SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material under Rule 14a-12
WOODWARD GOVERNOR COMPANY
(Name of Registrant as Specified In Its Charter)
--------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
December 6, 2002
Dear Shareholder Member:
You are cordially invited to attend the Company's annual meeting at 10:00 a.m.,
local time, on Wednesday, January 22, 2003, in the Auditorium of Northern
Illinois University Rockford located at 8500 East State Street, Rockford,
Illinois. Registration for the meeting will be in the foyer of the facility. We
invite you to join members of our management team 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 on site. A map is located on the back of this proxy
statement.
Please complete and return your proxy card or vote via telephone or the Internet
as soon as possible regardless of whether or not you plan to attend.
Sincerely yours,
WOODWARD GOVERNOR COMPANY
John A. Halbrook
Chairman, Board of Directors
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Wednesday, January 22, 2003
10:00 a.m.
NIU-Rockford
8500 East State Street
Rockford, Illinois
THE PURPOSE OF OUR ANNUAL MEETING IS TO:
1. Elect four directors to serve for a term of three years each;
2. Consider and act upon a proposal to adopt the Woodward Governor
Company Executive Benefit Plan;
3. Consider and act upon a shareholder proposal; and
4. Transact other business that properly comes before the meeting.
Shareholders who owned Woodward stock at the close of business on November 25,
2002, are entitled to vote at the meeting.
By Order of the Board of Directors,
WOODWARD GOVERNOR COMPANY
Carol J. Manning
Corporate Secretary
December 6, 2002
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 via telephone or the Internet as
soon as possible. Prompt response is helpful and your cooperation will be
appreciated.
Table of Contents
About the Annual Meeting and Voting.............................................6
Board of Directors..............................................................7
Board Meetings and Committees...................................................9
Share Ownership of Management..................................................11
Section 16(a) Beneficial Ownership Reporting Compliance........................11
Persons Owning More than Five Percent of Woodward Stock........................12
Common Stock Performance.......................................................12
Compensation Committee Report on Executive Compensation........................13
Executive Compensation.........................................................14
Stock Options..................................................................16
Long-Term Management Incentive Compensation Plan Awards........................17
Audit Committee Report to Shareholders.........................................17
Proposal 2--Approval of the Woodward Governor Company Executive Benefit Plan...18
Proposal 3--Shareholder Proposal ..............................................19
Independent Public Accountants.................................................20
Shareholder Proposals..........................................................20
Other Matters..................................................................20
Annual Report on Form 10-K
YOU MAY OBTAIN A FREE COPY OF OUR ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED SEPTEMBER 30, 2002, INCLUDING
SCHEDULES, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. PLEASE CONTACT CAROL MANNING, CORPORATE
SECRETARY, WOODWARD, P.O. BOX 7001, ROCKFORD, ILLINOIS
61125-7001 OR EMAIL investorrelations@woodward.com.
THIS REPORT IS ALSO AVAILABLE AT www.woodward.com.
About the Annual Meeting and Voting
Our Board of Directors is soliciting your proxy to vote
at our annual meeting of shareholder members (or at any
adjournment of the meeting). This proxy statement
summarizes the information you need to know to vote at
the meeting.
We began mailing this proxy statement and the enclosed
proxy card on or about December 6, 2002, to all
shareholders entitled to vote. The Woodward Governor
Company Annual Report, which includes our financial
statements, is being sent with this proxy statement.
Shareholders who owned Woodward common stock at the
close of business on the record date, November 25,
2002, are entitled to vote at the meeting. As of the
record date, there were 11,334,146 shares outstanding.
Each share of Woodward common stock that you own
entitles you to one vote, except for the election of
directors. Since four directors are standing for
election, you will be entitled to four director votes
for each share of stock you own. Of this total, you may
choose how many votes you wish to cast for each
director.
Woodward offers shareholders the opportunity to vote by
mail, by telephone, or via the Internet. Instructions
to use these methods are set forth on the enclosed
proxy card.
If you vote by telephone or via the Internet, please
have your proxy or voting instruction card available.
The control number that appears on your card is
necessary to verify your vote. A telephone or Internet
vote authorizes the named proxies in the same manner as
if you marked, signed, and returned the card by mail.
Voting by telephone and via the Internet are valid
proxy voting methods under Delaware law and Woodward
Bylaws.
If you properly fill in your proxy card and send it to
us in time to vote, one of the individuals named on
your proxy card (your "proxy") will vote your shares as
you have directed. If you sign the proxy card but do
not make specific choices, your proxy will follow the
Board's recommendations and vote your shares:
- "FOR" the election of the Board's nominees to the
Board of Directors;
- "FOR" the proposal to adopt the Woodward Governor
Company Executive Benefit Plan; and
- "AGAINST" the shareholder proposal.
If any other matter is presented at the meeting, your
proxy will vote in accordance with his or her best
judgment. At the time this proxy statement went to
press, we knew of no other matters to be acted on at
the meeting.
You may revoke your proxy by:
- sending in another signed proxy card with a later
date,
- notifying our Secretary in writing before the
meeting that you have revoked your proxy, or
- voting in person at the meeting.
If you want to give your written proxy to someone other
than individuals named on the proxy card:
- cross out the individuals named and insert the
name of the individual you are authorizing to
vote, or
- provide a written authorization to the individual
you are authorizing to vote along with your proxy
card.
A quorum of shareholders is necessary to hold a valid
meeting. The presence, in person or by proxy, at the
meeting of holders of shares representing a majority of
the votes of the common stock entitled to vote
constitutes a quorum. Abstentions and broker non-votes
are counted as present for establishing a quorum. A
broker non-vote occurs when a broker votes on some
matters on the proxy card but not on others because he
or she is not permitted to vote on that item absent
instruction from the beneficial owner of the shares and
no instruction is given.
Directors are elected by a plurality vote of shares
present at the meeting, meaning that the four director
nominees receiving the most votes will be elected.
Other action is by an affirmative vote of the majority
of shares present at the meeting. Abstentions and
broker non-votes will be treated as unvoted in matters
other than director elections.
Board of Directors
STRUCTURE Our Board of Directors is divided into three classes
for purposes of election. One class is elected at each
annual meeting of shareholders to serve for a
three-year term.
Directors elected at the 2003 Annual Meeting of
Shareholders will hold office for a three-year term
expiring in 2006 or when their successors are elected.
Other directors are not up for election at this meeting
and will continue in office for the remainder of their
terms.
If a nominee is unavailable for election, proxy holders
will vote for another nominee proposed by the Board.
PROPOSAL 1--ELECTION OF DIRECTORS
Directors Standing for Election at This Meeting for Terms Expiring In 2006:
J. Grant Beadle
Age: 69
Retired Chairman and Chief Executive Officer of Union
Special Corporation, a manufacturer of industrial
sewing machines. Other directorships: William Blair
Mutual Funds, Inc., and each of the eleven related
mutual funds. Mr. Beadle has been a director of the
Company since 1988.
Paul Donovan
Age: 55
Executive Vice President and Chief Financial Officer of
Wisconsin Energy Corporation, a holding company with
subsidiaries in utility and non-utility businesses,
including electric and natural gas energy services,
pump manufacturing, waste-to-energy and real estate
businesses. Other directorships: AMCORE Financial, Inc.
and Solutia, Inc. Mr. Donovan has been a director of
the Company since 2000.
Lawrence E. Gloyd
Age: 70
Chairman Emeritus and retired Chairman and Chief
Executive Officer of CLARCOR Inc., a manufacturer of
filtration and consumer packaging products. Other
directorships: CLARCOR Inc., Genlyte Thomas Group LLC
and Thomas Industries, Inc. Mr. Gloyd has been a
director of the Company since 1994.
J. Peter Jeffrey
Age: 69
Retired Vice President of Development at Father
Flanagan's Boys' Home. Mr. Jeffrey has been a director
of the Company since 1981.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES PRESENTED IN
PROPOSAL 1.
Directors Remaining in Office Until 2005:
John A. Halbrook
Age: 57
Chairman and Chief Executive Officer of the Company.
Other directorships: AMCORE Financial, Inc. Mr.
Halbrook has been a director of the Company since 1991.
Rodney O'Neal
Age: 49
Executive Vice President of Delphi Automotive Systems,
a world leader in mobile electronics, transportation
components and systems technology, and President of the
Safety, Thermal & Electrical
Architecture Sector. Mr. O'Neal has been a director of
the Company since 1999.
Mary L. Petrovich
Age: 39
Chief Executive Officer of AxleTech International, a
supplier of off-highway and specialty vehicle
drivetrain systems and components. Ms. Petrovich was
elected a director of the Company by the Board of
Directors on July 24, 2002.
Michael T. Yonker
Age: 60
Retired President and Chief Executive Officer of
Portec, Inc., which had operations in the construction
equipment, materials handling and railroad products
industries. Other directorships: Modine Manufacturing
Company, Inc. and EMCOR Group, Inc. Mr. Yonker has been
a director of the Company since 1993.
Directors Remaining in Office Until 2004:
John D. Cohn
Age: 48
Senior Vice President Strategic Development and
Communications of Rockwell Automation, Inc., a global
industrial automation provider of power, control, and
information solutions. Mr. Cohn was elected a director
of the Company by the Board of Directors on July 24,
2002.
Michael H. Joyce
Age: 62
President and Chief Operating Officer of Twin Disc,
Incorporated, a designer and manufacturer of heavy-duty
transmission equipment. Other directorships: Twin Disc,
Incorporated and The Oilgear Company. Mr. Joyce has
been a director of the Company since 2000.
James R. Rulseh
Age: 47
Group Vice President of Modine Manufacturing Company, a
specialist in thermal management products, bringing
heating and cooling technology to diversified markets.
Mr. Rulseh was elected a director of the Company by the
Board of Directors on April 24, 2002.
Board Meetings and Committees
The Board of Directors met five times during 2002; all
incumbent directors attended more than 75 percent of
the aggregate of the total meetings of the Board of
Directors and all committees of the Board on which they
served.
All actions by committees are reported to the Board at
the next scheduled meeting. No legal rights of third
parties may be affected by Board revisions.
Committee Membership
Nominating
Name Audit Compensation Executive and Governance
----------------------------------------------------------------------------------------------
J. Grant Beadle n n n n*
-----------------------------------------------------------------------------------------------------------------------
John D. Cohn
-----------------------------------------------------------------------------------------------------------------------
Paul Donovan n n
-----------------------------------------------------------------------------------------------------------------------
Lawrence E. Gloyd n n
-----------------------------------------------------------------------------------------------------------------------
John A. Halbrook n*
-----------------------------------------------------------------------------------------------------------------------
J. Peter Jeffrey n*
-----------------------------------------------------------------------------------------------------------------------
Michael H. Joyce n
-----------------------------------------------------------------------------------------------------------------------
Rodney O'Neal n
-----------------------------------------------------------------------------------------------------------------------
Mary L. Petrovich
-----------------------------------------------------------------------------------------------------------------------
James R. Rulseh
-----------------------------------------------------------------------------------------------------------------------
Michael T. Yonker n n* n
* chairman
AUDIT COMMITTEE The Audit Committee oversees and monitors management's
and the independent public accountants' participation
in the financial reporting process. The Committee
operates under a Charter, which was attached to the
proxy statement for the annual meeting of shareholders
held January 24, 2001, that more fully describes the
responsibilities of the Committee. Consistent with
Nasdaq's independent director and Audit Committee
listing standards, and in accordance with the Committee
charter, all members of the Audit Committee are
independent directors. The Committee held four meetings
during 2002.
