December 4, 1997
Dear Shareholder Member:
You are cordially invited to attend the Company's annual
meeting at 10:00 A.M., local time, on Wednesday, January 14,
1998 in the Auditorium of the Rockford, Illinois, plant.
Registration for the meeting will be in the Cafeteria Atrium
located at the rear of the plant. While the formal meeting
begins at 10:00 A.M., we will have an informal social period
from 9:00 A.M. to 9:45 A.M. in the Cafeteria Atrium which
will provide an opportunity for you to talk with members of
our management team.
Parking is available directly behind the plant. A map is
enclosed with this notice.
Please complete and return your proxy card now whether or
not you plan to attend.
Sincerely yours,
WOODWARD GOVERNOR COMPANY
John A. Halbrook
Chairman, Board of Directors
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
January 14, 1998
The annual meeting of the shareholder members of Woodward
Governor Company, a Delaware corporation, will be held in
the Company's Auditorium, 5001 North Second Street,
Rockford, Illinois, on Wednesday, January 14, 1998, at 10:00
a.m., local time, for the following purposes:
1. To elect three directors to serve for a term of
three years each;
2. To consider and act upon a proposal to amend the
Woodward Governor Company 1996 Long-Term Incentive
Compensation Plan; and
3. To transact such other business as may properly
come before the meeting or any postponement or adjournment
thereof.
Shareholders of record at the close of business on November
18, 1997 are entitled to vote at the meeting.
By Order of the Board of Directors
WOODWARD GOVERNOR COMPANY
Carol J. Manning
Corporate Secretary
December 4, 1997
YOUR VOTE IS IMPORTANT
Even if you plan to attend the meeting in
person, please date, sign and return your
proxy in the enclosed envelope. Prompt
response is helpful and your cooperation will
be appreciated.
<PAGE>
PROXY STATEMENT
FOR
ANNUAL
MEETING
OF
SHAREHOLDERS
Wednesday, January 14, 1998
TO THE SHAREHOLDER MEMBERS:
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of proxies for use at the
annual meeting of shareholder members of Woodward Governor Company
(the "Company") to be held in the Company's Auditorium, 5001 North
Second Street, Rockford, Illinois, on January 14, 1998 at 10:00
A.M., local time, and at any adjournment thereof.
A copy of the Company's Annual Report for the fiscal year ended
September 30, 1997, including audited financial statements,
accompanies this Proxy Statement. The financial statements
contained therein are not deemed material to the exercise of
prudent judgment in regard to any matter to be acted upon at the
Annual Meeting and, therefore, such financial statements are not
incorporated by reference into this Proxy Statement. This Proxy
Statement was mailed to shareholder members on or about December 4,
1997.
A form of proxy is enclosed for use at the meeting or any
postponement or adjournment thereof. If the proxy is executed and
returned, it may nevertheless be revoked at any time, insofar as it
has not been exercised, by notice to the Secretary of the Company,
by submission of a proxy bearing a later date or by voting in
person at the meeting. Unless revoked, the shares represented by
validly executed proxies will be voted at the meeting in accordance
with the directions noted thereon. Absent such directions, the
enclosed proxy gives discretionary authority to the attorneys named
therein, or their substitutes. Each outstanding share is entitled
to one vote on each matter submitted to a vote, except that in the
election of directors each shareholder is entitled to cast as many votes as the
number of shares held by such shareholder multiplied by the number
of directors to be elected and may cast all such votes for the
election of one nominee or distribute such votes among either two
or three nominees as such shareholder chooses. Shares represented by validly
executed proxies will be cumulatively voted so as to elect all or as many as
possible of such director nominees in such order as the attorneys named therein
shall determine unless the shareholder has otherwise indicated on the
proxy. For the election of directors, the three nominees who
receive the most votes will be elected. A majority of the votes
cast by holders of Common Stock is required to adopt the First
Amendment to the Woodward Governor Company 1996 Long-Term Incentive
Compensation Plan.
The shares represented by proxies will be voted as directed or, if
no specification is made, "FOR" the election of the Board's
nominees to the Board of Directors, "FOR" the First Amendment to
the 1996 LongTerm Incentive Compensation Plan and in the discretion
of the named proxies on other matters properly before the meeting.
The Board of Directors has fixed November 18, 1997 as the record
date for the determination of shareholder members entitled to vote
at the meeting. Accordingly, only shareholder members of record at
the close of business on said date will be entitled to vote at the
meeting. As of November 18, 1997, the Company had outstanding
11,448,118 shares of Common Stock, $0.00875 par value.
Votes cast by proxy or in person at the meeting will be tabulated
by the inspectors of election appointed for the meeting and will
determine whether or not a quorum is present. The inspectors will
treat abstentions as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but as unvoted
for purposes of determining the approval of any matter submitted to
the shareholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares
to vote on a particular matter, those shares will not be considered
as present and entitled to vote with respect to that matter.
SECURITY OWNERSHIP OF PRINCIPAL HOLDERS AND EXECUTIVE OFFICERS
The following table sets forth as of November 18, 1997 information
provided to the Company concerning ownership of the Company's
outstanding Common Stock by beneficial holders of more than 5% of
the Common Stock, the named executive officers and all directors
and executive officers as a group:
<TABLE>
<CAPTION>
<S> <C> <C>
Shares of Common Stock Percent of
Beneficially Owned as of Common Stock
Name November 18, 1997 Outstanding
Principal Holders
Woodward Governor Company
Profit Sharing Trust
5001 North Second Street
Rockford, Illinois 61125-7001 2,629,296 (1) 22.97%
AMCORE Bank N.A., Rockford
501 Seventh Street
Rockford, Illinois 61110-0037 1,137,822 (2) 9.94%
Mary B. Bittle
111 Emerson Street, # 643
Denver, Colorado 80218 708,772 (3) 6.19%
Quest Advisory Corp.
