SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NN, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
April 15, 2003
Dear Shareholder:
You are cordially invited to attend the 2003 Annual Meeting of NN, Inc., which
will be held on May 15, 2003 at 10:00 a.m., local time, at the Charlotte
Renaissance Hotel, 2800 Coliseum Centre Drive, Charlotte, North Carolina, 28217.
The business to be conducted at the Annual Meeting is described in the attached
Notice of Meeting and Proxy Statement. You are urged to read the Proxy Statement
carefully before completing the enclosed proxy card.
To assure your representation at the meeting, please mark, date and sign the
proxy card and return it in the enclosed envelope at your earliest convenience,
whether or not you plan to attend the meeting. If you attend the Annual Meeting,
you may revoke your proxy and vote in person if you so desire.
Sincerely,
/s/ Roderick R. Baty
Roderick R. Baty
Chairman
NN, Inc.
2000 Waters Edge Drive
Johnson City, TN 37604
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of NN, Inc., a
Delaware corporation, will be held on May 15, 2003, at 10:00 a.m., local time,
at the Charlotte Renaissance Hotel, 2800 Coliseum Centre Drive, Charlotte, North
Carolina, 28217, for the following purposes:
(1) To elect one Class I director, to serve for a term of three years;
(2) To consider and act upon a proposal that the shareholders ratify and
approve non-employee director stock option grants;
(3) To consider and act upon a proposal that the shareholders approve an
amendment to the Company's Stock Incentive Plan;
(4) To ratify the selection of KPMG LLP as the Company's independent
auditor for the fiscal year ending December 31, 2003; and
(5) To conduct such other business as properly may come before the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THESE PROPOSALS.
Details regarding these matters are contained in the accompanying Proxy
Statement.
Holders of record of Common Stock at the close of business on March 28, 2003,
are entitled to notice of and to vote at the Annual Meeting.
Please mark, date and sign the enclosed proxy card and return it in the envelope
provided. You may revoke your proxy at any time before the votes are cast at the
Annual Meeting in accordance with the instructions given in the accompanying
Proxy Statement.
By Order of the Board of Directors,
/s/ William C. Kelly, Jr.
William C. Kelly, Jr.
Secretary
Johnson City, Tennessee
April 15, 2003
NN, INC.
PROXY STATEMENT
FOR
2003 ANNUAL MEETING OF SHAREHOLDERS
Proxies are being solicited by the Board of Directors of NN, Inc. (the
"Company"), in connection with the annual meeting of shareholders to be held on
May 15, 2003 at the Charlotte Renaissance Hotel, 2800 Coliseum Centre Drive,
Charlotte, North Carolina, 28217 (the "Annual Meeting"), for the purpose of
considering and acting upon the matters set forth in the foregoing Notice of
Annual Meeting of Shareholders (the "Notice"). Shareholders of record of the
Company's common stock, par value $.01 per share ("Common Stock"), as of the
close of business on March 28, 2003, will be entitled to vote at the meeting. On
March 28, 2003 (the "Record Date"), 15,369,807 shares of Common Stock were
issued and outstanding.
The entire cost of this proxy solicitation is being paid by the
Company. In addition to solicitation by mail, officers and employees of the
Company, without additional remuneration, may solicit proxies by telephone,
facsimile transmission or personal contact. Brokerage houses, banks, nominees,
fiduciaries and other custodians will be requested to forward soliciting
material to the beneficial owners of shares held by them of record and will be
reimbursed by the Company for their expenses in so doing.
The mailing address of the Company's executive office is 2000 Waters
Edge Drive, Johnson City, Tennessee 37604. This Proxy Statement and the form of
proxy was mailed to shareholders on or about April 15, 2003.
Voting; Quorum; Proxies
Each share of Common Stock outstanding on the Record Date is entitled
to one vote on each matter submitted to a vote of shareholders at the Annual
Meeting. A quorum for the conduct of business is established when the holders of
at least a majority of the outstanding shares of Common Stock entitled to vote
in the election of directors is present at the meeting or are represented by
proxy. Representatives of the Company will serve as inspectors of election for
the Annual Meeting.
Shares represented by a properly executed proxy will be voted at the
Annual Meeting in the manner specified. In the absence of specific instructions,
shares represented by a properly executed proxy will be voted for each of the
nominees for election to the Board of Directors named herein and for the
proposal to ratify the selection of KPMG LLP to serve as the Company's
independent auditor for 2003.
The Board of Directors does not now intend to bring before the Annual
Meeting any matters other than those disclosed in the Notice, and it is not
aware of any business that any other persons intend to bring before the Annual
Meeting. Should any such matter requiring a vote of the shareholders arise, the
enclosed form of proxy confers upon the persons named therein the discretionary
authority to vote the shares represented by the proxy as they deem appropriate.
A proxy may be revoked at any time before it is exercised by delivery
to the Secretary of the Company of a written revocation or a subsequently dated
proxy and will be deemed revoked if the shareholder votes in person at the
Annual Meeting.
Voting Rights and Outstanding Shares
Proposal I: Election of Directors Directors are elected by a plurality vote and
the nominee who receives the most votes will be elected. Abstentions and broker
non-votes will not be taken into account in determining the outcome of the
election.
Proposal II: Approval of Non-Employee Director Stock Option Grants To be
approved, this matter must receive the affirmative vote of the majority of the
shares present in person or by proxy and entitled to vote on the matter.
Abstentions will have the effect of "no" votes on this matter. Broker non-votes
will not affect the outcome of this proposal.
Proposal III: Approval of Amendment to NN, Inc. Stock Incentive Plan To be
approved, this matter must receive the affirmative vote of the majority of the
shares present in person or by proxy and entitled to vote on the matter.
Abstentions will have the effect of "no" votes on this matter. Broker non-votes
will not affect the outcome of this proposal.
Proposal IV: Ratification of Auditors To be approved, this matter must receive
the affirmative vote of the majority of the shares present in person or by proxy
and entitled to vote on the matter. Abstentions and broker non-votes will have
the effect of "no" votes on this matter.
BENEFICIAL OWNERSHIP OF COMMON STOCK
Security Ownership of Management
The following table shows, as of March 28, 2003, the beneficial
ownership of Common Stock by each director, each executive officer named in the
Summary Compensation Table, and all directors and executive officers as a group,
in each case as reported to the Company by such persons.
Name and Address of Number of Shares Percentage
Beneficial Owner (1) Beneficially Owned (2) Beneficially Owned (2)
-------------------- ---------------------- ----------------------
Richard D. Ennen (3) 2,844,668 (4) 18.5%
Michael D. Huff (3) 673,227 (5) 4.4%
James L. Earsley 234,517 (6) 1.5%
Roderick R. Baty 207,566 (7) *
Frank T. Gentry III 99,740 (8) *
Michael E. Werner 28,287 (9) *
G. Ronald Morris 28,000 (10) *
Steven T. Warshaw 25,000 (11) *
David L. Dyckman 69,794 (12) *
Robert R. Sams 45,752 (13) *
William C. Kelly, Jr. 32,022 (14) *
All directors and executive officers as a group 4,288,573 27.9%
_______________________________
* Less than 1%
(1) The address of the beneficial owner is c/o NN, Inc., 2000 Waters Edge
Drive, Johnson City, Tennessee 37604.
(2) Computed in accordance with Rule 13d-3 of the Securities Exchange Act
of 1934, as amended.
(3) See Note 1 to "Security Ownership of Certain Beneficial Owners" below
for a description of the shareholder group of which Messrs. Ennen and
Huff are members.
