December 11, 1998
Dear Shareholder Member:
You are cordially invited to attend the Company's annual meeting at
10:00 a.m., local time, on Tuesday, January 19, 1999 in the Auditorium
of the Rockford, Illinois, plant. Registration for the meeting will be
in the Atrium located at the rear of the plant. We invite you to join
members of our management team there for an informal social period from
9:00 a.m. to 9:45 a.m. The formal meeting will begin promptly at 10:00
a.m.
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 19, 1999
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 Tuesday, January 19, 1999, at
10:00 a.m., local time, for the following purposes:
1. To elect two directors to serve for a term of three years
each; and
2. 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 23, 1998
are entitled to vote at the meeting.
By Order of the Board of Directors
WOODWARD GOVERNOR COMPANY
Carol J. Manning
Corporate Secretary
December 11, 1998
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 or vote now via
telephone. Prompt response is helpful and your cooperation will be
appreciated.
<PAGE>
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, January 19, 1999
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 19, 1999 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, 1998, 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 11, 1998.
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 between the two 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 two nominees who receive the most votes will be elected.
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 and in the discretion of the named proxies on
other matters properly before the meeting.
The Board of Directors has fixed November 23, 1998 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 23, 1998, the Company had outstanding 11,298,750 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 23, 1998 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 23, 1998 Outstanding
Principal Holders
Woodward Governor Company
Profit Sharing Trust
5001 North Second Street
Rockford, Illinois 61125-7001 2,422,892 (1) 21.44%
AMCORE Bank N.A., Rockford
501 Seventh Street
Rockford, Illinois 61110-0037 788,450 (2) 6.98%
Royce & Associates, Inc.
Royce Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, New York 10019 776,996 (3) 6.88%
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202 676,000 (4) 5.98%
Non-Director Executive Officers
Stephen P. Carter
Vice President, Chief Financial
Officer and Treasurer 68,496 (5) 0.61%
Charles F. Kovac
Vice President 36,109 (5) 0.32%
Gary D. Larrew
Vice President 38,629 (5) 0.34%
C. Phillip Turner
Vice President 98,648 (5) 0.87%
All directors and executive
officers as a group - 13 persons 641,757 (5)(6) 5.44%
</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 2,023,396
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 PlanOs 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 788,450 shares are owned by
the Bank in various fiduciary capacities.
(3) Royce & Associates, Inc. has advised the Company that it has sole
investment power and sole voting power for 753,496 shares; Royce
Management has sole investment power and sole voting power for 23,500
shares.
(4) T. Rowe Price Associates has advised the Company that it has sole
dispositive power for the entire holding of 676,000 shares and has sole
voting power for 191,600 shares. These securities are owned by various
individual and institutional investors which T. Rowe Price Associates,
Inc. (Price Associates) serves as investment adviser with power to direct
investments and/or sole power to vote the securities. For purposes of the
reporting requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"), Price Associates is deemed to be a beneficial
owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such
securities.
(5) Includes options to purchase shares of Common Stock as follows:
Mr. Carter 66,210; Mr. Kovac 34,499; Mr. Larrew 32,154 and Mr. Turner
72,408. 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.
<R/>
(6) 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, 1998 have been timely
made.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION TO THE BOARD
Two directors are to be elected at the annual meeting. Proxies will be
voted for the election of Messrs. John A. Halbrook and Michael T.