COMPENSATION COMMITTEE The Compensation Committee recommends the base
compensation of Woodward's officers and key personnel,
and evaluates the performance of and reviews the
results of the annual member evaluation for those
individuals. The Committee administers the Company's
Long Term Incentive Compensation Plan and the 2002
Stock Option Plan, determining and taking all action,
including granting of all incentives and/or stock
options to eligible worker members, in accordance with
the terms of the Plans. The Committee held three
meetings during 2002.
EXECUTIVE COMMITTEE The Executive Committee exercises 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 Board
meeting. 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
Woodward's assets. The Committee held one meeting
during 2002.
NOMINATING AND The Nominating and Governance Committee recommends
GOVERNANCE COMMITTEE qualified individuals to fill any vacancies on the
Board and develops and administers the Company's
Corporate Governance guidelines. The Committee held
three meetings during 2002.
No procedures have been established for the Nominating
and Governance Committee to consider nominees
recommended by shareholder members.
LEAD DIRECTOR In addition to the above standing committees, Mr. Gloyd
serves as "Lead Director." The Lead Director chairs a
separate meeting of the outside directors prior to each
regularly scheduled Board meeting. Topics discussed are
at the discretion of the outside directors. The Lead
Director then meets with the Chairman and Chief
Executive Officer to discuss the minutes of such
meetings.
DIRECTOR QUALIFICATIONS The Company's Bylaws provide that:
- each director shall retire on September 30th
following his or her seventieth birthday unless
approved otherwise by the Board,
- no person may serve as a director unless he or she
agrees to be guided by the philosophy and concepts
expressed in Woodward's Constitution, and
- Woodward must receive adequate notice regarding
nominees for directors. A copy of the notice
requirement in Section 2.8 is attached as
Exhibit A.
DIRECTOR COMPENSATION We do not pay directors who are also Woodward officers
additional compensation for their service as directors.
In 2002, compensation for non-employee directors
included the following:
- a monthly retainer of $2,000
- Board and Committee members receive $1,000 for
each meeting attended
- Committee chairmen receive $1,500 for each
Committee meeting attended
- expenses of attending Board and Committee meetings
- award of options in January 2002 to purchase 1,000
shares of Woodward Governor Company common stock;
options vest after one year
Pursuant to Outside Director Stock Purchase Agreements
entered into by Mr. Donovan, Mr. Joyce, and Mr. Rulseh,
we sold Treasury Shares at the closing price on the
dates of purchase. In payment of the purchase price,
non-interest bearing notes were signed and will be
repaid by application of each director's monthly
retainer. The largest amount of indebtedness
outstanding during the year and the amount outstanding
at November 20, 2002, were: Mr. Donovan,
$87,433/$61,283; Mr. Joyce, $87,282/$61,282; and
Mr. Rulseh, $119,963/$105,963.
Share Ownership of Management
DIRECTORS AND EXECUTIVE The following table shows how much Woodward common
OFFICERS stock is owned, as of November 20, 2002, by each
director, each executive officer named in the Summary
Compensation table, and all directors and executive
officers as a group.
Ownership of Common Stock
-----------------------------------------------------------------------------------------
Non-Employee Directors Number Percent
-----------------------------------------------------------------------------------------
J. Grant Beadle 6,956(2) 0.06
-----------------------------------------------------------------------------------------
John D. Cohn 0 0.00
-----------------------------------------------------------------------------------------
Paul Donovan 2,502(2) 0.02
-----------------------------------------------------------------------------------------
Lawrence E. Gloyd 7,492(2) 0.07
-----------------------------------------------------------------------------------------
J. Peter Jeffrey 7,524(2) 0.07
-----------------------------------------------------------------------------------------
Michael H. Joyce 3,792(2) 0.03
-----------------------------------------------------------------------------------------
Rodney O'Neal 5,553(2) 0.05
-----------------------------------------------------------------------------------------
Mary L. Petrovich 0 0.00
-----------------------------------------------------------------------------------------
James R. Rulseh 1,692 0.01
-----------------------------------------------------------------------------------------
Michael T. Yonker 7,036(2) 0.06
-----------------------------------------------------------------------------------------
Named Executive Officers
-----------------------------------------------------------------------------------------
Stephen P. Carter 87,547(1) 0.77
-----------------------------------------------------------------------------------------
Ronald E. Fulkrod 39,428(1) 0.35
-----------------------------------------------------------------------------------------
Thomas A. Gendron 48,394(1) 0.43
-----------------------------------------------------------------------------------------
John A. Halbrook 278,210(1) 2.45
-----------------------------------------------------------------------------------------
C. Phillip Turner 109,300(1) 0.96
-----------------------------------------------------------------------------------------
All directors and executive officers as a group 613,801(1) 5.42
-----------------------------------------------------------------------------------------
1) Includes the maximum number of shares which might
be deemed to be beneficially owned under rules of
the Securities and Exchange Commission. Includes
options to purchase shares of common stock as
follows: Mr. Carter 82,210; Mr. Fulkrod 27,582;
Mr. Gendron 45,074; Mr. Halbrook 262,825; and Mr.
Turner 83,408. 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. 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) Includes options granted in 2001 to purchase 1,000
shares of common stock granted under the Long-Term
Incentive Compensation Plan to members of the
Board of Directors who are not also worker
members.
SHARE OWNERSHIP In 1998 the Board of Directors established share
GUIDELINES ownership guidelines for executive officers and
non-employee directors to align their interests and
objectives with the Company's shareholders. These
guidelines require that executive officers own shares
with a value ranging from a minimum of two times annual
salary for officers at the level of vice president to a
minimum of four times annual salary for the Company's
Chairman and Chief Executive Officer. The guidelines
also require that non-employee directors own shares
with a value equal to five times annual retainer, to be
reached within five years of election to the Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of our records, all reports
required to be filed pursuant to Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act")
were filed on a timely basis.
Persons Owning More than Five Percent of Woodward Stock
As of November 20, 2002 Ownership of Common Stock
------------------------------------------------------------------------------------
Principal Holders Number Percent
------------------------------------------------------------------------------------
Woodward Governor Company
Profit Sharing Trust
5001 North Second Street
Rockford, Illinois 61111 1,669,130(1) 14.73
------------------------------------------------------------------------------------
Royce & Associates, LLC
1414 Avenue of the Americas
New York, NY 10019 1,333,276(2) 11.76
------------------------------------------------------------------------------------
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202 738,400(3) 6.51
------------------------------------------------------------------------------------
(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. Of the total shares held in
the Profit Sharing Trust, 1,610,836 shares of
common stock 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) Royce & Associates, LLC has advised the Company
that it has sole investment power and sole voting
power for the entire holding.
(3) T. Rowe Price Associates, Inc. has advised the
Company that it has sole dispositive power for the
entire holding of 738,400 shares and has sole
voting power for 232,200 shares. These securities
are owned by various individual and institutional
investors for which T. Rowe Price Associates, Inc.
serves as investment adviser with power to direct
investments and/or power to vote the securities.
For purposes of the reporting requirements of the
Securities Exchange Act of 1934, 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.
Common Stock Performance
The following Performance Graph compares Woodward's
cumulative total return on its common stock for a
five-year period (years ended September 30, 1998 to
September 30, 2002) with the cumulative total return of
the S&P SmallCap 600 Index and the S&P Industrial
Machinery Index.
TOTAL RETURN TO SHAREHOLDERS
Description 1997 1998 1999 2000 2001 2002
Woodward Governor Company $ 100.00 $ 67.88 $ 76.49 $ 141.42 $ 156.33 $ 155.59
S&P SmallCap 600 $ 100.00 $ 81.33 $ 95.59 $ 118.70 $ 106.10 $ 104.20
S&P Industrial Machinery $ 100.00 $ 90.16 $ 141.31 $ 139.71 $ 125.47 $ 139.67
The graph assumes that the value of the investment in
Woodward's Common Stock and each index was $100 on
September 30, 1997 and that all dividends were
reinvested.
Compensation Committee Report on Executive Compensation
The goal of the Compensation Committee (the "Committee") is to establish and
administer a compensation program that will (1) offer competitive compensation
to attract, retain, and motivate a high-quality senior management team, and (2)
link total annual cash compensation to individual performance. The Committee
believes proper administration of such a program will result in development of a
management team that embraces the best long-term interests of Woodward and its
shareholders.
To accomplish this goal, the Committee, comprised entirely of independent
directors, structures total compensation packages comprised of base salary,
short-term and long-term incentive compensation, and stock options.
Market-based compensation recognizes experience and competence level as
determined through salary surveys; this process establishes base salary and
target incentive (variable) compensation for the individual. Woodward's stock
performance is not specifically considered in determining base salary or any
incentive compensation.
Compensation Structure and Components
- individuals are assigned to salary grade ranges based upon their position
- base salary is set within the range based upon actual job
responsibilities, performance, and experience in the job
- annual incentive compensation targets of at least 15 percent, but not more
than 70 percent, of base salary are established
- incentive compensation targets are tied to salary grade
Base Salary
Base salary and annual rate adjustments are based on individual performance,
experience, responsibilities, management and leadership abilities, and executive
compensation reviews prepared by outside compensation consultants.
Annual Incentive Compensation
Annual cash incentives are based on overall financial performance of the Company
or individual groups or operating units, achievement of short-term objectives,
and direct individual performance. If certain minimum target results are not
achieved, no annual incentive will be paid. If targeted levels are attained,
annual incentive levels range from 15 percent to 70 percent of base salary.
Participants have an opportunity to significantly increase their annual
incentive compensation above targeted levels for outstanding performance.
Stock Options
The Woodward Governor Company 2002 Stock Option Plan (the "Stock Option Plan")
was established to further Woodward's long-term growth and profitability by
offering long-term incentives to certain key management worker members and
directors who are not worker members. By providing an equity position in the
Company, the Compensation Committee believes that participants' interests will
be better aligned with those of the Company's shareholders.
The Stock Option Plan authorizes awards of both incentive and nonqualified stock
options to worker members and nonqualified stock options to independent
directors. Management makes recommendations to the Committee on the size of
grant, if any, for each participant. The option price of the shares is
determined at the date of the grant and will not be less than the fair market
value as quoted on the Nasdaq National Market on that date.
In fiscal 2002, thirty worker members and nine independent directors were
granted options under the Stock Option Plan.
