its suppliers typically are subject to adjustment once every
six months.
Because 52100 Steel is principally produced by foreign manufacturers,
the Company's operating results would be negatively affected in the event that
the U.S. or European governments imposes any significant quotas, tariffs or
other duties or restrictions on the import of such steel or if the United States
dollar decreases in value relative to foreign currencies. On March 6, 2002, the
U.S. government adopted legislation that imposed certain tariffs on the import
of certain foreign produced steel into the United States. The Company continues
to evaluate the impacts of this legislation, but believes at this time, any
impact to the Company's operations or financial conditions will be immaterial.
The primary raw materials used by IMC and NN Arte are engineered
resins. Injection grade nylon is utilized in bearing retainers, gears,
automotive and other industrial products. The Company purchases substantially
all of its resin requirements from domestic manufacturers and suppliers. The
majority of these suppliers are international companies with resin manufacturing
facilities located throughout the world.
Delta uses certified vendors to provide a customer mix of proprietary
rubber compounds. Delta also procures metal stampings from several domestic
suppliers.
The Company bases purchase decisions on price, quality and service.
Generally, the Company does not enter into written supply contracts with its
suppliers or commit itself to maintain minimum monthly purchases of resins. The
pricing arrangements with its suppliers typically can be adjusted at anytime.
6
Patents, Trademarks and Licenses
The Company does not own any U.S. or foreign patents, trademarks or
licenses that are material to its business. The Company does rely on certain
data and processes, including trade secrets and know-how, and the success of its
business depends, to some extent, on such information remaining confidential.
Each executive officer of the Company is subject to a non-competition and
confidentiality agreement that seeks to protect this information.
Seasonal Nature of Business
Historically, due to a substantial portion of sales to foreign
customers, seasonality has been a factor for the Company in that some foreign
customers typically cease their production activities during the month of
August.
Environmental Compliance
The Company's operations and products are subject to extensive federal,
state and local regulatory requirements both domestically and abroad relating to
pollution control and protection of the environment. The Company maintains a
compliance program to assist in preventing and, if necessary, correcting
environmental problems. Based on information compiled to date, management
believes that the Company's current operations are in substantial compliance
with applicable environmental laws and regulations, the violation of which would
have a material adverse effect on the Company. There can be no assurance,
however, that currently unknown matters, new laws and regulations, or stricter
interpretations of existing laws and regulations will not materially affect the
Company's business or operations in the future. More specifically, although
management believes that the Company disposes of its wastes in material
compliance with applicable environmental laws and regulations, there can be no
assurance that the Company will not incur significant liabilities in the future
in connection with the clean-up of waste disposal sites.
In the past, the Company has incurred certain expenses in complying
with applicable environmental laws associated with the removal of four
underground storage tanks containing kerosene and waste oil, the remediation of
soil and groundwater contamination resulting from a leak in one of the tanks,
and the closing of a sludge disposal area at one of its ball and roller
facilities. The remediation project is now complete, but the Company has certain
ongoing monitoring responsibilities. The amounts expended by the Company in
connection with this remediation project have not been material, and based upon
information currently available to the Company, management does not believe that
the future costs associated with the project will have a material adverse effect
on the Company's results of operations or financial condition.
Executive Officers of the Registrant
The executive officers of the Company consist of the following persons:
Name Age Position
---- --- --------
Roderick R. Baty 48 Chairman of the Board, Chief Executive
Officer, President and Director
Frank T. Gentry, III 46 Vice President - Manufacturing
Robert R. Sams 44 Vice President - Market Services
David L. Dyckman 37 Vice President - Corporate Development
and Chief Financial Officer
William C. Kelly, Jr. 43 Treasurer, Secretary and Chief Accounting
Officer
7
Biographical Information. Set forth below is certain additional information with
respect to each executive officer of the Company.
Roderick R. Baty was elected Chairman of the Board in September 2001
and continues to serve as Chief Executive Officer and President. He has served
as President and Chief Executive Officer since July 1997. He joined the Company
in July 1995 as Vice President and Chief Financial Officer and was elected to
the Board of Directors in 1995. Prior to joining the Company, Mr. Baty served as
President and Chief Operating Officer of Hoover Precision Products from 1990
until January 1995, and as Vice President and General Manager of Hoover
Precision Products from 1985 to 1990.
Frank T. Gentry, III, was originally appointed Vice President -
Manufacturing in August 1995. Mr. Gentry is responsible for the global
operations of the Ball and Roller and Euroball Segments. Mr. Gentry's
responsibilities include purchasing, inventory control and transportation. Mr.
Gentry joined the Company in 1981 and held various production control positions
within the Company from 1981 to August 1995.
Robert R. Sams joined the Company in 1996 as Plant Manager of the
Mountain City, Tennessee facility. In 1997, Mr. Sams served as Managing Director
of the Kilkenny facility and in 1999 was elected to the position of Vice
President - Market Services. Prior to joining the Company, Mr. Sams held various
positions with Hoover Precision Products from 1980 to 1994 and most recently as
Vice President of Production for Blum, Inc. from 1994 to 1996.
David L. Dyckman was appointed Vice President of Corporate Development
and Chief Financial Officer in April 1998. Prior to joining the Company, Mr.
Dyckman served from January 1997 until April 1998 as Vice President--Marketing
and International Sales for the Veeder-Root Division of the Danaher Corporation.
From 1987 until 1997, Mr. Dyckman held various positions with Emerson Electric
Company including General Manager and Vice President of the Gearing Division of
Emerson's Power Transmission subsidiary.
William C. Kelly, Jr. joined the Company in 1993 as Assistant Treasurer
and Manager of Investor Relations. In July 1994, Mr. Kelly was elected to serve
as the Company's Chief Accounting Officer, and in February 1995, was elected
Treasurer and Assistant Secretary. In March 1999 he was elected Secretary of the
Company. Prior to joining the Company, Mr. Kelly served from 1988 to 1993 as a
Staff Accountant and as a Senior Auditor with the accounting firm of
PricewaterhouseCoopers LLP.
Item 2. Properties
The Company has two operating domestic ball manufacturing facilities
located in Erwin, Tennessee and Mountain City, Tennessee. Rollers are only
produced at the Erwin, Tennessee facility. Production began in early 1996 at the
Mountain City facility. During December 2001, the Company ceased production and
closed its facility in Walterboro, South Carolina. The Walterboro, South
Carolina facility is classified as held for sale at December 31, 2001.
The Erwin and Mountain City plants currently have approximately 125,000
and 58,000 square feet of manufacturing space, respectively. The Erwin plant is
located on a 12 acre tract of land owned by the Company and the Mountain City
plant is located on an 8 acre tract of land owned by the Company.
Through Euroball the Company manufactures high precision steel balls in
three manufacturing facilities located in Kilkenny, Ireland, Eltmann, Germany
and Pinerolo, Italy. The facilities currently have approximately 125,000,
175,000 and 330,000 square feet of manufacturing space, respectively. The
Kilkenny facility is located on a two acre tract owned by Euroball, the Eltmann
facility is leased from FAG and the Pinerolo facility is located on a 9 acre
tract owned by Euroball.
IMC manufactures a wide range of plastic molded products through two
facilities located in Lubbock, Texas. The Slaton facility, located on a 6.5 acre
tract of land owned by the Company, contains approximately 193,000 square feet
of manufacturing, warehouse and office space. The Cedar facility is situated on
a 2.5 acre tract of land which is also owned by the Company and contains
approximately 35,000 square feet of manufacturing and warehouse space.
NN Arté leases a single 18,000 square foot facility in Guadalajara,
Mexico.
Delta's operations are located in two facilities on a 12-acre site in
Danielson, Connecticut, owned by the Company. The two facilities encompass over
50,000 square feet of rubber seal manufacturing and administrative functions.
During 2001, the Company added new machinery and equipment at all of
its facilities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
8
Item 3. Legal Proceedings
All legal proceedings and actions involving the Company are of an
ordinary and routine nature and are incidental to the operations of the Company.
Management believes that such proceedings should not, individually or in the
aggregate, have a material adverse effect on the Company's business or financial
condition or on the results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of stockholders during the fourth
quarter of 2001.
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Since the Company's initial public offering in 1994, the Common Stock
has been traded on the Nasdaq National Market under the trading symbol "NNBR."
Prior to such time there was no established market for the Common Stock. As of
March 25, 2002, there were approximately 1,750 holders of record of the Common
Stock.
The following table sets forth the high and low sales prices of the
Common Stock, as reported by Nasdaq, and the dividends paid per share on the
Common Stock during each calendar quarter of 2000 and 2001.
Price
-----
High Low Dividend
---- --- --------
2000
- ----
First Quarter $10.88 $6.75 $0.08
Second Quarter 11.38 8.03 $0.08
Third Quarter 10.50 7.50 $0.08
Fourth Quarter 9.50 7.13 $0.08
2001
- ----
First Quarter $9.17 $6.53 $0.08
Second Quarter 10.81 6.50 $0.08
Third Quarter 10.84 7.25 $0.08
Fourth Quarter 11.30 7.75 $0.08
The declaration and payment of dividends are subject to the sole
discretion of the Board of Directors of the Company and depend upon the
Company's profitability, financial condition, capital needs, future prospects
and other factors deemed relevant by the Board of Directors. The terms of the
Company's revolving credit facility restrict the payment of dividends by
prohibiting the Company from declaring or paying any dividend if an event of
default exists at the time of, or would occur as a result of, such declaration
or payment. For further description of the Company's revolving credit facility,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" herein.
Item 6. Selected Financial Data
The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included as Item 8. The data set forth below as
of December 31, 2001 and for the periods ended December 31, 2001 and December
31, 2000 have been derived from the Consolidated Financial Statements of the
Company which have been audited by KPMG LLP, independent accountants, whose
report thereon is included as part of Item 8. The data below as of December 31,
1999 and for the periods ended December 31, 1999, 1998 and 1997 have been
derived from the Consolidated Financial Statements of the Company, which have
been audited by PricewaterhouseCoopers LLP, independent accountants. These
historical results are not necessarily indicative of the results to be expected
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
9
(In Thousands, Except Per Share Data) Year Ended December 31,
-----------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Statement of Income Data:
Net sales $180,151 $132,129 $85,294 $73,006 $75,252
Cost of products sold 137,591 93,926 59,967 50,353 51,707
-------- -------- ------- ------- -------
Gross profit 42,560 38,203 25,327 22,653 23,545
Selling, general and administrative expenses 16,382 11,571 6,854 5,896 5,518
Depreciation and amortization 13,340 9,165 6,131 4,557 4,106
Restructuring and impairment costs 2,312 -- -- -- --
-------- -------- ------- ------- -------
Income from operations 10,526 17,467 12,342 12,200 13,921
Interest expense 4,006 1,773 523 64 29
Equity in earnings of unconsolidated affiliate -- (48) -- -- --
Net gain on involuntary conversion (3,901) (728) -- -- --
Other income (186) (136) -- -- --
-------- -------- ------- ------- -------
Income before provision for income taxes 10,607 16,606 11,819 12,136 13,892
Provision for income taxes 4,094 5,959 4,060 4,480 5,382
Minority interest in income of consolidated
subsidiary 1,753 660 -- -- --
-------- -------- ------- ------- -------
Income before cumulative effect of change in
accounting principle 4,760 9,987 7,759 7,656 8,510
Cumulative effect of change in accounting
principle, net of income tax benefit of $112
and related minority interest impact of $84 98 -- -- -- --
-------- -------- ------- ------- -------
Net income $4,662 $9,987 $7,759 $7,656 $8,510
======== ======== ======= ======= =======
Basic income per share:
Income before cumulative effect of change in
accounting principle $ 0.31 $0.66 $0.52 $0.52 $0.57
Cumulative effect of change in accounting
principle (0.01) -- -- -- --
-------- -------- ------- ------- -------
Net income $0.31 $0.66 $0.52 $0.52 $0.57
======== ======== ======= ======= =======
Diluted income per share:
Income before cumulative effect of change in
accounting principle $0.31 $0.64 $0.52 $0.52 $0.57
Cumulative effect of change in accounting
principle (0.01) -- -- -- --
-------- -------- ------- ------- -------
Net income $0.30 $0.64 $0.52 $0.52 $0.57
======== ======== ======= ======= =======
Operating income per share $0.69 $1.15 $0.82 $0.82 $0.94
======== ======== ======= ======= =======
Dividends declared $0.32 $0.32 $0.32 $0.32 $0.32
======== ======== ======= ======= =======
Weighted average number of shares
outstanding - Basic 15,259 15,247 15,021 14,804 14,804
======== ======== ======= ======= =======
Weighted average number of shares
outstanding - Diluted 15,540 15,531 15,038 14,804 14,809
======== ======== ======= ======= =======
10
(In Thousands, Except Per Share Data)
Year Ended December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet Data:
Current assets $ 55,617 $ 63,866 $ 34,397 $ 28,571 $ 26,185
Current liabilities 37,736 33,840 10,478 7,638 7,471
Total assets 188,135 187,808 91,363 66,860 63,273
Long-term debt 47,661 50,515 17,151 -- --
Stockholders' equity 62,039 65,246 60,128 56,242 52,971
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and the
Notes thereto and Selected Financial Data included elsewhere in this Form 10-K.
Historical operating results and percentage relationships among any amounts
included in the Consolidated Financial Statements are not necessarily indicative
of trends in operating results for any future period.
Overview
The Company's core business is the manufacture and sale of high
quality, precision steel balls and rollers. In 2001, sales of balls and rollers
accounted for approximately 77% of the Company's total net sales with 74% and 3%
of sales from balls and rollers, respectively. Sales of precision molded plastic
and rubber parts accounted for the remaining 23%. See Note 10 of the Notes to
Consolidated Financial Statements.
Since the Company was formed in 1980 it has grown primarily through the
displacement of captive ball manufacturing operations of domestic and
international bearing manufacturers resulting in increased sales of high
precision balls for quiet bearing applications. As a result, sales of high
precision balls produced by the Company for use in quiet bearing applications
has grown to approximately 85% of total net ball sales. Management believes that
the Company's core business sales growth since its formation has been due to its
ability to capitalize on opportunities in global markets and provide precision
products at competitive prices, as well as its emphasis on product quality and
customer service.
In 1997, the Company recognized changing dynamics in the marketplace,
and as a result, developed and implemented an extensive long-term growth
strategy involving its core business and complementary opportunities that are
built upon the Company's strengths and culture enabling the Company to better
serve its global customer base. As part of this strategy, the Company sought to
augment its intrinsic growth with complementary acquisitions that fit specific
criteria.
On July 4, 1999, the Company acquired substantially all of the assets
of Earsley Capital Corporation, formerly known as Industrial Molding Corporation
("IMC"). Formed in 1947, IMC provides full-service design and manufacture of
plastic injection molded components to the bearing, automotive, electronic,
leisure and consumer markets with an emphasis on value-added products that take
advantage of its capabilities in product development, tool design and tight
tolerance molding processes. IMC operates two manufacturing facilities in
Lubbock, Texas. During 2001, IMC sold its products to more than 60 customers in
12 different countries.
On July 31, 2000, the Company formed a majority owned stand-alone
company in Europe, NN Euroball ApS ("Euroball"), for the manufacture and sale of
chrome steel balls used for ball bearings and other products. The Company owns
54% of Euroball. AB SKF and FAG Kugelfisher Georg Shafer AG, the parent
companies of SKF and FAG respectively each own 23% of Euroball. As part of the
transaction, Euroball acquired the ball factories located in Pinerolo,
11
Italy (previously owned by SKF), Eltmann, Germany (previously owned by FAG), and
Kilkenny, Ireland (previously owned by the Company). Acquisition financing of
approximately 31.5 million euro (approximately $29.7 million) was drawn at
closing, and the credit facility provides for additional working capital
expenditure financing. The Company is required to consolidate Euroball due to
its majority ownership and has accounted for the acquisitions of the Pinerolo,
Italy and Eltmann, Germany ball factories using the purchase method of
accounting. Goodwill arising from this acquisition is being amortized since
formation on a straight-line basis over 20 years. Under the terms of the
Shareholder Agreement among the Company, SKF, and FAG both SKF and FAG have the
right, beginning January 2003, to exercise their respective put option regarding
their interest in Euroball to the Company on a formula buy-out.
On August 31, 2000, the Company acquired a 51% ownership interest in NN
Mexico, LLC ("NN Mexico"), a Delaware limited liability company. NN Mexico
holds as its sole investment a 100% ownership interest in NN Arte, a
manufacturer of plastic components located in Guadalajara, Mexico. The Company
is required to consolidate NN Mexico due to its majority ownership and has
accounted for this acquisition using the purchase method of accounting.
On February 16, 2001, the Company completed the acquisition of all of
the outstanding stock of The Delta Rubber Company, a Connecticut corporation
("Delta") for $22.5 million in cash. Delta provides high quality engineered
bearing seals and other precision-molded rubber products to original equipment
manufacturers. Delta operates two manufacturing facilities in Danielson,
Connecticut. The Company's credit facility with AmSouth Bank was renegotiated to
provide financing for the transaction. The Company has accounted for this
acquisition using the purchase method of accounting.
On September 11, 2001, the Company announced the closing of its
Walterboro, South Carolina ball manufacturing facility effective December 2001.
The closing was made as part of the Company's strategy to redistribute its
global production in order to better utilize capacity and serve the needs of its
worldwide customers. The precision ball production of the Walterboro facility
has been fully absorbed by the Company's remaining U.S. ball & roller
manufacturing facilities located in Erwin and Mountain City, Tennessee. The
Company recorded before tax charges associated with the closing of $1.9 million.
This amount includes a $1.1 million before-tax charge for the recording of
impairment on the Company's manufacturing facility located in Walterboro, South
Carolina and $0.8 million related to employee severance costs. These amounts are
reflected as restructuring and impairment costs in the accompanying Consolidated
Statements of Income. The building along with certain machinery and equipment
are held for sale as of December 31, 2001. These assets have an aggregate
carrying value of $4.3 million. The financial results of this operation have
been reflected in the Domestic Ball and Roller Segment. See Note 10 of the Notes
to Consolidated Financial Statements
Effective December 21, 2001, the Company sold its minority interest in
Jiangsu General Ball & Roller Company, LTD, a Chinese ball and roller
manufacturer located in Rugao City, Jiangsu Province, China. To effect the
transaction, the Company sold its 50% ownership in NN General, LLC, which owns a
60% interest in the Jiangsu joint venture to its partner, General Bearing
Corporation for cash of $0.6 million and notes of $3.3 million. In 2001, the
Company recorded a non-cash after-tax loss on sale of the investments in this joint
venture of $0.2 million.
The implementation and successful execution of this acquisition
strategy to date has allowed the Company to expand its global presence and
positions the Company for continued global growth and expansion into core served
markets.
Critical Accounting Policies
NN, Inc.'s (the "Company") critical accounting policies, including the
assumptions and judgment underlying them, are disclosed in the Notes to the
Consolidated Financial Statements. These policies have been consistently applied
in all material respects and address such matters as revenue recognition, useful
lives of depreciable assets, inventory valuation, asset impairment recognition,
business combination accounting and pension and postretirement benefits. Due to
the estimation processes involved, management considers the following summarized
accounting policies and their application to be critical to understanding the
Company's business operations, financial condition and results of operations.
There can be no assurance that actual results will not significantly differ from
the estimates used in these critical accounting policies.
Accounts Receivable
Substantially all of the Company's accounts receivable are due
primarily from the core served markets: bearing manufacturers, automotive
industry, electronics, industrial agricultural and aerospace. Due to the Chapter
7 voluntary bankruptcy of one IMC customer and other write-offs, the Company
experienced $1,668 of bad debt expense during 2001 versus $0 during 2000. The
Company continuously performs credit evaluations of its customers, considering
numerous inputs when available including the customers' financial position, past
payment history, relevant industry trends, cash flows, management capability,
historical loss experience and economic conditions and prospects. While
management believes that
12
adequate allowances for doubtful accounts have been provided in the
Consolidated Financial Statements, it is possible that the Company could
experience additional unexpected credit losses.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. The Company's inventories are
not generally subject to obsolescence due to spoilage or expiring product life
cycles. The Company operates generally as a make-to-order business, however, the
Company also stocks products for certain customers in order to meet delivery
schedules. While management believes that adequate write-downs for inventory
obsolescence have been made in the Consolidated Financial Statements, the
Company could experience additional inventory write-downs in the future.
Acquisitions and Acquired Intangibles
The Company's business acquisitions typically result in goodwill which
may effect the amount of future period amortization expense and possible
impairment expense that we may incur. The determination of the value of such
intangible assets and goodwill as well as the determination of their useful
lives require that management make estimates that effect our consolidated
financial statements.
Impairment of Long-Lived Assets
The Company's long-lived assets include property, plant and equipment
and goodwill. The recoverability of the long-term investments is dependent on
the performance of the companies which the Company has acquired, as well as
volatility inherent in the external markets for these acquisitions. In assessing
potential impairment for these investments the Company will consider these
factors as well as forecasted financial performance. Future adverse changes in
market conditions or adverse operating results of the underlying investments
could result in the Company having to record additional impairment charges not
previously recognized.
Pension and Postretirement Obligations
The Company utilizes significant assumptions in determining its
periodic pension and postretirement expense and obligations which are included
in the consolidated financial statements. These assumptions include determining
an appropriate discount rate, rate of compensation increase as well as the
remaining service period of active employees. The Company utilizes a qualified
actuary to calculate the periodic pension and postretirement expense and
obligations based upon these assumptions and actual employee census data.
Useful Lives of Depreciable Assets
The Company utilizes judgment in determining the estimated useful lives
of its depreciable long-lived assets which are included in the consolidated
financial statements. The estimate of useful lives is determined by the
Company's historical experience with the type of asset purchased which is
impacted by the Company's preventative maintenance programs. The Company begins
depreciation on its long-lived assets when they are substantially put into
service.
Results of Operations
The following table sets forth for the periods indicated selected
financial data and the percentage of the Company's net sales represented by each
income statement line item presented.
As a percentage of Net Sales
Year Ended December 31,
2001 2000 1999
---------- ---------- ----------
Net sales 100.0% 100.0% 100.0%
Cost of product sold 76.4 71.1 70.3
---------- ---------- ----------
Gross profit 23.6 28.9 29.7
Selling, general and administrative expenses 9.1 8.8 8.0
Depreciation and amortization 7.4 6.9 7.2
Restructuring and impairment costs 1.3 -- --
---------- ---------- ----------
Income from operations 5.9 13.2 14.5
Interest expense 2.2 1.3 0.6
Equity in earnings of unconsolidated affiliates -- -- --
Net gain on involuntary conversion (2.2) (0.6) --
Other income 0.1 (0.1) --
---------- ---------- ----------
Income before provision for income taxes 5.9 12.6 13.9
Provision for income taxes 2.3 4.5 4.8
Minority interest in income of consolidated subsidiary 1.0 0.5 --
---------- ---------- ----------
Income before cumulative effect of change in accounting 2.6 7.6 9.1
principle
Cumulative effect of change in accounting principle, net
of income tax benefit of $112 and related minority
interest impact of $84 -- -- --
---------- ---------- ----------
Net income 2.6% 7.6% 9.1%
========== ========== ==========
Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000
Net Sales. The Company's net sales increased $48.0 million or 36.3%,
from $132.1 million in 2000 to $180.2 million in 2001. The inclusion of a full
year of Euroball sales contributed $46.1 million of the increase, excluding the
performance of the Ireland facility, which was consolidated into the results of
the Company prior to the formation of Euroball. Additionally, the inclusion of
10.5 months of Delta's net sales in 2001 contributed $14.0 million. Offsetting
this increase were decreased sales in the Domestic Ball and Roller and Plastics
Segments in the last half of the year due to slowing demand related to the
overall economic environment in the United States. Decreased sales during the
year for the Plastics Segment were also due to decreased sales to one customer.
Gross Profit. Gross profit increased by $4.4 million, or 11.4% from
$38.2 million in 2000 to $42.6 million in 2001. Adjusting for the performance of
the Ireland facility, the Euroball joint venture contributed an additional $10.1
million of gross profit. The inclusion of 10.5 months of Delta's results
contributed an additional $3.3 million in gross profit, while the sales volume
deterioration in the Domestic Ball and Roller and Plastics Segments decreased
gross profit $9.0 million. Gross profit decreased from 28.9% of net sales in
2000 to 23.6% of net sales in 2001.
13
Restructuring and Impairment Costs. Restructuring and impairment costs
increased by $2.3 million from $0.0 million in 2000 to $2.3 million in 2001. The
increase includes a $1.1 million charge for the recording of impairment on the
Company's manufacturing facility located in Walterboro, South Carolina, a $0.8
million charge related to employee severance costs related to the closing of the
Walterboro, South Carolina facility and a $0.4 million charge related to
Euroball. Restructuring and impairment costs were 1.3% of net sales during 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.8 million, or 41.6% from $11.6 million
in 2000 to $16.4 million in 2001. The inclusion of a full year of Euroball
results, adjusting for the Ireland facility, accounted for $3.5 million of the
increase. The inclusion of 10.5 months of Delta's results accounted for $1.2
million of the increase. Additionally, bad debt expense primarily related to the
bankruptcy filing of a major Plastics Segment customer contributed $0.8 million.
Offsetting these increases were decreased spending related to cost reduction and
cost containment efforts throughout the Company. As a percentage of net sales,
selling, general and administrative expenses increased from 8.8% in 2000 to 9.1%
in 2001.
Depreciation and Amortization. Depreciation and amortization expenses
increased $4.2 million, or 45.6% from $9.2 million in 2000 to $13.3 million in
2001. The inclusion of a full year of Euroball results, adjusting for the
Ireland facility, accounted for $2.8 million of the increase. The inclusion of
10.5 months of Delta's results accounted for $1.1 million of the increase. As a
percentage of net sales, depreciation and amortization increased from 6.9% in
2000 to 7.4% in 2001.
Interest Expense. Interest expense increased by $2.2 million from $1.8
million in 2000 to $4.0 million in 2001. Interest expense related to the
purchase of Delta accounted for $1.0 million of the increase. Additionally, the
inclusion of a full year of interest expense related to the debt incurred by
Euroball accounted for approximately $1.0 million of the increase. As a
percentage of net sales, interest expense increased from 1.3% in 2000 to 2.2% in
2001. See "Management's Discussion and Analysis of Financial Condition -
Liquidity and Capital Resources."
Equity in Earnings of Unconsolidated Affiliates. Equity in earnings of
unconsolidated affiliates decreased $48,000 from $48,000 in 2000 to $0. The
decrease is due to the Company's share of earnings from the NN General joint
venture with General Bearing Corporation. Effective December 21, 2001, the
Company sold its minority interest in Jiangsu General Ball & Roller Company,
LTD, a Chinese ball and roller manufacturer located in Rugao City, Jiangsu
Province, China. To effect the transaction, the Company sold its 50% ownership
in NN General, LLC, which owns a 60% interest in the Jiangsu joint venture to
its partner, General Bearing Corporation for cash of $622,000 and notes of
$3,305,000. In 2001, the Company recorded a non-cash after-tax loss on the sale
of its investment in this joint venture of $144,000. See Note 3 of the Notes to
Consolidated Financial Statements for additional financial information.
Net Gain on Involuntary Conversion. The Company had a net gain on
involuntary conversion of $3.9 million in 2001 related to insurance proceeds as
a result of the March 12, 2000 fire at the Erwin facility.
Minority Interest in Consolidated Subsidiary. Minority interest of
consolidated subsidiary increased $1.1 million from $0.7 million in 2000 to $1.8
million in 2001. This increase is due entirely to the Euroball joint venture
which has been consolidated since its formation, August 1, 2000. The Company is
required to consolidate Euroball in its Consolidated Financial Statements due to
its majority ownership. The Company owns 54% of the shares of the joint venture
with the minority partners owning the remaining 46%. Minority interest in
consolidated subsidiary represents the combined 46% interest in Euroball's
earnings of the minority partners and the 49% interest in NN Arte's earnings of
the minority partners.
Net Income. Net income decreased $5.2 million, or 52.3%, from $10.0
million in 2000 to $4.7 million in 2001. As a percentage of net sales, net
income decreased from 7.6% in 2000 to 2.6% in 2001.
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
Net Sales. The Company's net sales increased $46.8 million or 54.9%,
from $85.3 million in 1999 to $132.1 million in 2000. The formation of Euroball
in August of 2000 contributed $30.4 million of the increase, adjusting for the
third and fourth quarter sales of the Ireland facility, which were consolidated
into the results of the Company prior to the formation of Euroball. Additionally
the inclusion of a full year of IMC's net sales contributed $12.9 million. The
Company acquired IMC on July 4, 1999, thus six months of IMC's results were
included in the Company's 1999 results. The remainder of the increase is due to
increased ball and roller sales in the first half of the year, offset by slowing
domestic demand for balls and rollers in the second half of the year. The
Company experienced decreased sales in the second half of the year for the
Plastics Segment due primarily to decreased sales to one customer.
14
Gross Profit. Gross profit increased by $12.9 million, or 50.8% from
$25.3 million in 1999 to $38.2 million in 2000. Adjusting for the Ireland
facility's third and fourth quarter gross profit, the Euroball joint venture
accounted for $7.5 million of the increase. The inclusion of a full year of
IMC's gross profit contributed an additional $4.0 million in gross profit. The
remainder of the increase is primarily attributed to increased sales at the
Domestic Ball and Roller Segment. To a lesser degree, decreased costs as a
percentage of sales at the Domestic Ball and Roller Segment contributed to the
increase in gross profit. This was due mainly to inventory builds during the
fourth quarter of 2000. As a percentage of net sales, gross profit decreased
from 29.7% in 1999 to 28.9% in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.7 million, or 68.8% from $6.9 million in
1999 to $11.6 million in 2000. The Euroball Segment, adjusting for the Ireland
facility, accounted for $2.4 million of the increase. The inclusion of a full
year of IMC's results accounted for $1.6 million of the increase. The remainder
of the increase is primarily attributed to increased administrative expenses
associated with the Company's business development activity during the year. As
a percentage of net sales, selling, general and administrative expenses
increased from 8.0% in 1999 to 8.8% in 2000.
Depreciation and Amortization. Depreciation and amortization expenses
increased $3.0 million, or 49.5% from $6.1 million in 1999 to $9.2 million in
2000. The addition of Euroball, adjusting for the Ireland facility, accounted
for $2.4 million of the increase. The inclusion of a full year of IMC's results
accounted for the remainder of the increase. As a percentage of net sales,
depreciation and amortization decreased from 7.2% in 1999 to 6.9% in 2000.
Interest Expense. Interest expense increased by $1.3 million from
$523,000 in 1999 to $1.8 million in 2000. Interest expense related to the debt
incurred by Euroball to finance the joint venture transaction accounted for
$622,000 of the increase. Additionally, the inclusion of a full year of interest
expense related to the purchase of the IMC business accounted for approximately
$500,000 of the increase. The remainder of the increase is due to increased
expenditures associated with the Company's business development activity during
2000. Additionally, the timing of expenditures associated with the March 12,
2000 fire and the reimbursement of insurance proceeds caused an increase in the
levels outstanding under the Company's domestic line of credit. As a percentage
of net sales, interest expense increased from 0.6% in 1999 to 1.3% in 2000. See
"Management's Discussion and Analysis of Financial Condition - Liquidity and
Capital Resources."
Equity in Earnings of Unconsolidated Affiliates. Equity in earnings of
unconsolidated affiliates increased $48,000 from $0 in 1999 to $48,000. The
increase is due to the Company's share of earnings from the NN General joint
venture with General Bearing Corporation. Earnings from this venture were offset
by losses incurred from the start-up of the marketing arm of this venture and
losses sustained from start-up expenses from the investment in NN Mexico LLC.
Net Gain on Involuntary Conversion. The Company had a gain on
involuntary conversion of $728,000 in 2000 related to the excess of insurance
proceeds over the net book value of assets destroyed and direct costs incurred
as a result of the March 12, 2000 fire at the Erwin facility.
