Joint Venture Formation Agreement

JOINT VENTURE FORMATION AGREEMENT


THIS JOINT VENTURE AGREEMENT is entered into and effective as of this 6th day of April, 2000, by and among NN BALL & ROLLER, INC., a Delaware corporation ("NNBR"), AB SKF, A SWEDISH COMPANY ("SKF"), and FAG KUGELFISCHER GEORG SCHAFER AG, a German company ("FAG").


RECITALS


A. NNBR manufactures precision steel balls for use in, inter alia, ball bearings and currently has a wholly-owned subsidiary, NN Ball & Roller Limited, which operates a precision steel ball manufacturing facility in Kilkenny, Ireland (the "NNBR Sub"). This is the only manufacturing facility of NNBR and its Affiliates in Europe. NNBR desires to transfer the shares of NNBR Sub in exchange for a 54% interest in a joint venture (the "Company") with SKF and FAG.


B. SKF, through its wholly-owned subsidiary SKF Industrie S.p.A. ("SKF Italy"), is, inter alia, a manufacturer of precision steel balls for use in, inter alia, ball bearings and currently operates a precision steel ball manufacturing facility in Pinerolo, Italy (the "SKF Facility"). This is the only manufacturing facility of SKF and its Affiliates for such products in Europe. SKF desires to transfer all of the assets used in its ball manufacturing business in Pinerolo (the "SKF Assets") and the Business to a newly established subsidiary (the "SKF Sub") and then to sell the SKF Sub to a subsidiary of the Company ("EB Italy") for 35.532 million Euros and SKF desires to contribute 28.556 million Euros to the Company (subject to adjustment under Section 5.5 below) in exchange for a 23% interest in the Company.


C. FAG, through its wholly-owned subsidiary FAG Komponenten AG ("FAG Sub"), is, inter alia, a manufacturer of precision steel balls for use in, inter alia, ball bearings and currently operates a precision steel ball manufacturing facility in Eltmann, Germany (the "FAG Facility"). This is the only manufacturing facility of FAG and its Affiliates for such products in Europe. FAG desires to contribute 4.960 million Euros to a newly established subsidiary (the "FAG EB") and then to transfer the shares of FAG EB to the Company in exchange for a 23% interest in the Company and to sell all of the assets used in its ball manufacturing business in Eltmann (the "FAG Assets") and the Business to FAG EB for 15.956 million Euros (subject to adjustment under Section 5.5 below).


AGREEMENT


In consideration of the mutual promises made herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:


1. Establishment and Purpose of Company. NNBR, SKF, and FAG hereby agree to purchase the Company to manufacture precision steel balls for sale worldwide. Each of NNBR, SKF, and FAG hereby acknowledges and agrees that the purpose of all activities and operations of the Company and all activities and decisions of such party in connection with the establishment and


operation of the Company shall be, in no order of priority, (i) to secure the maximum commercial advantage of the Company in the territories in which it operates (ii) to maximize the return on capital invested in the Company, and (iii) to manufacture and sell high quality precision steel balls at competitive prices.


2. Definitions.


2.1 "Affiliate" of a party means any entity that controls, is
controlled by or is under common control with such party, except that the
Company and its subsidiaries shall not be deemed to be Affiliates of NNBR
and no JV Party shall be deemed to be an Affiliate of the Company.


2.2 "Applicable Law" shall mean, with respect to a party, any domestic
or foreign, federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, judgment, decree or other requirement of any Governmental
Authority applicable to such party or its properties, business or assets.


2.3 "Assets" shall mean the NNBR Assets as defined in Schedule 6.1.4,
the SKF Assets as defined in Schedule 6.2.4, or the FAG Assets as defined
in Schedule 6.3.4, as applicable.


2.4 RESERVED


2.5 "Board of Directors" shall mean the board of directors of the
Company as from time to time constituted pursuant to the Company
Organizational Documents.


2.6 "Business" shall mean the business conducted in the NNBR Facility
(the "NNBR Business"), the SKF Facility (the "SKF Business") and the FAG
Facility (the "FAG Business"), as applicable.