Yonker 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. Halbrook and Mr. Yonker 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 19, 1999
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 23, 1998 (1) Outstanding
Nominees for Election/Class III/
Term Expiring 2002
John A. Halbrook, 53, is Chairman
and Chief Executive Officer
of the Company (2) 1991 224,945 1.99%
Michael T. Yonker, 56, is retired
President and Chief Executive
Officer of Portec, Inc., which
had operations in the construction
equipment, materials handling and
railroad products industries (3) 1993 6,036 0.05%
Incumbent Directors/Class II/
Term Expiring 2001
Vern H. Cassens, 66, is retired Senior
Vice President and Chief Financial
Officer of the Company 1977 87,890 0.78%
Carl J. Dargene, 68, is Chairman of
the Board of AMCORE Financial, Inc.,
Rockford, Illinois (4) 1990 8,436 0.07%
Thomas W. Heenan, 67, is a retired
partner in the law firm of Chapman
and Cutler, Chicago, Illinois 1986 18,836 0.17%
Incumbent Directors/Class I/
Term Expiring 2000
J. Grant Beadle, 65, is retired
Chairman and Chief Executive Officer
of Union Special Corporation, a
manufacturer of industrial sewing
machines (5) 1988 5,956 0.05%
Lawrence E. Gloyd, 66, is Chairman
and Chief Executive Officer of
CLARCOR Inc., Rockford, Illinois,
a manufacturer of filtration and
consumer packaging products (6) 1994 6,292 0.06%
J. Peter Jeffrey, 65, is retired Vice
President of Development at Father
Flanagan's Boys' Home in Boys Town,
Nebraska 1981 6,524 0.06%
</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 44,880 and Mr. Halbrook
214,075. 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.
(3) Serves as a director of Modine Manufacturing Company, Inc.
(4) Serves as a director of AMCORE Financial, Inc. and CLARCOR Inc.
(5) Serves as a director of William Blair Mutual Funds, Inc.
(6) Serves as a director of AMCORE Financial, Inc., CLARCOR Inc. and
Thomas Industries, Inc.
All nominees and incumbent directors except Mr. Jeffrey and Mr. Yonker
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. Mr. Yonker retired as
President and Chief Executive Officer of Portec, Inc. in June 1998.
The Board of Directors met seven 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.
Cassens, 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 twice during the year ended September 30, 1998.
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 three times
during the year ended September 30, 1998.
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, 1998.
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, 1998.
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
three times during the year ended September 30, 1998.
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, 1998 exceeded
$100,000.
<TABLE>
<CAPTION
SUMMARY COMPENSATION TABLE
<S> <C> <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 1998 $423,624 $138,062 79,515 $43,600
Chairman and Chief 1997 410,125 161,608 53,600 41,148
Executive Officer 1996 326,129 186,615 30,960 33,316
C. Phillip Turner 1998 219,730 168,422 24,828 28,552
Vice President 1997 208,098 81,235 17,600 26,139
Aircraft Engine Systems 1996 180,830 104,597 9,980 22,460
Charlas F. Kovac 1998 180,619 24,317 5,739 20,973
Vice President 1997 159,295 40,815 8,800 18,125
Industrial Controls 1996 94,065 13,363 1,960 9,317
Stephen P. Carter 1998 172,545 69,650 27,610 19,808
Vice President, Chief 1997 150,779 62,945 17,600 17,185
Financial Officer 1996 111,040 29,449 3,000 12,179
and Treasurer
Gary D. Larrew 1998 146,188 52,208 7,414 17,989
Vice President 1997 136,092 40,993 4,000 14,540
Business Development 1996 129,302 14,389 2,740 12,482
</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,
1998, Mr. Halbrook $13,000; Mr. Turner $13,491; Mr. Kovac $13,029;
Mr. Carter $12,229 and Mr. Larrew $9,926; 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.
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, 1998, Mr.
Halbrook $8,320; Mr. Turner $12,000; Mr. Kovac $7,680; Mr. Carter
$7,579 and Mr. Larrew $8,063; 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.
Company contributions to the Unfunded Deferred Compensation Plan
were as follows: September 30, 1998, Mr. Halbrook $22,280; Mr.
Kovac $263 and Mr. Turner $3,061; September 30, 1997, Mr. Halbrook
$20,249 and Mr. Turner $1,206; September 30, 1996, Mr. Halbrook
$14,289 and Mr. Turner $305.
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. In calendar year 1998 the monthly retainer was $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 $200 for
participation in telephonic meetings. Directors are also reimbursed for
travel expenses incurred in attending meetings.