Minority Interest in Consolidated Subsidiary. Minority interest of
consolidated subsidiary increased $660,000 from $0 in 1999 to $660,000 in 2000.
This increase is due entirely to the Euroball joint venture. The Company is
required to consolidate Euroball due to its ability to exercise control over the
operations. The Company owns 54% of the shares of the joint venture with the
minority partners owning the remaining 46%. Minority interest in consolidated
subsidiary represents the combined 46% interest in Euroball earnings of the
minority partners.
Net Income. Net income increased $2.2 million, or 28.7%, from $7.8
million in 1999 to $10.0 million in 2000. As a percentage of net sales, net
income decreased from 9.1% in 1999 to 7.6% in 2000.
Liquidity and Capital Resources
In July 2000, NN Euroball ApS, and its subsidiaries entered into a loan
agreement with HypoVereinsbank Luxembourg S.A. as agent for Bayerische Hypo-und
Vereinsbank AG of Munich, Germany for a senior secured revolving credit facility
of Euro 5,000,000, expiring on July 15, 2006 and a senior secured term loan of
Euro 36,000,000, expiring on July 15, 2006. On July 31, 2000, upon closing of
the joint venture, NN Euroball ApS borrowed a total of Euro 31,500,000 against
these facilities for acquisition financing. Additional working capital and
capital expenditure financing are provided for under the facility. Amounts
outstanding under the facilities accrue interest at a floating rate equal to
EURIBOR (3.30% at December 31, 2001) plus an applicable margin of between 1.175%
to 2.25% based upon calculated financial ratios. The loan agreement contains
various restrictive financial and non financial covenants. Restrictive covenants
which specify, among other things, restrictions on the incurrence of
indebtedness and the maintenance of certain financial ratios. These
15
facilities also include certain negative pledges. Euroball, as of December 31,
2001, was in compliance with all such covenants. At December 31, 2001, Euro
34,953,000 was available to Euroball under these facilities.
On July 20, 2001, the Company entered into a syndicated loan agreement
with AmSouth Bank ("AmSouth") as the administrative agent for the lenders, for a
senior non-secured revolving credit facility of up to $25 million, expiring on
July 25, 2003 and a senior non-secured term loan for $35 million expiring on
July 1, 2006. This credit facility replaces the $25 million revolving credit
facility that was temporarily extended and restated in February of 2001 to $50
million and the additional $2 million of availability extended in March of 2001.
Amounts outstanding under the revolving facility and the term loan facility bear
interest at a floating rate equal to LIBOR (1.88% at December 31,2001) plus an
applicable margin of 0.75% to 2.00% based upon calculated financial ratio. The
loan agreement contains customary financial and non-financial covenants.
Restrictive covenants specify, among other things, restrictions on the
incurrence of indebtedness , payment of dividends, capital expenditures, and the
maintenance of certain financial ratios. The Company, as of December 31, 2001
was in compliance with all such covenants. At December 31, 2001, $15.2 million
was available to the Company under these facilities.
The Company's arrangements with its domestic customers typically
provide that payments are due within 30 days following the date of the Company's
shipment of goods, while arrangements with foreign customers (other than foreign
customers that have entered into an inventory management program with the
Company) generally provide that payments are due within 90 or 120 days following
the date of shipment. Under the Company's inventory management program, payments
typically are due within 30 days after the product is used by the customer. The
Company's sales and receivables can be influenced by seasonality due to the
Company's relative percentage of European business coupled with many foreign
customers ceasing production during the month of August. For information
concerning the Company's quarterly results of operations for the years ended
December 31, 2001 and 2000, see Note 14 of the Notes to Consolidated Financial
Statements.
The Company bills and receives payment from some of its foreign
customers in Euro as well as other currencies. To date, the Company has not been
materially adversely affected by currency fluctuations or foreign exchange
restrictions. Nonetheless, as a result of these sales, the Company's foreign
exchange transaction risk has increased. Various strategies to manage this risk
are available to management including producing and selling in local currencies
and hedging programs. As of December 31, 2001 no currency hedges were in place.
In addition, a strengthening of the U.S. dollar against foreign currencies could
impair the ability of the Company to compete with international competitors for
foreign as well as domestic sales.
Working capital, which consists principally of accounts receivable and
inventories, was $17.9 million at December 31, 2001 as compared to $30.0 million
at December 31, 2000. The ratio of current assets to current liabilities
decreased from 1.89:1 at December 31, 2000 to 1.47:1 at December 31, 2001. Cash
flow from operations decreased to $24.6 million during 2001 from $26.9 million
during 2000.
During 2002, the Company plans to spend approximately $6.8 million on
capital expenditures related primarily to equipment and process upgrades and
replacements. The Company intends to finance these activities with cash
generated from operations and funds available under the credit facilities
described above. The Company believes that funds generated from operations and
borrowings from the credit facility will be sufficient to finance the Company's
working capital needs and projected capital expenditure requirements through
December 2002.
Beginning in January 2003 FAG and SKF may each exercise their right
under the Shareholders Agreement to cause the Company to purchase their respective
interest in Euroball based on the Put Formula in the Shareholders Agreement. The
Company anticipates that if such purchase becomes necessary, it may need to
borrow additional funds. Because the purchase price is based on a formula
using Euroball's historical cash flow, the exact amount of the put cannot be
determined until the put right is exercised.
The Euro
The treaty on European Union provided that an economic and monetary
union be established in Europe whereby a single European currency, the Euro, was
introduced to replace the currencies of participating member states. The Euro
was introduced on January 1, 1999, at which time the value of participating
member state currencies were irrevocably fixed against the Euro and the European
Currency Unit. For the three year transitional period ending December 31, 2001,
the national currencies of member states continued to circulate but were in
sub-units of the Euro. At the end of the transitional period, Euro bank notes
and coins were issued, and the national currencies of the member states will be
legal tender no later than June 30, 2002.
16
The Company currently has operations in Ireland, Germany and Italy,
which are Euro participating countries, and each facility sells product to
customers in many of the participating countries. The functional currency of the
Company's Euroball operations is the Euro.
Seasonality and Fluctuation in Quarterly Results
The Company's net sales historically have been seasonal in nature. Due
to a significant portion of the Company's sales being to foreign customers that
cease or significantly slow production during the month of August. For
information concerning the Company's quarterly results of operations for the
years ended December 31, 2001 and 2000, see Note 14 of the Notes to Consolidated
Financial Statements.
Inflation and Changes in Prices
While the Company's operations have not been affected by inflation
during recent years, prices for 52100 Steel, engineered resins and other raw
materials purchased by the Company are materially subject to change. For
example, during 1995, due to an increase in worldwide demand for 52100 Steel and
the decrease in the value of the United States dollar relative to foreign
currencies, the Company experienced an increase in the price of 52100 Steel and
some difficulty in obtaining an adequate supply of 52100 Steel from its existing
suppliers. Domestically, the Company's pricing arrangements with its suppliers
are subject to adjustment once every six months. The Company's Euroball Segment
has entered into long term agreements with its primary steel supplier which
provide for standard terms and conditions and annual pricing adjustments to
offset material price fluctuations in steel. The Company typically reserves the
right to increase product prices periodically in the event of increases in its
raw material costs. Certain sales agreements are in effect with SKF and FAG,
which provide for minimum purchase quantities and specified, annual sales price
ajustments that may be modified up or down for changes in material costs. These
agreements expire during 2006. The Company has been able to minimize the impact
on its operations resulting from the 52100 Steel price fluctuations by taking
such measures.
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Company wishes to caution readers that this report contains, and
future filings by the Company, press releases and oral statements made by the
Company's authorized representatives may contain, forward-looking statements
that involve certain risks and uncertainties. Readers can identify these
forward-looking statements by the use of such verbs as expects, anticipates,
believes or similar verbs or conjugations of such verbs. The Company's actual
results could differ materially from those expressed in such forward-looking
statements due to important factors bearing on the Company's business, many of
which already have been discussed in this filing and in the Company's prior
filings. The differences could be caused by a number of factors or combination
of factors including, but not limited to, the risk factors described below.
Readers are strongly encouraged to consider these factors when evaluating any
such forward-looking statement.
The following paragraphs discuss the risk factors the Company regards
as the most significant, although the Company wishes to caution that other
factors that are currently not considered as significant or that currently
cannot be foreseen may in the future prove to be important in affecting the
Company's results of operations. The Company undertakes no obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Industry Risks. Both the precision ball and roller, bearing seals, and
precision plastics industries are cyclical and tend to decline in response to
overall declines in industrial production. The Company's sales in the past have
been negatively affected, and in the future very likely would be negatively
affected, by adverse conditions in the industrial production sector of the
economy or by adverse global or national economic conditions generally.
Competition. The precision ball and roller market, the precision
bearing seal market, and the precision plastics market are highly competitive,
and many of manufacturers in each of the markets are larger and have
substantially greater resources than the Company. The Company's competitors are
continuously exploring and implementing improvements in technology and
manufacturing processes in order to improve product quality, and the Company's
ability to remain competitive will depend, among other things, on whether it is
able to keep pace with such quality improvements in a cost effective manner. In
addition, the Company competes with many of its ball and roller customers that,
in addition to producing bearings, also internally produce balls and rollers for
sale to third parties. The Company faces a risk that its customers will decide
to produce balls and rollers internally rather than outsourcing their needs to
the Company
Rapid Growth. The Company has significantly expanded its ball and
roller production facilities and capacity over the last several years. During
1997, the Company purchased an additional manufacturing plant in Kilkenny,
Ireland. The
17
Company continued this expansion in 2000 through its 54% ownership of Euroball
with SKF and FAG. The Company's Ball and Roller Segment currently is not
operating at full capacity and faces risks of further under-utilization or
inefficient utilization of its production facilities in future years. The
Company also faces risks associated with start-up expenses, inefficiencies,
delays and increased depreciation costs associated with these joint ventures and
expansions.
Raw Material Shortages. Because the balls and rollers manufactured by
the Company have highly-specialized applications, their production requires the
use of very particular types of steel. Due to quality constraints, the Company's
domestic Ball and Roller Segment obtains the majority of its steel from overseas
suppliers. Steel shortages or transportation problems, particularly with respect
to 52100 Steel, could have a detrimental effect on the Company's business.
Risks Associated with International Trade. Because the Company (a)
obtains a majority of its raw materials for the manufacture of balls and rollers
from overseas suppliers, (b) now actively participates in overseas manufacturing
operations and (c) sells to a large number of international customers, the
Company faces risks associated with (i) adverse foreign currency fluctuations,
(ii) changes in trade, monetary and fiscal policies, laws and regulations, and
other activities of governments, agencies and similar organizations, (iii) the
imposition of trade restrictions or prohibitions, (iv) the imposition of import
or other duties or taxes, and (v) unstable governments or legal systems in
countries in which the Company's suppliers, manufacturing operations, and
customers are located. An increase in the value of the United States dollar
and/or Euro relative to other currencies may adversely affect the ability of the
Company to compete with its foreign-based competitors for international as well
as domestic sales.
Dependence on Major Customers. During 2001, the Company's ten largest
customers accounted for approximately 73% of its net sales. Sales to various US
and foreign divisions of SKF, which is one of the largest bearing manufacturers
in the world, accounted for approximately 35% of net sales in 2001, and sales to
FAG accounted for approximately 19% of net sales. None of the Company's other
customers accounted for more than 5% of its net sales in 2001. The loss of all
or a substantial portion of sales to these customers would have a material
adverse effect on the Company's business.
Acquisitions. The Company's growth strategy includes growth through
acquisitions. In 1999, the Company acquired the IMC businesses as part of that
strategy. In 2000, the Company formed Euroball with SKF and FAG and began
operating two new ball manufacturing facilities. Additionally, in 2000, the
Company formed the NN Arte joint venture and began operations in Mexico during
2001. In 2001, the Company acquired Delta as a continuation of that strategy.
Although the Company believes that it will be able to continue to integrate the
operations of IMC, NN Euroball, Delta and other companies acquired in the future
into its operations without substantial cost, delays or other problems, its
ability to do so will depend on, among other things, the adequacy of its
implementation plans, the ability of its management to effectively oversee and
operate the combined operations of the Company and the acquired businesses and
its ability to achieve desired operating efficiencies and sales goals. If the
Company is not able to successfully integrate the operations of acquired
companies into its business, its future earnings and profitability could be
materially and adversely affected.
Recently Issued Accounting Standards
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activity, an Amendment of SFAS 133."
SFAS No. 133 and SFAS No. 138 require that all derivative instruments be
recorded on the balance sheet at their respective fair values. SFAS No. 133 and
SFAS No. 138 are effective for all fiscal quarters of all fiscal years beginning
after June 30, 2000, which for the Company was effective January 1, 2001.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" (Statement No. 141), and Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
(Statement No. 142). Statement No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Statement No. 141 also specifies criteria for intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill. Statement No. 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment. The effective date of Statement No. 142 is January 1, 2002. As
of the date of adoption, the Company expects to have unamortized goodwill of
approximately $39.8 million, which will be subject to the provisions of
Statement No. 142. Amortization expense related to goodwill was $1.8 million,
$0.9 million, and $0.4 million for the years ended December 31, 2001, 2000, and
1999 respectively. The Company is currently evaluating the impact of adoption of
Statement No. 142.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting For Asset Retirement Obligations." This Statement
requires capitalizing any retirement costs as part of the total cost of the
related long-lived asset and subsequently allocating the total expense to future
periods using a systematic and rational method. Adoption of the Statement is
required for fiscal years beginning after June 15, 2002. The Company is
currently evaluating the impact of adoption of Statement No. 143.
18
In October 2001, The FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting For The Impairment or Disposal of Long-lived
Assets." This Statement supercedes Statement No. 121 but retains many of its
fundamental provisions. Additionally, this Statement expands the scope of
discontinued operations to include more disposal transactions. The provisions of
this Statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company is currently evaluating the
impact of Statement No. 144.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to changes in financial market conditions in the
normal course of its business due to its use of certain financial instruments as
well as transacting in various foreign currencies. To mitigate its exposure to
these market risks, the Company has established policies, procedures and
internal processes governing its management of financial market risks.The
Company is exposed to changes in interest rates primarily as a result of its
borrowing activities. Domestically, these borrowings which include a $31.5
million floating rate, unsecured term loan and a $25 million floating rate
revolving credit facility which are used to maintain liquidity and fund its
business operations domestically. In Europe, Euroball has a 5 million euro
floating rate credit facility, and a 36.0 million euro floating rate secured
term loan. At December 31, 2001, the Company had $41.3 million outstanding under
the domestic revolving credit facility and Euroball had $13.4 million
outstanding under the Euroball credit facility. A one-percent increase in the
interest rate charged on the Company's outstanding borrowings under both credit
facilities would result in interest expense increasing by approximately $547,000
during 2001 and $564,000 during 2000. In connection with a variable EURIBOR rate
debt financing in July 2000 the Company's 54% owned subsidiary, NN Euroball ApS
entered into an interest rate swap with a notional amount of Euro 12.5 million
for the purpose of fixing the interest rate on a portion of their debt
financing. The interest rate swap provides for the Company to receive variable
Euribor interest payments and pay 5.51% fixed interest. The interest rate swap
agreement expires in July 2006 and the notional amount amortizes in relation to
principal payments on the underlying debt over the life of the swap. The nature
and amount of the Company's borrowings may vary as a result of future business
requirements, market conditions and other factors.
The Company's operating cash flows denominated in foreign currencies
are exposed to changes in foreign exchange rates. The Company, mainly at its
Euroball Segment, bills and receives payment from some of its foreign customers
in their own currency. To date, the Company has not been materially adversely
affected by currency fluctuations of foreign exchange restrictions. However, to
help reduce exposure to foreign currency of fluctuation, management has
implemented a foreign currency hedging program. This program allows management
to hedge currency exposures when these exposures meet certain discretionary
levels. The Company did not hold a position in any foreign currency hedging
instruments as of December 31, 2001.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Financial Statements Page
Report of Independent Auditors for the years ended December 31, 2001
and December 31, 2000.........................................................20
Report of Independent Auditors for the year ended December 31, 1999...........21
Consolidated Balance Sheets at December 31, 2001 and 2000.....................22
Consolidated Statements of Income and Comprehensive Income for the
three years ended December 31, 2001...........................................23
Consolidated Statements of Changes in Stockholders' Equity for the three
years ended December 31, 2001.................................................24
Consolidated Statements of Cash Flows for the three years ended
December 31, 2001.............................................................25
Notes to Consolidated Financial Statements....................................26
19
Independent Auditors' Report
The Board of Directors
NN, Inc.:
We have audited the accompanying consolidated balance sheets of NN, Inc. as of
December 31, 2001 and 2000 and the related consolidated statements of income and
comprehensive income, consolidated statements of changes in stockholders'
equity, and consolidated statements of cash flows of the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities in 2001.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NN, Inc. as of
December 31, 2001 and 2000 and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Charlotte, North Carolina
February 28, 2002
20
Report of Independent Accountants
To the Board of Directors and Stockholders of NN, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of NN,
Inc. (formerly known as NN Ball & Roller, Inc.) and its subsidiaries at December
31, 1999, and the results of their operations and their cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion.
/s/ PriceWaterhouseCoopers LLP
PriceWaterhouseCoopers LLP
Charlotte, North Carolina
February 4, 2000
21
NN, Inc.
Consolidated Balance Sheets
December 31, 2001 and 2000
(In thousands, except per share data)
Assets 2001 2000
- ------ ---- -----
Current assets:
Cash and cash equivalents $ 3,024 $ 8,273
Accounts receivable, net 24,832 29,549
Inventories, net 23,418 23,742
Other current assets 3,034 1,512
Current deferred tax asset 1,309 790
--------- --------
Total current assets 55,617 63,866
Property, plant and equipment, net 82,770 91,693
Assets held for sale 4,348 --
Goodwill, net of accumulated amortization of
$3,009 in 2001 and $1,297 in 2000 39,805 27,865
Other non-current assets 4,862 4,212
Non-current deferred tax asset 733 172
--------- --------
Total assets $ 188,135 $ 187,808
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 15,829 $ 16,883
Bank overdraft 1,141 454
Accrued salaries, wages and benefits 3,813 2,248
Income taxes payable 2,074 1,341
Payable to affiliates 1,277 1,762
Short-term loans -- 2,000
Short term portion of long term debt 7,000 --
Other liabilities 6,5522 9,038
Current deferred tax liability 50 114
--------- --------
Total current liabilities 37,736 33,840
Minority interest in consolidated subsidiaries 30,932 30,257
Non-current deferred tax liability 6,499 5,239
Long-term debt 47,661 50,515
Accrued Pension 2,390 2,133
Other 878 578
--------- --------
Total liabilities 126,096 122,562
--------- --------
Stockholders' equity:
Common stock - $0.01 par value, authorized
45,000 shares, issued and outstanding
15,317 shares in 2001 and 15,247 shares in 2000 154 153
Additional paid-in capital 30,841 30,414
Retained earnings 36,139 36,364
Accumulated other comprehensive loss (5,095) (1,685)
--------- --------
Total stockholders' equity 62,039 65,246
--------- --------
Total liabilities and stockholders' equity $ 188,135 $ 187,808
========= =========
See accompanying notes to consolidated financial statements
22
NN, Inc.
Consolidated Statements of Income and Comprehensive Income
Years ended December 31, 2001, 2000 and 1999
(In thousands, except per share data)
2001 2000 1999
---- ---- ----
Net sales $ 180,151 $ 132,129 $ 85,294
Cost of products sold 137,591 93,926 59,967
--------- --------- ---------
Gross profit 42,560 38,203 25,327
Selling, general and administrative 16,382 11,571 6,854
Depreciation and amortization 13,340 9,165 6,131
Restructuring and impairment costs 2,312 -- --
--------- --------- ---------
Income from operations 10,526 17,467 12,342
Interest expense 4,006 1,773 523
Equity in earnings of unconsolidated affiliates -- (48) --
Net gain on involuntary conversion (3,901) (728) --
Other income (186) (136) --
--------- --------- ---------
Income before provision for income taxes 10,607 16,606 11,819
Provision for income taxes 4,094 5,959 4,060
Minority interest in consolidated subsidiaries 1,753 660 --
--------- --------- ---------
Income before cumulative effect of change
in accounting principle 4,760 9,987 7,759
Cumulative effect of change in accounting
principle, net of income tax benefit of $112
and related minority interest impact of $84 98 -- --
Net income 4,662 9,987 7,759
Other comprehensive income (loss):
Additional minimum pension liability, net of tax
of $31 (53) -- --
Foreign currency translation (3,357) (7) (1,563)
--------- --------- ---------
Comprehensive income $ 1,252 $ 9,980 $ 6,196
========= ========= =========
Basic income per share:
Income before cumulative effect of change
in accounting principle $ 0.31 $ 0.66 $ 0.52
Cumulative effect of change in accounting
principle (0.01) -- --
--------- --------- ---------
Net income $ 0.31 $ 0.66 $ 0.52
========= ========= =========
Weighted average shares outstanding 15,259 15,247 15,021
========= ========= =========
Diluted income per share:
Income before cumulative effect of change
in accounting principle $ 0.31 $ 0.64 $ 0.52
Cumulative effect of change in accounting
principle (0.01) -- --
--------- --------- ---------
Net income $ 0.30 $ 0.64 $ 0.52
========= ========= =========
Weighted average shares outstanding 15,540 15,531 15,038
========= ========= =========
See accompanying notes to consolidated financial statements
23
NN, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2001, 2000 and 1999
(In thousands)
Common Stock
-------------------------- Accumulated
Additional Other
Number Par Paid-In Retained Comprehensive
of shares Value Capital Earnings Loss Total
------------ ------- --------- ----------- ------------ ------------
Balance at December 31, 1998 14,804 $ 149 $ 27,902 $ 28,306 $ (115) $ 56,242
Shares Issued 440 4 2,496 -- -- 2,500
Net income -- -- -- 7,759 -- 7,759
Dividends paid -- -- -- (4,810) -- (4,810)
Cumulative translation loss -- -- -- -- (1,563) (1,563)
-------- -------- -------- -------- -------- --------
Balance, December 31, 1999 15,244 $ 153 $ 30,398 $ 31,255 $ (1,678) $ 60,128
Shares Issued 3 -- 16 -- -- 16
Net income -- -- -- 9,987 -- 9,987
Dividends paid -- -- -- (4,878) -- (4,878)
Cumulative translation loss -- -- -- -- (7) (7)
-------- -------- -------- -------- -------- --------
Balance, December 31, 2000 15,247 $ 153 $ 30,414 $ 36,364 $ (1,685) $ 65,246
Shares Issued 70 1 427 -- -- 428
Net income -- -- -- 4,662 -- 4,662
Dividends paid -- -- -- (4,887) -- (4,887)
Additional minimum pension liability -- -- -- -- (53) (53)
Cumulative translation loss -- -- -- -- (3,357) (3,357)
-------- -------- -------- -------- -------- --------
Balance, December 31, 2001 15,317 $ 154 $ 30,841 $ 36,139 $ (5,095) $ 62,039
======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements
24
NN, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
(In Thousands)
2001 2000 1999
----------- ----------- ----------
Cash flows from operating activities:
Net Income $ 4,662 $ 9,987 $ 7,759
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 13,340 9,165 6,131
Cumulative effect of change in accounting principle 98 -- --
Loss on disposals of property, plant and equipment -- 1,194 43
Loss on sale of NNG 222 -- --
Equity in earnings of unconsolidated affiliates -- (48) --
Deferred income tax 433 1,185 (369)
Interest income on receivable from unconsolidated affiliates (104) (159) --
Minority interest in consolidated subsidiary 1,753 660 --
Restructuring costs and impairment costs 2,312 -- --
Changes in operating assets and liabilities:
Accounts receivable 6,838 1,955 (641)
Inventories 1,175 (3,021) 5,121
Other current assets (1,461) (106) 471
Other assets (618) (1,719) 19
Accounts payable (2,846) 5,544 (1,439)
Other liabilities (1,187) 2,227 750
-------- -------- --------
Net cash provided by operating activities 24,617 26,864 17,845
-------- -------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (23,496) (57,788) (27,535)
Acquisition of property, plant and equipment (6,314) (17,910) (2,394)
Sale of NNG 622 -- --
Long-term note receivable -- (3,440) --
Investment in unconsolidated affiliates -- (172) --
Proceeds from disposals of property, plant and equipment 106 -- 46
-------- -------- --------
Net cash used by investing activities (29,082) (79,310) (29,883)
-------- -------- --------
Cash flows from financing activities:
Net proceeds under revolving line of credit -- 7,547 17,151
Minority shareholders contributions -- 29,600 --
Proceeds from long-term debt 71,430 25,817 --
Bank overdrafts 687 (785) 1,239
Repayment of long-term debt (65,946) -- --
Proceeds (repayment) of short-term debt (2,000) 2,000 --
Proceeds from issuance of stock 428 16 --
Cash dividends (4,887) (4,878) (4,810)
-------- -------- --------
Net cash provided (used) by financing activities (288) 59,317 13,580
-------- -------- --------
Effect of exchange rate changes (496) (7) (1,563)
Net change in cash and cash equivalents (5,249) 6,864 (21)
Cash and cash equivalents at beginning of period 8,273 1,409 1,430
-------- -------- --------
Cash and cash equivalents at end of period $ 3,024 $ 8,273 $ 1,409
======== ======== ========
Supplemental schedule of non-cash investing and financing activities:
Note received related to sale of NNG $ 3,300 $ -- $ --
======== ======== ========
Stock issued related to acquisition of IMC $ -- $ -- $ 2,500
======== ======== ========
See accompanying notes to consolidated financial statements
25
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
(Continued)
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
The Company is a manufacturer of precision balls, rollers, plastic
injection molded products, and precision bearing seals. The
Company's balls, rollers, and bearing seals are used primarily in
the domestic and international anti-friction bearing industry. The
Company's plastic injection molded products are used in the
bearing, automotive, instrumentation and fiber optic industries.
The Domestic Ball and Roller Segment is comprised of two
manufacturing facilities located in the eastern United States. The
Company's Euroball Segment, which was acquired in July 2000, (see
Note 2) is comprised of manufacturing facilities located in
Kilkenny, Ireland, Eltmann, Germany, and Pinerolo, Italy. All of
the facilities in the Euroball Segment are engaged in the
production of precision balls and rollers. The Plastics Segment
consists of IMC, acquired in July 1999, NN Arte, formed in August
2000 and Delta Rubber, acquired in February 2001. IMC has two
production facilities in Texas, NN Arte has one production
facility in Guadalajara, Mexico and Delta Rubber has two
production facilities in Connecticut (see Note 2). All of the
Company's segments sell to foreign and domestic customers.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less as cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Assets held for sale are stated at lower of cost or
fair market value less selling cost. Expenditures for maintenance
and repairs are charged to expense as incurred. Major renewals and
betterments are capitalized. When a major property item is
retired, its cost and related accumulated depreciation or
amortization are removed from the property accounts and any
(Continued)
26
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
gain or loss is recorded in income or expense, respectively. The
Company reviews the carrying values of long-lived assets for
impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be recoverable. During the
year ended December 31, 2001, the Company incurred an impairment
charge of $1,083 to write-down the land and building at the
Walterboro, SC production facility to its net realizable value,
which was based upon fair market value appraisals. The carrying
value of this land and building of $1,692 has been classified as a
component of assets held for sale in the accompanying financial
statements. During the year ended December 31, 2000, the Company
did not incur any impairment charges.
Depreciation is provided principally on the straight-line method
over the estimated useful lives of the depreciable assets for
financial reporting purposes. Accelerated depreciation methods are
used for income tax purposes.
(e) Revenue Recognition
The Company generally recognizes a sale when goods are shipped and
ownership is assumed by the customer. The Company has an inventory
management program for certain major ball and roller customers
whereby sales are recognized when products are used by the
customer from consigned stock, rather than at the time of
shipment.
(f) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(g) Net Income Per Common Share
Basic earnings per share reflect reported earnings divided by the
weighted average number of common shares outstanding. Diluted
earnings per share include the effect of dilutive stock options
outstanding during the year.
(h) Stock Incentive Plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations including Financial Accounting Standards Board
(FASB) Interpretation No. 44, "Accounting for Certain Transactions
involving Stock Compensation (an interpretation of APB Opinion No.
25)" issued in March 2000, to account for its fixed plan stock
options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the
underlying stock exceeds the exercise price. The Company also
applies the provision of APB Opinion No. 25 to its variable stock
options. Compensation expense is recognized for these awards if
the current market price of the underlying stock exceeds $10.50.
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," established accounting
and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed
by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and
has adopted the disclosure requirements of SFAS No. 123.
(i) Principles of Consolidation
The Company's consolidated financial statements include the
accounts of NN, Inc. and subsidiaries in which the Company owns
more than 50% voting interest. Unconsolidated subsidiaries and
investments where ownership is between 20% and 50% are accounted
for under the equity method. All significant intercompany profits,
transactions, and balances have been eliminated in consolidation.
The ownership interests of other
(Continued)
27
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
shareholders in companies that are more than 50% owned, but less
than 100% owned, are reflected as minority interests. Minority
interest represents the minority shareholders interest of NN
Euroball ApS and NN Arte.
(j) Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiary are
translated at current exchange rates, while revenue and expenses
are translated at average rates prevailing during the year.
Translation adjustments are reported as a component of other
comprehensive income.
(k) Goodwill
Goodwill, which represents the excess of purchase price over the
fair value of net assets acquired, is amortized on a straight-line
basis over the expected periods to be benefited, generally 20
years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured
based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(m) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(n) Reclassifications
Certain 2000 and 1999 amounts have been reclassified to conform
with the 2001 presentation.
(o) Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Certain Hedging
Activities." In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138
require that all derivative instruments be recorded on the balance
sheet at their respective fair values. SFAS No. 133 and SFAS No.
138 are effective for all fiscal quarters of all fiscal years
beginning after June 30, 2000, which for the Company was effective
January 1, 2001.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" (Statement No. 141),
and Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (Statement No. 142).
Statement No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30,
2001. Statement No. 141 also specifies criteria intangible assets
acquired in a purchase method business combination must meet to
be recognized and reported apart from goodwill. Statement No. 142
requires that goodwill and intangible assets
(Continued)
28
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
with indefinite useful lives no longer be amortized, but instead
tested for impairment. The effective date of Statement No. 142 is
January 1, 2002. As of the date of adoption, the Company expects
to have unamortized goodwill of approximately $39.8 million,
which will be subject to the provisions of Statement No. 142.
Amortization expense related to goodwill was $1.8 million, $0.9
million and $0.4 million for the years ended December 31, 2001,
2000 and 1999, respectively. The Company is currently evaluating
the impact of adoption of Statement No. 142.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting For Asset Retirement Obligations."
This Statement requires capitalizing any retirement costs as part
of the total cost of the related long-lived asset and subsequently
allocating the total expense to future periods using a systematic
and rational method. Adoption of the Statement is required for
fiscal years beginning after June 15, 2002. The Company is
currently evaluating the impact of adoption of Statement No. 143.
In October 2001, the FASB issued Statement of Financial
Accounting Standards No. 144, "Accounting For The Impairment or
Disposal of Long-lived Assets." This Statement supercedes
Statement No. 121 but retains many of its fundamental provisions.
Additionally, this Statement expands the scope of discontinued
operations to include more disposal transactions. The provisions
of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. The Company
is currently evaluating the impact of Statement No. 144.
(q) Derivative Financial Instruments
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Certain Hedging
Activities." In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138
require that all derivative instruments be recorded on the balance
sheet at their respective fair values. SFAS No. 133 and SFAS No.
138 are effective for all fiscal quarters of all fiscal years
beginning after June 30, 2000, which for the Company was effective
January 1, 2001.
The Company has an interest rate swap accounted for in accordance
with Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
The Company adopted SFAS No. 133 on January 1, 2001, which
establishes accounting and reporting standards for derivative
instruments and for hedging activities. The Standard requires the
recognition of all derivative instruments on the balance sheet at
fair value. The Standard allows for hedge accounting if certain
requirements are met including documentation of the hedging
relationship at inception and upon adoption of the Standard.
