UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
PROXY
STATEMENT PURSUANT TO SECTION 14(a)
OF
THE SECURITIES EXCHANGE ACT OF 1934
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Soliciting Material Pursuant to §240.14a-12
Regal-Beloit
Corporation
(Exact
Name of Registrant as Specified in Its Charter)
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REGAL
BELOIT CORPORATION
200
State
Street
Beloit,
Wisconsin 53511
Notice
of 2007 Annual Meeting of Shareholders
To
Be Held April 20, 2007
To
the
Shareholders of Regal Beloit Corporation:
You
are
hereby notified that the 2007 annual meeting of shareholders of Regal Beloit
Corporation will be held
at
the
James L. Packard Learning Center located at
the
Company’s corporate headquarters, 200 State Street, Beloit, Wisconsin 53511, on
Friday, April 20, 2007, at 9:30 a.m., Central Daylight Time, for the
following purposes:
| 1. |
To
elect three directors to serve until the 2010 Annual Meeting of
Shareholders and one director to serve until the 2009 Annual Meeting
of
Shareholders.
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| 2. |
To
act upon a proposal to approve an amendment to the Company’s Articles of
Incorporation that will increase the number of shares of common stock
that
the Company is authorized to issue.
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| 3. |
To
act upon a proposal to approve the Regal Beloit Corporation 2007
Equity
Incentive Plan.
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| 4. |
To
ratify the selection of Deloitte & Touche LLP as the Company’s
independent auditors for 2007.
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| 5. |
To
transact such other business as may properly come before the meeting
or
any adjournment or postponement
thereof.
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The
Board
of Directors has fixed the close of business on February 26, 2007 as the record
date for the determination of the shareholders entitled to notice of and to
vote
at the annual meeting.
We
hope
that you will be able to attend the meeting in person, but if you are unable
to
do so, please complete, sign and promptly mail back the enclosed proxy form,
using the return envelope provided. You also have the option to vote your shares
by the Internet or telephone by following the instructions printed on the
enclosed proxy card. If, for any reason, you should subsequently change your
plans, you may, of course, revoke your proxy at any time before it is actually
voted.
By
Order
of the Board of Directors
REGAL
BELOIT CORPORATION
Paul
J.
Jones
Vice
President, General Counsel and
Secretary
Beloit,
Wisconsin
March
15,
2007
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This
proxy statement and accompanying proxy card are being mailed to holders of
Regal
Beloit Corporation (“we” or the “Company”) beginning on or about March 15, 2007.
The Company, on behalf of its Board of Directors (the “Board”), is soliciting
your proxy to vote your shares of Regal Beloit common stock at the 2007 annual
meeting of shareholders,
and
all
adjournments or postponements thereof (the “Annual Meeting”). We solicit proxies
to give all shareholders of record an opportunity to vote on matters that will
be presented at the Annual Meeting. In this proxy statement, you will find
information on these matters, which is provided to assist you in voting your
shares.
COMMONLY
ASKED QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
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Q:
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What
am I being asked to vote
on?
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| A: · |
Election
of directors;
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| · |
Approval
of an amendment to our Articles of
Incorporation;
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| · |
Approval
of the Regal Beloit Corporation 2007 Equity Incentive Plan;
and
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| · |
Ratification
of Deloitte & Touche LLP as our independent auditors for
2007.
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Q:
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Who
can vote?
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A:
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Holders
of our common stock as of the close of business on the record date,
February 26, 2007, may vote at the Annual Meeting, either in person
or by
proxy. Each share of common stock has one
vote.
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Q:
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How
do I vote?
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A:
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By
Proxy
—Before
the Annual Meeting, you can give a proxy to vote your shares of common
stock in one of the following ways:
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| · |
by
telephone;
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| · |
by
using the Internet; or
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| · |
by
completing and signing your proxy card and mailing it in time to
be
received prior to the Annual
Meeting.
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The
telephone and Internet voting procedures are designed to confirm your identity,
to allow you to give your voting instructions and to verify that your
instructions have been properly recorded. If you wish to vote by telephone
or
Internet, please follow the instructions that are printed on the enclosed proxy
card.
If
you
mail us your properly completed and signed proxy card, or vote by telephone
or
the Internet, then your shares of common stock will be voted according to the
choices that you specify. If you sign and mail your proxy card to us without
making any choices, your proxy will be voted:
| · |
FOR
the election of all persons nominated by the Board for election as
directors;
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| · |
FOR
the amendment to our Articles of
Incorporation;
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| · |
FOR
the approval of the Regal Beloit Corporation 2007 Equity Incentive
Plan;
and
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| · |
FOR
the ratification of the selection of Deloitte & Touche LLP as our
independent auditors for 2007.
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Other
than the election of directors, the proposal to amend our Articles of
Incorporation, the proposal to approve the 2007 Incentive Equity Plan, and
the
ratification of the selection of our independent auditors, we are not currently
aware of any other matters that will be brought before the Annual Meeting.
However, by giving your proxy, you appoint the persons named as proxies as
your
representatives at the Annual Meeting. If a matter comes up for a vote at the
Annual Meeting that is not included in the proxy material, then the proxy
holders will vote your shares in accordance with their best
judgment.
In
Person
—You
may
come to the Annual Meeting and cast your vote there. If your shares are held
in
the name of your broker, bank or other nominee and you wish to vote at the
Annual Meeting, then your broker, bank or other nominee will provide you with
instructions for voting your shares.
| Q: |
May
I change
or revoke my vote?
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A:
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You
may change your vote or revoke your proxy at any time prior to your
shares
being voted, by:
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| · |
notifying
our Secretary in writing that you are revoking your
proxy;
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giving
another signed proxy that is dated after the date of the proxy that
you
wish to revoke;
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using
the telephone or Internet voting procedures;
or
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attending
the Annual Meeting and voting in person (attendance at the Annual
Meeting
alone will not revoke your proxy).
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| Q: |
W
ill
my shares be voted if I do
not provide my proxy?
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A:
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It
depends on whether you hold your shares in your own name or in the
name of
a brokerage firm. If you hold your shares directly in your name,
then they
will not be voted unless you provide a proxy or vote in person at
the
Annual Meeting. Brokerage firms or other nominees generally have
the
authority to vote customers’ unvoted shares on certain “routine” matters.
If your shares are held in the name of a brokerage firm, the brokerage
firm has the discretionary authority to vote your shares in connection
with the election of directors and the ratification of our independent
auditors if you do not timely provide your proxy because these matters
are
considered “routine” under the New York Stock Exchange listing
standards.
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Q:
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What
constitutes a quorum?
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A:
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As
of the record date, 31,164,732 shares of our common stock were issued
and
outstanding and entitled to vote at the Annual Meeting. To conduct
the
Annual Meeting, a majority of the shares entitled to vote must be
present
in person or by proxy. This is referred to as a “quorum.” If you submit a
properly executed proxy card or vote by telephone or the Internet,
then
you will be considered present at the Annual Meeting for purposes
of
determining
the presence of a quorum
.
Abstentions and broker “non-votes” will be counted as present and entitled
to vote for purposes of
determining
the presence of a quorum
.
A
broker “non-vote” occurs when a broker or other nominee who holds shares
for another person has not received voting instructions from the
owner of
the shares and, under the New York Stock Exchange listing standards,
does
not have discretionary authority to vote on a
proposal.
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Q:
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What
vote is needed for these proposals to be
adopted?
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A:
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Proposal
1
—The
affirmative
vote of the holders of a majority of the shares of our common stock
represented and voted at the Annual Meeting is required to elect
each
director (assuming a quorum is present). Withhold votes will be counted
for purposes of determining the presence of a quorum but will be
disregarded in the calculation of votes
cast.
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Proposal
2
—The
affirmative vote of the holders of a majority of the shares of our common stock
represented and voted at the Annual Meeting (assuming a quorum is present)
is
required to approve the proposed amendment to our Articles of Incorporation.
Abstentions and broker non-votes will be counted for purposes of determining
the
presence of a quorum but will be disregarded in the calculation of votes
cast
.
Proposal
3
—
The
affirmative vote of the holders of a majority of the shares of our common stock
represented and voted at the Annual Meeting (assuming a quorum is present)
is
required to approve the
Regal
Beloit Corporation 2007 Equity Incentive Plan
,
provided that a majority of the outstanding shares of our common stock are
voted
on the proposal. Abstentions and broker non-votes will be counted for purposes
of determining the presence of a quorum but will be disregarded in the
calculation of votes cast.
Proposal
4—
The
affirmative vote of the holders of a majority of the shares of our common stock
represented and voted at the Annual Meeting (assuming a quorum is present)
is
required to ratify the selection of Deloitte & Touche LLP as our independent
auditors for 2007. Abstentions will be counted for purposes of determining
the
presence of a quorum but will be disregarded in the calculation of votes
cast.
| Q: |
Who
conducts the proxy solicitation and how much will it
cost?
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A:
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Regal
Beloit is requesting your proxy for the Annual Meeting and will pay
all
costs of soliciting shareholder proxies. In addition to soliciting
proxies
by mail, we may request proxies personally and by telephone, fax
or other
means. We can use our directors, officers and regular employees to
request
proxies. These people do not receive additional compensation for
these
services. We will reimburse brokerage houses and other custodians,
nominees and fiduciaries for their reasonable out-of-pocket and clerical
expenses for forwarding solicitation materials to beneficial owners
of our
common stock.
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PROP
OSAL
1: ELECTION OF DIRECTORS
The
Board
is currently comprised of nine directors, divided into three classes of three
members each, with the terms of one class of directors expiring each year.
The
Board has nominated Christopher L. Doerr, Mark J. Gliebe and Curtis W.
Stoelting for election at the Annual Meeting as Class B directors to serve
until
the 2010 annual meeting of shareholders and G. Frederick Kasten, Jr. as a Class
A director to serve until the 2009 annual meeting of shareholders and, for
all
nominees, until their successors are duly elected and qualified. All of our
other directors will continue to serve on the Board until their respective
terms
expire as indicated below, except that Stephen N. Graff will retire as director
as of the date of the Annual Meeting in accordance with the provisions in our
Bylaws concerning the mandatory retirement of a director at the first annual
meeting of shareholders after the director reaches the age of 72. As a
result of Mr. Graff’s retirement, the Board has taken action to reduce
automatically the number of authorized directors to eight effective at the
time
of the Annual Meeting. As a result, the Board has nominated individuals for
election as directors with respect to all open seats on the Board.
Unless
shareholders otherwise specify, the shares represented by the proxies received
will be voted in favor of the election as directors of the persons named as
nominees herein. The Board has no reason to believe that any of the listed
nominees will be unable or unwilling to serve as a director if elected. However,
in the event that any nominee should be unable or unwilling to serve, the shares
represented by proxies received will be voted for another nominee selected
by
the Board.
The
following sets forth certain information, as of February 26, 2007, about
each of the Board nominees for election at the Annual Meeting and each director
whose term will continue after the Annual Meeting. Except as otherwise noted,
each nominee has engaged in the principal occupation or employment and has
held
the offices shown for more than the past five years.
Nominees
for Election at the Annual Meeting
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Name
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Age
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Director
Since
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Principal
Occupation; Office, if any,
Held
in the Company; Other Directorships
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Class
B Directors (terms expiring in 2010)
:
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Christopher
L. Doerr
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57
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2003
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Co-CEO
of Sterling Aviation Holdings, Inc. (aircraft management and charter
company) since 2004 and Co-CEO of Passage Partners, LLC (a private
investment company) since 2001; former President and Co-CEO, LEESON
Electric Corporation from 1986-2001.
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Mark
J. Gliebe
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46
|
2007
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President
and Chief Operating Officer of the Company since December 2005; Vice
President and President-Electric Motors Group of the Company from
January
2005 to December 2005; prior thereto employed by General Electric
Company
(a diversified industrial and commercial manufacturing corporation)
as the
General Manager of GE Motors & Controls in the GE Consumer &
Industrial business unit from 2000-2004.
Mr.
Gliebe was appointed as a director by the Board in January 2007 to
fill
the vacancy created by the retirement of Mr. Packard. Mr.
Gliebe
was recommended as a nominee by the Corporate Governance and Director
Affairs Committee.
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Curtis
W. Stoelting
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47
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2005
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Chief
Executive Officer of RC2 Corporation (a designer, producer and marketer
of
toys, collectibles, hobby and infant care products) since 2003; prior
thereto as Chief Operating Officer from 2000-2003 and Executive Vice
President from 1998-2003 of RC2 Corporation.
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Class
A Director (term expiring in 2009)
:
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G.
Frederick Kasten, Jr.
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67
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1995
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Retired
Chairman and Director, Robert W. Baird & Co., Inc.
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THE
BOARD
RECOMMENDS THE FOREGOING NOMINEES FOR ELECTION AS
DIRECTORS AND URGES EACH SHAREHOLDER TO VOTE “FOR” ALL
NOMINEES.
Directors
Continuing in Office:
BOARD
OF DIRECTORS
Corporate
Governance and Independent Directors
The
Board
has in effect Governance Guidelines that, in conjunction with the Board
committee charters, establish processes and procedures to help ensure effective
and responsive governance by the Board. The Governance Guidelines are available,
free of charge, on our website at
www.regalbeloit.com
.
We are
not including the information contained on or available through our website
as a
part of, or incorporating such information by reference into, this Proxy
Statement.
The
Governance Guidelines provide that a majority of the members of the Board must
be independent directors under the listing standards of the New York Stock
Exchange (“NYSE”). The Board has adopted certain categorical standards of
director independence, which specifically relate to the rules imposed by the
NYSE listing standards, to assist it in making determinations of director
independence and which are contained in the Governance Guidelines. A copy of
these categorical standards of director independence are also attached as
Appendix
A
to this
Proxy Statement.
Based
on
these standards, the Board has affirmatively determined by resolution that
Messrs. Doerr, Fischer, Foate, Graff, Kasten and Stoelting and Ms. Skornicka
have no material relationship with the Company, and, therefore, each are
independent in accordance with the NYSE listing standards. The Board will
regularly review the continuing independence of the directors.
Code
of Business Conduct and Ethics
The
Board
has adopted the Regal Beloit Corporation Code of Ethics and the Regal Beloit
Corporation Code of Conduct, both of which apply to our directors, officers
and
employees. These are available, free of charge, on our website at
www.regalbeloit.com
or in
print to any shareholder who requests a copy in writing addressed to the
Company’s Secretary.
Presiding
Director; Executive Sessions
The
Governance Guidelines require that the Board designate a “Presiding Director” to
lead each executive session of the Board. The position of the Presiding Director
rotates periodically among the non-employee directors as determined by the
Board
upon the recommendation of the Corporate Governance and Director Affairs
Committee. Mr. Foate currently serves as the Presiding
Director.
The
Board
will have at least four regularly scheduled meetings a year at which the
non-employee directors will meet in executive session without members of our
management being present. The non-employee directors may also meet without
management present at such other times as they determine appropriate.
Members of the Company’s senior executive management who are not members of the
Board will otherwise generally participate in Board meetings to present
information, make recommendations, and be available for direct interaction
with
members of the Board.
Communications
with the Board
Shareholders
and other interested parties may communicate with the full Board, the Chairman
of the Board, non-management directors as a group or individual directors,
including the Presiding Director, by delivering a written communication to
Regal
Beloit Corporation, Attention: Board of Directors, 200 State Street, Beloit,
Wisconsin 53511, or by sending an e-mail communication to
board.inquiry@regalbeloit.com
.
The
communications should be addressed to the specific director or directors whom
the shareholder or interested party wishes to contact and should specify the
subject matter of the communication. The Company’s Secretary will deliver
appropriate communication directly to the director or directors to whom it
is
addressed. The Secretary will generally not forward to the director or directors
communication that he determines to be primarily commercial in nature or
concerns our day-to-day business activities, or that requests general
information about the Company.
Concerns
about accounting or auditing matters or possible violations of the Regal Beloit
Corporation Code of Ethics should be reported pursuant to the procedures
outlined in the Code of Conduct and in our policy regarding Reporting Ethical,
Legal and Accounting Concerns, both of which are available on our website at
www.regalbeloit.com
.
Committees
We
have
standing Audit, Compensation and Human Resources, and Corporate Governance
and
Director Affairs Committees of the Board. Each committee is appointed by and
reports to the Board. The Board has adopted, and may amend from time to time,
a
written charter for each of the Audit, Compensation and Human Resources, and
Corporate Governance and Director Affairs Committees. We make copies of each
of
these charters available free of charge on our website at
www.regalbeloit.com
.
Shareholders may also obtain a copy of the charters by directing a written
request to the Company’s Secretary.
Audit
Committee
.
The
Audit Committee consists of Messrs. Graff (Chairperson), Fischer and Stoelting.
Each of the members of the committee is independent as defined by the NYSE
listing standards and the rules of the Securities and Exchange Commission (the
“SEC”). The Board has determined that each of Messrs. Graff, Fischer and
Stoelting qualifies as an “audit committee financial expert” as defined in SEC
rules and meets the expertise requirements for audit committee members under
the
NYSE listing standards. The principal functions performed by the Audit
Committee, which met eight times in 2006, are to assist the Board in monitoring
the overall quality of the Company’s financial statements and financial
reporting, the independent auditor’s qualifications and independence, our
accounting controls and policies, the performance of our internal audit function
and independent auditors, and our compliance with legal and regulatory
requirements. The Audit Committee has the sole authority to appoint, retain,
compensate and terminate our independent auditors and to approve the
compensation paid to the independent auditors. The committee has conditioned
its
selection of independent auditors for 2007 upon the ratification of this
selection by our shareholders at the Annual Meeting. See “Proposal 4:
Ratification of Deloitte & Touche LLP as the Company’s Independent Auditors
for 2007.”
One
member of the Audit Committee, Mr. Fischer, serves on the audit committees
of
three other public companies. On January 26, 2007, the Board of Directors
considered what it believes to be all of the relevant facts and responsibilities
relating to such simultaneous service by Mr. Fischer and affirmatively
determined that the simultaneous service would not impair Mr. Fischer’s ability
to serve effectively on our Audit Committee.
Compensation
and Human Resources Committee
.
The
Compensation and Human Resources Committee consists of Messrs. Doerr
(Chairperson), Foate and Stoelting. Each of the members of the Compensation
and
Human Resources Committee is independent as defined by the NYSE listing
standards. The principal functions of the Compensation and Human Resources
Committee, which met five times in 2006, are to help develop our overall
compensation philosophy; administer our incentive compensation plans (including
our equity incentive plans); determine and approve the Chief Executive Officer’s
compensation; recommend to the Board the annual compensation of the other
principal corporate officers; review and monitor succession and leadership
development planning; and review, formulate, recommend and administer short-
and
long-range compensation programs for the principal corporate officers and key
employees. A more complete description of our Compensation and Human Resources
Committee’s practices can be found in the Compensation Discussion and Analysis
section of this Proxy Statement.
Corporate
Governance and Director Affairs Committee
.
The
Corporate Governance and Director Affairs Committee consists of Messrs. Kasten
(Chairperson) and Fischer and Ms. Skornicka. Each of the members of the
Corporate Governance and Director Affairs Committee is independent as defined
by
the NYSE listing standards. The principal functions of the Corporate Governance
and Director Affairs Committee, which met three times in 2006, are to develop
and recommend to the Board a set of corporate governance principles applicable
to our company, including matters of (a) Board organization, membership,
compensation, independence and function, (b) committee structure and
membership; and (c) otherwise take a leadership role in shaping our
corporate governance; to identify directors qualified to serve on the committees
established by the Board; and to recommend to the Board the members and the
chairperson for each committee to be filled by the Board. This Committee also
serves as the nominating committee of the Board and is responsible for
identifying individuals qualified to become directors (consistent with the
criteria approved by the Board) and to recommend candidates for all
directorships to be filled by the Board or by our shareholders.
Nominations
of Directors
The
Corporate Governance and Director Affairs Committee will consider persons
recommended by shareholders to become nominees for election as directors in
accordance with the criteria set forth in the Governance Guidelines under the
heading “Director’s Qualifications”. The Corporate Governance and Director
Affairs Committee will only review recommendations for director nominees from
any shareholder or group of shareholders beneficially owning in the aggregate
at
least 5% of the issued and outstanding shares of our common stock for at least
one year as of the date that the recommendation is made. Recommendations with
respect to the 2008 annual meeting of shareholders must be submitted by November
16, 2007, for the recommendation to be considered by the Corporate Governance
and Director Affairs Committee.
In
identifying and evaluating nominees for director, the Corporate Governance
and
Director Affairs Committee believes that directors must possess the highest
personal and professional ethics, integrity and values, and commitment to
representing the long-term interest of the shareholders. Directors must also
possess a diverse set of skills and experience with a background in areas that
are relevant to our activities. Directors should also be inquisitive and have
an
objective perspective, a practical wisdom and mature judgment. Directors must
be
willing and able to devote whatever time is necessary to carry out their duties
and responsibilities effectively. Directors will not be nominated unless they
are willing to serve for an extended period of time.
For
a
timely recommendation submitted by a shareholder to be considered by the
Corporate Governance and Director Affairs Committee, the candidate recommended
by a shareholder must be “independent” as defined in the NYSE independence
standards and the SEC regulations, and meet the minimum expectations for a
director set forth in the Company’s Governance Guidelines. The Corporate
Governance and Director Affairs Committee will have sole discretion whether
to
nominate an individual recommended by a shareholder. As to any candidate
identified by the Corporate Governance and Director Affairs Committee to become
a nominee, the candidate must possess the requisite qualifications, although
the
Corporate Governance and Director Affairs Committee need not require such
nominee to be independent. Nevertheless, we strive to have all directors, other
than those directors who are members of our management, be independent as
defined by the NYSE independence standards and the SEC regulations.
Policies
and Procedures Regarding Related Person Transactions
Our
Board
of Directors adopted in January 2007 written policies and procedures regarding
related person transactions. For purposes of these policies and
procedures:
| · |
a
“related person” means any of our directors, executive officers, nominees
for director or greater than 5% shareholder, and any of their immediate
family members, as well as any entity in which any of these persons
is
employed or is a partner or principal or in a similar position or
in which
such person has a 5% or greater beneficial ownership interest;
and
|
| · |
a
“related person transaction” generally is a transaction in which we were
or are to be a participant and the amount involved exceeds $120,000,
and
in which any related person had or will have a direct or indirect
interest.
|
The
related person, the director, executive officer, nominee or beneficial owner
who
is an immediate family member of a related person, or a business unit or
function/department leader of the Company responsible for a proposed related
person transaction must notify our General Counsel of certain information
relating to proposed related person transactions. If our General Counsel
determines that a proposed transaction is a related person transaction subject
to the policy, then he will submit the transaction to the Corporate Governance
and Director Affairs Committee for consideration at the next committee meeting
or, if expedited consideration is required, to the committee chairperson. The
committee or chairperson, as applicable, will consider all of the relevant
facts
and circumstances available regarding the proposed related person transaction
and will approve only those related person transactions that are in, or are
not
inconsistent with, the best interests of our company and our shareholders.
The
chairperson is required to report to the committee at the next committee meeting
any approval granted under the policy.
The
policy also provides for ongoing review by the General Counsel of any amounts
paid or payable to, or received or receivable from, any related person.
Additionally, at least annually, the Corporate Governance and Director Affairs
Committee is required to review any previously approved or ratified related
person transactions that remain ongoing and have a remaining term of more than
six months or remaining amounts payable to or receivable from us of more than
$60,000. Based on all relevant facts and circumstances, the committee will
determine if it is in the best interests of our company and our shareholders
to
continue, modify or terminate the related person transaction.
If
any of
our Chief Executive Officer, Chief Financial Officer or General Counsel becomes
aware of a pending or ongoing related person transaction that has not been
previously approved or ratified under the policy, then the transaction must
be
disclosed to the Corporate Governance and Director Affairs Committee or its
chairperson. The committee or the chairperson must then determine whether to
ratify, amend or terminate the related person transaction, or take any other
appropriate action. If the related person transaction is complete, then the
committee or its chairperson will evaluate the transaction to determine if
rescission of the transaction and/or any disciplinary action is
appropriate.