Quest Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, New York 10019 725,284 (4) 6.34%
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202 668,400 (5) 5.84%
Non-Director Executive Officers
Stephen P. Carter
Vice President, Chief Financial
Officer and Treasurer 42,181 (6) 0.37%
Charles F. Kovac
Vice President 16,277 (6) 0.14%
C. Phillip Turner
Vice President 71,046 (6) 0.62%
All directors and executive
officers as a group - 12 persons 425,243 (6)(7) 3.71%
</TABLE>
(1) Shares owned by the Woodward Governor Company Profit Sharing
Trust are held in its Member Investment and Stock Ownership
Plan (the "Plan"). Vanguard Fiduciary Trust serves as Trustee
of the Profit Sharing Trust. The Woodward Stock Plan portion
of the Plan holds 2,130,988 shares of Common Stock. Some of
the shares held in the Profit Sharing Trust are allocated to
participant accounts and the rest of the shares will be
allocated to participants as the principal and interest on the
current outstanding loan to the Plan are repaid. The Plan
directs the Trustee to vote the shares allocated to
participant accounts under the Woodward Stock Plan portion of
the Plan as directed by such participants and to vote all
allocated shares for which no timely instructions are received
in the same proportion as the allocated shares for which
instructions are received. The remaining shares in the Plan
are voted by the Trustee as directed by the Plan's
Administrative Committee. In the event of a tender or exchange
offer, participants have the right individually to decide
whether to tender or exchange shares in their account. The
Plan directs the Trustee to tender or exchange all allocated
shares for which no timely instructions are received in the
same proportion as the allocated shares with respect to which
it does receive directions. The remaining unallocated shares
are tendered or exchanged by the Trustee as directed by the
Plan's Administrative Committee.
(2) The Bank has advised the Company that 1,137,822 shares are
owned by the Bank in various fiduciary capacities. Included
are 614,636 shares in which Mary B. Bittle has a beneficial
interest.
(3) Private investor and retired Director. Includes 233,260 shares
held by the Irl C. Martin Trust of which Mrs. Bittle is one of
three trustees and an income beneficiary with power of
appointment as to one-half of the assets; 381,376 shares held
by the Dorothy C. Martin Trust of which Mrs. Bittle is one of
three trustees and an income beneficiary with power of
appointment as to one-half of the assets; 26,332 shares held
by the Billie Bittle Marital Trust Number One of which Mrs.
Bittle is the trustee and the income beneficiary; 6,908 shares
held by the Billie Bittle Family Trust of which Mrs. Bittle is the
trustee, is the income beneficiary, and has a power of
appointment and 60,896 shares held by Mary Barbara Bittle
Trust, a revocable living trust of which Mrs. Bittle is the
trustee.
(4) Based on Schedule 13G as filed by Quest Advisory Corp. and
Quest Management Company with the Securities and Exchange
Commission on February 10, 1997, adjusted to reflect the four-
for-one stock split effective January 23, 1997.
(5) Based on advice received from T. Rowe Price Associates, Inc.
which has sole investment power for all shares and sole voting
power for 97,400 shares, but disclaims beneficial ownership
with respect to all such shares.
(6) Includes options to purchase shares of Common Stock as
follows: Mr. Carter 40,668; Mr. Kovac 14,931 and Mr. Turner
45,626. Also includes shares (does not include fractional
shares) allocated to participant accounts of executive
officers under the Woodward Governor Company Member Investment
and Stock Ownership Plan. Plan participants direct the Trustee
to vote the shares allocated to participant accounts under the
Woodward Stock Plan portion of the Plan.
(7) See table under "ELECTION OF DIRECTORS."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
directors and certain officers and beneficial owners of the
Company's Common Stock to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of common stock. So far as the Company is
aware, based solely upon a review of the reports known by it to
have been filed with the SEC, its compensation programs involving
its equity securities, and representations of its directors and
officers, all of the required filings for the fiscal year ended
September 30, 1997 have been timely made.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION TO THE BOARD
Three directors are to be elected at the annual meeting. Proxies
will be voted for the election of Messrs. Vern H. Cassens, Carl J.
Dargene and Thomas W. Heenan unless the shareholder signing such
proxy withholds authority to vote for one or more of these nominees
in the manner described on the proxy. Mr. Cassens, Mr. Dargene and
Mr. Heenan are directors of the Company whose terms in office
expire this year. If elected, subject to provisions of the
Company's Bylaws summarized under "DIRECTORS' QUALIFICATIONS," each
of the nominees will hold office for a term ending on the date of
the third annual meeting of shareholders following the January 14,
1998 meeting. The Company does not expect that any of the nominees
will be unavailable for election, but if that should occur, proxies
may be voted for a substitute nominee or nominees selected by the
Board.
The Board of Directors recommends a vote "FOR" the election of the
Board's nominees to the Board of Directors.