In connection with a variable EURIBOR rate debt financing in July
2000 the Company's 54% owned subsidiary, NN Euroball ApS entered
into an interest rate swap with a notional amount of Euro 12.5
million for the purpose of fixing the interest rate on a portion
of their debt financing. The interest rate swap provides for the
Company to receive variable Euribor interest payments and pay
5.51% fixed interest. The interest rate swap agreement expires in
July 2006 and the notional amount amortizes in relation to
principal payments on the underlying debt over the life of the
swap.
The cumulative effect of a change in accounting principles for the
adoption of SFAS No. 133 effective January 1, 2001 resulted in a
transition adjustment net loss of $98 which is net of an income
tax benefit of $112 and the related minority interest impact of
$84. The interest rate swap does not qualify for hedge accounting
under the provisions of SFAS No. 133; therefore, the transition
adjustment for adoption of SFAS No. 133 and any subsequent
periodic changes in fair value of the interest rate swap are
recorded in earnings.
As of December 31, 2001, the fair value of the swap is a before
tax loss of approximately $374 which is recorded in other
non-current liabilities. The change in fair value during the year
ended December 31, 2001 was a loss of approximately $80 which has
been included as a component of other (income) expense.
(2) Acquisitions
On February 16, 2001, the Company completed the acquisition of all of the
outstanding stock of The Delta Rubber Company, ("Delta") a Connecticut
corporation for $22,500 in cash, of which $500 was to be held in escrow for
one year from the date of closing. Delta provides high quality engineered
bearing seals and other precision-molded rubber products to original
equipment manufacturers. The Company plans to continue the operation of the
Delta business, which operates a manufacturing facility in Danielson,
Connecticut. The excess of the purchase price over the fair value of the
net identifiable
(Continued)
29
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
assets acquired of $14,107 has been recorded as goodwill and is being
amortized on a straight-line basis over twenty years.
Effective July 31, 2000, the Company completed its Euroball transaction.
Completion of the transaction required the Company to start a majority
owned stand-alone company in Europe, NN Euroball ApS, for the manufacture
and sale of precision steel balls used for ball bearings and other
products. The Company owns 54% of the shares of NN Euroball, ApS, AB SKF
(SKF), a Swedish Company, and FAG Kugelfischer Georg Schager AG (FAG), a
German Company, own 23% each. NN Euroball ApS subsequently acquired the
steel ball manufacturing facilities located in Pinerolo, Italy
(previously owned by SKF), Eltmann, Germany (previously owned by FAG) and
Kilkenny, Ireland (previously owned by the Company). NN Euroball ApS paid
approximately $57,788 for the net assets acquired from SKF and FAG. The
acquisitions of the Pinerolo, Italy and Eltmann, Germany ball
manufacturing facilities have been accounted for by the purchase method
of accounting and, accordingly, the results of operations of Euroball
have been included in the Company's consolidated financial statements
from July 31, 2000. The excess of the purchase price over the fair value
of the net identifiable assets acquired of $15,507 has been recorded as
goodwill and is being amortized on a straight-line basis over twenty
years.
Under the terms of a Shareholder Agreement between the Company, SKF and
FAG, at any time after December 31, 2002, SKF and FAG can require the
Company to purchase their shares of NN Euroball ApS. The purchase price
of the shares is to be calculated using a purchase price formula
specified in the Shareholder Agreement.
The following unaudited pro forma summary presents the financial
information as if the Company's Euroball transaction and Delta
acquisition had occurred on January 1, 2001 and 2000. These proforma
results have been prepared for comparative purposes and do not purport to
be indicative of what would have occurred had the acquisitions been made
on January 1, 2001 and 2000, nor is it indicative of future results.
(Unaudited) (Unaudited)
December 31, 2001 December 31, 2000
------------------ ------------------
Net sales $ 182,700 $ 200,500
Net income 4,800 11,800
Basic earnings per share 0.31 0.77
Diluted earnings per share 0.31 0.76
Effective July 4, 1999, the Company acquired substantially all of the
assets and assumed certain liabilities of Earsley Capital Corporation, a
Nevada corporation and successor to and formerly known as Industrial
Molding Corporation ("IMC"). IMC, located in Lubbock, Texas, operates as
a premier full-service designer and manufacturer of precision plastic
injection molded components. The Company paid consideration of
approximately $30,000, consisting of $27,500 in cash and 440 shares of
its common stock, for the net assets acquired from IMC. The Company has
accounted for the IMC acquisition using the purchase method of accounting
and, accordingly, the results of operations of IMC have been included in
the Company's consolidated financial statements from July 4, 1999. The
excess of the purchase price over the fair value of the net identifiable
assets acquired of $13,200 has been recorded as goodwill, which is being
amortized, on a straight-line basis over twenty years.
(Continued)
30
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
The following unaudited pro forma summary presents the financial
information as if the Company's acquisition of IMC had occurred on
January 1, 1999. This unaudited pro forma summary does not include
Euroball or Delta. These proforma results have been prepared for
comparative purposes and do not purport to be indicative of what would
have occurred had the acquisition been made on January 1, 1999, nor is it
indicative of future results.
(Unaudited)
December 31, 1999
----------------------
Net sales $ 101,562
Net income 7,558
Basic earnings per share 0.50
Dilutive earnings per share 0.50
(3) Restructuring and Impairment Charges
In September 2001, the Company announced the closure of its
Walterboro, South Carolina ball manufacturing facility as a part of
its ongoing strategy to locate manufacturing capacity in closer
proximity to its customers. This facility is included in the Company's
Domestic Ball and Roller Segment (see Note 10). The closure was
substantially completed by December 31, 2001.
Prior to December 31, 2001, production capacity and certain machinery
and equipment was transferred from the Walterboro facility to the
Company's two domestic ball facilities in Erwin, Tennessee and
Mountain City, Tennessee. The plant closing resulted in the
termination of approximately 80 full time hourly and salaried
employees located at the Walterboro facility. The Company has recorded
restructuring costs of $750 during the year ended December 31, 2001
for the severance payments. Additionally, prior to December 31, 2001,
the Company decided to sell the Walterboro land, building and certain
machinery. The Company incurred an impairment charge of $1,083 during
2001 to write-down the land and building at the Walterboro facility to
its net realizable value of $1,697, which was based upon fair market
value appraisals. The remaining equipment with a historical net book
value of $2,656 is also held for sale. The amounts the Company will
ultimately realize upon disposition of these assets could differ
materially from the amounts assumed in arriving at the 2001 impairment
loss. The Company anticipates selling the land, building and machinery
during 2002. Approximately $290 of the severance payments were paid in
2001 and the remaining is expected to be paid in 2002.
Accrued restructuring costs of $460 are included in other current
liabilities as of December 31, 2001. The Company has charged expenses for
moving machinery, equipment and inventory to other production facilities
and other costs to close the facility, which will benefit future
operations in the period they are incurred.
In addition to this restructuring charge, the Company's Euroball
subsidiary incurred restructuring charges of $479 for severance payments
as a result of the termination of 15 hourly employees and 3 salaried
employees at its Italy production facility. Approximately $426 of the
severance payments were paid during 2001 and remaining accrued
restructuring costs of $53 are included in other current liabilities as
of December 31, 2001.
The following summarizes the 2001 restructurings:
Reserve
Non-Cash Paid in Balance
Charges Writedowns 2001 at 12/31/01
-------- ---------- ------- ------------
Asset impairments $1,083 $1,083 $ -- $ --
Severance and other employee costs 1,229 -- 716 513
------ ------ ------ ------
Total $2,312 $1,083 $ 716 $ 513
====== ====== ====== ======
(Continued)
31
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
(4) Investments in Affiliated Companies
Investments in affiliated companies at December 31, 2000 consist of 50% of
the member interest of NN General, LLC. NN General, LLC was formed in
March 2000 between the Company and General Bearing Corporation. NN General,
LLC owns 60% of the Jiangsu General Ball and Roller, Company, Ltd., a
Chinese precision ball and roller manufacturer located in Rugao City,
Jiangsu, Province, China. The Company's investment in NN General, LLC
includes $215 of member equity and a note receivable of $3,440 at
December 31, 2000 which are included in other non-current assets in the
accompanying consolidated balance sheet. The note receivable bears interest
at variable rates (6.24% at December 31, 2000) and is due December 31,
2020. Accrued interest income on this note is $159 at December 31, 2000 and
is included in other current assets in the accompanying consolidated
balance sheet.
Effective December 21, 2001, the Company sold its 50% ownership in NN
General, LLC to its partner, General Bearing Corporation for cash of
$622 and notes of $3,300. The notes are due in annual installments of
$200 with the balance due on December 21, 2006. The notes bear
interest at an average LIBOR (1.88% at December 31, 2001) plus 1.5%.
In 2001, the Company recorded a non-cash loss on the sale of its
investment in this joint venture of $144.
(5) Accounts Receivable
December 31,
2001 2000
------- --------
Trade $26,613 $29,028
Other 10 1,297
------- -------
26,623 30,325
Less - Allowance for doubtful accounts 1,791 776
------- -------
$24,832 $29,549
======= =======
Allowance for doubtful accounts is as follows:
Description Balance at Balance at end
beginning of year Additions Write-offs of year
------------------ --------- ---------- --------------
December 31, 1999
Allowance for doubtful
accounts $ 586 $ 320 $ -- $ 906
====== ========== ======== ======
December 31, 2000
Allowance for doubtful
accounts $ 906 $ -- $ 130 $ 776
====== ========== ======== ======
December 31, 2001
Allowance for doubtful
accounts $ 776 $ 1,668 $ 653 $1,791
====== ========== ======== ======
(Continued)
32
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
On November 6, 2001, a customer of IMC filed for voluntary Chapter 7
bankruptcy. As of December 31, 2001, the Company had a trade accounts
receivable balance of approximately $829 with this customer. For the year
ended December 31, 2001, the Company recorded sales of approximately
$1,900 to this customer. As of December 31, 2001, the Company has
increased its allowance for doubtful accounts by approximately $829 as a
result of this bankruptcy filing.
(6) Inventories
December 31,
2001 2000
-------- ---------
Raw materials $ 5,494 $ 4,431
Work in process 5,016 5,265
Finished goods 13,065 14,106
Less-inventory reserve (157) (60)
-------- --------
$ 23,418 $ 23,742
======== ========
Inventory on consignment at December 31, 2001 and 2000 was approximately
$ 2,908 and $4,083, respectively.
(7) Property, Plant and Equipment
Estimated December 31,
Useful Life 2001 2000
------------------ --------------- -------------
Land $ 1,830 $ 2,202
Buildings and improvements 10-25 years 20,286 26,463
Machinery and equipment 3-10 years 103,363 92,810
Construction in process 1,577 6,138
--------------- -------------
127,056 127,613
Less - accumulated depreciation 44,286 35,920
--------------- -------------
$ 82,770 $ 91,693
=============== =============
On September 11, 2001, the Company announced the closing of its
Walterboro, South Carolina ball manufacturing facility effective December
2001. As a result of that closing land and building with a carrying value
of $1,692 and certain machinery and equipment with a carrying value of
$2,656 are held for sale as of December 31, 2001.
(8) Debt
(a) Short Term
At December 31, 2000, the Company had outstanding $2,000 of
unsecured notes payable to banks bearing interest at 7.29%. These
notes were repaid during 2001.
(Continued)
33
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
(b) Long-Term
Long-term debt at December 31, 2001 and 2000 consists of the
following:
2001 2000
----------------- --------------
Borrowings under a revolving credit facility bearing interest at
variable rates (3.24% - 4.75% at December 31, 2001) due
July 25, 2003 $ 9,805 $ --
Borrowings under a revolving credit facility bearing interest a
variable rates (7.29% at December 31, 2000) due July 25,
2003. Repaid in July 2001 -- 24,698
Termloan bearing interest at variable rates (3.24% at December 31,
2001) payable in quarterly installments of $1,750
beginning September 19, 2001 through July 1, 2006 31,500 --
Borrowings under a Euro revolving credit facility bearing interest
at variable rates (4.55% at December 31, 2001 and
6.63% at December 31, 2000) due July 15, 2006 -- 942
Euroterm loans bearing interest at variable rates (4.55% at
December 31, 2001and 6.63% at December 31, 2000) payable in
quarterly installments of $1,781 beginning March 15, 2002
through June 15, 2006 13,356 24,875
------- -------
Total long-term debt 54,661 50,515
Less current maturities 7,000 --
------- -------
Long-term debt, excluding current installments $47,661 $50,515
======= =======
On July 20, 2001, the Company entered into a syndicated loan
agreement with AmSouth Bank ("AmSouth") as the administrative
agent for the lenders, for a senior non-secured revolving credit
facility of up to $25,000, expiring on July 25, 2003 and a senior
non-secured term loan for $35,000 expiring on July 1, 2006. These
facilities include certain negative pledges. This credit facility
replaces the $25,000 revolving credit facility that was
temporarily extended and restated in February 2001 to $50,000 and
the additional $2,000 of availability extended in March of 2001.
Amounts outstanding under the revolving facility and term loan
facility bear interest at a floating rate equal to LIBOR (1.88% at
December 31, 2001) plus an applicable margin of 0.75% to 2.00%
based upon calculated financial ratios. The loan agreement
contains restrictive covenants which specify, among other things,
restrictions on the incurrence of indebtedness, payment of
dividends, capital expenditures, and the maintenance of certain
financial ratios. The Company, as of December 31, 2001, was in
compliance with all such covenants.
In connection with the Euroball transaction (see Note 2) the
Company and NN Euroball ApS, entered into a Facility Agreement
with a bank to provide up to Euro 36,000 in Term Loans and Euro
5,000 in revolving credit loans. The Company borrowed Euro 30,500
($28,755) under the term loan facility and Euro 1,000 ($943) under
the revolving credit facility. Amounts outstanding under the
Facility Agreement are secured by inventory
(Continued)
34
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
and accounts receivable and bear interest at EURIBOR (3.30% at
December 31, 2001) plus an applicable margin between 1.125% and
2.25% based upon financial ratios. The shareholders of NN
Euroball ApS have provided guarantees for the Facility Agreement.
The Facility Agreement contains restrictive covenants, which
specify, among other things, restrictions on the incurrence of
indebtedness and the maintenance of certain financial ratios.
Euroball was in compliance with all such covenants at December
31, 2001.
The aggregate maturities of long-term debt for each of the five
years subsequent to December 31, 2001 are as follows:
2002 $ 7,000
2003 23,893
2004 13,268
2005 7,000
2006 3,500
-------
Total $54,661
=======
Interest paid during 2001, 2000 and 1999 was $3,596, $1,917 and $519,
respectively.
(9) Employee Benefit Plans
The Company has three defined contribution 401(k) profit sharing plans
covering substantially all employees of the Domestic Ball and Roller and
Plastics Segments. The plan in place for the Domestic Ball and Roller
Segment covers all employees who have one year of service, have attained
age twenty-one and have elected to participate in the plan. A participant
may elect to contribute from 1% to 20% of his or her compensation to the
Plan, subject to a maximum deferral set forth in the Internal Revenue
Code. The Company provides a matching contribution of the higher of $500
or 50% of the first 4% of eligible compensation per participant. The
employer matching contribution is fully vested at all times. The
contributions by the Company for the Domestic Ball and Roller Segment
plan were $152, $106 and $120 in 2001, 2000 and 1999, respectively.
The plan in place for IMC covers all employees who have completed six
months of service and have elected to participate in the plan. A
participant may elect to contribute from 1% to 15% of his or her
compensation to the plan, subject to a maximum deferral set forth in the
Internal Revenue Code. The Company matches 25% of the first 6% of each
employee's contribution to the plan and provides for a discretionary
contribution at the end of each plan year. The contributions by the
Company for IMC plan since acquisition in July 1999 were $58 in 2001, $70
in 2000 and $196 in 1999. Vesting occurs in equal increments over a
period of five years.
The plan in place for Delta covers all employees who have one year of
service, have attained age twenty-one and have elected to participate in
the plan. A participant may elect to contribute from 1% to 20% of his or
her compensation to the Plan, subject to a maximum deferral set forth in
the Internal Revenue Code. The Company matches 50% of the first 6% of
each employee's contribution to the plan. The employee has 100% immediate
vesting on all contributions made to his or her account. The
contributions by the Company for the Delta plan since acquisition in
February 2001 were $67. Vesting occurs in equal increments over a period
of five years.
(Continued)
35
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
The Company has a defined benefit pension plan covering its Eltmann,
Germany facility employees (a Euroball division). The benefits are based
on the expected years of service including the rate of compensation
increase. The plan is unfunded.
Following is a summary of the changes in the projected benefit obligation
for the defined benefit pension plan during 2001 and 2000:
2001 2000
------------- --------------
Change in projected benefit obligation:
Benefit obligation at beginning of year $ 2,133 $ 1,886
Service cost 77 33
Interest cost 116 62
Benefits paid (5) --
Effect of currency translation (196) --
Actuarial loss 265 152
------- -------
Benefit obligation at December 31 $ 2,390 $ 2,133
======= =======
2001 2000
----------- ---------
Weighted-average assumptions as of December 31:
Discount rate 5.5% 6.0%
Rate of compensation increase 1.5% - 2.1 2.0%
2001 2000
-------- --------
Components of net periodic benefit cost:
Service cost $ 77 $ 33
Interest cost on projected benefit obligation 116 62
---- ----
Net periodic pension cost $193 $ 95
==== ====
Amounts recognized in the Consolidated Balance Sheets consist of:
2001 2000
-------------- --------------
Accrued benefit liability $2,390 $2,133
Accumulated other comprehensive loss, net of tax (53) --
-------------- --------------
Net amount recognized $2,337 $2,133
============== ==============
(10) Stock Incentive Plan
Effective March 2, 1994, the Company adopted the NN, Inc. Stock Incentive
Plan under which 1,125 shares of the Company's Common Stock were reserved
for issuance to officers and key employees of the Company. During 1999
and 2000, the plan was amended to increase the number of shares available
for issuance pursuant to awards made under the plan from 1,125 to 1,625.
Awards or grants under the plan may be made in the form of incentive and
nonqualified stock options, stock appreciation rights and restricted
stock. The stock options and stock appreciation rights must be issued
with an exercise price not less than the fair market value of the Common
Stock on the date of
(Continued)
36
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
grant. The awards or grants under the plan may have various vesting and
expiration periods as determined at the discretion of the committee
administering the plan.
A summary of the status of the Company's stock option plan as described
above as of December 31, 2001, 2000 and 1999, and changes during the
years ending on those dates is presented below:
2001 2000 1999
---------------------------- ---------------------------- ---------------------------
Weighted-average Weighted-average Weighted-average
Shares exercise price Shares exercise price Shares exercise price
----------- --------------- ----------- --------------- ---------- ---------------
Outstanding at beginning
of year 1,091 $ 6.87 1,049 $ 8.53 548 $ 11.53
Granted 396 8.09 555 7.63 539 5.93
Exercised (70) 6.09 (2) 5.87 -- --
Forfeited (44) 6.78 (511) 10.95 (38) 12.28
-------- ------ ------
Outstanding at end of
year 1,373 7.25 1,091 6.87 1,049 8.53
======== ====== ======
Options exercisable at
year-end 528 $ 6.59 290 $ 6.09 345 $ 11.53
The following table summarizes information about stock options
outstanding at December 31, 2001:
Options outstanding Options exercisable
------------------------------------------------------ -----------------------------------
Weighted-
average
Number remaining Weighted- Number Weighted-
Range of exercise outstanding at contractual average exercisable average exercise
prices 12/31/2001 life exercise price at 12/31/2001 price
----------------- ---------------- ----------------- --------------- ------------------
$5.94 - $6.50 431 7.5 years $ 6.84 341 $ 5.97
$7.63 - $8.09 942 9.2 years $ 10.38 187 $ 7.71
On December 7, 1998, the Company granted a total of 20 options to the
members of its Board of Directors. These options carry an exercise price
equal to the market price on the date of issuance and vest equally over a
period of three years, beginning one year from date of grant. The maximum
term of these options is 10 years. On July 4, 1999, the Company granted
and additional 20 options to the members of its Board of Directors. These
options carry an exercise price equal to the market price on the date of
issuance and vest six months from the date of grant. The maximum term of
these options is 10 years. On October 10, 2000, the Company granted an
additional 15 options to the members of its Board of Directors. These
options carry an exercise price equal to the market price on the date of
issuance and vest 100% one year from date of grant. The maximum term of
these options is 10 years. On September 17, 2001, the Company granted an
additional 50 options to the members of the Board of Directors. These
options carry an exercise price equal to the market price on the date of
issuance and vest 100% one year from date of grant. The maximum term of
these options is 10 years.
On August 4, 1998 the Company's Board of Directors authorized the
repurchase of up to 740 shares of its Common Stock, equaling 5% of the
company's issued and outstanding shares as of August 4, 1998. The program
may be
(Continued)
37
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
extended or discontinued at any time, and there is no assurance
that the Company will purchase any or all of the full amount authorized.
The Company has not repurchased any shares under this program through
December 31, 2001.
All options granted in the period January 1, 1999 through December 31,
2001, except those granted to the Company's Board of Directors as
described above, vest ratably over three years, beginning one year from
date of grant. The exercise price of each option equals the market price
of the Company's stock on the date of grant, and an option's maximum term
is 10 years. All options granted in the period January 1, 1995 through
December 31, 1998, except those granted to the Company's Board of
Directors as described above, vest 20% - 33% annually beginning one year
from date of grant. The exercise price of each option equals the market
price of the Company's stock on the date of grant, and an option's
maximum term is 10 years. Certain options granted in July 1999 were
deemed to be repriced options under the applicable accounting
requirements. These options, which were fully vested as of the effective
date of FASB Interpretation No. 44, are treated under variable
accounting. Accordingly, compensation expense will be recognized, to the
extent the market price of the Company's stock exceeds $10.50. The
Company recognized compensation expense of $108 during 2001 related to
these options.
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123). SFAS 123 encourages but does not require a fair value based
method of accounting for stock compensation plans. The Company has
elected to continue accounting for its stock compensation plan using the
intrinsic value based method under APB Opinion No. 25 and, accordingly,
has not recorded compensation expense for each of the three years ended
December 31, 2001, except as discussed above. Had compensation cost for
the Company's stock compensation plan been determined based on the fair
value at the option grant dates, the Company's net income and earnings
per share would have been reduced to the proforma amounts indicated
below:
Year ended December 31,
2001 2000 1999
------------------ ----------------- -------------------
Net income As reported $ 4,662 $ 9,987 $ 7,759
Proforma 4,347 9,804 7,627
Earnings per share As reported $ 0.31 $ 0.66 $ 0.52
Proforma 0.28 0.64 0.51
Earnings per
share-assuming
dilution As reported $ 0.30 $ 0.64 $ 0.52
Proforma 0.28 0.63 0.51
The fair value of each option grant was estimated based on actual
information available through December 31, 2001, 2000 and 1999 using the
Black Scholes option-pricing model with the following assumptions:
Term Vesting Period
Risk free interest rate 4.75%, 5.1% and 6.5% for 2001, 2000 and 1999,
respectively Dividend yield 2.8%, 3.6%, and 4.4% annually for 2001, 2000
and 1999, respectively Volatility 40.7%, 39.5% and 39.5% for 2001, 2000
and 1999, respectively
(11) Segment Information
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," effective with its
December 31, 1998 reporting and identified its reportable segments based
upon the geographic location of its business units. During 2001, the
Company's reportable segments are based on differences in product lines
and geographic locations and are divided among Domestic Ball and Roller,
Euroball and Plastics. The Domestic Ball and Roller Segment is comprised
of two manufacturing facilities in the eastern United States. The
Euroball Segment acquired in July 2000, is comprised of manufacturing
facilities located in Kilkenny, Ireland, Eltmann, Germany and Pinerolo,
Italy. All of the facilities in the Domestic Ball and Roller and Euroball
Segments are engaged in the production of precision balls and rollers
used primarily in the bearing industry. The Plastics Segment
(Continued)
38
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
is compromised of five facilities: two located in Lubbock, Texas, which
represents the IMC business acquired in July 1999; two facilities located
in Danielson, Connecticut, which represents the Delta business acquired
in February 2001, and one facility located in Guadalajara, Mexico, which
represents the NN-Arte business. These facilities are engaged in the
production of plastic injection molded products for the bearing,
automotive, instrumentation and fiber optic markets and precision rubber
bearing seals for the bearing, automotive, industrial, agricultural and
aerospace markets.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
segment performance based on profit or loss from operations after income
taxes not including nonrecurring gains and losses. The Company accounts
for intersegment sales and transfers at current market prices; however,
the Company did not have any material intersegment transactions during
2001, 2000 or 1999.
December 31, 2001 December 31, 2000 December 31, 1999
------------------------------------ -------------------------------------------------------------
DomesticBall Euroball Plastics DomesticBall Euroball Plastics DomesticBall Plastics
and Roller and Roller and Roller
--------------------------------------------------------------------------------------------------
Net sales $ 52,692 $ 86,719 $ 40,74$ 67,637 $ 33,988 $ 30,504 $ 67,736 $ 17,558
Interest expense 237 1,574 2,194 385 622 766 -- 523
Depreciation & ,
amortization 4,439 5,426 3 475 4,796 2,123 2,246 4,932 1,199
Income tax expense 2,435 2,474 (815) 4,284 1,408 267 3,816 244
Segment profit ,
(loss) 4,498 1,962 (1 798) 8,314 775 898 7,293 466
Segment assets 62,978 68,288 55,721 62,574 91,392 33,842 58,557 31,811
Expenditures for ,
long- lived
assets 1,117 3,537 1 660 9,319 3,737 4,854 1,723 671
Sales to external customers and long-lived assets utilized by the Company
were concentrated in the following geographical regions:
December 31, 2001 December 31, 2000 December 31, 1999
------------------------------- -------------------------- -------------------------
Long-lived Long-lived Long-lived
Sales assets Sales assets Sales assets
------------- --------------- ------------- ------------- -------- -------------
United States $ 59,813 $ 38,900 $ 62,094 $ 44,137 $ 52,907 $ 36,842
Europe 88,649 42,799 46,697 46,216 21,064 6,610
Canada 8,278 -- 6,449 -- 5,918 --
Latin/S.America 8,157 1,071 6,100 1,340 2,903 --
Other export 15,254 -- 10,789 -- 2,502 --
-------- -------- -------- -------- -------- --------
All foreign
countries 120,338 43,870 70,035 47,556 32,387 6,610
-------- -------- -------- -------- -------- --------
Total $180,151 $ 82,770 $132,129 $ 91,693 $ 85,294 $ 43,452
======== ======== ======== ======== ======== ========
Two customers comprised 49%, 49% and 46% of the Domestic Ball and Roller
Segments sales during the years ended December 31, 2001, 2000, and 1999,
respectively (see Note 18). Two customers comprised 76% of the
(Continued)
39
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
Euroball Segments sales during the year ended December 31, 2001. One
customer comprised 5% and 20% of IMC's sales for the years ended December
31, 2001 and 2000, respectively. Accounts receivable concentrations as
of December 31, 2001 are generally reflective of sales concentrations
during 2001.
(12) Income Taxes
Total income taxes (benefits) for the years ended December 31, 2001,
2000, and 1999 are allocated as follows:
Year ended December 31,
2001 2000 1999
------------------- ------------------- -------------------
Income from continuing operations: $ 4,094 $ 5,959 $ 4,060
Cumulative effect of change in accounting
principle (112) -- --
Accumulated other comprehensive income (31) -- --
------------------- ------------------- -------------------
$ 3,951 $ 5,959 $ 4,060
=================== =================== ===================
Income tax expense attributable to income from continuing operations
consists of:
Year ended December 31,
2001 2000 1999
---- ---- ----
Current:
U.S. Federal $ 1,025 $ 3,496 $ 3,960
State 146 452 469
Non-U.S 2,490 826 --
------- ------- -------
3,661 4,774 4,429
------- ------- -------
Deferred:
U.S. Federal 557 496 (335)
State 57 63 (34)
Non-U.S (181) 626 --
------- ------- -------
Total deferred expense 433 1,185 (369)
------- ------- -------
$ 4,094 $ 5,959 $ 4,060
======= ======= =======
(Continued)
40
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
A reconciliation of taxes based on the U.S. federal statutory rate of 34%
for the years ended December 31, 2001, 2000 and 1999 is summarized as
follows:
Year ended December 31,
2001 2000 1999
---- ---- ----
Income taxes at the federal statutory rate $ 3,606 $ 5,646 $ 4,006
State income taxes, net of federal benefit 134 340 289
Foreign sales corporation benefit, net of
liability (95) (183) (256)
Non-US earnings taxed at different rates 395 337 (182)
Other, net 54 (181) 203
------- ------- -------
$ 4,094 $ 5,959 $ 4,060
======= ======= =======
The tax effects of the temporary differences are as follows:
Year ended December 31,
2001 2000
-------- ----------
Deferred income tax liability
Tax in excess of book depreciation $5,692 $5,050
Duty drawback receivable 37 69
Goodwill 493 210
Other deferred tax liabilities 112 123
------ ------
Gross deferred income tax liability 6,334 5,452
------ ------
Deferred income tax assets
Inventories 337 182
Allowance for bad debts 632 279
Vacation accrual 264 287
Health insurance accrual 103 83
Other working capital accruals 358 230
Euroball net operating loss carryforward 133 --
------ ------
Gross deferred income tax assets 1,827 1,061
------ ------
Net deferred income tax liability $4,507 $4,391
====== ======
Deferred income tax expense differs from the change in the net deferred
income tax liability due to the following:
2001 2000
--------- ----------
Change in net deferred income tax liability $ 116 $ 1,780
Other comprehensive income adjustment 31 --
Acquisition of deferred tax asset (liability)
under purchase accounting 229 (595)
Effect of currency translation (55) --
------- -------
Deferred income tax expense $ 433 $ 1,185
======= =======
(Continued)
41
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
Although realization of deferred tax assets is not assured, management
believes that it is more likely than not that all of the deferred tax
assets will be realized. However, the amount of the deferred tax assets
considered realizable could be reduced based on changing conditions.
The Company has not recognized a deferred tax liability for the
undistributed earnings of its non-U.S. subsidiaries and non-U.S.
corporate joint ventures. The Company expects to reinvest these
undistributed earnings indefinitely and does not expect such earnings to
become subject to U.S. taxation in the foreseeable future. A deferred tax
liability will be recognized when the Company expects that it will
recover these undistributed earnings in a taxable manner, such as through
the receipt of dividends or sale of the investments. It is not
practicable to determine the U.S. income tax liability, if any, that
would be payable if such earnings were not reinvested indefinitely.
At December 31, 2001, the Company has net operating loss carryforwards
for foreign income tax purposes of approximately $1,500, which are
available to offset future foreign taxable income indefinitely.
Income tax payments were approximately $2,845, $5,207 and $3,123 in 2001,
2000, 1999, respectively.
(13) Reconciliation of Net Income Per Share
Year ended December 31,
2001 2000 1999
------------ ---------- ----------------
Net income $ 4,662 $ 9,987 $ 7,759
Weighted average shares outstanding 15,259 15,247 15,021
Effective of dilutive stock options 281 284 17
------- ------- -------
Dilutive shares outstanding 15,540 15,531 15,038
Basic net income per share $ 0.31 $ 0.66 $ 0.52
======= ======= =======
Diluted net income per share $ 0.30 $ 0.64 $ 0.52
======= ======= =======
Excluded from the shares outstanding for the years ended December 31,
2001, 2000 and 1999 were 0, 10 and 525 antidilutive options,
respectively, which had exercise prices ranging from $9.75 to $11.50,
during 2000 and $6.38 to $15.50 during 1999.
The Company has declared a dividend of $ 0.32 per share in each of the
years ended December 31, 2001, 2000 and 1999.