Meetings
and Attendance
The
Board
held six meetings in 2006. Each director attended at least 75% of the aggregate
of (a) the total number of meetings of the Board and (b) the total number of
meetings held by all committees of the Board on which the director served during
2006 during the time that such person served as director.
Directors
are expected to attend our annual meeting of shareholders each year. All of
the
current directors who were directors at the time of the 2006 annual meeting
of
shareholders attended that meeting.
Management
The
following table sets forth information, as of February 26, 2007, regarding
beneficial ownership of our common stock by each director and nominee, each
of
our named executive officers as set forth in the Summary Compensation Table,
and
all of the directors and executive officers as a group. As of February 26,
2007,
no director or executive officer beneficially owned one percent or more of
our
common stock, other than Messrs. Knueppel and Packard, who owned 1.9% and 2.7%
of our common stock, respectively. On that date, the directors and executive
officers as a group beneficially owned 5.4% of our common stock. Except as
otherwise indicated in the footnotes, all of the persons listed below have
sole
voting and investment power over the shares of our common stock identified
as
beneficially owned.
|
Name
of Beneficial Owner
|
Amount
and Nature of
Beneficial
Ownership
(1)(2)(3)(4)
|
|||
|
David
A. Barta
|
5,000
|
|||
|
Christopher
L. Doerr
|
24,075
|
|||
|
David
L. Eisenreich
|
54,177
|
|||
|
Thomas
J. Fischer
|
19,000
|
|||
|
Dean
A. Foate
|
14,000
|
|||
|
Mark
J. Gliebe
|
21,503
|
|||
|
Stephen
N. Graff
|
38,000
|
|||
|
G.
Frederick Kasten, Jr.
|
71,088
|
|||
|
Henry
W. Knueppel
|
580,790
|
|||
|
James
L. Packard
(5)
|
831,673
|
|||
|
Carol
N. Skornicka
|
7,000
|
|||
|
Curtis
W. Stoelting
|
12,000
|
|||
|
All
directors and executive officers
as
a group (14 persons)
|
1,678,306
|
|||
|
(1)
|
Includes
shares subject to currently exercisable rights to acquire common
stock and
options exercisable within 60 days of February 26, 2007 as follows:
Mr.
Barta, 5,000 shares; Mr. Doerr, 19,000 shares; Mr. Eisenreich,
45,750
shares; Mr. Fischer, 16,000 shares; Mr. Foate, 10,000 shares; Mr.
Gliebe,
20,000 shares; Mr. Graff, 29,800 shares; Mr. Kasten, 21,800 shares;
Mr.
Knueppel, 326,000 shares; Mr. Packard, 310,700 shares; Ms. Skornicka,
6,000 shares, Mr. Stoelting, 7,000 shares; and all directors and
executive
officers as a group, 817,050 shares.
|
|
|
(2)
|
Amounts
shown for Mr. Knueppel includes 13,499 shares that are held in
trust under
the Company’s Personal Savings Plan (401(k)) or a non-Company sponsored
individual retirement account and 83,821 shares related to the
exercise of
options in 2002, the delivery of which shares is delayed until
Mr.
Knueppel’s normal retirement.
|
|
|
(3)
|
Amounts
shown for Messrs. Fischer, Graff and Knueppel include 1,000 shares,
8,200
shares and 149,930 shares, respectively, as to which they share
voting and
investment power with their spouses.
|
|
|
(4)
|
Amounts
shown for Messrs. Eisenreich, Gliebe and Packard include 5,777
shares, 210
shares and 31,331 shares, respectively, held in trust under the
Company’s
401(k) plans.
|
|
|
(5)
|
Mr.
Packard retired as an executive officer and director of the Company
effective December 31, 2006.
|
Other
Beneficial Owners
The
following table sets forth information, as of December 31, 2006, regarding
beneficial ownership by the only persons known to us to own more than 5% of
our
outstanding common stock. The beneficial ownership set forth below has been
reported on filings made on Schedule 13G with the SEC by the beneficial owners.
|
Amount
and Nature of Beneficial Ownership
|
|||||||||||||||||||
|
Voting
Power
|
Investment
Power
|
||||||||||||||||||
|
Name
and Address
of
Beneficial Owner
|
Sole
|
Shared
|
Sole
|
Shared
|
Aggregate
|
Percent
of
Class
|
|||||||||||||
| AXA Financial, Inc. | 1,412,918 | 7,274 | 2,270,968 | 24 | 2,270,997 | 7.29 | %* | ||||||||||||
|
1290
Avenue of the Americas
New
York, NY 10104
|
|
|
|
|
|
||||||||||||||
| Dimensional Fund Advisors LP | 2,076,266 | -- | 2,076,266 | -- | 2,076,266 | 6.71 | % | ||||||||||||
|
1299
Ocean Avenue
Santa
Monica, CA 90401
|
|
|
|
|
|||||||||||||||
| Barclays Global Investors, NA | 1,470,626 | -- | 1,579,931 | -- | 1,579,931 | 5.11 | % | ||||||||||||
|
45
Fremont Street
San
Francisco, CA 94105
|
|
|
|
|
|
|
|||||||||||||
*
The
number of shares owned by AXA Financial, Inc. (“AXA”) set forth in the table is
as of or about December 31, 2006, as reported by AXA in its Schedule 13G/A
filed
with the Securities and Exchange Commission. The percentage of outstanding
common stock owned by AXA set forth in the table, however, is based on the
number of shares outstanding as of the record date.
COMPENSATION
DISCUSSION AND ANALYSIS
General
Compensation Philosophy
We
recognize the importance of maintaining sound principles for the development
and
administration of our compensation and benefit programs. Our executive
compensation programs are designed to advance principles that we have identified
as being core to the function of executive compensation. These principles are:
| · |
We
strive to compensate executives at competitive levels to ensure we
attract
and retain a highly competent and committed management
team.
|
| · |
We
provide our executives the opportunity to earn above-median pay for
above-median performance as measured against executive compensation
survey
data compiled by Towers Perrin, our Compensation and Human Resources
Committee’s independent executive compensation consultant, which consisted
of information from over 100 comparable companies (referred to as
our peer
group). Alternatively, we pay compensation below the median level
for
corporate performance that lags our peer
group.
|
| · |
We
link compensation to corporate performance to the extent possible
to
ensure that executives are highly compensated only when shareholders
receive value and executives remain properly motivated to enhance
shareholder value.
|
| · |
We
ensure that executives’ long-term interests are aligned with shareholders’
interests by ensuring our executives own a significant stake in our
company.
|
We
believe that a focus on these principles will benefit our shareholders in the
long-term by ensuring that we can attract and retain highly qualified executives
who are committed to our long-term success and the creation of shareholder
value.
Role
of Our Compensation and Human Resources Committee
Our
Compensation and Human Resources Committee, or the Committee, is appointed
by
our Board and consists entirely of independent directors who are “outside
directors” for purposes of Section 162(m) of the Internal Revenue Code and
“non-employee directors” for purposes of the Securities Exchange Act of 1934.
The current members of the Compensation and Human Resources Committee are
Messrs. Doerr (Chairman), Foate and Stoelting.
Each
year, the Committee solicits proposals from a number of independent compensation
consultants to assist the Committee in the performance of its responsibilities.
After selecting an independent compensation consultant, the Committee
periodically meets with that consultant throughout the year as the Committee
deems appropriate and receives reports and advice from the consultant on matters
of executive compensation. In 2006, the Committee selected Towers Perrin to
serve as its independent compensation consultant with respect to executive
compensation matters.
The
Committee reviews and makes recommendations (in consultation with our Chief
Executive Officer other than with respect to his own compensation) to the Board
on our compensation and benefit programs, with the objective of ensuring our
executive compensation and benefits programs are consistent with our
compensation philosophy. The Committee, subject to the approval of our Board,
is
responsible for establishing the executive compensation packages offered to
our
named executive officers. The Committee administers and has final authority
for
setting awards under our annual cash incentive and long-term equity incentive
based plans.
The
Committee reviews data from market surveys, proxy statements and independent
consultants to assess our competitive position with respect to the following
components of executive compensation:
| · |
base
salary;
|
| · |
annual
incentives; and
|
| · |
long-term
incentive compensation.
|
The
objective of our Committee is to establish base compensation at or slightly
below the median level compared with our peer group, with the opportunity for
our executives to earn above-median total compensation for above-market
performance as measured against our peer group. The peer group of companies
compiled by Towers Perrin consists of a variety of industrial companies with
revenues substantially similar to our own revenue and in similar lines of
business. Given our significant growth in the last several years due to
acquisitions and organic growth, the composition of our peer group of companies
continues to evolve.
The
Committee also considers individual performance, level of responsibility, skills
and experience, and internal comparisons among our executive officers in
recommending base salary levels for approval by the Board. For annual and
long-term incentives, the Committee, in addition to peer group analysis,
considers internal comparisons and other existing compensation awards or
arrangements in making compensation decisions and recommendations. In its
decision-making process, the Committee receives and considers the
recommendations of our Chief Executive Officer, or CEO, as to executive
compensation to be paid to all of the other officers. Decisions regarding
adjustments to future base salaries, annual incentives and long-term incentives
are made concurrent with the assessment of the executives’ performance for the
year. Adjustments generally become effective in January of each
year.
In
fulfilling its objectives as described above, the Committee took the following
steps in 2006:
| · |
Engaged
and directed Towers Perrin to assess the competitiveness of our overall
compensation and benefits programs, including providing the Committee
guidance as to the composition of our peer group of
companies.
|
| · |
Reviewed
in consultation with our CEO (other than with respect to his own
compensation) and Towers Perrin each element of compensation individually
as well as in the aggregate using tally sheets reflecting each component
of compensation as well as total
compensation.
|
| · |
With
the assistance of Towers Perrin, aligned executive compensation structures
based on targeting a level of total base salaries at or slightly
below the
median as measured against our peer group, while providing executives
the
opportunity to earn above-median annual incentives for above-average
performance.
|
| · |
Reviewed
the performance of our CEO (independent of input from him, consistent
with
past practice) and recommended to the independent members of the
Board
total compensation for the CEO based on competitive levels and using
the
same philosophies as stated above as measured against our peer
group.
|
| · |
Reviewed
the performance of our other executive officers with the assistance
from
our CEO and recommended to the independent members of the Board total
compensation for each individual based on competitive levels as measured
against our peer group.
|
| · |
Maintained
the practice of holding executive sessions (without management present)
at
every Committee meeting, including executive sessions in which our
independent compensation consultants
participated.
|
| · |
Reviewed
the overall incentive compensation program for our executive
officers.
|
Total
Compensation
We
intend
to continue our strategy of compensating our executives at competitive levels,
with the opportunity to earn above-median compensation for above-market
performance as compared to our peer group, through programs that emphasize
performance-based incentive compensation in the form of annual cash payments,
deferred cash payments and equity-based awards. To that end, total executive
compensation is tied directly to our performance and is structured to ensure
that, due to the nature of our business, there is an appropriate balance focused
on our long-term versus short-term performance, and also a balance between
our
financial performance, individual performance of our executive officers and
the
creation of shareholder value. We believe that the total compensation paid
or
awarded to our named executive officers during 2006 was consistent with our
financial performance and the individual performance of each of the named
executive officers. Based on our analysis and the advice of our independent
executive compensation consultants, we also believe that the compensation was
reasonable in its totality and is consistent with our compensation philosophies
as described above.
Components
of Compensation
Base
Salaries
.
Base
salaries for executives are determined based upon job responsibilities, level
of
experience, individual performance, comparisons to the salaries of executives
in
similar positions as compared to our peer group as well as internal comparisons
of the relative compensation paid to the members of our executive team. The
goal
for the base salary component is to compensate executives between the
thirty-fifth (35
th
)
and
fiftieth (50
th
)
percentile as compared to similarly-situated executives within our peer group.
The Committee consulted with Towers Perrin in making recommendations for base
salary adjustments for 2006 based on the factors set forth above. Our CEO,
Mr.
Knueppel, in turn made recommendations to the Committee with respect to the
base
compensation of executives other than himself. In setting base salary increases
for 2006, the individual performance factors reviewed for Mr. Knueppel included
revenue growth (including increases in organic revenue), return on invested
capital, cash flow, total shareholder returns and performance against specified
individual performance objectives. The individual performance factors reviewed
for the other named executive officers for 2006 included revenue growth
(including increases in organic revenue), operating profit improvement, cash
flow and performance against specified individual performance
objectives.
Merit-based
salary increases normally take effect on January 1 of each year. In 2006, Mr.
Knueppel received a 30% increase in base salary, which reflected the larger
size
of our company (our revenues grew from approximately $619 million in 2003 to
$1.4 billion in 2005), his individual performance against objectives, as well
as
Mr. Knueppel’s appointment as our Chairman in 2006. Mr. Knueppel’s increase also
reflected our intent to increase his salary over time to be within the stated
thirty-fifth (35
th
)
to
fiftieth (50
th
)
percentile range for similarly-situated officers as compared to our peer group.
The
other
named executive officers, Mr. Barta, Mr. Packard, Mr. Gliebe, and Mr.
Eisenreich, received base salary increases of 19%, 0%, 6% and 4%, respectively.
Mr. Barta’s salary increase reflected our increased size, his performance, as
well as the intent to increase his salary over time to be within the stated
thirty-fifth (35
th
)
to
fiftieth (50
th
)
percentile range as compared to our peer group. Due to his then impending
retirement on December 31, 2006, Mr. Packard did not receive a base salary
increase for 2006. The salary increases for Messrs. Gliebe and Eisenreich were
reflective of their individual performance and our objectives regarding the
level of base salaries paid to our executives as described above.
Annual
Incentives
.
We have
in effect the Regal Beloit Corporation Shareholder Value Added (SVA) Plan,
which
was approved by our shareholders and is designed to promote the maximization
of
shareholder value over the long term. The SVA plan is intended to provide a
competitive level of compensation when the executive officers achieve their
performance objectives as approved by our Compensation and Human Resources
Committee. The plan provides bonus opportunities based on a comparison of actual
annual SVA to target SVA for the year in question. Performance above target
SVA
earns a bonus more than the target bonus while performance below target SVA
earns a bonus less than the target bonus. The bonus amount an executive can
earn, in years of strong corporate performance, is designed to increase annual
cash incentive compensation amounts to levels that would be considered above
the
median level for our peer group and below the median level for our peer group
in
years when we are underperforming. In order to benchmark and determine target
bonus amounts, and to determine an annual improvement factor and leverage
factor, which impacts the target bonus amount, the Committee retains
nationally-recognized independent compensation consultants every three years,
or
more frequently as deemed necessary.
SVA
is a
calculation that attempts to approximate the value executives add to the Company
above our cost of capital. SVA is calculated by subtracting a charge for the
average net capital employed by us during a fiscal year from the net operating
profit after tax that we earn during that same year. For this purpose, the
cost
of capital is determined based on our weighted average cost of equity and our
after-tax cost of debt. To encourage improved performance in accordance with
the
SVA plan, the Committee, in addition to setting a target SVA amount, establishes
an expected improvement factor.
In
addition to setting target SVA, the Committee also sets the target bonus
percentage amount for each of our executive officers. This amount is based
on a
percentage of the base salary paid to the executive officers. For fiscal year
2006, Messrs. Knueppel, Barta, Packard, Gliebe and Eisenreich had target bonus
percentage amounts of 80%, 50%, 75%, 60% and 50%, respectively, which equated
to
target bonus amounts of $484,000, $157,500, $487,500, $255,000 and $141,000,
respectively. The Committee, in consultation with Towers Perrin and our CEO
(other than with respect to his own compensation), set target bonus amounts
at
the median level relative to our peer group. As a result, our executives were
given the opportunity to earn above-median annual cash incentive awards for
above-market performance while at the same time facing below-median awards
(or
no award at all) for below-average performance.
Based
on
our performance in 2006, we achieved actual SVA substantially in excess of
our
SVA target, which would indicate an earned bonus of 300% of the target bonus.
However, we have capped the maximum bonus at 200%. Therefore, the Committee
approved bonuses equal to 200% of the target bonus in accordance with the terms
of the SVA plan. As a result, the Committee determined that Messrs. Knueppel,
Barta, Packard, Gliebe and Eisenreich earned SVA bonuses of $968,000, $315,000,
$975,000, $510,000 and $282,000, respectively. The bonuses earned up to the
target bonus (100% bonus) are fully paid in cash following the end of that
year
in accordance with the SVA plan. Bonus amounts earned above the target bonus
value are deferred, without interest, with one-third of the deferred balance
paid to the participant in cash after the end of each of the following three
years, as long as the named executive officer has not voluntarily terminated
his
employment with the Company or been terminated for cause. In 2006, since the
bonus performance value was approved at 200%, half of each of the SVA bonuses
identified above as being earned was deferred. The amounts deferred for Messrs.
Knueppel, Barta, Gliebe and Eisenreich were $484,000, $157,500, $255,000 and
$141,000, respectively. Due to Mr. Packard’s retirement on December 31, 2006,
the bonus he earned under the SVA plan was not deferred.
For
fiscal 2006, the Committee awarded an additional bonus of $9,750 to Mr. Packard
pursuant to a bonus program under which he was eligible to receive up to 1.5%
of
base salary based on whether the Company performed below, or at, targeted SVA.
This bonus was intended to replace the cash portion of a profit sharing program
that we discontinued several years ago. No other executive officer received
an
additional bonus under this authority for 2006, and this component of
compensation has been eliminated for all years after 2006.
In
fiscal
2006, Mr. Packard, in light of his impending retirement as of December 31,
2006, did not receive any equity-based awards as part of his compensation
package. In lieu of equity-based awards, our Committee believed that it was
appropriate to provide Mr. Packard with the opportunity to earn a cash bonus
directly tied to the appreciation of our share price. This bonus provided Mr.
Packard with a payout in cash equal to 50,000 times the difference in share
price from the close of trading on January 27, 2006 and the close of trading
on
December 29, 2006. The amount of this cash bonus opportunity was established
to
provide Mr. Packard with an incentive to continue to increase shareholder value
while he transitioned his responsibilities to other members of our executive
team. In accordance with this award, Mr. Packard received a cash bonus of
$807,500 for 2006.
Long-Term
Compensation
.
We
believe that equity-based compensation ensures that our executives have a
continuing stake in the long-term success of our company. All of the named
executive officers, with the exception of Mr. Packard, received options and
restricted stock in fiscal year 2006. In lieu of receiving restricted stock
and
stock options, Mr. Packard was granted a cash-based award that was tied directly
to stock price appreciation as described above.
Consistent
with the overall compensation philosophy described above, the Committee,
in
consultation with Towers Perrin, granted long-term compensation awards other
than to Mr. Knueppel at levels approximating the median level of these awards
granted by the companies in our peer group. After considering Mr. Knueppel’s
existing holdings of our common stock, the Committee granted to Mr. Knueppel
a
long-term compensation award below the median level of these awards granted
by
companies in our peer group. In addition to this factor, the Committee also
considered, in making long-term awards, our performance against our strategic
plan generally as well as the number of awards granted to our officers as
compared to grants to all of our other employees.
Stock
Options.
Stock
options were granted to each named executive officer, except Mr. Packard, on
January 27, 2006. Messrs. Knueppel, Barta, Gliebe and Eisenreich were granted
options to purchase 70,000, 25,000, 35,000 and 15,000 shares of our common
stock, respectively, at a per share exercise price of $36.36. These options
are
non-qualified stock options with an exercise price equal to the fair market
value of our common stock on the date of the grant. Accordingly, these stock
options will have value only if the market price of the common stock increases
after the grant date.
The
options vest ratably over a five-year period and had a grant date fair value
per
option of $12.60 as determined pursuant to Financial Accounting Standards No.
123 (Revised 2004) (FAS 123R). The options have an expiration date of January
27, 2016.
Restricted
Stock.
The
Committee also awarded restricted stock to each named executive officer, except
Mr. Packard, in 2006. In addition to providing competitive compensation and
an
incentive to create shareholder value, these awards are intended to align
management and shareholder interests as well as provide a retention incentive
for the executive to remain employed by the Company. The number of shares of
restricted stock granted to our executives was determined with reference to
the
compensation philosophy described above.
Messrs.
Knueppel, Barta, Gliebe and Eisenreich were awarded 20,000, 3,000, 8,000 and
2,000 shares of restricted stock, respectively. The restricted stock had a
grant
date fair value of $36.36 as determined pursuant to FAS 123R at the date of
the
grant. This amount reflects the fair market value of the common stock on the
date of grant. The shares remain restricted for three years following the date
of grant.
Stock
Ownership Requirements
To
underscore the importance of linking executive compensation and shareholder
interests, we have implemented stock ownership requirements for certain
executives including the named executive officers. Executives subject to these
requirements must own a certain dollar value amount of stock before they are
permitted to sell shares (other than shares sold to pay option exercise prices
or shares sold or surrendered to cover taxes). Executives who sell shares in
violation of this policy may be ineligible for future long-term incentive
awards. The stock ownership policy requires our CEO to hold shares with a value
five (5) times his base salary. For our Chief Operating Officer and Chief
Financial Officer the ownership threshold is three (3) times base salary and
for
all other executives the ownership threshold is one (1) times base
salary.
Other
Benefits
We
have
certain other plans that provide, or may provide, compensation and benefits
to
the named executive officers. These plans are principally our 401(k) Plan,
Supplemental Retirement Plan and Marathon Electric Pension Plans. We also
provide life and medical insurance as part of our compensation package. Our
Compensation and Human Resources Committee considers all of these plans and
benefits when reviewing total compensation of our executive
officers.
401(k)
.
Our
401(k) plan covers eligible hourly and salaried employees including Messrs.
Knueppel, Barta, Packard and Gliebe. In addition to a company match, there
is an
annual company contribution for employees.
Mr.
Eisenreich participates in the Marathon Electric Salaried Employees 401(k)
Savings Plan, which allows an eligible employee to receive a company
match.
Target
Supplemental Retirement Plan
.
The
Target Supplemental Retirement Plan limits participants to officers and other
key employees recommended by the CEO and approved by the Committee. The purpose
of the plan is to extend full retirement benefits to participants without regard
to statutory limitations under tax-qualified plans. To be eligible for this
plan, an employee must provide fifteen (15) years of uninterrupted service
to
the Company. When the plan was adopted in January 1994, the benefit amounts
were
benchmarked against then peer companies in consultation with a compensation
consultant. The Committee periodically reviews these benchmarks to determine
if
they are still appropriate and completed its most recent review in 2006. Messrs.
Knueppel, Barta, Packard and Gliebe participate in the Target Supplemental
Retirement Plan. For more information on this plan, see the narrative discussion
that follows the “Pension Benefits Table.”
Marathon
Electric Pension Plan
s.
Mr.
Eisenreich participates in the Marathon Electric Pension Plans. No other named
executive officers participate in these plans. To find more detail on these
plans, see the discussion after the “Pension Benefits Table.”
Perquisites
We
provided a modest level of personal benefits to named executive officers in
2006, as summarized below:
| · |
Messrs.
Knueppel, Barta, Packard and Gliebe had limited use of a company
aircraft
for personal travel.
|
| · |
All
of the executive officers had use of a company car for personal travel.
|
| · |
Messrs.
Knueppel and Packard have a special life insurance benefit and do
not
receive a life insurance benefit under the basic program offered
to other
named executive officers and other salaried employees. The Company
is the
owner of policies on the lives of both Mr. Packard and Mr. Knueppel
with
the basic death benefit of $3,000,000 each. At the time Mr. Knueppel
ceases to be employed by the Company, the Company becomes the sole
beneficiary on his policy. Upon Mr. Packard’s retirement on December 31,
2006, the Company became the sole beneficiary on his policy. Mr.
Knueppel’s beneficiary would receive $500,000 in the event of his death
while employed by the Company. The balance of Mr. Knueppel’s death benefit
would be paid to the Company, including any increased death benefit,
since
the policy has increasing death benefits as cash value is created.
