10-K405

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934

For the fiscal year ended SEPTEMBER 30, 2000

                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

For the transition period from _____________________to___________________

Commission file number 0-8408
                       ------

                            WOODWARD GOVERNOR COMPANY
               (Exact name of registrant specified in its charter)

          DELAWARE                                       36-1984010
          --------                                       ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

5001 NORTH SECOND STREET, ROCKFORD, ILLINOIS                          61125-7001
- - - - --------------------------------------------                          ----------
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code (815) 877-7441
                                                   --------------

Securities registered pursuant to Section 12(b) of the Act:  NONE
                                                             ----

Securities registered pursuant to Section 12(g) of the Act:

                    COMMON STOCK, PAR VALUE $.00875 PER SHARE
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

There were 11,316,377 shares of common stock with a par value of $.00875 per
share outstanding at November 30, 2000. The aggregate market value of the voting
stock held by non-affiliates was approximately $326,679,695 at November 30,
2000(such aggregate market value does not include voting stock beneficially
owned by directors, officers, the Woodward Governor Company Profit Sharing Trust
or the Woodward Governor Company Charitable Trust).

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of our annual report to shareholders for the fiscal year ended
September 30, 2000 (2000 Annual Report), are incorporated by reference into
Parts I, II and IV of this filing, to the extent indicated.

Portions of our proxy statement dated December 6, 2000, are incorporated by
reference into Part III of this filing, to the extent indicated.



                                TABLE OF CONTENTS

                                                                      Page


Part I    Item 1.   Business                                            1

          Item 2.   Properties                                          4

          Item 3.   Legal Proceedings                                   4

          Item 4.   Submission of Matters to a Vote of
                    Shareholders                                        4

Part II   Item 5.   Market for the Registrant's Common
                    Stock and Related Shareholder Matters               5

          Item 6.   Selected Financial Data                             5

          Item 7.   Management's Discussion and Analysis of
                    Financial Condition and Results of Operations       5

          Item 7A.  Quantitative and Qualitative Disclosures
                    About Market Risk                                   5

          Item 8.   Financial Statements and Supplementary Data         5

          Item 9.   Changes in and Disagreements with Accountants
                    On Accounting and Financial Disclosure              5

Part III  Item 10.  Directors and Executive Officers of the
                    Registrant                                          5

          Item 11.  Executive Compensation                              6

          Item 12.  Security Ownership of Certain Beneficial
                    Owners and Management                               6

          Item 13.  Certain Relationships and Related
                    Transactions                                        7

Part IV   Item 14.  Exhibits, Financial Statement Schedules,
                        and Reports on Form 8-K                         7

Signatures                                                             10




PART I

ITEM 1.     BUSINESS

            Woodward Governor Company was established in 1870 and incorporated
            in 1902. Headquartered in Rockford, Illinois and serving global
            markets from locations worldwide, we design, manufacture, and
            service energy control systems and components for aircraft and
            industrial engines and turbines. Our products and services are used
            in the aerospace, power generation, oil and gas processing, and
            transportation markets, which includes rail, marine and many light
            and heavy industrial applications.

            Our operations are organized based on the nature of products and
            related services provided and consist of two reportable segments --
            Industrial Controls and Aircraft Engine Systems. Industrial Controls
            provides energy control systems and components primarily to original
            equipment manufacturers (OEMs) of industrial engines and turbines.
            Aircraft Engine Systems provides energy control systems and
            components primarily to OEMs of aircraft engines.

            Information about our operations in 2000 and outlook for the future,
            including certain segment information, is included in "Management
            Discussion and Analysis" on pages 14 through 21 of our 2000 Annual
            Report, incorporated here by reference. Additional segment
            information and certain geographical information is included in Note
            R to the Consolidated Financial Statements, on pages 32 through 33
            of our 2000 Annual Report, incorporated here by reference. Other
            information about our business follows.

            INDUSTRIAL CONTROLS

            We provide energy control systems and components through Industrial
            Controls, primarily to OEMs of industrial engines and turbines. We
            also sell components as spares or replacements, and provide other
            related services to these customers and other customers. In 2000,
            our largest customer was General Electric Company, accounting for
            about 25% of Industrial Controls sales. In the third quarter, 2000,
            we signed a contract with General Electric Power Systems to supply
            fuel and combustion control systems and components over the next
            five years at an amount totalling approximately $500 million.

            We generally sell Industrial Controls products and services directly
            to our customers, although we also generate sales through
            distributors, dealers, and independent service facilities. We carry
            certain finished goods and component parts inventory to meet rapid
            delivery requirements of customers, primarily for aftermarket needs.
            We do not believe Industrial Controls sales are subject to
            significant seasonal variation.

            During 2000, we reorganized to combine all of our industrial
            businesses under the management and reporting structure of
            Industrial Controls. Our reorganization included the realignment of
            businesses that manufactured and sold fuel injection nozzles for
            industrial markets, control systems and related services for
            industrial users in retrofit situations, and products for small
            industrial engine markets. Previously these businesses were
            organized under, and reported through, Aircraft Engine Systems or
            other operations. We also sold certain assets related to our turbine
            control retrofit business. We believe this sale has

                                        1


            strengthened our relationship as a supplier to key OEMs by allowing
            us to focus on their unique needs.

            We believe Industrial Controls has a significant competitive
            position within the market for energy control systems and components
            for industrial engines. We compete with as many as 10 other
            independent manufacturers and with the in-house control operations
            of OEMs. While published information is not available in sufficient
            detail to enable an accurate assessment, we believe we hold a strong
            position among the independent manufacturers for power generation,
            transportation, and process industry markets. Companies compete
            principally on price, quality and customer service. We also see
            increasing demand for products that result in lower environmental
            emissions, particularly in gas turbine applications. In our opinion,
            our prices are generally competitive and our quality, customer
            service and technology used in products to reduce emissions are
            favorable competitive factors.

            Industrial Controls backlog orders were $97 million at November 30,
            2000, approximately 94% of which we expect to fill by September 30,
            2001. Last year, Industrial Controls backlog orders were $104
            million at November 30, 1999, approximately 85% of which we expected
            to fill by September 30, 2000. Backlog orders are not necessarily an
            indicator of future billing levels because of variations in lead
            times.

            Industrial Controls products make use of several patents and
            trademarks of various durations that we believe are collectively
            important. However, we do not consider our business dependent upon
            any one patent or trademark. Our products consist of mechanical,
            electronic and electromagnetic components. Mechanical components are
            machined primarily from aluminum, iron, and steel. Generally there
            are numerous sources for the raw materials and components used in
            our products, and they are believed to be sufficiently available to
            meet all Industrial Controls requirements.

            AIRCRAFT ENGINE SYSTEMS

            We provide energy control systems and components through Aircraft
            Engine Systems, primarily to OEMs of aircraft engines for use in
            those engines. We also sell components as spares or replacements,
            and provide repair and overhaul services to these customers and
            other customers. In 2000, our largest customer was General Electric
            Company, accounting for about 25% of Aircraft Engine Systems sales.

            We generally sell Aircraft Engine Systems products and services
            directly to our customers, although we also generate aftermarket
            sales through distributors, dealers, and independent service
            facilities. We carry certain finished goods and component parts
            inventory to meet rapid delivery requirements of customers,
            primarily for aftermarket needs. We do not believe Aircraft Engine
            Systems sales are subject to significant seasonal variation.

            We believe Aircraft Engine Systems has a significant competitive
            position within the market for energy control systems and components
            for aircraft engines. We compete with several other manufacturers,
            including divisions of OEMs of aircraft engines. While published
            information is not available in sufficient detail to enable an
            accurate assessment, we do not believe any company holds a dominant
            competitive position. Companies compete principally on price,

                                        2


            quality and customer service. In our opinion, our prices are
            generally competitive, and our quality and customer service are
            favorable competitive factors.