Long-Term Management Incentive Compensation Plan
In fiscal 2000, the Company established a long-term, performance-based
compensation plan. Eligibility is limited to a few top-level executives,
currently five individuals, as determined by the Compensation Committee. The
Committee sets long-term performance goals and confirms attainment or lack
thereof. The performance goals are established to encourage consistent,
sustainable growth and are measured over three-year cycles.
Long-term cash award opportunities are determined at the beginning of each
performance cycle and are based on goals associated with:
- average annual growth in earnings per share
- average annual return on invested assets
A target award is established for each eligible executive based upon salary
grade ranging from 40 percent to 50 percent of base salary. A threshold level of
performance is established below which the executive receives no incentive
award. Once threshold performance is achieved, the executive receives a minimum
award equal to 5 percent to 10 percent of the target award. Above threshold
performance, the award increases proportionally until target performance is
achieved. The award opportunity continues to increase for above-target
performance to a practical maximum of 200 percent of the target award.
Compensation of the Chairman and Chief Executive Officer
Mr. Halbrook's base salary of $519,135 was determined in the same manner as for
all other executive officers. For fiscal 2002, no annual incentive compensation
was awarded to Mr. Halbrook. This determination was entirely based on earnings
per share growth, which was lower than in fiscal 2001.
Under the Stock Option Plan, Mr. Halbrook was awarded options in fiscal year
2003 to purchase 25,000 shares of Woodward common stock.
Mr. Halbrook also participates in the Long-Term Management Incentive
Compensation Plan. Mr. Halbrook received $399,740 for the three-year period
ended September 30, 2002. The amount of future incentive awards will be
determined at the end of each subsequent three-year period based on achievement
of performance goals.
Compensation Committee: Michael T. Yonker, chairman J. Grant Beadle
Paul Donovan Lawrence E. Gloyd
Rodney O'Neal
Executive Compensation
The following table sets forth a summary for the last three fiscal years of the
cash and non-cash compensation paid to John A. Halbrook, Woodward's Chairman and
Chief Executive Officer, and to each of the other four most highly compensated
executive officers.
Summary Compensation
Long-Term Compensation
Annual Compensation Awards Payouts
Other Securities LTIP
Annual Underlying PayoutsAll Other
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS[#] [$](3) COMPENSATION(4)
-----------------------------------------------------------------------------------------------------------------------------------
John A. Halbrook 2002 $ 519,135 $ -- -- 50,000 $ 399,740 $ 54,066
Chairman and 2001 518,066 582,870 -- 40,000 403,830 53,439
Chief Executive Officer 2000 486,218 471,135 -- 35,000 -- 49,988
-----------------------------------------------------------------------------------------------------------------------------------
Thomas A. Gendron 2002 266,317 -- -- 20,000 122,269 29,110
President and 2001 263,732 262,293 -- 13,000 125,258 29,312
Chief Operating Officer 2000 180,666 167,765 -- 8,000 -- 20,658
-----------------------------------------------------------------------------------------------------------------------------------
C. Phillip Turner 2002 280,356 71,963 -- 10,000 176,008 35,323
Vice President 2001 279,979 398,021 -- 5,000 167,184 35,266
Aircraft Engine Systems 2000 267,647 46,167 -- 15,000 -- 33,649
-----------------------------------------------------------------------------------------------------------------------------------
Ronald E. Fulkrod 2002 266,411 25,000 -- 3,000 128,674 33,566
Vice President 2001 266,411 162,350 -- 13,000 121,277 34,981
2000 194,801 162,432 -- 8,000 -- 25,432
-----------------------------------------------------------------------------------------------------------------------------------
Stephen P. Carter 2002 236,205 -- -- 15,000 148,138 26,841
Vice President, Chief Financial 2001 235,859 230,000 -- 10,000 150,480 26,879
Officer and Treasurer 2000 225,104 138,515 -- 13,000 -- 25,641
-----------------------------------------------------------------------------------------------------------------------------------
(1) Includes annual incentive compensation.
(2) No executive officer received personal benefits valued at more than either
10 percent of cash compensation or $50,000.
(3) Amounts paid under the Long-Term Management Incentive Compensation Plan
for the performance cycle ended September 30, 2002.
(4) Company contributions to the Member Investment and Stock Ownership Plan,
Retirement Income Plan, and Unfunded Deferred Compensation Plans are as
follows:
Member Investment and Unfunded Deferred
Stock Ownership Plan Retirement Income Plan Compensation Plans
-----------------------------------------------------------------------------------------------------------------------------------
OFFICER 2002 2001 2000 2002 2001 2000 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Halbrook $ 15,500 $ 13,750 $ 13,750 $ 11,200 $ 9,350 $ 9,180 $ 27,366 $ 30,339 $ 27,058
-----------------------------------------------------------------------------------------------------------------------------------
Gendron 15,449 14,208 13,058 9,800 8,160 7,599 3,861 6,944 0
-----------------------------------------------------------------------------------------------------------------------------------
Turner 15,305 13,909 13,877 15,800 13,260 13,090 4,218 8,096 6,682
-----------------------------------------------------------------------------------------------------------------------------------
Fulkrod 15,041 15,191 13,052 15,800 13,260 12,380 2,725 6,530 0
-----------------------------------------------------------------------------------------------------------------------------------
Carter 15,250 13,947 13,917 10,600 8,840 8,670 991 4,092 3,055
-----------------------------------------------------------------------------------------------------------------------------------
Under a plan closed in 1971, Mr. Fulkrod and Mr. Turner are eligible for an
annual benefit of $283 at normal retirement.
Transitional Compensation Agreements
Woodward approved new transitional compensation agreements with Messrs.
Halbrook, Carter, and Gendron in November 2002 that become operative only upon a
change in control or other specified event. For purposes of these agreements, a
change in control occurs if:
- any person, entity, or group (with certain exceptions) becomes the
beneficial owner of 15 percent or more of the outstanding shares of
Woodward common stock; or
- there is a change in a majority of the Board during any two-year period
other than by election or nomination by a vote of two-thirds of the Board
members as of the beginning of the period; or Woodward's shareholders
approve a merger, consolidation, sale of assets or share exchange
resulting in our shareholders owning less than 51 percent of the combined
voting power of the surviving corporation following the transaction; or
- our shareholders approve a liquidation or dissolution.
Following a change in control, Woodward will continue to employ the executive
for a minimum period of two years in substantially the same position, for
substantially the same compensation and benefits. If the executive's employment
is terminated by Woodward (other than for cause or due to death or disability),
or the executive terminates with good reason (as defined in the agreement), he
or she receives an amount (payable in a lump sum) equal to 300 percent of each
of (1) the executive's annual base salary, (2) highest annual bonus in the last
three years, (3) highest long-term incentive compensation bonus in the last
three years, and (4) the sum of the Retirement Savings Plan and Executive
Benefit Plan annual contributions made or credited for the benefit of the
executive. Member benefits shall be continued at Woodward's expense for a period
of three years after the date of termination. Outplacement services will be
provided at Woodward's expense as well as tax preparation services for the
executive's taxable year in which the termination occurred.
If the benefits and amount payable to the executives are subject to federal
excise tax, the executive officers will also be entitled to receive an
additional payment so they will receive (on a net basis) the same amount they
would have received absent the applicability of the excise tax.
Stock Options
The following table shows stock options granted during fiscal 2002 under the
Woodward Governor Company 2002 Stock Option Plan (formerly the 1996 Long-Term
Incentive Compensation Plan) to the individuals named in the Summary
Compensation Table:
Option Grants in Last Fiscal Year
Individual Grants
% of Potential Realizable Value at Assumed
Number of Total Options Annual Rates of Stock Price
Securities Underlying Granted to Exercise Appreciation For Option Term(3)
Options Granted Employees in Price Expiration
Name (1) Fiscal Year (2) Date 5%($) 10%($)
-----------------------------------------------------------------------------------------------------------------------------------
John A. Halbrook 50,000 28.01% $ 49.00 10/01/2011 $ 1,540,792 $ 3,904,669
-----------------------------------------------------------------------------------------------------------------------------------
Thomas A. Gendron 20,000 11.20 49.00 10/01/2011 616,317 1,561,868
-----------------------------------------------------------------------------------------------------------------------------------
C. Phillip Turner 10,000 5.60 49.00 10/01/2011 308,158 780,934
-----------------------------------------------------------------------------------------------------------------------------------
Ronald E. Fulkrod 3,000 1.68 49.00 10/01/2011 92,448 234,280
-----------------------------------------------------------------------------------------------------------------------------------
Stephen P. Carter 15,000 8.40 49.00 10/01/2011 462,238 1,171,401
-----------------------------------------------------------------------------------------------------------------------------------
(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 date of grant.
(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 2002 by the
individuals named in the Summary Compensation table and the value of their
unexercised options at September 30, 2002.
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 / Unexercisable Exercisable / Unexercisable
----------------------------------------------------------------------------------------------------------------------------------
John A. Halbrook 0 0 241,575 /97,500 $ 5,165,678 / $ 563,890
----------------------------------------------------------------------------------------------------------------------------------
Thomas A. Gendron 0 0 38, 074 /33,750 783,663 / 145,046
----------------------------------------------------------------------------------------------------------------------------------
C. Phillip Turner 0 0 77,158 /21,250 1,688,719 / 190,804
----------------------------------------------------------------------------------------------------------------------------------
Ronald E. Fulkrod 0 0 24,832 /16,750 541,753 / 145,046
----------------------------------------------------------------------------------------------------------------------------------
Stephen P. Carter 0 0 75,210 /29,000 1,551,384 / 189,100
Equity Compensation Plan Information
Number of Securities
Number of Securities Remaining Available for
to be Issued upon Weighted-Average Future Issuance under
Excercise of Exercise Price of Equity Compensation Plans
Outstanding Options, Outstanding Options, (excluding securities
Plan Category Warrents, and Rights Warrents, and Rights reflected in the first column)
----------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans 1,045,218 $ 34.36 913,539
approved by security holders(1)
----------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans 0 0 0
not approved by security holders
----------------------------------------------------------------------------------------------------------------------------------
Total 1,045,218 $ 34.36 913,539
----------------------------------------------------------------------------------------------------------------------------------
(1) Consists of the 2002 Stock Option Plan
Long-Term Management Incentive Compensation Plan Awards
See "Compensation Committee Report on Executive Compensation" for a description
of the Long-Term Management Incentive Compensation Plan (LTMIC). The following
table shows, for the named executive officers, the calculated future payouts, if
any, under the LTMIC for the three-year performance cycle that began in fiscal
year 2002. Threshold amounts are the minimum amounts payable under the LTMIC
provided that the minimum level of performance is achieved with respect to the
pre-established performance objectives, measured in terms of the Company's
cumulative earnings per share and return on average invested assets for the
cycle. If such performance is not achieved, amounts will be zero.