The
Company pays the entire annual premium on each policy and income
is
imputed to Mr. Packard and Mr. Knueppel in accordance with governmental
regulations.
|
| · |
Our
executive officers are provided with the same short-term and long-term
disability benefits as our other salaried employees. The short-disability
benefit provides up to six months of salary replacement in an amount
between 60% and 100% of the executive officer’s base salary depending on
the executive officer’s credited years of service with the Company. The
long-term disability benefit commences following six months of disability
and provides a benefit of 60% of base salary
thereafter.
|
Severance
and Change in Control Benefits
We
have
no employment agreements with any of the named executive officers. However,
we
have entered into change of control and termination agreements with Messrs.
Packard, Knueppel, Barta and Gliebe. Based on our analysis and the advice of
our
independent executive compensation consultants, we believe that the change
of
control and termination agreements contain terms that are similar to those
offered to executives of comparable companies. Mr. Packard’s agreement
terminated upon his retirement on December 31, 2006. The benefits provided
under
the agreements for Messrs. Knueppel, Barta and Gliebe are triggered if within
three years after a change of control of the Company: (1) the executive is
terminated other than for cause or (2) the executive terminates his employment
with good reason. If the executive’s employment is terminated for cause, or as a
consequence of death or disability, the Company’s obligations under the
termination agreement are not triggered with respect to future benefits. The
severance payment is equal to three times the executive’s annual base salary
then in effect, plus three times the sum of the amount of the higher of the
executive’s current year target bonus under the SVA plan or the previous year’s
actual earned bonus under the SVA plan and the value of all fringe benefits.
The
agreements also contain a gross-up provision which provides for additional
payments to the executives to compensate them for any excise taxes on
termination payments that may be imposed on the executives under the Internal
Revenue Code. For more details, see the “Termination, Change of Control and
Change of Responsibility Payments” section below.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth for each of the named executive officers: (1) the
dollar value of base salary and bonus earned during the year ended December
31,
2006; (2)
the
dollar value of the compensation cost of all outstanding stock and option awards
recognized over the requisite service period, computed in accordance with FAS
123R
;
(3) the
dollar value of earnings for services pursuant to awards granted during the
year
under non-equity incentive plans; (4) the change in pension value and
non-qualified deferred compensation earnings during the year; (5) all other
compensation for the year; and, finally, (6) the dollar value of total
compensation for the year. The named executive officers are our principal
executive officer (sometimes referred to as PEO), principal financial officer
(sometimes referred to as PFO), and each of our three other most highly
compensated executive officers as of December 31, 2006 (each of whose total
cash
compensation exceeded $100,000 for fiscal year 2006).
SUMMARY
COMPENSATION TABLE
FOR
FISCAL 2006
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards ($)
(1)
|
Option
Awards ($)
(2)
|
Non-Equity
Incentive Plan Compensation ($)
(3)
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)
(4)
|
All
Other Compensation ($)
(5)
|
Total
($)
|
|||||||||||||||||||
|
Henry
W. Knueppel
|
2006
|
$
|
613,686
|
$
|
0
|
$
|
300,430
|
$
|
627,826
|
$
|
968,000
|
$
|
1,946,774
|
$
|
82,365
|
$
|
4,539,081
|
|||||||||||
|
Chairman
and Chief Executive Officer
(Principal
Executive Officer)
|
||||||||||||||||||||||||||||
|
David
A. Barta
|
2006
|
$
|
319,851
|
$
|
0
|
$
|
58,310
|
$
|
133,019
|
$
|
315,000
|
$
|
45,295
|
$
|
21,628
|
$
|
893,103
|
|||||||||||
|
Vice
President and Chief Financial Officer
(Principal
Financial Officer)
|
||||||||||||||||||||||||||||
|
James
L. Packard
|
2006
|
$
|
656,877
|
$
|
807,500
(7)
|
|
$
|
83,112
|
$
|
47,096
|
$
|
984,750
(6)
|
|
$
|
3,983,207
|
$
|
98,816
|
$
|
6,661,358
|
|||||||||
|
Executive
Officer and Former Chairman and Chief Executive
Officer
(8)
|
||||||||||||||||||||||||||||
|
Mark
J. Gliebe
|
2006
|
$
|
429,851
|
$
|
0
|
$
|
118,505
|
$
|
190,512
|
$
|
510,000
|
$
|
65,628
|
$
|
37,360
|
$
|
1,351,856
|
|||||||||||
|
President
and Chief Operating Officer
|
||||||||||||||||||||||||||||
|
David
L. Eisenreich
|
2006
|
$
|
282,000
|
$
|
0
|
$
|
61,265
|
$
|
206,710
|
$
|
282,000
|
$
|
218,000
|
$
|
12,030
|
$
|
1,062,005
|
|||||||||||
|
Vice
President and President, Mechanical Components & Power
Generation
|
||||||||||||||||||||||||||||
|
(1)
|
These
amounts reflect the dollar value of the compensation cost of all
outstanding stock awards recognized over the requisite service
period,
computed in accordance with FAS 123R. The assumptions made in valuing
the
stock awards are included under the caption “Shareholders Investment” in
Note 7 of Notes to Consolidated Financial Statements in the 2006
Annual
Report on Form 10-K and such information is incorporated herein
by
reference.
|
||
|
(2)
|
These
amounts reflect the dollar value of the compensation cost of all
outstanding option awards recognized over the requisite service
period,
computed in accordance with FAS 123R. The assumptions made in valuing
the
options awards are included under the caption “Shareholders Investment” in
Note 7 of Notes to Consolidated Financial Statements in the 2006
Annual
Report on Form 10-K and such information is incorporated herein
by
reference.
|
||
|
(3)
|
Each
of the named executive officers earned a cash bonus under the SVA
plan.
The bonuses earned in one year up to the target bonus (100% bonus)
are
fully paid in cash following the end of that year in accordance
with the
SVA plan. Bonuses earned above the target bonus value are deferred,
without interest, with one-third of the deferred balance paid to
the
participant in cash after the end of each of the following three
years, as
long as the named executive officer has not voluntarily terminated
his
employment with us or been terminated for cause. In 2006, the percent
of
target earned was 200%, the maximum level permitted by the plan.
So, the
bonus payouts for 100% of the target bonus were $484,000, $157,500,
$487,500, $255,000 and $141,000 for Messrs. Knueppel, Barta, Packard,
Gliebe and Eisenreich, respectively. The amounts deferred for Messrs.
Knueppel, Barta, Gliebe and Eisenreich were $484,000, $157,500,
$255,000
and $141,000, respectively. Due to Mr. Packard’s retirement on December
31, 2006, the amounts under the SVA plan were not
deferred.
|
||
|
(4)
|
For
Messrs. Knueppel, Barta, Packard and Gliebe the values shown are
the
changes in the accumulated benefit obligations in 2006 in the Target
Supplemental Retirement Plan. The Target Supplemental Retirement
Plan
ensures that each named executive officer receives an annual pension
benefit up to a maximum 60% income replacement that is equal to
two
percent of the executive’s average annual earnings, which is comprised of
the executive’s base salary and cash bonuses, including payments pursuant
to the SVA plan, during the final five years (three years in the
case of
Mr. Packard) of service with the Company, multiplied by the executive’s
years of service with the Company (up to a maximum of 30 years).
The
monthly pension benefit payable to a named executive officer under
the
Target Supplemental Retirement Plan is reduced by estimated monthly
Social
Security and 401(k) plan benefits. The change in pension value
for Messrs.
Knueppel, Barta, Packard and Gliebe reflects an increase in the
present
value of the accumulated benefit under the Target Supplemental
Retirement
Plan resulting from a change in 2005 to include in the calculation of
benefits bonuses earned under the SVA plan. The increase in Mr.
Knueppel's change in pension value also reflects an increase in
the
present value of his accumulated benefit resulting from his increased
salary and target bonus related to his promotions in 2005 and 2006
to CEO and Chairman, respectively. The increase in Mr.
Packard's change in pension value also reflects an increase in
the present
value of his accumulated benefit resulting from his final average
compensation for purposes of the Target Supplemental Retirement
Plan being
calculated on his final three years of compensation, as compared
to the
final five years for the other participating named executive officers,
and
from the Company's improving performance during those three
years. For Mr. Eisenreich, the values shown include changes in
accumulated
benefit obligations in the Marathon Electric Employee Pension Plan
(qualified), the Marathon Electric Supplemental Pension Plan
(non-qualified), and the Supplemental Life Insurance and Retirement
Income
Plan (non-qualified) of $90,000, $124,000 and $4,000,
respectively.
|
||
|
(5)
|
The
amounts shown include payments for personal benefits and for the
other
items identified below. We provide a modest level of personal benefits
to
named executive officers. These personal benefits include tax preparation
(for Mr. Packard only), use of a company car and very limited use
of
company aircraft for personal travel, the payment of moving expenses
and
the payment of life insurance premiums. We value the personal use
of
company aircraft under an incremental cost method calculated based
on the
average variable operating costs to the Company. Variable operating
costs
include fuel, maintenance, landing/ramp fees and other miscellaneous
variable costs. The total annual variable costs are divided by
the annual
number of passenger miles the company aircraft flew to derive an
average
variable cost per mile. This average variable cost per mile is
then
multiplied by the miles flown for personal use to derive the incremental
cost. The methodology excludes fixed costs that do not change based
on
usage, such as pilots’ and other employees’ salaries, purchase costs of
the aircraft and non-trip related hangar expenses. Based on this
method,
the value of the personal use of company aircraft by Messrs. Knueppel,
Barta, Packard, Gliebe and Eisenreich was $9,951, $3,719, $2,232,
$2,232
and $0, respectively. The items that are not a perquisite or personal
benefit are: (a) quarterly payments, equal to the per share dividend
paid
to shareholders, paid on the cumulative amount of restricted stock
held by
the named executive officers of $13,060, $2,580, $5,400, $4,360
and $2,580
for Messrs. Knueppel, Barta, Packard, Gliebe and Eisenreich, respectively;
(b) payments in lieu of dividends for Messrs. Packard and Knueppel
of
$69,851 and $41,910, respectively, on shares related to their exercise
of
stock options in 2002, as delivery of the shares for which the
stock
options were exercised was delayed until their retirement; (c)
company
contributions to the named executive officers’ 401(k) plans of $7,700,
$7,700, $7,700, $7,700 and $5,500 for Messrs. Knueppel, Barta,
Packard,
Gliebe and Eisenreich, respectively; and (d) the reimbursement
of amounts
paid by Messrs. Knueppel, Packard, Barta and Gliebe for taxes related
to
their use of the company aircraft of $2,914, $659, $975 and $571,
respectively.
|
||
|
(6)
|
Mr.
Packard received an additional bonus of $9,750, or 1.5% of his
salary,
based on the Company performing above targeted SVA for 2006. The
bonus was
paid pursuant to a bonus program intended to replace the cash portion
of a
profit sharing program that the Company discontinued several years
ago.
|
||
|
(7)
|
Mr.
Packard received a special bonus in 2006. The bonus was calculated
as
50,000 times the difference between the Company’s stock price at the close
of trading on the last trading day of 2006 ($52.51) and the closing
price
of $36.36 on January 27, 2006, the date the Board approved this
special
bonus opportunity for Mr. Packard.
|
||
|
(8)
|
Mr.
Packard resigned as Chairman effective April 22, 2006 and as Chief
Executive Officer effective April 22, 2005. Mr. Packard retired
as an
executive officer on December 31, 2006.
|
Grants
of Plan-Based Awards
The
following table sets forth information regarding all incentive plan awards
that
were made to the named executive officers during 2006, including incentive
plan
awards (equity-based and non-equity based) and other plan-based awards.
Disclosure on a separate line item is provided for each grant of an award made
to a named executive officer during the year. The information supplements the
dollar value disclosure of stock, option and non-stock awards in the Summary
Compensation Table by providing additional details about these awards. Equity
incentive-based awards are subject to a performance condition or a market
condition as those terms are defined by FAS 123R. Non-equity incentive plan
awards are awards that are not subject to FAS 123R and are intended to serve
as
an incentive for performance to occur over a specified period.
GRANTS
OF PLAN-BASED AWARDS TABLE
FOR
FISCAL 2006
|
Estimated
Future Payouts Under
Non-Equity
Incentive Plan Awards
(1)
|
All
Other Stock Awards: Number of Shares of Stock or Units
(#)
|
All
Other Option Awards: Number of Securities Underlying Options
(#)
|
Exercise
or Base Price of Option Awards ($/Sh)
|
Grant
Date Fair Value of Stock and Option Awards
($)
|
|||||||||||||||||||||
|
Name
|
Grant
Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
|||||||||||||||||||||
|
Henry
W. Knueppel
|
1/27/2006
|
20,000
|
$
|
727,200
|
|||||||||||||||||||||
| PEO | 1/27/2006 |
70,000
|
$
|
36.36
|
$
|
882,000
|
|||||||||||||||||||
|
$
|
0
|
$
|
484,000
|
$
|
968,000
|
||||||||||||||||||||
|
David
A. Barta
|
1/27/2006
|
3,000
|
$
|
109,080
|
|||||||||||||||||||||
| PFO | 1/27/2006 | 25,000 | $ | 36.36 | $ | 315,000 | |||||||||||||||||||
|
$
|
0
|
$
|
157,500
|
$
|
315,000
|
||||||||||||||||||||
|
James
L. Packard
|
N/A
|
$
|
0
|
$
|
487,500
|
$
|
975,000
|
||||||||||||||||||
|
$
|
0
|
$
|
9,750
|
$
|
9,750
|
||||||||||||||||||||
|
Mark
J. Gliebe
|
1/27/2006
|
8,000
|
$
|
290,880
|
|||||||||||||||||||||
| 1/27/2006 |
35,000
|
$
|
36.36
|
$
|
441,000
|
||||||||||||||||||||
|
$
|
0
|
$
|
255,000
|
$
|
510,000
|
||||||||||||||||||||
|
David
L. Eisenreich
|
1/27/2006
|
2,000
|
$
|
72,720
|
|||||||||||||||||||||
| 1/27/2006 |
15,000
|
$
|
36.36
|
$
|
189,000
|
||||||||||||||||||||
| (1) |
The
table reflects the estimated future payouts at the time these awards
were
granted under the Shareholder Value Added plan. As of the date of
this
proxy statement, these awards have been earned and paid out (as discussed
in more detail in the Compensation Discussion and Analysis), with
the
bonuses earned above the target bonus value having been deferred,
without
interest, with one-third of the deferred balance to be paid to the
participant in cash after the end of each of the following three
years, as
long as the named executive officer has not voluntarily terminated
his
employment with us or been terminated for
cause.
|
As
reflected in the tables above, our Compensation and Human Resources Committee,
or the Committee, awarded shares of restricted stock to each named executive
officer, except Mr. Packard, in 2006. Messrs. Knueppel, Barta, Gliebe and
Eisenreich were awarded 20,000, 3,000, 8,000 and 2,000 shares of restricted
stock, respectively. The restricted stock had a grant date fair value of $36.36
as determined pursuant to FAS 123R at the date of the grant. This amount
reflects the fair market value of the common stock on the date of grant. The
shares remain restricted for three years following the date of
grant.
As
reflected in the tables above, the Committee granted stock options to each
named
executive officer, except Mr. Packard, in 2006. Messrs. Knueppel, Barta, Gliebe
and Eisenreich were granted options to purchase 70,000, 25,000, 35,000 and
15,000 shares of our common stock, respectively, at a per share exercise price
of $36.36. These options are non-qualified stock options with an exercise price
equal to the fair market value of our common stock on the date of the grant.
The
options vest ratably over a five-year period and had a grant date fair value
per
option of $12.60 as determined pursuant to FAS 123R. The options have an
expiration date of January 27, 2016.
Our
Compensation and Human Resources Committee awarded the restricted stock and
granted the stock options under our 2003 Equity Incentive Plan, or the 2003
Plan. The 2003 Plan is administered by the Committee, and the Committee
generally has the authority to set the terms of the restricted stock and the
options, except as provided in the 2003 Plan. Under the 2003 Plan, the option
price per share is 100% of the fair market value of the shares as determined
on
the date the option is granted, and options must terminate ten years after
the
date of grant. Except as otherwise provided by the Committee, awards under
the
2003 Plan or any rights or interest shall not be assigned or transferred except
by will or the laws of descent and distribution during the lifetime of the
participant.
Under
the
2003 Plan, if a named executive officer’s employment is terminated, whether
voluntarily or otherwise, except for cause, but not by reason of death,
disability or retirement, each prior unexpired or uncancelled award under the
2003 Plan, to the extent exercisable as of the date of termination of employment
or service, terminates thirty days after the named executive officer’s date of
termination, or as otherwise determined by the Committee. If a named executive
officer is terminated for cause, each unexpired or uncancelled award, to the
extent not previously exercised, terminates immediately. In the event of the
death, disability or retirement of a named executive officer, the Committee
has
the discretion to extend the period of exercisability of each award and to
preserve incentive stock option treatment, where necessary, unless the
termination date specified in the award occurs earlier. The Committee also
has
the discretion to determine whether such awards should become immediately
exercisable in full.
In
the
event of a change of control, under the 2003 Plan, any participant holding
a
stock option may exercise the option in full, even if the option was not
otherwise exercisable, and has the right to receive, upon sixty days’ written
notice to us after the change of control, cash equal to the excess of the change
of control price of the shares covered under the surrendered option over the
exercise price of the surrendered options. On the date of the change of control,
any unvested restricted stock held by a participant vests in full and each
participant has the right, upon sixty days’ written notice to us, to receive, in
exchange for the surrender of the restricted stock, an amount of cash equal
to
the change of control price of the restricted stock.
Also,
if
the change of control transaction would trigger the adjustment provisions of
the
2003 Plan, because it is a recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares, the Committee may make appropriate
adjustments to prevent dilution or enlargement of the benefits or potential
benefits available under the 2003 Plan. Under the adjustment provision, the
Committee may also determine a cash payment amount to be paid to the holder
of
any outstanding award in exchange for cancellation of all or a part of the
award. However, if the event or transaction creates a change of control, then
any such payment must be the greatest amount the participant could have received
under the change of control provisions described above and, if the Committee
determines it is necessary, each share subject to an award may be substituted
by
the number and kind of shares, other securities, cash or other property to
which
holders of our common stock are or will be entitled pursuant to the
transaction.
As
reflected in the tables above, the named executive officers participated in
the
Regal Beloit Corporation Shareholder Value Added plan, which is designed to
promote the maximization of shareholder value over the long term. The SVA plan
provides bonus opportunities based on a comparison of actual annual SVA to
target SVA for the year in question. Performance above target SVA earns a bonus
more than the target bonus while performance below target SVA earns a bonus
less
than the target bonus. For a more detailed discussion of the SVA plan please
see
the Compensation Discussion and Analysis.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information on outstanding option and stock awards
held by the named executive officers at December 31, 2006, including the number
of shares underlying both exercisable and unexercisable portions of each stock
option as well as the exercise price and expiration date of each outstanding
option.
OUTSTANDING
EQUITY AWARDS AT FISCAL 2006 YEAR-END
|
Option
Awards
(1)
|
Stock
Awards
|
||||||||||||||||||
|
Name
|
Number
of Securities
Underlying
Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have
Not
Vested (#)
(2)
|
Market
Value of Shares or Units of Stock That Have
Not
Vested ($)
(3)
|
|||||||||||||
|
Henry
W. Knueppel
|
20,000
|
0
|
$
|
28.63
|
1/23/2008
|
||||||||||||||
|
PEO
|
160,000
|
40,000
(5)
|
|
$
|
23.25
|
1/22/2009
|
|||||||||||||
|
40,000
|
0
|
$
|
16.38
|
4/22/2013
|
|||||||||||||||
|
36,000
|
0
|
$
|
20.30
|
4/22/2014
|
|||||||||||||||
|
25,000
|
25,000
(6)
|
|
$
|
29.75
|
1/21/2015
|
||||||||||||||
|
0
|
70,000
(7)
|
)
|
$
|
36.36
|
1/27/2016
|
||||||||||||||
|
4,000
(8)
|
|
$
|
210,040
|
||||||||||||||||
|
5,000
(9)
|
|
$
|
262,550
|
||||||||||||||||
|
20,000
(10)
|
|
$
|
1,050,200
|
||||||||||||||||
|
David
A. Barta
|
0
|
25,000
(11)
|
|
$
|
21.85
|
6/28/2014
|
|||||||||||||
|
PFO
|
0
|
10,000
(12)
|
|
$
|
29.75
|
1/21/2015
|
|||||||||||||
|
0
|
25,000
(13)
|
|
$
|
36.36
|
1/27/2016
|
||||||||||||||
|
2,500
(9)
|
|
$
|
131,275
|
||||||||||||||||
|
3,000
(10)
|
|
$
|
157,530
|
||||||||||||||||
|
James
L. Packard
|
25,000
|
$
|
28.63
|
1/23/2008
|
|||||||||||||||
|
250,000
|
$
|
23.25
|
1/22/2009
|
||||||||||||||||
|
50,000
|
$
|
16.38
|
1/22/2013
|
||||||||||||||||
|
45,000
|
$
|
20.30
|
1/22/2014
|
||||||||||||||||
|
50,000
|
$
|
29.75
|
1/21/2015
|
||||||||||||||||
|
Mark
J. Gliebe
|
0
|
50,000
(14)
|
|
$
|
29.00
|
1/3/2015
|
|||||||||||||
|
35,000
(15)
|
|
$
|
36.36
|
1/27/2016
|
|||||||||||||||
|
2,000
(4)
|
|
$
|
105,020
|
||||||||||||||||
|
8,000
(16)
|
|
$
|
360,000
|
||||||||||||||||
|
David
L. Eisenreich
|
0
|
2,000
(17
|
)
|
$
|
23.38
|
3/27/2007
|
|||||||||||||
|
15,000
|
0
|
$
|
16.38
|
4/22/2013
|
|||||||||||||||
|
9,125
|
9,125
(18)
|
|
$
|
20.30
|
4/22/2014
|
||||||||||||||
|
5,000
|
0
|
$
|
23.66
|
10/28/2014
|
|||||||||||||||
|
7,500
|
7,500
(19)
|
|
$
|
29.75
|
1/21/2015
|
||||||||||||||
|
0
|
15,000
(20)
|
|
$
|
36.36
|
1/27/2016
|
||||||||||||||
|
2,100
(21)
|
|
$
|
110,271
|
||||||||||||||||
|
2,500
(9)
|
|
$
|
131,275
|
||||||||||||||||
|
2,000
(10)
|
|
$
|
105,020
|
||||||||||||||||
| (1) | Exercisable stock options are vested. Unexercisable stock options vest as noted. |
| (2) | Restricted stock vests as noted. |
|
(3)
|
Based
on $52.51 per share closing price of our common stock on the New
York
Stock Exchange on December 29,
2006.
|
|
(4)
|
Mr.
Gliebe was awarded 2,000 shares of restricted stock on January 3,
2005.
His grant had a performance goal related to sales levels of our HVAC
and
Capacitor products. The performance goal was met as of January 3,
2007
and, therefore, those shares of restricted stock became unrestricted
on
that date.
|
|
(5)
|
20,000
options vest on each of 1/22/2007 and
1/22/2008.
|
| (6) | 25,000 vest on 1/21/07. |
| (7) | 14,000 options vest per year, commencing 1/27/2007 through 1/27/2011. |
| (8) | All vest on 4/22/2007. |
| (9) | All vest on 1/21/2008. |
| (10) | All vest on 1/27/2009. |
| (11) | 8,332 options vest on 6/28/2007, 8,333 vest on 6/28/2008 and 8,333 vest on 6/28/2009. |
| (12) | 5,000 options vest on 1/21/2007 and 5,000 vest on 1/21/2008. |
| (13) | 5,000 options vest per year, commencing on 1/27/2007 through 1/27/2011. |
| (14) | 10,000 options vest per year, commencing on 1/3/2007 through 1/3/2010, but may not be exercised prior to the second anniversary of the grant date. |
| (15) | 7,000 options vest per year, commencing on 1/27/2007 through 1/3/2011, but may not be exercised prior to the second anniversary of the grant date. |
| (16) | All vest on 1/27/2009. |
| (17) | All vest on 3/27/2007. |
| (18) | 9,125 options vest on 1/21/2007. |
| (19) |
7,500
options vest on 1/21/2007.
|
| (20) | 3,000 options vest per year, commencing on 1/27/2007 through 1/27/2010, but may not be exercised prior to the second anniversary of the grant date. |
| (21) | All vest on 4/22/2007. |
Option
Exercises and Stock Vested
The
following table sets forth information relating to the number of stock options
exercised and the stock awards that vested during the last fiscal year for
each
of the named executive officers on an aggregate basis.