(Continued)
42
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
(14) Commitments and Contingencies
The Company has operating lease commitments for machinery, office
equipment, manufacturing and office space which expire on varying dates.
Rent expense for 2001, 2000 and 1999 was $1,650, $767 and $376,
respectively. The following is a schedule by year of future minimum lease
payments as of December 31, 2001 under operating leases that have initial
or remaining noncancelable lease terms in excess of one year.
Year ended December 31,
-------------------------------------------------
2002 $ 1,473
2003 1,345
2004 1,311
2005 1,280
2006 1,204
Thereafter 12,005
-------------
Total minimum lease payments $ 18,619
=============
The Kilkenny operation of the Euroball Segment has received certain
grants from the Ireland government. These grants are based upon the
Kilkenny facility hiring and retaining certain employment levels. At
December 31, 2001, actual employment levels are less than those required
by certain grant covenants. As of December 31, 2001, the Company
anticipates the grant agreement and employment level thresholds
will be restructured.
The Euroball Segment has entered into certain consignment arrangements
with Ascometals for the purchase of steel for ball production, whereby
the Euroball Kilkenny operation maintains steel on a consignment basis
for a period of up to three months.
Beginning in January 2003, FAG and SKF may each exercise their right
under The Shareholders Agreement to cause the Company to purchase
their respective interest in Euroball based on the Put Formula in the
Shareholders Agreement. The Company anticipates that if such purchase
becomes necessary, it may need to borrow additional funds. Because the
purchase price is based on a formula using Euroball's historical cash
flow, the exact amount of the put cannot be determined until the put
right is exercised.
(Continued)
43
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
(15) Quarterly Results of Operations (Unaudited)
The following summarizes the unaudited quarterly results of operations
for the years ended December 31, 2001 and 2000.
Year ended December 31, 2001
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Net sales $ 50,227 $ 47,350 $ 42,576 $ 39,998
Gross profit 12,043 12,030 9,687 8,800
Net income (loss) 1,448 3,506 744 (1,036)
Basic net income (loss) per share 0.10 0.23 0.05 (0.07)
Dilutive net income (loss) per share 0.09 0.23 0.05 (0.07)
Weighted average shares
outstanding:
Basic number of shares 15,247 15,253 15,286 15,302
Effect of dilutive stock
options 149 279 298 377
-------- -------- -------- --------
Diluted number of shares 15,396 15,532 15,584 15,679
======== ======== ======== ========
Year ended December 31, 2000
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Net sales $28,002 $25,643 $37,075 $41,409
Gross profit 7,656 7,678 10,972 11,898
Net income 2,110 2,242 2,443 3,192
Basic net income per share 0.14 0.15 0.16 0.21
Dilutive net income per share 0.14 0.15 0.16 0.21
Weighted average shares
outstanding:
Basic number of shares 15,244 15,244 15,245 15,247
Effect of dilutive stock
options 214 192 179 235
------- ------- ------- -------
Diluted number of shares 15,458 15,436 15,424 15,482
======= ======= ======= =======
Fourth quarter results in 2001 include pre-tax charges of $1,405 ($913
after-tax) related to $1,086 of asset write downs on the Company's
Walterboro, SC production facility and $319 of NN Arte minority interest
losses absorbed by the Company. Without these nonrecurring charges, the
fourth quarter 2001 loss per share would have been ($.01) rather than
($.07).
(Continued)
44
NN, Inc.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(In thousands, except per share data)
(16) Fair Value of Financial Instruments
Management believes the fair value of financial instruments
approximate their carrying value due to the short maturity of these
instruments or in the case of the Company's notes receivable and debt,
due to the variable interest rates. The following table presents the
carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 2001 and 2000:
2001 2000
----------------------- ------------------------
Carrying Fair Carrying Fair
amount value amount value
---------------------------------------------------
Financial assets:
Cash and cash equivalents $ 3,024 $ 3,024 $ 8,273 $ 8,273
Accounts receivable, net 24,832 24,832 29,549 29,549
Other current assets 3,034 3,034 1,512 1,512
Other non-current assets 4,862 4,862 4,212 4,212
Financial liabilities:
Accounts payable and bank overdraft 16,970 16,970 17,337 17,337
Accrued expenses and other payables 13,716 13,716 14,839 14,839
Short-term loan 7,000 7,000 2,000 2,000
Long-term debt 47,661 47,661 50,515 50,515
Interest rate swap liability 374 374 -- 280
(17) Involuntary Conversion
On March 12, 2000, a fire damaged a portion of the Company's
manufacturing plant in Erwin, Tennessee. The fire was contained to
approximately 30% of the productions area and did not result in serious
injury to any employee. Affected production was shifted to the Company's
other facilities as possible as well as the use of other certain
suppliers to protect product supply to customers. Insurance coverage for
the loss provided for reimbursement of the replacement value of property
and equipment damaged in the fire. As of December 31, 2001 the Company
has settled the insurance claim. For the years ended December 31, 2001
and 2000, the net gain on involuntary conversion of $3,901 and $728,
respectively, represents insurance proceeds received in excess of costs
incurred.
(18) Related Party Transactions
The minority shareholders of NN Euroball ApS, SKF and FAG, are
significant customers of the Company. For the years ended December 31,
2001 and 2000, combined sales to SKF and FAG amounted to $97,270 and
$64,064, respectively. At December 31, 2001 and 2000, accounts
receivable from SKF and FAG amounted to $11,360 and $4,983,
respectively.
In connection with the Euroball transaction described in note 2, SKF and
FAG provided administrative services to NN Euroball ApS. Charges for
these services amounted to approximately $2,262 and $1,150 for the years
ended December 31, 2001 and 2000, respectively. At December 31, 2001 and
2000, amounts payable to SKF and FAG amounted to $1,277 and $1,762,
respectively.
Certain sales agreements are in effect with SKF and FAG, which provide
for minimum purchase quantities and specified, annual sales price adjustments
that may be modified up or down for changes in material costs. These
agreements expire during 2006.
The Company leases the Eltmann, Germany facility, of the Euroball division,
from FAG. Annual minimum lease payments are Euro 944 ($885). The lease
expires in 2020.
45
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The firm of KPMG LLP has been selected by the Board of Directors as the
Company's outside auditors for 2002. 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 on 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 most recent fiscal year 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 during 1999 contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
During the Company's most recent fiscal year and since November 27,
2000, there have been no disagreements with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. KPMG 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.
Part III
Item 10. Directors and Executive Officers of the Registrant
Directors. The information required by Item 401 of Regulation S-K
concerning the Company's directors is contained in the section entitled
"Election of Directors -- Information about the Directors" of the Company's
definitive Proxy Statement (to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2001, in accordance with General
Instruction G to Form 10-K, is hereby incorporated herein by reference.
Executive Officers. Information required by Item 401 of Regulation S-K
concerning the Company's executive officers is set forth in Item 1 hereof under
the caption "Executive Officers of the Registrant."
Compliance with Section 16(a) of the Securities Exchange Act. The
information required by Item 405 of Regulation S-K concerning compliance with
Section 16(a) of the Securities Exchange Act by the Company's directors and
executive officers and any 10% beneficial owners is contained in the section
entitled "Section 16(a) Beneficial Ownership Reporting Compliance" of the
Company's definitive Proxy Statement and, in accordance with General Instruction
G to Form 10-K, is hereby incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 402 of Regulation S-K is contained in
the sections entitled "Information about the Election of Directors --
Compensation of Directors" and "Executive Compensation" of the Company's
definitive Proxy Statement and, in accordance with General Instruction G to Form
10-K, is hereby incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 403 of Regulation S-K is contained in
the section entitled "Beneficial Ownership of Common Stock" of the Company's
definitive Proxy Statement and, in accordance with General Instruction G to Form
10-K, is hereby incorporated herein by reference.
Item 13. Related Party Relationships
None.
46
Part IV
Item 14. Exhibits Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements
The financial statements of the Company filed as part of this Annual
Report on Form 10-K begin on the following pages hereof:
Page
Report of Independent Auditors for the years ended December 31, 2001
and December 31, 2000...................................................................20
Report of Independent Auditors for the years ended December 31, 1999....................21
Consolidated Balance Sheets at December 31, 2001 and 2000...............................22
Consolidated Statements of Income and Comprehensive Income for the Three Years
ended December 31, 2001.................................................................23
Consolidated Statements of Changes in Stockholders' Equity for the Three Years
Ended December 31, 2001.................................................................24
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2001.......25
Notes to Consolidated Financial Statements..............................................26
(a)2. Exhibits Required by Item 601 of Regulation S-K
3.1 Certificate of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1--File No. 33-74694).
3.2 Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's registration Statement on Form S-1 - File
No. 33-74694).
4.1 Form of Common Stock certificate (incorporated by reference to Exhibit
4 to the Company's Registration Statement on Form S-1 - File No.
33-74694).
10.1* NN Ball & Roller, Inc. Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Company's Registration Statement on
Form S-1 - File No. 33-74694).
10.3* $1.2 million Life Insurance Policy purchased by Mr. Ennen, the
premiums of which are paid for by the Company (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-1-File No. 33-74694).
10.5 Form of Confidentiality and Non-Compete Agreements for Executive
Officers of the Company (incorporated by reference to Exhibit 10.17 to
the Company's Registration Statement on Form S-1 - File No. 33-74694).
10.6 Stockholder Agreement dated February 22, 1994, among certain
stockholders of the Company (incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on Form S-1 - File No.
33-74694).
10.7 Form of Indemnification Agreement for officers and directors of the
Company (incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1 - File No. 33-74694).
47
10.8 Lease, dated as of September 5, 1995, between the Company and the
State of Tennessee Department of Economic and Community Development
and the County of Johnson County, Tennessee (incorporated by reference
to Exhibit 10.9 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.9 Lease, dated as of March 22, 1996, between the Company and the State
of Tennessee Department of Economic and Community Development and the
County of Johnson County, Tennessee (incorporated by reference to
Exhibit 10.10 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.10* Stock Option Agreement, dated as of July 3, 1995, between the
Company and Roderick R. Baty (incorporated by reference to Exhibit
10.11 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.11 Loan Agreement, dated as of July 25, 1997, between the Company and
First American National Bank (incorporated by reference to Exhibit
10.13 of the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997).
10.12* Employment Agreement, dated August 1, 1997, between the Company and
Roderick R. Baty (incorporated by reference to Exhibit 10.14 of the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1997).
10.13* Employment Agreement, dated May 7, 1998, between the Company and
Frank T. Gentry.
10.14* Form of Stock Option Agreement, dated December 7, 1998, between the
Company and the non-employee directors of the Company (incorporated by
reference to Exhibit 10.15 of the Company's Quarterly Report on Form
10-K for the fiscal year ended December 31, 1999).
10.15* Elective Deferred Compensation Plan, dated February 26, 1999
(incorporated by reference to Exhibit 10.16 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999).
10.16* Amendment No. 1 dated January 21, 2002, to Employment Agreement
between the Company and Frank T. Gentry.
10.17* Change of Control and Noncompetition Agreement, dated January 21,
2002, between the Company and Frank T. Gentry.
10.18* Amendment No. 1 dated January 21, 2002, to Employment Agreement
between the Company and Roderick R. Baty.
10.19* Change of Control and Noncompetition Agreement, dated January 21,
2002, between the Company and Roderick R. Baty.
10.20* Employment Agreement dated January 21, 2002, between the Company and
Robert R. Sams.
10.21* Change of Control and Noncompetition Agreement, dated January 21,
2002, between the Company and Robert R. Sams.
10.22* Employment Agreement dated January 21, 2002, between the Company and
William C. Kelly.
10.23* Change of Control and Noncompetition Agreement, dated January 21,
2002, between the Company and William C. Kelly.
10.24* Employment Agreement dated January 21, 2002, between the Company and
David L. Dyckman.
10.25* Change of Control and Noncompetition Agreement, dated January 21,
2002, between the Company and David L. Dyckman.
48
10.26 NN Euroball, ApS Shareholder Agreement dated April 6, 2000 among NN,
Inc., AB SKF and FAG Kugelfishcher Georg Schafer AG.
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith).
23.2 Consent of KPMG LLP (filed herewith).
- --------------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company filed a Form 8-K on July 25, 2001 announcing its second
quarter earnings and its new long term financing arrangement.
The Company filed a Form 8-K on September 5, 2001 announcing its Board
of Directors has named Roderick (Rock) R. Baty as the Chairman of the
Board of Directors.
The Company filed a Form 8-K on September 11, 2001 announcing its
decision to close its plant located in Walterboro, South Carolina.
The Company filed a Form 8-K on November 14, 2001 announcing that, due
to the voluntary bankruptcy of one of its customers, the Company will
need to record a third quarter 2001 reserve for approximately $400,000
pre-tax.
(c) Exhibits See Index to Exhibits (attached hereto).
The Company will provide without charge to any person, upon the written
request of such person, a copy of any of the Exhibits to this Form
10-K.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
By: /S/ RODERICK R. BATY
---------------------------------------
Roderick R. Baty
Chairman and Director
Dated: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Name and Signature Title Date
------------------ ----- ----
Chairman, Chief Executive Officer,
President and Director (Principal
/S/ RODERICK R. BATY Executive Officer) March 29, 2002
- ------------------------------
Roderick R. Baty
Treasurer, Secretary and Chief
Accounting Officer (Principal
/S/ WILLIAM C. KELLY, JR. Accounting Officer) March 29, 2002
- ------------------------------
William C. Kelly, Jr.
Vice President - Business Development
and Chief Financial Officer (Principal
/S/ DAVID L. DYCKMAN Financial Officer) March 29, 2002
- ------------------------------
David L. Dyckman
/S/ RICHARD D. ENNEN Director March 29, 2002
- ------------------------------
Richard D. Ennen
/S/ MICHAEL D. HUFF Director March 29, 2002
- ------------------------------
Michael D. Huff
/S/ G. RONALD MORRIS Director March 29, 2002
- ------------------------------
G. Ronald Morris
/S/ MICHAEL E. WERNER Director March 29, 2002
- ------------------------------
Michael E. Werner
/S/ STEVEN T. WARSHAW Director March 29, 2002
- ------------------------------
Steven T. Warshaw
/S/ JAMES L. EARSLEY Director March 29, 2002
- ------------------------------
James L. Earsley
50
Index to Exhibits
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
Exhibit 10.16
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into as of the 21st day of January, 2002 (the "Effective Date") by and
between NN, Inc., a Delaware corporation (the "Company") and Frank T. Gentry III
(the "Executive").
RECITALS
WHEREAS, the Company and Executive are parties to that certain Employment
Agreement dated as of May 7, 1998 (the "Employment Agreement") containing the
terms and conditions of Executive's employment with the Company;
WHEREAS, the Company and Executive now wish to amend the Employment
Agreement to provide for mandatory arbitration in the event of any dispute
arising under the Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
AGREEMENT
Section 1. Definitions. Except as otherwise provided herein, all
capitalized terms shall have the same definitions in this Amendment as they have
in the Employment Agreement.
Section 2. Addition of Paragraph 23.Paragraph 23 shall be added to the
agreement and shall read in its entirety as follows:
"23. Resolution of Disputes. Any dispute or claim arising out of or
relating to this Agreement shall be settled by final and binding arbitration in
Johnson City, Tennessee in accordance with the Commercial Arbitration rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. The
fees and expenses of the arbitration panel shall be equally borne by the Company
and Executive. Each party shall be liable for its own costs and expenses as a
result of any dispute related to this Agreement."
Section 4. No Other Changes. Except as provided in this Amendment,
all other terms and provisions of the Employment Agreement shall remain the
same.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first above written.
THE COMPANY: NN, INC.
By: /s/ Roderick R. Baty
---------------------------------
Roderick R. Baty
THE EXECUTIVE: /s/ Frank Gentry
------------------------------------
Frank T. Gentry III
2
Exhibit 10.17
CHANGE OF CONTROL AND NONCOMPETITION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this 21st day of
January, 2002, by and between FRANK T. GENTRY III ("Employee") and NN, INC., a
Delaware corporation, including its wholly-owned subsidiaries and affiliated
companies (collectively, "Employer").
RECITALS
WHEREAS, the Board of Directors of Employer (the "Board") has
determined that it is in the best interests of Employer to reinforce and
encourage the continuity of management personnel in anticipation of a possible
or potential Change of Control (as defined below); and
WHEREAS, the Board believes this objective can best be served by
providing for a compensation arrangement for Employee upon Employee's
termination of employment under certain circumstances in the event of a Change
of Control.
NOW, THEREFORE, in consideration of the mutual promises and covenants
as hereinafter set forth, the parties agree as follows:
AGREEMENT
1. General. Employer is engaged in the (i) manufacture and supply
of precision steel balls and rollers to domestic and international anti-friction
bearing manufacturers, automotive original equipment manufacturers and the
automotive aftermarket, the gas and mining industries, producers of drilling
bits for oil, gas and water wells and producers of stainless steel valves and
pumps, (ii) full-service design and manufacture of plastic injection molded
components to the bearing, automotive, electronic, leisure and consumer markets,
and (iii) the manufacture and supply of rubber seals to domestic and
international anti-friction bearing manufacturers. Employee is employed by
Employer in a senior management position in which Employee has or will have
access to the Employer's confidential information and trade secrets.
2. Employment Relationship. Except as specifically set forth herein,
the terms and conditions of Employee's employment are set forth in the
Employment Agreement dated May 7, 1998 between Employee and Employer (the
"Employment Agreement"), a copy of which is attached hereto as Exhibit A.
3. Termination Upon Change of Control.
(a) Severance Benefits. In the event that Employee's employment
is terminated within two (2) years following a "Change of Control" (as
defined below) and such termination is either (i) Without Cause (as
defined below), or (ii) is a Constructive Termination (as defined
below), Employee shall receive, in addition to all compensation due
and payable to or accrued for the benefit of Employee as of the date
of termination:
(i) a lump sum payment equal to an amount set forth on
Schedule A to this Agreement ("Severance Payment"). The Severance
Payment shall be made by wire transfer of immediately available
funds to an account designated by Employee within seven (7)
business days following the date of termination;
(ii) a payment equal to the annual bonus to which Employee
would have been entitled but for Employee's termination of
employment for the year of Employee's termination, pro-rated for
the portion of the year during which he was employed by Employer
("Pro-rated Bonus"). The Pro-rated Bonus shall be payable to
Employee at the end of the calendar year for which the bonus is
payable, in accordance with Employer's normal bonus procedures;
and
(iii) for a period of twenty-four months after such
termination (the "Coverage Period"), medical, dental,
prescription drug, life, accidental death and disability
insurance coverage substantially similar to the coverage which
Employee was receiving or entitled to receive immediately prior
to the date of the termination of Employee's employment
("Insurance Benefits"). Notwithstanding the foregoing, Employee
shall not be entitled to receive the Insurance Benefits (or a
portion thereof) to the extent that Employee obtains other
employment that provides equal or greater benefits during the
Coverage Period.
The Severance Payment, Pro-rated Bonus and Insurance Benefits are collectively
referred to in this Agreement as the "Severance Benefit."
(b) Excise Tax.
(i) Notwithstanding anything to the contrary set forth in
this Agreement, in no event shall a Severance Benefit payable
pursuant to this Section 3 exceed an amount equal to the lesser
of (i) 2.99 times the "base amount" (as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")) of Employee's compensation, or (ii) such other
amount which would constitute a "parachute payment" (as defined
in Section 280G of the Code). In the event that it shall be
determined that any Severance Benefit to Employee (whether paid
or payable or distributed or distributable) would be subject to
the excise tax imposed by Section 4999 of the Code, or any
successor provision thereto (the "Excise Tax"), then
Employee shall be entitled to receive from Employer an additional
payment (the "Gross-Up Payment") in an amount such that
the net amount of the Severance Benefit and the Gross-Up Payment
retained by Employee after the calculation and deduction of all
Excise Taxes (including any interest or penalties imposed with
respect to such taxes) on the payment and all Federal, state and
local income tax, employment tax and Excise Tax (including any
interest or penalties imposed with respect to such taxes) or the
Gross-Up Payment provided for in this Section, and taking into
account any lost or reduced tax deductions on account of the
Gross-Up Payment, shall be equal to the Severance Benefit.
2
(ii) Employee shall notify Employer in writing of any claim by
the Internal Revenue Service that, if successful, would require the
payment by Employer of the Gross-Up Payment. Such notification shall
be given as soon as practicable after Employee is informed in writing
of such claim and shall apprise Employer of the nature of such claim
and the date on which such claim is requested to be paid. Employee
shall not pay such claim prior to the expiration of the 30-day period
following the date on which Employee gives such notice to Employer (or
such shorter period ending on the date that any payment of taxes,
interest and/or penalties with respect to such claim is due). If
Employer notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(A) give Employer any information reasonably requested by
Employer relating to such claim;
(B) take such action in connection with contesting such
claim as Employer shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Employer;
(C) cooperate with Employer in good faith in order to
effectively contest such claim; and
(D) permit Employer to participate in any proceedings
relating to such claims;
provided, however, that Employer shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify Employee for and hold
Employee harmless from, on an after-tax basis, any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of all related costs and
expenses. Without limiting the foregoing provisions of this section,
Employer shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as Employer shall determine; provided, however, that
if Employer directs Employee to pay such claim and sue for a refund,
Employer shall advance the amount of such payment to Employee, on an
interest-free basis, and shall indemnify Employee for and hold Employee
harmless from, on an after-tax basis, any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance (including as a result of any forgiveness by
Employer of such advance); provided, further, that any extension of the
statute of limitations relating to the payment of taxes for the taxable
year of Employee with respect to which such contested amount is claimed
to
3
be due is limited solely to such contested amount. Furthermore,
Employer's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
Employee shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other
taxing authority.
(c) Change of Control. "Change of Control" shall mean: (i) a
person, corporation, entity or group (A) makes a tender or exchange
offer for the issued and outstanding voting stock of Employer and
beneficially owns thirty percent (30%) or more of the issued and
outstanding voting stock of Employer after such tender or exchange
offer, or (B) acquires, directly or indirectly, the beneficial
ownership of thirty percent (30%) or more of the issued and
outstanding voting stock of Employer in a single transaction or a
series of transactions (other than any person, corporation, entity or
group for which a Schedule 13G is on file with the Securities and
Exchange Commission, so long as such person, corporation, entity or
group has beneficial ownership of less than fifty percent (50%) of the
issued and outstanding voting stock of Employer); (ii) Employer is a
party to a merger, consolidation or similar transaction and following
such transaction, fifty percent (50%) or more of the issued and
outstanding voting stock of the resulting entity is not beneficially
owned by those persons, corporations or entities that constituted the
stockholders of Employer immediately prior to the transaction; (iii)
Employer sells fifty percent (50%) or more of its assets to any other
person or persons (other than an affiliate or affiliates of Employer);
or (iv) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least seventy-five percent (75%) of the Board; provided, however, that
any individual becoming a director subsequent to the date hereof,
whose election or nomination was approved by a majority of the
directors then comprising the Incumbent Board, shall be considered a
member of the Incumbent Board, but not including any individual whose
initial Board membership is a result of an actual or threatened
election contest (as that term is used in Rule 14a-11 promulgated
under the Securities Act of 1934, as amended) or an actual or
threatened solicitation of proxies or consents by or on behalf of a
party other than the Board.
(d) Termination Without Cause. Termination "Without Cause" shall
mean termination of Employee by Employer for reasons other than: (i)
the willful, persistent failure of Employee (after thirty (30) days
written notice and a reasonable opportunity to cure) to perform his
material duties for reasons other than death or disability; (ii) the
breach by Employee of any material provision of this Agreement; or
(iii) Employee's conviction of a felony involving dishonesty, deceit
or moral turpitude by a trial court of competent jurisdiction, whether
or not an appeal is taken.
(e) Constructive Termination. "Constructive Termination" shall
mean: (i) a material, adverse change of Employee's responsibilities,
authority, status, position, offices, titles, duties or reporting
requirements (including directorships); (ii) an adverse change in
Employee's annual compensation or benefits; (iii) a requirement to
relocate in excess of fifty (50) miles from Employee's then current
place of employment; or (iv) the breach by Employer of any material
provision of this Agreement, other than a breach that is remedied by
Employer within 10 days after receipt of notice thereof from Employee.
For purposes of this definition, Employee's responsibilities,
authority, status, position,
4
offices, titles, duties and reporting requirements are to be
determined as of the date of this Agreement. For purposes of this
Section, all determinations of Constructive Termination shall be made
in good faith by Employee and shall be conclusive.
(f) Other Severance Benefits. The Severance Benefit payable to
Employee pursuant to this Section 3 shall be reduced by any severance
benefits to which Employee is entitled under Employer's severance
policies for terminated employees generally or any termination
payments payable to Employee under Employee's Employment Agreement.
4. Employee's Acknowledgments and Covenants.
(a) Confidential Materials and Information. Employer has
developed confidential information, strategies and programs, which
include customer lists, prospects, lists, expansion and acquisition
plans, market research, sales systems, marketing programs, computer
systems and programs, product development strategies, manufacturing
strategies and techniques, budgets, pricing strategies, identity and
requirements of national accounts, customer lists, methods of
operating, service systems, training programs and methods, other trade
secrets and other information about the business in which employer is
engaged that is not known to the public and gives Employer an
opportunity to obtain an advantage over competitors who do not know of
such information (collectively, "Confidential Information"). In
performing duties for Employer, Employee regularly will be exposed to
and work with the Confidential Information. Employee acknowledges that
such Confidential Information is critical to Employer's success and
that Employer has invested substantial sums of money in developing the
Confidential Information. While Employee is employed by Employer and
after such employment ends for any reason, Employee will never
reproduce, publish, disclose, use, reveal, show or otherwise
communicate to any person or entity any Confidential Information
unless specifically directed by Employer to do so in writing.
(b) Nonsolicitation of Employees. While Employee is employed by
Employer and for twenty-four (24) months after such employment ends
for any reason, Employee, acting either directly or indirectly, or
through any other person, firm, or corporation, will not hire contract
with or employ any employee of Employer or induce or attempt to induce
or influence any employee of Employer to terminate employment with
Employer. Such nonsolicitation restriction shall not apply to Employee
in the case of the solicitation of his or her immediate family
members.
(c) Covenant Against Unfair Competition. While Employee is
employed by Employer and for twenty-four (24) months after such
employment ends for any reason, Employee will not, directly or
indirectly, or through any other person, firm or corporation (i) be
employed by, consult for, have any ownership interest in or engage in
any activity on behalf of any competing business, or (ii) call on,
solicit or communicate with any of Employer's customers (whether
actual or potential) for the purpose of selling precision steel balls
and rollers and other related items to such customer other than for
the benefit of Employer. As used in this Agreement, the term
"competing business" means a business that is a manufacturer and
supplier of precision steel balls and rollers to anti-
5
friction bearing manufacturers (excluding any ball and roller
manufacturers who manufacture such products for use in their business
or the business of their affiliates and do not supply such products to
third parties) and the term "customer" means any customer (whether
actual or potential) with whom Employee or any other employee of
Employer had business contact on behalf of Employer during the
eighteen (18) months immediately before Employee's employment with
Employer ended). Notwithstanding the foregoing, this paragraph shall
not be construed to prohibit Employee from owning less than five
percent (5%) of the outstanding securities of a corporation which is
publicly traded on a securities exchange or over-the-counter.
(d) Return of Confidential Materials and Information. Employee
agrees that whenever Employee's employment with Employer ends for any
reason, all documents containing or referring to Confidential
Information as may be in Employee's possession or control will be
delivered by Employee to Employer immediately, with no request being
required.
(e) Acknowledgments; Irreparable Harm. Employee agrees that the
restrictions on competition, solicitation and disclosure in this
Agreement are fair, reasonable and necessary for the protection of the
interests of Employer. Employee further agrees that a breach of any of
the covenants set forth in this Section 4 will result in irreparable
injury and damage to Employer for which Employer would have no
adequate remedy at law, and Employee further agrees that in the event
of a breach, Employer will be entitled to an immediate restraining
order and injunction to prevent such violation or continued violation,
without having to prove damages, in addition to any other remedies to
which Employer may be entitled at law or equity.
(f) Notification to Subsequent Employers. Employee grants
Employer the right to notify any future employer or prospective
employer of Employee concerning the existence of and terms of this
Agreement and grants Employer the right to provide a copy of this
Agreement to any such subsequent employer or prospective employer.
5. Mitigation. Employer's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which Employer may have against Employee or others. In no event
shall Employee be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to Employee under any of the provisions
of this agreement and such amounts shall not be reduced whether or not Employee
obtains other employment.
6. Resolution of Disputes. Any dispute or claim arising out of or
relating to this Agreement shall be settled by final and binding arbitration in
Johnson City, Tennessee in accordance with the Commercial Arbitration rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof.
Employer agrees to pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which Employee may reasonably incur as a result
of any dispute (regardless of the outcome thereof) by Employer, Employee or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of
6
performance thereof (including as a result of any dispute by Employee regarding
the amount of any payment pursuant to this agreement), plus in each case
interest on any delayed payment at the rate published from time to time in The
Wall Street Journal as the prime rate of interest plus two percent (2%).
7. Withholding. Employer may withhold from any amounts payable under
this Agreement the minimum Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
8. Successors. This Agreement is binding on, and shall inure to the
benefit of Employee and Employer, and all successors and assigns of Employer.
Employer will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of Employer to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a material breach of this Agreement and shall entitle
Employee to any Severance Benefit payable pursuant to Section 3(a) hereof.
9. Applicable Law. This Agreement will be interpreted, governed and
enforced according to the law of the State of Tennessee.
10. Separability. If any portion of this Agreement is held to be
invalid or unenforceable in any respect, Employee and Employer agree that such
invalid and unenforceable part will be modified to permit the Agreement to be
enforced to the maximum extent permitted by the court, with the remaining
portions unaffected by the invalidity or unenforceability of any part of this
Agreement.
11. Waiver. This Agreement may be modified, supplemented or amended,
and any provision of this Agreement can be waived, only by written instrument
making specific reference to this Agreement signed by the party against whom
enforcement of any such modification, supplement, amendment or waiver is sought.
12. Complete Agreement. This Agreement contains the entire
agreement between Employer and Employee as to the subject matter hereof. This
Agreement shall not be subject to the terms and conditions of any agreement
concerning arbitration or dispute resolution between Employer and Employee.
EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS READ THE ENTIRE CONTENTS OF THIS
AGREEMENT AND THAT HE/SHE UNDERSTANDS ITS TERMS.
[Signatures on following page]
7
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first written above.
EMPLOYEE:
/s/ Frank Gentry
--------------------------------------------
Name: Frank T. Gentry III
NN, INC.,
including its subsidiaries and affiliates
By: /s/ Roderick R. Baty
----------------------------------------
Roderick R. Baty
8
Schedule A
Employee's Severance Payment shall be a lump sum payment equal to:
1. 2 times such Employee's base salary (as of the date of Employee's
termination); plus
2. 2 times such Employee's median bonus available at the following bonus
target percentage: 35%; plus
3. An amount equal to 2 times Employee's annual automobile allowance or the
annual cost to Employee of obtaining a motor vehicle comparable to that
provided by Employer to Employee.
9
Exhibit 10.18
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into as of the 21st day of January, 2002 (the "Effective Date") by and
between NN, Inc., a Delaware corporation (the "Company") and Roderick R. Baty
(the "Executive").
RECITALS
WHEREAS, the Company and Executive are parties to that certain
Employment Agreement dated as of August 1, 1997 (the "Employment Agreement")
containing the terms and conditions of Executive's employment with the Company;
WHEREAS, the Company and Executive now wish to amend the Employment
Agreement to provide for mandatory arbitration in the event of any dispute
arising under the Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
AGREEMENT
Section 1. Definitions. Except as otherwise provided herein, all
capitalized terms shall have the same definitions in this Amendment as they have
in the Employment Agreement.