INFORMATION CONCERNING NOMINEES AND INCUMBENT DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name, Age, Principal Year First Shares of Common Stock Percent of
Occupation and Other Elected a Beneficially Owned as of Common Stock
Information Director November 18, 1997 (1) Outstanding
Nominees for Election/Class II/
Term Expiring 2001
Vern H. Cassens, 65, is
retired Senior Vice President
and Chief Financial
Officer of the Company 1977 84,972 0.74%
Carl J. Dargene, 67, is
Chairman of the Board of
AMCORE Financial, Inc.,
Rockford, Illinois (2) 1990 8,436 0.07%
Thomas W. Heenan, 66, is
a retired partner in the
law firm of Chapman and
Cutler, Chicago, Illinois 1986 18,836 0.16%
Incumbent Directors/Class I/
Term Expiring 2000
J. Grant Beadle, 64, is
retired Chairman and Chief
Executive Officer of Union
Special Corporation, a
manufacturer of industrial
sewing machines (3) 1988 5,956 0.05%
Lawrence E. Gloyd, 65, is
Chairman and Chief Executive
Officer of CLARCOR Inc.,
Rockford, Illinois, a manufacturer
of filtration and consumer
packaging products (4) 1994 6,292 0.05%
J. Peter Jeffrey, 64, is
retired Vice President of
Development at Father
Flanagan's Boys' Home
in Boys Town, Nebraska 1981 6,524 0.06%
Incumbent Directors/Class III/
Term Expiring 1999
John A. Halbrook, 52, is
Chairman and Chief Executive
Officer of the Company 1991 151,752 1.33%
Michael T. Yonker, 55, is
President and Chief Executive
Officer of Portec, Inc.,
which has operations in the
construction equipment,
materials handling and railroad
products industries (5) 1993 6,036 0.05%
</TABLE>
(1) Includes the maximum number of shares which might be deemed to
be beneficially owned under rules of the Securities and
Exchange Commission, including some duplication. Includes
options to purchase shares of Common Stock as follows: Mr.
Cassens 41,930 and Mr. Halbrook 142,354. Also includes shares
(does not include fractional shares) allocated to participant
accounts of executive officers under the Woodward Governor
Company Member Investment and Stock Ownership Plan. The Plan
directs the Trustee to vote the shares allocated to
participant accounts under the Woodward Stock Plan portion of the Plan as
directed by such participants and to vote all allocated shares for
which no timely instructions are received in the same
proportion as the allocated shares for which instructions are
received.
(2) Serves as a director of AMCORE Financial, Inc. and CLARCOR
Inc.
(3) Serves as a director of Portec, Inc. and William Blair Mutual
Funds, Inc.
(4) Serves as a director of CLARCOR Inc., AMCORE Financial, Inc.,
Thomas Industries, Inc. and G.U.D. Holdings Ltd.
(5) Serves as a director of Portec, Inc. and Modine Manufacturing
Company, Inc.
All nominees and incumbent directors except Mr. Jeffrey have been
engaged in their principal occupation, or in other responsible
positions with the same organizations, for at least the last five
years. Mr. Jeffrey retired as Vice President of Development at
Father Flanagan's Boys' Home in December 1995.
The Board of Directors met five times during the last fiscal year;
all directors attended more than 75% of the aggregate of the total
meetings of the Board of Directors and all committees of the Board
on which they served.
DIRECTORS' COMMITTEES
The Board of Directors has established the following committees,
among others: Audit Committee, Compensation Committee, Executive
Committee, Selection Committee and Stock Option Committee.
The Audit Committee consists of Mr. Jeffrey (Chairman), Mr. Beadle,
Mr. Heenan and Mr. Yonker. The Audit Committee is responsible for
recommending to the Board the engagement of independent accountants
to audit the Company's books. The Committee reviews the scope and
approach of both the annual independent audit and internal audits
and reviews the Company's system of internal accounting controls.
The Committee met three times during the year ended September 30,
1997.
The Compensation Committee consists of Mr. Dargene (Chairman), Mr.
Beadle, Mr. Gloyd, Mr. Heenan and Mr. Yonker. The Compensation
Committee is responsible for recommending to the Board the base
compensation of the Company's officers and key personnel. The
Committee evaluates the performance of and reviews the results of
the annual member evaluation for those individuals. The Committee
met twice during the year ended September 30, 1997.
The Executive Committee consists of Mr. Halbrook (Chairman), Mr.
Beadle, Mr. Dargene and Mr. Gloyd. The Executive Committee is
responsible for exercising all the powers and authority of the
Board of Directors in the management of the business when the Board
is not in session and when in the opinion of the Chairman the
matter should not be postponed until the next scheduled meeting of
the Board. The Committee may declare cash dividends. The Committee
may not authorize certain major corporate actions such as amending
the Certificate of Incorporation, amending the Bylaws, adopting an
agreement of merger or consolidation or recommending the sale,
lease or exchange of substantially all of the Company's assets. The
Committee met twice during the year ended September 30, 1997.
The Selection Committee consists of Mr. Beadle (Chairman), Mr.
Dargene, Mr. Halbrook and Mr. Heenan. The Selection Committee is
responsible for recommending to the Board qualified individuals to
fill any vacancies on the Board. The Committee did not hold any
formal meetings during the year ended September 30, 1997.
No procedures have been established for the consideration by the
Selection Committee of nominees recommended by shareholder members
of the Company.
The Stock Option Committee consists of Mr. Yonker (Chairman), Mr.
Beadle and Mr. Gloyd. The Stock Option Committee administers the
Company's Long-Term Incentive Compensation Plan, determining and
taking all action, including granting of all incentives to eligible
working members, in accordance with the terms of the Plan. The
Committee met twice during the year ended September 30, 1997.
All actions by committees are reported to the Board at the next
scheduled meeting and are subject to approval and revision by the
Board. No legal rights of third parties may be affected by Board
revisions.
DIRECTORS' QUALIFICATIONS
The Company's Bylaws provide that the term of any director shall
end on the September 30th next following the director's seventieth
birthday, unless otherwise determined by the Board, and that no
person may serve as a director unless such person agrees in
connection with such service to be guided by the philosophy and
concepts of human and industrial association of the Company as
expressed in its Constitution. Section 2.8 of the Company's Bylaws
requires adequate notice to the Company with respect to nominees
for directors other than those nominated by the Board. A copy of
Section 2.8 is attached to this Proxy Statement as Exhibit A.
EXECUTIVE COMPENSATION
The following table sets forth a summary for the last three fiscal
years of the cash and non-cash compensation paid to John A.
