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Series B Convertible Preferred Stock and Stockholders' Equity | 12 Months Ended
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Dec. 31, 2019
Equity [Abstract] |
Equity Offering | Series B Convertible Preferred Stock On December 11, 2019, we issued to affiliates of existing common stockholders in a private placement 0.1 million shares of contingently redeemable Series B convertible preferred stock (“Preferred Stock”), par value of $0.01 per share and at a price of $1,000 per share, together with detachable warrants (the “Warrants”) to purchase up to 1.5 million shares of our common stock at an exercise price of $12.00 per share. The Preferred Stock has a liquidation preference of $1,000 per share; is redeemable at our option in cash (or, under certain circumstances, in stock), subject to the applicable redemption premium; is convertible into a variable number of common shares on certain terms and conditions on or after March 31, 2023; and is subject to certain other rights and obligations. In connection with the issuance of Preferred Stock, we entered into a registration rights agreement with the purchasers to provide certain customary demand registration rights exercisable beginning on March 31, 2021, with respect to their shares of common stock, including those underlying the Preferred Stock and Warrants, shares of Preferred Stock, and the Warrants. Net cash proceeds of $95.7 million from the issuance of the Preferred Stock were used for debt repayment, fees associated with the amendment and extension of our credit facility, and for general corporate purposes. Preferred Stock shares have limited voting rights and earn cumulative dividends at a rate of 10.625% per year, payable quarterly in arrears if declared, and accrue whether or not earned or declared. If a Preferred Stock dividend is declared by the Board of Directors, then it will be paid in cash. Additionally, holders of Preferred Stock participate in any dividends paid on shares of NN’s common stock on an as-converted basis at a fixed conversion rate. If our common stockholders do not approve a proposal at our 2020 annual stockholder meeting to issue common stock in excess of thresholds established by certain Nasdaq stock market rules upon the exercise of Warrants or the conversion or redemption of Preferred Stock, then the annual dividend rate will immediately increase to 11.625% until such time approval is obtained. Preferred Stock is classified as mezzanine equity, between liabilities and stockholders’ equity because certain features of the Preferred Stock could require redemption of some or all Preferred Stock upon events that are considered not solely within our control, including a leverage ratio threshold and the passage of time. For initial recognition, the Preferred Stock is recognized at a discounted value, net of issuance costs, reflecting allocation to the Warrants on a relative fair value basis and allocation to bifurcated embedded derivatives on a fair value basis. The aggregate discount is amortized as a deemed dividend through December 31, 2023, which is the date the holders have a non-contingent conversion option into a variable number of common shares equal to the liquidation preference plus accrued and unpaid dividends. Deemed dividends adjust retained earnings (or in the absence of retained earnings, additional paid-in capital). In accordance with ASC 815-15, Derivatives and Hedging - Embedded Derivatives, (“ASC 815-15”) certain features of the Preferred Stock were bifurcated and accounted for separate from the Preferred Stock. The following features are recorded on a combined basis as a single derivative.
• | Leverage ratio put feature. The Preferred Stock includes a redemption option based on a leverage ratio threshold that provides the preferred holder the option to convert the Preferred Stock to a variable number of shares of common stock at a discount to the then fair value of our common stock. The conversion feature is considered a redemption right at a premium which is not clearly and closely related to the debt host.
• | Contingent dividends. The feature that allows for the dividend rate to increase to 11.625% in 2020 is not considered clearly and closely related to the debt host.
• | Dividends withholding. The Preferred Stock bears a feature that could require us to make an effective distribution to purchasers which is indexed to the tax rate of the purchasers. This distribution would be partially offset by an adjustment to the redemption price and/or conversion rate. The dividends withholding feature is not clearly and closely related to the debt host.
As of December 31, 2019, the carrying value of the Preferred Series B shares was $93.0 million which included $0.6 million of accumulated unpaid and deemed dividends. The following table presents the change in the Series B Preferred carrying value during the year ended December 31, 2019.
| Year Ended December 31, 2019
Beginning balance | $ | — |
Gross proceeds from issuance of shares | 100,000 |
Relative fair value of Warrants issued | (1,076 | )
Recognition of bifurcated embedded derivative | (2,295 | )
Allocation of issuance costs to Preferred Stock | (4,259 | )
Accrual of in-kind dividends | 590 |
Amortization of discount (deemed dividends) | 52 |
Ending balance | $ | 93,012 |
Common Stock In September 2018, we issued 14.4 million shares of our common stock in a public offering under our shelf registration statement at a price of $16.00 per share. Net proceeds of $217.3 million were used to repay the Second Lien Facility and a portion of the Senior Secured Revolver. Warrants The Warrants are exercisable, in full or in part, at any time prior to December 11, 2026, at an exercise price of $12.00 per share, subject to customary anti-dilution adjustments in the event of future below market issuances, stock splits, stock dividends, combinations or similar events. Unless and until common stockholders approve the issuance of additional common shares upon exercise of the Warrants, the Warrants may not be exercisable. In addition, certain other ownership limitations apply to any holder of a Warrant. The Warrant may be exercised for cash or on a cashless basis, based on an exercise price equal to the closing sale price on the immediately preceding trading day. Warrant holders are entitled to participate in any dividend or other distribution by the Company to holders of shares of its Common Stock, on an as-exercised basis if the Warrant is exercised. The Warrants are classified as equity and recognized in additional paid-in capital based on relative fair value allocation. The Warrants were valued at issuance using the Black-Scholes method. The valuation at issuance was agreed to by the Preferred Stock holders and the Company, and is specified in the Preferred Stock agreement. Key assumptions relevant to determining the fair value of the Warrants included an expected term of 1.25 years, a risk free interest rate of 1.62%, and expected volatility of 50%.

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