OPTION
EXERCISES AND STOCK VESTED
FOR
FISCAL 2006
|
Option
Awards
|
Stock
Awards
|
||||||||||||
|
Name
of
Executive
Officer
|
Number
of
Shares
Acquired
on
Exercise
(#)
|
Value
Realized
On
Exercise
($)
|
Number
of
Shares
Acquired
on
Vesting
(#)
|
Value
Realized
on
Vesting
($)
|
|||||||||
|
Henry
W. Knueppel
|
0
|
$
|
0
|
0
|
$
|
0
|
|||||||
|
PEO
|
|||||||||||||
| David A. Barta | 0 | $ | 0 | 0 | $ | 0 | |||||||
|
PFO
|
|||||||||||||
|
James
L. Packard
|
109,300
|
$
|
3,449,210
|
10,000
|
$
|
525,100
|
|||||||
|
Mark
J. Gliebe
|
0
|
$
|
0
|
0
|
$
|
0
|
|||||||
|
David
L. Eisenreich
|
33,000
|
$
|
930,180
|
0
|
$
|
0
|
|||||||
PENSION
BENEFITS
The
following table sets forth the actuarial present value of each named executive
officer’s accumulated benefit under each defined benefit plan, assuming benefits
are paid at normal retirement age based on current levels of compensation.
The
valuation method and all material assumptions applied in quantifying the present
value of the current accumulated benefit for each of the named executive
officers are included under the caption “Retirement Plans” in Note 6 of the
Notes to Consolidated Financial Statements in our Annual Report on Form 10-K
for
the year ended December 30, 2006, and such information is incorporated herein
by
reference. The table also shows the number of years of credited service under
each such plan, computed as of the same pension plan measurement date used
in
the Company’s audited financial statements for the year ended December 30, 2006.
The table also reports any pension benefits paid to each named executive officer
during the year.
PENSION
BENEFITS FOR FISCAL 2006
|
Name
|
Plan
name
|
Number
of
Years
Credited
Service
(#)
|
Present
Value
of
Accumulated
Benefit
($)
|
Payments
During
Last
Fiscal
Year
($)
|
|||||||||
|
Henry
W. Knueppel
PEO
|
Regal
Beloit Target Supplemental
Retirement
Plan (non-qualified)
|
|
27
|
$
|
3,023,195
|
$
|
0
|
||||||
|
David
A. Barta
PFO
|
Regal
Beloit Target Supplemental
Retirement
Plan (non-qualified)
|
|
2
|
$
|
112,500
|
$
|
0
|
||||||
|
James
L. Packard
|
Regal
Beloit Target Supplemental
Retirement
Plan (non-qualified)
|
|
27
|
|
$
|
7,513,273
|
$
|
0
|
|||||
|
Mark
J. Gliebe
|
Regal
Beloit Target Supplemental
|
|
25
|
$
|
88,740
|
(1)
|
$
|
0
|
|||||
|
Retirement
Plan (non-qualified)
|
|||||||||||||
|
David
L. Eisenreich
|
Marathon
Electric Employee Pension Plan (qualified)
|
26
|
$
|
673,000
|
$
|
0
|
|
||||||
|
Marathon
Electric Supplemental
Pension
Plan (non-qualified)
|
26
|
$
|
366,000
|
$
|
0
|
||||||||
|
Supplemental
Life Insurance and
Retirement
Income Plan (non-qualilfied)
|
26
|
$
|
69,000
|
$
|
0
|
||||||||
|
(1)
|
In
addition to the two years that Mr. Gliebe has been employed by us,
he has
been credited under the Regal Beloit Target Supplemental Retirement
Plan
with the 23 years for which he had credit under his previous employer’s
retirement plan. When Mr. Gliebe’s benefits are paid under the Target
Supplemental Retirement Plan, we will deduct from the benefit owed
to Mr.
Gliebe those amounts paid by his previous employer under the previous
employer’s retirement plan
.
|
Target
Supplemental Retirement Plan
Messrs.
Knueppel, Barta, Packard and Gliebe participate in the Target Supplemental
Retirement Plan. The Supplemental Plan limits participants to officers and
other
key employees selected by the Committee. The purpose of the Supplemental Plan
is
to provide replacement income for executives, which is comparable, on a
percentage basis, to the retirement income that other employees are entitled
to
receive and to provide competitive retirement benefits as compared to our peer
group of companies. The Supplemental Plan does this by supplementing retirement
income which is lost to higher paid employees due to Social Security caps and
limits on income considered for the Company’s qualified retirement plans. Under
the Supplemental Plan, participants are entitled, upon normal or approved early
retirement, to receive a target supplemental retirement benefit. This benefit
ensures that a participant receives an annual pension benefit up to a maximum
60% income replacement that is equal to two percent of the participant’s average
annual earnings, which is comprised of the participant’s base salary and cash
bonuses, including payments pursuant to the SVA plan, during the final five
years (three years in the case of Mr. Packard) of service with the Company,
multiplied by the participant’s years of service with the Company (up to a
maximum of 30 years). The monthly pension benefit payable to a participant
under
the Supplemental Plan is reduced by estimated monthly Social Security and 401(k)
plan benefits.
To
receive benefits under the Supplemental Plan, a participant needs a minimum
of
15 years of continuous service, and must have reached the age of 62 to qualify
for early retirement benefits. However, the Committee has discretion to grant
additional years of service and/or revise the retirement age requirement for
a
participant to qualify for benefits, which discretion has never been
exercised.
When
the
plan was adopted in January 1994, the benefit amounts were benchmarked against
our then peer companies in consultation with a compensation consultant. The
Compensation and Human Resources Committee periodically reviews these benchmarks
to determine if they are still appropriate and completed its most recent review
in 2006.
Mr.
Packard elected early retirement at the end of 2006. The benefits shown in
the
table above reflect his early retirement.
Marathon
Electric Salaried Pension Plans
Mr.
Eisenreich participates in the Marathon Electric Salaried Pension Plan, a
qualified plan, and the Marathon Electric Supplemental Pension Plan, a
non-qualified plan. The Marathon Electric Supplemental Plan provides benefits
that would otherwise be denied to Mr. Eisenreich under the Marathon Electric
Pension Plan by reason of (1) Internal Revenue Code limitations on qualified
benefit plans and (2) the exclusion of cash bonuses in calculating benefits
under the qualified plan. The benefits payable to Mr. Eisenreich under these
plans are based upon remuneration covered by the plans, which includes Mr.
Eisenreich’s base salary, and, for purposes of calculating the Marathon Electric
Supplemental Plan benefits, includes cash bonuses paid to Mr. Eisenreich
(including payments pursuant to the SVA plan), multiplied by Mr. Eisenreich’s 26
years of credited service. These benefits are not reduced by the annual Social
Security payment.
Mr.
Eisenreich is eligible for early retirement. For each month he would choose
to
retire prior to his normal retirement date at age 65, his benefits under the
Marathon Electric Pension Plan would be reduced by one-half of one percent
(0.5%). The following table sets forth estimated benefits for Mr. Eisenreich
at
various average annual earnings and years of credited service.
|
Years
of Credited Service
|
|||||||
|
Average
Annual Earnings for the Final Applicable Years of
Service
|
25
|
30
|
|||||
|
$300,000
|
$
|
96,600
|
$
|
115,900
|
|||
|
$400,000
|
$
|
131,600
|
$
|
157,900
|
|||
|
$500,000
|
$
|
166,600
|
$
|
199,900
|
|||
|
$600,000
|
$
|
201,600
|
$
|
241,900
|
|||
Marathon
Electric Supplemental Life Insurance and Retirement Income
Plan
Mr.
Eisenreich participates in the Marathon Electric Supplemental Life Insurance
and
Retirement Income Plan, a non-qualified plan. The plan provides $100,000 of
life
insurance to his designated beneficiary upon his death while he is employed
by
the Company. After he is no longer an employee of the Company, we become the
beneficiary of this life insurance policy. He, or his estate in the event of
his
death, will then receive monthly payments for 10 years totaling
$100,000.
Termination,
Change of Control and Change of Responsibility Payments
We
have
no employment agreements with any of the named executive officers. However,
we
have entered into certain agreements and maintain certain plans that will
require us to provide compensation to named executive officers in the event
of a
termination of employment. These agreements and plans call for increased
payments if this termination of employment occurs in connection with a change
of
control.
Termination
Connected to a Change of Control
We
have
entered into change of control and termination agreements with Messrs. Packard,
Knueppel, Barta and Gliebe. Based on our analysis and the advice of our
independent executive compensation consultants, we believe that the agreements
contain terms that are similar to those offered to executives of comparable
companies. Mr. Packard’s agreement terminated upon his retirement on December
31, 2006. The benefits provided under the agreements for Messrs. Knueppel,
Barta
and Gliebe are triggered if, during the period starting six months before and
ending three years after a change of control of the Company, the executive
is
terminated. If the executive’s employment is terminated for cause, or as a
consequence of death or disability, the Company’s obligations under the
agreement are limited to the payment of amounts already earned, plus a prorated
portion of any bonus, including under the SVA plan, assuming the performance
goal for such bonus had been attained.
If
the
executive’s employment is terminated other than for cause, death or disability,
or by the executive with good reason, the Company’s full obligations under the
agreements will be triggered. Under the agreements, the executive will receive
a
severance payment that is equal to (1) three times the executive’s annual
base salary then in effect, plus (2) three times the higher of (i) the
executive’s annual incentive target bonus for the fiscal year of the
termination, which includes payments under the SVA plan, or (ii) the target
bonus received in the year prior to the change of control, plus (3) three times
the value of all fringe benefits. The agreements also contain a gross-up
provision which provides for additional payments to the executives to compensate
them for any excise taxes on payments related to the change of control that
may
be imposed on the executives under the Internal Revenue Code. Additionally,
the
executive will receive outplacement services, health and life insurance for
up
to three years, and the reimbursement of certain accounting and legal fees
related to calculating the tax impact of these payments. We will also waive
any
minimum years of service requirements with respect to supplemental retirement
programs, including the Target Supplemental Retirement Plan. The executive
will
also be credited with three years additional service under any post-retirement
plan that we maintain. The executive also will be entitled to the vesting of
all
of his then unvested stock options and restricted stock.
We
may
terminate the executive for “cause” under these agreements if he
(i) engages in intentional conduct not taken in good faith that has caused
us demonstrable and serious financial injury, (ii) is convicted of a felony
which substantially impairs the executive’s ability to perform his duties, or
(iii) willfully and unreasonably refuses to perform his duties or
responsibilities.
A
change
of control means any of the following: (i) a person or entity acquires 20%
or
more of our common stock, (ii) a change occurs in the composition of the board
of directors that is not approved by at least two-thirds of the existing
directors, (iii) we approve a merger, consolidation or share exchange other
than
one that would result in less than a 50% change in ownership of us as the
surviving entity, or (iv) our dissolution or liquidation.
Tables
Summarizing Payments Following Termination
The
following tables describe the potential payments upon termination or a change
of
control. These tables assume the executive’s employment was terminated on
December 29, 2006, the last business day of our fiscal year, and the price
per share was $52.51, the closing price on that date.
The
following table sets forth certain information relating to the compensation
following a termination of employment of Mr. Knueppel, our Chairman and Chief
Executive Officer. Mr. Knueppel is not currently eligible for either early
retirement or normal retirement. Accordingly, the table omits terminations
under
those circumstances.
|
Executive
Benefits
and
Payments
Upon
Termination
|
Voluntary
Termination
|
Involuntary
Not for Cause Termination
|
For
Cause Termination
|
Involuntary
or
Good
Reason Termination/Change of Control
(1)
|
Death
or Disability
|
|||||||||||
|
Compensation:
|
||||||||||||||||
|
Current
Year SVA Bonus
|
$
|
962,696
|
$
|
962,696
|
$
|
962,696
|
||||||||||
|
Payment
of SVA Deferred from Prior Years
|
$
|
313,650
|
$
|
313,650
|
$
|
313,650
|
||||||||||
|
Termination
Payment
|
$
|
4,777,758
|
||||||||||||||
|
Target
Supplemental Plan
|
$
|
3,985,685
(2)
|
|
|||||||||||||
|
Stock
Options
|
||||||||||||||||
|
Unvested
and Accelerated
|
$
|
2,869,900
|
$
|
2,869,900
|
||||||||||||
|
Restricted
Stock
|
||||||||||||||||
|
Unvested
and Accelerated
|
$
|
1,522,790
|
$
|
1,522,790
|
||||||||||||
|
Benefits
and Perquisites:
|
||||||||||||||||
|
Additional
Service Under Retirement Plans
|
(3)
|
|
||||||||||||||
|
Post-termination
Health & Life Insurance
|
$
|
40,764
|
||||||||||||||
|
Life
Insurance Proceeds
|
$
|
500,000
(4)
|
|
|||||||||||||
|
Accrued
Vacation Pay
|
$
|
46,538
|
$
|
46,538
|
$
|
46,538
|
$
|
46,538
|
$
|
46,538
|
||||||
|
Accounting
and Legal Services
|
$
|
15,000
|
||||||||||||||
|
Outplacement
Services
|
$
|
60,500
|
||||||||||||||
|
280G
Tax Gross-up
|
$
|
3,630,147
|
||||||||||||||
|
Total:
|
$
|
46,538
|
$
|
1,322,884
|
$
|
46,538
|
$
|
18,225,428
|
$
|
6,215,574
|
||||||
(1)
Assumes
the executive is terminated without cause or by the executive with good reason
following a change of control of the Company.
(2)
Present
value of annuity commencing on retirement and paid monthly for 15 years.
(3)
Executive
will be eligible for the company match of 3.5% of the first $225,000 for three
years. This amount will lead to a direct reduction in the benefits payable
under
the Target Supplemental Plan by the same amount.
(4)
Life
insurance death benefit payable only in event of death.
The
following table sets forth certain information relating to the compensation
following a termination of employment of Mr. Barta, our Vice President and
Chief
Financial Officer. Mr. Barta is not currently eligible for either early
retirement or normal retirement. Accordingly, the table omits terminations
under
those circumstances.
|
Executive
Benefits
and
Payments
Upon
Termination
|
Voluntary
Termination
|
Involuntary
Not for Cause Termination
|
For
Cause Termination
|
Involuntary
or
Good
Reason Termination/
Change
of Control
(1)
|
Death
or Disability
|
|||||||||||
|
Compensation:
|
||||||||||||||||
|
Current
Year SVA Bonus
|
$
|
313,274
|
$
|
313,274
|
$
|
313,274
|
||||||||||
|
Payment
of SVA Deferred from Prior Years
|
$
|
114,540
|
$
|
114,540
|
$
|
114,540
|
||||||||||
|
Termination
Payment
|
$
|
1,728,798
|
||||||||||||||
|
Target
Supplemental Plan
|
(2)
|
|
||||||||||||||
|
Stock
Options
|
||||||||||||||||
|
Unvested
and Accelerated
|
$
|
510,703
|
$
|
510,703
|
||||||||||||
|
Restricted
Stock
|
||||||||||||||||
|
Unvested
and Accelerated
|
$
|
288,805
|
$
|
288,805
|
||||||||||||
|
Benefits
and Perquisites:
|
||||||||||||||||
|
Additional
Service Under Retirement Plans
|
(3)
|
|
||||||||||||||
|
Post-termination
Health & Life Insurance
|
48,699
|
|||||||||||||||
|
Life
Insurance Proceeds
|
$
|
150,000
(4)
|
|
|||||||||||||
|
Accrued
Vacation Pay
|
$
|
12,116
|
$
|
12,116
|
$
|
12,116
|
$
|
12,116
|
$
|
12,116
|
||||||
|
Accounting
and Legal Services
|
$
|
15,000
|
||||||||||||||
|
Outplacement
Services
|
$
|
31,500
|
||||||||||||||
|
280G
Tax Gross-up
|
$
|
833,805
|
||||||||||||||
|
Total:
|
$
|
12,116
|
$
|
439,930
|
$
|
12,116
|
$
|
3,897,240
|
$
|
1,389,438
|
||||||
(1)
Assumes
the executive is terminated without cause or by the executive with good reason
following a change of control of the Company.
(2)
No
benefit based on current years of service.
(3)
Executive
will be eligible for the company match of 3.5% of the first $225,000 for three
years. This amount will lead to a direct reduction in the benefits payable
under
the Target Supplemental Plan by the same amount.
(4)
Life
insurance death benefit payable only in event of death.
The
following table sets forth certain information relating to the compensation
following a termination of employment of Mr. Gliebe, our President and Chief
Operating Officer. Mr. Gliebe is not currently eligible for either early
retirement or normal retirement. Accordingly, the table omits terminations
under
those circumstances.
|
Executive
Benefits
and
Payments
Upon
Termination
|
Voluntary
Termination
|
Involuntary
Not for Cause Termination
|
For
Cause Termination
|
Involuntary
or
Good
Reason Termination/Change of Control
(1)
|
Death
or Disability
|
|||||||||||
|
Compensation:
|
||||||||||||||||
|
Current
Year SVA Bonus
|
$
|
507,205
|
$
|
507,205
|
$
|
507,205
|
||||||||||
|
Payment
of SVA Deferred from Prior Years
|
$
|
181,280
|
$
|
181,280
|
$
|
181,280
|
||||||||||
|
Termination
Payment
|
$
|
2,529,393
|
||||||||||||||
|
Target
Supplemental Plan
|
$
|
111,011
(2)
|
|
|||||||||||||
|
Stock
Options
|
||||||||||||||||
|
Unvested
and Accelerated
|
$
|
1,044,450
|
$
|
1,044,450
|
||||||||||||
|
Restricted
Stock
|
||||||||||||||||
|
Unvested
and Accelerated
|
$
|
525,100
|
$
|
525,100
|
||||||||||||
|
Benefits
and Perquisites:
|
||||||||||||||||
|
Additional
Service Under Retirement Plans
|
(3)
|
|
||||||||||||||
|
Post-termination
Health & Life Insurance
|
$
|
49,995
|
||||||||||||||
|
Life
Insurance Proceeds
|
$
|
350,000
(4)
|
|
|||||||||||||
|
Accrued
Vacation Pay
|
$
|
32,692
|
$
|
32,692
|
$
|
32,692
|
$
|
32,692
|
$
|
32,692
|
||||||
|
Accounting
and Legal Services
|
$
|
15,000
|
||||||||||||||
|
Outplacement
Services
|
$
|
42,500
|
||||||||||||||
|
280G
Tax Gross-up
|
$
|
1,452,280
|
||||||||||||||
|
Total:
|
$
|
32,692
|
$
|
721,177
|
$
|
32,692
|
$
|
6,490,906
|
$
|
2,640,727
|
||||||
(1)
Assumes
the executive is terminated without cause or by the executive with good reason
following a change of control of the Company.
(2)
Present
value of annuity commencing on retirement and paid monthly for 15 years.
(3)
Executive
will be eligible for the company match of 3.5% of the first $225,000 for three
years. This amount will lead to a direct reduction in the benefits payable
under
the Target Supplemental Plan by the same amount.
(4)
Life
insurance death benefit payable only in event of death.
The
following table sets forth certain information relating to the compensation
following a termination of employment of Mr. Eisenreich, our Vice President
and
President, Mechanical Components & Power Generation. Mr. Eisenreich is
currently eligible for early retirement. Accordingly, the table includes a
termination under that circumstance.
|
Executive
Benefits
and
Payments
Upon
Termination
|
Voluntary
Termination
|
Involuntary
Not for Cause Termination
|
For
Cause Termination
|
Involuntary
or
Good
Reason Termination/Change of Control
(1)
|
Retirement
(2)
|
Death
or Disability
|
|||||||||||||
|
Compensation:
|
|||||||||||||||||||
|
Current
Year SVA Bonus
|
$
|
282,000
|
$
|
282,000
|
$
|
282,000
|
$
|
282,000
|
|||||||||||
|
Payment
of SVA Deferred from Prior Years
|
$
|
134,325
|
$
|
134,325
|
$
|
134,325
|
$
|
134,325
|
|||||||||||
|
Pension
Benefits
|
|||||||||||||||||||
|
Qualified
Pension Plan
|
$
|
673,000
|
$
|
673,000
|
$
|
673,000
|
$
|
673,000
|
$
|
615,795
|
$
|
673,000
(3)
|
|||||||
|
Supplemental
Plan
|
$
|
366,000
|
$
|
366,000
|
$
|
366,000
|
$
|
366,000
|
$
|
334,890
|
$
|
366,000
(3)
|
|||||||
|
Stock
Options
|
|||||||||||||||||||
|
Unvested
and Accelerated
|
$
|
735,286
|
$
|
735,286
|
$
|
735,286
|
|||||||||||||
|
Restricted
Stock
|
|||||||||||||||||||
|
Unvested
and Accelerated
|
$
|
346,566
|
$
|
346,566
|
$
|
346,566
|
|||||||||||||
|
Benefits
and Perquisites:
|
|||||||||||||||||||
|
Life
Insurance Proceeds
|
$
|
200,000
(4)
|
|
||||||||||||||||
|
Accrued
Vacation Pay
|
$
|
27,115
|
$
|
27,115
|
$
|
27,115
|
$
|
27,115
|
$
|
27,115
|
$
|
27,115
|
|||||||
|
Total:
|
$
|
1,066,115
|
$
|
1,482,440
|
$
|
1,066,115
|
$
|
2,564,292
|
$
|
2,475,977
|
$
|
2,564,292
(5)
|
|||||||
| (1) |
Assumes
the executive is terminated without cause following a change of control
of
the Company. Mr. Eisenreich does not have a provision in any agreement
for
a good reason termination.
|
| (2) |
As
of December 29, 2006, Mr. Eisenreich was eligible for early retirement
and
would have retired 17 months before the normal retirement
date
established by the pension plans in which he participates. Those
pension
plans reduce his pension benefits by 0.5% for each month prior to
his
normal retirement date that his early retirement
occurs.
|
| (3) |
Assumes
the executive’s employment is terminated as a result of disability. In the
event of the executive’s death prior to termination of
employment,
the executive’s surviving spouse would receive 50% of the executive’s
benefit, or $336,500 under the qualified pension plan
and
$183,000 under the supplemental
plan.
|
| (4) | Life insurance death benefit payable only in event of death. |
| (5) |
Assumes
the executive’s employment is terminated as a result of disability. In the
event of the executive’s death, the total value of benefits would be
$2,244,792.
|
We
set
forth below a description of the assumptions that we used in creating the
tables
above. Unless otherwise noted, the descriptions of the payments below are
applicable to all of the above tables relating to potential payments upon
termination.
Current
Year SVA Bonus
In
the
event of a termination of the executive upon retirement, death, disability
or
following a change of control of the Company, the executive is entitled to
receive a prorated portion of the current year SVA based on our actual
performance against the target. Payouts in excess of the 100% bonus level are
normally deferred. Involuntary termination not for cause or termination for
retirement, death, disability, or following a change of control causes the
full
amount to be paid without further deferral.
Prior
Year
Deferred
SVA
Bonus
In
the
event of an involuntary termination not for cause or a termination of the
executive upon retirement, death, disability or following a change of control,
the executive is entitled to receive the balance of the SVA awards from prior
years that have not been paid. Such amounts will be paid as soon as practical.