CERTAIN TRANSACTIONS
See "Compensation Committee Interlocks and Insider Participation."
STOCK OPTIONS
The following tabulation shows information with respect to stock
options granted during fiscal year 1998 under the Woodward Governor
Company 1996 Long-Term Incentive Compensation Plan to the individuals
named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1998
Individual Grants
<S> <C> <C> <C> <C> <C> <C>
Number of % of Total Potential Realizable Value
Securities Options at Assumed Annual Rates of
Underlying Granted to Stock Price Appreciation
Options Employees For Option Term (3)
Granted in Fiscal Exercise Expiration
Name (1) Year Price (2) Date 5%($) 10%($)
John A. Halbrook 21,721 9.58% $32.00 01/14/2008 $ 437,127 $1,107,766
57,794 25.50% 32.25 11/17/2007 1,172,169 2,970,507
C. Phillip Turner 6,782 2.99% 32.00 01/14/2008 136,485 345,880
18,046 7.96% 32.25 11/17/2007 366,006 927,532
Charles F. Kovac 1,568 0.69% 32.00 01/14/2008 31,555 79,968
4,171 1.84% 32.25 11/17/2007 84,596 214,382
Stephen P. Carter 7,542 3.33% 32.00 01/14/2008 151,780 384,640
20,068 8.85% 32.25 11/17/2007 407,016 1,031,459
Gary D. Larrew 4,720 2.08% 32.00 01/14/2008 94,988 240,719
2,694 1.19% 32.25 11/17/2007 54,639 138,467
</TABLE>
(1) Consists of non-qualified options issued for a ten-year term.
(2) Closing price of Common Stock as reported on the Nasdaq National
Market as of the dates of grant, November 17, 1997 and January 14, 1998.
(3) The potential realizable value is calculated based on the term of
the option at its time of grant (ten years). It is calculated assuming
that the stock price on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option
and the option is exercised and sold on the last day of its term
for the appreciated stock price. No gain to the optionee is
possible unless the stock price increases over the option term.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal
1998 by the individuals named in the Summary Compensation Table and the
value of such officers' unexercised options at September 30, 1998.
<TABLE>
<S> <C> <C> <C> <C>
Number of Securities Value of
Shares Underlying Unexercised Unexercised
Acquired Value Options at In-the-Money Options
on Exercise Realized Fiscal Year-End(#) at Fiscal Year-End ($)
Name (#) ($) Exercisable Exercisable
John A. Halbrook 0 $0 164,075 $197,370.00
C. Phillip Turner 0 0 52,408 63,622.50
Charles F. Kovac 0 0 16,499 12,495.00
Stephen P. Carter 0 0 48,210 19,125.00
Gary D. Larrew 0 0 14,154 17,467.50
</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, reviews recommendations prepared by the
Company's Chairman and Chief Executive Officer. These
recommendations are 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 is 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, 1998 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 1998, 18 worker members participated in
the Plan.
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 the fair market value of the Common
Stock on the date the option is granted as quoted on the Nasdaq
National Market.
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 1998 was
$392,002, a rate that put 30% of his target compensation at risk.
Of the total incentive compensation available to Mr. Halbrook, 55% 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. In addition, 15% was based on managing
the investment in GENXONtm, the Company's joint venture with Catalytica,
Inc. and 30% was based on attainment of individual objectives, some of
which were quantitative in nature. Mr. Halbrook's incentive
compensation for 1998 was $138,062.
Options granted under the Plan confer the right to purchase 79,515
shares of Woodward Governor Company Common Stock.
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 is Chairman of the Board of AMCORE Financial, Inc. In the
ordinary course of its business the Company maintains a normal
commercial banking relationship with AMCORE Bank N.A., Rockford, its
wholly-owned subsidiary. The maximum amount of borrowings outstanding
at any time during the year ended September 30, 1998 aggregated
$10,090,000. Interest has been charged at floating rates based on
standard market indices. 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 Financial, Inc.