            In October 2000, General Electric Company announced that it is
            acquiring Honeywell International Inc., subject to regulatory
            approvals and the approval of Honeywell shareholders. We view a
            division within Honeywell as a competitor to us for certain General
            Electric business. However, if the acquisition were completed, we
            expect no discernable short-term impact on sales or earnings and it
            is still too early to determine what long-term impact there might
            be, if any.

            Aircraft Engine Systems backlog orders were $163 million at November
            30, 2000, approximately 77% of which we expect to fill by September
            30, 2001. Last year, Aircraft Engine Systems backlog orders were
            $151 million at November 30, 1999, approximately 70% of which we
            expected to fill by September 30, 2000. Backlog orders are not
            necessarily an indicator of future billing levels because of
            variations in lead times.

            Aircraft Engine Systems products make use of several patents and
            trademarks of various durations that we believe are collectively
            important. However, we do not consider our business dependent upon
            any one patent or trademark. Our products consist of mechanical,
            electronic, and electromagnetic components. Mechanical components
            are machined primarily from aluminum, iron, and steel. Generally
            there are numerous sources for the raw materials and components used
            in our products, and they are believed to be sufficiently available
            to meet all Aircraft Engine Systems requirements.

            OTHER MATTERS

            We spent approximately $29.1 million for company-sponsored research
            and development activities in 2000, $24.6 million in 1999, and $18.5
            million in 1998.

            We are currently involved in matters of litigation arising from the
            normal course of business, including certain environmental matters.
            These matters are discussed in Note P to the Consolidated Financial
            Statements on page 32 of our 2000 Annual Report, incorporated here
            by reference. We do not believe that compliance with provisions
            regulating the discharge of materials into the environment, or
            otherwise relating to the protection of the environment, will have
            any material effect on our financial condition and competitive
            position, although such matters could have a material effect on our
            quarterly or annual operating results and cash flows (including
            capital expenditures) in a future period. We are not aware of any
            material capital expenditures that we will make for environmental
            control facilities through September 30, 2002.

            We employed about 3,311 people at November 30, 2000.

            This report and the 2000 Annual Report, sections of which have been
            incorporated by reference, contain forward-looking statements and
            should be read with the "Cautionary Statement" on page 35 of the
            2000 Annual Report, incorporated here by reference.

                                        3


ITEM 2.     PROPERTIES

            Our principal plants are as follows:

            UNITED STATES

            Fort Collins, Colorado - Industrial Controls manufacturing Loveland,
            Colorado - Industrial Controls manufacturing and partially leased to
            a third party Rockford, Illinois - Aircraft Engine Systems
            manufacturing and corporate offices Rockton, Illinois - Aircraft
            Engine Systems manufacturing and repair and overhaul Memphis,
            Michigan (leased) - Industrial Controls manufacturing Zeeland,
            Michigan - Aircraft Engine Systems manufacturing Buffalo, New York -
            Aircraft Engine Systems manufacturing Greenville, South Carolina
            (leased) - Industrial Controls manufacturing Oak Ridge, Tennessee
            (leased) - Industrial Controls manufacturing.

            OTHER COUNTRIES

            Aken, Germany (leased) - Industrial Controls manufacturing Tomisato,
            Chiba, Japan - Industrial Controls manufacturing Hoofddorp, The
            Netherlands - Industrial Controls manufacturing Rotterdam, The
            Netherlands (leased)- Industrial Controls manufacturing Prestwick,
            Scotland, United Kingdom (leased) - Aircraft Engine Systems repair
            and overhaul.

            Our principal plants are suitable and adequate for the manufacturing
            and other activities performed at those plants, and we believe our
            utilization levels are generally high. However, approximately
            one-third to one-half of the space in the Loveland plant is not
            being used. With continuing advancements in manufacturing technology
            and operational improvements, and with the excess capacity at our
            Loveland plant, we believe we can continue to increase production
            without additional plants.

            In addition to the principal plants listed above, we lease several
            facilities in locations worldwide, used primarily for sales and
            service activities.

ITEM 3.     LEGAL PROCEEDINGS

            We are currently involved in environmental litigation. These matters
            are discussed in Note P to the Consolidated Financial Statements on
            page 32 of our 2000 Annual Report, incorporated here by reference.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

            There were no matters submitted to a vote of shareholders during the
            fourth quarter of the year ended September 30, 2000.

                                        4


Part II

ITEM 5.     MARKET FOR THE REGISTRANT'S
            COMMON STOCK AND RELATED SHAREHOLDER MATTERS

            Our common stock is listed on the Nasdaq National Market and at
            November 30, 2000, there were 1,694 holders of record. Cash
            dividends were declared quarterly during 2000 and 1999. The amount
            of cash dividends per share and the high and low sales price per
            share for our common stock for each fiscal quarter in 2000 and 1999
            are included in the "Selected Quarterly Financial Data" on page 35
            of the 2000 Annual Report, incorporated here by reference.

ITEM 6.     SELECTED FINANCIAL DATA

            Selected financial data is included in the "Summary of
            Operations/Eleven-Year Record" on page 36 of our 2000 Annual Report,
            incorporated here by reference.

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

            "Management Discussion and Analysis" is included on pages 14 through
            21 of our 2000 Annual Report, incorporated here by reference. This
            discussion should be read with the consolidated financial statements
            on pages 22-33 of our 2000 Annual Report and the "Cautionary
            Statement" on page 35 of our 2000 Annual Report, both incorporated
            here by reference.

ITEM 7.A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

            Disclosures about market risk are included under the captions "Other
            Matters - Market Risks" on page 21 of our 2000 Annual Report,
            incorporated here by reference.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            Consolidated financial statements and schedules, as listed in Item
            14(a) and excluding the two items listed under the caption "Other
            Financial Statement Schedules", are incorporated here by reference.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH
            ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

            There have been no changes in or disagreements on accounting
            principles and financial disclosure. PricewaterhouseCoopers LLP, or
            its predecessors, have been our independent accountants since 1940.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

            EXECUTIVE OFFICERS:

            John A. Halbrook, age 55 - chairman and chief executive officer
            since January 1995; chief executive officer and president November
            1993 through January 1995; president November 1991 through November
            1993.

                                       5


            Stephen P. Carter, age 49 - vice president, chief financial officer,
            and treasurer since January 1997; vice president and treasurer
            September 1996 through January 1997; and assistant treasurer January
            1994 through September 1996.

            Thomas A. Gendron, age 39 - vice president of Industrial Controls
            since April 2000; director of global marketing and Industrial
            Controls business development February 1999 through March 2000; and
            marketing and product support manager of Aircraft Engine Systems
            November 1990 through January 1999.

            Ronald E. Fulkrod, age 56 - vice president of Industrial Controls
            since April 2000; vice president of Industrial Controls operations
            January 1997 through April 2000; and vice president of the company
            January 1993 through December 1996.

            C. Phillip Turner, age 59 - vice president and general manager of
            Aircraft Engine Systems since 1988.

            Carol J. Manning, age 50 - secretary since June 1991.

            With the exception of Messrs. Gendron and Fulkrod, all executive
            officers were elected to their current positions at the January 18,
            2000, Board of Directors meeting to serve until the January 24,
            2001, Board of Directors meeting, or until their successors have
            been elected. Messrs. Gendron and Fulkrod were appointed executive
            officers at the April 26, 2000, Board of Directors meeting to serve
            until the January 24, 2001, Board of Directors meeting.

            Other information regarding our directors and executive officers is
            under the captions "Board of Directors" on pages 6 through 7 and
            "Section 16(a) Beneficial Ownership Reporting Compliance" on page 9
            of our proxy statement dated December 6, 2000, incorporated here by
            reference.