(4) Includes 1,800,000 shares held by the Richard D. Ennen Charitable
Remainder Unitrust of which Mr. Ennen is the trustee and 200,000
shares held by the Ennen Charitable trust of which Mr. Ennen is the
trustee.
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(5) Includes 23,000 shares of Common Stock subject to presently
exercisable options and 225,000 shares of Common Stock registered in
the name of Mr. Huff's wife.
(6) Includes 13,000 shares of Common Stock subject to presently
exercisable options and 2,818 shares of Common Stock registered in the
name of Mr. Earsley's son.
(7) Includes 205,171 shares of Common Stock subject to presently
exercisable options.
(8) Includes 68,179 shares of Common Stock subject to presently
exercisable options.
(9) Includes 23,000 shares of Common Stock that Mr. Werner subject to
presently exercisable options and 5,287 shares of Common Stock
reregistered in the name of Mr. Werner's wife.
(10) Includes 23,000 shares of Common Stock subject to presently
exercisable options
(11) Includes 23,000 shares of Common Stock subject to presently
exercisable options.
(12) Includes 69,694 shares of Common Stock subject to presently
exercisable options.
(13) Includes 45,652 shares of Common Stock subject to presently
exercisable options.
(14) Includes 31,572 shares of Common Stock subject to presently
exercisable options.
Security Ownership of Certain Beneficial Owners
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned by the only parties known to the Company's
management to own more than 5% of the Company's Common Stock.
Name and Address of Number of Shares Percentage
Beneficial Owner Beneficially Owned Beneficially Owned
---------------- ------------------ ------------------
Shareholder Group disclosed in Schedule 13D, 4,374,302 (1) 28.5%
dated December 14, 2001
DePrince, Race & Zollo, Inc 4,167,950 (3) 27.1%
201 S. Orange Avenue
Suite 850
Orlando, FL 32801
Wellington Management Company, LLP 1,062,100 (2)(4) 6.9%
75 State Street
Boston, MA 02109
Royce & Associates, Inc. 859,600 (5) 5.6%
1414 Avenue of the Americas
New York, NY 10019
State Street Research and Management Company 804,800 (6) 5.2%
One Financial Center, 30th Floor
Boston, MA 02111
______________________
(1) A group, consisting of the following individuals, filed a Schedule 13D
with the Securities and Exchange Commission (the "SEC") on December
14, 2001. Richard D. Ennen - 2,788,868 shares, Monica C. Ennen -
133,000 shares, Leonard Bowman - 300,085 shares, Janet M. Huff -
225,000 shares, Michael D. Huff - 425,227 shares, Gerald Bagierek -
1,500 shares, Deborah E. Bagierek - 96,869 shares and Charles Edmisten
- 403,753 shares.
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(2) Includes 614,100 shares for which Wellington Management Company, LLP,
an investment adviser, reports shared voting power with the beneficial
owners of such shares and 1,062,100 shares for which Wellington
Management Company, LLP reports shared dispositive power with the
beneficial owners of such shares. Wellington Management Company, LLP,
holds all such shares on behalf of its clients and disclaims any
economic interest in the shares.
(3) Amount based on Schedule 13G filed with the SEC on February 7, 2003.
(4) Amount based on Schedule 13G filed with the SEC on February 14, 2003.
(5) Amount based on Schedule 13G filed with the SEC on February 3, 2003.
(6) Amount based on Schedule 13G filed with the SEC on February 14, 2003.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
each of the Company's directors and executive officers, and any beneficial owner
of more than 10% of the Common Stock, is required to file with the SEC initial
reports of beneficial ownership of the Common Stock and reports of changes in
beneficial ownership of the Common Stock. Such persons also are required by SEC
regulations to furnish the Company with copies of all such reports.
Based solely on its review of the copies of such reports furnished to
the Company for the year ended December 31, 2002, the Company is not aware of
any instance of noncompliance with Section 16(a) by its directors, executive
officers or owners of more than 10% of the Common Stock.
PROPOSAL I
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for the division of
the Board of Directors into three classes: Class I, Class II and Class III. Only
one class of directors is elected at each annual meeting. Each director so
elected serves for a three-year term and until his or her successor is elected
and qualified, subject to such director's earlier death, resignation or removal.
Nominees
One Class I director will be elected to the Board of Directors at the
Annual Meeting. The Company has nominated for election Roderick R. Baty, a
current director of the Company. The nominee has indicated a willingness to
continue to serve as a director if elected, but if Mr. Baty should decline or be
unable to serve, the persons named as proxies intend to vote all shares in favor
of the election of such other person who may be nominated as a replacement by
the Board of Directors.
Richard D. Ennen has informed the Company that he does not wish to
stand for re-election to the Board of Directors. As a result, the Governance
Committee of The Board of Directors is currently conducting a search for an
independent outside Director. In the interim, the Board has elected to reduce
the overall size of the Board from seven to six members.
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PROPOSAL II
RATIFICATION AND APPROVAL OF NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS
Background
In 1998, 1999, 2000 and 2001, the Company's Board of Directors approved
grants of certain nonqualified stock options to its members of the Board of
Directors that are not employees of the Company. The Company's Board of
Directors approved the grant of stock options on December 7, 1998, in the amount
of 5,000 options to each of Messrs. Huff, Morris, Warshaw and Werner; on July 4,
1999, in the amount of 5,000 options to each of Messrs. Huff, Morris, Warshaw
and Werner; on October 10, 2000, in the amount of 3,000 options to each of
Messrs. Earsley, Huff, Morris, Warshaw and Werner; and on September 17, 2001, in
the amount of 10,000 options to each of Messrs. Earsley, Huff, Morris, Warshaw
and Werner (collectively, the "Options"). The exercise price of the Options
equaled the closing price of NN's common stock on the respective dates of grant
or the immediately preceding trading day on the Nasdaq Stock Market. The total
number of Options that have been granted is 105,000.
The Company believes that the Options are an important component of
non-employee director compensation and have helped attract and retain qualified
directors. The Company believes that the Options promote the interests of the
Company by aligning the interests of the non-employee directors with those of
the Company's shareholders. This proposal will not increase the number of
authorized shares currently approved in the Company's Stock Incentive Plan. Any
grants to non-employee Directors would be made subject to the availability of
shares under the existing plan.
The Company is seeking shareholder ratification of such Option grants
in order to comply with the Nasdaq Stock Market listing standards. If
shareholder ratification of the options is not obtained, the Company will
consider alternative compensation arrangements for its non-employee Directors.
If the amendment to the Company's Stock Incentive Plan (the "Plan") (as
described in Proposal III) is approved by the Company's shareholders, any future
option grants to its non-employee directors will be made under the Plan.
Terms and Conditions of Options
The Options each have a term of ten years from the date of grant. All
of the Options are currently exercisable and none has been exercised. The
Options granted on December 7, 1998 vested in 1/3 increments over the three
subsequent years, and became fully exercisable on December 7, 2001. The Options
granted on July 4, 1999 vested and became fully exercisable on January 4, 2000.
The Options granted on October 10, 2000 and September 17, 1999 vested and became
fully exercisable on the first anniversary of such Options.
The Options may be exercised only by the respective grantees and may
not be transferred by them in whole or in part, during their lifetime, and upon
death, only by the grantee's designated beneficiary or, in the absence of such
designation, by such person or persons who acquire such Options by bequest or
inheritance.