2.7 "Closing" shall mean the completion of the transactions
contemplated by this Agreement, all in accordance with the provisions of
this Agreement. The Closing shall take place at the offices of KPMG in
Frankfurt, Germany and in locations agreed to by the JV Parties in Italy,
Ireland, and Denmark if necessary.


2.8 "Closing Date" shall mean the date on which the Closing occurs.


2.9 RESERVED


2.10 "Company" shall mean the joint venture company established
pursuant to the Company Organizational Documents, and shall, when the
context requires, include its subsidiaries.


2.11 "Company Organizational Documents" shall mean the organizational
documents of the Company translated into the English language and attached
hereto as Exhibit 2.11(a), as amended from time to time and of its
subsidiaries as attached in Exhibits 2.11(b), (c) and (d), as amended from
time to time.


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2.12 "Confidential Information" shall mean any trade secrets,
know-how, data, formulas, processes, tools and techniques, software
algorithms and routines, intellectual property or other information,
tangible or intangible, of a person or entity.


2.13 "Customer Contracts" shall mean the NNBR Customer Contracts, the
SKF Customer Contracts, or the FAG Customer Contracts, as applicable.


2.14 "Employees" shall mean the persons employed by the NNBR Business,
SKF Business and FAG Business, as applicable, at the Closing Date.


2.15 "Europe" shall mean those countries listed on Schedule 2.15,
hereto.


2.16 "Governmental Approvals" mean all approvals, consents,
authorizations and similar actions from all Governmental Authorities that
are necessary in order to consummate the transactions contemplated
hereunder or under any of the Associated Agreements.


2.17 "Governmental Authority" shall mean any foreign, domestic,
federal, territorial, state or local governmental authority,
quasi-governmental authority, court, government or self-regulatory
organization, commission, tribunal, organization or any regulatory,
administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.


2.18 "Independent Accounting Firm" shall mean a certified public
accountant at an audit firm selected by the Shareholders under the
Shareholder Agreement.


2.19 "Intercompany Relations" shall mean any agreements, undertakings,
obligations, services or shared relationships between on the one hand SKF
and its Affiliates, NNBR and its Affiliates or FAG and its Affiliates,
respectively, and on the other hand the SKF Business, the NNBR Business or
the FAG Business, respectively, except for matters addressed in the Service
Agreements, the FAG Lease, or the Shareholder Agreement.


2.20 "JV Parties" shall mean NNBR, SKF and FAG.


2.21 "Nondisclosure Agreement" shall mean the Confidentiality
Agreement among NNBR, SKF and FAG dated June 5, 1999.


2.22 "Other Contracts" shall mean the NNBR Other Contracts, the SKF
Other Contracts, and the FAG Other Contracts, as applicable.


2.23 "Percentage Interest" shall mean with respect to a party, the
percentage of the Company's issued and outstanding shares held by such
party. The initial Percentage Interests of the parties shall be as follows:
NNBR - 54%; SKF - 23%; and FAG - 23%.


2.24 "Permits" shall mean all permits, licenses, or other approvals of
Governmental Authorities required for the operation of the Company and the
Businesses.


2.25 "Real Property Leases" shall mean the NNBR Real Property Leases,
the SKF Real Property Leases, and the FAG Real Property Leases, as
applicable.
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2.26 "Service Agreements" shall mean the agreements entered into
between NNBR and its Affiliates and the Company and its Affiliates, between
SKF and its Affiliates and the Company and its Affiliates, and between FAG
and its Affiliates and the Company and its Affiliates, as necessary to
provide the Company and its Affiliates continued access to property or
services controlled or provided by the JV Parties and/or their Affiliates.


2.27 "Shareholder Agreement" shall mean the agreement among the JV
Parties attached as Exhibit 2.27 hereto.


2.28 "Sub" shall mean NNBR Sub, SKF Sub, and FAG Sub, respectively.


2.29 "Supply Agreements" shall mean the Supply Agreement between the
Company and SKF attached as Exhibit 2.29(a) hereto and the Supply Agreement
between the Company and FAG attached as Exhibit 2.29(b) hereto.


3. The Company.


The business and activities of the Company shall be conducted through NN Euroball, ApS, a Danish company formed pursuant to the Company Organizational Documents for the sole purpose of undertaking the Company. The share capital of the Company shall initially be 125,000 DKK to be represented by 1,250 shares of common stock.