Section 2. Addition of Paragraph 23. Paragraph 23 shall be added to the
agreement and shall read in its entirety as follows:
"23. Resolution of Disputes. Any dispute or claim arising out of or
relating to this Agreement shall be settled by final and binding arbitration in
Johnson City, Tennessee in accordance with the Commercial Arbitration rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. The
fees and expenses of the arbitration panel shall be equally borne by the Company
and Executive. Each party shall be liable for its own costs and expenses as a
result of any dispute related to this Agreement."
Section 4. No Other Changes. Except as provided in this Amendment, all
other terms and provisions of the Employment Agreement shall remain the same.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
THE COMPANY: NN, INC.
By: /s/ David L. Dyckman
---------------------------------
David L. Dyckman
THE EXECUTIVE: /s/ Roderick R. Baty
------------------------------------
Roderick R. Baty
2
Exhibit 10.19
CHANGE OF CONTROL AND NONCOMPETITION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this 21st day of
January, 2002, by and between RODERICK R. BATY ("Employee") and NN, INC., a
Delaware corporation, including its wholly-owned subsidiaries and affiliated
companies (collectively, "Employer").
RECITALS
WHEREAS, the Board of Directors of Employer (the "Board") has
determined that it is in the best interests of Employer to reinforce and
encourage the continuity of management personnel in anticipation of a possible
or potential Change of Control (as defined below); and
WHEREAS, the Board believes this objective can best be served by
providing for a compensation arrangement for Employee upon Employee's
termination of employment under certain circumstances in the event of a Change
of Control.
NOW, THEREFORE, in consideration of the mutual promises and covenants
as hereinafter set forth, the parties agree as follows:
AGREEMENT
1. General. Employer is engaged in the (i) manufacture and supply of
precision steel balls and rollers to domestic and international anti-friction
bearing manufacturers, automotive original equipment manufacturers and the
automotive aftermarket, the gas and mining industries, producers of drilling
bits for oil, gas and water wells and producers of stainless steel valves and
pumps, (ii) full-service design and manufacture of plastic injection molded
components to the bearing, automotive, electronic, leisure and consumer markets,
and (iii) the manufacture and supply of rubber seals to domestic and
international anti-friction bearing manufacturers. Employee is employed by
Employer in a senior management position in which Employee has or will have
access to the Employer's confidential information and trade secrets.
2. Employment Relationship. Except as specifically set forth herein, the
terms and conditions of Employee's employment are set forth in the
Employment Agreement dated August 1, 1997 between Employee and Employer (the
"Employment Agreement"), a copy of which is attached hereto as Exhibit A
3. Termination Upon Change of Control.
(a) Severance Benefits. In the event that Employee's employment is
terminated within two (2) years following a "Change of Control" (as defined
below) and such termination is either (i) Without Cause (as defined below),
or (ii) is a Constructive Termination (as defined below), Employee shall
receive, in addition to all compensation due and payable to or accrued for
the benefit of Employee as of the date of termination:
(i) a lump sum payment equal to an amount set forth on Schedule A
to this Agreement ("Severance Payment"). The Severance Payment shall
be made by wire transfer of immediately available funds to an account
designated by Employee within seven (7) business days following the
date of termination;
(ii) a payment equal to the annual bonus to which Employee would
have been entitled but for Employee's termination of employment for
the year of Employee's termination, pro-rated for the portion of the
year during which he was employed by Employer ("Pro-rated
Bonus"). The Pro-rated Bonus shall be payable to Employee at the
end of the calendar year for which the bonus is payable, in accordance
with Employer's normal bonus procedures; and
(iii) for a period of thirty months after such termination (the
"Coverage Period"), medical, dental, prescription drug, life,
accidental death and disability insurance coverage substantially
similar to the coverage which Employee was receiving or entitled to
receive immediately prior to the date of the termination of Employee's
employment ("Insurance Benefits"). Notwithstanding the foregoing,
Employee shall not be entitled to receive the Insurance Benefits (or a
portion thereof) to the extent that Employee obtains other employment
that provides equal or greater benefits during the Coverage Period.
The Severance Payment, Pro-rated Bonus and Insurance Benefits are collectively
referred to in this Agreement as the "Severance Benefit."
(b) Excise Tax.
(i) Notwithstanding anything to the contrary set forth in this
Agreement, in no event shall a Severance Benefit payable pursuant to
this Section 3 exceed an amount equal to the lesser of (i) 2.99 times
the "base amount" (as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code")) of Employee's
compensation, or (ii) such other amount which would constitute a
"parachute payment" (as defined in Section 280G of the Code). In the
event that it shall be determined that any Severance Benefit to
Employee (whether paid or payable or distributed or distributable)
would be subject to the excise tax imposed by Section 4999 of the
Code, or any successor provision thereto (the "Excise Tax"), then
Employee shall be entitled to receive from Employer an additional
payment (the "Gross-Up Payment") in an amount such that the net amount
of the Severance Benefit and the Gross-Up Payment retained by Employee
after the calculation and deduction of all Excise Taxes (including any
interest or penalties imposed with respect to such taxes) on the
payment and all Federal, state and local income tax, employment tax
and Excise Tax (including any interest or penalties imposed with
respect to such taxes) or the Gross-Up Payment provided for in this
Section, and taking into account any lost or reduced tax deductions on
account of the Gross-Up Payment, shall be equal to the Severance
Benefit.
2
(ii) Employee shall notify Employer in writing of any claim by
the Internal Revenue Service that, if successful, would require the
payment by Employer of the Gross-Up Payment. Such notification shall
be given as soon as practicable after Employee is informed in writing
of such claim and shall apprise Employer of the nature of such claim
and the date on which such claim is requested to be paid. Employee
shall not pay such claim prior to the expiration of the 30-day period
following the date on which Employee gives such notice to Employer (or
such shorter period ending on the date that any payment of taxes,
interest and/or penalties with respect to such claim is due). If
Employer notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(A) give Employer any information reasonably requested by
Employer relating to such claim;
(B) take such action in connection with contesting such
claim as Employer shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Employer;
(C) cooperate with Employer in good faith in order to
effectively contest such claim; and
(D) permit Employer to participate in any proceedings
relating to such claims;
provided, however, that Employer shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify Employee for and hold
Employee harmless from, on an after-tax basis, any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of all related costs and
expenses. Without limiting the foregoing provisions of this section,
Employer shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as Employer shall determine; provided, however, that
if Employer directs Employee to pay such claim and sue for a refund,
Employer shall advance the amount of such payment to Employee, on an
interest-free basis, and shall indemnify Employee for and hold Employee
harmless from, on an after-tax basis, any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance (including as a result of any forgiveness by
Employer of such advance); provided, further, that any extension of the
statute of limitations relating to the payment of taxes for the taxable
year of Employee with respect to which such contested amount is claimed
to
3
be due is limited solely to such contested amount. Furthermore,
Employer's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
Employee shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other
taxing authority.
(c) Change of Control. "Change of Control" shall mean: (i) a
person, corporation, entity or group (A) makes a tender or exchange
offer for the issued and outstanding voting stock of Employer and
beneficially owns thirty percent (30%) or more of the issued and
outstanding voting stock of Employer after such tender or exchange
offer, or (B) acquires, directly or indirectly, the beneficial
ownership of thirty percent (30%) or more of the issued and outstanding
voting stock of Employer in a single transaction or a series of
transactions (other than any person, corporation, entity or group for
which a Schedule 13G is on file with the Securities and Exchange
Commission, so long as such person, corporation, entity or group has
beneficial ownership of less than fifty percent (50%) of the issued and
outstanding voting stock of Employer); (ii) Employer is a party to a
merger, consolidation or similar transaction and following such
transaction, fifty percent (50%) or more of the issued and outstanding
voting stock of the resulting entity is not beneficially owned by those
persons, corporations or entities that constituted the stockholders of
Employer immediately prior to the transaction; (iii) Employer sells
fifty percent (50%) or more of its assets to any other person or
persons (other than an affiliate or affiliates of Employer); or (iv)
individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least
seventy-five percent (75%) of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof, whose
election or nomination was approved by a majority of the directors then
comprising the Incumbent Board, shall be considered a member of the
Incumbent Board, but not including any individual whose initial Board
membership is a result of an actual or threatened election contest (as
that term is used in Rule 14a-11 promulgated under the Securities Act
of 1934, as amended) or an actual or threatened solicitation of proxies
or consents by or on behalf of a party other than the Board.
(d) Termination Without Cause. Termination "Without Cause" shall
mean termination of Employee by Employer for reasons other than: (i)
the willful, persistent failure of Employee (after thirty (30) days
written notice and a reasonable opportunity to cure) to perform his
material duties for reasons other than death or disability; (ii) the
breach by Employee of any material provision of this Agreement; or
(iii) Employee's conviction of a felony involving dishonesty, deceit or
moral turpitude by a trial court of competent jurisdiction, whether or
not an appeal is taken.
(e) Constructive Termination. "Constructive Termination" shall
mean: (i) a material, adverse change of Employee's responsibilities,
authority, status, position, offices, titles, duties or reporting
requirements (including directorships); (ii) an adverse change in
Employee's annual compensation or benefits; (iii) a requirement to
relocate in excess of fifty (50) miles from Employee's then current
place of employment; or (iv) the breach by Employer of any material
provision of this Agreement, other than a breach that is remedied by
Employer within 10 days after receipt of notice thereof from Employee.
For purposes of this definition, Employee's responsibilities,
authority, status, position,
4
offices, titles, duties and reporting requirements are to be
determined as of the date of this Agreement. For purposes of this
Section, all determinations of Constructive Termination shall be made
in good faith by Employee and shall be conclusive.
(f) Other Severance Benefits. The Severance Benefit payable to
Employee pursuant to this Section 3 shall be reduced by any severance
benefits to which Employee is entitled under Employer's severance
policies for terminated employees generally or any termination payments
payable to Employee under Employee's Employment Agreement.
4. Employee's Acknowledgments and Covenants.
(a) Confidential Materials and Information. Employer has
developed confidential information, strategies and programs, which
include customer lists, prospects, lists, expansion and acquisition
plans, market research, sales systems, marketing programs, computer
systems and programs, product development strategies, manufacturing
strategies and techniques, budgets, pricing strategies, identity and
requirements of national accounts, customer lists, methods of
operating, service systems, training programs and methods, other trade
secrets and other information about the business in which employer is
engaged that is not known to the public and gives Employer an
opportunity to obtain an advantage over competitors who do not know of
such information (collectively, "Confidential Information"). In
performing duties for Employer, Employee regularly will be exposed to
and work with the Confidential Information. Employee acknowledges that
such Confidential Information is critical to Employer's success and
that Employer has invested substantial sums of money in developing the
Confidential Information. While Employee is employed by Employer and
after such employment ends for any reason, Employee will never
reproduce, publish, disclose, use, reveal, show or otherwise
communicate to any person or entity any Confidential Information
unless specifically directed by Employer to do so in writing.
(b) Nonsolicitation of Employees. While Employee is employed by
Employer and for twenty-four (24) months after such employment ends
for any reason, Employee, acting either directly or indirectly, or
through any other person, firm, or corporation, will not hire contract
with or employ any employee of Employer or induce or attempt to induce
or influence any employee of Employer to terminate employment with
Employer. Such nonsolicitation restriction shall not apply to Employee
in the case of the solicitation of his or her immediate family
members.
(c) Covenant Against Unfair Competition. While Employee is
employed by Employer and for twenty-four (24) months after such
employment ends for any reason, Employee will not, directly or
indirectly, or through any other person, firm or corporation (i) be
employed by, consult for, have any ownership interest in or engage in
any activity on behalf of any competing business, or (ii) call on,
solicit or communicate with any of Employer's customers (whether
actual or potential) for the purpose of selling precision steel balls
and rollers and other related items to such customer other than for
the benefit of Employer. As used in this Agreement, the term
"competing business" means a business that is a manufacturer and
supplier of precision steel balls and rollers to anti-
5
friction bearing manufacturers (excluding any ball and roller
manufacturers who manufacture such products for use in their business
or the business of their affiliates and do not supply such products to
third parties) and the term "customer" means any customer (whether
actual or potential) with whom Employee or any other employee of
Employer had business contact on behalf of Employer during the
eighteen (18) months immediately before Employee's employment with
Employer ended). Notwithstanding the foregoing, this paragraph shall
not be construed to prohibit Employee from owning less than five
percent (5%) of the outstanding securities of a corporation which is
publicly traded on a securities exchange or over-the-counter.
(d) Return of Confidential Materials and Information. Employee
agrees that whenever Employee's employment with Employer ends for any
reason, all documents containing or referring to Confidential
Information as may be in Employee's possession or control will be
delivered by Employee to Employer immediately, with no request being
required.
(e) Acknowledgments; Irreparable Harm. Employee agrees that the
restrictions on competition, solicitation and disclosure in this
Agreement are fair, reasonable and necessary for the protection of the
interests of Employer. Employee further agrees that a breach of any of
the covenants set forth in this Section 4 will result in irreparable
injury and damage to Employer for which Employer would have no
adequate remedy at law, and Employee further agrees that in the event
of a breach, Employer will be entitled to an immediate restraining
order and injunction to prevent such violation or continued violation,
without having to prove damages, in addition to any other remedies to
which Employer may be entitled at law or equity.
(f) Notification to Subsequent Employers. Employee grants
Employer the right to notify any future employer or prospective
employer of Employee concerning the existence of and terms of this
Agreement and grants Employer the right to provide a copy of this
Agreement to any such subsequent employer or prospective employer.
5. Mitigation. Employer's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which Employer may have against Employee or others. In no event shall
Employee be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to Employee under any of the provisions of
this agreement and such amounts shall not be reduced whether or not Employee
obtains other employment.
6. Resolution of Disputes. Any dispute or claim arising out of or relating
to this Agreement shall be settled by final and binding arbitration in Johnson
City, Tennessee in accordance with the Commercial Arbitration rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. Employer
agrees to pay promptly as incurred, to the full extent permitted by law, all
legal fees and expenses which Employee may reasonably incur as a result of any
dispute (regardless of the outcome thereof) by Employer, Employee or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of
6
performance thereof (including as a result of any dispute by Employee regarding
the amount of any payment pursuant to this agreement), plus in each case
interest on any delayed payment at the rate published from time to time in The
Wall Street Journal as the prime rate of interest plus two percent (2%).
7. Withholding. Employer may withhold from any amounts payable under this
Agreement the minimum Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
8. Successors. This Agreement is binding on, and shall inure to the benefit
of Employee and Employer, and all successors and assigns of Employer. Employer
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that Employer would be required to
perform it if no such succession had taken place. Failure of Employer to obtain
such agreement prior to the effectiveness of any such succession shall be a
material breach of this Agreement and shall entitle Employee to any Severance
Benefit payable pursuant to Section 3(a) hereof.
9. Applicable Law. This Agreement will be interpreted, governed and
enforced according to the law of the State of Tennessee.
10. Separability. If any portion of this Agreement is held to be invalid or
unenforceable in any respect, Employee and Employer agree that such invalid and
unenforceable part will be modified to permit the Agreement to be enforced to
the maximum extent permitted by the court, with the remaining portions
unaffected by the invalidity or unenforceability of any part of this Agreement.
11. Waiver. This Agreement may be modified, supplemented or amended, and
any provision of this Agreement can be waived, only by written instrument making
specific reference to this Agreement signed by the party against whom
enforcement of any such modification, supplement, amendment or waiver is sought.
12. Complete Agreement. This Agreement contains the entire agreement
between Employer and Employee as to the subject matter hereof. This Agreement
shall not be subject to the terms and conditions of any agreement concerning
arbitration or dispute resolution between Employer and Employee.
EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS READ THE ENTIRE CONTENTS OF THIS
AGREEMENT AND THAT HE/SHE UNDERSTANDS ITS TERMS.
[Signatures on following page]
7
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first written above.
EMPLOYEE:
/s/ Roderick R. Baty
--------------------------------------------
Name: Roderick R. Baty
NN, INC.,
including its subsidiaries and affiliates
By: /s/ David L. Dyckman
-------------------------------------------
David L. Dyckman
8
Schedule A
Employee's Severance Payment shall be a lump sum payment equal to:
1. 2.5 times such Employee's base salary (as of the date of Employee's
termination); plus
2. 2.5 times such Employee's median bonus available at the following bonus
target percentage: 40%; plus
3. An amount equal to 2.5 times Employee's annual automobile allowance or the
annual cost to Employee of obtaining a motor vehicle comparable to that
provided by Employer to Employee.
9
Exhibit 10.20
EMPLOYMENT AGREEMENT
This AGREEMENT is made as of January 21, 2002, by and between NN, Inc.,
a Delaware corporation, having its principal place of business located at 2000
Water's Edge Drive, Building C, Suite 12, Johnson City, Tennessee 37604 (the
"Company") and Robert R. Sams (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company's Board of Directors (the "Board") has determined
that it is in the best interest of the Company and its shareholders to employ
the Executive as Vice-President of Market Services of the Company and the
Executive desires to serve in that capacity;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto,
intending to be legally bound, agree as follows:
1. Employment. The Company agrees to continue to employ the Executive
and the Executive hereby agrees to continue to be employed for the period of
time set forth in Paragraph 2, subject to the terms and conditions set forth
herein.
2. Term. Subject to the terms hereof, Company agrees to employ the
Executive for a period of two years commencing upon January 21, 2002 and
expiring on January 20, 2004 (the "Employment Term") (unless sooner terminated
as provided herein). The Employment Term shall be extended automatically from
time to time, on a rolling basis, for additional one year periods, unless either
party gives written notice of termination to the other at least six (6) months
prior to the date that the Employment Term is scheduled to expire.
3. Position and Responsibilities. The Executive shall serve as the
Vice-President of Market Services of the Company, reporting to the President and
Chief Executive Officer, and shall have supervision and control over, and
responsibility for, the sales marketing operations and activities of the
Company. The Executive shall also have such other powers and duties as may from
time to time be prescribed by the President or Chief Executive Officer;
provided, however, that such duties shall be consistent with the Executive's
position as the officer in charge of business development activities and
principal financial officer of the Company.
4. Diligence. Executive agrees to serve in the respective positions
referred to in Paragraph 3 and to perform diligently the duties and services
appertaining to each such office, as well as such additional duties and services
appropriate to each such office which the parties mutually may agree upon from
time to time.
5. Time. Executive agrees to devote his entire working time and efforts
to the business and affairs of the Company and its affiliates and not to engage,
directly or indirectly, in any other business or businesses, whether or not
similar to that of the Company, except with the consent of the President and
Chief Executive Officer and the Board. The foregoing
notwithstanding, the parties recognize and agree that Executive (i) may engage
in personal investments, subject to any restrictions set forth in the
Non-Competition and Confidentiality Agreement referenced in Paragraph 7 and (ii)
subject to the prior consent of the President, may serve on the board of
directors of other companies, provided such service does not conflict with the
business and affairs of the Company or interfere with Executive's performance of
his duties hereunder.
6. Compensation.
(a) Salary. During the Employment Term, the Executive shall receive an
annual salary of $145,000.00 per year, which annual salary shall be subject
to such increases as the Board in its sole discretion may from time to time
determine (the "Annual Salary"). The Annual Salary shall be payable by the
Company in accordance with its regular compensation policies and practices
for paying executives.
(b) Expenses. During the term of his employment hereunder, the
Executive shall be entitled to be reimbursed for all reasonable business
expenses incurred by him in connection with his services hereunder,
including but not limited to expenses for entertainment and travel, in
accordance with the policies and procedures from time to time in effect for
the Company's senior executive officers. The Company retains the right to
establish limits on the types or amounts of business expenses that the
Executive may incur.
(c) Employee Benefit Programs. The Executive shall be entitled to
participate in all of the Company's employee benefit plans and programs
(including life, disability, and health insurance plans and programs and
savings plans and programs) to the extent his position, tenure, salary,
age, health and other qualifications make him eligible to participate,
subject to the rules and regulations applicable thereto. The Company
retains the right to abolish or alter the terms of any employee benefit
programs, plans or policies that it may establish, provided such abolition
or amendment shall be applicable to the senior officers of the Company
generally.
(d) Vacation and Other Absences. The Executive shall be entitled to
the number of paid vacation days in each calendar year determined by the
Company from time to time for its senior executive officers generally. The
Executive shall also be entitled to all paid absences for holidays or
illnesses in accordance with the Company's plans, policies or provisions
applicable to senior executive employees.
7. Confidentiality and Non-Competition. As a material inducement to the
Company entering into this Agreement and in consideration for the Executive's
continued employment, Executive hereby reconfirms and agrees to continue to be
bound in all respects by the terms of that certain Non-Competition and
Confidentiality Agreement, dated January 21, 2002, between Executive and the
Company, a copy of which is attached hereto as Exhibit A.
8. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Term. The
Company shall be entitled to terminate the Executive's employment because
of the Executive's disability during the Employment Term if, as a result of
the Executive's incapacity due to physical or mental illness
2
(hereinafter "Disability"), the Executive shall have been absent from his
duties hereunder for one hundred and twenty (120) days during any three
hundred and sixty (360) day period.
(b) Termination by Company for Cause. (i) The Company may terminate
the Executive's employment during the Employment Term for Cause. "Cause"
means:
A. the failure of the Executive to perform the Executive's duties
under this Agreement (other than as a result of physical or mental
illness or injury), which failure, if correctable, and provided it
does not constitute willful misconduct or gross negligence described
in Subsection B below, remains uncorrected for 10 days following
written notice to Executive by the President or the Board of such
breach;
B. willful misconduct or gross negligence by the Executive, in
either case that results in material damage to the business or
reputation of the Company;
C. a material breach by Executive of either this Agreement or
that certain Non-Competition and Confidentiality Agreement referenced
in Paragraph 8 which, if correctable, remains uncorrected for 10 days
following written notice to Executive by the Board of such breach; or
D. the Executive is convicted of a felony or any other crime
involving moral turpitude (whether or not in connection with the
performance by Executive of his duties under this Agreement).
(c) Termination By Company Without Cause. The Company may terminate
the employment of Executive under this Agreement for any reason at any
time.
(d) Termination by Executive for Good Reason. (i) The Executive may
terminate employment for Good Reason. "Good Reason" means:
A. assignment to the Executive of any duties inconsistent with
Executive's position, duties, responsibilities, title or office, or
any other action by the Company that results in a material diminution
in the Executive's position, authority, duties or responsibilities,
excluding in each case any assignment or action that is remedied by
the Company within 10 days after receipt of notice thereof from the
Executive; or
B. any material failure by the Company to comply with this
Agreement, other than a failure that is remedied by the Company within
10 days after receipt of notice thereof from then Executive.
(e) Voluntary Termination by Executive Without Good Reason. Executive
may at any time terminate his employment under this Agreement without Good
Reason.
(f) Notice of Termination. If Company or Executive desires to
terminate Executive's employment hereunder at any time, it or he shall do
so by giving written notice to the other party (following the expiration of
any applicable cure periods) that it or he has elected to
3
terminate Executive's employment hereunder and stating the effective date
and reason for such termination. Any termination by Executive of his
employment without Good Reason shall be made on not less than 14 days'
notice.
9. Effect of Termination.
(a) Voluntary Termination by Executive; Termination for Cause; Death
or Disability. In the event that Executive's employment is terminated
pursuant to Paragraphs 8(a), 8(b) or 8(e), on the date of termination, the
Company shall be liable to Executive as follows:
(i) Executive shall be entitled to receive the Annual Salary due
to him through the date of termination of his employment.
(ii) Any vested rights of Executive shall be paid to Executive in
accordance with the Company's plans, programs or policies. Without
limiting the foregoing, in the event of the termination of Executive's
employment due to death or disability (Paragraph 8(a)), the rights and
benefits of Executive (or his designated beneficiary or
representatives, as applicable) under any Company life, health and
long-term disability plans and policies shall be determined in
accordance with the terms and provisions of such plans and policies.
(iii) The Company shall promptly reimburse Executive for any and
all reimbursable business expenses (to the extent not already
reimbursed) upon Executive's properly accounting for the same.
(b) Termination Without Cause; Termination by Executive for Good
Reason. In the event that the Company terminates Executive's employment
without Cause pursuant to Paragraph 8(c) or Executive terminates his
employment with the Company pursuant to Paragraph 8(d), the Company shall
be liable as follows:
(i) Executive shall be entitled to receive the Annual Salary due
to him through the date of termination of his Employment. In addition,
Executive shall be entitled to receive continued monthly payments of
his a Annual Salary, based on the Annual Salary in effect, on the date
of termination, until the first anniversary of the date of
termination.
(ii) Any vested rights of Executive shall be paid to Executive in
accordance with the Company's plans, programs or policies.
(iii) The Company shall promptly reimburse Executive for any and
all reimbursable business expenses (to the extent not already
reimbursed) upon Executive's properly accounting for the same.
(iv) Executive and/or the Executive's family shall be entitled to
receive health benefits (as contemplated by Paragraph 6(c) hereof)
until the first anniversary of the date of termination at least equal
to those which would have been provided to them in accordance with
this Agreement if
4
Executive's employment had not been terminated provided that the
Company's obligation to provide such benefits shall be reduced by any
comparable benefits (or amounts received by Executive in respect
thereof) received by Executive under the terms of new employment
undertaken by Executive after termination and prior to the first
anniversary of the date of termination; and provided further, that the
terms of the Company's health insurance plans shall be subject to
amendment during such period, to the extent that such amendments are
applicable to the executive officers of the Company generally.
(c) Limit on Company Liability. Except as expressly set forth in this
Paragraph 9, the Company shall have no obligation to Executive under this
Agreement following a termination of Executive's employment with the
Company. Without limiting the generality of the provision of the foregoing
sentence, the Company shall not, following a termination of Executive's
employment with the Company, have any obligation to provide any further
benefit to Executive or make any further contribution for Executive's
benefit except as provided in this Paragraph 9.
10. Company Proprietary Rights.
(a) Company to Retain Rights. Executive agrees that all right, title
and interest of every kind and nature whatsoever in and to copyrights,
patents, ideas, business or strategic plans and concepts, studies,
presentations, creations, inventions, writings, properties, discoveries and
all other intellectual property conceived by executive during the term of
this Agreement and pertaining to or useful in or to (directly or
indirectly) the activities of the Company (collectively, "Company
Intellectual Property") shall become and remain the exclusive property of
the Company, and Executive shall have no interest therein.
(b) Further Assurances. At the request of the Company, Executive
shall, at the Company's expense but without additional consideration,
execute such documents and perform such other acts as the Company may deem
necessary or appropriate to vest in the Company or its designee such title
as Executive may have to all Company Intellectual Property in which
Executive may be able to claim any rights by virtue of his employment under
this Agreement.
(c) Return of Material. Upon the termination of the Employment Term,
including any termination of employment described in Paragraph 8, the
Executive will promptly return to the Company all copies of information
protected by Paragraph 10(a) hereof or by Paragraph 3(a) of the
Non-Competition and Confidentiality Agreement referenced in Paragraph 7,
which are in his possession, custody or control, whether prepared by him or
others, and the Executive agrees that he shall not retain any of same.
11. Representation and Warranty of Executive. Executive represents and
warrants to the Company that he is not now under any obligation, of a
contractual nature or otherwise, to any person, partnership, company or
corporation that is inconsistent or in conflict with this Agreement or which
would prevent, limit or impair in any way the performance by him of his
obligations hereunder.
5
12. Resolution of Disputes. Any dispute or claim arising out of or
relating to this Agreement shall be settled by final and binding arbitration in
[Johnson City, Tennessee] in accordance with the Commercial Arbitration rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. The
fees and expenses of the arbitration panel shall be equally borne by the Company
and Executive. Each party shall be liable for its own costs and expenses as a
result of any dispute related to this Agreement.
13. Assignment. This Agreement, and the rights and obligations of the
parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party; provided,
however, that Company may assign this Agreement in connection with a merger or
consolidation involving Company or a sale of substantially all its assets to the
surviving corporation or purchaser, as the case may be, so long as such assignee
assumes Company's obligations hereunder.
14. Withholding. Payment of Executive's Annual Salary and payment or
provision of other compensation to Executive pursuant hereto shall be subject to
such reporting and withholding for applicable taxes as is required by law.
15. Certain Expenses. Company, on or before the date hereof, shall pay
directly or reimburse Executive (at Executive's discretion) for the actual legal
fees and other costs and expenses, if any, incurred by Executive in connection
with the preparation, finalizing and execution of this Letter.
16. Severability. In the event that any provision or portion of this
Agreement is determine to be invalid or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement will be unaffected
thereby and will remain in full force and effect to the fullest extent permitted
by law.
17. Notices. For all purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given, in the case of a notice to the Company, when delivered to
the Company at the following address, and in the case of a notice to Executive,
when received by Executive, and in both cases addressed as follows:
If to Company, to: NN, Inc.
2000 Waters Edge Drive
Building C, Suite 12
Johnson City, Tennessee 37604
Attention: President
If to Executive, to: Robert R. Sams
2311 Granite Drive
Johnson City, TN 37604
6
18. Modifications and Waivers. No provision of this Agreement may be
modified or discharged unless such modification or discharge is authorized by
the Board and is agreed to in writing, signed by the Executive and by an officer
of the Company duly authorized by the Board. No waiver by either party hereto of
any breach by the other party hereto of any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of similar
or dissimilar provisions or conditions at the time or at any prior or subsequent
time.
19. Entire Agreement. This Agreement and the Non-Competition and
Confidentially Agreement constitute the entire understanding of the parties
hereto with respect to their subject matter. This Agreement and the
Non-Competition and Confidentiality Agreement supersede all prior agreements
between the parties hereto with respect to their subject matter.
20. Governing Law. This Agreement will be governed by the laws of the
State of Tennessee without regard for its conflict of laws rules.
21. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same instrument.
22. Headings, Etc. The section headings contained in this Agreement are
for convenience of reference only and will not be deemed to control or affect
the meaning or construction of any provision of this Agreement. Reference to
Paragraphs are to Paragraphs in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NN, INC.
By: /s/ Roderick R. Baty
----------------------------------------
Robert R. Sams
By: /s/ Robert R. Sams
----------------------------------------
7
Exhibit 10.21
CHANGE OF CONTROL AND NONCOMPETITION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this 21st day of
January, 2002, by and between ROBERT R. SAMS ("Employee") and NN, INC., a
Delaware corporation, including its wholly-owned subsidiaries and affiliated
companies (collectively, "Employer").
RECITALS
WHEREAS, the Board of Directors of Employer (the "Board") has
determined that it is in the best interests of Employer to reinforce and
encourage the continuity of management personnel in anticipation of a possible
or potential Change of Control (as defined below); and
WHEREAS, the Board believes this objective can best be served by
providing for a compensation arrangement for Employee upon Employee's
termination of employment under certain circumstances in the event of a Change
of Control.
NOW, THEREFORE, in consideration of the mutual promises and covenants
as hereinafter set forth, the parties agree as follows:
AGREEMENT
1. General. Employer is engaged in the (i) manufacture and supply
of precision steel balls and rollers to domestic and international anti-friction
bearing manufacturers, automotive original equipment manufacturers and the
automotive aftermarket, the gas and mining industries, producers of drilling
bits for oil, gas and water wells and producers of stainless steel valves and
pumps, (ii) full-service design and manufacture of plastic injection molded
components to the bearing, automotive, electronic, leisure and consumer markets,
and (iii) the manufacture and supply of rubber seals to domestic and
international anti-friction bearing manufacturers. Employee is employed by
Employer in a senior management position in which Employee has or will have
access to the Employer's confidential information and trade secrets.
2. Employment Relationship. Except as specifically set forth herein,
the terms and conditions of Employee's employment are set forth in the
Employment Agreement dated January 21, 2002 between Employee and Employer (the
"Employment Agreement"), a copy of which is attached hereto as Exhibit A.