Halbrook, Chairman and Chief Executive Officer of the Company, and
to each of the other four most highly compensated executive
officers of the Company whose total compensation in the year ended
September 30, 1997 exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C>
Long-Term
Compensation
Awards
Securities
Annual Compensation Underlying All Other
Name and Principal Position Year Salary (1) Bonus (2) Options (#) Compensation (3)
John A. Halbrook 1997 $410,125 $161,608 53,600 $41,148
Chairman and Chief 1996 326,129 186,615 30,960 33,316
Executive Officer 1995 342,746 - - 28,621
C. Phillip Turner 1997 208,098 81,235 17,600 26,139
Vice President 1996 180,830 104,597 9,980 22,460
Aircraft Controls Group 1995 172,786 - - 18,280
Charles F. Kovac 1997 159,295 40,815 8,800 18,125
Vice President 1996 94,065 13,363 1,960 9,317
Industrial Controls Group 1995 (4) - - - -
Stephen P. Carter 1997 150,779 62,945 17,600 17,185
Vice President, Chief 1996 111,040 29,449 3,000 12,179
Financial Officer and 1995 109,368 - - 8,196
Treasurer
Gary D. Larrew 1997 136,092 40,993 4,000 14,540
Vice President 1996 129,302 14,389 2,740 12,482
Business Development 1997 136,655 - - 13,147
</TABLE>
(1) No executive officer received personal benefits in excess of the
lesser of 10% of cash compensation or $50,000.
(2) Includes amounts deferred pursuant to the Unfunded Deferred
Compensation Plan No. 2.
(3) Includes Company contributions to the Member Investment and
Stock Ownership Plan, Retirement Income Plan and Unfunded
Deferred Compensation Plans.
Company contributions to the Member Investment and Stock
Ownership Plan for the account of each of the executive officers
listed included the following amounts for the years ended:
September 30, 1997, Mr. Halbrook $12,739; Mr. Turner $12,058; Mr.
Kovac $10,459; Mr. Carter $9,840 and Mr. Larrew $7,350; September
30, 1996, Mr. Halbrook $11,527; Mr. Turner $11,205; Mr. Kovac
$5,729; Mr. Carter $7,460 and Mr. Larrew $5,597; September 30,
1995, Mr. Halbrook $9,736; Mr. Turner $8,641; Mr. Carter $4,094
and Mr. Larrew $6,759.
Company contributions to the Retirement Income Plan for the
account of each of the executive officers listed included the
following amounts for the years ended: September 30, 1997, Mr.
Halbrook $8,160; Mr. Turner $11,840; Mr. Kovac $6,651; Mr. Carter
$6,390 and Mr. Larrew $7,190; September 30, 1996, Mr. Halbrook
$7,500; Mr. Turner $10,950; Mr. Kovac $3,588; Mr. Carter $4,719
and Mr. Larrew $6,885; September 30, 1995, Mr. Halbrook $7,350;
Mr. Turner $9,639; Mr. Carter $4,102 and Mr. Larrew $6,388.
Company contributions to the Unfunded Deferred Compensation Plan
were as follows: September 30, 1997, Mr. Halbrook $20,249 and Mr.
Turner $1,206; September 30, 1996, Mr. Halbrook $14,289 and Mr.
Turner $305; September 30, 1995, Mr. Halbrook $11,534.
(4) Mr. Kovac was elected an executive officer of the Company in
fiscal year 1996.
The Company's pension plan was terminated as to future contributions
on September 30, 1971 with all benefits fully vested. The plan when
terminated provided for payments of $2.00 per month for each year of
service beyond two years, payable at age 65; however, accumulated
reserves are sufficient to enable the insurance contract holder to
provide an additional 31% benefit to all participants. Annual benefits
will remain constant at normal retirement and are as follows: Mr.
Halbrook $0; Mr. Turner $283; Mr. Kovac $0; Mr. Carter $0 and Mr.
Larrew $0.
DIRECTOR COMPENSATION
Directors who are not worker members are paid a monthly retainer plus
a meeting fee. Effective January 1, 1997 the monthly retainer was
increased to $1,850 per month plus $900 for each Board meeting
attended. Committee members are compensated at the rate of $1,350 for
committee chairmen and $900 for committee members for each meeting
attended and at the rate of $200 for participation in telephonic
meetings. Directors are also reimbursed for travel expenses incurred
in attending meetings.
CERTAIN TRANSACTIONS
See "Compensation Committee Interlocks and Insider Participation."
STOCK OPTIONS
The following tabulation shows information with respect to stock
options granted during fiscal year 1997 under the Woodward Governor
Company 1996 Long-Term Incentive Compensation Plan to the individuals
named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1997
Individual Grants
<S> <C> <C> <C> <C> <C>
Number of % of Total Potential Realizable Value
Securities Options at Assumed Annual Rates of
Underlying Granted to Stock Price Appreciation
Options Employees For Option Term (3)
Granted (#) in Fiscal Exercise Expiration
Name (1) Year Price (2) Date 5%($) 10%($)
John A. Halbrook 53,600 33.0% $23.50 11/17/06 $792,156 $2,007,478
C. Phillip Turner 17,600 10.9% 23.50 11/17/06 260,111 659,172
Charles F. Kovac 8,800 5.4% 23.50 11/17/06 130,055 329,586
Stephen P. Carter 17,600 10.9% 23.50 11/17/06 260,111 659,172
Gary D. Larrew 4,000 2.5% 23.50 11/17/06 59,116 149,812
</TABLE>
(1) Consists of non-qualified options issued for a ten-year term.
