Audit Committee of the Board of Directors
Corporate Governance and Director Affairs Committee of the Board of Directors
Compensation and Human Resource Committee of the Board of Directors
Audit Committee of the Board of Directors
1. Audit Committee Purpose
The Audit Committee (the “Committee”) is appointed by and reports to the Board of Directors (the “Board”) of REGAL-BELOIT CORPORATION (the “Company”) to provide assistance to the Board in fulfilling its oversight responsibilities relating to:
a. the assessment of the overall quality of the financial statements and the financial reporting based on the input from the Company’s financial management, external and internal auditors and other communications;
     
b. the systems of internal accounting and financial controls;
     
c. the Company’s internal audit function (“Internal Audit”);
   
d. the qualifications, independence, performance, retention and termination of a qualified public accounting firm (the “Independent Auditors”);
     
e. the annual independent audits of the Company’s financial statements and internal controls over financial reporting; and
f.
the Company’s compliance with legal and regulatory requirements.
It is the responsibility of the Committee to maintain free and open communication among the Committee, the Independent Auditors, Internal Audit, and Company management (“Management”).
In discharging its oversight role the Committee has the authority to investigate any matter appropriate to fulfilling its responsibilities, with full access to all books, records, facilities and personnel of the Company.  The Committee is empowered to obtain advice and assistance from outside legal, accounting or other advisors as it deems appropriate to perform its duties and responsibilities.  The Company shall provide appropriate funding, as determined by the Committee, for compensation to the Independent Auditors and to any advisers that the Committee chooses to engage.
The Committee shall make regular reports to the Board regarding the execution of its duties and responsibilities.
2. Audit Committee Composition and Meetings
To serve on the Committee, individual members shall meet the independence and other applicable requirements of regulations and governing organizations, including the New York Stock Exchange, the Sarbanes-Oxley Act of 2002 (the “Act”) and the Securities and Exchange Commission (the “SEC”).  The Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent directors.  All members of the Committee shall have sufficient financial experience and ability to enable them to satisfactorily discharge their responsibilities.  At least one member shall qualify as a “financial expert”, as defined by the aforementioned rules and regulations.  The Chairperson shall be appointed by the Board, upon the recommendation of the Corporate Governance and Director Affairs Committee.
The Committee shall meet as often as it determines, but at least quarterly.  The Committee shall meet privately in executive session periodically with the Independent Auditors, with Management and with Internal Audit to discuss any matters that the Committee or the other parties believe should be discussed.
3. Limitation of Role of Committee
The Committee members are not employees of the Company and they do not represent themselves to be accountants or auditors of the Company.  It is not the Committee’s duty to plan or conduct audits or to determine if the Company’s financial statements are prepared accurately and in accordance with accounting principles generally accepted in the United States (“GAAP”).  These duties are the responsibility of Management and the Independent Auditors.  The statements of responsibilities contained in this Charter are in all respects qualified by this limitation.
4. Audit Committee Responsibilities and Duties
The following functions are commonly recurring activities of the Committee in carrying out its oversight responsibilities.
Financial Statement and Disclosure Matters
1. Review the Company’s annual audited financial statements and results of the audit, and quarterly, interim financial statements and results of the quarterly review, prior to filing or distribution.  Review should include discussion with Management and the Independent Auditors of significant issues, and changes regarding accounting principles, practices, and judgments.  Review material written communications between the Independent Auditors and Management including but not limited to annual or other Management letters, audit adjustments and schedules of unadjusted differences.  Also review and consider with the Independent Auditors matters required to be discussed by Statement of Auditing Standards No. 61.
     
2. Review with Management and the Independent Auditors the Company’s annual audited and quarterly interim financial results, its earnings press release and financial information and earnings guidance provided to analysts and ratings agencies, prior to the public release of earnings.  The Chair of the Committee or his/her designee may represent the entire Committee for purposes of the earnings press release approval.
     
3. Review, comment on and approve the filing of the Company’s periodic 10-Q and 10-K reports to the SEC.
   
4. Review the effects of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements.
     
5. Review and discuss Management’s report on internal control and the Independent Auditors’ attestation on Management’s required assertion.
     
6.  
  In consultation with Management, the Independent Auditors, and Internal Audit, review:
     
a. as required, but not less than annually, the adequacy and integrity of the Company’s disclosure controls and procedures and system of internal controls;
     
b. quarterly, any Management disclosed significant deficiencies or material weaknesses in internal controls or any fraud by employees with a significant role in internal control; and
   
c. annually, the internal audit function and internal audit plan.
   