3. Termination Upon Change of Control.
(a) Severance Benefits. In the event that Employee's employment
is terminated within two (2) years following a "Change of Control" (as
defined below) and such termination is either (i) Without Cause (as
defined below), or (ii) is a Constructive Termination (as defined
below), Employee shall receive, in addition to all compensation due
and payable to or accrued for the benefit of Employee as of the date
of termination:
(i) a lump sum payment equal to an amount set forth on
Schedule A to this Agreement ("Severance Payment"). The Severance
Payment shall be made by wire transfer of immediately available
funds to an account designated by Employee within seven (7)
business days following the date of termination;
(ii) a payment equal to the annual bonus to which Employee
would have been entitled but for Employee's termination of
employment for the year of Employee's termination, pro-rated for
the portion of the year during which he was employed by Employer
("Pro-rated Bonus"). The Pro-rated Bonus shall be payable to
Employee at the end of the calendar year for which the bonus is
payable, in accordance with Employer's normal bonus procedures;
and
(iii) for a period of twenty-four months after such
termination (the "Coverage Period"), medical, dental,
prescription drug, life, accidental death and disability
insurance coverage substantially similar to the coverage which
Employee was receiving or entitled to receive immediately prior
to the date of the termination of Employee's employment
("Insurance Benefits"). Notwithstanding the foregoing, Employee
shall not be entitled to receive the Insurance Benefits (or a
portion thereof) to the extent that Employee obtains other
employment that provides equal or greater benefits during the
Coverage Period.
The Severance Payment, Pro-rated Bonus and Insurance Benefits are collectively
referred to in this Agreement as the "Severance Benefit."
(b) Excise Tax.
(i) Notwithstanding anything to the contrary set forth in
this Agreement, in no event shall a Severance Benefit payable
pursuant to this Section 3 exceed an amount equal to the lesser
of (i) 2.99 times the "base amount" (as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")) of Employee's compensation, or (ii) such other amount
which would constitute a "parachute payment" (as defined in
Section 280G of the Code). In the event that it shall be
determined that any Severance Benefit to Employee (whether paid
or payable or distributed or distributable) would be subject to
the excise tax imposed by Section 4999 of the Code, or any
successor provision thereto (the "Excise Tax"), then Employee
shall be entitled to receive from Employer an additional payment
(the "Gross-Up Payment") in an amount such that the net amount of
the Severance Benefit and the Gross-Up Payment retained by
Employee after the calculation and deduction of all Excise Taxes
(including any interest or penalties imposed with respect to such
taxes) on the payment and all Federal, state and local income
tax, employment tax and Excise Tax (including any interest or
penalties imposed with respect to such taxes) or the Gross-Up
Payment provided for in this Section, and taking into account any
lost or reduced tax deductions on account of the Gross-Up
Payment, shall be equal to the Severance Benefit.
2
(ii) Employee shall notify Employer in writing of any claim
by the Internal Revenue Service that, if successful, would
require the payment by Employer of the Gross-Up Payment. Such
notification shall be given as soon as practicable after Employee
is informed in writing of such claim and shall apprise Employer
of the nature of such claim and the date on which such claim is
requested to be paid. Employee shall not pay such claim prior to
the expiration of the 30-day period following the date on which
Employee gives such notice to Employer (or such shorter period
ending on the date that any payment of taxes, interest and/or
penalties with respect to such claim is due). If Employer
notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(A) give Employer any information reasonably requested
by Employer relating to such claim;
(B) take such action in connection with contesting such
claim as Employer shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Employer;
(C) cooperate with Employer in good faith in order to
effectively contest such claim; and
(D) permit Employer to participate in any proceedings
relating to such claims;
provided, however, that Employer shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify Employee for and hold
Employee harmless from, on an after-tax basis, any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of all related costs and
expenses. Without limiting the foregoing provisions of this section,
Employer shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as Employer shall determine; provided, however, that
if Employer directs Employee to pay such claim and sue for a refund,
Employer shall advance the amount of such payment to Employee, on an
interest-free basis, and shall indemnify Employee for and hold Employee
harmless from, on an after-tax basis, any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance (including as a result of any forgiveness by
Employer of such advance); provided, further, that any extension of the
statute of limitations relating to the payment of taxes for the taxable
year of Employee with respect to which such contested amount is claimed
to
3
be due is limited solely to such contested amount. Furthermore,
Employer's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
Employee shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other
taxing authority.
(c) Change of Control. "Change of Control" shall mean: (i) a
person, corporation, entity or group (A) makes a tender or exchange
offer for the issued and outstanding voting stock of Employer and
beneficially owns thirty percent (30%) or more of the issued and
outstanding voting stock of Employer after such tender or exchange
offer, or (B) acquires, directly or indirectly, the beneficial
ownership of thirty percent (30%) or more of the issued and
outstanding voting stock of Employer in a single transaction or a
series of transactions (other than any person, corporation, entity or
group for which a Schedule 13G is on file with the Securities and
Exchange Commission, so long as such person, corporation, entity or
group has beneficial ownership of less than fifty percent (50%) of the
issued and outstanding voting stock of Employer); (ii) Employer is a
party to a merger, consolidation or similar transaction and following
such transaction, fifty percent (50%) or more of the issued and
outstanding voting stock of the resulting entity is not beneficially
owned by those persons, corporations or entities that constituted the
stockholders of Employer immediately prior to the transaction; (iii)
Employer sells fifty percent (50%) or more of its assets to any other
person or persons (other than an affiliate or affiliates of Employer);
or (iv) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least
seventy-five percent (75%) of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof, whose
election or nomination was approved by a majority of the directors
then comprising the Incumbent Board, shall be considered a member of
the Incumbent Board, but not including any individual whose initial
Board membership is a result of an actual or threatened election
contest (as that term is used in Rule 14a-11 promulgated under the
Securities Act of 1934, as amended) or an actual or threatened
solicitation of proxies or consents by or on behalf of a party other
than the Board.
(d) Termination Without Cause. Termination "Without Cause" shall
mean termination of Employee by Employer for reasons other than: (i)
the willful, persistent failure of Employee (after thirty (30) days
written notice and a reasonable opportunity to cure) to perform his
material duties for reasons other than death or disability; (ii) the
breach by Employee of any material provision of this Agreement; or
(iii) Employee's conviction of a felony involving dishonesty, deceit
or moral turpitude by a trial court of competent jurisdiction, whether
or not an appeal is taken.
(c) Constructive Termination. "Constructive Termination" shall
mean: (i) a material, adverse change of Employee's responsibilities,
authority, status, position, offices, titles, duties or reporting
requirements (including directorships); (ii) an adverse change in
Employee's annual compensation or benefits; (iii) a requirement to
relocate in excess of fifty (50) miles from Employee's then current
place of employment; or (iv) the breach by Employer of any material
provision of this Agreement, other than a breach that is remedied by
Employer within 10 days after receipt of notice thereof from Employee.
For purposes of this definition, Employee's responsibilities,
authority, status, position,
4
offices, titles, duties and reporting requirements are to be
determined as of the date of this Agreement. For purposes of this
Section, all determinations of Constructive Termination shall be made
in good faith by Employee and shall be conclusive.
(f) Other Severance Benefits. The Severance Benefit payable to
Employee pursuant to this Section 3 shall be reduced by any severance
benefits to which Employee is entitled under Employer's severance
policies for terminated employees generally or any termination
payments payable to Employee under Employee's Employment Agreement.
4. Employee's Acknowledgments and Covenants.
(a) Confidential Materials and Information. Employer has
developed confidential information, strategies and programs, which
include customer lists, prospects, lists, expansion and acquisition
plans, market research, sales systems, marketing programs, computer
systems and programs, product development strategies, manufacturing
strategies and techniques, budgets, pricing strategies, identity and
requirements of national accounts, customer lists, methods of
operating, service systems, training programs and methods, other trade
secrets and other information about the business in which employer is
engaged that is not known to the public and gives Employer an
opportunity to obtain an advantage over competitors who do not know of
such information (collectively, "Confidential Information"). In
performing duties for Employer, Employee regularly will be exposed to
and work with the Confidential Information. Employee acknowledges that
such Confidential Information is critical to Employer's success and
that Employer has invested substantial sums of money in developing the
Confidential Information. While Employee is employed by Employer and
after such employment ends for any reason, Employee will never
reproduce, publish, disclose, use, reveal, show or otherwise
communicate to any person or entity any Confidential Information
unless specifically directed by Employer to do so in writing.
(b) Nonsolicitation of Employees. While Employee is employed by
Employer and for twenty-four (24) months after such employment ends
for any reason, Employee, acting either directly or indirectly, or
through any other person, firm, or corporation, will not hire contract
with or employ any employee of Employer or induce or attempt to induce
or influence any employee of Employer to terminate employment with
Employer. Such nonsolicitation restriction shall not apply to Employee
in the case of the solicitation of his or her immediate family
members.
(c) Covenant Against Unfair Competition. While Employee is
employed by Employer and for twenty-four (24) months after such
employment ends for any reason, Employee will not, directly or
indirectly, or through any other person, firm or corporation (i) be
employed by, consult for, have any ownership interest in or engage in
any activity on behalf of any competing business, or (ii) call on,
solicit or communicate with any of Employer's customers (whether
actual or potential) for the purpose of selling precision steel balls
and rollers and other related items to such customer other than for
the benefit of Employer. As used in this Agreement, the term
"competing business" means a business that is a manufacturer and
supplier of precision steel balls and rollers to anti-
5
friction bearing manufacturers (excluding any ball and roller
manufacturers who manufacture such products for use in their business
or the business of their affiliates and do not supply such products to
third parties) and the term "customer" means any customer (whether
actual or potential) with whom Employee or any other employee of
Employer had business contact on behalf of Employer during the
eighteen (18) months immediately before Employee's employment with
Employer ended). Notwithstanding the foregoing, this paragraph shall
not be construed to prohibit Employee from owning less than five
percent (5%) of the outstanding securities of a corporation which is
publicly traded on a securities exchange or over-the-counter.
(d) Return of Confidential Materials and Information. Employee
agrees that whenever Employee's employment with Employer ends for any
reason, all documents containing or referring to Confidential
Information as may be in Employee's possession or control will be
delivered by Employee to Employer immediately, with no request being
required.
(e) Acknowledgments; Irreparable Harm. Employee agrees that the
restrictions on competition, solicitation and disclosure in this
Agreement are fair, reasonable and necessary for the protection of the
interests of Employer. Employee further agrees that a breach of any of
the covenants set forth in this Section 4 will result in irreparable
injury and damage to Employer for which Employer would have no
adequate remedy at law, and Employee further agrees that in the event
of a breach, Employer will be entitled to an immediate restraining
order and injunction to prevent such violation or continued violation,
without having to prove damages, in addition to any other remedies to
which Employer may be entitled at law or equity.
(f) Notification to Subsequent Employers. Employee grants
Employer the right to notify any future employer or prospective
employer of Employee concerning the existence of and terms of this
Agreement and grants Employer the right to provide a copy of this
Agreement to any such subsequent employer or prospective employer.
5. Mitigation. Employer's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which Employer may have against Employee or others. In no event
shall Employee be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to Employee under any of the provisions
of this agreement and such amounts shall not be reduced whether or not Employee
obtains other employment.
6. Resolution of Disputes. Any dispute or claim arising out of or
relating to this Agreement shall be settled by final and binding arbitration in
Johnson City, Tennessee in accordance with the Commercial Arbitration rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof.
Employer agrees to pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which Employee may reasonably incur as a result
of any dispute (regardless of the outcome thereof) by Employer, Employee or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of
6
performance thereof (including as a result of any dispute by Employee regarding
the amount of any payment pursuant to this agreement), plus in each case
interest on any delayed payment at the rate published from time to time in The
Wall Street Journal as the prime rate of interest plus two percent (2%).
7. Withholding. Employer may withhold from any amounts payable under
this Agreement the minimum Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
8. Successors. This Agreement is binding on, and shall inure to the
benefit of Employee and Employer, and all successors and assigns of Employer.
Employer will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of Employer to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a material breach of this Agreement and shall entitle
Employee to any Severance Benefit payable pursuant to Section 3(a) hereof.
9. Applicable Law. This Agreement will be interpreted, governed and
enforced according to the law of the State of Tennessee.
10. Separability. If any portion of this Agreement is held to be
invalid or unenforceable in any respect, Employee and Employer agree that such
invalid and unenforceable part will be modified to permit the Agreement to be
enforced to the maximum extent permitted by the court, with the remaining
portions unaffected by the invalidity or unenforceability of any part of this
Agreement.
11. Waiver. This Agreement may be modified, supplemented or amended,
and any provision of this Agreement can be waived, only by written instrument
making specific reference to this Agreement signed by the party against whom
enforcement of any such modification, supplement, amendment or waiver is sought.
12. Complete Agreement. This Agreement contains the entire agreement
between Employer and Employee as to the subject matter hereof. This Agreement
shall not be subject to the terms and conditions of any agreement concerning
arbitration or dispute resolution between Employer and Employee.
EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS READ THE ENTIRE CONTENTS OF THIS
AGREEMENT AND THAT HE/SHE UNDERSTANDS ITS TERMS.
[Signatures on following page]
7
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first written above.
EMPLOYEE:
/s/ Robert R. Sams
-------------------------------------------
Name: Robert R. Sams
NN, INC.,
including its subsidiaries and affiliates
By: /s/ Roderick R. Baty
--------------------------------------
Roderick R. Baty
8
Schedule A
Employee's Severance Payment shall be a lump sum payment equal to:
1. 2 times such Employee's base salary (as of the date of Employee's
termination); plus
2. 2 times such Employee's median bonus available at the following bonus
target percentage: 35%; plus
3. An amount equal to 2 times Employee's annual automobile allowance or the
annual cost to Employee of obtaining a motor vehicle comparable to that
provided by Employer to Employee.
9
Exhibit 10.22
EMPLOYMENT AGREEMENT
This AGREEMENT is made as of January 21, 2002, by and between NN, Inc.,
a Delaware corporation, having its principal place of business located at 2000
Water's Edge Drive, Building C, Suite 12, Johnson City, Tennessee 37604 (the
"Company") and William C. Kelly, Jr. (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company's Board of Directors (the "Board") has determined
that it is in the best interest of the Company and its shareholders to employ
the Executive as Treasurer, Secretary and Chief Accounting Officer of the
Company and the Executive desires to serve in that capacity;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto,
intending to be legally bound, agree as follows:
1. Employment. The Company agrees to continue to employ the Executive
and the Executive hereby agrees to continue to be employed for the period of
time set forth in Paragraph 2, subject to the terms and conditions set forth
herein.
2. Term. Subject to the terms hereof, Company agrees to employ the
Executive for a period of two years commencing upon January 21, 2002 and
expiring on January 20, 2004 (the "Employment Term") (unless sooner terminated
as provided herein). The Employment Term shall be extended automatically from
time to time, on a rolling basis, for additional one year periods, unless either
party gives written notice of termination to the other at least six (6) months
prior to the date that the Employment Term is scheduled to expire.
3. Position and Responsibilities. The Executive shall serve as the
Treasurer, Secretary and Chief Accounting Officer of the Company, reporting to
the President and Chief Executive Officer, and shall have supervision and
control over, and responsibility for, the treasury and accounting activities of
the Company. The Executive shall also have such other powers and duties as may
from time to time be prescribed by the President or Chief Executive Officer;
provided, however, that such duties shall be consistent with the Executive's
position as the officer in charge of business development activities and
principal financial officer of the Company.
4. Diligence. Executive agrees to serve in the respective positions
referred to in Paragraph 3 and to perform diligently the duties and services
appertaining to each such office, as well as such additional duties and services
appropriate to each such office which the parties mutually may agree upon from
time to time.
5. Time. Executive agrees to devote his entire working time and efforts
to the business and affairs of the Company and its affiliates and not to engage,
directly or indirectly, in any other business or businesses, whether or not
similar to that of the Company, except with the consent of the President and
Chief Executive Officer and the Board. The foregoing
notwithstanding, the parties recognize and agree that Executive (i) may engage
in personal investments, subject to any restrictions set forth in the
Non-Competition and Confidentiality Agreement referenced in Paragraph 7 and (ii)
subject to the prior consent of the President, may serve on the board of
directors of other companies, provided such service does not conflict with the
business and affairs of the Company or interfere with Executive's performance of
his duties hereunder.
6. Compensation.
(a) Salary. During the Employment Term, the Executive shall receive an
annual salary of $105,000 per year, which annual salary shall be subject to
such increases as the Board in its sole discretion may from time to time
determine (the "Annual Salary"). The Annual Salary shall be payable by the
Company in accordance with its regular compensation policies and practices
for paying executives.
(b) Expenses. During the term of his employment hereunder, the
Executive shall be entitled to be reimbursed for all reasonable business
expenses incurred by him in connection with his services hereunder,
including but not limited to expenses for entertainment and travel, in
accordance with the policies and procedures from time to time in effect for
the Company's senior executive officers. The Company retains the right to
establish limits on the types or amounts of business expenses that the
Executive may incur.
(c) Employee Benefit Programs. The Executive shall be entitled to
participate in all of the Company's employee benefit plans and programs
(including life, disability, and health insurance plans and programs and
savings plans and programs) to the extent his position, tenure, salary,
age, health and other qualifications make him eligible to participate,
subject to the rules and regulations applicable thereto. The Company
retains the right to abolish or alter the terms of any employee benefit
programs, plans or policies that it may establish, provided such abolition
or amendment shall be applicable to the senior officers of the Company
generally.
(d) Vacation and Other Absences. The Executive shall be entitled to
the number of paid vacation days in each calendar year determined by the
Company from time to time for its senior executive officers generally. The
Executive shall also be entitled to all paid absences for holidays or
illnesses in accordance with the Company's plans, policies or provisions
applicable to senior executive employees.
7. Confidentiality and Non-Competition. As a material inducement to the
Company entering into this Agreement and in consideration for the Executive's
continued employment, Executive hereby reconfirms and agrees to continue to be
bound in all respects by the terms of that certain Non-Competition and
Confidentiality Agreement, dated January 21, 2002, between Executive and the
Company, a copy of which is attached hereto as Exhibit A.
8. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Term. The
Company shall be entitled to terminate the Executive's employment because
of the Executive's disability during the Employment Term if, as a result of
the Executive's incapacity due to physical or mental illness
2
(hereinafter "Disability"), the Executive shall have been absent from his
duties hereunder for one hundred and twenty (120) days during any three
hundred and sixty (360) day period.
(b) Termination by Company for Cause. (i) The Company may terminate
the Executive's employment during the Employment Term for Cause. "Cause"
means:
A. the failure of the Executive to perform the Executive's duties
under this Agreement (other than as a result of physical or mental
illness or injury), which failure, if correctable, and provided it
does not constitute willful misconduct or gross negligence described
in Subsection B below, remains uncorrected for 10 days following
written notice to Executive by the President or the Board of such
breach;
B. willful misconduct or gross negligence by the Executive, in
either case that results in material damage to the business or
reputation of the Company;
C. a material breach by Executive of either this Agreement or
that certain Non-Competition and Confidentiality Agreement referenced
in Paragraph 8 which, if correctable, remains uncorrected for 10 days
following written notice to Executive by the Board of such breach; or
D. the Executive is convicted of a felony or any other crime
involving moral turpitude (whether or not in connection with the
performance by Executive of his duties under this Agreement).
(c) Termination By Company Without Cause. The Company may terminate
the employment of Executive under this Agreement for any reason at any
time.
(d) Termination by Executive for Good Reason. (i) The Executive may
terminate employment for Good Reason. "Good Reason" means:
A. assignment to the Executive of any duties inconsistent with
Executive's position, duties, responsibilities, title or office, or
any other action by the Company that results in a material diminution
in the Executive's position, authority, duties or responsibilities,
excluding in each case any assignment or action that is remedied by
the Company within 10 days after receipt of notice thereof from the
Executive; or
B. any material failure by the Company to comply with this
Agreement, other than a failure that is remedied by the Company within
10 days after receipt of notice thereof from then Executive.
(e) Voluntary Termination by Executive Without Good Reason. Executive
may at any time terminate his employment under this Agreement without Good
Reason.
(f) Notice of Termination. If Company or Executive desires to
terminate Executive's employment hereunder at any time, it or he shall do
so by giving written notice to the other party (following the expiration of
any applicable cure periods) that it or he has elected to
3
terminate Executive's employment hereunder and stating the effective date
and reason for such termination. Any termination by Executive of his
employment without Good Reason shall be made on not less than 14 days'
notice.
9. Effect of Termination.
(a) Voluntary Termination by Executive; Termination for Cause; Death
or Disability. In the event that Executive's employment is terminated
pursuant to Paragraphs 8(a), 8(b) or 8(e), on the date of termination, the
Company shall be liable to Executive as follows:
(i) Executive shall be entitled to receive the Annual Salary due
to him through the date of termination of his employment.
(ii) Any vested rights of Executive shall be paid to Executive in
accordance with the Company's plans, programs or policies. Without
limiting the foregoing, in the event of the termination of Executive's
employment due to death or disability (Paragraph 8(a)), the rights and
benefits of Executive (or his designated beneficiary or
representatives, as applicable) under any Company life, health and
long-term disability plans and policies shall be determined in
accordance with the terms and provisions of such plans and policies.
(iii) The Company shall promptly reimburse Executive for any and
all reimbursable business expenses (to the extent not already
reimbursed) upon Executive's properly accounting for the same.
(b) Termination Without Cause; Termination by Executive for Good
Reason. In the event that the Company terminates Executive's employment
without Cause pursuant to Paragraph 8(c) or Executive terminates his
employment with the Company pursuant to Paragraph 8(d), the Company shall
be liable as follows:
(i) Executive shall be entitled to receive the Annual Salary due
to him through the date of termination of his Employment. In addition,
Executive shall be entitled to receive continued monthly payments of
his a Annual Salary, based on the Annual Salary in effect, on the date
of termination, until the first anniversary of the date of
termination.
(ii) Any vested rights of Executive shall be paid to Executive in
accordance with the Company's plans, programs or policies.
(iii) The Company shall promptly reimburse Executive for any and
all reimbursable business expenses (to the extent not already
reimbursed) upon Executive's properly accounting for the same.
(iv) Executive and/or the Executive's family shall be entitled to
receive health benefits (as contemplated by Paragraph 6(c) hereof)
until the first anniversary of the date of termination at least equal
to those which would have been provided to them in accordance with
this Agreement if
4
Executive's employment had not been terminated provided that the
Company's obligation to provide such benefits shall be reduced by any
comparable benefits (or amounts received by Executive in respect
thereof) received by Executive under the terms of new employment
undertaken by Executive after termination and prior to the first
anniversary of the date of termination; and provided further, that the
terms of the Company's health insurance plans shall be subject to
amendment during such period, to the extent that such amendments are
applicable to the executive officers of the Company generally.
(c) Limit on Company Liability. Except as expressly set forth in this
Paragraph 9, the Company shall have no obligation to Executive under this
Agreement following a termination of Executive's employment with the
Company. Without limiting the generality of the provision of the foregoing
sentence, the Company shall not, following a termination of Executive's
employment with the Company, have any obligation to provide any further
benefit to Executive or make any further contribution for Executive's
benefit except as provided in this Paragraph 9.
10. Company Proprietary Rights.
(a) Company to Retain Rights. Executive agrees that all right, title
and interest of every kind and nature whatsoever in and to copyrights,
patents, ideas, business or strategic plans and concepts, studies,
presentations, creations, inventions, writings, properties, discoveries and
all other intellectual property conceived by executive during the term of
this Agreement and pertaining to or useful in or to (directly or
indirectly) the activities of the Company (collectively, "Company
Intellectual Property") shall become and remain the exclusive property of
the Company, and Executive shall have no interest therein.
(b) Further Assurances. At the request of the Company, Executive
shall, at the Company's expense but without additional consideration,
execute such documents and perform such other acts as the Company may deem
necessary or appropriate to vest in the Company or its designee such title
as Executive may have to all Company Intellectual Property in which
Executive may be able to claim any rights by virtue of his employment under
this Agreement.
(c) Return of Material. Upon the termination of the Employment Term,
including any termination of employment described in Paragraph 8, the
Executive will promptly return to the Company all copies of information
protected by Paragraph 10(a) hereof or by Paragraph 3(a) of the
Non-Competition and Confidentiality Agreement referenced in Paragraph 7,
which are in his possession, custody or control, whether prepared by him or
others, and the Executive agrees that he shall not retain any of same.
11. Representation and Warranty of Executive. Executive represents and
warrants to the Company that he is not now under any obligation, of a
contractual nature or otherwise, to any person, partnership, company or
corporation that is inconsistent or in conflict with this Agreement or which
would prevent, limit or impair in any way the performance by him of his
obligations hereunder.
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12. Resolution of Disputes. Any dispute or claim arising out of or
relating to this Agreement shall be settled by final and binding arbitration in
[Johnson City, Tennessee] in accordance with the Commercial Arbitration rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. The
fees and expenses of the arbitration panel shall be equally borne by the Company
and Executive. Each party shall be liable for its own costs and expenses as a
result of any dispute related to this Agreement.
13. Assignment. This Agreement, and the rights and obligations of the
parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party; provided,
however, that Company may assign this Agreement in connection with a merger or
consolidation involving Company or a sale of substantially all its assets to the
surviving corporation or purchaser, as the case may be, so long as such assignee
assumes Company's obligations hereunder.
14. Withholding. Payment of Executive's Annual Salary and payment or
provision of other compensation to Executive pursuant hereto shall be subject to
such reporting and withholding for applicable taxes as is required by law.
15. Certain Expenses. Company, on or before the date hereof, shall pay
directly or reimburse Executive (at Executive's discretion) for the actual legal
fees and other costs and expenses, if any, incurred by Executive in connection
with the preparation, finalizing and execution of this Letter.
16. Severability. In the event that any provision or portion of this
Agreement is determine to be invalid or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement will be unaffected
thereby and will remain in full force and effect to the fullest extent permitted
by law.
17. Notices. For all purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given, in the case of a notice to the Company, when delivered to
the Company at the following address, and in the case of a notice to Executive,
when received by Executive, and in both cases addressed as follows:
If to Company, to: NN, Inc.
2000 Waters Edge Drive
Building C, Suite 12
Johnson City, Tennessee 37604
Attention: President
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If to Executive, to: William C. Kelly, Jr.
____________________________________
____________________________________
18. Modifications and Waivers. No provision of this Agreement may be
modified or discharged unless such modification or discharge is authorized by
the Board and is agreed to in writing, signed by the Executive and by an officer
of the Company duly authorized by the Board. No waiver by either party hereto of
any breach by the other party hereto of any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of similar
or dissimilar provisions or conditions at the time or at any prior or subsequent
time.
19. Entire Agreement. This Agreement and the Non-Competition and
Confidentially Agreement constitute the entire understanding of the parties
hereto with respect to their subject matter. This Agreement and the
Non-Competition and Confidentiality Agreement supersede all prior agreements
between the parties hereto with respect to their subject matter.
20. Governing Law. This Agreement will be governed by the laws of the
State of Tennessee without regard for its conflict of laws rules.
21. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same instrument.
22. Headings, Etc. The section headings contained in this Agreement
are for convenience of reference only and will not be deemed to control or
affect the meaning or construction of any provision of this Agreement. Reference
to Paragraphs are to Paragraphs in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NN, INC.
By: /s/ David L. Dyckman
----------------------------------------
William C. Kelly, Jr.
By: /s/ William C. Kelly, Jr.
----------------------------------------
7
Exhibit 10.23
CHANGE OF CONTROL AND NONCOMPETITION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this 21st day of
January, 2002, by and between WILLIAM C. KELLY, JR. ("Employee") and NN, INC., a
Delaware corporation, including its wholly-owned subsidiaries and affiliated
companies (collectively, "Employer").
RECITALS
WHEREAS, the Board of Directors of Employer (the "Board") has
determined that it is in the best interests of Employer to reinforce and
encourage the continuity of management personnel in anticipation of a possible
or potential Change of Control (as defined below); and
WHEREAS, the Board believes this objective can best be served by
providing for a compensation arrangement for Employee upon Employee's
termination of employment under certain circumstances in the event of a Change
of Control.
NOW, THEREFORE, in consideration of the mutual promises and covenants
as hereinafter set forth, the parties agree as follows:
AGREEMENT
1. General. Employer is engaged in the (i) manufacture and supply
of precision steel balls and rollers to domestic and international anti-friction
bearing manufacturers, automotive original equipment manufacturers and the
automotive aftermarket, the gas and mining industries, producers of drilling
bits for oil, gas and water wells and producers of stainless steel valves and
pumps, (ii) full-service design and manufacture of plastic injection molded
components to the bearing, automotive, electronic, leisure and consumer markets,
and (iii) the manufacture and supply of rubber seals to domestic and
international anti-friction bearing manufacturers. Employee is employed by
Employer in a senior management position in which Employee has or will have
access to the Employer's confidential information and trade secrets.
2. Employment Relationship. Except as specifically set forth herein,
the terms and conditions of Employee's employment are set forth in the
Employment Agreement dated January 21, 2002 between Employee and Employer (the
"Employment Agreement"), a copy of which is attached hereto as Exhibit A.
3. Termination Upon Change of Control.
(a) Severance Benefits. In the event that Employee's employment
is terminated within two (2) years following a "Change of Control" (as
defined below) and such termination is either (i) Without Cause (as
defined below), or (ii) is a Constructive Termination (as defined
below), Employee shall receive, in addition to all compensation due
and payable to or accrued for the benefit of Employee as of the date
of termination:
(i) a lump sum payment equal to an amount set forth on
Schedule A to this Agreement ("Severance Payment"). The Severance
Payment shall be made by wire transfer of immediately available
funds to an account designated by Employee within seven (7)
business days following the date of termination;
(ii) a payment equal to the annual bonus to which Employee
would have been entitled but for Employee's termination of
employment for the year of Employee's termination, pro-rated for
the portion of the year during which he was employed by Employer
("Pro-rated Bonus"). The Pro-rated Bonus shall be payable
to Employee at the end of the calendar year for which the bonus
is payable, in accordance with Employer's normal bonus
procedures; and
(iii) for a period of eighteen months after such termination
(the "Coverage Period"), medical, dental, prescription drug,
life, accidental death and disability insurance coverage
substantially similar to the coverage which Employee was
receiving or entitled to receive immediately prior to the date of
the termination of Employee's employment ("Insurance Benefits").
Notwithstanding the foregoing, Employee shall not be entitled to
receive the Insurance Benefits (or a portion thereof) to the
extent that Employee obtains other employment that provides equal
or greater benefits during the Coverage Period.
The Severance Payment, Pro-rated Bonus and Insurance Benefits are collectively
referred to in this Agreement as the "Severance Benefit."
(b) Excise Tax.
(i) Notwithstanding anything to the contrary set forth in
this Agreement, in no event shall a Severance Benefit payable
pursuant to this Section 3 exceed an amount equal to the lesser
of (i) 2.99 times the "base amount" (as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")) of Employee's compensation, or (ii) such other amount
which would constitute a "parachute payment" (as defined in
Section 280G of the Code). In the event that it shall be
determined that any Severance Benefit to Employee (whether paid
or payable or distributed or distributable) would be subject to
the excise tax imposed by Section 4999 of the Code, or any
successor provision thereto (the "Excise Tax"), then Employee
shall be entitled to receive from Employer an additional payment
(the "Gross-Up Payment") in an amount such that the net amount of
the Severance Benefit and the Gross-Up Payment retained by
Employee after the calculation and deduction of all Excise Taxes
(including any interest or penalties imposed with respect to such
taxes) on the payment and all Federal, state and local income
tax, employment tax and Excise Tax (including any interest or
penalties imposed with respect to such taxes) or the Gross-Up
Payment provided for in this Section, and taking into account any
lost or reduced tax deductions on account of the Gross-Up
Payment, shall be equal to the Severance Benefit.