If any grantee's service as a director terminates for any reason other
than Retirement (defined as termination of service after completion of three
years service as a director), Disability (as defined in the Company's Stock
Incentive Plan) or death, such grantee's Options will continue to be exercisable
for three months following termination of service. If any grantee's service as a
director terminates because of Retirement or Disability, such grantee's Options
shall continue to be exercisable for 12 months following termination of service.
If any grantee's service as director terminates because of death, or if the
grantee dies within twelve months of termination of service due to Retirement or
Disability, such grantee's Options shall continue to be exercisable for 24
months following the grantee's death.
Tax Consequences of the Options
The grantees of the Options did not recognize any taxable income upon
the granting of the Options to them and the Company was not entitled to a tax
deduction by reason of the grant of the Options. Upon the exercise of any
Option, the grantee will recognize ordinary taxable income equal to the excess
of the then fair market value of the shares over the exercise price. The Company
will be entitled to a tax deduction equal to the ordinary income recognized by
the grantee. Upon disposition of the acquired shares, the difference between the
sale prices and the grantee's basis in the shares will be treated as a capital
gain or loss and generally will be characterized as long-term capital gain or
loss if the shares have been held for more than one year at their disposition.
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Required Vote
Ratification and approval of the Options requires the affirmative vote
of the holders of a majority of the outstanding shares of the Company's Common
Stock present in person or represented by proxy and entitled to vote at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION AND APPROVAL OF
THE NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS
PROPOSAL III
AMENDMENT TO THE COMPANY'S STOCK INCENTIVE PLAN
Background
The NN Inc. Stock Incentive Plan (the "Plan") was originally adopted
March 2, 1994 and amended effective November 28, 2000 and September 13, 2001.
The Company is seeking shareholder approval of an amendment to the Plan to
permit members of the Board of Directors of the Company to be eligible to
receive awards under the Plan.
The Plan has a ten-year term expiring March 2, 2004. Under the current
Plan, the Company may grant incentive stock options, nonqualified stock options,
stock appreciation rights, limited stock appreciation rights, restricted shares,
and other stock-based awards (individually, an "Award") to officers and key
employees of the Company. Currently, there are approximately 50 employees
eligible to participate in the Plan. If the amendment is adopted, six
non-employee directors will be eligible to participate in the Plan.
Reasons for the Amendment
The Board of Directors has granted 105,000 stock options to its
non-employee directors since 1998. These grants have not been made pursuant to
any plan, but have been governed by the terms of individual agreements. The
proposed amendment would permit the Company's non-employee directors to
participate in the Plan on a prospective basis and it is intended that all
future grants of stock options to non-employee directors will be made pursuant
to the amended Plan. Shareholder approval of this amendment is required to
comply with the listing standards of the Nasdaq Stock Market. This proposal will
not increase the number of authorized shares currently approved in the Plan. Any
grants to non-employee Directors would be made subject to the availability of
shares under the existing Plan.
Administration of the Plan
The Plan is administered by a Committee appointed by the Board of
Directors (the "Committee"). The Committee has the authority to interpret the
Plan, select the persons who will be granted Awards, determine the date of grant
of each Award, the number, type, and terms and conditions of each Award. The
Committee has the authority to adopt rules and regulations relating to the Plan.
The Committee consists of two or more persons who satisfy the requirements for a
"non-employee director" under Rule 16b-3 of the Securities Exchange Act of 1934,
as amended and/or the requirements for an "outside director" under Section
162(m) of the Internal Revenue Code (the "Code").
Shares Subject to the Plan
As of April 15, 2003, there are 489,087 shares of Company common stock
available for issuance under the Plan.
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Stock Options
No option granted under the Plan may have a term of greater than ten
years from the date of grant and the option price per share may not be less than
the fair market value of a share of the Company's Common Stock on the date of
grant. If the grantee's service for the Company is terminated for any reason
other than retirement, disability or death, options vested on the date of
termination may only be exercised within three months of termination. A grantee
whose service terminates because of retirement or disability has only 12 months
from the date of termination to exercise his or her vested options. If the
grantee's service for the Company is terminated because of death, or if the
grantee dies after termination but while an option is exercisable, options held
on the date of death are exercisable only within 24 months of the death. An
option granted under the Plan may be either (i) an incentive stock option that
complies with Section 422(b) of the Internal Revenue Code (an "Incentive Stock
Option") or (ii) a nonqualified stock option, which term encompasses any stock
option that does not qualify as an Incentive Stock Option (a "Nonqualified Stock
Option").
Stock Appreciation Rights
The Company may also award stock appreciation rights ("SARs") under the
Plan. An SAR may be issued in tandem with a stock option, or it may be issued
independent of a stock option. An SAR entitles the holder to receive, upon
exercise, cash in an amount equal to the difference between the market price of
a share of Common Stock and the exercise price of the SAR. The Committee may
impose a prohibition on the exercise of SARs for such periods as it may
determine is in the best interest of the Company. The right of a grantee to
exercise a tandem SAR shall be cancelled if the shares subject to the SAR are
purchased upon the exercise of the related option. A grantee's rights upon
termination of service with regard to SARs are the same as a grantee's rights
with regard to stock options under the Plan.
Restricted Shares
The Company may award restricted shares under the Plan. The Committee
may determine the terms and conditions of each grant of restricted shares. To
the extent required by law, the purchase price of a restricted share shall not
be less than the par value per share of the Company's Common Stock on the date
of grant. A grantee of a restricted share will have beneficial ownership of the
shares, including the right to receive dividends and the right to vote.
Restricted shares may not be transferred until the restrictions imposed by the
Committee lapse or are removed. A grantee's rights to restricted shares
terminate on his termination of employment with the Company, except as
determined by the Committee.
Other Awards
The Company may grant other awards that are based on or related to the
Company's Common Stock. Such awards may include phantom shares, performance
units, or performance bonus awards.
Tax Consequences
Nonqualified Stock Options. The granting of a Nonqualified Stock Option
to an individual is not ordinarily a taxable event. Upon exercise of the option,
the grantee will recognize ordinary taxable income equal to the excess of the
then fair market value of the shares over the exercise price. The Company will
be entitled to a tax deduction equal to the ordinary income recognized by the
grantee. Upon disposition of the acquired shares, the difference between the
sale price and the grantee's basis in the shares will be treated as a capital
gain or loss and generally will be characterized as long-term capital gain or
loss if the shares have been held for more than one year at their disposition.
Incentive Stock Options. Neither the granting of an Incentive Stock
Option nor its exercise are ordinarily a taxable event to the grantee. Instead,
the grantee recognizes taxable income upon the sale of the acquired shares. The
tax treatment to the grantee and the Company will depend primarily upon whether
the grantee has met certain holding period requirements at the time he or she
sells the shares. If a grantee exercises an Incentive Stock Option and does not
dispose of the shares received within two years after the date such Option was
granted or within one year after the transfer of the shares to him or her, any
gain realized upon the disposition will be characterized as long-term capital
gain. If the grantee disposes of the Incentive Stock Option shares either within
two years after the date the option is granted or within one year after the
exercise of the option and transfer of shares to him or her, such
7
disposition will be treated as a disqualifying disposition and an amount equal
to the lesser of (1) the fair market value of the shares on the date of exercise
minus the exercise price, or (2) the amount realized on the disposition minus
the exercise price will be taxed as ordinary income to the grantee. The excess,
if any, of the amount realized upon disposition over the fair market value at
the time of the exercise of the option will be treated as long-term capital gain
if the shares have been held for more than one year following the exercise of
the option. Except in the case of the disqualifying disposition, there will be
no federal income tax deductions allowed to the Company upon the grant, exercise
or termination of an Incentive Stock Option.