7.   Discuss the Company’s policies with respect to risk assessment and risk management, and significant financial risk exposures and the steps Management has taken to monitor, control and report exposures.  Review significant findings prepared by the Independent Auditors and Internal Audit on these matters together with Management’s responses.
Oversight of Company's Relationship with Independent Auditors
8. The Independent Auditors are accountable to the Audit Committee of the Board of Directors.  Review the independence and performance of the Independent Auditors and annually appoint the Independent Auditors and report such appointment to the Board.   Obtain a report from the Independent Auditors describing the firm’s internal quality control procedures and any material issues raised by the peer or PCAOB reviews, or by any inquiry or investigation by governmental or professional authorities during the preceding five years with respect to the firm’s independent audits, including steps taken to address any such issues.
On an annual basis, obtain from the Independent Auditors, a written statement disclosing any and all relationships between the Independent Auditors and the Company consistent with Independence Standards Board Standard No. 1.  Review and discuss with the Independent Auditors all significant relationships they have with the Company that could impair the Auditors’ independence.
     
9. Review annually, with Management, Internal Audit, and the Independent Auditors, the audit plan – discussing scope, staffing, locations, internal audit functions, reliance upon Management, audit assistance from the Company and general audit approach, among other items. 
     
10. Review with the Independent Auditors any audit problems or difficulties and Management’s response.  Review any unresolved disagreement or disputes between Management and the Independent Auditors.
   
11. Review and approve the fees and other significant compensation to be paid to the Independent Auditors.  Pre-approve non-audit services provided by the Independent Auditors, including tax services and other services not prohibited by law or SEC rules, which exceed the de minimis exceptions of the Act.  A Committee member designated by the Committee may represent the entire Committee for these approvals.
     
12. Review the experience and qualifications of senior audit team members of the Independent Auditors annually and ensure that all partner rotation requirements, in accordance with applicable rules and regulations, are executed.
     
13.   Establish hiring policies which comply with rules and regulations for employees or former employees of the Independent Auditors.
Oversight of the Company's Internal Audit Function
14. Review Internal Audit staff functions with Management and the Independent Auditors, including:  (i) purpose, authority and organizational reporting lines; (ii) the annual audit plan budget and staff;  (iii) review the annual performance evaluation and salary recommendation made by management, and (iv) the appointment or replacement of the senior internal auditing management.
     
15. Review significant reports to Management prepared by Internal Audit and Management’s responses.
Compliance Oversight Responsibilities
16. The Committee shall establish and maintain procedures for:
   
   
a. the receipt, retention and treatment of complaints received by the Company regarding accounting or auditing matters or controls, and
     
b. the confidential, anonymous submission by the Company’s employees of concerns regarding accounting or auditing matters.
   
17. Review and approve prior to filing, Management’s responses to various regulatory bodies, such as the SEC, relating to matters for which the Committee has oversight responsibilities.
Miscellaneous Other Responsibilities
18. Review and approve the Audit Committee proxy disclosure required by the SEC annually.
     
19. Ensure that a performance assessment of the Committee is performed annually.
     
20. Review and reassess the adequacy of this Charter at least annually, submitting changes to the Charter to the Board for approval and publish the Charter publicly as required by regulations.
   
Corporate Governance & Director Affairs Committee of the Board of Directors
1. Committee Purpose
The Corporate Governance and Director Affairs Committee shall monitor and assist the Board in fulfilling its Corporate Governance responsibilities and shall oversee the affairs of the Board and its meetings.  The Committee shall also serve as the nominating committee of the Board of Directors and shall identifying individuals qualified to become directors (consistent with criteria approved by the Board of Directors) and recommend to the Board of Directors candidates for all directorships to be filled by the Board of Directors or by the shareholders of the Corporation.
2. Committee Composition
The Committee shall be composed of not less than three independent Directors in accordance with the rules of the New York Stock Exchange.    The members of the Committee, the designation of the Committee Chairperson, and the term of membership shall be determined by the Board of Directors.  The Committee, shall have the sole authority to retain and terminate outside counsel, consultants or other experts it deems necessary to assist in the performance of its duties.
3. Responsibilities
The Committee shall meet at least two times per year with the responsibility for the following duties and others as assigned by the Board of Directors.
1. To review and monitor compliance with all Corporate Governance rules and requirements as issued by the regulators and governing organizations (i.e., the Securities and Exchange Commission and the New York Stock Exchange) and, when it deems appropriate, to consider corporate governance recommendations of shareholder advisory groups. 
     
2. To apply criteria (consistent with criteria approved by the Board of Directors) to identify candidates to serve as directors and recommend to the Board of Directors candidates to fill existing or expected vacancies on the Board.  See Nomination Process below.
     
3. To recommend to the Board of Directors standards for determining director independence consistent with the requirements of the Securities and Exchange Commission, the New York Stock Exchange and other applicable guidelines and best practices.
   
4. To review the qualifications and independence of existing directors on an annual basis and make recommendations to the full Board of Directors whether those directors are independent and whether to re-nominate directors for re-election by shareholders.
     
5. To consider questions or independence of directors and possible conflicts of interest of members of the Board of Directors and executive officers.
     
6.   To monitor and make recommendations in respect to matters relating to director’s services; such as  retainers, fees, benefits, board committee structure, stock ownership targets for directors, compulsory retirement age for directors, director term limits, and to annually recommend the assignments of Committee members and chairpersons.
   