4. Actions to be Taken Prior to Closing.


4.1 SKF Transfer of Assets to Subsidiary. (a) Subject to the terms and
conditions set forth in this Agreement, SKF hereby agrees that before or at
the Closing it will cause SKF Italy to execute reasonable and customary
documents in accordance with Applicable Law, negotiated and agreed upon by
the JV Parties prior to the Closing, to contribute the SKF Assets and
Business to the SKF Sub. The contribution of the SKF Assets shall result in
a new share issuance (in kind contribution). All costs in connection with
this contribution, inclusive of new equipment, software, licenses, permits,
Governmental Approvals, taxes, etc., shall be borne by SKF or SKF Italy and
SKF undertakes to make the tax election set forth in Section 4,2(Degree)
par. of law no. 358 of October 8, 1997.


(b) Subject to the terms and conditions set forth in this
Agreement, SKF hereby agrees that before the Closing it will cause SKF
Italy to enter into the SKF Share Purchase Agreement with EB Italy.


4.2 FAG Actions. (a) Subject to the terms and conditions set forth
in this Agreement, FAG hereby agrees that before the Closing it will form
FAG EB and contribute to it 4.960 million Euros in exchange for 100% of
its capital shares. All costs in connection with this transaction shall be
borne by FAG.


(b) Subject to the terms and conditions set forth in this
Agreement, FAG hereby agrees that before the Closing it will cause FAG
Sub to execute the FAG Asset Transfer Agreement, and all other
reasonable and customary transfer documents in


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accordance with Applicable Law, negotiated and agreed upon by the JV
Parties prior to the Closing, to transfer the FAG Assets and Business to
FAG EB at the Closing. All costs in connection with these transfers,
inclusive of new equipment, software, licenses, permits, Governmental
Approvals, taxes, etc., shall be borne by FAG.


4.3 NNBR Actions. Subject to the terms and conditions set forth in
this Agreement, NNBR hereby agrees that at or before the Closing it will
execute reasonable and customary transfer documents in accordance with
Applicable Law, negotiated and agreed upon by the JV Parties prior to the
Closing, to transfer the shares of NNBR Sub to the Company.


4.4 Intercompany Relations. Prior to or at the Closing each JV Party
shall cause its Intercompany Relations to be terminated.


4.5 Governmental Approvals. As soon as practical and prior to the
Closing, each JV Party shall apply for and use its best efforts to obtain,
all Governmental Approvals necessary for it to complete the transactions
contemplated by this Agreement and the JV Parties shall cooperate to apply
for and obtain all Governmental Approvals required for the Company to
complete the transactions contemplated by this Agreement, including the JV
Parties joint efforts and cooperation in obtaining anti-trust approval.


4.6 Financial Statements. Each JV Party shall, at such Party's sole
cost, prepare and deliver to the Company at Closing, financial statements
of such Party's Business for the fiscal year ended December 31, 1999,
audited in accordance with United States generally accepted accounting
principles, in such form and content as required by the United States
Securities and Exchange Commission for financial statement reporting by
NNBR.


4.7 Asset Transfers and Valuations. Each party agrees to take all
actions necessary to ensure that, at the Closing, all of its Assets (as
described in the applicable Schedule) and Business are transferred to the
ownership and control of the Company or one of its subsidiaries. All such
Assets shall be valued for purposes of this Agreement, including the
formation of and contribution to the Company, and Section 5.5 below, in
accordance with the principles and methodologies described on Schedule 4.7
attached hereto.


5. Actions to be Taken at Closing; Closing Balance Sheets.


5.1 Actions by NNBR. (a) At the Closing, NNBR shall transfer its 100%
ownership interest in NNBR Sub to the Company in exchange for a 54%
Interest in the Company.


(b) At the Closing, NNBR shall execute and deliver to NNBR Sub
the NNBR Services Agreement pursuant to which NNBR shall agree to
provide to NNBR Sub the services described on Exhibit 5.1(b) for the
payments described on Exhibit 5.1(b).


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5.2 Actions by SKF. (a) At the Closing, SKF shall cause SKF Italy to
sell to EB Italy its 100% ownership interest in SKF Sub in accordance with
the terms and conditions of the SKF Share Purchase Agreement.