Stock
Options
and
Restricted
Stock
Under
our
2003 Equity Incentive Plan, in the event of a termination for death, disability
or retirement, other than in connection with a change of control, our Board
has
discretion to fully vest any unvested awards of stock options or restricted
stock. The tables assume the Board exercises such discretion and fully vests
the
stock options or restricted stock. All unvested stock options and restricted
stock vest upon a change of control.
Life
Insurance
Proceeds
Life
insurance proceeds are the death benefits on company paid life insurance. No
life insurance payments will be made in connection with a termination for
disability.
The
following items apply only to a termination in the context of a change of
control for Messrs. Knueppel, Barta and Gliebe. We assume the termination is
without cause or by the executive with good reason. Further, we assume that
the
change of control and the executive’s termination of employment both occurred on
December 29, 2006, the last business day of our fiscal year.
Target
Supplemental
Retirement
Plan
In
the
event of a termination related to a change of control, we will waive the years
of service requirement under the Target Supplemental Retirement Plan. Amounts
reported in the table reflect the present value of the accumulated benefit,
using a six percent (6%) discount rate.
Equity
Acceleration
The
executive will be entitled to the vesting of all of the executive’s then
unvested stock options and restricted stock upon a change of control.
Incremental
Retirement
Benefits
The
amounts relating to the incremental non-qualified pension and qualified pension
amounts in the above tables are based on three additional years of service
credit following termination of employment in a change of control context.
As a
result, the executive will receive additional company matching contributions
to
the executive’s 401(k) account. This matching will result in corresponding
offset to the amounts payable under the Target Supplemental Retirement Plan.
The
table reflects no increase in benefits for this feature.
Post
-
Retirement
Health
Care
Benefits
The
executive will be covered under our health and life insurance for three years,
unless the executive obtains equal or greater benefits from another employer.
We
have assumed the executive will not obtain benefits from another
employer.
Accounting
and
Legal
Services
We
are
obligated to reimburse the executive for up to $15,000 for accounting and legal
services related to the calculation of the tax gross-up amount described below.
The tables assume the entire amount is reimbursed to the executive.
Outplacement
The
executive will be entitled to receive outplacement services up to the amount
that is equal to ten percent (10%) of the executive’s base salary. The tables
assume the executive will use the full amount of this benefit.
Section
280G
Tax
Gross
-
up
Upon
a
change of control of the Company the executive may be subject to certain excise
taxes pursuant to Section 280G of the Internal Revenue Code. We have agreed
to
reimburse the executive for all excise taxes that are imposed on the executive
under Section 280G and any income and excise taxes that are payable by the
executive as a result of any reimbursements for Section 280G excise taxes.
The
total Section 280G tax gross-up amount in the above tables assumes that the
executive is entitled to a full reimbursement by us of (i) any excise taxes
that
are imposed upon the executive as a result of the change of control, (ii) any
income and excise taxes imposed upon the executive as a result of our
reimbursement of the excise tax amount and (iii) any additional income and
excise taxes that are imposed upon the executive as a result of our
reimbursement of the executive for any excise or income taxes. The calculation
of the Section 280G gross-up amount in the above tables is based upon a Section
280G excise tax rate of 20%, a 35% federal income tax rate, a 1.45% Medicare
tax
rate and a 6.75% state income tax rate. For purposes of the Section 280G
calculation it is assumed that no amounts will be discounted as attributable
to
reasonable compensation and no value will be attributed to any non-competition
agreement. The payment of the Section 280G tax gross-up will be payable to
the
executive for any excise tax incurred unless the executive is terminated for
cause, death, disability or pursuant to a voluntary termination without good
reason. The calculation of this gross-up assumes we can prove, by clear and
convincing evidence, that the awards of stock options and restricted stock
in
2006 was not made in connection with or contemplation of a change of control
of
the Company.
Non
-
Competition
As
a
condition to each executive’s entitlement to receive the severance payments and
other benefits described above, the executive is required to execute a waiver
of
claims and be bound by the terms of a non-competition agreement which prohibits
the executive from working in a business that engages in substantial competition
with us, for a period of one year from the executive’s termination of
employment. Our Board may waive this provision.
DIRECTOR
COMPENSATION
The
following table sets forth certain information relating to the compensation
of
the directors for the last fiscal year other than Messrs. Packard and Knueppel
who received no additional compensation for their service as
directors.
DIRECTOR
COMPENSATION
FOR
FISCAL 2006
|
Name
|
Fees
Earned or Paid in Cash ($)
|
Option
Awards
($)(1)
|
Total
($)
|
|||||||
|
Christopher
L. Doerr
|
$
|
43,000
|
$
|
27,211
|
$
|
70,211
|
||||
| (Chair, Compensation and Human Resources Committee) | ||||||||||
|
Thomas
J. Fischer
|
$
|
46,750
|
$
|
27,211
|
$
|
73,961
|
||||
|
Dean
A. Foate
|
$
|
46,500
|
$
|
43,315
|
$
|
89,815
|
||||
| (Presiding Director) | ||||||||||
|
Stephen
N. Graff
|
$
|
47,250
|
$
|
27,211
|
$
|
74,461
|
||||
| (Chair, Audit Committee) | ||||||||||
|
G.
Frederick Kasten, Jr.
|
$
|
45,500
|
$
|
25,510
|
$
|
71,010
|
||||
| (Chair, Corporate Governance and Director Affairs Committee) | ||||||||||
|
Curtis
W. Stoelting
|
$
|
44,000
|
$
|
49,378
|
$
|
93,378
|
||||
|
Carol
N. Skornicka
(2)
|
$
|
13,250
|
$
|
45,603
|
$
|
58,853
|
||||
|
J.
Reed Coleman
(3)
|
$
|
20,250
|
$
|
75,000
|
$
|
95,250
|
||||
|
John
A. McKay
(3)
|
$
|
19,750
|
$
|
75,000
|
$
|
94,750
|
||||
(1)
This
reflects the dollar value of the compensation cost of all outstanding option
awards recognized over the requisite service period, computed in accordance
with
FAS 123R. As of December 31, 2006, the outstanding number of option awards
for
Messrs. Doerr, Fischer, Foate, Graff, Kasten and Stoelting and Ms. Skornicka
were 23,000, 20,000, 14,000, 33,800, 26,600, 13,000 and 10,000, respectively.
No
directors have received any stock awards.
(2)
Ms.
Skornicka was granted a non-qualified stock option for 10,000 shares on
September 11, 2006 upon becoming a director. 2,000 shares are immediately
exercisable, and the remainder of the option will become exercisable in two
equal installments on the date of the annual shareholders meeting in each
of the
next two years as long as she remains a director of the Company. The option
award value is based on the grant date fair value of $14.00 as determined
pursuant to FAS 123R.
(3)
J.
Reed Coleman and John A. McKay retired from the Board effective April 26,
2006.
As of the date of this proxy statement, they do not have any outstanding
stock
option awards.
Our
compensation policies for directors are designed to attract and retain the
most
qualified individuals to serve on the Board in the industry in which we operate.
The stock option portion of director compensation is designed to align
directors’ interests with shareholders’ interests. We believe that our director
compensation packages are comparable relative to our peer group.
Effective
April 26, 2006, the non-employee directors’ fees were set at the following
levels:
| · |
Annual
retainer fee of $30,000 for each
director.
|
| · |
Annual
retainer fee of $6,000 for the chair of the audit
committee.
|
| · |
Annual
retainer fee of $5,000 for the chairs of other
committees.
|
| · |
Annual
retainer fee of $6,000 for the presiding
director.
|
| · |
Each
director receives a fee of $1,500 per day, plus expenses, for each
Board
meeting attended in person or $750 per day if attended
telephonically.
|
| · |
Each
director receives a fee of $1,000 per day, plus expenses, for each
committee meeting attended in person or $750 per day if attended
telephonically.
|
Under
our
2003 Equity Incentive Plan, each individual non-employee director serving on
the
Board on April 22, 2004, the date of our 2004 annual shareholders meeting,
was
granted non-qualified stock options to purchase 20,000 shares of common stock
at
$20.30 per share, which was the closing price of our common stock on that date.
Four thousand of the shares subject to these stock options were immediately
exercisable, with four thousand shares becoming exercisable on the date of
our
annual shareholders meeting in each of the four years following our 2004 annual
shareholders meeting, as long as the non-employee director remains in
office.
For
any
non-employee director initially elected or appointed subsequent to our 2004
annual shareholders meeting, the director was granted a non-qualified stock
option to purchase that number of shares of common stock equal to the
pro rata balance of 20,000 shares of common stock for the remainder of the
five-year period described above measured from the date of election or
appointment. The exercise price per share for these stock options is the closing
stock price of our common stock on the date of non-employee director’s election
or appointment.
Unexercised
options granted to non-employee directors terminate on the earlier of ten years
after the date of grant or ninety days after the non-employee director ceases
to
be a member of our Board, unless the director is removed for cause, in which
case they terminate immediately.
REPORT
OF
THE COMPENSATION COMMITTEE
The
Compensation and Human Resources Committee has reviewed and discussed the
Compensation Discussion and Analysis set forth in this proxy statement with
management. Based on the foregoing review and discussions, the Committee
recommended to the Board of Directors that the Compensation Discussion and
Analysis section be included in this proxy statement and incorporated by
reference into our Annual Report on Form 10-K for the year ended December 30,
2006.
This
report of the Compensation and Human Resources Committee has been presented
by
the following named directors currently comprising the Committee:
Christopher L. Doerr, Chair, Dean A Foate and Curtis W.
Stoelting.
COMPENSATION
COMMITTEE
INTERLOCKS AND INSIDER
PARTICIPATION
The
current members of the Compensation and Human Resources Committee of the Board
of Directors are Christopher L. Doerr, Chair, Dean A. Foate and Curtis W.
Stoelting. There are no interlocks among the Committee members and the
Company.
REPORT
OF THE AUDIT COMMITTEE
The
Audit
Committee of the Board is currently comprised of three directors, each of whom
is independent as defined in the NYSE’s listing standards and SEC rules. The
Audit Committee operates under a written charter adopted by the
Board.
The
Company’s management is responsible for the Company’s internal controls and the
financial reporting process, including the system of internal controls. The
Company’s independent auditors are responsible for expressing an opinion on the
conformity of the Company’s audited consolidated financial statements with
accounting principles generally accepted in the United States. The Audit
Committee’s responsibility is to monitor and oversee this process.
The
Audit
Committee has reviewed and discussed the audited consolidated financial
statements of the Company with management and the independent auditors. The
Audit Committee has discussed with the independent auditors matters required
to
be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees).
The
Company’s independent auditors have provided to the Audit Committee the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee discussed
with Deloitte & Touche LLP its independence. The Audit Committee considered
whether the independent auditors’ provision of non-audit services is compatible
with maintaining Deloitte & Touche LLP’s independence.
The
Audit
Committee discussed with the Company’s internal and independent auditors the
overall scopes and plans for their respective audits. The Audit Committee meets
with the internal and independent auditors, with and without management present,
to discuss the results of their examinations, the evaluation of the Company’s
internal controls and overall quality of the Company’s financial
reporting.
Based
on
the Audit Committee’s reviews and discussions with management, the internal
auditors and the independent auditors referred to above, the Audit Committee
recommended to the Board that the audited consolidated financial statements
be
included in the Company’s Annual Report on Form 10-K for the year ended
December 30, 2006 for filing with the SEC.
REGAL
BELOIT CORPORATION AUDIT COMMITTEE
Stephen
N. Graff, Chairperson
Thomas
J.
Fischer
Curtis
W.
Stoelting
PROPOSAL
2:
APPROVAL
OF AN AMENDMENT TO THE
COMPANY’S
ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK
Currently,
our authorized capital stock is 50,000,000 shares of common stock. As of
December 30, 2006, 31,037,943 shares of our common stock were issued and
outstanding. As of that date, there were also 1,602,725 shares of common stock
subject to outstanding awards under our existing equity incentive plans and
606,657 shares of common stock reserved for future awards under those plans.
In
addition, at December 30, 2006, 2,170,493 shares of common stock were reserved
for issuance upon conversion of our outstanding convertible notes. As a result,
as of December 30, 2006, there were only 14,582,182 authorized shares of common
stock that were not reserved and that were available for issuance for any future
business purposes by the Company.
The
Board
of Directors has approved for submission to shareholders, and recommends that
the shareholders approve, an amendment to our Articles of Incorporation, as
amended (the “Articles”), that will increase the total number of authorized
shares of common stock from 50,000,000 to 100,000,000. The purpose of this
increase is to provide a larger number of additional shares available for
general corporate purposes. Uses for these additional shares in the future
might
include any one or more of the following: stock splits and stock dividends;
stock-based acquisitions; raising additional equity capital; stock issued in
connection with employee incentives or our shareholder rights plan; and other
corporate uses.
There
are
no current plans to issue any shares of common stock from this proposed
increase. Shares reserved for issuance under the proposed 2007 Equity Plan
as
discussed under “Proposal 3: Approval of the Regal Beloit Corporation 2007
Equity Incentive Plan” may be issued from the authorized shares of common stock
that are currently not reserved. However, by approving this increase now, in
advance of any specific need, we believe that we will be able to act in a timely
manner when such a need does arise, without the delay and expense that would
be
required at that time in obtaining shareholder approval of such an increase
at a
special meeting.
The
additional shares of common stock for which authorization is sought would be
identical to the shares of common stock now authorized. Existing shareholders
do
not have any preemptive rights to purchase any shares of common stock and will
not have any such rights in the future. The additional shares, when authorized,
may be issued by the Board at any time without further shareholder approval
unless required by the Wisconsin Business Corporation Law, rules of the NYSE
or
the Articles.
The
Board
of Directors does not intend to issue any shares of common stock except for
purposes and on terms that the Board believes to be in the best interests of
our
shareholders and our company. The Board has not proposed the increase in the
amount of authorized shares to discourage any attempts to effect a change of
control of our company. However, the availability of additional authorized
shares for issuance could render more difficult or discourage attempts to obtain
control of our company. Depending on the purpose and terms of issuance at the
time, any future issuance of shares of common stock might or might not have
a
dilutive effect on our shareholders at that time.
The
proposed amendment would amend and restate Article III of the Articles to read
as follows (proposed additions are indicated by underlining, and proposed
deletions are indicated by overstriking):
“The
aggregate number of shares which the Corporation shall have authority to issue
is
fifty
million (50,000,000)
one
hundred million (100,000,000)
consisting of one class only, designated as “Common Stock” of the par value of
one cent ($0.01) per share.”
THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” ADOPTION OF THE
AMENDMENT TO THE COMPANY’S ARTICLES OF INCORPORATION.
PROPO
SAL
3:
APPROVAL
OF
THE
REGAL BELOIT CORPORATION 2007 EQUITY INCENTIVE PLAN
General
The
Board
of Directors considers equity-based compensation an essential tool to attract,
motivate and retain our officers, key employees and directors and to align
their
interests with the interests of our shareholders. Consistent with that view,
on
January 26, 2007, the Board unanimously adopted, contingent upon shareholder
approval at the Annual Meeting, the Regal Beloit 2007 Equity Incentive Plan
(the
“2007 Equity Plan”).
We
have
historically granted equity-based awards under various plans, including our
1998
Stock Option Plan and 2003 Equity-Incentive Plan (the “Existing Plans”). As of
February 26, 2007,
444,657
shares
remained available for grants under the Existing Plans. Whether or not the
2007
Equity Plan is approved by shareholders at the Annual Meeting, awards could
continue to be granted under the Existing Plans until there are no shares
available under those plans.
The
following summary description of the 2007 Equity Plan is qualified in its
entirety by reference to the full text of the 2007 Equity Plan, which is
attached to this Proxy Statement as
Appendix B
.
Purpose
The
purpose of the 2007 Equity Plan is to promote the best interests of our company
and our shareholders by providing our key employees and those of our affiliates,
and members of the Board who are not our employees, with an opportunity to
acquire a proprietary interest in our company. The 2007 Equity Plan is intended
to promote continuity of management and to provide increased incentive and
personal interest in the welfare of our company by those key employees who
are
primarily responsible for shaping and carrying out our long-range plans and
securing our continued growth and financial success. In addition, by encouraging
stock ownership by directors who are not our employees, we seek to attract
and
retain on the Board persons of exceptional competence and to provide a further
incentive to serve as a director of our company.
Administration
and Eligibility
The
2007
Equity Plan is administered by the (i) Compensation and Human Resources
Committee of the Board (the “Committee”) for key employee participants and (ii)
the Board for non-employee director participants. The Committee must consist
of
no less than two directors who are “non-employee directors” within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and who are “outside directors” within the meaning of Section
162(m) of the Internal Revenue Code. In the event that the Committee is
not in existence, the functions of the Committee will be exercised by the Board.
The “Administrator” will mean the Committee with respect to key employee
participants and the Board with respect to non-employee director
participants.
Among
other functions, the Administrator has the authority to establish rules for
the
administration of the 2007 Equity Plan; to select the persons to whom awards
will be granted; to determine the types of awards to be granted to participants
and the number of shares covered by such awards; and to set the terms and
conditions of such awards. The Administrator may also determine whether the
payment of any proceeds of any award shall or may be deferred by a participant.
To the extent permitted by applicable law, the Committee may delegate to one
or
more executive officers any or all of its authority with respect to the 2007
Equity Plan (other than with respect to participants who are executive officers
or directors) and the Board may delegate to a committee of the Board or to
one
or more executive officers any or all of the Board’s administrative authority
and responsibility with respect to the 2007 Equity Plan.
Any
key
employee of our company or any of our affiliates, including any executive
officer or employee-director of our company, and each non-employee director
of
our company is eligible to be granted awards by the Administrator under the
2007
Equity Plan. Approximately 350 persons are currently eligible to participate
in
the 2007 Equity Plan. The number of eligible participants may increase over
time
based upon future growth of our company and our affiliates.
Awards
Under the 2007 Equity Plan; Available Shares
The
2007
Equity Plan authorizes the granting to eligible individuals of: (a) stock
options, which may be either incentive stock options meeting the requirements
of
Section 422 of the Internal Revenue Code (“ISOs”) or non-qualified stock
options; (b) stock appreciation rights (“SARs”); (c) restricted stock and
restricted stock units; and (d) performance shares and performance units. The
2007 Equity Plan provides that up to a total of 2,500,000 shares of common
stock
(subject to adjustment as described below) are available for the granting of
awards thereunder. Each such share may be granted pursuant to the exercise
of
ISOs.
The
number of shares of common stock available for granting of awards under the
2007
Equity Plan will be reduced by the number of shares with respect to which an
award is granted, although any shares awarded in connection with restricted
stock, restricted stock units, performance shares and performance units will
count against the total authorized shares as two shares for every one share
awarded. If any shares of common stock subject to awards granted under the
2007
Equity Plan, or to which any award relates, are forfeited or if an award
otherwise lapses, expires, terminates or is cancelled prior to the delivery
of
all of the shares or other consideration issuable or payable pursuant to the
award, or if an SAR is settled in cash, then such shares will be available
for
the granting of new awards under the 2007 Equity Plan (although such shares
may
not be issued pursuant to ISOs). However, shares of common stock subject to
awards granted under the 2007 Equity Plan, or to which any award relates, that
are either tendered by a participant to pay the exercise price of an award
or
withheld to satisfy tax withholding obligations with respect to an award will
not be available for granting of additional awards under the 2007 Equity Plan.
Any shares delivered pursuant to an award may be either authorized and unissued
shares of common stock or treasury shares.
Terms
of Awards
Option
Awards
.
Options
granted under the 2007 Equity Plan to key employees may be either ISOs or
non-qualified stock options, while options granted to non-employee directors
must be non-qualified stock options only. No participating key employee may
be
granted, during any calendar year, options and/or SARs relating to more than
300,000 shares of Common Stock under the 2007 Equity Plan (subject to adjustment
as described below). No ISOs may be granted under the 2007 Equity Plan after
April 20, 2017.
The
exercise price per share of common stock subject to options granted to eligible
individuals under the 2007 Equity Plan will be determined by the Administrator,
provided that the exercise price may not be less than 100% of the “fair market
value” of a share of common stock on the date of grant. The “fair market value”
of a share on the date of grant will be the closing price per share for the
common stock on the NYSE on that day or, if no trading occurred on that day,
then the “fair market value” per share shall be determined with reference to the
last preceding date on which the shares were traded.
The
term
of any option granted under the 2007 Equity Plan will be as determined by the
Administrator, provided that the term of any option may not exceed ten years
from the date of its grant. Options granted under the 2007 Equity Plan will
become exercisable in such manner and within such period or periods and in
such
installments or otherwise as determined by the Administrator. Options may be
exercised by payment in full of the exercise price, either (at the discretion
of
the Administrator) in cash or by tendering shares of common stock or other
consideration having a fair market value on the date of exercise equal to the
option exercise price. All ISOs granted under the 2007 Equity Plan will also
comply with all other terms of Section 422 of the Internal Revenue
Code.
SARs
.
An SAR
granted under the 2007 Equity Plan will confer on the participant holder a
right
to receive, upon exercise thereof, the excess of (a) the fair market value
of
one share of common stock on the date of exercise over (b) the grant price
of
the SAR as specified by the Administrator. The grant price of an SAR under
the
2007 Equity Plan will be determined by the Administrator, provided that the
grant price may not be less than 100% of the fair market value of a share of
common stock on the date of grant. The term, manner of exercise, methods of
settlement (including whether the holder of an SAR will be paid in cash, shares
of common stock or other consideration), and any other terms and conditions
of
any SAR granted under the 2007 Equity Plan are determined by the Administrator.
Pursuant to the terms of the 2007 Equity Plan, no individual key employee may
be
granted, during any calendar year, SARs and/or options with respect to more
than
300,000 shares of common stock (subject to adjustment as described
below).
Restricted
Stock and Restricted Stock Units
.
Shares
of restricted common stock granted to participants under the 2007 Equity Plan
will be subject to such risk or forfeiture and restrictions on transfer as
the
Administrator may impose, including any limitation on the right to vote such
shares or receive dividends thereon. Restricted stock units granted under the
2007 Equity Plan will be subject to such risk of forfeiture as the Administrator
may impose. In the case of both restricted stock and restricted stock units,
the
risk of forfeiture and/or the restrictions on transfer imposed on the shares
may
lapse separately or in combination at such time or times, or in such
installments or otherwise, as the Administrator may deem appropriate except
that
an award of restricted stock or restricted stock units that is not subject
to
the achievement of performance goals must have a risk of forfeiture and
restriction period of at least three years from the date of grant. Except as
otherwise determined by the Administrator, upon termination of a participant’s
employment or service with our company for any reason during the applicable
restriction period, all shares of restricted stock still subject to restriction
will be forfeited.
No
participating key employee may be granted, during any calendar year, in excess
of 200,000 shares of restricted stock and/or restricted stock units under the
2007 Equity Plan (subject to adjustment as described below).
Performance
Shares and Performance Units
.
With
respect to each grant of performance shares and/or performance units granted
under the 2007 Equity Plan, the Administrator will determine the performance
period, the performance goal or goals (and the performance level or levels
related thereto) to be achieved during any performance period, and the
proportion of payments, if any, to be made for performance between the minimum
and full performance levels for any performance goal. The Administrator will
also determine whether performance units may be settled in cash, shares of
common stock or a combination of cash and shares of common stock.
The
Administrator may provide that, during a performance period, a participant
may
be paid cash amounts with respect to each performance share or performance
unit
held by a participant at the same time and in the same amount paid as a cash
dividend on a share of common stock. Participants will have no voting rights
with respect to performance shares or performance units held by
them.
No
participating key employee may be granted, during any calendar year, in excess
of 200,000 performance shares and/or performance units under the 2007 Equity
Plan (subject to adjustment as described below).
Performance
Goals
.