Long-Term Incentive Plan Awards in Last Fiscal Year
Number of Performance or Estimated Future Payouts Under
Shares, Other Period Non-Stock Price-Based Plans
Units, or Until Maturation
Name Other Rights or Payout Threshold Target Maximum
----------------------------------------------------------------------------------------------------------------------------------
John A. Halbrook -- 3 years $ 26,605 $ 259,562 $ 519,124
----------------------------------------------------------------------------------------------------------------------------------
Thomas A. Gendron -- 3 years 10,919 106,530 213,060
----------------------------------------------------------------------------------------------------------------------------------
C. Phillip Turner -- 3 years 11,495 112,146 224,292
----------------------------------------------------------------------------------------------------------------------------------
Stephen P. Carter -- 3 years 9,685 94,484 188,968
----------------------------------------------------------------------------------------------------------------------------------
Amounts shown in this table were calculated using the salaries for the named
executive officers in the LTMIC as of the beginning of the performance period
October 1, 2001 through September 30, 2004.
Audit Committee Report to Shareholders
Audit Committee Report
We recommended to the Board of Directors that the consolidated balance sheets of
the Company at September 30, 2002 and 2001, and the related statements of
consolidated earnings, shareholders' equity and cash flows of the Company for
each of the three years ended September 30, 2002, be included in the Company's
Annual Report on Form 10-K filed with the United States Securities and Exchange
Commission for the year ended September 30, 2002. Our recommendation was based
on our review and discussion of the audited financial statements with
management, and our discussions with PricewaterhouseCoopers LLP, the independent
public accountants who audited the financial statements.
We discussed with PricewaterhouseCoopers LLP the matters required to be
discussed under Statement of Auditing Standards No. 61. We also discussed with
PricewaterhouseCoopers LLP their independence, received from them the written
disclosures and the letter required by Independence Standards Board Standard No.
1, and considered whether the provision of services other than audit services
(the fees for which are disclosed in the table that follows) is compatible with
maintaining their independence.
Audit Committee: J. Peter Jeffrey, chairman J. Grant Beadle
Paul Donovan Michael T. Yonker
Fees Paid to PricewaterhouseCoopers LLP for Services in Fiscal Year 2002
Audit Fees $ 512,846
Financial Information Systems Design and Implementation Fees $ --
All Other Fees $ 530,485
PROPOSAL 2--APPROVAL OF THE WOODWARD GOVERNOR COMPANY EXECUTIVE BENEFIT PLAN
As part of its overall compensation program, Woodward has maintained various
nonqualified deferred compensation plans for key executives since 1984. In
January 2001, the Company merged and combined two active plans into one single
plan, the Woodward Governor Company Executive Benefit Plan (the "Plan"), in
order to facilitate administration.
In July 2002, it was determined it would be in the best interests of the Company
and the shareholders to establish a Rabbi Trust to hold shares of Company common
stock equal to the number of hypothetical shares held in the Plan with respect
to the deemed investment alternative in Company common stock and to make certain
changes to the Plan with respect to that investment alternative. Considering the
nature of the proposed changes, it was deemed appropriate to present the Plan,
as amended, for formal adoption by the shareholders at the January 2003 Annual
Meeting. In order to facilitate this process, the Board of Directors approved
the required amendments pending shareholder approval.
The Plan was established to provide a comprehensive and competitive compensation
program to attract and retain certain key members, and is intended to encourage
additional savings by key executives who are otherwise unable to take full
advantage of other Company-sponsored savings plans.
The Plan is set forth in Exhibit B. Key features of the Plan include:
- make-up contributions for eligible members whose company contributions are
restricted by IRS limitations;
- deferral of up to 50 percent of base salary for a Plan year;
- deferral of up to 100 percent of incentive compensation for a Plan year;
- options to direct contributions in various hypothetical investment funds,
including a Company stock fund; and
- balances backed only by the Company's promise to pay and secondary to
general creditors in the event of insolvency.
Administration
The Plan will be administered by the Compensation Committee or such other
individual or committee appointed and delegated by the Board in accordance with
the provisions of the Plan.
Participation
The Administrator shall select those members eligible to participate in the Plan
as consistent with accomplishing the purposes of the Plan.
Other Information
The Board may amend the Plan as it deems advisable, except that it may not amend
the Plan without shareholder approval where the absence of such approval would
cause the Plan to fail to comply with any requirement of applicable law or
regulation.
The Board believes it is in the best long-term interests of both shareholders
and worker members of the Company to maintain a progressive deferred
compensation plan 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 by allowing such personnel to diversify all or a portion of their
deferred compensation into a phantom stock account.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
WOODWARD GOVERNOR COMPANY EXECUTIVE BENEFIT PLAN PRESENTED IN PROPOSAL 2.
PROPOSAL 3--SHAREHOLDER PROPOSAL
Mr. Gerald English, owner of 500 shares and a former Woodward member, has
proposed the following resolution for action at the meeting and has furnished
the following statement in support of his proposal. The Company will provide the
mailing address for the proponent of this proposal promptly upon receipt of a
request.
"Resolved
'THAT THE SHAREHOLDERS OF WOODWARD GOVERNOR COMPANY REMOVE ALL THE POISON
PILL TAKE OVER PROVISIONS THAT HAVE BEEN PUT IN PLACE. THE BOARD SHOULD
TAKE THE NECESSARY STEPS TO REVERSE THE PROTECTIVE INITIATIVES, WHICH WERE
ADOPTED STARTING IN THE 1980'S.'
Reasons:
Many companies are finding out that Poison Pill provisions do not
protect the shareholders value. In fact it does quite the opposite, if we
need more protection than the free market provides then we become
isolationists, and yes, we may have something of value but if we can't
sell it to anyone then the value goes down. The SEC has enough rules to
govern takeovers. By adding more rules we change the free market system,
the price of our shares and the willingness of shareholders to trade them
should be enough of a deterrent to takeovers. These extra rules tend to
clutter the free market and make investors less welcome.
This is simply a supply and demand problem to have these provisions in
our by-laws is discriminating to some sectors of the world. Even thou
wealth may be a small minority of the population and it is not yet illegal
to discriminate against them, we are being punished for the act by a
smaller demand for our securities. Smaller demand may reflect in the
price.
"IF YOU AGREE, PLEASE MARK YOUR PROXY FOR THIS RESOLUTION.' "
Response by the Board of Directors
The Board believes that the Woodward Governor Company Rights Plan Agreement (the
"Rights Plan") is in the best interests of the shareholders and unanimously
recommends that you vote against this proposal.
Over 2,000 shareholder rights plans have been adopted by the boards of directors
of public companies. These boards, including the Company's, agree that rights
plans are effective tools to protect the best interests of all shareholders by
encouraging potential acquirors to negotiate directly with the
shareholder-elected boards of directors. The Board's fiduciary duty to
shareholders is to evaluate any bona fide acquisition offer presented to the
Board and to determine whether such offer is in the best interests of, and will
deliver full value to, all shareholders. The purpose of the Rights Plan is to
strengthen the Board's ability, in the exercise of those fiduciary duties, to
protect and maximize the value of the shareholders' investment in the Company in
the event of an attempt to acquire control of the Company.
The Board believes that the Rights Plan provides major benefits to shareholders
and enables the directors, as the shareholders' elected representatives, to
protect the interests of the Company's shareholders in the event of an
acquisition offer. The Rights Plan (1) strengthens the Board's bargaining
position with a prospective bidder, (2) provides the Board adequate flexibility
to negotiate the highest possible bid from a potential acquiror, and (3) gives
the Board a greater period of time to evaluate all aspects of an acquisition
offer. The Rights Plan also protects shareholders against partial and two-tiered
tender offers and creeping stock accumulation programs, tactics that do not
treat all shareholders fairly and equally.
Contrary to the proponent's implications, the Rights Plan is not intended to
prevent, nor does it prevent, bidders from making offers to acquire the Company
at a price and on terms that would be in the best interests of all shareholders.
The Rights Plan does not prevent consideration of an attractive unsolicited
offer, because the Board can redeem the rights and permit the offer to be
accepted.
Pursuant to the Rights Plan, the rights will expire on January 17, 2006, unless
such final expiration date is extended or unless the rights are earlier redeemed
or exchanged by the Company. The Board of Directors, currently comprised of one
employee director and ten non-employee directors, will continue to evaluate the
merits and costs associated with the Rights Plan and redemption of the rights. A
decision to extend the Rights Plan will be made by the Board in its sole
discretion. The Board will also continue to consider the advice of experienced
legal and financial advisors regarding the takeover climate and the Company's
financial condition, and will take such actions as the Board determines to be in
the best interests of shareholders.
Approval of this proposal requires the affirmative vote of a majority of the
votes cast on the proposal. Approval of the proposal would not itself terminate
the Rights Plan. Redemption of the existing rights would require Board approval,
and implementation of a shareholder approval requirement for future shareholder
rights plans would necessitate an amendment of the Company's Certificate of
Incorporation, which requires both Board approval and approval by holders of at
least 66-2/3 percent of the outstanding common stock of the Company.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSAL 3.
Independent Public Accountants
In 2002, PricewaterhouseCoopers LLP served as Woodward's independent public
accountants. A representative from the firm is expected to attend the annual
meeting and will have the opportunity to make a statement, if he or she desires
to do so, and be available to answer appropriate questions. The appointment of
independent public accountants for the fiscal year ending September 30, 2003, is
currently expected to occur in April 2003 and will be determined by the Audit
Committee of the Company. We expect PricewaterhouseCoopers LLP will be
considered for reappointment.
Shareholder Proposals
If you want to submit a proposal for possible inclusion in our proxy statement
for the 2004 Annual Meeting of Shareholders, you must ensure your proposal is
received by us on or before August 8, 2003.
If you intend to present a proposal to shareholders, but do not want it included
in the proxy statement, management's proxies for that meeting will be entitled
to exercise their discretionary authority on that proposal unless we receive
notice of your proposal no later than October 22, 2003. Even if we receive
proper notice before October 22, 2003, the proxies may still exercise their
discretionary authority on the proposal by telling shareholders about the
proposal and how they intend to vote on it, unless you solicit proxies for the
proposal as required by Rule 14a-4(c)(2) under the Exchange Act.
Other Matters
Woodward is soliciting this proxy on behalf of its Board of Directors. This
solicitation is being made by mail, but also may be made by telephone or in
person. 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 $6,500, 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.
We do not know of any matters to be acted upon at the meeting other than those
discussed in this statement. If any other matter is presented, proxy holders
will vote on the matter in their discretion.
By Order of the Board of Directors
WOODWARD GOVERNOR COMPANY
Carol J. Manning
Corporate Secretary
December 6, 2002
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.