(2) Closing price of Common Stock as reported on the Nasdaq National
Market as of November 18, 1996.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that
the stock price on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and the option
is exercised and sold on the last day of its term for the appreciated
stock price. No gain to the optionee is possible unless the
stock price increases over the option term.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in
fiscal 1997 by the individuals named in the Summary Compensation
Table and the value of such officers' unexercised options at
September 30, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Value Options at In-the-Money Options
on Exercise Realized Fiscal Year-End(#) at Fiscal Year-End($)
Name (#) ($) Exercisable Exercisable
John A. Halbrook 0 $0 84,560 $1,185,290
C. Phillip Turner 0 0 27,580 385,783
Charles F. Kovac 0 0 10,760 137,215
Stephen P. Carter 0 0 20,600 257,525
Gary D. Larrew 0 0 6,740 96,348
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee reviews and administers the Company's
compensation program. This program includes guidelines to recognize
achievement of both Company and individual performance goals as an
integral part of the compensation program for key management personnel.
A total market-based compensation for key management positions
recognizing experience and competence level is determined through
the use of salary surveys; this process establishes a target total
compensation for the individual. The actual compensation is
comprised of three components:
(1) Base compensation is set within a range of 70% to 85% of
target total cash compensation for the position, thereby
putting at least 15% but not more than 30% of total
compensation "at risk." The greater the responsibility, the
greater the risk assigned to a position.
The Compensation Committee, in determining the base
compensation to be paid to each executive officer and certain
key management worker members, other than the Company's
Chairman and Chief Executive Officer, reviewed recommendations
prepared by the Company's Chairman and Chief Executive
Officer. These recommendations were based on executive
compensation reviews prepared by outside compensation
consultants as well as the executive officer's or key
management worker member's individual performance. Such
performance was based on individual experience,
responsibilities, management and leadership abilities, and job
performance. The Compensation Committee recommends the base
compensation as well as individual compensation goals and
incentives for the Company's executive officers to the Board
of Directors for approval. The determination of the Chairman
and Chief Executive Officer's annual base compensation is
specifically discussed below.
The Compensation Committee's determination of each executive
officer's and key management worker member's base compensation
for the year ended September 30, 1997 was designed to
accomplish two goals. The first goal was to pay executive
officers and key management worker members competitively to
attract, retain and motivate a high-quality senior management
team. The second goal was to link total annual cash
compensation to the individual performance of each executive
officer or key management worker member. The Company's stock
performance was not specifically considered by the
Compensation Committee in determining base compensation for
the Company's executive officers and key management worker
members.
(2) An annual incentive compensation is paid based on direct
individual performance, achievement of short-term objectives
and the overall performance of the Company or individual
groups or operating units, as appropriate for the position.
The Compensation Committee consults with the Chairman and
Chief Executive Officer regarding eligibility of executive
officers and key management worker members of the Company for
participation in this program, determining the appropriate
performance goals and confirming attainment or lack thereof.
If certain minimum target results are not achieved, no annual
incentive will be paid. If targeted levels are attained,
annual incentive levels range from 18% of base salary to a
practical maximum of approximately 43% of base salary of
participants. However, given outstanding performance, there is
no formal maximum.
(3) Stock Options may be awarded by the Stock Option Committee
under the Woodward Governor Company 1996 Long-Term Incentive
Compensation Plan (the "Plan") based on the performance of the
Company in the last fiscal year and the participant's
contributions to that performance, and his or her present and
potential contributions to the performance of the Company.
The purpose of the Plan is to further the long-term growth and
profitability of the Company by offering long-term incentives
to certain key management worker members of the Company and to
provide such participating worker members with an equity
position in the Company to further align their interests with
those of the shareholders of the Company.
Under the terms of the Plan, the Stock Option Committee of the
Board of Directors is authorized to grant (i) incentive stock
options under the Internal Revenue Code of 1986 and (ii)
nonqualified stock options to key management worker members of
the Company, its subsidiaries or affiliates who are designated
by the Committee. In fiscal year 1997 there were sixteen
worker members eligible to participate in the Plan.
Performance goals may be modified from time to time
retroactively or otherwise as the Committee deems appropriate.
Such criteria may include performance measurements such as:
(1) shareholder value created, (2) business group
profitability, (3) cash flow return on invested assets and (4)
personal performance goals. The weighting of the goals vary
according to responsibility. Payout of incentive compensation
is set at different levels dependent on achievement of (1) a
threshold amount, (2) a target amount and (3) an amount
considered outstanding.
The option price of shares granted under the plan shall be
determined by the Committee at the date of the grant. This
option price will not be less than 100% of the fair market
value of the common stock on the October 1 coincident with or
immediately preceding the date the option is granted. The
proposed amendment to the Plan changes this requirement by
providing that the option price will not be less than the fair
market value of the Common Stock on the date the option is
granted and also recognizes the listing of the Company's
Common Stock on the Nasdaq National Market by stipulating
Nasdaq as the source of that valuation. In the case of
incentive stock options or options for which the Company
desires to preserve the Company's tax deduction under Section
162(m) of the Code for compensation paid, the option price
will not be less than the fair market value of the Company's
Common Stock on the date of grant.
COMPENSATION OF THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The compensation of John A. Halbrook, Chairman and Chief Executive
Officer of the Company, was determined in the same manner as for
all other executive officers. Mr. Halbrook's base salary in 1997
was $392,083, a rate that put 30% of his target compensation at
risk.
Of the total incentive compensation available to Mr. Halbrook, 67%
was based on total Company performance as measured by shareholder
value created. Shareholder value created was measured by combined
increased earnings, improvement in utilization of receivables,
inventory and investment in capital assets; 33% was based on
attainment of individual objectives, some of which were
quantitative in nature. Mr. Halbrook's incentive compensation for
1997 was $161,608.
Options granted under the 1996 Long Term-Incentive Compensation
Plan confer the right to purchase shares of Woodward Governor
Company Common Stock. This award was based in part on the same
measures as the incentive compensation.