Stock Appreciation Rights
The recipient of an SAR will not recognize any taxable income at the
time the SAR is granted. Instead, the appreciation inherent in the SAR will be
taxable as ordinary compensation income at the time it is received by the
participant. If the participant receives the appreciation inherent in the SAR in
stock rather than cash, the participant will recognize ordinary compensation
income equal to the excess of the fair market value of the stock on the day it
is received over any amounts paid by the participant, if any, for the stock.
With respect to SARs granted in tandem with stock options, if a holder
elects to surrender the underlying option in exchange for cash or stock equal to
the appreciation inherent in the underlying option, the tax consequences to the
participant will be the same as those relating to freestanding SARs. If the
participant elects to exercise the underlying option, the holder will be taxed
at the time of exercise as if he or she had exercised a Nonqualified Stock
Option (discussed above).
In general, there will be no federal income tax deduction allowed to
the Company upon the grant or termination of any SAR. However, upon the exercise
of an SAR, the Company will be entitled to a deduction for federal income tax
purposes equal to the amount of ordinary income that the participant is required
to recognize as a result of the exercise, provided that the deduction is not
otherwise disallowed under the Code.
Restricted Shares
The recipient of restricted shares will recognize ordinary compensation
income at the time the award is received equal to the excess, if any, of the
fair market value of the stock received over the amount paid by the participant
in exchange for the stock. If, however, the stock is subject to a substantial
risk of forfeiture at the time of grant, (e.g., if the participant is required
to work for a period of time before the stock becomes freely transferable), the
participant generally will not recognize income until the restrictions on such
shares lapse, at which time, the recipient will recognize ordinary compensation
income equal to the excess, if any, of the fair market value of the stock on the
date such restrictions lapse over any amount paid by the recipient in exchange
for the stock. Upon the disposition of the shares, the difference between the
sale price and the recipient's basis in the shares will be treated as a capital
gain or loss and generally will be characterized as long-term capital gain or
loss if the shares have been held for more than one year at the time of their
disposition. In the year that the recipient of a restricted stock award
recognizes ordinary taxable income in respect of such award, the Company will be
entitled to a deduction for federal income tax purposes equal to the amount of
ordinary income that the recipient is required to recognize, provided that the
deduction is not otherwise disallowed under the Code.
Estimated Benefits
The number of awards that will be made to eligible participants
pursuant to the Plan is within the discretion of the Committee and therefore is
not currently determinable. To date, the following option awards have been made:
Roderick R. Baty, Chairman, Chief Executive Officer and President - 301,300
shares, David L. Dyckman, Chief Financial Officer and Vice President - 111,000
shares; Frank T. Gentry III, Vice President, Manufacturing - 113,900 shares;
Robert R. Sams, Vice President, Market Services - 70,600 shares; and William C.
Kelly, Jr., Chief Administrative Officer, Secretary and Treasurer - 51,850
shares. To date, option awards to all current executive officers totaled 648,650
shares, none of which have been exercised. Option awards were granted in 1994
and 1996 to James Mitchell, former President and Chief Operating Officer of the
Company totaling 553,635 shares of which 508,635 were exercised and 45,000
forfeited. To date, option awards to all current employees (excluding current
executive officers) totaled 1,207,263 shares of which 134,476 have been
exercised. No SARs or restricted shares have been granted under the Plan.
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Required Vote
Approval of the amendment requires the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock present in person or
represented by proxy and entitled to vote at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO
THE COMPANY'S STOCK INCENTIVE PLAN.
PROPOSAL IV
RATIFICATION OF SELECTION OF AUDITORS
The firm of KPMG LLP has been selected by the Audit Committee of the
Board of Directors as the Company's outside auditors for 2003. Although it is
not required to do so, the Board has determined that it is desirable to seek
shareholders' ratification of the selection of KPMG LLP. If the shareholders
should not ratify the appointment of KPMG LLP, the Audit Committee will
reconsider the appointment.
A representative of KPMG LLP is expected to be present at the Annual
Meeting and will have an opportunity to make a statement, if he or she so
desires, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be presented at next year's Annual
Meeting must be received by the Company at its executive offices not later than
December 15, 2002 in order to be considered for inclusion in the Company's proxy
statement and form of proxy for such meeting. These proposals should be sent to
NN, Inc., Attention: Secretary, 2000 Waters Edge Drive, Johnson City, Tennessee
37604. Proposals of shareholder not intended for inclusion in the Company's 2004
proxy statement must be received by the Company in writing no later than
February 28, 2004 in order to preclude the Company's use of its discretionary
proxy voting authority to vote on the proposal or nominee if shareholder is
present at the 2003 annual meeting.
INFORMATION ABOUT THE DIRECTORS
The following table sets forth the names of each current director
(including the nominees for election), their age, their years of service as a
director, the year in which their current term expires and their current
positions with the Company. The table is followed by a more detailed
biographical description for each director.
Director Term
Name Age Since Expires Positions with the Company
- ---- --- ----- ------- --------------------------
Roderick R. Baty 49 1995 2003 Chairman of the Board, Chief Executive Officer,
President and Director - nominee for re-election
Richard D. Ennen 75 1980 2003 Director
Michael D. Huff 55 1980 2004 Director
Michael E. Werner 58 1995 2004 Director
G. Ronald Morris 66 1994 2005 Director
Steven T. Warshaw 54 1997 2005 Director
James L. Earsley 57 1999 2005 Director
Roderick R. Baty became President and Chief Executive Officer in July
1997 and was elected Chairman of the Board in September 2001. He joined the
Company in July 1995 as Vice President and Chief Financial Officer and was
elected to the Board of Directors to fill a vacant seat in August 1995. Prior to
joining the Company, Mr. Baty served as President and Chief Operating Officer of
Hoover Precision Products from 1990 to January 1995, and as Vice President and
General Manager of Hoover Group from 1985 to 1990.
9
Richard D. Ennen is the principal founder of the Company and has been a
director of the Company since its formation in 1980. He served as Chairman of
the Board of the Company from its inception until September 2001, Chief
Executive Officer of the Company from its inception until 1997, and as President
of the Company from its inception until 1990. In recent years, Mr. Ennen has
focused on the development and implementation of the Company's business strategy
rather than the day-to-day operations of the Company. Prior to forming the
Company, Mr. Ennen held various management and executive positions with Hoover
Group, Inc. (formerly Hoover Universal, Inc.), a division of Tsubakimoto
Precision Products Co. Ltd, including Corporate Vice President and General
Manager of the ball and roller division. Mr. Ennen has over 40 years of
experience in the anti-friction bearing industry. Mr. Ennen has decided not to
stand for re-election to the Board of Directors.
Michael D. Huff has served as a director of the Company since its
formation in 1980. From 1980 until his retirement in January 1995, Mr. Huff
served as the Chief Financial Officer, Treasurer and Secretary of the Company.
Before joining the Company, Mr. Huff served as a division controller of Hoover
Universal, Inc. from 1975 until 1980. Mr. Huff is a member of the American
Institute of Certified Public Accountants and the Tennessee Society of Certified
Public Accountants.
Michael E. Werner is a management consultant with Werner Associates, a
management consulting firm that Mr. Werner co-founded in 1982 specializing in
manufacturing companies. During the five years prior to starting his business,
Mr. Werner served as Director of Strategic Planning and Business Development for
the Uniroyal Chemical Company. He also has held positions with the New York
Central Company, Western Electric Company and the Continental Group.