ITEM 11.    EXECUTIVE COMPENSATION

            Executive compensation is under the captions "Board of Directors -
            Director Compensation" on page 8, "Board of Directors - Compensation
            Committee Interlocks and Insider Participation" on page 9,
            "Executive Compensation" on pages 13 through 15, "Stock Options" on
            pages 15 through 16, and "Long-Term Management Incentive
            Compensation Plan Awards" on page 16 of our proxy statement dated
            December 6, 2000, incorporated here by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN
            BENEFICIAL OWNERS AND MANAGEMENT

            Security ownership of certain beneficial owners and management is
            under the captions "Share Ownership of Management" and "Persons
            Owning More than Five Percent of Woodward Stock" on pages 9 through
            10 of our proxy statement dated December 6, 2000, incorporated here
            by reference.

                                       6


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            Information regarding certain relationships and related transactions
            is under the caption "Compensation Committee Interlocks and Insider
            Participation" on Page 9 of our proxy statement dated December 6,
            2000, incorporated here by reference.

PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

            (A) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES



                                                                                            REFERENCE
                                                                               FORM 10-K                ANNUAL REPORT
                                                                             ANNUAL REPORT             TO SHAREHOLDERS
                                                                                 PAGE                       PAGE

                                                                                                        
            Annual report to shareholders for the fiscal year ended
            September 30, 2000, filed as Exhibit 13 to this Form 10-K and
            incorporated by reference:

                    Statements of Consolidated Earnings
                    for the years ended September 30,
                    2000, 1999, and 1998                                                                        22

                    Consolidated Balance Sheets at
                    September 30, 2000 and 1999                                                                 23

                    Statements of Consolidated Share-
                    holders' Equity for the years ended
                    September 30, 2000, 1999, and 1998                                                          24

                    Statements of Consolidated Cash
                    Flows for the years ended September
                    30, 2000, 1999, and 1998                                                                    25

                    Notes to Consolidated Financial
                    Statements                                                                               26-33

                    Management's Responsibility for
                    Financial Statements                                                                        34

                    Report of Independent Accountants                                                           34

                    Selected Quarterly Financial Data                                                           35

            Other Financial Statement Schedules, included with this
            filing:

                    Report of Independent Accountants                                  S-1

                    Valuation and Qualifying Accounts                                  S-2


            Financial statements and schedules other than those listed above are
            omitted for the reason that they are not applicable, are not

                                       7


            required, or the information is included in the financial statements
            or the footnotes. With the exception of the consolidated financial
            statements and the reports of independent accountants listed in the
            above index, the information referred to in Items 1, 3, 5, 6, 7, 7a,
            and 8, all of which is included in the 2000 Annual Report to
            Shareholders of Woodward Governor Company and incorporated by
            reference into this Form 10-K Annual Report, the 2000 Annual Report
            to Shareholders is not to be deemed "filed" as part of this report.

            (b) REPORTS FILED ON FORM 8-K DURING THE FOURTH QUARTER OF THE
            FISCAL YEAR ENDED SEPTEMBER 30, 2000. None

            (c) EXHIBITS FILED AS PART OF THIS REPORT



                                                       
            (3)(ii) By-laws, amended                         Filed as an exhibit.

            (4) Instruments defining the rights              Instruments with respect to
                of security holders, including               long-term debt and the ESOP
                indentures                                   debt guarantee are not being
                                                             filed as they do not
                                                             individually exceed 10 percent
                                                             of our assets. We agree to
                                                             furnish a copy of each
                                                             instrument to the Commission
                                                             upon request.

            (10) Material contracts                          (a) A $250,000,000 credit
                                                             agreement dated June 15, 1998,
                                                             is included in exhibits filed
                                                             with Form 10-Q for the quarter
                                                             ended June 30, 1998,
                                                             incorporated here by reference.

                                                             (b) 1996 Long-Term Incentive
                                                             Compensation Plan filed on
                                                             August 21, 1996 as Exhibit 4.1
                                                             to our Registration Statement
                                                             on Form S-8 (File No.
                                                             333-10409) and incorporated
                                                             here by reference.

                                                             (c) Long-Term Management
                                                             Incentive Compensation Plan,
                                                             filed as an exhibit.

                                                             (d) Annual Management Incentive
                                                             Compensation Plan, filed as an
                                                             exhibit.

                                                             (e) Executive Benefit Plan
                                                             (non-qualified deferred
                                                             compensation plan), filed as an
                                                             exhibit.

                                                             (f) Form of Transitional
                                                             Compensation Agreement with
                                                             John A. Halbrook, C. Phillip

                                             8


                                                             Turner, and Stephen P. Carter,
                                                             filed as an exhibit.

                                                             (g) Form of Outside Director
                                                             Stock Purchase Agreement with
                                                             Michael H. Joyce, Rodney
                                                             O'Neal, and Lou L. Pai, filed
                                                             as an exhibit.

            (11) Statement on computation of                 Included in Note P of Notes earnings
                 to Consolidated Financial                   per share Statements, filed as an exhibit.

            (13) Annual report to shareholders               Except as specifically incorporated
                 the fiscal year ended                       by reference, September 30, 2000
                 report is furnished solely                  for the information of the Commission
                 is not deemed                               and "filed" as part of this report.

            (21) Subsidiaries                                Filed as an exhibit.

            (23) Consents of Independent
                 Accountants                                 Filed as an exhibit.

            (27) Financial Data Schedule                     Filed as an exhibit

            (99) Additional exhibit -
                 description of annual report
                 graphs                                      Filed as an exhibit.



                                        9



                                   SIGNATURES

This report has been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and the financial statements referenced
have been prepared in accordance with such rules and regulations and with
generally accepted accounting principles, by officers and worker members of
Woodward Governor Company. This has been done under the general supervision of
Stephen P. Carter, vice president, chief financial officer and treasurer. The
consolidated financial statements have been audited by PricewaterhouseCoopers
LLP, independent accountants, as indicated in their report in the annual report
to shareholders for the fiscal year ended September 30, 2000.

This report contains much detailed information of which the various signatories
cannot and do not have independent personal knowledge. The signatories believe,
however, that the preparation and review processes summarized above are such as
to afford reasonable assurance of compliance with applicable requirements.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned.



                                                                                  
                  WOODWARD GOVERNOR COMPANY


                   /s/ John A. Halbrook
                  --------------------------------------------------------------        Director, Chairman of
                  John A. Halbrook                                                      the Board and Chief
                                                                                        Executive Officer


                   /s/ Stephen P. Cater
                  --------------------------------------------------------------        Vice President, Chief
                  Stephen P. Carter                                                     Financial Officer and
                                                                                        Treasurer
                  Date  12/18/00
                      -----------



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Woodward Governor
Company on the dates indicated:



                           SIGNATURE                              TITLE                              DATE
                                                                                    

                   /s/ J. Grant Beadle                           Director                     12/16/00
                  ---------------------                                                       ---------------------------------
                  J. Grant Beadle


                  /s/ Vern H. Cassens                            Director                     12/18/00
                  ---------------------                                                       ---------------------------------
                  Vern H. Cassens


                                                                 Director
                  ---------------------                                                       ---------------------------------
                  Paul Donovan


                  /s/ Lawrence E. Gloyd                          Director                     12/21/00
                  ---------------------                                                       ---------------------------------
                  Lawrence E. Gloyd


                  /s/ Thomas W. Heenan                           Director                     12/16/00
                  ---------------------                                                       ---------------------------------
                  Thomas W. Heenan


                  /s/ J. Peter Jeffrey                           Director                     12/16/00
                  ---------------------                                                       ---------------------------------
                  J. Peter Jeffrey

                                                                 Director
                  ---------------------                                                       ---------------------------------
                  Rodney O'Neal


                                       10



                                                                 Director
                  ---------------------                                                       ---------------------------------
                  Michael H. Joyce


                  /s/ Lou L. Pai                                 Director                     12/18/00
                  ---------------------                                                       ---------------------------------
                  Lou L. Pai

                                                                 Director
                  ---------------------                                                       ---------------------------------
                  Michael T. Yonker




                                       11



                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Woodward Governor Company

Our audits of the consolidated financial statements referred to in our report
dated November 8, 2000, appearing on page 34 in the 2000 Annual Report to
Shareholders of Woodward Governor Company (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
14(a) of this Form 10-K. In our opinion, the financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.