Compensation Committee: Carl J. Dargene, Chairman
J. Grant Beadle
Lawrence E. Gloyd
Thomas W. Heenan
Michael T. Yonker
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Dargene, Chairman of the Board of AMCORE Financial, Inc., is
also Vice Chairman of its wholly-owned subsidiary, AMCORE Trust
Company, and Chairman of its wholly-owned subsidiary, AMCORE Bank
N.A., Rockford. In the ordinary course of its business the Company
maintains a normal commercial banking relationship with AMCORE Bank
N.A., Rockford. The maximum amount of borrowings outstanding at
any time during the year ended September 30, 1997 aggregated
$2,700,000. Interest has been charged at the bank's prime rate.
Mr. Dargene serves as a member of the Company's Board and chairman
of the Company's Compensation Committee. Mr. Halbrook, Chairman
and Chief Executive Officer of the Company, serves as a member of
the Company's Board and serves as a member of the Board of
Directors of AMCORE Trust Company.
COMMON STOCK PERFORMANCE
The following Performance Graph compares the Company's cumulative
total return on its Common Stock for a five year period (September
30, 1993 to September 30, 1997) with the cumulative total return of
the S&P Composite 500 Stock Index and the S&P Machinery Diversified
Index.
TOTAL RETURN TO SHAREHOLDERS
( A DESCRIPTION OF THE GRAPHICAL MATERIAL APPEARS
AS AN APPENDIX TO THIS DOCUMENT )
Assumes that the value of the investment in the Company's Common
Stock and each index was $100 on September 30, 1993 and that all
dividends were reinvested.
APPROVAL OF THE FIRST AMENDMENT TO
THE WOODWARD GOVERNOR COMPANY
1996 LONG-TERM INCENTIVE COMPENSATION PLAN
On November 18, 1997, the Board of Directors adopted the First
Amendment to the Woodward Governor Company 1996 Long-Term Incentive
Compensation Plan (the "Plan"), subject to shareholder approval.
The proposed amendment is set forth in Exhibit B.
WHY AMEND THE PLAN?
The shares provided by the original Plan were not adequate to fully
meet our goals of (1) providing a competitive level of stock
options for our senior managers and (2) increasing the level of
participation in the stock option plan, including broadening the
base of stock option participants in our current business units as
well as for additional management of future new businesses and
ventures.
WHAT ARE THE CHANGES?
The original Plan reserved for issuance under the Plan 800,000
shares of Common Stock (adjusted to reflect the four-for-one stock
split effective January 23, 1997) with the stipulation that half of
those shares be available for grant in the period of January 1,
1996 to December 31, 1998 and half available for grant in the
period of January 1, 1999 to December 31, 2001. The First Amendment to the
Plan removes the stipulation regarding issuance of a maximum number
of shares in specific time periods. This change will provide
additional flexibility in administering the Plan and awarding those
shares available under the Plan in order to realize the full
potential benefit of such an incentive program.
Two new provisions have been added with respect to the number of
shares available under the Plan. Beginning with the 1999 calendar
year, shares available under the Plan will be increased by 1.5% of
shares of Common Stock outstanding on the first day of each
respective calendar year (such increase may not exceed 250,000
shares in any calendar year). Further, if the Committee deems it
necessary, the number of shares may be increased by 1% of the
Common Stock outstanding on the first day of each respective
calendar year (such increase may not exceed 200,000 shares in any
calendar year). Both of these provisions will provide a continual
source of shares for the term of the Plan and will allow additional
flexibility if deemed beneficial to promote the intent of the Plan.
The original Plan provided that no participant would receive
incentives covering more than 320,000 shares during the term of the
Plan. The amendment provides that no participant may receive in
any calendar year incentives covering more than 100,000 shares.
This change provides greater flexibility to award worker members
appropriately for their performance and simplifies the
administration of the Plan.
With respect to nonqualified stock options, the original Plan
stated that the option price per share would not be less than the
fair market value of the Common Stock on the October 1 coincident
with or immediately preceding the date the option is granted. The
Amendment changes this requirement by providing that the option
price will not be less than the fair market value of the Common
Stock on the date the option is granted and also recognizes the
listing of the Company's Common Stock on the Nasdaq National Market
by stipulating Nasdaq as the source of that valuation.
To recognize the fact that options are awarded under the Plan based
on past performance and to provide incentive to worker members
nearing retirement, the proposed amendment will also permit a
retired worker member to be eligible to receive a nonqualified
stock option which was earned in the year of retirement while such
worker member was employed.
The Board of Directors believes it is in the best long-term
interests of the shareholder members and the worker members of the
Company to maintain a progressive stock-based incentive program in
order to attract and retain the services of outstanding personnel
and to encourage such personnel to have a greater financial
investment in the Company. It is anticipated that the amendment
will provide a sufficient number of shares available for grants and
will assist the Company in attaining faster Company growth through
acquisitions, joint ventures and other business opportunities as
well as providing attractive incentives for truly outstanding
performance.
The Board of Directors recommends a vote "FOR" this proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. have served as the independent public
accountants of the Company for the year ended September 30, 1997,
and it is the present intention of the Board to reappoint them for
the fiscal year ending September 30, 1998. A representative from
Coopers & Lybrand L.L.P. is expected to be present at the Annual
Meeting and will be available to answer appropriate questions.
SHAREHOLDER PROPOSALS
Proposals of shareholders to be included in the Company's proxy
statement for the 1999 annual meeting must be received by the
Company no later than August 6, 1998.