Exhibit B
Woodward Governor Company Executive Benefit Plan
Effective January 1, 2001
(Conformed to include the First, Second, and Third Amendments)
I. PURPOSE AND EFFECTIVE DATE.
1.1. PURPOSE. The Woodward Governor Company Executive Benefit Plan
("the Plan") has been established by Woodward Governor Company to
attract and retain certain key members by:
(a) providing a tax-deferred capital accumulation vehicle to
supplement such members' individual retirement
contributions, thereby encouraging savings for retirement,
and
(b) supplementing such members' retirement income, available
under the Woodward Governor Company Retirement Income Plan
(the "RIP") and the Woodward Governor Company Member
Investment and Stock Ownership Plan (the "MISOP"), which is
otherwise limited pursuant to the rules and regulations of
the Internal Revenue Code of 1986, as amended.
1.2. EFFECTIVE DATE. The Plan shall be effective January 1, 2001 and
shall remain in effect until terminated in accordance with Article
X.
1.3. CONTINUATION AND COMBINATION OF TWO PRIOR PLANS. The Plan is
intended to be:
(a) an amendment, restatement and continuation of the Woodward
Governor Company Amended and Restated Unfunded Deferred
Compensation Plan No.1 (the "DC Plan No. 1"),
(b) an amendment, restatement and continuation of the Woodward
Governor Company Unfunded Deferred Compensation Plan No. 2
(the "DC Plan No. 2"), and
(c) the merger and combination of the DC Plan No. 1 and the DC
Plan No. 2 into this single plan for ease in the Company's
administration.
II. DEFINITIONS.
When used in the Plan and initially capitalized, the following words and
phrases shall have the meanings indicated:
2.1. "Account" means the recordkeeping account established for each
Participant in the Plan for purposes of accounting for the amount
of the Participant's:
(a) Deferral Contribution Amounts deferred and credited in
accordance with Article IV each year, if any,
(b) Supplemental Benefit Amounts determined and credited in
accordance with Article V each year, if any, and
(c) account balance, if any, under the prior DC Plan No. 1
and/or prior DC Plan No. 2 on the day immediately preceding
the effective date of this Plan, all adjusted periodically
to reflect the hypothetical investment return on such
amounts in accordance with Article VI.
2.2. "Administrator" means the Compensation Committee or such other
individual or committee appointed and delegated by the Board to
administer the Plan in accordance with Article IX. To the extent
so delegated, the term "Administrator" hereunder shall be deemed
to refer to such individual or committee. The Compensation
Committee shall take such actions it deems necessary or desirable
to ensure that such individual or committee has sufficient and
appropriate authority for carrying out the intent and purpose of
the Plan.
2.3. "Affiliate" means:
(a) any corporation, partnership, joint venture, trust,
association or other business enterprise which is a member
of the same controlled group of corporations, trades or
businesses as the Company within the meaning of Code Section
414, and
(b) any other entity that is designated as an Affiliate by the
Board.
2.4. "Base Salary" means a Participant's base salary in effect for a
given year as reflected in the personnel records of the Company.
2.5. "Beneficiary" means the person or entity designated by the
Participant to receive the Participant's Plan benefits in the
event of the Participant's death. If the Participant does not
designate a Beneficiary, or if the Participant's designated
Beneficiary predeceases the Participant, the Participant's estate
shall be the Beneficiary under the Plan.
2.6. "Board" means the Board of Directors of the Company.
2.7. "Bonus" means any incentive compensation awarded to a Participant
for a given year under the Woodward Governor Company Annual
Incentive Compensation Plan, the Woodward Governor Company
Long-Term Incentive Compensation Plan, the Woodward Governor
Company Retention Incentive Agreement for FST Executives, and/or
any other bonus or incentive compensation plan designated by the
Administrator from time to time for inclusion within this
definition for deferral purposes.
2.8. "Change in Control" shall be deemed to have occurred if:
(a) any "person" (as defined in Section 13(d) and 14(d) of the
Exchange Act) (excluding for this purpose the Company or any
subsidiary of the Company, or any employee benefit plan of
the Company or any subsidiary of the Company, or any person
or entity organized, appointed or established by the Company
for or pursuant to the terms of such plan which acquires
beneficial ownership of voting securities of the Company) is
or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) directly or indirectly of securities
of the Company representing fifteen percent (15%) or more of
the combined voting power of the Company's then outstanding
securities; provided, however, that no Change in Control
shall be deemed to have occurred:
(i) as the result of an acquisition of securities of the
Company by the Company which, by reducing the number
of voting securities outstanding, increases the direct
or indirect beneficial ownership interest of any
person to fifteen percent (15%) or more of the
combined voting power of the Company's then
outstanding securities, but any subsequent increase in
the direct or indirect beneficial ownership interest
of such a person in the Company shall be deemed a
Change in Control; or
(ii) as a result of the acquisition directly from the
Company of securities of the Company representing less
than fifty percent (50%) of the voting power of the
Company; or
(iii) if the Board determines in good faith that a person
who has become the beneficial owner directly or
indirectly of securities of the Company representing
fifteen percent (15%) or more of the combined voting
power of the Company's then outstanding securities has
inadvertently reached that level of ownership
interest, and if such person divests as promptly as
practicable a sufficient amount of securities of the
Company so that the person no longer has a direct or
indirect beneficial ownership interest in fifteen
percent (15%) or more of the combined voting power of
the Company's then outstanding securities; or
(b) during any period of two (2) consecutive years (not
including any period prior to the effective date (as set
forth in Section 1.2 above) of the Plan), individuals who at
the beginning of such two-year period constitute the Board
and any new director or directors (except for any director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in
subparagraph (a) above or subparagraph (c) below) whose
election by the Board or nomination for election by the
Company's shareholders was approved by a vote or at least
two-thirds of the directors then still in office who either
were directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute at least a
majority of the Board (such individuals and any such new
directors being referred to as the "Incumbent Board"); or
(c) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company; or
(d) consummation of:
(i) an agreement for the sale or disposition of the
Company or all or substantially all of the Company's
assets,
(ii) a plan of merger or consolidation of the Company with
any other corporation, or
(iii) a similar transaction or series of transactions
involving the Company (any transaction described in
subparagraphs (i) and (ii) or this paragraph (d) being
referred to as a "Business Combination"), in each case
unless after such a Business Combination:
(a) the shareholders of the Company immediately prior
to the Business Combination continue to own,
directly or indirectly, more than fifty-one
percent (51%) of the combined voting power of the
then outstanding voting securities entitled to
vote generally in the election of directors of
the new (or continued) entity (including, but not
by way of limitation, an entity which as a result
of such transaction owns the Company or all or
substantially all of the Company's former assets
either directly or through one or more
subsidiaries) immediately after such Business
Combination, in substantially the same proportion
as their ownership in the Company immediately
prior to such Business Combination, and
(b) at least a majority of the members of the board
of directors of the entity resulting from such
Business Combination were members of the
Incumbent Board at the time of the execution of
the initial agreement, or of the action of the
Board, providing for such Business Combination.
2.9. "Code" means the Internal Revenue Code of 1986, as amended.
2.10. "Company" means Woodward Governor Company and any successor
thereto.
2.11. "Deferral Contribution Amounts" means the amounts of Base Salary
and Bonus deferred by a Participant, if any, and credited to his
or her Account in accordance with Article IV but such amounts
specifically and expressly do not include any Prior Account
Balance of such Participant.
2.12. "Deferral Election" means the written election made by an Eligible
Member to defer such Eligible Member's Base Salary and/or Bonus
for any given year in accordance with Article IV.
2.13. "Disability" means Disability as defined in the Woodward Governor
Company Long-Term Disability Plan.
2.14. "Distribution Election" means the written election made by a
Participant regarding the form of payment distribution of his or
her Account in accordance with Article VII.
2.15. "Early Retirement Date" means the date on which any Plan
Participant retires from active employment with the Company or any
Affiliate on or after he has attained age 55 but before he has
attained age 65.
2.16. "Election Period" means the period specified by the Administrator
during which a Deferral Election may be made with respect to a
Participant's Base Salary and/or Bonus payable for a Plan Year.
2.17. "Eligible Member" means a member of the Company or an Affiliate
who has been selected by the Administrator to participate in the
Plan in accordance with Article III.
2.18. "Exchange Act" means the Securities Exchange Act of 1934.
2.19. "FICA" means the employment tax imposed on a member's income under
the Federal Insurance Contributions Act (Chapter 21 of the Code)
which is comprised of Old-Age, Survivors and Disability Insurance
and Hospital Insurance
2.20. "Investment Fund or Funds" means the investment funds designated
by the Administrator as the basis for determining the hypothetical
investment return to be credited in accordance with Article VI to
Participants' Accounts. Initially, the Investment Funds shall
mirror the available investment funds under the MISOP, as set
forth on the attached Exhibit A. Thereafter, the Administrator may
change the Investment Funds at such times as it deems appropriate.
2.21. "Normal Retirement Date" means the date on which any Plan
Participant retires from active employment with the Company or any
Affiliate on or after he has attained age 65.
2.22. "Participant" means an Eligible Member who has:
(a) been notified by the Administrator of his eligibility to
participate in the Plan, and
(b) either:
(i) completed and submitted a Deferral Election in
accordance with Section 4.2, or
(ii) had credited to his Account, by the Company,
Supplemental Benefit Amounts in accordance with
Article V, or
(iii) had an account balance under the prior DC Plan No. 1
and/or the prior DC Plan No. 2 on the day immediately
preceding the effective date of this Plan.
2.23. "Plan" means the Woodward Governor Company Executive Benefits
Plan, as amended from time to time.
2.24. "Plan Year" means the 12 consecutive month period beginning each
January 1.
2.25. "Prior Account Balance" means an Eligible Member's account
balance(s), if any, under the prior DC Plan No. 1 and/or prior DC
Plan No. 2 which were transferred to this Plan by the Company and
credited to his Account pursuant to Section 3.1(B)(3).
2.26. "Retirement" means termination of employment by a Participant by
reason of retiring from active employment with the Company or any
Affiliate on his Early Retirement Date or Normal Retirement Date.
2.27. "Supplemental Benefit Amounts" means the amounts computed on
behalf of the Participant, if any, and credited to his or her
Account in accordance with Article V which represents the sum of
the Participant's Supplemental MISOP Amounts and Supplemental RIP
Amounts.
2.28. "Supplemental MISOP Amount" means that portion of the Supplemental
Benefit Amounts computed under Section 5.1(b) of the Plan
specifically pertaining to the MISOP and credited to the
Participant's Account in accordance with Article V.
2.29. "Supplemental RIP Amount" means that portion of the Supplemental
Benefit Amounts computed under Section 5.1(a) of the Plan
specifically pertaining to the RIP and credited to the
Participant's Account in accordance with Article V.
2.30. "Valuation Date" means a date on which the Investment Funds are
valued and the Participant's Account is adjusted for any resulting
gains or losses. The Administrator shall determine the Valuation
Date and such date shall be at least once every calendar year.