G. Ronald Morris retired during 1999 from Western Industries, Inc., a
contract manufacturer of metal and plastic products. Mr. Morris had served as
President, Chief Executive Officer and director of Western Industries, Inc.
since July 1991. From 1989 to 1991, Mr. Morris served as Chairman of the Board
of Integrated Technologies, Inc., a manufacturer of computer software, and from
1988 to 1989, he served as Vice Chairman of Rexnord Corporation, a manufacturer
of mechanical power transmission components and related products, including
anti-friction bearings. From 1982 to 1988, Mr. Morris served as President and
Chief Executive Officer of PT Components, Inc., a manufacturer of mechanical
power transmission components and related products that was acquired by Rexnord
Corporation in 1988.
Steven T. Warshaw became President and Chief Executive Officer in July
2002 of M Cubed Technologies, Inc. M Cubed Technologies, Inc. is a developer and
manufacturer of advanced composite materials and ultra-precise electronic
components and modules. Prior to this position he served as President of Hexcel
Schwebel, a global producer of advanced structural materials, from April 2000 to
November 2001. Mr. Warshaw served from February 1999 as Senior Vice President of
Photronics, Inc., a global supplier to the semiconductor industry. From 1996 to
1999, he served as President of Olin Microelectronic Materials, a company
supplying technologically advanced chemicals, products, and services to
semiconductor manufacturers. Prior to his current position, Mr. Warshaw served
in a variety of positions at Olin since 1974, including President of OCG
Microelectronic Materials and Vice President of Olin's Chemicals Division.
James L. Earsley has spent his entire career with Industrial Molding
Corporation (IMC) and was Chairman of the Board at the time of the Company's
acquisition of IMC on July 4, 1999.
Shareholders Agreement
The persons who were shareholders of the Company at the time of its
initial public offering are parties to an agreement which provides that, so long
as the Ennen family which includes the immediate family members and ex-spouse of
Mr. Ennen, continues to hold at least 10% of the Common Stock, in the event that
Mr. Ennen for any reason ceases to serve as a director of the Company, such
individuals will vote their shares of Common Stock in favor of a director
nominee who is designated by the Ennen family. This agreement expires in
February 2004. To the Company's knowledge, as of March 28, 2003, members of the
Ennen family held, in the aggregate, approximately 20% of the outstanding shares
of Common Stock, and the other parties to the Agreement held, in the aggregate,
approximately 10% of the outstanding shares of Common Stock, for a combined
total of 30%.
10
Compensation of Directors
Directors who are not employees of the Company are paid an annual
retainer of $17,000 and a fee of $1,000 for each Board meeting attended, $750
for each committee meeting attended and $500 for each teleconference meeting
attended. Directors who are employees of the Company do not receive any
compensation for their service as directors. Directors may elect to defer some
or all of the compensation they are provided by the Company. Additionally, the
Compensation Committee has from time to time granted options to the non-employee
directors. See Proposal II for a description of such options. The Company also
reimburses all directors for out-of-pocket expenses incurred in attending Board
and Committee meetings.
Committees of the Board
Audit Committee. The Audit Committee of the Board of Directors
consists of Michael D. Huff, Michael E. Werner, and Steven T. Warshaw. Among
other matters described in its charter, the Audit Committee is responsible for
engaging the independent certified public accountants to conduct the annual
audit of the books and accounts of the Company and for reviewing the adequacy
and effectiveness of the internal auditing, accounting and financial controls of
the Company with the independent certified public accountants and the Company's
internal financial and accounting staff. The Audit Committee originally adopted
a written charter in June 2000. In April 2003, the Audit Committee presented to
the Board and the Board approved a revised charter for the Audit Committee. This
revised charter is attached to the Proxy Statement as Annex A. The Audit
Committee met five times in 2002.
Compensation Committee. The Compensation Committee of the Board
of Directors consists of G. Ronald Morris, Michael E. Werner, James L. Earsley
and Steven T. Warshaw. The Compensation Committee annually reviews and approves
corporate goals and objectives relative to Chief Executive Officer evaluation,
compensation and performance. Additionally, the Compensation Committee is
responsible for reviewing and approving the Company's executive compensation
policies and practices and supervising the administration of the Company's
employee benefit plans, including the NN, Inc. Stock Incentive Plan. In April
2003, the Compensation Committee presented to the Board and the Board approved a
written charter. The functions of the Compensation Committee are discussed in
further detail in the section entitled "Report of the Compensation Committee"
herein. The Compensation Committee met two times in 2002.
Governance Committee. The Governance Committee of the Board of
Directors was formed by the Board of Directors in the third quarter of 2002. The
Committee consists of Mr. Michael E. Werner, Mr. Steven T. Warshaw, James L.
Earsley and Mr. G. Ronald Morris. The Governance Committee is responsible for
recommending nominees for election to the Board of Directors and appointment of
Directors to committees of the Board. Currently, the committee is developing a
process whereby input by shareholders for recommending nominees will be
considered. Additionally, the Governance Committee is responsible for overseeing
the process of providing information to the Board, developing corporate
governance principles applicable to the Company and oversight and annual
evaluation of Board of Director members. In October 2002, the Governance
Committee adopted a statement of Principals of Corporate Governance. In April
2003, the Governance Committee presented to the Board and the Board approved a
written charter. The Governance Committee met one time in 2002.
Attendance at Board and Committee Meetings
The Board of Directors held six meetings in 2002. Each director of the
Company was present for all of the meetings of the Board of Directors and each
Committee on which such director served with the exception of one missed Board
meeting by Richard D. Ennen.
11
EXECUTIVE COMPENSATION
The following table sets forth for the years ended December 31, 2000,
2001 and 2002, certain information concerning the compensation paid for services
rendered in all capacities by the Company, to each individual who served as the
Chief Executive Officer and to each of the other four most highly compensated
executive officers of the Company whose annual salary and bonus in 2002 exceeded
$100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards All Other
Annual Compensation Options/ Compensation
Name and Principal Position Year Salary ($) Bonus ($) SARs (#) ($) (1)
- --------------------------- ---- -------------------- -------- -------
Roderick R. Baty 2002 297,733 125,244 0 4,446(2)
Chairman/Chief Executive Officer/President 2001 284,000 0 75,000 3,821
2000 248,312 80,000 141,300 1,023
Frank T. Gentry III 2002 184,888 65,120 0 3,941(2)
Vice President - Manufacturing 2001 179,000 0 40,550 3,632
2000 152,252 38,000 57,450 770
David L. Dyckman 2002 184,888 65,491 0 3,842(2)
Chief Financial Officer/Vice President 2001 179,000 0 40,050 3,539
2000 161,202 38,000 32,950 633
Robert R. Sams 2002 158,317 54,912 0 3,360(2)
Vice President - Market Services 2001 154,000 0 21,600 3,205
2000 136,200 29,000 32,400 640
William C. Kelly, Jr. 2002 117,930 29,212 0 2,440(2)
Chief Administrative Officer 2001 114,000 0 20,825 2,357
Secretary/Treasurer 2000 102,153 21,000 19,800 584
- ----------------------------------------------------------------------------------------------------------
(1) For all named executives amounts for 2002 include $4,000, $3,698,
$3,697, $3,166 and $2,358 in Company matching contributions under a
"401(k)" savings plan for Messrs. Baty, Gentry, Dyckman, Sams and
Kelly, respectively. This plan is open to substantially all of the
Company's employees and officers who have met certain service and age
requirements.
(2) Amounts reported for 2002 include $446, $243, $145, $194 and $82 in
premiums paid by the Company for supplemental life insurance for the
benefit of Messrs. Baty, Gentry, Dyckman, Sams and Kelly.