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, 1998) 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.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP have served as the independent public
accountants of the Company for the year ended September 30, 1998, and
it is the present intention of the Board to reappoint them for the
fiscal year ending September 30, 1999. A representative from
PricewaterhouseCoopers LLP 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 2000 annual meeting must be in compliance with Rule
14a-8 under the Exchange Act and received by the Company no later than
August 13, 1999.
The Company's Bylaws require that nominations of persons to the
Company's Board of Directors other than those made by the Board of
Directors shall be made in accordance with the provisions of the
Company's Bylaws as set forth in Exhibit A. As to any proposals that a
shareholder intends to present to shareholders without inclusion in the
Company's Proxy Statement for the Company's 2000 annual meeting of
shareholders, the proxies named in management's proxy for that meeting
will be entitled to exercise their discretionary authority on that
proposal unless the Company receives notice of the matter to be
proposed not later than October 27, 1999. Even if proper notice is
received on or prior to October 27, 1999, the proxies named in
management's proxy for that meeting may nevertheless exercise their
discretionary authority with respect to such matter by advising
shareholders of such proposal and how they intend to exercise their
discretion to vote on such matter, unless the shareholder making the
proposal solicits proxies with respect to the proposal to the extent
required by Rule 14a-4(c)(2) under the Exchange Act.
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 $3,500, 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 11, 1998
<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>
_X_ PLEASE MARK VOTES
AS IN THIS EXAMPLE
WOODWARD GOVERNOR 1. ELECTION OF DIRECTORS __ __ __
COMPANY
01 John A. Halbrook
02 Michael T. Yonker
INSTRUCTIONS: 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. Your shares will be voted
for the remaining nominee.
RECORD DATE SHARES:
2. In their discretion, the proxies
are authorized to vote upon such
other matter as may properly come
before the meeting.
A 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
hereunder.
Please be sure to sign and date this Proxy. (Date)
Shareholder sign here Co-owner sign here
Mark box at right if an __
address change or comment
has 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. Information regarding the election of directors is provided 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 will be
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 19, 1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely yours,
WOODWARD GOVERNOR COMPANY
TO VOTE YOUR SHARES VIA TELEPHONE, PLEASE SEE DIRECTIONS ON THE REVERSE
SIDE OF THIS CARD.
<PAGE>
WOODWARD GOVERNOR COMPANY
Proxy for Annual Meeting of the Shareholders - January 19, 1999
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 23,
1998, at the annual meeting of the shareholders of the corporation to
be held at Rockford, Illinois, on January 19, 1999 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 AND IN THE DISCRETION
OF THE NAMED PROXIES ON OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
PLEASE VOTE, SIGN AND DATE THE PROXY CARD ON OTHER SIDE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
______________________________________ _______________________________________
______________________________________ _______________________________________
______________________________________ _______________________________________
VOTE VIA TELEPHONE -- IT'S QUICK, EASY AND IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in
the same manner as if you marked, signed, and returned your proxy card.
Please note: all votes cast via the telephone must be cast prior to 5
p.m., January 18, 1999. If you wish to change your address, please
mark the box on the reverse side of this proxy, provide the correct
information above and return by mail.
TELEPHONE VOTING:
There is NO CHARGE for this call.
On a Touch Tone Telephone call TOLL FREE 1-800-435-2911 24 hours
per day - 7 days a week.
You will be asked to enter the Control Number which is located
above your name and address on the reverse side.
Your vote will be confirmed and cast as you directed. END OF CALL.
If you vote via telephone, it is not necessary to return your proxy by
mail. THANK YOU FOR VOTING.
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN TO SHAREHOLDERS
<S> <C> <C> <C> <C> <C> <C>
Starting
Basis
Description 1993 1994 1995 1996 1997 1998
Woodward Governor Company $100.00 $128.20 $109.36 $162.03 $248.42 $168.62
S&P 500 $100.00 $103.69 $134.53 $161.88 $227.36 $247.92
S&P Mach Div $100.00 $108.92 $120.56 $157.29 $220.43 $158.20
</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>