OTHER MATTERS
The cost of solicitation of proxies including preparing, assembling
and mailing this proxy statement and accompanying papers will be
borne by the Company. Solicitation will be made by mail but in some
cases may also be made by letter, telephone, facsimile or personal
call of officers, directors or members of the Company who will not
be specially compensated for such solicitation. The Company has
employed Morrow & Company to solicit proxies for the annual meeting
from brokers, bank nominees, other institutional holders and
certain individual shareholders. The Company has agreed to pay
$4,500, plus the out-of-pocket expenses of Morrow & Company for
these services. The Company will also pay the regular charge of
brokers and other nominees who hold shares of record for forwarding
proxy material to the beneficial owners of such shares.
The Board of Directors knows of no other business to be presented
at the annual meeting. Should any other business properly come
before the meeting, however, action may be taken thereon pursuant
to the enclosed form of proxy, which confers discretionary
authority upon the attorneys named therein, or their substitutes.
By Order of the Board of Directors
WOODWARD GOVERNOR COMPANY
Carol J. Manning
Corporate Secretary
December 4, 1997
<PAGE>
EXHIBIT A
SECTION 2.8 OF THE BYLAWS REQUIRING WRITTEN NOTICE
SECTION 2.8 NOMINATIONS FOR DIRECTOR. Nominations for election to
the Board of Directors may be made by the Board of Directors or by any
stockholder entitled to vote for the election of directors. Nominations
other than those made by the Board of Directors shall
be made by notice in writing, delivered or mailed by registered or
certified United States mail, return receipt requested, postage
prepaid, to the Secretary of the Corporation, not less than 20 days
nor more than 50 days prior to any meeting of stockholders called
for the election of directors; provided, however, if less than 21
days' notice of the meeting is given to stockholders, such written
notice shall be delivered or mailed, as prescribed, not later than
the close of business on the seventh day following the day on which
the notice of meeting was mailed to the stockholders. Each such
written notice shall contain the following information:
(a) The name and residence address of the stockholder making
the nomination;
(b) Such information regarding each nominee as would have
been required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated by the Board of
Directors; and
(c) The signed consent of each nominee to serve as a member
of the Board of Directors if elected, and the signed
agreement of each nominee that if elected he or she will
be guided by the philosophy and concepts of human and
industrial association of the Corporation as expressed in
its Constitution in connection with the nominee's service
as a member of the Board of Directors.
Unless otherwise determined by the Chairman of the Board of
Directors or by a majority of the directors then in office, any
nomination which is not made in accordance with the foregoing
procedure shall be defective, and any votes which may be cast for
the defective nominee shall be disregarded.
<PAGE>
EXHIBIT B
FIRST AMENDMENT TO THE
WOODWARD GOVERNOR COMPANY
1996 LONG-TERM INCENTIVE COMPENSATION PLAN
RESOLVED, that it is hereby declared advisable by the
Board of Directors of Woodward Governor Company, a Delaware
corporation (the "Corporation"), that the 1996 Long-Term Incentive
Compensation Plan be amended by revising and restating Sections 2.,
4.(a), 4.(b), 5.(a) and 5.(g) as follows:
"2. Eligibility. Key management worker members of the
Company, its subsidiaries and its affiliates, whether or not
directors of the Company, shall be eligible to participate in
the Plan ("Worker Members") if designated by the Committee.
Further, the Committee at its discretion may grant
Nonqualified Stock Options to a retired Worker Member
("Retired Worker Member") which are earned in the year of
retirement (hereinafter the term "Eligible Worker Member" may
be used when referring to a Retired Worker Member). Retired
Worker Members shall not be eligible to receive Incentive
Stock Options. Those directors who are not regular Worker
Members are not eligible.
"4.(a) Shares Subject to Issuance or Transfer. Subject
to adjustment as provided in Section 4.(c) hereof, there shall
be reserved and available for granting Incentives under the
Plan 800,000 shares of the Company's Common Stock ("Common
Stock") to be granted by the Committee as appropriate to
achieve the purposes for which this Plan has been established.
For calendar years beginning January 1, 1999, the Common Stock
available for granting Incentives shall be increased by the
number of shares equal to the lesser of (A) 250,000 or (B)
1.5% of the total number of shares of Common Stock outstanding
as of the first day of each such calendar year. In addition,
the Committee, in its sole discretion to further the purposes
of the Plan, is hereby authorized to make available in any
calendar year, an additional number of shares equal to the
lesser of (A) 200,000 or (B) 1% of the total number of shares
of Common Stock outstanding as of the first day of such
calendar year. The Common Stock available for granting
incentives described above shall be increased by the
number of shares for which Incentives granted under the Plan
have lapsed, expired, been eliminated or been canceled for any
reason. Shares under this Plan may be delivered by the
Company from its authorized but unissued shares of Common
Stock or from Common Stock held in the Treasury.
"4.(b) Maximum Shares to any Eligible Worker Member.
Subject to adjustment as provided in Section 4.(c) hereof, no
Eligible Worker Member shall receive Incentives covering more
than 100,000 shares of Common Stock in any given calendar
year.
"5.(a) Option Price. The option price per share with
respect to each Stock Option shall be determined by the
Committee and shall not be less than 100% of the Fair Market
Value of the Common Stock on the date the Stock Option is
granted, but in no event less than the par value of the Common
Stock.
"The Fair Market Value of such stock will be the price quoted
on the Nasdaq National Market at the close of business on the
date of grant of said Stock Option.
"5.(g) Retirement. Upon retirement, as defined by the
Committee, of a Stock Option grantee, Stock Option privileges
shall apply to those shares immediately exercisable at the
date of retirement. The Committee, however, in its
discretion, may provide that any Stock Options outstanding but
not yet exercisable upon the retirement of a Stock Option
grantee may become exercisable in accordance with a schedule
to be determined by the Committee. Further, the Committee at
its discretion may grant Nonqualified Stock Options to a
Retired Worker Member which are earned in the year of
retirement. Stock Option privileges shall expire unless
exercised within such period of time as may be established by
the Committee, but in no event later than the expiration date
of the Stock Option."