12
Equity Compensation Plan Information
The following table provides information about the company's shares of
common stock that may be issued upon the exercise of options, warrants and
rights under all of its existing equity compensation plans as of December 31,
2002.
Number of securities
remaining available for
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
Plan Category warrants and rights. rights. reflected in column (a)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
1,212,802 $7.33 489,087
Equity compensation plans
approved by shareholders
Equity compensation plans not
approved by shareholders (1) 105,000 $7.50 --
Total 1,317,802 $7.34 489,087
(1) Represents options granted by the Board of Directors to its non-employee
directors since 1998. These grants have not been made pursuant to any plan; but
have been governed by the terms of individual agreements. The Company is seeking
shareholder approval of an amendment to the Plan to permit members of the Board
of Directors of the Company to be eligible to receive awards under the Plan.
Certain option grants to non-employee directors have not been approved
by the Company's shareholders. The Company is submitting these option awards for
shareholder approval and ratification under Proposal II of this proxy statement.
Please refer to the description of such option awards beginning on page four.
AGGREGATED OPTION EXERCISES IN 2002
AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning stock
option exercises during 2002 and option values at year-end, with respect to
stock options granted to the executive officers named in the Summary
Compensation Table.
Value of Unexercised
Number of Unexercised In-The-Money Options
Shares Options at Year-End at Year-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable(1)
- ---- ------------ ------------ ------------- ----------------
Roderick R. Baty 0 0 205,171/96,129 $616,124/$204,094
Frank T. Gentry III 0 0 68,179/45,722 $181,430/$95,592
David L. Dyckman 0 0 69,694/41,306 $208,633/$90,324
Robert T. Sams 0 0 45,652/24,948 $132,414/$52,320
William C. Kelly, Jr. 0 0 31,572/20,279 $90,222/$41,535
_________________________
(1) On December 31, 2002, the market price of the Common Stock was $9.99
per share.
13
Employment and Change of Control Agreements with Executive Officers
Messrs. Baty, Gentry, Dyckman, Sams and Kelly have written employment
agreements to serve in their respective positions until July 31, 2001, March 31,
2001, January 20, 2004, January 20, 2004 and January 20, 2004, respectively.
Each agreement extends automatically for successive one-year terms unless either
party gives notice of termination. The Company may terminate each executive's
employment with or without cause, but if terminated without cause, he would
continue to receive his annual salary, paid on a monthly basis, for one year
from the date of termination. Additionally, each executive officer has a written
change of control agreement. These agreements state if an executive's employment
is terminated within two years following a change of control as defined in the
document that each executive will receive a lump sum payment of a multiple of
his annual salary. The multiple for each of the executive officers is as
follows: Mr. Baty - 2.5; Mr. Gentry - 2.0; Mr. Dyckman - 2.0; Mr. Sams - 2.0;
and Mr. Kelly 1.5. Additionally, certain benefits will continue to be paid by
the Company to each executive officer for a period of time of 30 months, 24
months, 24 months, 24 months and 18 months for Messrs. Baty, Gentry, Dyckman,
Sams and Kelly, respectively. Each executive has also agreed to a
non-competition agreement that ends two years after the conclusion of his
employment with the Company.
BOARD OF DIRECTOR'S AUDIT COMMITTEE
REPORT TO SHAREHOLDERS
In accordance with its written charter adopted by the Board of
Directors, the Audit Committee assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of the Company. Management has
responsibility for preparation of the Company's financial statements and the
independent auditors have responsibility for the examination of those
statements. Each of the members of the Audit Committee meets the independence
requirements of the NASDAQ Stock Market.
The Audit Committee has reviewed and discussed with the Company's
management and KPMG LLP, the Company's independent auditor, the audited
financial statements of the Company for 2002; has discussed with KPMG LLP
matters required to be discussed by Statement on Auditing Standards No. 61; has
received from the independent auditors the written disclosures and letter
required by Independence Standards No. 1; and has discussed with the independent
auditor the auditor's independence, including whether KPMG LLP's provision of
non-audit services to the Company was compatible with maintaining KPMG LLP's
independence. Based on the review and discussions described above, the Audit
Committee recommended to the Company's Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 for filing with the Securities and
Exchange Commission.
The Audit Committee originally adopted a written charter in June 2000.
In April 2003, the Audit Committee presented to the Board and the Board approved
a revised charter for the Audit Committee. A copy of this charter is attached to
the Proxy Statement as Annex A.
Michael D. Huff
Michael E. Werner
Steven T. Warshaw
FEES PAID TO INDEPENDENT AUDITORS
Fees billed to the Company by KPMG LLP in fiscal year 2002 are summarized as
follows:
Audit Fees. Audit fees billed to the Company by KPMG LLP for
review of the Company's annual financial statements and those financial
statements included in the Company's quarterly reports on Form 10-Q totaled
$421,712.
Financial Information Systems Design and Implementation Fees. The
Company did not engage KPMG during fiscal year 2002 to provide services
regarding financial information systems.
All Other Fees. Audit related fees billed to the Company by
KPMG LLP during fiscal year 2002 were $105,490 related to SEC filings and
related consents, and audits of employee benefit plans. Non-audit fees billed to
the Company by KPMG LLP for other non-audit related work performed in 2002
equaled $352,293 which included billings for tax consulting. The Committee
considers the scope of these services to be compatible with maintaining the
independence of KPMG LLP.
14
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is responsible
for the oversight of the Company's compensation policies. The membership of the
Compensation Committee during 2002 consisted of G. Ronald Morris, Michael E.
Werner, Steven T. Warshaw and James L. Earsley. The report of the Committee on
executive officer compensation for 2002 is set forth below.
Compensation Principles
The goal of the Company is to structure its compensation arrangements
for executive officers in a manner that will promote the Company's profitability
and enhance shareholder value. In designing its compensation arrangements to
achieve this goal, the Company is guided by the following objectives:
o attracting and retaining qualified and dedicated executives who are
essential to the long-term success of the Company;
o providing compensation packages that are competitive with the
compensation arrangements offered by comparable companies, including
the Company's competitors;
o tying a significant portion of an executive officer's compensation to
the Company's and the individual's performance; and
o directly aligning the interests of management with the interests of
the shareholders through stock-based compensation arrangements.
In 2002, the components of the Company's executive compensation
arrangements consisted of salary, cash bonus and stock option award
opportunities pursuant to the Stock Incentive Plan.
Executive Officer Compensation
As a general matter, the Company believes the interests of the Company
and its shareholders are best served by developing and maintaining compensation
policies that are consistent and market competitive with peer group industrial
companies. The Company therefore periodically conducts peer group benchmarking
of public industrial companies and utilizes this information to aid in
establishing a competitive compensation program for the company. The following
criteria are utilized as a basis for this program: performance (revenue growth,
EPS growth, return on net assets, return on equity, and total shareholder
return), executive pay, annual incentive/bonus, benefits, and stock incentive
awards.
The current executive compensation structure includes a formal salary
grade structure that establishes five levels of executive compensation within
the Company. Base salary ranges (low, mid and high) are established for each
salary grade. In addition, a formal annual incentive bonus plan includes
threshold, target, and maximum awards based upon pre-established financial
performance criteria.
Salary
The salary levels for the Company's executive officers and managers are
reviewed and determined biannually. Adjustments to executive officer
compensation in 2002 were evaluated based upon the individual's and Company's
performance within the framework of the Company's formal compensation policies.