7.   To conduct an annual assessment of its own performance, and to establish and manage a process whereby the full Board conducts an annual assessment of its effectiveness and performance and its committees’ performance and effectiveness.
   
8.   To make recommendations in respect to Board Meetings, such as meeting frequency, date, and place, agenda subjects, Board visits, Board size and other similar matters.
     
9.   To periodically review and make recommendations to the Board of Directors with respect to the Corporation’s Articles of Incorporation, Bylaws and corporate governance policies to assure compliance with the rules and regulations of the Securities and Exchange Commission and the New York Stock Exchange. 
10. To maintain the content and appropriateness of the Directors Handbook and new Directors Orientation Program.
11. To identify and direct special projects, hold special meetings or perform any other actions it believes necessary to perform its oversight functions.
12. To meet as circumstances of the Corporation require and report its activities to the full Board of Directors on a regular basis.
13. To facilitate for the Board a meeting in executive session (non-Management Directors, without Management) at each regular Board Meeting.
14. Review and evaluate annually the performance of the Committee and the adequacy of this Charter and make any recommendations to the Board that may be appropriate.
15. To review and, when it deems appropriate, to approve or ratify all transactions between the Corporation and any related person that are required to be disclosed by the Corporation pursuant to Item 404 of Regulation S-K promulgated by the Securities and Exchange Commission. As used herein, the terms “related person” and “transaction” shall have the meanings prescribed to such terms in Item 404, as may be amended from time to time.
   
Compensation and Human Resources Committee of the Board of Directors
1. Committee Purpose
The Compensation and Human Resource Committee (the “Committee”) will assist, monitor and recommend to the Board of Directors (the “Board”) of Regal-Beloit on matters fulfilling the Board’s responsibilities with regard to compensation, benefits and performance of the Chief Executive Officer and Corporate Officers.  In addition, the Committee will review and monitor succession and leadership development planning.
2. Committee Composition
The Committee shall be comprised of at least three members of the Board.  The members shall be designated by the Board and shall be independent in accordance with Rule 16b-3 of the Securities and Exchange Act of 1934 and under 162 (m) of the Internal Revenue Code.    The Board will designate the Chairman of the Committee. No Director may serve on the Committee unless he or she is a “Non-Employee Director” under the qualifications set forth in Rule 16b-3 of the Securities Exchange Act of 1934. The Corporate Vice President of Human Resources and the Chief Executive Officer will normally be in attendance at each meeting, excluding executive session discussions. The Committee is encouraged, as it deems necessary, to use outside legal and compensation experts in the execution of its duties.
3. Meetings

The Committee will meet a minimum of two times annually or more frequently as deemed appropriate by the Committee. Teleconferences may be held as an acceptable method of discussing matters before the Committee. Two or more members present shall constitute a quorum. The Committee may from time to time request other members of management, outside consultants and other parties as are appropriate to be present to discuss matters under consideration. The Committee shall meet regularly in executive session, without Company management present.
3. Duties and Responsibilities of the Committee
The duties and responsibilities of the Committee shall include the following:
1. Review, recommend, and assist  the Board in approving executive compensation and benefits for the  Chief Executive Officer, and other Key Executives that support the overall business strategy.  Such executive compensation will strive:  a) to attract and retain key executives critical to our business success; b) link overall compensation with organization performance; and c) offer competitive compensation opportunities in relation to our peer group as established by the Committee and the Committee’s retained consultant.
     
2. Determine the components of executive compensation including, salaries, annual bonuses, equity based incentives, retirement program, change of control agreement, and other perquisites for the Key Executives referenced above.
     
3. Exercise all authority provided to the Committee by the Board to oversee, administer and interpret the Company’s Equity Based Plans. Approve all new awards recommended by management, whether the new awards relate to new hires, promotions, annual grants, or special recognitions.  The Committee will review and approve all suggested modifications to the plan documents.
   
4. Review Chief Executive Officer’s performance. Evaluate the Chief Executive Officer’s performance relative to the goals, objectives and performance parameters as set by the Committee.
     
5.

Review annually with the Chief Executive Officer, the overall performance of the other Corporate Officers. Review and approve Chief Executive Officer’s compensation recommendation for each officer other than the Chief Executive Officer.
     
6.  

Review the overall organization structure and the performance of the Company’s top talent for purposes of organizational growth and succession planning.
   
7.  

Review and recommend to the Board the Compensation Discussion and Analysis required by Item 402 of Regulation S-K promulgated by the Securities and Exchange Commission. Such Compensation Discussion and Analysis to be included in the company’s Annual Report to Shareholders or Proxy Statement for the Annual Meeting of Shareholders.
8. Engage independent advisors, including compensation consultants, as the Committee may deem necessary in executing its responsibilities, including approving the independent advisor’s fees and other retention terms.
9. Review and recommend to the Board on those matters of director or officer indemnification.
10.

Maintain Committee minutes recording the topics and activities of the Committee.
11.

Review and evaluate annually the performance of the Committee and the adequacy of this Charter and make any recommendations to the Board that may be appropriate.
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