III. PARTICIPATION.
3.1. PARTICIPATION. The Administrator shall select those members
eligible to participate in the Plan. In selecting Eligible
Members, the Administrator shall take into consideration such
factors as it deems relevant in connection with accomplishing the
purposes of the Plan. An Eligible Member shall become a
Participant in the Plan when (A) he is notified in writing by the
Administrator that he is eligible to participate in the Plan, and
(B) he has either (1) completed and submitted a Deferral Election
to the Administrator in accordance with Article IV, or (2) had
credited to his Account, by the Company, Supplemental Benefit
Amounts in accordance with Article V, or (3) had credited to his
Account, by the Company, his account balance, if any, under the
prior DC Plan No. 1 and/or the prior DC Plan No. 2 on the day
immediately preceding the effective date of this Plan.
3.2. ERISA EXEMPTION. It is the intent of the Company that the Plan be
exempt from Parts 2, 3 and 4 of Subtitle B of Title I of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), as an unfunded plan that is maintained by the Company
primarily for the purpose of providing deferred compensation for a
select group of management of highly compensated employees (the
"ERISA Exemption"). Notwithstanding anything to the contrary in
Section 3.1 or in any other provision of the Plan, the
Administrator may in its sole discretion exclude any one or more
members from eligibility to participate or from participation in
the Plan, may exclude any Participant from continued participation
in the Plan, and may take any further action (including the
immediate payment of the Participant's entire interest under the
Plan in a lump-sum) it considers necessary or appropriate if the
Administrator reasonably determines in good faith that such
exclusion or further action is necessary in order for the Plan to
qualify for, or to continue to qualify for, the ERISA Exemption.
IV. DEFERRAL CONTRIBUTION AMOUNTS.
4.1. PERMISSIBLE DEFERRALS UNDER THE PLAN. An Eligible Member may elect
to defer:
(a) DEFERRAL OF BASE SALARY: up to 50% of his or her Base Salary
for a Plan Year, in increments of 1%, provided, however,
that any election to defer over 30% of Base Salary must be
approved in advance by the Administrator, and
(b) DEFERRAL OF BONUS: up to 100% of his or her Bonus for a Plan
Year, in increments of 25%,
by filing a Deferral Election in accordance with Section 4.2
below.
4.2. DEFERRAL ELECTIONS. A Participant's Deferral Election shall be in
writing, and shall be filed with the Administrator at such time
and in such manner as the Administrator shall provide, subject to
the following:
(a) A Deferral Election pertaining to Base Salary and/or Bonus
shall be made during the election period established by the
Administrator which shall end no later than December 31
preceding the first day of the Plan Year in which such Base
Salary and/or Bonus would otherwise be payable.
(b) At the discretion of the Administrator, a Deferral Election
may be made by
(i) newly-hired Eligible Members for the Plan Year in
which they commence employment,
(ii) a member who becomes an Eligible Member after the
beginning of a Plan Year for the Plan Year in which
they become an Eligible Member.
Notwithstanding the preceding sentence, such Deferral
Elections must be made within thirty (30) days of their date
of hire or the date the member becomes an Eligible Member,
whichever applies. However, such Deferral Elections shall be
prospective and shall apply only to Base Salary and/or Bonus
that would otherwise be paid to the Eligible Member after
the Deferral Election is made.
(c) Deferral Elections shall be expressed as a percentage of
Base Salary or Bonus, within the limits provided under the
Plan.
Once made, a Deferral Election for:
(A) Base Salary shall remain in effect for all subsequent
Plan Years unless changed or revoked by the
Participant in accordance with rules established by
the Administrator, and
(B) Bonus shall remain in effect only for the Plan Year
for which such Bonus Deferral Election was made.
Any such modification or revocation with respect to Base Salary
shall be effective for the Plan Year following the Plan Year in
which it is made. Notwithstanding anything to the contrary, any
revocation for Base Salary and/or Bonus shall become effective as
soon as practicable in the event it is made because of the
Participant's Disability or if the Administrator, in its sole
discretion, determines that the Participant has suffered a severe
financial hardship or a bona fide administrative mistake was made.
If a Deferral Election is revoked in accordance with any of the
foregoing, the Participant may not make a new Deferral Election
until the election period established by the Administrator for
making deferrals for the next Plan Year.
4.3. CREDITING OF DEFERRAL ELECTIONS. The amount of Base Salary and
Bonus that a Participant elects to defer under the Plan shall be
credited by the Company to the Participant's Account as Deferral
Contribution Amounts as of the date such Base Salary or such Bonus
would have been paid to the Participant absent the Deferral
Election.
4.4. VESTING. A Participant's Deferral Contribution Amounts for each
Plan Year shall be fully vested at the time credited to such
Participant's Account.
4.5. DEFERRED CONTRIBUTION AMOUNTS SUBJECT TO FICA AT TIME OF DEFERRAL.
A Participant's Deferred Contribution Amounts are subject to FICA
at the time the amounts are contributed to the Plan for deferral.
The gross amount of the Participant's Base Salary deferral and
Bonus deferral will be contributed to the Participant's Account
and the corresponding FICA tax due will be deducted from that
portion of the Participant's Base Salary or Bonus not deferred, as
the case may be. Notwithstanding the foregoing, if a Participant
has elected to defer a percentage of his or her Bonus such that
contribution of the gross amount of the Bonus deferred would leave
insufficient funds to remit the applicable FICA tax to the
government, then the applicable Bonus amount contributed to the
Participant's Account shall be made net of the smallest amount of
FICA tax needed to satisfy such liability which cannot be covered
from the portion of Bonus not deferred.
V. SUPPLEMENTAL BENEFIT AMOUNTS.
5.1. COMPUTATION OF SUPPLEMENTAL BENEFIT AMOUNTS. An Eligible Member
designated by the Administrator for participation under the Plan
shall be entitled to a Supplemental Benefit Amount for each Plan
Year that he is an Eligible Member which is equal to the sum of:
(a) Supplemental Benefit Relating to the RIP: the excess, if
any, of:
(i) the benefit the Participant otherwise would have been
entitled to have credited to a separate account for
his benefit under the RIP for a given year if such
benefit was calculated without regard to the
following:
(A) Code Section 415,
(B) Code Section 401(a)(17), and
(C) any Deferral Election made by the Participant for
such given year under Article IV of this Plan,
over
(ii) the accrued benefit which the Participant is entitled
to have credited to a separate account for his benefit
for such given year under the RIP, plus
(b) Supplemental Benefit Relating to the MISOP: the excess, if
any, of:
(i) the benefit the Participant otherwise would have been
entitled to have credited to a separate account for
his benefit under the MISOP for a given year if such
benefit was calculated without regard to the
following:
(A) Code Section 415,
(B) Code Section 401(a)(17),
(C) Code Section 401(k)(3),
(D) Code Section 401(m)(2), and
(E) Code Section 402(g), over
(ii) the actual benefit which the Participant is entitled
to have credited to a separate account for his benefit
for such given year under the MISOP.
5.2. VESTING. A Participant's Supplemental Benefit Amounts calculated
by the Company for each Plan Year shall be fully vested at the
time credited to such Participant's Account.
5.3. CREDITING OF SUPPLEMENTAL BENEFIT AMOUNTS. The Supplemental
Benefit Amounts computed in Section 5.1 above for each Plan Year
shall be credited by the Company to the Participant's Account as
soon as reasonably practicable.
VI. ACCOUNTS AND INVESTMENTS.
6.1. VALUATION OF ACCOUNTS. The Administrator shall establish an
Account for each Participant who:
(a) has filed a Deferral Election to defer Base Salary and/or
Bonus, or
(b) has been credited with a Supplemental Benefit Amount, or
(c) has a Prior Account Balance on the effective date of this
Plan.
Such Account shall be credited with a Participant's Deferral
Contribution Amounts and Supplemental Benefit Amounts as set forth
in Sections 4.3 and 5.3, respectively, and with the Participant's
Prior Account Balance, if any. As of each Valuation Date, the
Participant's Account shall be adjusted upward or downward to
reflect:
(i) the investment return to be credited as of such Valuation
Date pursuant to Section 6.3 below,
(ii) the amount of distributions, if any, to be debited as of
that Valuation Date under Article VII, and
(iii) the amount of forfeitures, if any, to be debited under
Section 7.4(a).
6.2. HYPOTHETICAL INVESTMENT FUNDS. Each Participant generally may
direct the manner in which his or her Deferral Contribution
Amounts, Supplemental MISOP Amounts, if any, and/or Prior Account
Balance, if any, shall be deemed invested in and among the
Investment Funds; provided, however, that each investment election
made by a Participant shall, notwithstanding anything to the
contrary in the Plan, be strictly subject to the consent of the
Administrator which, in its sole discretion, may elect to honor
the Participant's request or have the Account deemed invested in
another manner. Such deemed investment election shall be made in
accordance with such procedures as the Administrator shall
establish and any such election shall be made in whole
percentages. The investment authority shall remain at all times
with the Administrator. The selection of Investment Funds by a
Participant shall be for the sole purpose of determining the rate
of return to be credited to his or her Account and shall not be
treated or interpreted in any manner whatsoever as a requirement
or direction to actually invest assets in any Investment Fund or
any other investment media.
6.3. CREDITING OF INVESTMENT RETURN. Each Participant's Account shall
be credited on each Valuation Date with his or her allocable share
of investment gains or losses of each Investment Fund in which his
or her Deferral Contribution Amounts, Supplemental MISOP Amounts,
if any, and/or Prior Account Balance, if any, are hypothetically
invested. The Administrator shall adopt a protocol for allocating
the deemed investment gains and losses similar to that used in the
MISOP. Notwithstanding anything to the contrary, if a Participant
elects to invest in the hypothetical Investment Fund for Woodward
Governor Company Common Stock, such Participant's Account shall
also be credited with any deemed dividends paid during the period
beginning with the immediately preceding Valuation Date and ending
with the current Valuation Date.
6.4. CHANGING INVESTMENT FUND OPTIONS. Subject to any exceptions set
forth on Exhibit A, a Participant may, on a daily basis, make a
new election with respect to the hypothetical Investments Funds in
which his or her Deferral Contribution Amounts, Supplemental MISOP
Amounts, if any, and/or Prior Account Balance, if any, shall be
deemed invested in the future. Any such election shall be made in
the form specified by the Administrator.
6.5. INVESTMENT ALTERNATIVES AFTER DEATH. For periods after the
Valuation Date coincident with or following a Participant's death
and pursuant to procedures established by the Administrator, the
Participant's Account balance pertaining to Deferral Contribution
Amounts, Supplemental MISOP Amounts, if any, and/or Prior Account
Balance, if any, shall be reallocated and reinvested among the
Investment Funds in accordance with the Beneficiary's hypothetical
investment direction.