PricewaterhouseCoopers LLP
Chicago, Illinois
November 8, 2000



                                       S-1



                                               WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
                                             SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS
                                          FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
                                                        (IN THOUSANDS OF DOLLARS)

- - - - -------------------------------------------------------------------------------------------------------------
            COL. A                     COL. B                COL. C                  COL. D         COL. E
- - - - ---------------------------------    -----------   ---------------------------   ---------------    ------

                                                           ADDITIONS
                                                           ---------
                                      BALANCE AT    CHARGED TO    CHARGED TO                        BALANCE
                                      BEGINNING     COSTS AND     OTHER                             AT END
           DESCRIPTION                OF YEAR       EXPENSES      ACCOUNTS (B)   DEDUCTIONS (A)     OF YEAR
- - - - ---------------------------------    -----------   -----------   -------------   --------------   -----------

2000:
       Allowance for
         doubtful accounts           $     4,417   $     2,348   $          73   $       2,386     $4,452
                                     ===========   ===========   =============   =============     ======

1999:
       Allowance for
         doubtful accounts           $     4,451   $     1,593   $          49   $       1,676     $4,417
                                     ===========   ===========   =============   =============     ======

1998:
       Allowance for
         doubtful accounts           $     2,757   $     1,869   $         368   $         543     $4,451
                                     ===========   ===========   =============   =============     ======




NOTE:

         (A)      Represents accounts written off during the year and also
                  overseas currency translation adjustments that increased the
                  deduction from reserves by $366 in 2000, $37 in 1999 and $16
                  in 1998.


         (B)      Recovery of accounts previously written-off. FY1998 also
                  includes $287 due to the acquisition of Woodward FST.





                                       S-2

EX-3

Exhibit 3(ii)
By-laws, amended

                                    ARTICLE I

SECTION 1.1. REGISTERED OFFICE
The registered office shall be established and maintained as prescribed in the
Certificate of Incorporation of the Corporation.

SECTION 1.2. OTHER OFFICES
The corporation may have other offices, either within or outside of the State of
Delaware, at such place or places as the Board of Directors may from time to
time appoint or the business of the corporation may require.


                                   ARTICLE II

SECTION 2.1. PLACE OF MEETINGS
All meetings of the stockholders for the election of directors shall be held in
the City of Rockford, State of Illinois, at such place as may be fixed from time
to time by the Board of Directors, or at such other place either within or
without the State of Illinois as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Illinois, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.

SECTION 2.2. ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders for the election of directors and for such
other business as may be stated in the notice of the meeting shall be held, in
each year, commencing in 1999, by the third Wednesday following January 2 at
10:00 A.M., local time, or such other date and time as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting.

SECTION 2.3. VOTING
Each stockholder entitled to vote in accordance with the terms of the
Certificate of Incorporation and in accordance with the provisions of these
bylaws shall, except as otherwise provided by the Certificate of Incorporation,
be entitled to one vote, in person or by proxy, for each share of stock entitled
to vote held by such stockholder, but no proxy shall be voted after three years
from its date unless such proxy provides for a longer period.


                                       1


SECTION 2.4. LIST OF STOCKHOLDERS
The officer who has charge of the stock ledger of the corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

SECTION 2.5. QUORUM
The holders of a majority of the stock issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the Certificate of Incorporation.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.

SECTION 2.6. SPECIAL MEETINGS
Special meetings of the stockholders for any proper purpose or purposes may be
called by the Board of Directors or by the Chairman of the Board of Directors,
and shall be called upon a request in writing therefore stating the purpose or
purposes thereof signed by the holders of two-thirds of the outstanding shares
of Common Stock of the Corporation.

SECTION 2.7. NOTICE OF MEETINGS
Except as otherwise provided by law, written notice, stating the place, date and
time of the meeting, and the general nature of the business to be considered,
shall be given to each stockholder entitled to vote thereat at his address as it
appears on the records of the corporation either personally or by mail, not less


                                       2


than ten nor more than sixty days before the date of the meeting. If mailed,
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. No business other than that stated in the
notice shall be transacted at any meeting without the unanimous consent of all
the stockholders entitled to vote thereat.

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.


                                   ARTICLE III

SECTION 3.1. GENERAL POWERS
The business and affairs of the corporation shall be managed by or under the
direction of its Board of Directors. The Board of Directors shall exercise all
of the powers of the corporation except such as are by law, or by the
Certificate of Incorporation of the corporation or by these bylaws conferred
upon or reserved to the stockholders.


                                       3


SECTION 3.2. NUMBER AND TERM
The Board of Directors shall be divided into three classes, Class I, Class II
and Class III, which shall be as nearly equal in number as possible. The number
of directors which shall constitute the whole Board of Directors shall be
eleven, consisting of four Class I directors, four Class II directors, and three
Class III directors. Except as provided in Section 3.4 hereof, each director
shall serve for a term ending on the date of the third annual meeting of
stockholders following the annual meeting at which such director was elected;
provided, however, that each initial director in Class I shall hold office until
the annual meeting of stockholders next ensuing, each initial director in Class
II shall hold office until the annual meeting of stockholders one year
thereafter, and each initial director in Class III shall hold office until the
annual meeting of stockholders two years thereafter. If the number of directors
is changed, any increase or decrease shall be apportioned among the three
classes so as to maintain the number of directors in each class as nearly equal
as possible. In no case will a decrease in the number of directors shorten the
term of any incumbent director.

SECTION 3.3. VACANCIES
Vacancies in the Board of Directors and newly created directorships resulting
from any increase in the authorized number of directors shall be filled by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director. Except as provided in Section 3.4 hereof, any director
elected to fill a vacancy shall hold office for the remaining term of the class
in which the vacancy shall have occurred or shall have been created.

SECTION 3.4. QUALIFICATIONS
Unless otherwise determined by the Board of Directors, the term of any director
shall end on September 30th next following said director's seventieth birthday.
No person may serve as a director unless such person agrees in writing that in
connection with such service he or she will be guided by the philosophy and
concepts of human and industrial association of the corporation as expressed in
its Constitution.

SECTION 3.5. DIRECTOR EMERITUS
Any director who requests that he be appointed a director emeritus and any
director who is not re-elected by the stockholders may, with the approval of the
Board of Directors, be a director emeritus until the next annual meeting of the
Board of Directors. A director emeritus may attend directors' meetings and
counsel the directors but will not be a member of the Board of Directors and
will not have the voting rights of a director.

SECTION 3.6. INCREASE OR DECREASE OF NUMBER
The number of directors may be increased or decreased from time to time by
amendment of these bylaws.


                                       4


SECTION 3.7. REMOVAL
Any director or the entire Board of Directors may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of two-
thirds of the outstanding shares of Common Stock of the Corporation.

SECTION 3.8. REGULAR MEETINGS
The first regular meeting of each newly elected Board of Directors shall be held
immediately after, and at the same place as, the Annual Meeting of Stockholders.
Thereafter regular meetings of the Board of Directors shall be held at such
times as the Board of Directors may from time to time establish. Regular
meetings shall be held at the corporate office at 5001 North Second Street,
Rockford, Illinois unless otherwise noted by prior written notice. Regular
meetings of the Board of Directors will be held without other notice than this
bylaw. Any such regular meeting other than the first regular meeting may be
cancelled by the person or persons authorized to call special meetings of the
Board of Directors. Any such cancellation shall be accomplished by giving notice
in accordance with Section 3.11 of these bylaws.