(b) At the Closing, SKF shall contribute to the Company 28.556
million Euros, subject to adjustment under Section 5.5, below, in
exchange for a 23% Interest in the Company.


(c) At the Closing, SKF shall cause its Affiliates to execute and
deliver to SKF Sub the SKF Services Agreement pursuant to which SKF
and/or its Affiliates shall agree to provide to SKF Sub or EB Italy,
as the case may be, the services described on Exhibit 5.2(c) for the
payments described on Exhibit 5.2(c).


5.3 Actions by FAG. (a) At the Closing, FAG shall
contribute to the Company its 100% ownership interest in FAG EB in
exchange for a 23% Interest in the Company.


(b) At the Closing, FAG shall cause FAG Sub to sell to FAG EB the
FAG Assets and Business in accordance with the terms and conditions of
the FAG Asset Transfer Agreement.


(c) At the Closing, FAG shall, and shall cause its Affiliates to
execute and deliver to FAG EB the FAG Services Agreement pursuant to
which FAG and FAG Sub shall agree to provide to FAG EB the services
described on Exhibit 5.3 (c) for the payments described on Exhibit
5.3(c).


5.4 Company Borrowings. (a) At the Closing, the Company and/or its
subsidiaries will execute and deliver all agreements and other documents
deemed necessary and appropriate to borrow from a third party lender (the
"Lender") 44.553 million Euros (the "Debt") to be used to fund the purchase
of the FAG Assets and Business under the FAG Asset Transfer Agreement, the
purchase of the shares of SKF Sub under the SKF Share Purchase Agreement,
and for general corporate purposes.


(b) At the Closing, each of NNBR, FAG and SKF shall execute and
deliver to the Lender an unconditional guarantee of that portion of
the Debt equal to such Party's Percentage Interest. Each party's
guarantee shall expire (i) on its sixth (6th) anniversary or (ii)
earlier if the party ceases to be a shareholder in the Company. In the
event of (ii), above, the Company shall use all reasonable efforts to
obtain the release of the party's guarantee by the Lender as quickly
as possible.


5.5 Closing Balance Sheet.


(a) Balance Sheet Adjustment Mechanism.


(i) Each JV Party has prepared a balance sheet in
accordance with U.S. GAAP for its Business (the
"Opening Balance Sheet"). These are attached hereto as
Schedule 5.5.


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(ii) As promptly as possible following the Closing Date, the
Company shall prepare a balance sheet dated as of the
Closing Date in accordance with U.S. GAAP, and using
the valuation principles set forth in Schedule 4.7, for
each Business (the "Closing Balance Sheet"), without
any adjustments applicable solely as a result of the
Company.


(iii) The Net Book Value Adjustment for each Business shall
be the amount by which the net book value of that
Business, calculated as total assets less total
liabilities, as shown on the Closing Balance Sheet is
greater than, or less than, the Net Book Value shown on
the Opening Balance Sheet applicable to that Business.


(iv) Each Closing Balance Sheet shall be accompanied by a
statement setting forth the Net Book Value Adjustment,
together with the calculations showing the basis for
the determination of such sum, and shall be delivered
to each JV Party.


(v) In the event that any JV Party disputes a Closing
Balance Sheet or the calculation of a Net Book Value
Adjustment, the disputing party shall deliver the
Dispute Notice within thirty (30) calendar days after
delivery of the Closing Balance Sheet, setting forth in
such Dispute Notice the basis for such dispute and, if
possible, the amount in dispute. In the event of such a
dispute, the JV Parties shall first use their best
efforts to resolve such dispute between themselves. If
the JV Parties are unable to resolve the dispute within
thirty (30) calendar days after delivery of the Dispute
Notice, the dispute shall be submitted to the
accountants for the Company and the accountants for the
disputing party for resolution, who shall use their
best efforts to resolve the dispute within thirty (30)
days after submission. In the event that the
accountants for the Company and the accountants for the
disputing party do not resolve the dispute within such
thirty (30) day period, they shall appoint a third
independent accounting firm, or if no agreement can be
reached regarding the appointment of a third party
accounting firm, the President of the Chamber of
Commerce of Paris shall appoint an internationally
reputable accounting firm (the "Independent
Accountants") which shall, within thirty (30) days
after such appointment, resolve the dispute. The
determination by the accountants for the Company and
the accountants for the disputing party or by the
Independent Accountants, as the case may be, as to the
resolution of any dispute shall be binding and
conclusive upon all parties hereto. All determinations
pursuant to this Section


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5.5(a)(v) shall be in writing and shall be delivered to
the parties hereto.