RESOLVED FURTHER, that the foregoing Amendment to the
1996 Long-Term Incentive Compensation Plan shall be effective on
the date hereof, provided however, that the Amendment and all
grants of Incentives which may be granted pursuant to the Amendment
shall be subject to and contingent upon approval of the Amendment
by the shareholders of the Corporation at the next annual meeting
of the shareholders of the Corporation to be held on Wednesday,
January 14, 1998. Any Incentive granted pursuant to the Amendment
before the approval of the Amendment by the shareholders shall be
expressly conditioned upon, and shall not be exercisable until,
such approval.
<PAGE>
_X_ PLEASE MARK VOTES
AS IN THIS EXAMPLE
WOODWARD GOVERNOR 1. ELECTION OF DIRECTORS _ _ _
COMPANY
Vern H. Cassens, Carl J. Dargene,
and Thomas W. Heenan
INSTRUCTION: To withhold authority to
vote for any individual nominee,
mark the "For All Except" box and
strike a line through the nominee's
name in the list provided above.
2. Proposal to amend the Woodward _ _ _
Governor Company 1996 Long Term
Incentive Compensation Plan.
3. In their discretion, the proxies
are authorized to vote upon such
other matter as may properly come
before the meeting.
Please be sure to sign and date this Proxy. (Date) The majority of said
attorneys or proxies who
are present at the meeting
shall have, and may
exercise, all of the
powers of all said
attorneys or proxies
Shareholder sign here Co-owner sign here hereunder.
Mark box at right _
if comments or
address change have
been noted on the
reverse side of this
card.
DETACH CARD
WOODWARD GOVERNOR COMPANY
Dear Shareholder:
Please take note of the important information enclosed with this
Proxy Ballot. There are a number of issues related to the
management and operation of your Company that require your
immediate attention and approval. These are discussed in detail in
the enclosed proxy material.
YOUR VOTE IS IMPORTANT. Even if you plan to attend the meeting in
person, please date, sign and return your proxy in the enclosed
envelope. Prompt response is helpful and your cooperation is
appreciated.
Please sign the above proxy exactly as your name(s) appear(s).
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 in
full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Please mark the boxes on the proxy card to indicate how your shares
shall be voted. Then, sign the card, detach it and return your
proxy vote in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of
Shareholders on January 14, 1998.
Thank you in advance for your prompt consideration of these
matters.
Sincerely yours,
WOODWARD GOVERNOR COMPANY
<PAGE>
WOODWARD GOVERNOR COMPANY
Proxy for Annual Meeting of the Shareholders - January 14, 1998
Solicited by the Board of Directors
The undersigned shareholder member of Woodward Governor Company, a
Delaware corporation, hereby appoints and constitutes J. Grant
Beadle, Vern H. Cassens and John A. Halbrook, and each of them, the
true and lawful attorneys and proxies of the undersigned with full
power of substitution, for and in the name of the undersigned, to vote as
designated below, including the right to cumulate votes in the
election of directors for such of the nominees as the attorneys and
proxies in their discretion may deem appropriate, all the shares of
stock of the corporation standing in the name of the undersigned on
November 18, 1997, at the annual meeting of the shareholders of the
corporation to be held at Rockford, Illinois, on January 14, 1998
at 10:00 A.M., local time, with authority to vote at said meeting
or at any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND
WILL BE VOTED AS DIRECTED OR, IF NO SPECIFICATION IS MADE, "FOR"
THE ELECTION OF THE BOARD'S NOMINEES TO THE BOARD OF DIRECTORS, "FOR"
THE PROPOSED AMENDMENT TO THE WOODWARD GOVERNOR COMPANY 1996 LONG-
TERM INCENTIVE COMPENSATION PLAN AND IN THE DISCRETION OF THE NAMED
PROXIES ON OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
____________________________________ ______________________________________
____________________________________ _______________________________________
____________________________________ _______________________________________
<PAGE>
WOODWARD GOVERNOR COMPANY
Dear Member:
The Woodward Governor Company Annual Meeting of Shareholders will
be held January 14, 1998. Enclosed is a form of proxy to vote the
shares of Woodward Governor Company common stock allocated in your
name in the Woodward Stock Plan.
Please note that the number of shares indicated on this proxy card
may differ slightly from the number appearing on your last
statement. Vanguard's quarterly account valuation includes the
small cash balance in each account. For proxy purposes, however,
the actual number of shares credited to each member's account, net
of the cash position, must be determined.
In order to allow adequate time for Vanguard to calculate the total
Plan shares voted and the remaining balance that it, as Trustee of
the Deferred Profit Sharing Plan, must vote, a cutoff date has been
established for receipt of all Plan proxies. To be included in the
tabulation, all Plan proxies must be received by Wachovia Bank of
North Carolina no later than Friday, January 9, 1998.
As stated in the accompanying Proxy Statement, the Plan directs the
Trustee to vote all allocated shares for which no timely
instructions are received in the same proportion as the allocated
shares for which it does receive instructions. In order to insure
that your shares are voted in the manner in which you choose,
please sign, date and return your proxy now. We urge you to
exercise your right and opportunity as a shareholder to vote your
proxy.
Thank you for your attention.
Sincerely yours,
Carol J. Manning, Corporate Secretary
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN TO SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C>
Starting
Basis
Description 1992 1993 1994 1995 1996 1997
Woodward Governor Company $100.00 $ 94.91 $121.43 $103.74 $148.41 $227.55
S&P 500 $100.00 $113.00 $117.17 $152.02 $182.92 $256.67
S&P Mach Div $100.00 $138.12 $150.44 $166.52 $217.26 $304.47
</TABLE>
Assumes that the value of the investment in the Company's Common Stock
and each index was $100 on September 30, 1993 and that all
dividends were reinvested.
<PAGE>