SECTION 3.9. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by or at the request of
the Chairman of the Board of Directors or any two directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
the place of any meeting called by such person or persons.

SECTION 3.10.  MINIMUM SCHEDULE OF MEETINGS
During each calendar quarter, the Board of Directors shall conduct at least one
meeting. Each regular meeting and each special meeting shall be regarded as one
meeting. For the purposes of this Section 3.10, action without meeting pursuant
to Section 3.15 of these bylaws shall not be regarded as a meeting.

SECTION 3.11.  NOTICE
Notice of any special meeting or the cancellation of any regular meeting shall
be given to each director by letter delivered at least two days before the
meeting, or by telegram delivered at least one day before the meeting, or by
such shorter telephone or other notice as the person or persons calling or
canceling the meeting may deem appropriate in the circumstances. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
in a sealed envelope with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Neither the business to be transacted at nor
the purpose of any special meeting need be specified in the notice thereof.

SECTION 3.12.  PRESIDING OFFICER
Meetings of the stockholders and the Board of Directors shall be


                                       5


presided over by the Chairman of the Board of Directors, or if he is not
present, by the Vice Chairman of the Board of Directors, or if he is not
present, by the President, or if he is not present, by a Vice President, or if
neither the Chairman of the Board of Directors, nor the Vice Chairman of the
Board of Directors, nor the President, nor a Vice President is present, then by
a presiding officer to be chosen by a majority of the directors present.

SECTION 3.13.  QUORUM
A majority of the directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute. If at any meeting of the
board there shall be less than a quorum present, a majority of these present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need be given other than by announcement at the meeting which
shall be so adjourned.

SECTION 3.14.  COMPENSATION
The Board of Directors shall have authority to fix the compensation of all
directors and directors emeritus. By resolution of the Board of Directors
expenses of attendance, if any, may be allowed for attendance by each director
and director emeritus at each regular or special meeting of the Board of
Directors. Nothing herein shall be construed to preclude any director or
director emeritus from serving the corporation in any other capacity and
receiving compensation therefor.

SECTION 3.15.  ACTION WITHOUT MEETING
Any action required or permitted to be taken at any meeting of the Board of
Directors, may be taken without a meeting if all members of the board consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board.

SECTION 3.16.  MEETINGS BY CONFERENCE TELEPHONE
Members of the Board of Directors may participate in a meeting of such board by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in such meetings shall constitute presence in person at such
meeting.


                                   ARTICLE IV

SECTION 4.1. COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors shall designate an Executive Committee, an Audit
Committee, a Compensation Committee, a Selection Committee, a Management
Operations Committee, and a Stock Option Committee,


                                       6


each of which shall have and may exercise the powers and authority of the Board
of Directors to the extent hereinafter provided. The Board of Directors may
designate one or more additional committees of the Board of Directors with such
powers and authority as shall be specified in the resolution of the Board of
Directors. Each committee shall consist of such number of directors not less
than two as shall be determined from time to time by resolution of the Board of
Directors. The Chairman of the Board of Directors shall be ex-officio a member
of all committees of the Board of Directors other than the Audit Committee and
the Stock Option Committee, and he shall be chairman of the Executive Committee.
All actions of the Board of Directors designating committees, or electing or
removing members of such committees, shall be taken by a resolution passed by a
majority of the whole Board of Directors. Each committee shall keep a written
record of all action taken by it. All action taken by a committee shall be
reported to the Board of Directors at its meeting next succeeding such action
and shall be subject to approval and revision by the Board of Directors,
provided that no legal rights of third parties shall be affected by such
revisions and in no event shall the Board of Directors take any action with
respect to the Stock Option Committee which would cause the 1996 Long-Term
Incentive Compensation Plan as amended from time to time (the "Long-Term
Incentive Plan") to fail to comply with Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or cause the members of the Stock
Option Committee not to qualify as "disinterested persons" under said Rule 16b-
3.

SECTION 4.2. ELECTION OF COMMITTEE MEMBERS
The members of each committee shall be elected by the Board of Directors and
shall serve until the first meeting of the Board of Directors after the annual
meeting of stockholders and until their successors are elected and qualified or
until their earlier resignation or removal. The Board of Directors may designate
the chairman of each committee other than the Executive Committee and may
designate one or more directors as alternate members of any committee who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member and all alternate members who may
serve in the place and stead of such member, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member.

SECTION 4.3. COMMITTEE RULES AND PROCEDURES
The Chairman of the Board of Directors, the chairman of any committee, or a
majority of the members of any committee, may call a meeting of that committee.
Unless the Board of Directors otherwise provides, each committee may make, alter
and repeal


                                       7


rules and procedures for the conduct of its business. In the absence of such
rules and procedures, each committee shall conduct its business in the same
manner as the Board of Directors conducts its business pursuant to Article III
of these bylaws, except that a quorum of the Management Operations Committee for
the transaction of business shall consist of one member so long as such
committee consists of two members.

SECTION 4.4. EXECUTIVE COMMITTEE
During the intervals between meetings of the Board of Directors, the Executive
Committee shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
upon any matter which in the opinion of the Chairman of the Board of Directors
should not be postponed until the next previously scheduled meeting of the Board
of Directors. The Executive Committee shall have the power and authority to
declare cash dividends. Notwithstanding the foregoing, as provided by law the
Executive Committee shall not have power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending these bylaws.

SECTION 4.5. AUDIT COMMITTEE
The Audit Committee shall have the power to recommend to the Board of Directors
the selection and engagement of independent accountants to audit the books and
accounts of the corporation and the discharge of the independent accountants.
The Audit Committee shall review the scope and approach of the annual audit as
recommended by the independent accountants, the scope and approach of internal
audits of the corporation, the system of internal accounting controls of the
corporation, and shall review the reports to the Audit Committee of the
independent accountants and the internal auditors.

SECTION 4.6. COMPENSATION COMMITTEE
The Compensation Committee shall have the power to recommend to the Board of
Directors the compensation of the officers and key personnel of the corporation.

SECTION 4.7. SELECTION COMMITTEE
The Selection Committee shall have the power to recommend to the Board of
Directors candidates for election to the Board of Directors.

SECTION 4.8. MANAGEMENT OPERATIONS COMMITTEE
The Management Operations Committee shall have the power to authorize and
approve such routine matters arising in the


                                       8


ordinary course of business of the corporation as the Board of Directors shall
establish from time to time by resolution. The Management Operations Committee
shall have no power or authority to declare cash dividends and shall have no
power denied to the Executive Committee in Section 4.4 hereof.

SECTION 4.9. STOCK OPTION COMMITTEE
The Stock Option Committee shall have the power to administer the Corporation's
Long-Term Incentive Plan in accordance with the terms of the Long-Term Incentive
Plan, and to make all determinations and to take all such actions in connection
therewith or in relation thereto as it deems necessary or advisable, including
the granting of all incentives to eligible working members in accordance with
the terms of the Long-Term Incentive Plan.


                                    ARTICLE V

SECTION 5.1. OFFICERS
The officers of the corporation shall be a Chairman of the Board of Directors, a
President, one or more Vice Presidents (the number thereof to be determined by
the Board of Directors), a Treasurer and a Secretary, all of whom shall be
elected by the Board of Directors. In addition, the Board of Directors may elect
a Vice Chairman of the Board of Directors and one or more Assistant Treasurers
and Assistant Secretaries.

SECTION 5.2. OTHER OFFICERS AND AGENTS
The Board of Directors may appoint such other officers and agents as it may deem
advisable, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.

SECTION 5.3. QUALIFICATIONS
Except for the Chairman of the Board of Directors, and unless otherwise
determined by the Board of Directors, each officer of the corporation shall be
under the age of 65 at the time of election. None of the officers of the
corporation, except the Chairman of the Board of Directors and the Vice Chairman
of the Board of Directors, need be a Director.