2
(ii) Employee shall notify Employer in writing of any claim
by the Internal Revenue Service that, if successful, would
require the payment by Employer of the Gross-Up Payment. Such
notification shall be given as soon as practicable after Employee
is informed in writing of such claim and shall apprise Employer
of the nature of such claim and the date on which such claim is
requested to be paid. Employee shall not pay such claim prior to
the expiration of the 30-day period following the date on which
Employee gives such notice to Employer (or such shorter period
ending on the date that any payment of taxes, interest and/or
penalties with respect to such claim is due). If Employer
notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(A) give Employer any information reasonably requested
by Employer relating to such claim;
(B) take such action in connection with contesting such
claim as Employer shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Employer;
(C) cooperate with Employer in good faith in order to
effectively contest such claim; and
(D) permit Employer to participate in any proceedings
relating to such claims;
provided, however, that Employer shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify Employee for and hold
Employee harmless from, on an after-tax basis, any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of all related costs and
expenses. Without limiting the foregoing provisions of this section,
Employer shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as Employer shall determine; provided, however, that
if Employer directs Employee to pay such claim and sue for a refund,
Employer shall advance the amount of such payment to Employee, on an
interest-free basis, and shall indemnify Employee for and hold Employee
harmless from, on an after-tax basis, any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance (including as a result of any forgiveness by
Employer of such advance); provided, further, that any extension of the
statute of limitations relating to the payment of taxes for the taxable
year of Employee with respect to which such contested amount is claimed
to
3
be due is limited solely to such contested amount. Furthermore,
Employer's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
Employee shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other
taxing authority.
(c) Change of Control. "Change of Control" shall mean: (i) a
person, corporation, entity or group (A) makes a tender or exchange
offer for the issued and outstanding voting stock of Employer and
beneficially owns thirty percent (30%) or more of the issued and
outstanding voting stock of Employer after such tender or exchange
offer, or (B) acquires, directly or indirectly, the beneficial
ownership of thirty percent (30%) or more of the issued and outstanding
voting stock of Employer in a single transaction or a series of
transactions (other than any person, corporation, entity or group for
which a Schedule 13G is on file with the Securities and Exchange
Commission, so long as such person, corporation, entity or group has
beneficial ownership of less than fifty percent (50%) of the issued and
outstanding voting stock of Employer); (ii) Employer is a party to a
merger, consolidation or similar transaction and following such
transaction, fifty percent (50%) or more of the issued and outstanding
voting stock of the resulting entity is not beneficially owned by those
persons, corporations or entities that constituted the stockholders of
Employer immediately prior to the transaction; (iii) Employer sells
fifty percent (50%) or more of its assets to any other person or
persons (other than an affiliate or affiliates of Employer); or (iv)
individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least
seventy-five percent (75%) of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof, whose
election or nomination was approved by a majority of the directors then
comprising the Incumbent Board, shall be considered a member of the
Incumbent Board, but not including any individual whose initial Board
membership is a result of an actual or threatened election contest (as
that term is used in Rule 14a-11 promulgated under the Securities Act
of 1934, as amended) or an actual or threatened solicitation of proxies
or consents by or on behalf of a party other than the Board.
(d) Termination Without Cause. Termination "Without Cause" shall
mean termination of Employee by Employer for reasons other than: (i)
the willful, persistent failure of Employee (after thirty (30) days
written notice and a reasonable opportunity to cure) to perform his
material duties for reasons other than death or disability; (ii) the
breach by Employee of any material provision of this Agreement; or
(iii) Employee's conviction of a felony involving dishonesty, deceit or
moral turpitude by a trial court of competent jurisdiction, whether or
not an appeal is taken.
(e) Constructive Termination. "Constructive Termination" shall
mean: (i) a material, adverse change of Employee's responsibilities,
authority, status, position, offices, titles, duties or reporting
requirements (including directorships); (ii) an adverse change in
Employee's annual compensation or benefits; (iii) a requirement to
relocate in excess of fifty (50) miles from Employee's then current
place of employment; or (iv) the breach by Employer of any material
provision of this Agreement, other than a breach that is remedied by
Employer within 10 days after receipt of notice thereof from Employee.
For purposes of this definition, Employee's responsibilities,
authority, status, position,
4
offices, titles, duties and reporting requirements are to be
determined as of the date of this Agreement. For purposes of this
Section, all determinations of Constructive Termination shall be made
in good faith by Employee and shall be conclusive.
(f) Other Severance Benefits. The Severance Benefit payable to
Employee pursuant to this Section 3 shall be reduced by any severance
benefits to which Employee is entitled under Employer's severance
policies for terminated employees generally or any termination
payments payable to Employee under Employee's Employment Agreement.
4. Employee's Acknowledgments and Covenants.
(a) Confidential Materials and Information. Employer has
developed confidential information, strategies and programs, which
include customer lists, prospects, lists, expansion and acquisition
plans, market research, sales systems, marketing programs, computer
systems and programs, product development strategies, manufacturing
strategies and techniques, budgets, pricing strategies, identity and
requirements of national accounts, customer lists, methods of
operating, service systems, training programs and methods, other trade
secrets and other information about the business in which employer is
engaged that is not known to the public and gives Employer an
opportunity to obtain an advantage over competitors who do not know of
such information (collectively, "Confidential Information"). In
performing duties for Employer, Employee regularly will be exposed to
and work with the Confidential Information. Employee acknowledges that
such Confidential Information is critical to Employer's success and
that Employer has invested substantial sums of money in developing the
Confidential Information. While Employee is employed by Employer and
after such employment ends for any reason, Employee will never
reproduce, publish, disclose, use, reveal, show or otherwise
communicate to any person or entity any Confidential Information
unless specifically directed by Employer to do so in writing.
(b) Nonsolicitation of Employees. While Employee is employed by
Employer and for twenty-four (24) months after such employment ends
for any reason, Employee, acting either directly or indirectly, or
through any other person, firm, or corporation, will not hire contract
with or employ any employee of Employer or induce or attempt to induce
or influence any employee of Employer to terminate employment with
Employer. Such nonsolicitation restriction shall not apply to Employee
in the case of the solicitation of his or her immediate family
members.
(c) Covenant Against Unfair Competition. While Employee is
employed by Employer and for twenty-four (24) months after such
employment ends for any reason, Employee will not, directly or
indirectly, or through any other person, firm or corporation (i) be
employed by, consult for, have any ownership interest in or engage in
any activity on behalf of any competing business, or (ii) call on,
solicit or communicate with any of Employer's customers (whether
actual or potential) for the purpose of selling precision steel balls
and rollers and other related items to such customer other than for
the benefit of Employer. As used in this Agreement, the term
"competing business" means a business that is a manufacturer and
supplier of precision steel balls and rollers to anti-
5
friction bearing manufacturers (excluding any ball and roller
manufacturers who manufacture such products for use in their business
or the business of their affiliates and do not supply such products to
third parties) and the term "customer" means any customer (whether
actual or potential) with whom Employee or any other employee of
Employer had business contact on behalf of Employer during the
eighteen (18) months immediately before Employee's employment with
Employer ended). Notwithstanding the foregoing, this paragraph shall
not be construed to prohibit Employee from owning less than five
percent (5%) of the outstanding securities of a corporation which is
publicly traded on a securities exchange or over-the-counter.
(d) Return of Confidential Materials and Information. Employee
agrees that whenever Employee's employment with Employer ends for any
reason, all documents containing or referring to Confidential
Information as may be in Employee's possession or control will be
delivered by Employee to Employer immediately, with no request being
required.
(e) Acknowledgments; Irreparable Harm. Employee agrees that the
restrictions on competition, solicitation and disclosure in this
Agreement are fair, reasonable and necessary for the protection of the
interests of Employer. Employee further agrees that a breach of any of
the covenants set forth in this Section 4 will result in irreparable
injury and damage to Employer for which Employer would have no
adequate remedy at law, and Employee further agrees that in the event
of a breach, Employer will be entitled to an immediate restraining
order and injunction to prevent such violation or continued violation,
without having to prove damages, in addition to any other remedies to
which Employer may be entitled at law or equity.
(f) Notification to Subsequent Employers. Employee grants
Employer the right to notify any future employer or prospective
employer of Employee concerning the existence of and terms of this
Agreement and grants Employer the right to provide a copy of this
Agreement to any such subsequent employer or prospective employer.
5. Mitigation. Employer's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which Employer may have against Employee or others. In no event
shall Employee be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to Employee under any of the provisions
of this agreement and such amounts shall not be reduced whether or not Employee
obtains other employment.
6. Resolution of Disputes. Any dispute or claim arising out of or
relating to this Agreement shall be settled by final and binding arbitration in
Johnson City, Tennessee in accordance with the Commercial Arbitration rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof.
Employer agrees to pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which Employee may reasonably incur as a result
of any dispute (regardless of the outcome thereof) by Employer, Employee or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of
6
performance thereof (including as a result of any dispute by Employee regarding
the amount of any payment pursuant to this agreement), plus in each case
interest on any delayed payment at the rate published from time to time in The
Wall Street Journal as the prime rate of interest plus two percent (2%).
7. Withholding. Employer may withhold from any amounts payable under
this Agreement the minimum Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
8. Successors. This Agreement is binding on, and shall inure to the
benefit of Employee and Employer, and all successors and assigns of Employer.
Employer will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of Employer to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a material breach of this Agreement and shall entitle
Employee to any Severance Benefit payable pursuant to Section 3(a) hereof.
9. Applicable Law. This Agreement will be interpreted, governed and
enforced according to the law of the State of Tennessee.
10. Separability. If any portion of this Agreement is held to be
invalid or unenforceable in any respect, Employee and Employer agree that such
invalid and unenforceable part will be modified to permit the Agreement to be
enforced to the maximum extent permitted by the court, with the remaining
portions unaffected by the invalidity or unenforceability of any part of this
Agreement.
11. Waiver. This Agreement may be modified, supplemented or amended,
and any provision of this Agreement can be waived, only by written instrument
making specific reference to this Agreement signed by the party against whom
enforcement of any such modification, supplement, amendment or waiver is sought.
12. Complete Agreement. This Agreement contains the entire agreement
between Employer and Employee as to the subject matter hereof. This Agreement
shall not be subject to the terms and conditions of any agreement concerning
arbitration or dispute resolution between Employer and Employee.
EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS READ THE ENTIRE CONTENTS OF THIS
AGREEMENT AND THAT HE/SHE UNDERSTANDS ITS TERMS.
[Signatures on following page]
7
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first written above.
EMPLOYEE:
/s/ William C. Kelly, Jr.
--------------------------------------------
Name: William C. Kelly, Jr.
NN, INC.,
including its subsidiaries and affiliates
By: /s/ David L. Dyckman
------------------------------------------
David L. Dyckman
8
Schedule A
Employee's Severance Payment shall be a lump sum payment equal to:
1. 1.5 times such Employee's base salary (as of the date of Employee's
termination); plus
2. 1.5 times such Employee's median bonus available at the following bonus
target percentage: 25%; plus
3. An amount equal to 1.5 times Employee's annual automobile allowance or the
annual cost to Employee of obtaining a motor vehicle comparable to that
provided by Employer to Employee.
9
Exhibit 10.24
EMPLOYMENT AGREEMENT
This AGREEMENT is made as of January 21, 2002, by and between NN, Inc.,
a Delaware corporation, having its principal place of business located at 2000
Water's Edge Drive, Building C, Suite 12, Johnson City, Tennessee 37604 (the
"Company") and David L. Dyckman (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company's Board of Directors (the "Board") has determined
that it is in the best interest of the Company and its shareholders to employ
the Executive as Vice-President of Business Development and Chief Financial
Officer of the Company and the Executive desires to serve in that capacity;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto,
intending to be legally bound, agree as follows:
1. Employment. The Company agrees to continue to employ the Executive
and the Executive hereby agrees to continue to be employed for the period of
time set forth in Paragraph 2, subject to the terms and conditions set forth
herein.
2. Term. Subject to the terms hereof, Company agrees to employ the
Executive for a period of two years commencing upon January 21, 2002 and
expiring on January 20, 2004 (the "Employment Term") (unless sooner terminated
as provided herein). The Employment Term shall be extended automatically from
time to time, on a rolling basis, for additional one year periods, unless either
party gives written notice of termination to the other at least six (6) months
prior to the date that the Employment Term is scheduled to expire.
3. Position and Responsibilities. The Executive shall serve as the
Vice-President of Business Development and Chief Financial Officer of the
Company, reporting to the President and Chief Executive Officer, and shall have
supervision and control over, and responsibility for, the business development
activities and financial operations of the Company. The Executive shall also
have such other powers and duties as may from time to time be prescribed by the
President or Chief Executive Officer; provided, however, that such duties shall
be consistent with the Executive's position as the officer in charge of business
development activities and principal financial officer of the Company.
4. Diligence. Executive agrees to serve in the respective positions
referred to in Paragraph 3 and to perform diligently the duties and services
appertaining to each such office, as well as such additional duties and services
appropriate to each such office which the parties mutually may agree upon from
time to time.
5. Time. Executive agrees to devote his entire working time and efforts
to the business and affairs of the Company and its affiliates and not to engage,
directly or indirectly, in any other business or businesses, whether or not
similar to that of the Company, except with the consent of the President and
Chief Executive Officer and the Board. The foregoing
notwithstanding, the parties recognize and agree that Executive (i) may engage
in personal investments, subject to any restrictions set forth in the
Non-Competition and Confidentiality Agreement referenced in Paragraph 7 and (ii)
subject to the prior consent of the President, may serve on the board of
directors of other companies, provided such service does not conflict with the
business and affairs of the Company or interfere with Executive's performance of
his duties hereunder.
6. Compensation.
(a) Salary. During the Employment Term, the Executive shall receive an
annual salary of $170,000 per year, which annual salary shall be subject to
such increases as the Board in its sole discretion may from time to time
determine (the "Annual Salary"). The Annual Salary shall be payable by the
Company in accordance with its regular compensation policies and practices
for paying executives.
(b) Expenses. During the term of his employment hereunder, the
Executive shall be entitled to be reimbursed for all reasonable business
expenses incurred by him in connection with his services hereunder,
including but not limited to expenses for entertainment and travel, in
accordance with the policies and procedures from time to time in effect for
the Company's senior executive officers. The Company retains the right to
establish limits on the types or amounts of business expenses that the
Executive may incur.
(c) Employee Benefit Programs. The Executive shall be entitled to
participate in all of the Company's employee benefit plans and programs
(including life, disability, and health insurance plans and programs and
savings plans and programs) to the extent his position, tenure, salary,
age, health and other qualifications make him eligible to participate,
subject to the rules and regulations applicable thereto. The Company
retains the right to abolish or alter the terms of any employee benefit
programs, plans or policies that it may establish, provided such abolition
or amendment shall be applicable to the senior officers of the Company
generally.
(d) Vacation and Other Absences. The Executive shall be entitled to
the number of paid vacation days in each calendar year determined by the
Company from time to time for its senior executive officers generally. The
Executive shall also be entitled to all paid absences for holidays or
illnesses in accordance with the Company's plans, policies or provisions
applicable to senior executive employees.
7. Confidentiality and Non-Competition. As a material inducement to the
Company entering into this Agreement and in consideration for the Executive's
continued employment, Executive hereby reconfirms and agrees to continue to be
bound in all respects by the terms of that certain Non-Competition and
Confidentiality Agreement, dated January 21, 2002, between Executive and the
Company, a copy of which is attached hereto as Exhibit A.
8. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Term. The
Company shall be entitled to terminate the Executive's employment because
of the Executive's disability during the Employment Term if, as a result of
the Executive's incapacity due to physical or mental illness
2
(hereinafter "Disability"), the Executive shall have been absent from his
duties hereunder for one hundred and twenty (120) days during any three
hundred and sixty (360) day period.
(b) Termination by Company for Cause. (i) The Company may terminate
the Executive's employment during the Employment Term for Cause. "Cause"
means:
A. the failure of the Executive to perform the Executive's duties
under this Agreement (other than as a result of physical or mental
illness or injury), which failure, if correctable, and provided it
does not constitute willful misconduct or gross negligence described
in Subsection B below, remains uncorrected for 10 days following
written notice to Executive by the President or the Board of such
breach;
B. willful misconduct or gross negligence by the Executive, in
either case that results in material damage to the business or
reputation of the Company;
C. a material breach by Executive of either this Agreement or
that certain Non-Competition and Confidentiality Agreement referenced
in Paragraph 8 which, if correctable, remains uncorrected for 10 days
following written notice to Executive by the Board of such breach; or
D. the Executive is convicted of a felony or any other crime
involving moral turpitude (whether or not in connection with the
performance by Executive of his duties under this Agreement).
(c) Termination By Company Without Cause. The Company may terminate
the employment of Executive under this Agreement for any reason at any
time.
(d) Termination by Executive for Good Reason. (i) The Executive may
terminate employment for Good Reason. "Good Reason" means:
A. assignment to the Executive of any duties inconsistent with
Executive's position, duties, responsibilities, title or office, or
any other action by the Company that results in a material diminution
in the Executive's position, authority, duties or responsibilities,
excluding in each case any assignment or action that is remedied by
the Company within 10 days after receipt of notice thereof from the
Executive; or
B. any material failure by the Company to comply with this
Agreement, other than a failure that is remedied by the Company within
10 days after receipt of notice thereof from then Executive.
(e) Voluntary Termination by Executive Without Good Reason. Executive
may at any time terminate his employment under this Agreement without Good
Reason.
(f) Notice of Termination. If Company or Executive desires to
terminate Executive's employment hereunder at any time, it or he shall do
so by giving written notice to the other party (following the expiration of
any applicable cure periods) that it or he has elected to
3
terminate Executive's employment hereunder and stating the effective date
and reason for such termination. Any termination by Executive of his
employment without Good Reason shall be made on not less than 14 days'
notice.
9. Effect of Termination.
(a) Voluntary Termination by Executive; Termination for Cause; Death
or Disability. In the event that Executive's employment is terminated
pursuant to Paragraphs 8(a), 8(b) or 8(e), on the date of termination, the
Company shall be liable to Executive as follows:
(i) Executive shall be entitled to receive the Annual Salary
due to him through the date of termination of his employment.
(ii) Any vested rights of Executive shall be paid to
Executive in accordance with the Company's plans, programs or
policies. Without limiting the foregoing, in the event of the
termination of Executive's employment due to death or disability
(Paragraph 8(a)), the rights and benefits of Executive (or his
designated beneficiary or representatives, as applicable) under
any Company life, health and long-term disability plans and
policies shall be determined in accordance with the terms and
provisions of such plans and policies.
(iii) The Company shall promptly reimburse Executive for any
and all reimbursable business expenses (to the extent not already
reimbursed) upon Executive's properly accounting for the same.
(b) Termination Without Cause; Termination by Executive for Good
Reason. In the event that the Company terminates Executive's employment
without Cause pursuant to Paragraph 8(c) or Executive terminates his
employment with the Company pursuant to Paragraph 8(d), the Company shall
be liable as follows:
(i) Executive shall be entitled to receive the Annual Salary
due to him through the date of termination of his Employment. In
addition, Executive shall be entitled to receive continued
monthly payments of his a Annual Salary, based on the Annual
Salary in effect, on the date of termination, until the first
anniversary of the date of termination.
(ii) Any vested rights of Executive shall be paid to
Executive in accordance with the Company's plans, programs or
policies.
(iii) The Company shall promptly reimburse Executive for any
and all reimbursable business expenses (to the extent not already
reimbursed) upon Executive's properly accounting for the same.
(iv) Executive and/or the Executive's family shall be
entitled to receive health benefits (as contemplated by Paragraph
6(c) hereof) until the first anniversary of the date of
termination at least equal to those which would have been
provided to them in accordance with this Agreement if
4
Executive's employment had not been terminated provided that the
Company's obligation to provide such benefits shall be reduced by
any comparable benefits (or amounts received by Executive in
respect thereof) received by Executive under the terms of new
employment undertaken by Executive after termination and prior to
the first anniversary of the date of termination; and provided
further, that the terms of the Company's health insurance plans
shall be subject to amendment during such period, to the extent
that such amendments are applicable to the executive officers of
the Company generally.
(c) Limit on Company Liability. Except as expressly set forth in this
Paragraph 9, the Company shall have no obligation to Executive under this
Agreement following a termination of Executive's employment with the
Company. Without limiting the generality of the provision of the foregoing
sentence, the Company shall not, following a termination of Executive's
employment with the Company, have any obligation to provide any further
benefit to Executive or make any further contribution for Executive's
benefit except as provided in this Paragraph 9.
10. Company Proprietary Rights.
(a) Company to Retain Rights. Executive agrees that all right, title
and interest of every kind and nature whatsoever in and to copyrights,
patents, ideas, business or strategic plans and concepts, studies,
presentations, creations, inventions, writings, properties, discoveries and
all other intellectual property conceived by executive during the term of
this Agreement and pertaining to or useful in or to (directly or
indirectly) the activities of the Company (collectively, "Company
Intellectual Property") shall become and remain the exclusive property of
the Company, and Executive shall have no interest therein.
(b) Further Assurances. At the request of the Company, Executive
shall, at the Company's expense but without additional consideration,
execute such documents and perform such other acts as the Company may deem
necessary or appropriate to vest in the Company or its designee such title
as Executive may have to all Company Intellectual Property in which
Executive may be able to claim any rights by virtue of his employment under
this Agreement.
(c) Return of Material. Upon the termination of the Employment Term,
including any termination of employment described in Paragraph 8, the
Executive will promptly return to the Company all copies of information
protected by Paragraph 10(a) hereof or by Paragraph 3(a) of the
Non-Competition and Confidentiality Agreement referenced in Paragraph 7,
which are in his possession, custody or control, whether prepared by him or
others, and the Executive agrees that he shall not retain any of same.
11. Representation and Warranty of Executive. Executive represents and
warrants to the Company that he is not now under any obligation, of a
contractual nature or otherwise, to any person, partnership, company or
corporation that is inconsistent or in conflict with this Agreement or which
would prevent, limit or impair in any way the performance by him of his
obligations hereunder.
5
12. Resolution of Disputes. Any dispute or claim arising out of or
relating to this Agreement shall be settled by final and binding arbitration in
[Johnson City, Tennessee] in accordance with the Commercial Arbitration rules of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. The
fees and expenses of the arbitration panel shall be equally borne by the Company
and Executive. Each party shall be liable for its own costs and expenses as a
result of any dispute related to this Agreement.
13. Assignment. This Agreement, and the rights and obligations of the
parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party; provided,
however, that Company may assign this Agreement in connection with a merger or
consolidation involving Company or a sale of substantially all its assets to the
surviving corporation or purchaser, as the case may be, so long as such assignee
assumes Company's obligations hereunder.
14. Withholding. Payment of Executive's Annual Salary and payment or
provision of other compensation to Executive pursuant hereto shall be subject to
such reporting and withholding for applicable taxes as is required by law.
15. Certain Expenses. Company, on or before the date hereof, shall pay
directly or reimburse Executive (at Executive's discretion) for the actual legal
fees and other costs and expenses, if any, incurred by Executive in connection
with the preparation, finalizing and execution of this Letter.
16. Severability. In the event that any provision or portion of this
Agreement is determine to be invalid or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement will be unaffected
thereby and will remain in full force and effect to the fullest extent permitted
by law.
17. Notices. For all purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given, in the case of a notice to the Company, when delivered to
the Company at the following address, and in the case of a notice to Executive,
when received by Executive, and in both cases addressed as follows:
If to Company, to: NN, Inc.
2000 Waters Edge Drive
Building C, Suite 12
Johnson City, Tennessee 37604
Attention: President
If to Executive, to: David L. Dyckman
7 Wayland Ct.
Johnson City, TN 37604
6
18. Modifications and Waivers. No provision of this Agreement may be
modified or discharged unless such modification or discharge is authorized by
the Board and is agreed to in writing, signed by the Executive and by an officer
of the Company duly authorized by the Board. No waiver by either party hereto of
any breach by the other party hereto of any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of similar
or dissimilar provisions or conditions at the time or at any prior or subsequent
time.
19. Entire Agreement. This Agreement and the Non-Competition and
Confidentially Agreement constitute the entire understanding of the parties
hereto with respect to their subject matter. This Agreement and the
Non-Competition and Confidentiality Agreement supersede all prior agreements
between the parties hereto with respect to their subject matter.
20. Governing Law. This Agreement will be governed by the laws of the
State of Tennessee without regard for its conflict of laws rules.
21. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same instrument.
22. Headings, Etc. The section headings contained in this Agreement are
for convenience of reference only and will not be deemed to control or affect
the meaning or construction of any provision of this Agreement. Reference to
Paragraphs are to Paragraphs in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NN, INC.
By: /s/ Roderick R. Baty
----------------------------------------
David L. Dyckman
By: /s/ David L. Dyckman
----------------------------------------
7
Exhibit 10.25
CHANGE OF CONTROL AND NONCOMPETITION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this 21st day of
January, 2002, by and between DAVID L. DYCKMAN ("Employee") and NN, INC., a
Delaware corporation, including its wholly-owned subsidiaries and affiliated
companies (collectively, "Employer").
RECITALS
WHEREAS, the Board of Directors of Employer (the "Board") has
determined that it is in the best interests of Employer to reinforce and
encourage the continuity of management personnel in anticipation of a possible
or potential Change of Control (as defined below); and
WHEREAS, the Board believes this objective can best be served by
providing for a compensation arrangement for Employee upon Employee's
termination of employment under certain circumstances in the event of a Change
of Control.
NOW, THEREFORE, in consideration of the mutual promises and covenants
as hereinafter set forth, the parties agree as follows:
AGREEMENT
1. General. Employer is engaged in the (i) manufacture and supply of
precision steel balls and rollers to domestic and international anti-friction
bearing manufacturers, automotive original equipment manufacturers and the
automotive aftermarket, the gas and mining industries, producers of drilling
bits for oil, gas and water wells and producers of stainless steel valves and
pumps, (ii) full-service design and manufacture of plastic injection molded
components to the bearing, automotive, electronic, leisure and consumer markets,
and (iii) the manufacture and supply of rubber seals to domestic and
international anti-friction bearing manufacturers. Employee is employed by
Employer in a senior management position in which Employee has or will have
access to the Employer's confidential information and trade secrets.
2. Employment Relationship. Except as specifically set forth herein, the
terms and conditions of Employee's employment are set forth in the Employment
Agreement dated January 21, 2002 between Employee and Employer (the "Employment
Agreement"), a copy of which is attached hereto as Exhibit A.
3. Termination Upon Change of Control.
(a) Severance Benefits. In the event that Employee's employment
is terminated within two (2) years following a "Change of Control" (as
defined below) and such termination is either (i) Without Cause (as
defined below), or (ii) is a Constructive Termination (as defined
below), Employee shall receive, in addition to all compensation due
and payable to or accrued for the benefit of Employee as of the date
of termination:
(i) a lump sum payment equal to an amount set forth on
Schedule A to this Agreement ("Severance Payment"). The Severance
Payment shall be made by wire transfer of immediately available
funds to an account designated by Employee within seven (7)
business days following the date of termination;
(ii) a payment equal to the annual bonus to which Employee
would have been entitled but for Employee's termination of
employment for the year of Employee's termination, pro-rated for
the portion of the year during which he was employed by Employer
("Pro-rated Bonus"). The Pro-rated Bonus shall be payable to
Employee at the end of the calendar year for which the bonus is
payable, in accordance with Employer's normal bonus procedures;
and
(iii) for a period of twenty-four months after such
termination (the "Coverage Period"), medical, dental,
prescription drug, life, accidental death and disability
insurance coverage substantially similar to the coverage which
Employee was receiving or entitled to receive immediately prior
to the date of the termination of Employee's employment
("Insurance Benefits"). Notwithstanding the foregoing, Employee
shall not be entitled to receive the Insurance Benefits (or a
portion thereof) to the extent that Employee obtains other
employment that provides equal or greater benefits during the
Coverage Period.
The Severance Payment, Pro-rated Bonus and Insurance Benefits are collectively
referred to in this Agreement as the "Severance Benefit."
(b) Excise Tax.
(i) Notwithstanding anything to the contrary set forth in this
Agreement, in no event shall a Severance Benefit payable pursuant to
this Section 3 exceed an amount equal to the lesser of (i) 2.99 times
the "base amount" (as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code")) of Employee's
compensation, or (ii) such other amount which would constitute a
"parachute payment" (as defined in Section 280G of the Code). In the
event that it shall be determined that any Severance Benefit to
Employee (whether paid or payable or distributed or distributable)
would be subject to the excise tax imposed by Section 4999 of the
Code, or any successor provision thereto (the "Excise Tax"), then
Employee shall be entitled to receive from Employer an additional
payment (the "Gross-Up Payment") in an amount such that the net amount
of the Severance Benefit and the Gross-Up Payment retained by Employee
after the calculation and deduction of all Excise Taxes (including any
interest or penalties imposed with respect to such taxes) on the
payment and all Federal, state and local income tax, employment tax
and Excise Tax (including any interest or penalties imposed with
respect to such taxes) or the Gross-Up Payment provided for in this
Section, and taking into account any lost or reduced tax deductions on
account of the Gross-Up Payment, shall be equal to the Severance
Benefit.
2
(ii) Employee shall notify Employer in writing of any claim by
the Internal Revenue Service that, if successful, would require the
payment by Employer of the Gross-Up Payment. Such notification shall
be given as soon as practicable after Employee is informed in writing
of such claim and shall apprise Employer of the nature of such claim
and the date on which such claim is requested to be paid. Employee
shall not pay such claim prior to the expiration of the 30-day period
following the date on which Employee gives such notice to Employer (or
such shorter period ending on the date that any payment of taxes,
interest and/or penalties with respect to such claim is due). If
Employer notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(A) give Employer any information reasonably requested
by Employer relating to such claim;
(B) take such action in connection with contesting such
claim as Employer shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Employer;
(C) cooperate with Employer in good faith in order to
effectively contest such claim; and
(D) permit Employer to participate in any proceedings
relating to such claims;
provided, however, that Employer shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify Employee for and hold
Employee harmless from, on an after-tax basis, any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of all related costs and
expenses. Without limiting the foregoing provisions of this section,
Employer shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as Employer shall determine; provided, however, that
if Employer directs Employee to pay such claim and sue for a refund,
Employer shall advance the amount of such payment to Employee, on an
interest-free basis, and shall indemnify Employee for and hold Employee
harmless from, on an after-tax basis, any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance (including as a result of any forgiveness by
Employer of such advance); provided, further, that any extension of the
statute of limitations relating to the payment of taxes for the taxable
year of Employee with respect to which such contested amount is claimed
to
3
be due is limited solely to such contested amount. Furthermore,
Employer's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
Employee shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other
taxing authority.
(c) Change of Control. "Change of Control" shall mean: (i) a
person, corporation, entity or group (A) makes a tender or exchange
offer for the issued and outstanding voting stock of Employer and
beneficially owns thirty percent (30%) or more of the issued and
outstanding voting stock of Employer after such tender or exchange
offer, or (B) acquires, directly or indirectly, the beneficial
ownership of thirty percent (30%) or more of the issued and outstanding
voting stock of Employer in a single transaction or a series of
transactions (other than any person, corporation, entity or group for
which a Schedule 13G is on file with the Securities and Exchange
Commission, so long as such person, corporation, entity or group has
beneficial ownership of less than fifty percent (50%) of the issued and
outstanding voting stock of Employer); (ii) Employer is a party to a
merger, consolidation or similar transaction and following such
transaction, fifty percent (50%) or more of the issued and outstanding
voting stock of the resulting entity is not beneficially owned by those
persons, corporations or entities that constituted the stockholders of
Employer immediately prior to the transaction; (iii) Employer sells
fifty percent (50%) or more of its assets to any other person or
persons (other than an affiliate or affiliates of Employer); or (iv)
individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least
seventy-five percent (75%) of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof, whose
election or nomination was approved by a majority of the directors then
comprising the Incumbent Board, shall be considered a member of the
Incumbent Board, but not including any individual whose initial Board
membership is a result of an actual or threatened election contest (as
that term is used in Rule 14a-11 promulgated under the Securities Act
of 1934, as amended) or an actual or threatened solicitation of proxies
or consents by or on behalf of a party other than the Board.