For
purposes of the 2007 Equity Plan, a performance goal will mean any goal the
Administrator establishes for the performance period that relate to one or
more
of the following for the Company, any one or more or our affiliates or
divisions, and/or any other business unit or units of our company or an
affiliate:
|
·
revenue;
·
cash
flow;
·
net
cash provided by operating activities;
·
net
cash provided by operating activities
less
net cash used in investing activities;
·
cost
of goods sold;
·
ratio
of debt to debt plus equity;
·
profit
before tax;
·
gross
profit; net profit;
·
net
sales;
·
earnings
before interest and taxes;
·
earnings
before interest, taxes, depreciation
and amortization;
·
fair
market value of shares;
|
·
basic
earnings per share;
·
diluted
earnings per share;
·
return
on shareholders equity;
·
average
accounts receivable (calculated by taking the
average of accounts receivable at the end of each month);
·
average
inventories (calculated by taking the average of
inventories at the end of each month);
·
return
on average total capital employed;
·
return
on net assets employed before interest and taxes;
·
economic
value added;
·
return
on year-end equity;
·
and/or
in the case of awards that the Administrator
determines will not be considered “performance based
compensation” under Section 162(m) of the Internal Revenue
Code, such other goals as the Administrator may
establish.
|
Adjustments
If
we
engage in a merger or similar transaction in which the common stock is changed
or exchanged, or if a stock split, reverse stock split, or extraordinary cash
dividend occurs, or if another similar corporate transaction or event that
affects the shares of common stock occurs so that an adjustment is deemed
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the 2007 Equity Plan,
then the Administrator will, in such manner as it deems equitable, adjust (a)
the number and type of shares subject to the 2007 Equity Plan and which
thereafter may be made the subject of awards, (b) the award limits set forth
in
the 2007 Equity Plan, (c) the number and type of shares subject to outstanding
awards, and (d) the grant, purchase or exercise price with respect to any award.
In addition, upon any such event, the Administrator may make provision for
a
cash payment to the holder of an outstanding award in exchange for cancellation
of some or all of the award.
No
Re-Pricing or Back-Dating of Options or SARs
Without
the approval of our shareholders, no option or SAR granted under the 2007 Equity
Plan can be re-priced or can be granted in connection with the cancellation
of a
previously granted option or SAR under the 2007 Equity Plan if the exercise
price of the later granted option or SAR is less than the exercise or grant
price of the earlier granted option or SAR. In addition, the Administrator
may
not establish a grant or exercise price of an option or SAR on any date that
is
prior to the date the Administrator takes action to authorize the award.
Limits
on Transferability
No
award
granted under the 2007 Equity Plan may be assigned, sold, transferred or
encumbered by any participant, otherwise than by will, by designation of a
beneficiary, or by the laws of descent and distribution. Each award will be
exercisable during the participant’s lifetime only by such participant or, if
permissible under applicable law, by the participant’s guardian or legal
representative.
Amendment
and Termination of the 2007 Equity Plan
Subject
to shareholder approval in certain circumstances, the Board or Committee may
amend, alter, suspend, discontinue, or terminate the 2007 Equity Plan.
Shareholder approval of any amendment of the 2007 Equity Plan must be obtained
if (i) the amendment (a) increases the number of shares of common stock
with respect to which awards may be granted under the 2007 Equity Plan (except
in the event of an adjustment as described above), (b) expands the class of
persons eligible to participate under the 2007 Equity Plan or (c) otherwise
increases in any material respect the benefits payable under the 2007 Equity
Plan; or (ii) if we determine such approval is otherwise required by, or in
the
best interests of our company or any participant under, the Internal Revenue
Code or any rules promulgated thereunder, or the listing requirements of the
NYSE or any principal securities exchange or market on which shares of our
common stock are then traded (in order to maintain the listing of the shares
thereon).
Notwithstanding
any termination of the 2007 Equity Plan, the authority of the Board or Committee
to amend the 2007 Equity Plan, and the authority of the Administrator to
otherwise administer the 2007 Equity Plan and awards thereunder, will extend
beyond the date of the termination of the 2007 Equity Plan. Termination of
the
2007 Equity Plan will not affect the rights of participants with respect to
awards previously granted to them, and all unexpired awards will continue in
force and effect after termination of the 2007 Equity Plan except as they may
lapse or be terminated by their own terms and conditions.
With
respect to awards made to participants employed in foreign countries, the
Administrator may provide for special terms as it may consider necessary or
appropriate to accommodate differences in local law, tax policy or custom.
In
addition, the Administrator may approve such supplements to, or amendments,
restatements or alternative versions of, this Plan as it determines are
necessary or appropriate for such purposes, although any such action is subject
to the requirement to obtain shareholder approval, if applicable, as described
above.
Amendment,
Modification or Cancellation of Awards
The
Administrator may modify, amend or cancel any award, or waive any restrictions
or conditions applicable to any award or the exercise of the award, subject
to
the restrictions of the 2007 Equity Plan. Any modification or amendment that
materially diminishes the rights of a participant or a cancellation of the
Award
will be effective only if agreed to by the participant, except for
modifications, adjustments or cancellations effected pursuant to the adjustment
provisions of the 2007 Equity Plan as described above or the modification of
an
award to the extent deemed necessary to comply with any applicable law or the
listing requirements of any principal securities exchange or market on which
the
shares are then traded or to preserve favorable accounting or tax treatment of
any award for our company.
Withholding
Not
later
than the date as of which an amount first becomes includible in the gross income
of a key employee for federal income tax purposes with respect to any award
under the 2007 Equity Plan, the key employee will be required to pay to the
Company, or make arrangements satisfactory to us regarding the payment of,
any
federal, state, local or foreign taxes of any kind required by law to be
withheld to satisfy the required minimum statutory tax withholding with respect
to such amount. Unless otherwise determined by the Administrator, withholding
obligations arising with respect to awards may be settled with shares of our
common stock, including shares of common stock that are part of, or are received
upon exercise of, the award that gives rise to the withholding requirement
(other than shares of restricted stock). Our obligations under the 2007 Equity
Plan are conditional on such payment or arrangements, and we and any affiliate
will, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the key employee. The Administrator may
establish such procedures as it deems appropriate for the settling of
withholding obligations with shares of common stock.
Certain
Federal Income Tax Consequences
Stock
Options
.
The
grant of a stock option under the 2007 Equity Plan creates no income tax
consequences to the participant or the Company. A participant who is granted
a
non-qualified stock option will generally recognize ordinary income at the
time
of exercise in an amount equal to the excess of the fair market value of the
common stock at such time over the exercise price. The Company generally will
be
entitled to a deduction in the same amount and at the same time as ordinary
income is recognized by the participant. A subsequent disposition of the common
stock will give rise to capital gain or loss to the extent the amount realized
from the sale differs from the tax basis (
i.e
.,
the
fair market value of the common stock on the date of exercise). This capital
gain or loss will be a long-term capital gain or loss if the common stock has
been held for more than one year from the date of exercise.
In
general, for regular tax purposes a key employee will recognize no income or
gain as a result of exercise of an ISO (the alternative minimum tax may apply).
Except as described below, any gain or loss realized by the key employee on
the
disposition of the common stock acquired pursuant to the exercise of an ISO
will
be treated as a long-term capital gain or loss and no deduction will be allowed
to the Company. If the key employee fails to hold the shares of common stock
acquired pursuant to the exercise of an ISO for at least two years from the
date
of grant of the ISO and one year from the date of exercise, the key employee
will recognize ordinary income at the time of the disposition equal to the
lesser of (a) the gain realized on the disposition or (b) the excess of the
fair
market value of the shares of common stock on the date of exercise over the
exercise price. The Company generally will be entitled to a deduction in the
same amount and at the same time as ordinary income is recognized by the key
employee. Any additional gain realized by the key employee over the fair market
value at the time of exercise will be treated as a capital gain. This capital
gain will be a long-term capital gain if the common stock has been held for
more
than one year from the date of exercise.
Stock
Appreciation Rights
.
The
grant of an SAR will create no income tax consequences for the participant
or
the Company. Upon exercise of an SAR, the participant will recognize ordinary
income equal to the amount of any cash and the fair market value of any shares
of common stock or other property received, except that if the participant
receives an option or shares of restricted stock upon exercise of an SAR,
recognition of income may be deferred in accordance with the rules applicable
to
such other awards. The Company generally will be entitled to a deduction in
the
same amount and at the same time as income is recognized by the
participant.
Restricted
Stock
.
A
participant will not recognize income at the time an award of restricted stock
is made under the 2007 Equity Plan, unless the election described below is
made.
A participant who has not made such an election will recognize ordinary income
at the time the restrictions on the stock lapse in an amount equal to the fair
market value of the restricted stock at such time reduced by any amount paid
for
the restricted stock. The Company generally will be entitled to a corresponding
deduction in the same amount and at the same time as the participant recognizes
income. Any otherwise taxable disposition of the restricted stock after the
time
the restrictions lapse will generally result in capital gain or loss (long-term
or short-term depending upon the length of time the restricted stock is held
after the time the restrictions lapse). Dividends paid in cash and received
by a
participant prior to the time the restrictions lapse will constitute ordinary
income to the participant in the year paid. The Company generally will be
entitled to a corresponding deduction for such dividends. Any dividends paid
in
stock will be treated as an award of additional restricted stock subject to
the
tax treatment described herein.
A
participant may, within 30 days after the date of the award of restricted stock,
elect to recognize ordinary income as of the date of the award in an amount
equal to the fair market value of such restricted stock on the date of the
award
reduced by any amount paid for the restricted stock. The Company generally
will
be entitled to a corresponding deduction in the same amount and at the same
time
as the participant recognizes income. If the election is made, any cash
dividends received with respect to the restricted stock will be treated as
dividend income to the participant in the year of payment and will not be
deductible by the Company. Any otherwise taxable disposition of the restricted
stock (other than by forfeiture) will result in capital gain or loss (long-term
or short-term depending on the holding period). If the participant who has
made
an election subsequently forfeits the restricted stock, the participant will
not
be entitled to deduct any loss. In addition, the Company would then be required
to include as ordinary income the amount of the deduction it originally claimed
with respect to such shares.
Restricted
Stock Units
.
A
participant will not recognize income at the time an award of restricted stock
units is made under the 2007 Equity Plan. A participant will recognize ordinary
income at the time of exercise in an amount equal to the fair market value
of
the underlying shares of common stock at such time reduced by any amount paid
for the restricted stock units. The Company will generally be entitled to a
deduction in the same amount and at the same time as ordinary income is
recognized by the participant.
Performance
Shares and Performance Units
.
The
grant of performance shares and/or performance units will create no income
tax
consequences for the participant or the Company. Upon the receipt of cash or
shares of common stock at the end of the applicable performance period, the
participant will recognize ordinary income equal to the amount of cash or the
fair market value of the shares of common stock received, except that if the
participant receives shares of restricted stock or restricted stock units in
payment of performance shares or performance units, recognition of income may
be
deferred in accordance with the rules applicable to such awards. The Company
will generally be entitled to a deduction in the same amount and at the same
time as income is recognized by the participant.
Internal
Revenue Code Section 409A
.
Certain
types of awards under the 2007 Equity Plan may constitute, or provide for,
a
deferral of compensation under Internal Revenue Code Section 409A. Unless
certain requirements set forth in Section 409A are complied with, holders
of such awards may be taxed earlier than would otherwise be the case
(
e.g.
,
at the
time of vesting instead of the time of payment) and may be subject to an
additional 20% income tax (and, potentially, certain interest penalties). To
the
extent applicable, the 2007 Equity Plan and awards granted under the 2007 Equity
Plan will be structured and interpreted to comply with Internal Revenue Code
Section 409A and the Department of Treasury regulations and other
interpretive guidance that may be issued pursuant to Internal Revenue Code
Section 409A.
Tax
Deductibility and Section 162(m) of the Internal Revenue Code
.
Internal Revenue Code Section 162(m) generally places a $1 million annual limit
on the amount of compensation paid to each of our named executive officers
that
may be deducted by the Company for federal income tax purposes unless such
compensation constitutes “qualified performance-based compensation” under an
award which has been granted by a committee of the Board of Directors pursuant
to an incentive plan that has been approved by our shareholders. An award of
options or SARs are automatically considered “qualified performance-based
compensation” so long as the per share grant or exercise price of such award
equals or exceeds the fair market value of a share on the date the award is
granted. The 2007 Equity Plan is structured so that awards granted under such
plan by the Committee are eligible to qualify for the “qualified
performance-based compensation” exception to the $1 million annual deductibility
limit of Internal Revenue Code Section 162(m).
Future
Plan Benefits
We
cannot
currently determine the number of shares or the type of shares that may be
granted to eligible participants under the 2007 Equity Plan in the future.
Such
determinations will be made from time to time by the Administrator.
On
February 26, 2007, the closing price of our common stock on the New York Stock
Exchange was $47.01 per share.
Equity
Compensation Plan Information
The
following table provides information about our equity compensation plans as
of
December 30, 2006.
|
Plan
category
|
Number
of securities to be
issued
upon the exercise of
outstanding
options,
warrants
and rights
(1)
|
Weighted-average
exercise
price
of outstanding
options,
warrants and
rights
|
Number
of securities
remaining
available for
future
issuance under equity
compensation
plans
(excluding
securities
reflected
in the first column)
(2)
|
|||||||
|
Equity
compensation plans approved by security holders
|
1,602,725
|
$
|
26.64
|
606,657
|
||||||
|
Equity
compensation plans not approved by security holders
|
--
|
--
|
--
|
|||||||
|
Total
|
1,602,725
|
$
|
26.64
|
606,657
|
||||||
(1)
Represents
options to purchase our common stock and stock-settled stock appreciation rights
granted under our 1991 Flexible Stock
Incentive
Plan, 1998 Stock Option Plan and 2003 Equity Incentive Plan.
(2)
Excludes
93,675 shares of restricted common stock previously issued under our 2003 Equity
Incentive Plan for which the restrictions
have
not
lapsed.
THE
BOARD RECOMMENDS A VOTE “FOR” THE 2007 EQUITY
PLAN
.
PROP
OSAL
4:
RATIFICATION
OF DELOITTE & TOUCHE LLP
AS
THE INDEPENDENT AUDITORS OF THE COMPANY FOR 2007
Deloitte
& Touche LLP has served as our independent auditors since 2002.
The
Audit Committee has selected Deloitte & Touche LLP as our independent
auditors for 2007, and this selection is being presented to shareholders for
ratification. The Board recommends to the shareholders the ratification of
the
selection of Deloitte & Touche LLP to audit the financial statements of our
company and our subsidiaries for 2007. Unless otherwise specified, the proxies
solicited hereby will be voted in favor of the ratification of Deloitte &
Touche LLP as our independent auditors for 2007.
If,
prior
to the Annual Meeting, Deloitte & Touche LLP declines to act or its
engagement is otherwise discontinued by the Audit Committee, the Audit Committee
will appoint another independent auditor whose engagement for any period
subsequent to the Annual Meeting will be subject to ratification by the
shareholders at the Annual Meeting. If the shareholders fail to ratify the
appointment of Deloitte & Touche LLP, then the Audit Committee will consider
it a direction to select another independent auditor for 2007. Even if the
selection is ratified, the Audit Committee, in its discretion, may select a
new
independent auditor at any time during the year if it believes that such a
change would be in the best interests of our company and our shareholders.
Representatives
of Deloitte & Touche LLP are expected to be present at the Annual Meeting to
answer appropriate questions and, if they so desire, to make a
statement.
Independent
Auditor Fees
During
the fiscal years ended December 30, 2006 and December 31, 2005, we retained
and
paid Deloitte & Touche LLP to provide audit and/or other services. The fees
paid to Deloitte & Touche LLP for the years ended December 30, 2006 and
December 31, 2005 were as follows:
Audit
Fees
.
Fees
for audit services totaled $1,345,000 in 2006 and $1,180,000 in 2005. Audit
fees
included fees and expenses associated with the annual audit, assessment of
internal control over financial reporting, the reviews of our quarterly reports
on Form 10-Q, and statutory audits required internationally.
Audit-Related
Fees
.
Fees
for audit-related services totaled $428,740 in 2006 and $205,130 in 2005.
Audit-related fees included fees for services in connection with employee
benefit plan audits, financial due diligence relating to potential and completed
acquisitions, audit support for public debt or stock offerings and miscellaneous
other audit related projects.
Tax
Fees
.
Fees
for tax services totaled $197,121 in 2006 and $489,674 in 2005. Tax fees
included fees for tax return and preparation and reviews, tax
consultations tax advice and planning.
All
Other Fees
.
There
were no such fees paid to Deloitte & Touche LLP in either 2006 or
2005.
The
Audit
Committee pre-approves all audit and permissible non-audit services provided
by
the independent registered public accounting firm on a case-by-case basis.
The
Audit Committee approved 100% of the services described under the general
categories of
Audit-Related
Fees and
Tax
Fees
in 2006.
The Audit Committee does not consider the provision of these non-audit services
by the independent registered public accounting firm to be incompatible with
maintaining auditor independence.
THE
BOARD
RECOMMENDS A VOTE “FOR” RATIFICATION OF THE SELECTION
OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR
2007.
OTHER
MATTERS
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our officers and directors
to file reports of ownership and changes of ownership with the SEC. The
regulations of the SEC require the officers and directors to furnish the Company
with copies of all Section 16(a) forms they file.
Based
solely on a review of the copies of such forms furnished to us, or written
representations that no Form 5 was required to be filed, we believe that, during
the fiscal year ended December 30, 2006, all of our directors and executive
officers timely complied with the Section 16(a) filing
requirements.
Delivery
of Proxy Materials to Households
Pursuant
to the rules of the SEC, services that deliver our communications to
shareholders that hold their stock through a bank, broker or other holder of
record may deliver to multiple shareholders sharing the same address a single
copy of our annual report to shareholders and this proxy statement. Upon oral
or
written request, we will promptly deliver a separate copy of the annual report
to shareholders and/or proxy statement to any shareholder at a shared address
to
which a single copy of each document was delivered. Shareholders sharing an
address may also request delivery of a single copy of the annual report or
proxy
statement if they are currently receiving multiple copies of such documents.
Shareholders may notify the Company of their requests by calling or writing
to
Paul J. Jones, Vice President, General Counsel and Secretary, Regal Beloit
Corporation, 200 State Street, Beloit, Wisconsin 53511, telephone number: (608)
364-8800.
SHAR
EHOLDER
PROPOSALS
Proposals
of shareholders pursuant to Rule 14a-8 under the Securities Exchange Act of
1934
(“Rule 14a-8”) that are intended to be presented at the 2008 annual meeting of
shareholders must be received by us no later than November 16, 2007 to be
included in our proxy materials for that meeting.
Further,
a shareholder who otherwise intends to present business at the 2008 annual
meeting otherwise than pursuant to Rule 14a-8 (i.e., a proposal a
shareholder intends to present at the 2008 annual meeting, but does not intend
to have included in our proxy materials) must deliver notice of such proposal
to
us on or prior to January 30, 2008. If we have not received notice by such
date,
then the notice will be considered untimely and we will not be required to
present such proposal at the 2008 annual meeting. If the Board nonetheless
chooses to present such proposal at the 2008 annual meeting, then the persons
named in proxies solicited by the Board for the 2008 annual meeting may exercise
discretionary voting power with respect to such proposal.
By
Order
of the Board of Directors
REGAL
BELOIT CORPORATION
Paul
J.
Jones
Vice
President, General Counsel and
Secretary
We
will furnish to any shareholder, without charge, a copy of our Annual Report
on
Form 10-K for 2006. You may obtain a copy of the Form 10-K by writing to Paul
J.
Jones, Vice President, General Counsel and Secretary, Regal Beloit Corporation,
200 State Street, Beloit, Wisconsin 53511 or on the Company’s website at
www.regalbeloit.com
.
REGAL-BELOIT
CORPORATION
CRITERIA
FOR DETERMINING DIRECTOR INDEPENDENCE
The
Board
of Directors has established categorical standards to assist it in making
determinations of director independence. Under these categorical standards,
the
following relationships that currently exist or that have existed, including
during the preceding three years, will not be considered to be material
relationships that would impair a director’s independence:
|
1.
|
An
immediate family member of the director is an employee (other than
an
executive officer) of the Company;
|
|
2.
|
A
director, or a family member of the director, receives or received
less
than $100,000 during any twelve-month period in direct compensation
from
the Company, other than director and committee fees and pension
or other
forms of deferred compensation for prior service (provided that
such
compensation is not contingent in any way on continued service
with the
Company);
provided
,
however
,
that compensation received by a director for former service as
an interim
Chairman or Chief Executive Officer or other executive officer
of the
Company need not be considered in determining independence under
this
test; and
provided
,
further
,
that compensation received by an immediate family member of the
director
for service as an employee of the Company (other than an executive
officer) need not be considered in determining independence under
this
test;
|
|
3.
|
(A)
A director, or a family member of the director, is a former partner
or
employee of the Company’s internal or external auditor but did not
personally work on the Company’s audit within the last three years; or (B)
a family member of a director is employed by an internal or external
auditor of the Company but does not participate in such auditor’s audit,
assurance or tax compliance
practice;
|
|
4.
|
A
director, or a family member of the director, is or was an employee,
other
than an executive officer, of another company where any of the
Company’s
present executives serve on that company’s compensation
committee;
|
|
5.
|
A
director is or was an executive officer, employee or director of,
or has
or had any other relationship (including through a family member)
with,
another company, that makes payments (other than contributions
to tax
exempt organizations) to, or receives payments from, the Company
for
property or services in an amount which, in any single fiscal year,
does
not exceed the greater of $1 million or 2% of such other company’s
consolidated gross revenues;
provided
,
however
,
that in applying this test, both the payments and the consolidated
gross
revenues to be measured shall be those reported in the last completed
fiscal year; and
provided
,
further
,
that this test applies solely to the financial relationship between
the
Company and the director’s (or immediate family member’s) current
employer — the Company need not consider former employment of the
director or immediate family
member;
|
|
6.
|
A
family member of the director, other than his or her spouse, is
an
employee of a company that has a relationship with the Company,
but the
family member is not an executive officer of that
company;
|
|
7.
|
A
family member of the director has a relationship with the Company,
but the
family member is not an immediate family member of the
director;
|
|
8.
|
The
director, or an immediate family member of the director, was an
executive
officer of another company that was indebted to the Company, or
to which
the Company was indebted, but the total amount of either company’s
indebtedness to the other was less than 2% of the total consolidated
assets of the company for which the director, or an immediate family
member of the director, served as an executive
officer;
|
|
9.
|
A
director is or was an executive officer, employee or director of,
or has
or had any other relationship (including through a family member)
with, a
tax exempt organization to which the Company’s and its foundation’s
contributions in any single fiscal year do not exceed the greater
of $1
million or 2% of such organization’s consolidated gross revenues; or
|
|
10.
|
A
director is a shareholder of the
Company.
|
For
purposes of the foregoing, an “immediate family member” shall be deemed to
include a person’s spouse, parents, children, siblings, mothers and
fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and
anyone (other than domestic employees) who shares such person’s home;
provided
,
however
,
that
when applying the three-year “look-back” provisions of the foregoing tests, the
Company need not consider individuals who are no longer immediate family
members
as a result of legal separation or divorce, or those who have died or become
incapacitated.
For
relationships not covered by the categorical standards set forth above, the
determination of whether the relationship is material or not, and therefore
whether the director would be independent or not, shall be made by the directors
who satisfy the categorical standards set forth above. The Company must identify
which directors are independent and disclose the basis for that determination
in
the next proxy statement.
In
addition, the Company shall disclose in its annual proxy statement any
contributions made by the Company to any tax exempt organization in which
any
independent director serves as executive officer if, within the preceding
three
years, contributions in any single year from the Company exceeded the greater
of
$1 million or 2% of such charitable organization’s consolidated gross
revenues.
REGAL
BELOIT CORPORATION
2007
EQUITY INCENTIVE PLAN
Section
1.
Purpose and Effective
Date
(a)
Purpose
.