SECTION 5.4. ELECTION AND TERM OF OFFICE
The officers of the corporation shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of shareholders. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as conveniently may be.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office


                                       9


until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.

SECTION 5.5. REMOVAL
Any officer or agent elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever in its judgment the best interests of
the corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.

SECTION 5.6. CHAIRMAN
The Chairman of the Board of Directors shall be elected from among the members
of the Board of Directors. He shall be the chief executive officer of the
corporation, and he shall have general supervision of the business affairs and
property of the corporation and over its several officers, subject, however, to
the control of the Board of Directors. He shall, subject to the direction and
control of the Board of Directors, be its representative and medium of
communication; he shall, to the best of his ability, see that the acts of the
officers conform to the policies of the corporation as determined by the Board
of Directors, and shall perform such duties as may from time to time be assigned
to him by the Board of Directors.

SECTION 5.7. VICE CHAIRMAN
The Board of Directors may from time to time elect a Vice Chairman of the Board
of Directors. Such Vice Chairman shall be a director and shall serve as Vice
Chairman until his term of office as director concludes, or until his successor
as Vice Chairman shall have been elected and qualified, whichever event shall
first occur. The Vice Chairman shall perform the duties and exercise all the
powers of the Chairman of the Board of Directors, when, and for so long as the
Chairman of the Board of Directors so directs in writing. The Vice Chairman
shall perform such other duties as may from time to time be assigned to him by
the Board of Directors.

SECTION 5.8. PRESIDENT
The President shall be the chief operating officer of the corporation.

SECTION 5.9. VICE PRESIDENTS
Each Vice President shall have such duties and powers as shall be assigned to
him or her by the President or by the Board of Directors.

SECTION 5.10.  TREASURER
If required by the Board of Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the Board of Directors shall


                                       10


determine. He shall: (a) have charge and custody of and be responsible for all
funds and securities of the corporation; receive and give receipts for monies
due and payable to the corporation from any source whatsoever, and deposit all
such monies in the name of the corporation in such banks, trust companies, or
other depositories as shall be selected by the Board of Directors; and (b) in
general perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors.

SECTION 5.11.  SECRETARY
The Secretary shall: (a) keep the minutes of the meetings of the stockholders
and of the Board of Directors in one or more books provided for the purpose; (b)
see that all notices are duly given in accordance with the provisions of these
bylaws or as required by law; (c) be custodian of the corporate records and of
the seal of the corporation and see that the seal of the corporation is affixed
to all certificates for shares prior to the issue thereof and to all documents,
the execution of which on behalf of the corporation under its seal is duly
authorized in accordance with the provisions of these bylaws; (d) keep a
register of the post office address of each stockholder which shall be furnished
to the secretary by such stockholder; (e) sign with the Chairman or Vice
Chairman of the Board of Directors, the President, or a Vice President,
certificates for shares of the corporation, the issue of which shall have been
authorized by resolution of the Board of Directors; (f) have general charge of
the stock transfer books of the corporation; (g) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.

SECTION 5.12. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES The Assistant
Treasurers shall respectively, if required by the Board of Directors, give bonds
for the faithful discharge of their duties in such sums and with such sureties
as the Board of Directors shall determine. The Assistant Secretaries, as
thereunto authorized by the Board of Directors, may sign with the Chairman or
Vice Chairman of the Board of Directors, the President or a Vice President
certificates for shares of the corporation, the issue of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Treasurers
and Assistant Secretaries, in general, shall perform such duties as shall be
assigned to them by the Treasurer or the Secretary respectively, or by the
President or the Board of Directors.

SECTION 5.13.  SALARIES
The salaries of the officers shall be fixed from time to time by the Board of
Directors and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a


                                       11


director of the corporation.


                                   ARTICLE VI

SECTION 6.1. CERTIFICATES OF STOCK
Every holder of stock in the corporation shall be entitled to have a certificate
signed by, or in the name of the corporation, by the Chairman or the Vice
Chairman of the Board of Directors, or the President or a Vice President, and by
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation, certifying the number of shares owned by him in
the corporation. Any of or all the signatures on the certificate and the seal of
the corporation if one be used may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent, or registrar at
the date of issue.

SECTION 6.2. TRANSFER OF STOCK
Transfer of shares of the corporation shall be made only on the books of the
corporation by the registered holder thereof, by his attorney thereunto
authorized, by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender for cancellation of the certificate for such
shares properly endorsed and with all taxes thereon paid. The person in whose
name shares stand on the books of the corporation shall be deemed the owner
thereof for all purposes as regards the corporation. However, if any transfer of
shares is made only for the purpose of furnishing collateral security and such
fact is made known to the Secretary of the corporation, or to the corporation's
transfer clerk or transfer agent, the entry of the transfer shall record such
fact.

SECTION 6.3. TRANSFER AGENT AND REGISTRAR
The Board of Directors may appoint one or more transfer agents and registrars,
and thereafter it may require all stock certificates to bear the signature of a
transfer agent and a registrar or a facsimile thereof.

SECTION 6.4. RULES OF TRANSFER
The Board of Directors shall have the power and authority to make all such rules
and regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for the shares of the corporation.

SECTION 6.5. LOST CERTIFICATE
Any person claiming a certificate for shares of the corporation


                                       12


to have been lost, stolen, or destroyed shall make an affidavit of the fact and
lodge such affidavit with the Secretary of the corporation, accompanied by a
signed application for a new certificate. Any such person shall give the
corporation a bond of indemnity with one or more sureties satisfactory to the
Board of Directors and in an amount which in its judgment, shall be sufficient
to save the corporation from loss, and thereupon, the proper officers may cause
to be issued a new certificate of like tenor with the one alleged to have been
lost, stolen, or destroyed, but the Board of Directors may refuse the issuance
of such new certificate.

SECTION 6.6. DIVIDENDS
Subject to the provisions of the Certificate of Incorporation, the Board of
Directors may, out of funds legally available therefor, at any regular or
special meeting, declare dividends upon the capital stock of the corporation as
and when it deems expedient. Before declaring any dividend there may be set
apart out of any funds of the corporation available for dividends, such sum or
sums as the directors from time to time in their discretion deem proper for
working capital or as a reserve fund to meet contingencies or for equalizing
dividends or for such other purposes as the directors shall deem conducive to
the interests of the corporation.


                                   ARTICLE VII

SECTION 7.1.

     (a)The corporation shall indemnify, subject to the requirements of
subsection (d) of this Section, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines, penalties, taxes
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the


                                       13


person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.

     (b)The corporation shall indemnify, subject to the requirements of
subsection (d) of this Section, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of the State of Delaware
or such other court shall deem proper.

     (c)To the extent that a director, officer, employee or agent of the
corporation, or a director, officer, employee, fiduciary or agent of any other
enterprise serving at the request of the corporation, has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this Section, or in defense of any claim, issue or
matter therein, the corporation shall indemnify him against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.

     (d)Any indemnification under subsections (a) and (b) of this Section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee, fiduciary or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (a) and (b)
of this Section. Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested


                                       14


directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders.

     (e)Expenses (including attorney's fees) incurred by a director, officer,
employee, fiduciary or agent in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director, officer, employee, fiduciary
or agent to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in this Section.

     (f)The indemnification and advancement of expenses provided by, or granted
pursuant to the other subsections of this Section shall not limit the
corporation from providing any other indemnification permitted by law nor shall
it be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.