(d) Termination Without Cause. Termination "Without Cause" shall
mean termination of Employee by Employer for reasons other than: (i)
the willful, persistent failure of Employee (after thirty (30) days
written notice and a reasonable opportunity to cure) to perform his
material duties for reasons other than death or disability; (ii) the
breach by Employee of any material provision of this Agreement; or
(iii) Employee's conviction of a felony involving dishonesty, deceit or
moral turpitude by a trial court of competent jurisdiction, whether or
not an appeal is taken.
(e) Constructive Termination. "Constructive Termination" shall
mean: (i) a material, adverse change of Employee's responsibilities,
authority, status, position, offices, titles, duties or reporting
requirements (including directorships); (ii) an adverse change in
Employee's annual compensation or benefits; (iii) a requirement to
relocate in excess of fifty (50) miles from Employee's then current
place of employment; or (iv) the breach by Employer of any material
provision of this Agreement, other than a breach that is remedied by
Employer within 10 days after receipt of notice thereof from Employee.
For purposes of this definition, Employee's responsibilities,
authority, status, position,
4
offices, titles, duties and reporting requirements are to be
determined as of the date of this Agreement. For purposes of this
Section, all determinations of Constructive Termination shall be made
in good faith by Employee and shall be conclusive.
(f) Other Severance Benefits. The Severance Benefit payable to
Employee pursuant to this Section 3 shall be reduced by any severance
benefits to which Employee is entitled under Employer's severance
policies for terminated employees generally or any termination
payments payable to Employee under Employee's Employment Agreement.
4. Employee's Acknowledgments and Covenants.
(a) Confidential Materials and Information. Employer has
developed confidential information, strategies and programs, which
include customer lists, prospects, lists, expansion and acquisition
plans, market research, sales systems, marketing programs, computer
systems and programs, product development strategies, manufacturing
strategies and techniques, budgets, pricing strategies, identity and
requirements of national accounts, customer lists, methods of
operating, service systems, training programs and methods, other trade
secrets and other information about the business in which employer is
engaged that is not known to the public and gives Employer an
opportunity to obtain an advantage over competitors who do not know of
such information (collectively, "Confidential Information"). In
performing duties for Employer, Employee regularly will be exposed to
and work with the Confidential Information. Employee acknowledges that
such Confidential Information is critical to Employer's success and
that Employer has invested substantial sums of money in developing the
Confidential Information. While Employee is employed by Employer and
after such employment ends for any reason, Employee will never
reproduce, publish, disclose, use, reveal, show or otherwise
communicate to any person or entity any Confidential Information
unless specifically directed by Employer to do so in writing.
(b) Nonsolicitation of Employees. While Employee is employed by
Employer and for twenty-four (24) months after such employment ends
for any reason, Employee, acting either directly or indirectly, or
through any other person, firm, or corporation, will not hire contract
with or employ any employee of Employer or induce or attempt to induce
or influence any employee of Employer to terminate employment with
Employer. Such nonsolicitation restriction shall not apply to Employee
in the case of the solicitation of his or her immediate family
members.
(c) Covenant Against Unfair Competition. While Employee is
employed by Employer and for twenty-four (24) months after such
employment ends for any reason, Employee will not, directly or
indirectly, or through any other person, firm or corporation (i) be
employed by, consult for, have any ownership interest in or engage in
any activity on behalf of any competing business, or (ii) call on,
solicit or communicate with any of Employer's customers (whether
actual or potential) for the purpose of selling precision steel balls
and rollers and other related items to such customer other than for
the benefit of Employer. As used in this Agreement, the term
"competing business" means a business that is a manufacturer and
supplier of precision steel balls and rollers to anti-
5
friction bearing manufacturers (excluding any ball and roller
manufacturers who manufacture such products for use in their business
or the business of their affiliates and do not supply such products to
third parties) and the term "customer" means any customer (whether
actual or potential) with whom Employee or any other employee of
Employer had business contact on behalf of Employer during the
eighteen (18) months immediately before Employee's employment with
Employer ended). Notwithstanding the foregoing, this paragraph shall
not be construed to prohibit Employee from owning less than five
percent (5%) of the outstanding securities of a corporation which is
publicly traded on a securities exchange or over-the-counter.
(d) Return of Confidential Materials and Information. Employee
agrees that whenever Employee's employment with Employer ends for any
reason, all documents containing or referring to Confidential
Information as may be in Employee's possession or control will be
delivered by Employee to Employer immediately, with no request being
required.
(e) Acknowledgments; Irreparable Harm. Employee agrees that the
restrictions on competition, solicitation and disclosure in this
Agreement are fair, reasonable and necessary for the protection of the
interests of Employer. Employee further agrees that a breach of any of
the covenants set forth in this Section 4 will result in irreparable
injury and damage to Employer for which Employer would have no
adequate remedy at law, and Employee further agrees that in the event
of a breach, Employer will be entitled to an immediate restraining
order and injunction to prevent such violation or continued violation,
without having to prove damages, in addition to any other remedies to
which Employer may be entitled at law or equity.
(f) Notification to Subsequent Employers. Employee grants
Employer the right to notify any future employer or prospective
employer of Employee concerning the existence of and terms of this
Agreement and grants Employer the right to provide a copy of this
Agreement to any such subsequent employer or prospective employer.
5. Mitigation. Employer's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which Employer may have against Employee or others. In no event shall
Employee be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to Employee under any of the provisions of
this agreement and such amounts shall not be reduced whether or not Employee
obtains other employment.
6. Resolution of Disputes. Any dispute or claim arising out of or relating
to this Agreement shall be settled by final and binding arbitration in Johnson
City, Tennessee in accordance with the Commercial Arbitration rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. Employer
agrees to pay promptly as incurred, to the full extent permitted by law, all
legal fees and expenses which Employee may reasonably incur as a result of any
dispute (regardless of the outcome thereof) by Employer, Employee or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of
6
performance thereof (including as a result of any dispute by Employee regarding
the amount of any payment pursuant to this agreement), plus in each case
interest on any delayed payment at the rate published from time to time in The
Wall Street Journal as the prime rate of interest plus two percent (2%).
7. Withholding. Employer may withhold from any amounts payable under this
Agreement the minimum Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
8. Successors. This Agreement is binding on, and shall inure to the benefit
of Employee and Employer, and all successors and assigns of Employer. Employer
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that Employer would be required to
perform it if no such succession had taken place. Failure of Employer to obtain
such agreement prior to the effectiveness of any such succession shall be a
material breach of this Agreement and shall entitle Employee to any Severance
Benefit payable pursuant to Section 3(a) hereof.
9. Applicable Law. This Agreement will be interpreted, governed and
enforced according to the law of the State of Tennessee.
10. Separability. If any portion of this Agreement is held to be invalid or
unenforceable in any respect, Employee and Employer agree that such invalid and
unenforceable part will be modified to permit the Agreement to be enforced to
the maximum extent permitted by the court, with the remaining portions
unaffected by the invalidity or unenforceability of any part of this Agreement.
11. Waiver. This Agreement may be modified, supplemented or amended,
and any provision of this Agreement can be waived, only by written instrument
making specific reference to this Agreement signed by the party against whom
enforcement of any such modification, supplement, amendment or waiver is sought.
12. Complete Agreement. This Agreement contains the entire agreement
between Employer and Employee as to the subject matter hereof. This Agreement
shall not be subject to the terms and conditions of any agreement concerning
arbitration or dispute resolution between Employer and Employee.
EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS READ THE ENTIRE CONTENTS OF THIS
AGREEMENT AND THAT HE/SHE UNDERSTANDS ITS TERMS.
[Signatures on following page]
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first written above.
EMPLOYEE:
/s/ David L. Dyckman
--------------------------------------------
Name: David L. Dyckman
NN, INC.,
including its subsidiaries and affiliates
By: /s/ Roderick R. Baty
-----------------------------------------
Roderick R. Baty
8
Schedule A
Employee's Severance Payment shall be a lump sum payment equal to:
1. 2 times such Employee's base salary (as of the date of Employee's
termination); plus
2. 2 times such Employee's median bonus available at the following bonus
target percentage: 35%; plus
3. An amount equal to 2 times Employee's annual automobile allowance or the
annual cost to Employee of obtaining a motor vehicle comparable to that
provided by Employer to Employee.
9
Exhibit 10.26 EXECUTION VERSION
NN EUROBALL, ApS
SHAREHOLDER AGREEMENT
THIS AGREEMENT shall become effective as of the date when the Euroball
transaction closes, by and among NN, Inc. a Tennessee corporation ("NNBR"), AB
SKF, a Swedish company ("SKF"), and FAG Kugelfischer Georg Schafer AG, a German
company ("FAG").
RECITALS
--------
A. The parties have purchased NN Euroball, ApS., a Danish company (the
"Company") pursuant to the Joint Venture Formation Agreement among the
parties dated April 6, 2000 (the "Formation Agreement"), and desire to set
forth their mutual agreement as to certain matters related to the
ownership, governance and operation of the Company.
B. The capitalized terms used but not defined in this Agreement shall have the
meaning set forth in the Formation Agreement.
C. The initial shareholdings of the parties are as follows: NNBR - 54%, SKF -
23%, and FAG - 23%.
AGREEMENT
In consideration of the mutual promises made herein and in the
Formation Agreement, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Competition.
1.1 The business of the Company and its subsidiaries (together
the "Company") is to manufacture, buy and sell precision steel balls
using the Businesses previously owned by the parties to create
marketing and sales opportunities worldwide.
1.2 (a) For so long as either of SKF or FAG is a shareholder
of the Company NNBR shall be prohibited, and as long as SKF and FAG
respectively are shareholders and for a period of three (3) years
thereafter, SKF and FAG also shall be prohibited, directly or
indirectly, from (i) developing or, except as allowed by Section
1.2(b), below, acquiring any precision steel ball manufacturing
facility that competes, directly or indirectly, with the Company in
Europe (as defined in the Formation Agreement) (a "Competing
Facility"), (ii) soliciting for employment any person employed by the
Company and (iii) canvassing or soliciting customers of the Company.
(b) SKF and its Affiliates and FAG and its Affiliates shall
not be deemed to have acquired, directly or indirectly, any
Competing Facility solely by virtue of (i) the ownership of less
than fifty (50) percent of the outstanding voting stock or debt
securities of any publicly held company of which it does not have
voting or day-to-day operational control, so long as such company
is not engaged in the production of precision steel balls as its
primary business, or (ii) having acquired or otherwise
voluntarily having combined with a business owning a
Competing Facility if all production of balls at the Competing
Facility is (A) used only for bearings produced at the acquired
business, (B) not sold to customers located in Europe or (C) sold
to customers located within Europe at volumes not greater than
the historical volumes of the acquired business. It is
specifically understood that if SKF or FAG is acquired by another
company, the restrictions in this Section will be binding only on
SKF or FAG, respectively, and will not be binding on or apply to
the acquiring company.
(c) The parties agree that NNBR shall be free to manufacture
and sell precision steel balls everywhere in the world other than
Europe without regard to the business interests of the Company.
1.3 If a Shareholder purchases or acquires an interest in
additional ball manufacturing assets or operations in Europe, and if
the Shareholder decides to close or sell such assets or operations, the
Company shall have the first priority right to purchase such assets or
operations
1.4 Without limitation of Section 1.2(a)(iii), SKF and its
Affiliates and FAG and its Affiliates shall be entitled to sell
precision steel balls to third parties if done so in relation to sales
by them of finished bearings; provided that during the non-compete
period applicable to SKF or FAG under Section 1.2, if such balls are
available from the Company and historically purchased from the
Businesses, they must be purchased by SKF, FAG or their Affiliates from
the Company.
2. Organization and Ownership of the Company.
2.1 The parties agree that the Articles of Association of the
Company and of its initial subsidiaries shall be in the forms of
Exhibits 2.1-A, 2.1-B, 2.1-C and 2.1-D, respectively, hereto.
2.2 The Company has initially an issued and paid-up share
capital of 125,000 DKK, divided into 1250 shares which are owned as
follows:
Shareholder Shares Percent
----------- ------ -------
NNBR 675 54%
FAG 287.50 23%
SKF 287.50 23%
2.3 In the event of any conflict between the terms of this
Agreement and the Articles of Association of the Company or of any of
its subsidiaries, the terms of this Agreement shall, as among the
Shareholders, prevail and the Shareholders shall forthwith cause such
necessary alterations to be made to such Articles of Association as may
be required to solve such conflict.
2
3. Management of the Company.
3.1 General Meetings and Resolutions of Shareholders.
(a) General Meetings shall be held whenever required by the
laws of Denmark or the Articles of Association.
(b) The quorum required for a General Meeting of the
shareholders shall be shareholders representing, in person or by
proxy, at least fifty percent (50%) of the total number of issued
and outstanding shares of the Company; provided that at least 30
days prior written notice of any General Meeting has been given.
The quorum required for any General Meeting called upon less than
30 days prior written notice shall be one hundred percent (100%)
of the total number of issued and outstanding shares of the
Company.
(c) Unless otherwise required by the laws of Denmark or
otherwise explicitly provided herein, no shareholders'
resolutions shall be effective unless adopted by the affirmative
votes of shareholders holding more than fifty percent (50%) of
the shares present, in person or by proxy, at a General Meeting
of the shareholders.
(d) Interpreters may attend General Meetings of shareholders
upon the request of any party.
3.2 Election of Directors and Statutory Auditors.
(a) The Company shall be administered by a Board of
Directors composed of at least two (2) and not more than seven
(7) directors.
(b) The Company shall have one (1) Independent Accounting
Firm who shall be appointed by the Shareholders. Unless otherwise
agreed in writing by all Shareholders, KPMG shall be appointed.
The parties agree to exercise their respective voting rights as
shareholders of the Company and to take all other necessary
action so as to ensure that the persons nominated as statutory
auditor(s) by the Shareholders are elected.
3.3 Meetings and Resolutions of the Board of Directors.
(a) A regular meeting of the Board of Directors shall be
held semi-annually. Meetings will be held at such times and
locations as the Chairman shall reasonably determine. Written
notice of all regularly scheduled meetings shall be required.
Such notice shall be in English language and shall state the
time, place and agenda of the meeting and shall be sent to each
director at least fourteen (14) days prior to the meeting. Any
director may, at least five (5) days prior to a regularly
scheduled meeting provide written notice to the other directors
of any matter to be discussed at the meeting.
3
(b) Any director shall have the right to call, from time to
time, a special meeting of the Board of Directors upon not less
than 10 days prior written notice.
(c) Resolutions of the Board of Directors shall require the
approval of the affirmative vote of a simple majority of the
members of the Board of Directors present at a meeting.
(d) Interpreters may attend meetings of the Board of
Directors upon the request of any party. Board meetings shall be
conducted in English.
3.4 Accounting and Reporting Obligations.
(a) The Company's fiscal year shall be the calendar year and
its financial statements shall be prepared in accordance with the
Danish Presentation of Accounts Act and shall, to the extent
permissible under Danish law, be adjusted for the purpose of U.S.
GAAP.
(b) The Company shall provide the following consolidated
reports and statements to the Shareholders in English within the
time periods set forth below:
(i) Within fifteen (15) days after the end of each
month, a monthly operations report, consolidated and for
each operating subsidiary, regarding the operating
parameters listed in Schedule 3.4(b)(i).
(ii) Within thirty (30) days after the closing of each
quarter, a business operations report will be provided
including at a minimum a balance sheet, profit and loss
statement, and a cash flow statement.
(iii) Within ninety (90) days after the end of each
fiscal year, an audited balance sheet, profit and loss
statement, and cash flow statement, a business operations
report, and a proposal governing appropriation of profits or
covering losses.
(c) The annual report of the Company on a consolidated basis
shall be audited at the expense of the Company by its Independent
Accounting Firm in accordance with applicable laws.
(d) The Company shall provide to each party full access to
the books and records of the Company, and shall provide to each
party the accounting information such party requires to comply
with its own financial reporting requirements, provided that any
cost involved in providing such information shall be paid by the
requesting party.
(e) Each party shall, upon reasonable written notice to the
Company and to the other parties, have reasonable access to the
Company's books concerning the Company's financial operations.
4
(f) Upon reasonable written notice to the Company and the
other parties, but not more often than once every twelve (12)
months, each party shall have the right to perform a special
audit of the Company by independent outside auditors, at that
party's own cost. In addition, upon reasonable notice each party
shall have the right to perform or have performed, at that
party's own cost, such audits as are necessary to meet such
party's financial reporting obligations.
(g) The Company shall have the right, and each party hereto
shall have the right to compel the Company, and the Company shall
have the obligation upon request to compel any of its
subsidiaries, to have independent outside auditors, upon
reasonable written notice to any other party and not more than
once each twelve (12) months, at the Company's cost, examine the
books and records of that other party that relate to the business
of the Company for the purpose of auditing the calculation of
sales proceeds or any amounts due to the Company.
4. Tax Distributions. The Company may distribute to each Shareholder,
within ninety (90) days after the end of each fiscal year of the Company, an
amount equal to any income tax payable by such Shareholder that is attributable
to the income of the Company upon receipt by the Company of a certification from
the principal financial officer of such Shareholder stating the amount of such
income tax payable by Shareholder. If such distributions are made, distributions
shall be made to all other Shareholders in proportion to their ownership
interests.
5. Rights and Obligations of the Parties.
5.1 Additional Financing. Any additional financing that may be
determined by the Board of Directors as reasonably required by the
annual Budget of the Company may be provided by the Shareholders or by
third parties. No party shall have any obligation whatsoever to provide
the Company with any additional financing. Any agreement to provide
additional financing shall be in writing.
5.2 Transfer of Shares.
(a) No share of the Company owned by a Shareholder, or any
interest therein, shall be validly sold, transferred or otherwise
disposed of and no security interest shall be granted therein for
consideration or otherwise, and no purported transferee shall be
recognized as a shareholder of the Company for any purpose
whatsoever unless such transfer is approved by all Shareholders
or in accordance with this Section 5.
(b) No party shall pledge or otherwise encumber any of its
shares or any interest therein in the Company at any time without
the prior written consent of the other parties, provided however
that no such consent shall be required for a blanket lien on all
assets of a party pursuant to a commercial bank financing.
5.3 Put Option. SKF and FAG (each a "Holder", collectively the
"Holders") each shall have the independent right to sell to NNBR and
NNBR shall be required to purchase all but not less than all of the
shares held by such Holder, subject to the following terms and
conditions (such right is hereinafter referred to as the "Put Right"):
5
(a) Put Exercise Period. The Put Right may not be exercised
until after December 31, 2002 and then may only be exercised by
written notice given to NNBR (the "Put Notice"). The Put Notice
shall state the place, the time and the date (a "Put Closing
Date") of the closing of such purchase (a "Put Closing"), which
date shall not be less than 60 days from the date the Put Notice
is received.
(b) Put Closing. At a Put Closing, (i) the Holder exercising
such right shall deliver to NNBR all of the shares to be
purchased by delivery of a certificate or certificates evidencing
such shares so purchased by NNBR, free and clear of any liens,
encumbrances or any interests of any other party and (ii) NNBR
will make payment to the Holder exercising such right of the
Purchase Price (as defined under 5.3(c) below) for the shares
being purchased upon exercise of the Put Right by wire transfer
of immediately available funds to an account designated by the
Holder.
(c) Purchase Price. Subject to 5.3(d), below, the purchase
price of the shares (the "Purchase Price") shall be calculated
using the same accounting principles used to prepare the Closing
Balance Sheet as defined in Section 5.5(a)(ii) of the Formation
Agreement and determined in Euros by the following formula:
A + B times 0.23
------
2
Where A Equals (1) The average of the Company's net income for each of the 36
months preceding the month in which the Put is exercised (or
such fewer number of months as the Company shall have been
in operation) (the "Measurement Period"), multiplied by 12,
and
(2) multiplied by 9.8.
Where B Equals (1) The average of the Company's EBITDA for the Measurement
Period, multiplied by 12, and
(2) multiplied by 4.3, and
(3) minus the short and long term bank loans of the Company
existing at the end of the Measurement Period.
(d) Purchase Price Adjustment. The Purchase Price formula in
Section 5.3(c) shall be adjusted if a party exercises its Put
Right after June 30, 2006 by using the actual percentage
ownership in the Company of the Holder instead of 0.23.
6
6. Termination. This Agreement shall terminate (a) when both SKF and FAG
are no longer shareholders in the Company or (b) as to any party at the time
such party is no longer a shareholder.
7. Liquidation. The Company shall not voluntarily be liquidated or
dissolved during the two (2) year period following its effective date without
the unanimous approval of the parties. Provided that, in any event, if there is
a material breach by SKF or FAG of the Supply Agreement, the Company may be
dissolved and liquidated notwithstanding the preceding sentence.
8. Technology Transfers.
8.1 Each of the parties hereby agrees to license to the
Company, on a non-exclusive, nontransferable, fully paid up basis, any
and all technology, know how, software, operating practices and similar
intangible assets held by such party that are used exclusively in the
Business of the Company and that were not previously transferred to the
Company or a subsidiary of the Company and to execute and deliver all
documents reasonably necessary to effect or memorialize such license
agreement.
8.2 The parties shall cause the Company to license to NNBR on
a non-exclusive, non-transferable, fully paid basis, any and all
technology, know how, software, operating practices and similar
intangible assets now or hereafter held by the Company that are used in
the manufacture of precision steel balls and to execute and deliver all
documents reasonably necessary to effect or memorialize such agreement.
9. Dispute Resolution; Arbitration.
9.1 Prior to pursuing arbitration with respect to any dispute
hereunder, the chief executive officers or general managers of SKF, FAG
and NNBR (or a direct subordinate officer or general manager appointed
by them) shall meet to seek an amicable resolution to such dispute. No
party shall be entitled to commence arbitration proceedings unless it
has attempted for a period of forty-five (45) days from written notice
of a dispute to reach such amicable resolution.
9.2 After expiration of the forty-five (45) day period
referred to in the prior section, any and all disputes, controversies
or claims arising out of or relating to this Agreement, or the
transactions contemplated hereby, or the breach, termination or
invalidity thereof, shall be settled by final and binding arbitration
by three (3) arbitrators in accordance with the UNCITRAL Arbitration
Rules as at present in effect. The appointing authority shall be the
International Chamber of Commerce in Paris, France. The place of
arbitration shall be Copenhagen, Denmark or such other location as may
be agreed among the parties. The arbitration proceedings shall be
conducted in the English language. Among the remedies available to
them, the arbitrators shall be authorized to order the specific
performance of provisions of this Agreement and of the Associated
Agreements. The award rendered by the arbitrators may include costs of
arbitration, reasonable counsel's fees, and reasonable costs for expert
and other witnesses.
7
9.3 All papers, documents or evidence, whether written or
oral, filed with or presented to the panel of arbitrators shall be
deemed by the parties and by the arbitrators to be Confidential
Information. No party or arbitrator shall disclose in whole or in part
to any other person any Confidential Information submitted in
connection with the arbitration proceedings, except to the extent
reasonably necessary to assist counsel in the arbitration or
preparation for arbitration of the dispute. Confidential Information
may be disclosed (i) to a Party's attorneys, (ii) to another Party,
(iii) to courts for purpose of interim measures of protection,
enforcement or similar proceedings, (iv) to outside experts requested
by either party's counsel to furnish technical or expert services or to
give testimony at the arbitration proceedings, subject, in the case of
such experts, to execution of a legally binding written statement that
such expert is fully familiar with the terms of this Section, agrees to
comply with the confidentiality terms of this Section, and will not use
any Confidential Information disclosed to such expert for personal or
business advantage, or (v) as required by law or any applicable stock
regulations.
9.4 The written decisions and conclusions of a majority of the
arbitration panel shall be final and binding on the JV Parties and
enforcement thereof may be rendered thereon by any court having
jurisdiction upon application of any JV Party.
10. Miscellaneous.
10.1 Governing Law. This Agreement is governed by and shall be
construed in accordance with, the laws of Denmark excluding any choice of
law rules that would refer the matter to the laws of another jurisdiction.
10.2 Force Majeure. No party shall be liable for failure to perform,
in whole or in material part, its obligations under this Agreement if such
failure is caused by an event or condition not existing as of the date of
this Agreement and not reasonably within the control of the affected party,
including without limitation, by fire, flood, typhoon, earthquake,
explosion, strikes, labor troubles or other industrial disturbances,
unavoidable accidents, war (declared or undeclared), acts of terrorism,
sabotage, embargoes, blockage, acts of Governmental Authorities, riots,
insurrections, or any other cause beyond the control of the parties the
consequences of which could not reasonably have been avoided; provided,
that the affected party promptly notifies the other party in writing of the
occurrence of the event of force majeure and takes all reasonable steps
necessary to resume performance of its obligations so interfered with.
10.3 Notices. All notices and communications required, made or
permitted hereunder shall be in writing and shall be delivered by hand or
by messenger, or by recognized courier service (with written receipt
confirming delivery), or by postage prepaid, return receipt requested,
registered or certified airmail or telecopy, addressed:
8
If to NNBR: NN, Inc.
800 Tennessee Road
Erwin, TN 37650
USA
Attn: David L. Dyckman
Fax: 423.743.8870
with a copy to: Blackwell Sanders Peper Martin LLP
2300 Main St., Suite 1000
Kansas City, MO 64108
USA
Attn: James M. Ash
Fax: 816.983.9137
If to SKF: AB SKF
SKF Group Business Development
SE-415 50 Gothenberg
Sweden
Att: the Director
Fax No. 46-31-337-2077
With a copy to: AB SKF Group Headquarters
SE-415 50 Gothenberg
Sweden
Att: General Counsel
Fax No. 46-31-3371691
If to FAG: FAG Kugelfischer Georg Schaefer AG
Georg-Schaefer-Strasse 30
D-97421 Schweinfurt
Germany
Attn: Rechtsabteilung-FR
Fax: 49-97-21 91 31 21
With a copy to: FAG Kugelfischer Georg Schaefer AG
D-97421 Schweinfurt
Germany
Att: Technische Koordination - VT
Fax: 49-97-21-91-34-17
Each such notice or other communication shall for all purposes
hereunder be treated as effective or as having been given as follows:
(i) if delivered in person, when delivered, (ii) if sent by airmail, at
the earlier of its receipt or at 5 p.m. local time of the recipient, on
the seventh day after deposit in a regularly maintained receptacle for
the deposit of airmail, (iii) if sent by a recognized courier service,
on the date shown in the written confirmation of delivery issued by
such delivery service and (iv) on the next
9
business day after the date of the transmission in case of telecopy
with a telecopy receipt. Either party may change the addresses and/or
addressees to whom notice may be given by giving notice pursuant to
this section at least seven (7) days prior to the date the change
becomes effective.
10.4 Waiver. No delay or omission by a party in exercising any
of its rights hereunder shall operate as a waiver of that or any other
right. Unless otherwise expressly stated, a waiver given by a party on
any one occasion shall be effective only in that instance and shall not
be construed as a waiver of that right on any other occasion.
10.5 Amendment. The parties may amend, modify, and supplement
this Agreement, but such amendment, modification or supplement shall be
valid only if made in writing signed by all parties.
10.6 Entire Agreement. This Agreement (of which the Exhibits
and Schedules attached hereto form an integral part), the Company
organizational documents, and the Formation Agreement embody the entire
agreement among the parties hereto with respect to the formation of the
Company and its governance and supersede all prior agreements and
understandings relating to such subject matter.
10.7 Successors. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and permitted assigns.
10.8 Headings. The headings used in this Agreement are for
convenience only, do not constitute a part of this Agreement, and shall
not be used as an aid to the interpretation of this Agreement.
10.9 Severability.
(a) If due to a change in any applicable law or due to
a decision or other act (including failure to act) by any
competent authority one or more of the provisions of this
Agreement can no longer be enforced or any amendment of one
or more of the provisions of this Agreement is required, the
parties agree that they shall endeavor to find an alternate
solution approaching as near as possible the contractual
situation existing prior to such a change, decision or act.
(b) If any provision of this Agreement is determined to
be invalid or unenforceable, the remaining provisions shall
not be effected thereby, and this Agreement shall be
administrated as though the invalid or unenforceable
provision was not a part of this Agreement
10.10 Confidentiality.
(a) Limited Use. Except as expressly authorized by any
other party, each party agrees not to disclose, use or
permit the disclosure or use by others of any trade secrets,
know-how, data, formulas, processes, tools and techniques,
software algorithms and routines, intellectual property or
other information tangible or intangible ("Confidential
Information") of such other party unless and
10
to the extent such Confidential Information (i) is not
marked or designated in writing as confidential and is
provided for a purpose that reasonably contemplates
disclosure to or use by others; provided, however, that
information disclosed orally that is later designated in
writing as confidential shall be treated as Confidential
Information except to the extent it has already been
disclosed or used by the receiving party, (ii) becomes a
matter of public knowledge through no action or inaction of
the party receiving the Confidential Information, (iii) was
in the receiving party's possession before receipt from the
party providing such Confidential Information, (iv) is
rightfully received by the receiving party from a third
party without any duty of confidentiality, (v) is disclosed
to a third party by the party providing the Confidential
Information without a duty of confidentiality on the third
party, (vi) is disclosed with the prior written approval of
the party providing such Confidential Information, or (vii)
is independently developed by the receiving party without
any use of either of the other parties' Confidential
Information. Information shall not be deemed to be available
to the general public for the purpose of the exclusion (ii)
above with respect to each party merely because it is
embraced by more general information in the prior possession
of recipient or others.
(b) Treatment. In furtherance, and not in limitation of
the foregoing Section 10.10(a), each party agrees to do the
following with respect to any such Confidential Information:
(i) exercise the same degree of care to safeguard the
confidentiality of, and prevent the unauthorized use of,
such information as that party exercises to safeguard the
confidentiality of its own Confidential Information; (ii)
restrict disclosure of such information to those of its
employees and agents who have a need to know, and (iii)
instruct and require such employees and agents to maintain
the confidentiality of such information and not to use such
Confidential Information except as expressly permitted
herein. Each party further agrees not to remove or destroy
any proprietary or confidential legends or markings placed
upon any documentation or other materials.
(c) Agreement Confidential. The foregoing
confidentiality obligation shall also apply to the contents
of this Agreement.
(d) Disclosure. The obligations under this Section
10.10 shall not prevent the parties from disclosing the
Confidential Information or terms of this Agreement to any
governmental authority as required by law or applicable
stock regulations (provided that the party intending to make
such disclosure in such circumstances has given the
appropriate other party prompt notice prior to making such
disclosure so that other party may seek a protective order
or other appropriate remedy prior to such disclosure and
cooperates fully with that party in seeking such order or
remedy).
(e) Survival. The provisions of this Section shall
survive the expiration and any termination of this
Agreement.
11
10.11 Further Assurances. Each party will do all acts and
things and execute all documents and instruments which the other party
reasonably requests in order to carry out or give further effect to the
provisions of this Agreement.
10.12 Counterparts. This Agreement may be executed in three or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute but one and the same instrument.
10.13 Relationship of Parties and the Company.
(a) The relationship between NNBR, SKF and FAG is that
of independent contractors and co-owners of the Company, and
nothing in this Agreement shall be construed to constitute
one as an employee, partner, or agent of the other. Without
limiting the foregoing, neither NNBR, SKF nor FAG shall have
the authority to act for or to bind the other in any way.
(b) All transactions between NNBR and the Company shall
be on an arms-length basis and on market conditions. The
Company will notify SKF and FAG whenever the Company enters
into a transaction with NNBR. SKF and FAG shall have the
right to audit the books and records of the Company to
ensure compliance with this subsection.
Signature Page Follows
12
Signature Page
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
signed as of the date first written above.
NNBR
By: /s/ David L. Dyckman
-------------------------------------------
David L. Dyckman
AB SKF
[publ]
By: /s/ Kaj Thoren
-------------------------------------------
Kaj Thoren
FAG
By: /s/ Dr. Uwe Loos /s/ Dr. Gerhard Vogel
-------------------------------------------
Dr. Uwe Loos Dr. Gerhard Vogel
13