Annual Bonus
Annual bonuses are based solely on a formalized plan. Bonus payments
are contingent upon achieving pre-established net income goals for each
operating business unit and the total company. The bonuses paid to named
executive officers for 2002 are set forth in the Summary Compensation Table.
15
Stock Incentive Plan
Prior to its initial public offering in 1994, the Company adopted the
Stock Incentive Plan under which 1,125,000 shares of the Company's common stock
have been reserved for issuance to executive officers and other key employees,
as determined by the Compensation Committee. The Stock Incentive Plan has been
amended over time to increase the number of shares available for issuance
pursuant to awards made under the plan to 2,450,000.
Stock option grants to the Company's executive officers and managers
are generally reviewed and determined biannually by the Compensation Committee.
With respect to options awarded, the committee utilizes a structure based upon
the following: recommendations from the independent compensation review, Mr.
Baty's recommendations (other than himself), and rewards to such officers and
other key employees for superior performance and to provide financial incentives
for such officers and employees to continue to perform in a superior manner. The
Company awarded 37,000 options to key employees during 2002. No options were
awarded to executive officers during 2002.
Compensation of the Chief Executive Officer
The Company's decisions regarding compensation of its Chief Executive
Officer are guided by the same policies and considerations that govern
compensation of the Company's other executive officers. Mr. Baty's salary was
set at a level that the Committee determined was appropriate on the basis of the
following factors: 1) The Company's overall performance. 2) Mr. Baty's
individual performance. 3) The competitiveness of Mr. Baty's salary in
comparison to similar industrial companies.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended,
precludes any public corporation from taking a deduction for compensation in
excess of $1 million paid to its chief executive officer or any of its other
executive officers. Certain performance-based compensation, however, is exempt
from the deduction limit. No formal policy has been adopted by the Company with
respect to minimizing the risk that compensation paid to its executive officers
will exceed the deduction limit. The Company does not anticipate that any
compensation paid to its executive officers in 2002 will exceed the limit
imposed by Section 162(m).
G. Ronald Morris
Michael E. Werner
Steven T. Warshaw
James L Earsley
16
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
the Company's Common Stock (consisting of stock price performance and reinvested
dividends) from December 31, 1997 with the cumulative total return (assuming
reinvestment of all dividends) of (i) the Value Line Machinery Industry Stock
Index and (ii) the Standard & Poor's 500 Stock Index, for the period December
31, 1997 through December 31, 2002. The Value Line Machinery Industry Index is
an industry index comprised of 49 companies engaged in manufacturing of
machinery and machine parts, a list of which is available from the Company. The
comparison assumes $100 was invested in the Company's Common Stock and in each
of the foregoing indices on December 31, 1997. There can be no assurances that
the performance of the Common Stock will continue in the future with the same or
similar trend depicted on the graph.
Cumulative Total Shareholder Return
Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2002
------------- ------------- ------------- ------------- ------------- -------------
NN, Inc. 100.00 68.52 90.23 124.25 155.18 143.60
Standard and Poors 500 100.00 126.71 151.56 136.20 118.43 90.76
Machinery 100.00 85.43 116.35 119.73 147.83 147.97
17
ANNUAL REPORT
The Company's 2002 Annual Report to Shareholders, which includes its
Annual Report on Form 10-K for the year ended December 31, 2002, is being mailed
together with this Proxy Statement.
By Order of the Board of Directors,
/s/ William C. Kelly, Jr.
William C. Kelly, Jr.
Secretary
SHAREHOLDERS ARE REQUESTED TO MARK, DATE AND SIGN THE ENCLOSED PROXY CARD AND
RETURN IT IN THE ENCLOSED ENVELOPE. YOUR PROMPT RESPONSE WILL BE HELPFUL, AND
YOUR COOPERATION WILL BE APPRECIATED.
Annex A
NN, INC.
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The Audit Committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential
shareholders, and investment community relating to corporate accounting,
reporting practices of the Corporation, and the quality and integrity of
the financial reports of the Corporation. The Audit Committee's primary
duties and responsibilities are to:
o Oversee that management has maintained the reliability and integrity
of the accounting policies and financial reporting and disclosure
practices of the Corporation.
o Oversee that management has established and maintained processes to
assure that an adequate system of internal control is functioning
within the Corporation.
o Oversee that management has established and maintained processes to
assure compliance by the Corporation with all applicable laws,
regulations and corporate policy.
The Audit Committee will fulfill these responsibilities primarily by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors as
defined under any applicable rules of the Nasdaq Stock Market and the
Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the
"Act"). All members of the Audit Committee shall be free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Audit
Committee.
All members of the Audit Committee shall have a working familiarity with
basic finance and accounting practices (including the Company's balance
sheet, income statement and cash flow statement). In the determination of
the Board, at least one member shall meet the definition of "audit
committee financial expert" as set forth in the Act and this person will be
the chairman of the Audit Committee. Audit Committee members may enhance
their familiarity with finance and accounting by participating in
educational programs conducted by the Corporation or an outside consultant.
The members of the Audit Committee shall be elected by the Board at the
annual organizational meeting of the Board or until their successors shall
be duly elected and
qualified. Unless a Chairperson is elected by the full Board, the members
of the Audit Committee may designate a Chairperson by majority vote of the
full Audit Committee membership.
III. MEETINGS
The Audit Committee shall meet at least five times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Audit Committee should meet at least annually with
management and the independent accountants separately to discuss any
matters that the Audit Committee or each of these groups believes should be
discussed privately. In addition, the Audit Committee or at least its
Chairperson should meet with the independent accountants and management
quarterly to review the Corporation's financials consistent with Section
IV.4 below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and reassess, at least annually, the adequacy of this Charter.
Make recommendations to the Board, as conditions dictate, to update
this Charter.
2. Review with management and the independent auditors the Corporation's
annual financial statements, including a discussion with the
independent auditors of significant issues regarding accounting
principles, practices and judgments and any matters required to be
discussed by Statement of Auditing Standards No. 61 ("SAS No. 61") as
amended. Review all reports required to be delivered by the
independent auditors under the Act.
3. Review with management and the independent auditors the 10-Q prior to
its filing or prior to the release of earnings, including a discussion
with the independent accountants of the matters to be discussed by SAS
No. 61, as amended and Statement of Auditing Standards No. 71.("SAS
No. 71"). The Chairperson of the Audit Committee may represent the
entire Audit Committee for purposes of this review.
4. Once per year there will be an evaluation of Audit Committee
performance conducted by the Board of Directors.
Independent Accountants
5. Review the performance of the independent auditors and make all
decisions regarding the appointment or termination of the independent
auditors. The Audit Committee has the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
independent auditors. The independent auditors are ultimately
accountable to the Audit Committee for their audit of the financial
2
statements of the Corporation. On an annual basis, the Audit Committee
should review and discuss with the independent auditors all
significant relationships with the Corporation to determine the
auditor's independence.
6. The Audit Committee has the sole authority to approve all audit
engagement fees and terms.
7. Oversee independence of the accountants by:
- receiving from the independent auditors, on a periodic basis, a
formal written statement delineating all relationships between
the independent auditors and the Corporation consistent with
Independence Standards Board Standard 1 ("ISB No. 1");
- reviewing, and actively discussing with the Board, if necessary,
and the independent auditors, on a periodic basis, any disclosed
relationships or services between the independent auditors and
the Corporation or any other disclosed relationships or services
that may impact the objectivity and independence of the
independent auditors;
- recommending, if necessary, that the Board take certain actions
to satisfy itself of the auditor's independence; and
- confirming that the independent auditors' are independent
pursuant to Rule 2-01 of Regulation S-X and any requirements of
the Act.