The
purpose of the Regal Beloit Corporation 2007 Equity Incentive Plan (the “Plan”)
is to promote the best interests of Regal Beloit Corporation (together with
any
successor thereto, the “Company”) and its shareholders by providing key
employees of the Company and its Affiliates (as defined below) and members
of
the Company’s Board of Directors who are not employees of the Company or its
Affiliates with an opportunity to acquire shares of the Company’s common stock
or receive monetary payments based on the value of such common stock. It is
intended that the Plan will promote continuity of management and increased
incentive and personal interest in the welfare of the Company by those key
employees who are primarily responsible for shaping and carrying out the
long-range plans of the Company and securing the Company’s continued growth and
financial success. In addition, by encouraging stock ownership by directors
who
are not employees of the Company or its Affiliates, the Company seeks to attract
and retain on its Board of Directors persons of exceptional competence and
to
provide a further incentive to serve as a director of the Company.
(b)
Effective
Date
.
The
Plan shall become effective on the Effective Date.
Section
2.
Definitions
Except
as
otherwise expressly provided herein, or unless the context otherwise requires,
all capitalized terms used in this Plan shall have the meanings assigned to
such
terms in Section 9 hereof.
Section
3.
Administration
The
Administrator shall administer the Plan;
provided,
however
,
that if
at any time the Committee shall not be in existence, the functions of the
Committee as specified in the Plan shall be exercised by the Board. To the
extent permitted by applicable law, (1) the Board may delegate to a committee
of
the Board or to one or more executive officers any or all of the Board’s
administrative authority and responsibility with respect to the Plan; and (2)
the Committee may delegate to one or more executive officers of the Company
any
or all of the authority and responsibility of the Committee with respect to
the
Plan, other than with respect to Persons who are subject to Section 16 of the
Exchange Act. To the extent of any such delegation, all relevant references
to
the Administrator herein shall include such committee, officer or officers.
Subject to the terms of the Plan and without limitation by reason of
enumeration, the Administrator shall have full power and authority to: (i)
designate those eligible individuals to receive an Award; (ii) determine the
type or types of Awards to be granted to each Participant; (iii) determine
the
number of Shares to be covered by (or with respect to which payments, rights,
or
other matters are to be calculated in connection with) Awards; (iv) determine
the terms and conditions of any Award; (v) determine whether, to what extent,
and under what circumstances Awards may be settled or exercised in cash, Shares,
other securities, other Awards, or other property, and the method or methods
by
which Awards may be settled, exercised, cancelled, forfeited, or suspended;
(vi)
determine whether, to what extent, and under what circumstances cash, Shares,
other Awards, and other amounts payable with respect to an Award shall be
deferred either automatically or at the election of the holder thereof or of
the
Administrator; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan (including, without
limitation, any Award Agreement); (viii) establish, amend, suspend, or waive
such rules and regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; and (ix) make any other determination
and take any other action that the Administrator deems necessary or desirable
for the administration of the Plan. Unless otherwise expressly provided in
the
Plan, all designations, determinations, interpretations, and other decisions
under or with respect to the Plan or any Award shall be within the sole
discretion of the Administrator, may be made at any time, and shall be final,
conclusive, and binding upon all Persons, including the Company, any Affiliate,
any Participant, any holder or beneficiary of any Award, any shareholder, any
Non-Employee Director, and any employee of the Company or of any
Affiliate.
Section
4.
Shares Available for Award
(a)
Shares
Available
.
Subject
to adjustment as provided in Section 4(b):
(i)
Number
of Shares Available.
The
number of Shares with respect to which Awards may be granted under the Plan
shall be 2,500,000. The number of Shares that may be issued pursuant to the
exercise of Incentive Stock Options shall be 2,500,000. The number of Shares
available for issuance under this Plan shall be reduced by the number of Shares
with respect to which an Award is granted;
provided,
however
,
that
any Shares awarded in connection with Restricted Stock, Restricted Stock Units,
Performance Shares and Performance Units shall count against the limit described
in this Section 4(a)(i) as two Shares for every one Share awarded.
If,
however, any Shares covered by an Award, or to which any Award relates, are
forfeited or an Award lapses, expires, terminates or is cancelled without the
issuance of Shares under the Award, or if Shares are forfeited under an Award,
or if an SAR is settled in cash, then the number of Shares counted against
the
number of Shares available under the Plan in connection with the grant of such
Award, to the extent of any such forfeiture, expiration, termination,
cancellation or settlement, shall again be available for granting of additional
Awards, but such Shares may not be issued pursuant to Incentive Stock Options;
provided,
howe
ver,
that
Shares covered by an Award, or to which any Award relates, that are (1) tendered
by a participant to the Company to pay the exercise price of an Award; or (2)
withheld by the Company to satisfy tax withholding obligations with respect
to
an Award, shall not be available for granting of additional Awards under this
Plan.
(ii)
Limitations
on Awards to Individual Participants.
No
Participating Key Employee shall be granted, during any calendar year, Options,
with or without any related Stock Appreciation Rights, or Stock Appreciations
Rights not related to Options for more than 300,000 Shares, more than 200,000
Shares of Restricted Stock and/or Restricted Stock Units, and/or more than
200,000 Performance Shares and/or Performance Units under the Plan. Such number
of Shares as specified in the preceding sentence shall be subject to adjustment
in accordance with the terms of Section 4(b) hereof. In all cases,
determinations under this Section 4(a)(ii) shall be made in a manner that is
consistent with the exemption for performance-based compensation provided by
Section 162(m) of the Code.
(iii)
Accounting
for Awards.
The
number of Shares covered by an Award under the Plan, or to which such Award
relates, shall be counted on the date of grant of such Award against the number
of Shares available for granting Awards in accordance with Section 4(a)(i)
above.
(iv)
Sources
of Shares Deliverable Under Awards.
Any
Shares delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued Shares or of treasury Shares.
(b)
Adjustments
.
If
(i) the Company shall at any time be involved in a merger or other transaction
in which the Shares are changed or exchanged; (ii) the Company shall subdivide
or combine the Shares or the Company shall declare a dividend payable in Shares,
other securities (other than any associated common share purchase rights issued
pursuant to that certain Rights Agreement, dated January 28, 2000, between
the
Company and EquiServe Trust Company, N.A. (as successor Rights Agent), or any
successor rights agreement, or similar stock purchase rights that the Company
might authorize and issue in the future) or other property; (iii) the Company
shall effect a cash dividend the amount of which, on a per Share basis, exceeds
ten percent (10%) of the Fair Market Value of a Share at the time the dividend
is declared, or the Company shall effect any other dividend or other
distribution on the Shares in the form of cash, or a repurchase of Shares,
that
the Board determines by resolution is special or extraordinary in nature or
that
is in connection with a transaction that the Company characterizes publicly
as a
recapitalization or reorganization involving the Shares; or (iv) any other
event
shall occur, which, in the case of this clause (iv), in the judgment of the
Board or Committee necessitates an adjustment to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under this
Plan, then the Board or Committee shall, in such manner as it deems equitable,
adjust any or all of: (i) the number and type of Shares subject to the Plan
and
which thereafter may be made the subject of Awards under the Plan, including
the
limits on Awards pursuant to Section 4(a)(ii), (ii) the number and type of
Shares subject to outstanding Awards, and (iii) the grant, purchase, or exercise
price with respect to any Award;
provided,
however
,
in each
case, that with respect to Awards of Incentive Stock Options no such adjustment
shall be authorized to the extent that such authority would cause the Plan
to
violate Section 422(b) of the Code; and
provided
further,
that the
number of Shares subject to any Award payable or denominated in Shares shall
always be a whole number. In any such case as described above, the Board or
the
Committee, as the case may be, may also (or in lieu of the foregoing) make
provision for a cash payment to the holder of an outstanding Award in exchange
for the cancellation of all or a portion of such Award, without the consent
of
the holder of the Award, in an amount determined by the Board or Committee
and
effective at such time as the Board or Committee specifies (which may be the
time such transaction or event is effective). Without limitation, in the event
of any merger or other similar corporate transaction or event (other than any
such transaction in which the Company is the continuing corporation and in
which
the outstanding Shares are not being converted into or exchanged for different
securities, cash or other property, or any combination thereof), the Board
or
Committee shall substitute, on an equitable basis as the Board or Committee
determines, for each Share then subject to an Award and the Shares subject
to
this Plan (if the Plan will continue in effect), the number and kind of shares
of stock, other securities, cash or other property to which holders of Shares
are or will be entitled in respect of each Share pursuant to the
transaction.
Notwithstanding
the foregoing, in the case of a dividend payable in Shares (other than a stock
dividend declared in lieu of an ordinary cash dividend) or subdivision or
combination of the Shares (including a reverse stock split), if no action is
taken by the Board or Committee, adjustments contemplated by this subsection
that are proportionate shall nevertheless automatically be made as of the date
of such stock dividend or subdivision or combination of the Shares.
Unless
the Administrator determines otherwise, any such adjustment to an Award that
is
exempt from Code Section 409A shall be made in manner that permits the Award
to
continue to be so exempt, and any adjustment to an Award that is subject to
Code
Section 409A shall be made in a manner that complies with the provisions
thereof.
Section
5.
Eligibility
Any
Key
Employee, including any executive officer or employee-director of the Company
or
of any Affiliate, shall be eligible to be designated a Participating Key
Employee. All Non-Employee Directors shall be eligible to be designated a
Participant with respect to any of the available Awards, other than Incentive
Stock Options.
Section
6.
Awards
(a)
Option
Awards
.
The
Administrator is hereby authorized to grant Options with the terms and
conditions as set forth below and with such additional terms and conditions,
in
either case not inconsistent with the provisions of the Plan, as the
Administrator shall determine.
(i)
Exercise
Price.
The
exercise price per Share of an Option granted pursuant to this Section 6(a)
shall be determined by the Committee;
provided,
however
,
that
such exercise price shall not be less than 100% of the Fair Market Value of
a
Share on the date of grant of such Option.
(ii)
Grant
Date
.
The
grant date of an Option shall not be earlier than the date on which the
Administrator takes action to approve the Option.
(iii)
Option
Term.
The term
of each Option shall be fixed by the Administrator;
provided,
however
,
that in
no event shall the term of any Option exceed a period of ten years from the
date
of its grant.
(iv)
Exercisability
and Method of Exercise.
An
Option shall become exercisable in such manner and within such period or periods
and in such installments or otherwise as shall be determined by the
Administrator. The Administrator also shall determine the method or methods
by
which, and the form or forms, including, without limitation, cash, Shares,
other
securities, other Awards, or other property, or any combination thereof, in
which payment of the exercise price with respect to any Option may be made
or
deemed to have been made.
(v)
Incentive
Stock Options.
The
terms of any Incentive Stock Option granted under the Plan shall comply in
all
respects with the provisions of Section 422 of the Code. Notwithstanding any
provision in the Plan to the contrary, no Incentive Stock Option may be granted
hereunder after April 20, 2017.
(b)
Stock
Appreciation Rights
.
The
Administrator is hereby authorized to grant Stock Appreciation Rights. Subject
to the terms of the Plan and any applicable Award Agreement, a Stock
Appreciation Right granted under the Plan shall confer on the holder thereof
a
right to receive, upon exercise thereof, the excess of (i) the Fair Market
Value
of one Share on the date of exercise over (ii) the grant price of the Stock
Appreciation Right as specified by the Administrator, which shall not be less
than 100% of the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. The grant date of a Stock Appreciation Right shall
not
be the date earlier than the Administrator takes action to approve the Stock
Appreciation Right. Subject to the terms of the Plan, the grant price, term,
methods of exercise, methods of settlement (including whether the Stock
Appreciation Right will be settled in cash, Shares, other securities, other
Awards, or other property, or any combination thereof), and any other terms
and
conditions of any Stock Appreciation Right shall be as determined by the
Administrator. The Administrator may impose such conditions or restrictions
on
the exercise of any Stock Appreciation Right as it may deem
appropriate.
(c)
Restricted
Stock and Restricted Stock Unit Awards.
(i)
Issuance.
The
Administrator is hereby authorized to grant Awards of Restricted Stock and/or
Restricted Stock Units.
(ii)
Restrictions
.
Shares
of Restricted Stock granted to Participating Key Employees shall be subject
to
such risk or forfeiture and restrictions on transfer as the Administrator may
impose (including, without limitation, any limitation on the right to vote
a
Share of Restricted Stock or the right to receive any dividend or other right
or
property), and Restricted Stock Units will be subject to such risk of forfeiture
as the Administrator may impose, in either case which risk of forfeiture and/or
restrictions on transfer may lapse separately or in combination at such time
or
times, in such installments or otherwise, as the Administrator may deem
appropriate (including, without limitation, the continued employment or service
of the Participant for a specified period or upon the achievement of Performance
Goals or other terms set by the Administrator at the time the Award is granted);
provided, however, that, subject to paragraph (v), an Award of Restricted Stock
or Restricted Stock Units that is not subject to the achievement of Performance
Goals must have a risk of forfeiture and restriction period of at least three
years from the date of grant of such Award. With respect to any Award of
Restricted Stock or Restricted Stock Units, for which the risk of forfeiture
and/or restrictions on transfer will lapse upon the achievement of Performance
Goals, the Administrator shall determine the Performance Period, the Performance
Goal or Goals (and the performance level or levels related thereto) to be
achieved during any Performance Period, the risk or forfeiture and/or
restrictions on transfer that shall lapse, if any, for performance between
the
minimum and full performance levels for any Performance Goal and, if applicable,
the relative percentage weighting given to each of the selected Performance
Goals. In the event the Administrator determines it is advisable to grant
Restricted Stock or Restricted Stock Units which do not qualify for the
performance-based exemption under Section 162(m) of the Code, the Administrator
may make such grants without satisfying the requirements thereof.
(iii)
Registration.
Any
Restricted Stock granted under the Plan may be evidenced in such manner as
the
Administrator may deem appropriate, including, without limitation, book-entry
registration or issuance of a stock certificate or certificates. In the event
any stock certificate is issued in respect of Shares of Restricted Stock granted
under the Plan, such certificate shall be registered in the name of the
Participant and shall bear an appropriate legend (as determined by the
Administrator) referring to the terms, conditions, and restrictions applicable
to such Restricted Stock.
(iv)
Payment
of Restricted Stock and Restricted Stock Units.
Upon the
lapse of the applicable risk of forfeiture and/or restrictions on transfer
relating to Restricted Stock or Restricted Stock Units, one or more stock
certificates for the appropriate number of Shares, free of restrictions imposed
under the Plan, shall be delivered to the Participant, or, if the Participant
received stock certificates representing the Restricted Stock at the time of
grant, the legends placed on such certificates shall be removed.
(v)
Forfeiture.
Except
as otherwise determined by the Administrator, upon termination of employment
or
service (as determined under Section 8(e) and such other criteria established
by
the Administrator) for any reason during the applicable restriction period,
all
Shares of Restricted Stock and Restricted Stock Units still subject to a risk
of
forfeiture shall be forfeited;
provided,
however
,
that
the Administrator may waive in whole or in part any or all remaining risk of
forfeiture and/or restrictions on transfer with respect to an Award of
Restricted Stock and Restricted Stock Units upon the Participant’s death,
disability or retirement.
(d)
Performance
Shares and Performance Units.
(i)
Issuance.
The
Administrator is hereby authorized to grant Awards of Performance Shares and
Performance Units.
(ii)
Performance
Goals and Other Terms.
The
Administrator shall determine the Performance Period, the Performance Goal
or
Goals (and the performance level or levels related thereto) to be achieved
during any Performance Period, the proportion of payments, if any, to be made
for performance between the minimum and full performance levels for any
Performance Goal, in respect to Performance Units, whether to settle such Award
in cash, Shares, or a combination of cash and Shares and, if applicable, the
relative percentage weighting given to each of the selected Performance Goals,
the restrictions applicable to Shares of Restricted Stock received upon payment
of Performance Shares or Performance Units, if Performance Shares or Performance
Units are paid in such manner, and any other terms, conditions and rights
relating to a grant of Performance Shares or Performance Units. In the event
the
Administrator determines it is advisable to grant Performance Shares or
Performance Units which do not qualify for the performance-based exemption
under
Section 162(m) of the Code, the Administrator may make such grants without
satisfying the requirements thereof.
(iii)
Rights
and Benefits During the Performance Period.
The
Administrator may provide that, during a Performance Period, a Participant
shall
be paid cash amounts, with respect to each Performance Share or Performance
Units held by such Participant, in the same manner, at the same time, and in
the
same amount paid, as a cash dividend on a Share. Participants shall have no
voting rights with respect to Performance Shares or Performance Units held
by
them.
(iv)
Payment
of Performance Shares and Performance Units.
As
soon
as is reasonably practicable following the end of the applicable Performance
Period, and subject to the Administrator certifying in writing as to the
satisfaction of the requisite Performance Goal or Goals if such certification
is
required in order to qualify the Award for the performance-based exemption
provided by Section 162(m) of the Code, one or more certificates representing
the number of Shares equal to the number of Performance Shares payable or the
Shares issued with respect to Performance Units shall be registered in the
name
of and delivered to the Participant, or the amount of cash payable under a
Performance Unit shall be paid;
provided,
however
,
that
any Shares of Restricted Stock payable in connection with Performance Shares
or
Performance Units shall, pending the expiration, lapse, or waiver of the
applicable restrictions, be evidenced in the manner as set forth in Section
6(d)(iii) hereof.
(e)
General.
(i)
No
Consideration for Awards.
Awards
shall be granted to Participants for no cash consideration unless otherwise
determined by the Administrator.
(ii)
Award
Agreements.
Each
Award shall be evidenced by an Award Agreement in such form (consistent with
the
terms of the Plan) as shall have been approved by the
Administrator.
(iii)
Awards
May Be Granted Separately or Together.
Awards
may be granted either alone or in addition to, in tandem with, or in
substitution for any other Award or any award granted under any other plan
of
the Company or any Affiliate. Awards granted in addition to or in tandem with
other Awards, or in addition to or in tandem with awards granted under any
other
plan of the Company or any Affiliate, may be granted either at the same time
as
or at a different time from the grant of such other Awards or
awards.
(iv)
Forms
of Payment Under Awards.
Subject
to the terms of the Plan and of any applicable Award Agreement, payments or
transfers to be made by the Company or an Affiliate upon the grant, exercise,
or
payment of an Award may be made in such form or forms as the Administrator
shall
determine, and may be made in a single payment or transfer, in installments,
or
on a deferred basis, in each case in accordance with rules and procedures
established by the Administrator. Such rules and procedures may include, without
limitation, provisions for the payment or crediting of interest on installment
or deferred payments.
(v)
Limits
on Transfer of Awards.
No Award
(other than Released Securities), and no right under any such Award, shall
be
assignable, alienable, saleable, or transferable by a Participant otherwise
than
by will or by the laws of descent and distribution (or, in the case of an Award
of Restricted Securities, to the Company);
provided,
however
,
that at
the discretion of the Administrator, a Participant may be entitled, in the
manner established by the Administrator, to designate a beneficiary or
beneficiaries to exercise his or her rights, and to receive any property
distributable, with respect to any Award upon the death of the Participant.
Each
Award, and each right under any Award, shall be exercisable, during the lifetime
of the Participant only by such individual or, if permissible under applicable
law, by such individual’s guardian or legal representative. No Award (other than
Released Securities), and no right under any such Award, may be pledged,
alienated, attached, or otherwise encumbered, and any purported pledge,
alienation, attachment, or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
(vi)
Term
of Awards.
Except
as otherwise provided in the Plan, the term of each Award shall be for such
period as may be determined by the Administrator.
(vii)
Share
Certificates; Representation.
In
addition to the restrictions imposed pursuant to Section 6(c) and Section 6(d)
hereof, all certificates for Shares delivered pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Administrator may deem advisable under the Plan or the
rules, regulations, and other requirements of the Commission, any stock exchange
or other market upon which such Shares are then listed or traded, and any
applicable federal or state securities laws, and the Administrator may cause
a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions. The Administrator may require each Participant
or other Person who acquires Shares under the Plan by means of an Award to
represent to the Company in writing that such Participant or other Person is
acquiring the Shares without a view to the distribution thereof.
(viii)
No
Re-Pricing of Options or Stock Appreciation Rights.
Notwithstanding any provision in the Plan to the contrary, without the approval
of the Company’s shareholders, no Option or Stock Appreciation Right granted
under the Plan shall be re-priced or shall be granted in connection with the
cancellation of a previously granted Option or Stock Appreciation Right granted
under the Plan if the exercise price of the later granted Option or Stock
Appreciation Right is less than the exercise or grant price of the earlier
granted Option or Stock Appreciation Right.
Section
7.
Amendment
and Termination;
Correction of Defects and Omissions
(a)
Amendments
to and Termination of the Plan
.
The
Board
or Committee may at any time amend, alter, suspend, discontinue, or terminate
the Plan;
provided,
however
,
that
shareholder approval of any amendment of the Plan shall be obtained (A) if
such
amendment (1) increases the number of Shares with respect to which Awards may
be
granted under the Plan (other than increases related to adjustments made as
provided in Section 4(b) hereof), (2) expands the class of persons eligible
to
participate under the Plan or (3) otherwise increases in any material respect
the benefits payable under the Plan; or (B) if the Company determines such
approval is otherwise required by, or is in the best interests of the Company
or
any Participant under, (1) the Code or any rules promulgated thereunder or
(2)
the listing requirements of the New York Stock Exchange or any principal
securities exchange or market on which the Shares are then traded (in order
to
maintain the listing of the Shares thereon).
Notwithstanding
the foregoing, the authority of the Board or Committee under this Section 7,
and
the authority of the Administrator to otherwise administer this Plan and Awards
will extend beyond the date of this Plan’s termination. Termination of the Plan
shall not affect the rights of Participants with respect to Awards previously
granted to them, and all unexpired Awards shall continue in force and effect
after termination of the Plan except as they may lapse or be terminated by
their
own terms and conditions.
(b)
Correction
of Defects, Omissions and Inconsistencies
.
The
Administrator may correct any defect, supply any omission, or reconcile any
inconsistency in any Award or Award Agreement in the manner and to the extent
it
shall deem desirable to carry the Plan into effect.
(c)
Amendment,
Modification or Cancellation of Awards.
Subject
to the restrictions of this Plan, the Administrator may modify, amend or cancel
any Award, or waive any restrictions or conditions applicable to any Award
or
the exercise of the Award,
provided
that any
modification or amendment that materially diminishes the rights of the
Participant, or the cancellation of the Award, shall be effective only if agreed
to by the Participant, but the Administrator need not obtain Participant consent
for the modification, adjustment or cancellation of an Award pursuant to the
provisions of Section 4(b), or the modification of an Award to the extent deemed
necessary in the judgment of the Administrator to comply with any applicable
law
or the listing requirements of any principal securities exchange or market
on
which the Shares are then traded or to preserve favorable accounting or tax
treatment of any Award for the Company. Notwithstanding the foregoing, unless
determined otherwise by the Administrator, any such amendment shall be made
in a
manner that will enable an Award intended to be exempt from Code Section 409A
to
continue to be so exempt, or to enable an Award intended to comply with Code
Section 409A to continue to so comply.
(d)
Foreign
Participation.
To
assure
the viability of Awards granted to Participants employed in foreign countries,
the Administrator may provide for such special terms as it may consider
necessary or appropriate to accommodate differences in local law, tax policy
or
custom. Moreover, the Administrator may approve such supplements to, or
amendments, restatements or alternative versions of, this Plan as it determines
is necessary or appropriate for such purposes. Any such amendment, restatement
or alternative versions that the Administrator approves for purposes of using
this Plan in a foreign country will not affect the terms of this Plan for any
other country. In addition, all such supplements, amendments, restatements
or
alternative versions must comply with the provisions of
Section 7(a).
(e)
Code
Section 409A.
The
provisions of Code Section 409A are incorporated herein by reference to the
extent necessary for any Award that is subject to Code Section 409A to comply
therewith.
Section
8.
General
Provisions
(a)
No
Rights to Awards
.
No
Key Employee, Participating Key Employee, other Person or Non-Employee Director
shall have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Key Employees, Participating Key Employees,
Non-Employee Directors or holders or beneficiaries of Awards under the Plan.