VII. PAYMENT OF BENEFITS.
7.1. DISTRIBUTION AT SPECIFIC FUTURE DATE. At the time an Eligible
Member is notified by the Administrator of his or her eligibility
to participate in the Plan, the Eligible Member may elect one or
more future Valuation Dates as of which all or a portion of his or
her Deferral Contribution Amounts and earnings thereon shall be
determined for payment. Any distribution as of a specific future
date made to an Eligible Member pursuant to his
election shall be paid in a single lump-sum payment. Any such
future date shall be a Valuation Date in a specific future year
which is at least five Plan Years after the Plan Year for which
the initial Deferral Contribution Amounts were credited to such
Participant's Account; provided, however, that only one
distribution per Plan Year may be elected under this Section 7.1;
provided, further that, if the Participant elects a distribution
at one or more specific future dates and has a termination of
employment prior to any such date, distribution shall commence
pursuant to Sections 7.2, 7.3, 8.1 or 8.2, as applicable. A
distribution election under this Section 7.1 may be revoked or
extended to a Valuation Date in a future Plan Year by filing a
one-time revocation or extension election with the Administrator
at least 12 months prior to the first day of the Plan Year in
which such distribution was scheduled to take place.
Notwithstanding the foregoing, any amounts distributable under
this Section 7.1 shall be paid as soon as practicable following
such relevant Valuation Date.
7.2. DISTRIBUTION UPON RETIREMENT OR DISABILITY. If a Participant
terminates employment with the Company and/or Affiliates by reason
of Retirement or Disability, distribution of the Participant's
Account shall be made by or commence on the Valuation Date
coincident with or next following such Participant's termination
of employment. Distribution under this Section 7.2 shall be made:
(a) in a lump sum, or
(b) in substantially equal annual, quarterly or monthly
installments for a period up to but not exceeding 10 years
as elected by the Participant on his or her Distribution Election.
A Participant may revoke or change his or her Distribution
Election under this Section 7.2 by filing a new Distribution
Election with the Administrator; provided, however, that any
Distribution Election that has not been on file with the
Administrator at least 12 months prior to the first day of the
Plan Year in which the Participant's termination of employment
occurs shall be void and disregarded. A Participant cannot alter
or change his Distribution Election once he has begun to receive
payments under the Plan. Notwithstanding the foregoing, a
Participant (or his legal representative) whose termination of
employment occurs by reason of Disability may request that the
Administrator distribute the Participant's Account in another
payment form following such termination of employment for
Disability or defer distribution of the Participant's Account
until such Participant is no longer eligible for coverage under
the Woodward Governor Company Long-Term Disability Plan, in which
case the Administrator, in its sole discretion, shall determine
whether to make payment in another form or defer such
distributions after taking into consideration all factors which it
deems relevant. If the Participant does not have a valid
Distribution Election on file with the Administrator at the time
of Retirement or Disability, the Participant's Account shall be
paid in a single sum under paragraph (a) above.
7.3. DISTRIBUTION ON OTHER TERMINATION OF EMPLOYMENT. If a
Participant's employment with the Company or Affiliates terminates
for any reason other than Retirement, Disability or death, the
Participant's Account shall be paid in a lump sum payment as of
the Valuation Date coincident with or next following such
termination of employment.
7.4. UNSCHEDULED WITHDRAWAL. A Participant may request a withdrawal of
all or a portion of his or her Deferral Contribution Amounts and
earnings thereon by filing a Distribution Election with the
Administrator specifying the amount of the Deferral Contribution
Amounts to be withdrawn. Payment of such amount, adjusted by the
amount forfeited as set forth in Subsection (a) below, shall be
made as of the first Valuation Date administratively practicable
after such request is received, and shall be subject to the
following:
(a) An amount equal to 10% of the withdrawal requested shall be
debited to the Participant's Account and permanently
forfeited.
(b) Any Deferral Election in effect at the time of such
withdrawal shall be void for periods after such withdrawal.
(c) The Participant shall not be eligible to file a new Deferral
Election until the election period for the Plan Year
commencing at least 12 months after such withdrawal.
7.5. UNFORESEEABLE EMERGENCY. Prior to the date otherwise scheduled for
payment under the Plan, upon showing an unforeseeable emergency, a
Participant may request that the Administrator accelerate payment
of all or a portion of his or her Deferral Contribution Amounts
and earnings thereon in an amount not exceeding the amount
necessary to meet the unforeseeable emergency. For purposes of the
Plan, an unforeseeable emergency means an unanticipated emergency
that is caused by an event beyond the control of the Participant
and that would result in severe financial or medical hardship to
the Participant if early withdrawal were not permitted. Severe
financial or medical hardship shall be deemed to exist in the
event of the Participant's long and serious illness, impending
bankruptcy or other similar extraordinary circumstances. The
determination of an unforeseeable emergency shall be made by the
Administrator in its sole discretion, based on such information as
the Administrator shall deem to be necessary and relevant and such
decision shall be final and binding on all parties.
7.6. TIME AND FORM OF ELECTIONS. All Distribution Elections under this
Article VII shall be made at the time and in the form established
by the Administrator and shall be subject to such other rules and
limitations that the Administrator, in its sole discretion, may
establish.
7.7. FORM OF PAYMENT AND WITHHOLDING. All payments under the Plan shall
be made in cash and are subject to the withholding of all
applicable federal, state and local and foreign governmental
taxes; provided, however, any payment under the Plan that is
attributable to the portion of a Participant's Account deemed
invested in Company common stock shall be made in whole shares of
Company common stock, with fractional shares paid in cash.
VIII. DEATH BENEFITS.
8.1. DEATH PRIOR TO COMMENCEMENT OF BENEFITS. If a Participant dies
prior to commencement of payment of his or her Account, the
Participant's Beneficiary shall receive a survivor benefit in an
amount equal to the Participant's Account balance to be paid in a
single lump sum as soon as practicable following the Participant's
death.
8.2. DEATH AFTER COMMENCEMENT OF BENEFITS. If a Participant terminates
employment due to Retirement or Disability, and dies prior to the
time his or her Account balance has been fully distributed, the
Participant's Beneficiary shall receive the remaining portion of
the Participant's Account at the regularly-scheduled date of
payment for any remaining installment payments of the
Participant's Account.
8.3. ADMINISTRATOR DISCRETION REGARDING FORM. Notwithstanding the
foregoing provisions of this Article VIII, a Beneficiary may
request that the Administrator approve an alternate form of
payment of survivor benefits under this Article VIII which request
may be granted in the sole discretion of the Administrator.
IX. ADMINISTRATION.
9.1. AUTHORITY OF ADMINISTRATOR. The Administrator shall have full
power and authority to carry out the terms of the Plan. The
Administrator may establish such rules and regulations as it may
consider necessary or desirable for the effective and efficient
administration of the Plan. The Administrator's interpretation,
construction and administration of the Plan, including any
adjustment of the amount or recipient of the payments to be made,
shall be binding and conclusive on all persons for all purposes.
Neither the Company, including its officers, members or directors,
nor the Administrator or the Board or any member thereof, shall be
liable to any person for any action taken or omitted in connection
with the interpretation, construction and administration of the
Plan.
9.2. PARTICIPANT'S DUTY TO FURNISH INFORMATION. Each Participant shall
furnish to the Administrator such information as it may from time
to time request for the purpose of the proper administration of
this Plan.
9.3. INTERESTED MEMBER OF ADMINISTRATOR. If a member of the
Administrator is also a Participant in the Plan, he or she may not
decide or determine any matter or question concerning his or her
benefits unless such decision or determination could be made by
him or her under the Plan if he or she were not a member of the
Administrator.
9.4. INDEMNIFICATION. No person (including any present or former member
of the Administrator, and any present or former officer or member
of the Company or any Affiliate) shall be personally liable for
any act done or omitted to be done in good faith in the
administration of the Plan. Each present or former officer or
member of the Company or any Affiliate to whom the Administrator
has delegated any portion of its responsibilities under the Plan
and each present or former member of the Administrator shall be
indemnified and saved harmless by the Company (to the extent not
indemnified or saved harmless under any liability insurance or
other indemnification arrangement with respect to the Plan) from
and against any an all claims of liability to which they are
subjected by reason of any act done or omitted to be done in good
faith in connection with the administration of the Plan, including
all expenses reasonably incurred in their defense if the Company
fails to provide such defense. No member of the Administrator
shall be liable for any act or omission of any other member of the
Administrator, nor for any act or omission upon his own part,
excepting his own willful misconduct or gross neglect.
9.5. CLAIMS PROCEDURE. If a Participant or Beneficiary ("Claimant") is
denied all or a portion of an expected benefit under this Plan for
any reason, he or she may file a claim with the Administrator. The
Administrator shall notify the Claimant within 90 days of
allowance or denial of the claim, unless the Claimant receives
written notice from the Administrator prior to the end of the
90-day period stating that special circumstances require an
extension (of up to 90 additional days) of the time for decision.
The notice of the decision shall be in writing, sent by mail to
Claimant's last known address, and if a denial of the claim, shall
contain the following information: (a) the specific reasons for
the denial; (b) specific reference to pertinent provisions of the
Plan on which the denial is based; and (c) if applicable, a
description of any additional information or material necessary to
perfect the claim, an explanation of why such information or
material is necessary, and an explanation of the claims review
procedure. A Claimant is entitled to request a review of any
denial of his or her claim by the Board. The request for review
must be submitted within 60 days of mailing of notice of the
denial. Absent a request for review within the 60-day period, the
claim shall be deemed to be conclusively denied. The Claimant or
his or her representatives shall be entitled to review all
pertinent documents, and to submit issues and comments orally and
in writing. The Board shall render a review decision in writing
within 60 days after receipt of a request for a review, provided
that, in special circumstances the Board may extend the time for
decision by not more than 60 days upon written notice to the
Claimant. The Claimant shall receive written notice of the Board's
review decision, together with specific reasons for the decision
and reference to the pertinent provisions of the Plan.
X. AMENDMENT AND TERMINATION.
The Board may amend or terminate the Plan at any time; provided, however,
that no such amendment or termination shall have a material adverse effect
on any Participant's rights under the Plan accrued as of the date of such
amendment or termination without such Participant's written consent. Upon
termination of the Plan, the Board may cause a lump-sum payment of all
benefits for all Participants at substantially the same time.
XI. MISCELLANEOUS.
11.1. NO IMPLIED RIGHTS RIGHTS ON TERMINATION OF SERVICE. Neither the
establishment of the Plan nor any amendment thereof shall be
construed as giving any Participant, Beneficiary or any other
person, individually or as a member of a group, any legal or
equitable right unless such right shall be specifically provided
for in the Plan or conferred by specific action of the Board or
the Administrator in accordance with the terms and provisions of
the Plan. Except as expressly provided in this Plan, neither the
Company nor any of its Affiliates shall be required or be liable
to make any payment under the Plan.
11.2. NO EMPLOYMENT RIGHTS. Nothing herein shall constitute a contract
of employment or of continuing service or in any manner obligate
the Company or any Affiliate to continue the services of any
Participant, or obligate any Participant to continue in the
service of the Company or Affiliates, or as a limitation of the
right of the Company or Affiliates to discharge any of their
members, with or without cause.