8. Based on the review and discussions referred to in section IV.2 and
IV.5, the Audit Committee shall determine whether to recommend to the
Board that the Corporation's audited financial statements be included
in the Corporation's Annual Report on Form 10-K for the last fiscal
year for filing with the Securities and Exchange Commission.
9. Consider whether the engagement of the independent auditors for
non-audit services is compatible with maintaining the independent
auditor's independence and review the fees for such services. If
appropriate, approve in advance such engagement and the payment of
such fees. Such services will only be those permissible by the Act and
any Nasdaq Stock Market requirements.
Financial Reporting Process
10. In conjunction with the independent auditors and the internal
auditors, review the integrity of the Corporation's financial
reporting processes, both internal and external.
11. Consider and approve, if appropriate, major changes to the
Corporation's accounting principles and practices proposed by
management. Discuss with the independent auditors any significant
changes in auditing standards or their audit scope.
3
12. Establish regular systems of reporting to the Audit Committee by each
of management and the independent auditors regarding any significant
judgments made in management's preparation of the financial statements
and any significant difficulties encountered during the course of the
review or audit, including any restrictions on the scope of the work
or access to required information. Discuss policies with respect to
risk assessment and risk management.
13. Review any significant disagreement among management and the
independent accountants in connection with the preparation of the
financial statements.
Legal Compliance/General
14. Review with the Corporation's counsel, any legal matter that could
have a significant impact on the Corporation's financial statements.
As appropriate, obtain advice and assistance from outside legal,
accounting or other advisors.
15. Report through its Chairperson to the Board following meetings of the
Audit Committee.
16. Maintain minutes or other records of meetings and activities of the
Audit Committee.
17. Establish confidential, anonymous procedures for the receipt,
retention and treatment of complaints regarding accounting, internal
accounting controls and auditing matters.
18. Approve the report of the Audit Committee required by the rules of the
SEC to be included in the Corporation's annual proxy statement.
19. Review and approve all related party transactions.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditors. Nor is it the duty of
the Audit Committee to conduct investigations, resolve disagreements, if any,
between management and the independent auditors or to assure compliance with
laws and regulations.
4
APPENDIX TO PROXY STATEMENT
AMENDMENT NO. 3
TO
NN, INC.
STOCK INCENTIVE PLAN
As adopted by the Board of Directors on March 6, 2003, and subject to
approval by the stockholders of the Company as required in Section 23 of the
Stock Incentive Plan, the NN, Inc. Stock Incentive Plan is hereby amended as
follows:
Article 1 of the Plan is amended and restated in its entirety as
follows:
"1. PURPOSE
The NN, Inc. Stock Incentive Plan (the "Plan") is designed to
enable directors, officers and key employees of NN, Inc. (the
"Company") to acquire or increase a proprietary interest in the
Company, and thus to share in the future success of the Company's
business. Accordingly, the Plan is intended as a means of
attracting and retaining directors, officers and key employees of
outstanding ability and or increasing the identity of interests
between them and the Company's shareholders, by providing an
incentive to perform in a superior manner and rewarding such
performance. Because the individuals eligible to receive Awards
under the Plan will be those who are in positions to make
important and direct contributions to the success of the Company,
the directors believe that the grant of Awards will advance the
interests of the Company and the shareholders."
Article 5(c) of the Plan is amended and restated in its entirety as
follows:
"(c) The powers of the Committee shall include plenary authority to
interpret the Plan. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion, from
time to time: (1) to select the directors, officers and key
employees to whom Awards shall be granted; (2) to determine the
date on which each Award shall be granted; (3) to prescribe the
number of Shares subject to each Award; (4) to determine the type
of each Award; (5) to determine the term of each Award; (6) to
determine the periods during which Awards may be exercised and
the restrictions and limitations upon exercise of Awards or the
receipt of Shares, other property or cash thereunder; (7) to
prescribe any performance criteria pursuant to which Awards may
be granted or may become exercisable or payable; (8) to prescribe
any limitations, restrictions or conditions on any Award; (9) to
prescribe the provisions of each Agreement, which shall not be
inconsistent with the terms of the Plan; (10) to adopt, amend and
rescind rules and regulations relating to the Plan; and (11) to
make all other determinations and take all other actions that are
necessary or advisable for the implementation and administration
of the Plan."
Article 6(a) of the Plan is amended and restated in its entirety as
follows:
"(a) Awards may be granted under the Plan to directors, officers and
key employees of the Company or any Subsidiary. All
determinations by the Committee as to the individuals to whom
Awards shall be granted hereunder shall be conclusive."
Article 6(b) of the Plan is deleted in its entirety.
Except as expressly amended by the Board of Directors, subject to
approval by the stockholders, the NN, Inc. Stock Incentive Plan is hereby
ratified and confirmed in all respects.
IN WITNESS WHEREOF, NN, Inc., acting by and through its officer
hereunto duly authorized has executed this Amendment as of the 6th day of
March, 2003.
NN, INC.
By: /s/ William C. Kelly, Jr.
------------------------------------------
Name: William C. Kelly, Jr.
Title: Secretary/Treasurer and Chief
Administrative Officer
NN, Inc.
2000 Waters Edge Drive
Johnson City, TN 37604
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON MAY 15, 2003, AT THE CHARLOTTE RENAISSANCE HOTEL, 2800 COLISEUM CENTRE
DRIVE, CHARLOTTE, NORTH CAROLINA, 28217.
The undersigned stockholder hereby appoints David L. Dyckman and William C.
Kelly, Jr. and each of them, with full power of substitution and revocation, the
proxies of the undersigned to vote all shares registered in the name of the
undersigned on all matters set forth in the proxy statement and on any other
matters that may property come before the Annual Meeting and all adjournments
thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO DIRECTION IS GIVEN, SHARES WILL BE VOTED FOR THE DIRECTOR
NOMINEE, FOR THE RATIFICATION AND APPROVAL OF NON-EMPLOYEE DIRECTOR STOCK OPTION
GRANTS, FOR THE AMENDMENT TO THE COMPANY'S STOCK INCENTIVE PLAN AND FOR THE
RATIFICATION OF THE SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE DIRECTOR NOMINEE, FOR THE
RATIFICATION AND APPROVAL OF NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS, FOR THE
AMENDMENT TO THE COMPANY'S STOCK INCENTIVE PLAN AND FOR THE RATIFICATION OF THE
SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS.
Please mark your votes as indicated in the example |X|
1. Election of Director.
Nominee: Roderick R. Baty. For, except vote withheld from the following
nominee.
[X] For [X] Withheld
2. To ratify and approve non-employee director stock option grants.
[X] For [X] Against [X] Abstain
3. To approve the amendment to the Company's Stock Incentive Plan to include
non-employee directors.
[X] For [X] Against [X] Abstain
4. For ratification of the selection of KPMG LLP as independent auditors.
[X] For [X] Against [X] Abstain
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HERIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE DIRECTOR NOMINEE, FOR THE RATIFICATION AND APPROVAL OF
NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS, FOR THE AMENDMENT TO THE COMPANY'S
STOCK INCENTIVE PLAN AND FOR THE RATIFICATION OF THE SELECTION OF KPMG LLP AS
INDEPENDENT AUDITORS.
In their discretion, the proxies are authorized to vote upon such other matters
as may properly come before the meeting.
Note: Please sign exactly as name appears heron. Joint owners should each sign.
When signing as an attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
SIGNATURE (S)___________________________
DATE:___________________________________