The
terms and conditions of Awards need not be the same with respect to each
Participating Key Employee or Non-Employee Director.
(b)
Withholding
.
No
later
than the date as of which an amount first becomes includable in the gross income
of a Participating Key Employee for federal income tax purposes with respect
to
any Award, the Participating Key Employee shall pay to the Company, or make
arrangements satisfactory to the Company regarding the payment of, any federal,
state, local or foreign taxes of any kind required by law to be withheld to
satisfy the required minimum statutory tax withholding with respect to such
amount. Unless otherwise determined by the Committee, withholding obligations
arising with respect to Awards to Participating Key Employees may be settled
with Shares, including Shares that are part of, or are received upon exercise
of, the Award that gives rise to the withholding requirement (other than
Restricted Securities). The obligations of the Company under the Plan shall
be
conditional on such payment or arrangements, and the Company and any Affiliate
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the Participating Key Employee. The Committee
may establish such procedures as it deems appropriate for the settling of
withholding obligations with Shares, including, without limitation, the
establishment of such procedures as may be necessary to satisfy the requirements
of Rule 16b-3.
(c)
No
Guarantee of Tax Treatment. Notwithstanding any provisions of this Plan, the
Company does not guarantee to any Participant or any other Person with an
interest in an Award that any Award intended to be exempt from Code Section
409A
shall be so exempt, nor that any Award intended to comply with Code Section
409A
shall so comply, nor will the Company or any Affiliate indemnify, defend or
hold
harmless any individual with respect to the tax consequences of any such
failure.
(d)
No
Limit on Other Compensation Arrangements
.
Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other or additional compensation arrangements, and
such
arrangements may be either generally applicable or applicable only in specific
cases.
(e)
Rights
and Status of Recipients of Awards
.
The
grant of an Award shall not be construed as giving a Participant the right
to be
retained in the employ or service of the Company or any Affiliate. Further,
the
Company or any Affiliate may at any time dismiss a Participant from employment
or service, free from any liability, or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement. Except
for
rights accorded under the Plan and under any applicable Award Agreement,
Participants shall have no rights as holders of Shares as a result of the
granting of Awards hereunder.
Unless
determined otherwise by the Administrator, for purposes of this Plan and all
Awards, the following rules shall apply:
(i)
a
Participant who transfers employment between the Company and its Affiliates,
or
between Affiliates, will not be considered to have terminated
employment;
(ii)
a
Participant who ceases to be employed by the Company or an Affiliate and
immediately thereafter becomes a non-employee director of the Company or of
an
Affiliate, or a consultant to the Company or any Affiliate, shall not be
considered to have terminated employment until such Participant’s service as a
director of, or consultant to, the Company and its Affiliates has
ceased;
(iii)
a
Participant who ceases to be a Non-Employee Director as a result of becoming
an
employee of the Company or an Affiliate shall not be considered to have
terminated service as a director until such Participant’s employment with the
Company and its Affiliates has terminated; and
(iv)
a
Participant employed by an Affiliate will be considered to have terminated
employment with the Company and its Affiliates when such entity ceases to be
an
Affiliate.
Notwithstanding
the foregoing, for purposes of an Award that is subject to Code Section 409A,
if
a Participant’s termination of employment triggers the payment of compensation
under such Award, then the Participant will be deemed to have terminated
employment upon a “separation from service” within the meaning of Code Section
409A.
(f)
Requirements
of Law and Securities Exchange
.
The
granting of Awards and the issuance of Shares in connection with an Award are
subject to all applicable laws, rules and regulations and to such approvals
by
any governmental agencies or national securities exchanges as may be required.
Notwithstanding any other provision of this Plan or any Award Agreement, the
Company has no liability to deliver any Shares under this Plan or make any
payment unless such delivery or payment would comply with all applicable laws
and the applicable requirements of any securities exchange or similar entity,
and unless and until the Participant or other holder of an Award has taken
all
actions required by the Company in connection therewith. The Company may impose
such restrictions on any Shares issued under this Plan as the Company determines
necessary or desirable to comply with all applicable laws, rules and regulations
or the requirements of any national securities exchanges.
(g)
Unfunded
Status of the Plan
.
Unless
otherwise determined by the Administrator, the Plan shall be unfunded and shall
not create (or be construed to create) a trust or a separate fund or funds.
The
Plan shall not establish any fiduciary relationship between the Company and
any
Participating Key Employee, any Non-Employee Director or other Person. To the
extent any Person holds any right by virtue of a grant under the Plan, such
right (unless otherwise determined by the Administrator) shall be no greater
than the right of an unsecured general creditor of the Company.
(h)
Governing
Law; Limitations on Actions
.
The
validity, construction, and effect of the Plan and any rules and regulations
relating to the Plan shall be determined in accordance with the laws of the
State of Wisconsin and applicable federal law. Any legal action or proceeding
with respect to this Plan, any Award or any award agreement, must be brought
within one year (365 days) after the day the complaining party first knew or
should have known of the events giving rise to the complaint.
(i)
Severability
.
If any
provision of the Plan or any Award Agreement or any Award is or becomes or
is
deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as
to
any Person or Award, or would disqualify the Plan, any Award Agreement or any
Award under any law deemed applicable by the Administrator, such provision
shall
be construed or deemed amended to conform to applicable laws, or if it cannot
be
so construed or deemed amended without, in the determination of the
Administrator, materially altering the intent of the Plan, any Award Agreement
or the Award, such provision shall be stricken as to such jurisdiction, Person,
or Award, and the remainder of the Plan, any such Award Agreement and any such
Award shall remain in full force and effect.
(j)
No
Fractional Shares
.
No
fractional Shares or other securities shall be issued or delivered pursuant
to
the Plan, any Award Agreement or any Award, and the Administrator shall
determine (except as otherwise provided in the Plan) whether cash, other
securities, or other property shall be paid or transferred in lieu of any
fractional Shares or other securities, or whether such fractional Shares or
other securities or any rights thereto shall be canceled, terminated, or
otherwise eliminated.
(k)
Headings
.
Headings
are given to the Sections and subsections of the Plan solely as a convenience
to
facilitate reference. Such headings shall not be deemed in any way material
or
relevant to the construction or interpretation of the Plan or any provision
thereof.
Section
9.
Definitions
As
used
in the Plan, the following terms shall have the respective meanings set forth
below when the initial letter of such term is capitalized:
(a)
“Administrator”
shall mean the Committee with respect to Key Employees and the Board with
respect to Non-Employee Directors.
(b)
“Affiliate”
shall mean any entity that, directly or through one or more intermediaries,
is
controlled by, controls, or is under common control with the Company within
the
meaning of Sections 414(b) or (c) of the Code,
provided
that, in
applying such provisions, the phrase “at least 50 percent” shall be used in
place of “at least 80 percent” each place it appears therein.
(c)
“Award”
shall mean any Option, Stock Appreciation Right, Performance Share, Performance
Unit, Restricted Stock or Restricted Stock Unit granted under the
Plan.
(d)
“Award
Agreement” shall mean any written agreement, contract, or other instrument or
document evidencing any Award.
(e)
A
person
shall be deemed to be the “Beneficial Owner” of any securities:
(i)
which
such Person or any of such Person’s Affiliates or associates has the right to
acquire (whether such right is exercisable immediately or only after the passage
of time) pursuant to any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, rights, warrants or options
or
otherwise;
provided
,
however
,
that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own,
(A)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person’s Affiliates or associates until such
tendered securities are accepted for purchase, or (B) securities issuable upon
exercise of Rights issued pursuant to the terms of the Company’s Rights
Agreement, dated as of January 28, 2000, between the Company and EquiServe
Trust Company, N.A. (as successor Rights Agent), as amended from time to time
(or any successor to such Rights Agreement), at any time before the issuance
of
such securities;
(ii)
which
such Person or any of such Person’s Affiliates or associates, directly or
indirectly, has the right to vote or dispose of or has “beneficial ownership” of
(as determined pursuant to Rule 13d-3 of the General Rules and Regulations
under
the Exchange Act), including pursuant to any agreement, arrangement or
understanding;
provided
,
however
,
that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any
security under this clause (ii) as a result of an agreement, arrangement or
understanding to vote such security if the agreement, arrangement or
understanding: (A) arises solely from a revocable proxy or consent given to
such
Person in response to a public proxy or consent solicitation made pursuant
to,
and in accordance with, the applicable rules and regulations under the Exchange
Act and (B) is not also then reportable on a Schedule 13D under the Exchange
Act
(or any comparable or successor report); or
(iii)
which
are
beneficially owned, directly or indirectly, by any other Person with which
such
person or any of such Person’s Affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as described in clause (ii) above) or
disposing of any voting securities of the Company.
(f)
“Board”
shall mean the Board of Directors of the Company.
(g)
A
“Change
of Control” shall mean the occurrence of an event described in any one of the
following paragraphs:
(i)
any
Person, other than (A) the Company or any of its subsidiaries, (B) a trustee
or
other fiduciary holding securities under any employee benefit plan of the
Company or any of its subsidiaries, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities or (D) a corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock in the Company
(“Excluded Persons”), is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its Affiliates after the effective date, pursuant to express
authorization by the Board that refers to this exception) representing 20%
or
more of either the then outstanding shares of Common Stock of the Company or
the
combined voting power of the Company’s then outstanding voting securities;
or
(ii)
the
following individuals cease for any reason to constitute a majority of the
number of directors of the Company then serving: (A) individuals who, on the
Effective Date constituted the Board and (B) any new director (other than a
director whose initial assumption of office is in connection with an actual
or
threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company’s
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on the effective date,
or whose appointment, election or nomination for election was previously so
approved (collectively the “Continuing Directors”);
provided
,
however
,
that
individuals who are appointed to the Board pursuant to or in accordance with
the
terms of an agreement relating to a merger, consolidation, or share exchange
involving the Company (or any direct or indirect subsidiary of the Company)
shall not be Continuing Directors for purposes of this Agreement until after
such individuals are first nominated for election by a vote of at least
two-thirds (2/3) of the then Continuing Directors and are thereafter elected
as
directors by the shareholders of the Company at a meeting of shareholders held
following consummation of such merger, consolidation, or share exchange; and
provided
further
,
that in
the event the failure of any such persons appointed to the Board to be
Continuing Directors results in a Change in Control of the Company, the
subsequent qualification of such persons as Continuing Directors shall not
alter
the fact that a Change in Control of the Company occurred; or
(iii)
the
shareholders of the Company approved a merger, consolidation or share exchange
of the Company with any other corporation or approve the issuance of voting
securities of the Company in connection with a merger, consolidation or share
exchange of the Company (or any director or indirect subsidiary of the Company)
pursuant to applicable stock exchange requirements, other than (A) a merger,
consolidation or share exchange which would result in the voting securities
of
the Company outstanding immediately prior to such merger, consolidation or
share
exchange continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any parent thereof)
at least 50% of the combined voting power of the voting securities of the
Company or such surviving entity or any parent thereof outstanding immediately
after such merger, consolidation or share exchange, or (B) a merger,
consolidation or share exchange effected to implement a recapitalization of
the
Company (or similar transaction) in which no Person (other than an Excluded
Person) is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities beneficially owned
by
such Person any securities acquired directly from the Company or its Affiliates
after the effective date, pursuant to express authorization by the Board that
refers to this exception) representing 20% or more of either the then
outstanding shares of common stock of the Company or the combined voting power
of the Company’s then outstanding voting securities; or
(iv)
the
shareholders of the Company approve of a plan of complete liquidation or
dissolution of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company’s assets (in one transaction
or a series of related transactions within any period of 24 consecutive months),
other than a sale or disposition by the Company of all or substantially all
of
the Company’s assets to an entity at least 75% of the combined voting power of
the voting securities of which are owned by Persons in substantially the same
proportions as their ownership of the Company immediately prior to such
sale.
Notwithstanding
the foregoing, if an Award is considered deferred compensation subject to Code
Section 409A and if the occurrence of a Change of Control will result in a
payment under such Award, then the definition of “Change of Control” herein
shall be modified to the extent needed for such definition to qualify as a
change of control within the meaning of Code Section 409A.
(h)
“Code”
shall mean the Internal Revenue Code of 1986, as amended from time to time.
Any
reference to a specific provision of the Code includes any successor provision
and the regulations and rules promulgated under such provision.
(i)
“Commission”
shall mean the United States Securities and Exchange Commission or any successor
agency.
(j)
“Committee”
shall mean the Compensation and Human Resource Committee of the Board (or any
successor committee thereto), or such other committee of the Board designated
by
the Board to administer the Plan and composed of not less than two directors,
each of whom is a “non-employee director for purposes of Section 16” within the
meaning of Rule 16b-3 and each of whom is an “outside director” within the
meaning of Section 162(m)(4)(C) of the Code.
(k)
“Effective
Date” shall mean the day the Plan is approved by the shareholders of the Company
provided that such approval is obtained within twelve months following the
date
of adoption of the Plan by the Board.
(l)
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time. Any reference to a specific provision of the Exchange Act includes any
successor provision and the regulations and rules promulgated under such
provision.
(m)
“Excluded
Items” shall mean any items which the Committee determines shall be excluded in
fixing Performance Goals, such as any gains or losses from discontinued
operations, any extraordinary gains or losses and the effects of accounting
changes.
(n)
“Fair
Market Value” shall mean, per Share on a particular date, the closing sales
price on such date on the New York Stock Exchange, or if no sales of Shares
occur on the date in question, on the last preceding date on which there was
a
sale on such market. If the Shares are not listed on the New York Stock
Exchange, but are traded on a national securities exchange or in an
over-the-counter market, the closing sales price (or if there is no closing
sales price reported, the average of the closing bid and asked prices) for
the
Shares on the particular date, or on the last preceding date on which there
was
a sale of Shares on that exchange or market, will be used. If the Shares are
neither listed on a national securities exchange nor traded in an
over-the-counter market, Fair Market Value shall be determined by the
Administrator. In addition, the Administrator shall establish the Fair Market
Value of any other property.
(o)
“Incentive
Stock Option” shall mean an Option granted under Section 6(a) of the Plan that
is intended to meet the requirements of Section 422 of the Code.
(p)
“Key
Employee” shall mean any officer or other key employee of the Company or of any
Affiliate who is responsible for or contributes to the management, growth or
profitability of the business of the Company or any Affiliate as determined
by
the Committee.
(q)
“Non-Employee
Director” shall mean any member of the Board who is not an employee of the
Company or of any Affiliate.
(r)
“Non-Qualified
Stock Option” shall mean an Option granted under Section 6(a) of the Plan that
is not intended to be an Incentive Stock Option and shall mean any option
granted to a Non-Employee Director.
(s)
“Option”
shall mean the right to purchase a Share at a specified price during a specified
period of time.
(t)
“Participant”
shall mean a Participating Key Employee or a Non-Employee Director who is
granted an Award.
(u)
“Participating
Key Employee” shall mean a Key Employee who is granted an Award.
(v)
“Performance
Goals” shall mean any goals the Administrator establishes for the Performance
Period that relate to one or more of the following for (i) the Company on a
consolidated basis, (ii) any one or more Affiliates or divisions of the Company
and/or (iii) any other business unit or units of the Company or an Affiliate
as
defined by the Administrator at the time of selection (in all cases after
excluding the impact of applicable Excluded Items): revenue; cash flow; net
cash
provided by operating activities; net cash provided by operating activities
less
net cash used in investing activities; cost of goods sold; ratio of debt to
debt
plus equity; profit before tax; gross profit; net profit; net sales; earnings
before interest and taxes; earnings before interest, taxes, depreciation and
amortization; Fair Market Value of Shares; basic earnings per share; diluted
earnings per share; return on shareholder equity; average accounts receivable
(calculated by taking the average of accounts receivable at the end of each
month); average inventories (calculated by taking the average of inventories
at
the end of each month); return on average total capital employed; return on
net
assets employed before interest and taxes; economic value added; return on
year-end equity; and/or in the case of Awards that the Administrator determines
will not be considered “performance based compensation” under Section 162(m) of
the Code, such other goals as the Administrator may establish.
(w)
“Performance
Period” shall mean any period for which a Performance Goal or Goals have been
established;
provided,
however
,
that
such period shall not be less than one year.
(x)
“Performance
Shares” shall mean any right granted under Section 6(d) of the Plan that will be
paid out as a Share (which, in specified circumstances, may be a Share of
Restricted Stock).
(y)
“Performance
Units” shall mean any right granted under Section 6(d) of the Plan to receive a
payment valued in relation to a unit the value of which is equal to the Fair
Market Value of one or more Shares, to the extent Performance Goals are
achieved.
(z)
“Person”
shall mean any individual, corporation, partnership, association, joint-stock
company, trust, unincorporated organization, or government or political
subdivision thereof.
(aa)
“Released
Securities” shall mean Shares of Restricted Stock with respect to which all
applicable restrictions have expired, lapsed, or been waived.
(bb)
“Restricted
Securities” shall mean Awards of Restricted Stock or other Awards under which
issued and outstanding Shares are held subject to certain
restrictions.
(cc)
“Restricted
Stock” shall mean any Share granted under Section 6(c) of the Plan, or, in
specified circumstances, a Share paid in connection with a Performance Share
under Section 6(d) of the Plan.
(dd)
“Restricted
Stock Unit” shall mean the right granted under Section 6(c) of the Plan to
receive a Share, which right may vest upon the achievement or partial
achievement of Performance Goals and/or following the end of a restriction
period.
(ee)
“Rule
16b-3” shall mean Rule 16b-3 as promulgated by the Commission under the Exchange
Act, or any successor rule or regulation thereto.
(ff)
“Shares”
shall mean shares of common stock of the Company and such other securities
or
property as may become subject to Awards or the Plan pursuant to an adjustment
made under Section 4(b) of the Plan.
(gg)
“Stock
Appreciation Right” shall mean any right granted under Section 6(b) of the
Plan.
REGAL
BELOIT CORPORATION
Dear
Shareholder:
Y
ou
are
cordially
invited
to
attend
the
Regal
Beloit
Corporation
Annual
Meeting
of
Shareholders
to
be
hel
d
a
t
9:3
0
A.M
.
Centra
l
Dayligh
t
T
im
e
o
n
Frida
y
,
Apri
l
20
,
2007
,
a
t
th
e
Com
p
any'
s
headquarters
,
200
S
t
ate
S
treet,
Beloit,
WI
535
1
1
.
The
accom
p
anying
Notice
of
Annual
Meeting
and
Proxy
S
t
atement
contain
detailed
information
as
to
the
formal
business
to
be
transacted
at
the
meeting.
Whether
or
not
you
plan
to
attend
the
meeting,
it
is
impor
t
ant
that
these
shares
be
voted.
Accordingl
y
,
please
complete, sign and date the proxy card attached below and return it in the
enclosed
postage-
paid
envelope.
In
the
alternative,
you
have
the
option
to
vote
these
shares
by
the
Internet
or
telephone
as
indicated
on
the
reverse
side
or
by
attending
the
meeting
and
voting
in
person.
Sincerely,
REGAL
BELOIT CORPORATION
DETACH
HERE
|
PROXY
REGAL
BELOIT CORPORATION
PROXY
FOR ANNUAL MEETING OF SHAREHOLDERS ON APRIL 20, 2007
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The
undersigned hereby appoints Henry W. Knueppel and Paul J. Jones
or either
of them as Proxies, each with the power to appoint his substitute,
and
hereby authorizes them to represent and to vote, as designated
on the
reverse side, all shares of common stock of REGAL BELOIT CORPORATION
(the
“Company”) held of record by the undersigned as of the close of business
on February 26, 2007 at the Annual Meeting of Shareholders to
be held on
April 20, 2007, at 9:30 A.M. Central Daylight Time, at the Company’s
headquarters, 200 State Street, Beloit, WI 53511, or any adjournment
or
postponement thereof.
This
Proxy, when properly executed, will be voted in the manner
directed herein
by the undersigned shareholder.
IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” ALL DIRECTOR NOMINEES
LISTED IN ITEM 1 AND “FOR” THE PROPOSALS IN ITEMS 2, 3 AND 4. THE PROXIES
ARE AUTHORIZED IN THEIR DISCRETION TO VOTE UPON SUCH OTHER
BUSINESS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT
THEREOF.
Please
mark, sign, date and return this card promptly using the
enclosed
envelope.
Address
Changes/Comments:
___________________________________________________________________________________
___________________________________________________________________________________________________________
(If
you noted any address change/comments above, please mark
corresponding box
on reverse side.)
Continued
and to be signed on Reverse
Side
SEE
REVERSE
SIDE
SEE REVERSE SIDE
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REGAL
BELOIT CORPORATION
200
STATE STREET
BELOIT,
WI 53511-6254
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VOT
E
B
Y
INTERNE
T
-
www.proxyvote.com
Us
e
th
e
Interne
t
t
o
transmi
t
you
r
votin
g
instruction
s
an
d
for
electroni
c
deliver
y
o
f
informatio
n
u
p
unti
l
1
1:5
9
P
.M
.
Eastern
Tim
e
th
e
da
y
befor
e
th
e
meetin
g
date
.
Hav
e
you
r
prox
y
car
d
in
han
d
whe
n
yo
u
acces
s
th
e
we
b
sit
e
an
d
follo
w
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e
instructions
t
o
obtai
n
you
r
record
s
an
d
t
o
creat
e
a
n
electroni
c
voting
instructio
n
form.
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VOT
E
B
Y
PHON
E
-
1-800-690-6903
Us
e
an
y
touch-ton
e
telephon
e
t
o
transmi
t
you
r
votin
g
instruction
s up
until 11:59 P.M. Eastern Time the day before the meeting date. Have
your proxy card in hand when you call and then follow the
instructions.
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VOT
E
B
Y
MAIL
Mark
,
sig
n
an
d
dat
e
you
r
prox
y
car
d
an
d
retur
n
i
t
i
n
th
e
postage-
pai
d
envelop
e
w
e
hav
e
provide
d
o
r
retur
n
i
t
t
o
Rega
l
Beloit
Corporation
,
c/
o
AD
P
,
5
1
Mercede
s
W
a
y
,
Edgewood
,
N
Y
1
1717.
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TO
VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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RGLBL
1 KEEP THIS PORTION FOR YOUR RECORDS
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DETACH
AND RETURN THIS PORTION ONLY
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THIS
PROXY
CARD IS VALID ONLY WHEN SIGNED, DATED AND RETURNED.
| REGAL BELOIT CORPORATION | ||||||||||||
| The Board of Directors recommends a vote FOR | ||||||||||||
| all director nominees listed below and FOR | ||||||||||||
| Proposals 2, 3 and 4. | ||||||||||||
| Election of Directors | Vote on Other Proposals | |||||||||||
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For
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Against
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Withhold |
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For
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Against |
Abstain
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| 1. | The election of: | 2. | To approve an amendment to the Company's |
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| (three directors for terms expiring in 2010) | Articles of Incorporation that will increase the | |||||||||||
| number of shares of Common Stock that the | ||||||||||||
| 1a) Christoopher L. Doerr |
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company is authorized to issue. | ||||||||
| 3. | To approve the Regal Beloit Corporation 2007 |
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| 1b) Mark J. Gliebe |
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Equity Incentive Plan. | ||||||||
| 4. | To ratify the selection of Deloitte & Touch |
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| 1c) Curtis W. Stoelting |
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LLP as the Company's independent auditors | ||||||||
| (one director for a team expiring in 2009) | for 2007. | |||||||||||
| 5 . | In their discretion, the proxies are authorized to vote upon such other | |||||||||||
| 1d) G. Frederick Kasten, Jr. |
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business as may properly come before the meeting. | ||||||||
| For address changes/comments, please check this box and write them on the back where indicated. |
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PLEASE
SIGN EXACTLY AS NAME APPEARS ON THIS CARD.
When shares are held by joint tenants, both
should
sign. When
signing as attorney, executor, administrator,
trustee or
guardian,
please give full title as such. If a corporation,
please sign full
corporate name by president or other authorized
officer. If a
partnership, pleas sign in partnership name
by
authorized person.
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| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | |||||||||