(vi) The fees and expenses of the accountants for the
Company in connection with the resolution of disputes
pursuant to Section 5.5(a)(v) shall be borne by the
Company and the fees and expenses of accountants for
the disputing party in connection with the resolution
of disputes pursuant to Section 5.5(a)(v) shall be
borne by the disputing party. The fees and expenses of
the Independent Accountants in connection with the
resolution of disputes pursuant to Section 5.5(a)(v)
shall be shared equally by the Company and the
disputing party.


(c) Reconciliation of Adjustments. The Company shall
determine the net amount of adjustments, if any, as between the
Company and each JV Party, or its Affiliates. Each JV Party or
its Affiliates shall then either be required to pay or entitled
to receive the net amount calculated by the Company as being owed
or due to such JV Party or its Affiliates as a Net Book Value
Adjustment. In addition, because the aggregate investment in the
Company by FAG, SKF and NNBR has been agreed to represent 23%,
23% and 54%, respectively, of the total Company, in the event
that the Net Book Value Adjustment results in the Company paying
additional amounts to a JV Party or its Affiliates, such JV Party
shall contribute to the Company additional capital investment of
an equal amount.


6. Representations and Warranties.


6.1 Representations and Warranties of NNBR. As an inducement to
SKF and FAG to enter into this Agreement and to consummate the
transactions contemplated hereby, NNBR makes the representations and
warranties to SKF and FAG set forth on Schedule 6.1 (the "NNBR
Representations and Warranties"). The Company shall be a third party
beneficiary of these representations and warranties and be entitled to
enforce and recover for any breach of these representations and
warranties. At the Closing, NNBR shall reconfirm the NNBR
Representations and Warranties.


6.2 Representations and Warranties of SKF. As an inducement to
NNBR and FAG to enter into this Agreement and to consummate the
transactions contemplated hereby SKF makes the representations and
warranties to NNBR and FAG set forth on Schedule 6.2 (the "SKF
Representations and Warranties"). The Company shall be a third party
beneficiary of this Agreement and be entitled to enforce and recover
for any breach of these representations and warranties. At the
Closing, SKF and SKF Italy shall make the SKF Representations and
Warranties in the SKF Share Purchase Agreement.


6.3 Representations and Warranties of FAG. As an inducement to
NNBR and SKF to enter into this Agreement and to consummate the
transactions contemplated hereby FAG makes the representations and
warranties to NNBR and SKF set forth on Schedule 6.3 (the "FAG
Representations and Warranties"). The Company shall be a third party
beneficiary of this Agreement and be entitled to enforce and recover
for any breach of these representations and warranties. At the
Closing, FAG and FAG Sub shall make the FAG Representations and
Warranties in the FAG Asset Transfer Agreement.


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7. Joint Covenants of JV Parties.


Each of the JV Parties covenants and agrees as follows:


7.1 Performance.


(a) Each JV Party shall, through the Closing Date, continue
(and shall cause its Affiliates to continue) to faithfully and
diligently perform its continuing obligations, if any, under each
of their Real Property Leases, Customer Contracts and Other
Contracts in accordance with their terms such that all
obligations of the JV Party (and its Affiliates) thereunder to be
performed through and as of the Closing Date will be so
performed.


(b) The JV Parties shall each pay one-third of (i) the cost
of the services of KPMG in conducting its financial due diligence
of the Businesses and of preparing its related report, a copy of
which has been delivered to each JV Party and (ii) the cost of
the services of Dames & Moore in conducting environmental due
diligence of the Businesses and of preparing its related reports,
copies of which have been delivered to each JV Party.


7.2 Conduct of Business.


(a) From the execution of this Agreement until Closing, each
JV Party shall or shall cause its Affiliates to:


(i) Operate their Business and continue to maintain the
Assets only in the ordinary course, using reasonable
commercial efforts in keeping with historica ...