     (g)The provisions of this Section shall be applicable to all actions, suits
or proceedings pending at the time or commenced after the adoption of this
Section, whether arising from acts or omissions to act occurring, or based on
claims asserted, before or after the adoption of this Section. A finding that
any provision of this Section is invalid or of limited application shall not
affect any other provision of this Section nor shall a finding that any portion
of any provision of this Section is invalid or of limited application affect the
balance of such provision. The adoption of this Section shall not impair the
rights any person may have had under Article XII of the bylaws of Woodward
Governor Company, an Illinois corporation, so that if such person is not
entitled to the benefit of the provisions of this Section with respect to any
action, suit or proceeding, he shall continue to be entitled to the benefit of
the provisions of Article XII of the bylaws of Woodward Governor Company, an
Illinois corporation, with respect to such action, suit or proceeding.

     (h)The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee, fiduciary or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of this Section.


                                       15


     (i)For the purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of this
Section with respect to the resulting or surviving corporation as he would have
with respect to such constituent corporation if its separate existence had
continued.

     (j)The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.


                                  ARTICLE VIII


SECTION 8.1. CONTRACTS
The Board of Directors may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authority may be general or confined
to specific instances.

SECTION 8.2. LOANS
No loans shall be contracted on behalf of the corporation and no evidence of
indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.

SECTION 8.3. CHECKS
All checks, drafts, or other orders for payment of money, notes, or other
evidences of indebtedness issued in the name of the corporation, shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the Board of
Directors.

SECTION 8.4. DEPOSITS
All funds of the corporation not otherwise employed shall be deposited from time
to time to the credit of the corporation in such banks, trust companies, or
other depositories as the Board of Directors may select.


                                       16


                                   ARTICLE IX

SECTION 9.1. SEAL
The corporate seal of the corporation shall be circular in form and shall
contain the name of the corporation and the words: "Rockford, Illinois.
Incorporated June 1902." Said seal may be used by causing it or a facsimile
thereof to be impressed, affixed, or reproduced.

SECTION 9.2. FISCAL YEAR
The fiscal year of the corporation shall commence on the first day of October
and shall end on the thirtieth day of September in each year.

SECTION 9.3. RESIGNATIONS
Any director or officer may resign at any time. Such resignation shall be made
in writing and shall take effect at the time specified therein, and if no time
be specified, at the time of its receipt by the Chairman of the Board of
Directors, the Vice Chairman of the Board of Directors, the President, or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective.

SECTION 9.4. WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of the statutes
or of the Certificate of Incorporation or of these bylaws, a written waiver
thereof, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors or members of a committee of directors need be specified
in any written waiver of notice.


                                    ARTICLE X

SECTION 10.1.  BYLAW AMENDMENTS
The Board of Directors shall have concurrent power with the stockholders to
adopt, amend or repeal these bylaws; provided, however, that (i) these bylaws
shall not be adopted, amended or repealed by the stockholders except by the
affirmative vote of the holders of two-thirds of the outstanding shares of
Common Stock of the Corporation, and (ii) no bylaw may be adopted by the
stockholders which shall impair or impede the power of the Board


                                       17


of Directors under paragraph A of Article SEVENTH of the Certificate of
Incorporation of the Corporation.


                                       18

EX-10.1

Exhibit 10 (c)
Long-Term Management Incentive Compensation Plan








                                [GRAPHIC OMITTED]










                LONG-TERM MANAGEMENT INCENTIVE COMPENSATION PLAN

                            EFFECTIVE OCTOBER 1, 1999




                               TABLE OF CONTENTS

                                                                       Page

                                   TOPIC INDEX


Introduction..............................................................3

Purpose...................................................................3

Governance................................................................3

Participation.............................................................3

Performance Period........................................................4

Performance Period Frequency..............................................4

Determining Award Opportunities...........................................4

Maximum and Threshold Payouts.............................................5

Performance Criteria and Goals............................................5

Adjustment of Performance Measures and Goals..............................6

Vesting of Awards.........................................................6

Termination of Employment by Death, Disability, or Retirement.............6

Payment of Awards.........................................................6

Accounting................................................................6

Employee Tax Considerations...............................................7

Employer Tax Considerations...............................................7


                                      -ii-


                                  INTRODUCTION

This is a cash incentive compensation plan for selected senior officers of the
Company. At the beginning of each three-year performance period, the
participants will be assigned a target incentive award. To the extent that the
designated goals are achieved, some multiple of the target award will be paid at
the end of the performance period. Performance objectives and award
opportunities will be determined and communicated to participants prior to the
beginning of each performance period.

                                     PURPOSE

The purposes of the long-term management incentive plan is be to:

o     Focus the efforts of the senior executives on the quantitatively measured
      performance criteria that best measure the Company's long-term growth and
      efficient asset management.

o     Encourage cooperation in achievement of the Company's goals.

o     Help attract and retain outstanding management talent by providing
      long-term incentive opportunities consistent with those at Woodward's
      competitors.

o     Reward the senior management team for excellent long-term results.

                                   GOVERNANCE

The Board of Directors of the Company is responsible for the governance and
administration of the long-term management incentive plan. Day-to-day
administrative activities under the plan will be delegated to Woodward staff.
The Board, based upon the recommendations of the Compensation Committee, will
determine eligibility, award opportunities, the degree to which performance
goals are attained, and the actual awards earned awards.


                                       3


                                  PARTICIPATION

The initial participants in the plan are:

o        Chief Executive Officer;
o        Vice President of AES;
o        Vice Presidents of ICG; and
o        Vice President, Chief Financial Officer and Treasurer

In the future, if appropriate, other key executives may be nominated by the
Chief Executive Officer and selected by the Compensation Committee for Board
approval.

                               PERFORMANCE PERIOD

Generally, each performance period under the plan will last three consecutive
fiscal years (e.g., October 1999 through September 2002). The Committee will,
however, have the discretion to establish a longer or shorter performance
period.

                          PERFORMANCE PERIOD FREQUENCY

At the Committee's discretion, a new performance period will start at the
beginning of each fiscal year. However, to avoid a three-year delay before the
first payout from the plan, both a two-year and a three-year performance period
will begin as of the first year that the plan is in place (diagram below).

                                [GRAPHIC OMITTED]

                         DETERMINING AWARD OPPORTUNITIES

Target award sizes for each performance period will be determined as a function
of each participant's annual base pay at the beginning of the performance
period. They will take into account competitive practices for companies
comparable to Woodward and the fact that the performance periods are of a
three-year rolling nature rather than of a three-year back-to-back type. The
award opportunities will be recommended by the Chief Executive Officer and
established by the Committee prior to the beginning of each performance period.


                                       4


                          MAXIMUM AND THRESHOLD PAYOUTS

For each performance period, the Committee will establish maximum and minimum
payout levels for each class of participant. The maximum and threshold payouts
will be expressed as fixed percentages of the participant's target award
opportunity. The threshold payout level is the percentage of a participant's
target award that will be paid if threshold performance goals are met for the
performance measures. No payout will be made if actual performance is below the
threshold level. Suggested award sizes, reflecting competitive practice, are
shown below.




                                            AS A PERCENT OF ANNUAL BASE PAY
CATEGORY                                THRESHOLD       TARGET          MAXIMUM
- - - - --------------------------------------------------------------------------------

                                                               
I   Chief Executive Officer             25%             50%             100%
II  Selected Vice President             20%             40%              80%




                         PERFORMANCE CRITERIA AND GOALS

For each performance period, the Chief Executive Officer will recommend and the
Committee will determine:

o     Performance goals that support the accomplishment of the Company's
      long-term strategy.

o     Target, threshold, and maximum goals for each performance criterion. For
      each performance criterion:

      o     The target performance goal will be that level of performance for
            which participants will receive their target award amounts;

      o     The threshold performance goal will be that level of performance
            below which no award amounts will be earned; and

      o     The maximum performance goal will be that level of performance for
            which participants will earn their maximum award level.