11.3. NATURE OF THE PLAN.
(a) UNFUNDED PLAN. Nothing herein contained shall require or be
deemed to require the Company to segregate, earmark or
otherwise set aside any funds or other assets to provide for
any payments made hereunder. Benefits hereunder shall be
paid from assets which shall continue, for all purposes, to
be part of the general, unrestricted assets of the Company
and its Affiliates. The obligations of the Company hereunder
shall be an unfunded and unsecured promise to pay money in
the future. However, the Company may establish one or more
trusts to assist in meeting its obligations under the Plan,
the assets of which shall be subject to the claims of the
Company's general creditors. No current or former
Participant, Beneficiary or other person, individually or as
a member of a group, shall have any right, title or interest
in any account, fund, grantor trust, or any asset that may
be acquired by the Company in respect of its obligations
under the Plan (other than as a general creditor of the
Company with an unsecured claim against its general assets).
(b) EXCEPTION FOR CHANGE IN CONTROL. Notwithstanding the
provisions of paragraph (a) of this Section 11.3, the
Company shall create a rabbi trust to hold funds to be used
in payment of the obligations of the Company under the Plan,
which trust shall not be funded except as provided in the
following sentence. In the event of a Change in Control (or
prior thereto in the sole discretion of the Company), the
Company shall fund such trust in an amount equal to not less
than the total value of the Participants' Accounts under the
Plan as of the Valuation Date immediately preceding the
Change in Control, provided that any funds contained therein
shall remain subject to the claims of the Company's general
creditors. In addition, upon a Change in Control, the trust
by its terms shall become irrevocable.
11.4. NONTRANSFERABILITY. Prior to payment thereof, no benefit under the
Plan shall be assignable or subject to any manner of alienation,
sale, transfer, claims of creditors, pledge, attachment or
encumbrances of any kind, except pursuant to a domestic relations
order awarding benefits to an "alternate payee" (within the
meaning of Code Section 414(p)(8)) that the Administrator
determines satisfies the criteria set forth in paragraphs (1), (2)
and (3) of Code Section 414(p) (a "DRO"). Notwithstanding any
provision of the Plan to the contrary, the Plan benefits awarded
to an alternate payee under a DRO shall be paid in a single lump
sum to the alternate payee on the Valuation Date as soon as
administratively practicable following the date the Administrator
determines the order is a DRO, and such amounts, as adjusted for
earnings, gains and losses, will be deducted from the
Participant's Account as of such Valuation Date.
11.5. SUCCESSORS AND ASSIGNS. The rights, privileges, benefits and
obligations under the Plan are intended to be, and shall be
treated as legal obligations of and binding upon the Company, its
successors and assigns, including successors by merger,
consolidation, reorganization or otherwise.
11.6. PAYMENT WITH RESPECT TO INCAPACITATED PERSONS. Any amounts payable
hereunder to any person who is a minor or under a legal
disability, as determined under applicable state law, or who is
unable to manage properly his or her financial affairs may be paid
(a) to the legal representative of such person, (b) to anyone
acting as the person's agent under a durable power of attorney,
(c) to an adult relative or friend of the person or (d) to anyone
with whom the person is residing. Any payment of a benefit made in
accordance with the provisions of this section shall be a complete
discharge of any liability for the making of such payment under
the Plan. The Administrator's reliance on the written power of
attorney or other instrument of agency governing a relationship
between the person entitled to benefit the person to whom the
Administrator directs payment of the benefit shall be fully
protected at least to the same extent as though the Administrator
had dealt directly with the person entitled to the benefit as a
fully competent person. In the absence of actual knowledge to the
contrary, the Administrator may assume that the instrument of
agency was validly executed, that the person was competent at the
time of execution and that at the time of reliance, the agency had
not been terminated or amended.
11.7. ARBITRATION. Any controversy or claim arising out of or relating
to this Plan, or breach hereof, shall be settled by arbitration in
the City of Chicago in accordance with the laws of the State of
Illinois with an arbitrator appointed by the Company. The
arbitration shall be conducted in accordance with the rules of the
American Arbitration Association, except with respect to the
selection of an arbitrator. The arbitrator's determination shall
be final and binding upon all parties and judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
11.8. GENDER AND NUMBER. Except when otherwise indicated by the context,
words in the masculine gender shall include the feminine and
neuter genders, the plural shall include the singular, and the
singular shall include the plural.
11.9. HEADINGS. The headings of the various Articles and Sections in the
Plan are solely for convenience and shall not be relied upon in
construing any provisions hereof. Any reference to a Section shall
refer to a Section of the Plan unless specified otherwise.
11.10. SEVERABILITY. Whenever possible, each provision of the Plan shall
be interpreted in such manner as to be effective and valid under
applicable law, but it any provision of the Plan is held to be
invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other
provision or any other jurisdiction, and the Plan shall be
reformed, construed and enforced in such jurisdiction so as to
best give effect to the intent of the Company under the Plan.
11.11. EFFECT ON OTHER EMPLOYEE BENEFIT PLANS. Any benefit paid or
payable under this Plan shall not be included in a Participant's
compensation for purposes of computing benefits under any employee
benefit plan maintained or contributed by the Company or any
Affiliate except as may otherwise be required under the specific
terms of such employee benefit plan.
11.12. NON-U.S. PARTICIPANTS. With respect to any Affiliate which employs
Participants who reside outside the United States, and
notwithstanding anything herein to the contrary, the Administrator
may, in its sole discretion, amend the terms of the Plan in order
to conform such terms with the requirements of local law or to
meet the objectives of the Plan, and may, where appropriate,
establish one or more sub-plans to reflect such amended
provisions.
11.13. APPLICABLE LAW. This Plan is established under and will be
construed according to the laws of the State of Illinois, to the
extent not preempted by the laws of the United States.
11.14. CHANGES IN LAW AFFECTING TAXABILITY.
(a) OPERATION. This Section 11.14 shall become operative upon
the enactment of any change in applicable statutory law or
the promulgation by the Internal Revenue Service of a final
regulation or other pronouncement having the force of law,
which statutory law, as changed, or final regulation or
pronouncement, as promulgated, would cause any Participant
to include in his or her federal gross income amounts
accrued by the Participant under the Plan on a date (an
"Early Taxation Event") prior to the date on which such
amounts are made available to him or her hereunder.
(b) AFFECTED RIGHT OR FEATURE NULLIFIED. Notwithstanding any
other provision of the Plan to the contrary, but subject to
subsection (c), below, as of an Early Taxation Event, the
feature or features of this Plan that would cause the Early
Taxation Event shall be null and void, to the extent, and
only to the extent, required to prevent the Participant from
being required to include in his or her federal gross income
amounts accrued by the Participant under the Plan prior to
the date on which such amounts are made available to him or
her hereunder. If only a portion of a Participant's Account
is impacted by the change in the law, then only such portion
shall be subject to this Section, with the remainder of the
Account not so affected being subject to such rights and
features as if the law were not changed. If the law only
impacts Participants who have a certain status with respect
to the Company, then only such Participants shall be subject
to this Section 11.14.
(c) TAX DISTRIBUTION. If an Early Taxation Event is earlier than
the date on which the statute, regulation or pronouncement
giving rise to the Early Taxation Event is enacted or
promulgated, as applicable (i.e., if the change in the law
is retroactive), there shall be distributed to each
Participant, as soon as practicable following such date of
enactment or promulgation, the amounts that became taxable
on the Early Taxation Event."
Exhibit A--Investment Funds Under the Woodward Governor Company Executive
Benefit Plan
The Investment Funds designated by the Administrator, in its sole discretion and
from time to time, as the basis for determining the hypothetical investment
return to be credited to Participants' Accounts in accordance with Article VI of
the Woodward Governor Company Executive Benefit Plan (the "Plan"), if
applicable, are currently as follows:
1. Vanguard Treasury Money Market Fund,
2. Vanguard Short-Term Corporate Fund,
3. Vanguard Total Bond Market Index Fund,
4. Vanguard Wellington Fund,
5. Vanguard 500 Index Fund,
6. Vanguard Windsor II Fund,
7. Vanguard U.S. Growth Fund,
8. Vanguard International Growth Fund,
9. Vanguard Explorer Fund, and
10. Woodward Governor Company Common Stock, but only if the Participant's
investment election for this Investment Fund is approved in advance for
such Participant by the Board of Directors of Woodward Governor Company
(the "Board"). Notwithstanding any provision of the Plan or this Exhibit A
to the contrary, if a Participant is granted permission to elect this
Investment Fund, such Participant may only revoke such Investment Fund
election with the prior approval of the Board. Any such revocation shall
only be effective with respect to future deferrals and credits. Any
portion of the Participant's Account deemed invested in the Company's
Common Stock shall continue to be deemed to be invested in Common Stock
and may not be transferred to any other hypothetical Investment Fund. The
applicable value of the common stock as of any Valuation Date shall be
equal to the closing price of such common stock on NASDAQ quoted by the
Wall Street Journal for the applicable Valuation Date. The Participant's
Account shall also be credited with deemed dividends, if any, on such
common stock.
ANNUAL MEETING OF SHAREHOLDERS OF
WOODWARD GOVERNOR COMPANY
January 22, 2003
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call 1-888-266-6788 toll-free and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
Please access the web page at www.proxyvoting.com/wgov and follow the on-screen
instructions. Have your control number available when you access the web page.
YOUR CONTROL NUMBER IS ______________________
Please Detach and Mail in the Envelope Provided
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_X_ PLEASE MARK VOTES
AS IN THIS EXAMPLE
1. ELECTION OF DIRECTORS __ For __ Withhold __ For all Except
J. Grant Beadle Paul Donovan
Lawrence E. Gloyd J. Peter Jeffrey
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 nominees.
2. APPROVAL OF THE WOODWARD GOVERNOR COMPANY EXECUTIVE BENEFIT PLAN
___ For ___ Against ___ Abstain
3. SHAREHOLDER PROPOSAL
___ For ___ Against ___ Abstain
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER MATTERS 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 MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE.
Signature__________________ Signature if held jointly ______________ Dated
NOTE: Please sign exactly as name appears hereon. 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.
PROXY PROXY
WOODWARD GOVERNOR COMPANY
Proxy for Annual Meeting of the Shareholders - January 22, 2003
Solicited by the Board of Directors
The undersigned hereby appoints J. Grant Beadle, John A. Halbrook and Michael T.
Yonker, as the undersigned's proxy, with full power of substitution, to
represent and to vote, as designated on the reverse side, all the undersigned's
common stock in the Woodward Governor Company at the Annual Meeting of
Shareholders to be held on Wednesday, January 22, 2003, and at any adjournment
thereof, with the same authority as if the undersigned were personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDERS. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE
VOTED IN THE DISCRETION OF THE NAMED PROXIES ON ALL MATTERS. THE BOARD FAVORS A
VOTE "FOR" THE ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS; "FOR"
APPROVAL OF THE WOODWARD GOVERNOR COMPANY EXECUTIVE BENEFIT PLAN; AND "AGAINST"
THE SHAREHOLDER PROPOSAL.