Initially, two financial performance measures will be used. They are:

o     EARNINGS PER SHARE (EPS) = Net Earnings / Common Shares Outstanding

o     RETURN ON INVESTED ASSETS (ROIA) = Net Earnings / Averaged Invested Assets
      (Includes Accounts Receivable, Inventory, Net Fixed Assets)


                                       5


Performance/Reward Structure



EXAMPLE CHART


                        3-YEAR
                        AVERAGE
                        EPS
                        GROWTH
PAYOUT                  RATES                   ROIA
- - - - ----------------------------------------------------
                                          

 200%                   25%                     12%
 150%                   20%                     11%
 100%                   15%                     10%
  50%                   10%                      9%
   0%                    6%                      8%

WEIGHTING               50%                     50%

- - - - ----------------------------------------------------




INSTEAD OF EQUALLY WEIGHTED PERFORMANCE CRITERIA, THEY COULD BE WEIGHTED IN A
MANNER TO EMPHASIZE ONE CRITERION. FOR EXAMPLE THE PERFORMANCE/ REWARD
RELATIONSHIP COULD PLACE A SLIGHTLY HEAVIER EMPHASIS ON ROIA (E.G., 60%). THE
ACTUAL WEIGHTING OF THE PERFORMANCE CRITERIA AND ASSOCIATED PAYOUT PERCENTAGES
WILL BE SET EACH YEAR BY THE COMPENSATION COMMITTEE.


                  ADJUSTMENT OF PERFORMANCE MEASURES AND GOALS

Performance criteria and goals will not be adjusted once established for a
particular performance period. However, the next performance period may have
different performance criteria and/or goals established for it if they more
appropriately and fairly represent changed business and economic conditions.
Such adjustments may be recommended by the Chief Executive Officer and will be
determined by the Committee.

                                VESTING OF AWARDS

Awards under the plan will become fully vested as of the last day of each
performance period. Participants whose employment is terminated for reasons
other than death, disability, or retirement during a performance period will
forfeit any rights to an award for any performance periods not yet completed,
unless otherwise determined by the Committee in its sole discretion.


                                       6


          TERMINATION OF EMPLOYMENT BY DEATH, DISABILITY, OR RETIREMENT

In the event of termination due to death, permanent and total disability, or
retirement during a performance period, the participant will be entitled to a
pro rata award for the performance periods then in effect, based on the number
of months of participation, rounded to the nearest month, during those
performance periods, divided by the number of months in the performance periods.
The prorating may be further based on the progress toward the performance goals
attained at the time of termination, as determined by the Committee. Prorated
awards paid for this reason will be paid as soon as practicable following the
end of the performance periods for which the awards were made.

                                PAYMENT OF AWARDS

Payment of awards will be made as soon as practicable after the Committee
completes its assessment of performance and approves award payment. Awards will
be paid in cash. At the election of the participant in accordance with the terms
of the WOODWARD GOVERNOR COMPANY EXECUTIVE BENEFIT PLAN, all or a portion of a
participant's award payment may be deferred.

                               ACCOUNTING EXPENSE

All grants made to participants under the plan will be fully charged to earnings
throughout the performance period. A prorated portion of this expense will be
accrued each quarter based upon the results to date and a reasonable estimate of
the eventual payout.

                           EMPLOYEE TAX CONSIDERATIONS

Participants will incur no income tax liability at the beginning of the
performance period. At the end of the performance period when the payment is
made, each participant will realize ordinary income on the amounts paid.
Participants may further defer paying income tax on the awarded amounts if they
previously elected to defer all or a portion of their award in accordance with
the terms of the WOODWARD GOVERNOR COMPANY EXECUTIVE BENEFIT PLAN. The payment,
even if deferred, is subject to social security and Medicare taxes at the time
of payment.

                           EMPLOYER TAX CONSIDERATIONS

No tax deduction is available to the Company until amounts are actually paid to
the participants. If the participants elect to defer receipt of their payment,
then the company is not allowed a deduction until the eventually distribution
from the WOODWARD GOVERNOR COMPANY EXECUTIVE BENEFIT PLAN.


                                       7

EX-10.2

Exhibit 10 (d)
Executive Benefit Plan










                                [LOGO] WOODWARD





                 ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN
                           ADMINISTRATIVE GUIDELINES






                       INDEX OF ADMINISTRATIVE GUIDELINES


    ITEM #                       POLICY SUBJECT                           PAGE #

       1         General Eligibility Criteria                                3

       2         Standards of Measuring Performance                          3

       3         Management Compensation Structure                           3

       4         Updating the Management Compensation Structure              4

       5         Annual Merit Increases                                      5

       6         Transition for Managers Outside their Assigned
                 Compensation Range                                          6

       7         Change in Job within the Plan (within a group or
                 between groups)                                             6

       8         Increases for Promotions                                    7

       9         Demotion or Reclassification of a Position to a Lower
                 Grade                                                       7

      10         Application of Plan to Newly Hired Managers and
                 Managers Who First Become Participants in the
                 Middle of the Year                                          8

      11         Voluntary and Involuntary Termination                       8

      12         Goal Adjustments Due to Interim Business Disruption         9


                                       2


MANAGEMENT COMPENSATION POLICIES AND PROCEDURES

                        #1 - GENERAL ELIGIBILITY CRITERIA

The Management Incentive Compensation Plan is intended for key contributors
throughout Woodward who have the ability to significantly impact company
performance. In general, plan participants should meet the following criteria:

o     Has significant accountability to produce or contribute to key business
      results
o     Responsible for significant functional/departmental scope
o     Has major expense/budget responsibility
o     Sets direction for an organizational unit
o     Exercises independent judgment and decision making
o     Operates with a great deal of freedom of action


                     #2 - STANDARDS OF MEASURING PERFORMANCE

Financial performance is measured as of the last day of the fiscal year and will
be "validated" no later than three months following this year-end date. The
formulas for performance measures are as follows:

Shareholder Value Created (SVC) = Change in Net Operating Earnings (after tax) /
                  Cost of Capital* - Incremental Investment

Profit Sharing Earnings** = Earnings before Profit Sharing - Capital Charge*

Cash Flow Return on Invested Assets (CFROIA) = Cash Flow / Average Invested
                                                           Assets

CASH FLOW                                             AVERAGE INVESTED ASSETS
Earnings Before Profit Sharing                        13 month average of:
                                                           Accounts Receivable
+/-Change in average invested assets                        + Inventory
                                                            + Net fixed assets
- - - - --------------------------------
* Set by CFO for each plan year
** Specific definition of each measure set by CFO for each plan year


                     #3 - MANAGEMENT COMPENSATION STRUCTURE

Woodward's compensation structure for key management personnel is tied to a
salary grading scale having 13 salary grades, with grade 13 assigned to the CEO.
An appropriate mid-point is established for grade 13 and then the remaining
grades are tiered down according to the table below. This table also shows the
range spread for each salary grade from the minimum to the maximum. Dividing the
range spread by two, adding 100%, and then dividing this sum into the mid-point,
determines the range minimum. Multiplying the range minimum by the range spread
plus 100% equals the range maximum. The grade structure is consistent with
standard industry practices.


                                       3


EXAMPLE: If the mid-point of grade 13 is $400, then the midpoint of grade 12 is
$285 ($400 / 140%). The grade 12 minimum is $162.8 ($285 / 175%) and the grade
12 maximum is $407 ($162.8 x 250%)



 ----------------------------------------------------------------------------
 GRADE                              GRADE                     RANGE
                                 DIFFERENTIAL                SPREAD
 ----------------------------------------------------------------------------
                                                     
           13                        40%                      150%
           12                        40%                      150%
           11                        40%                      120%
           10                        30%                      120%
            9                        20%                      100%
            8                        20%                      100%
            7                        20%                      100%
            6                        20%                       80%
            5                        10%                       80%
            4                        10%                       80%
            3                        10%                       80%
            2                        10%                       80%
 ----------------------------------------------------------------------------


Participants in the Annual Management Incentive Compensation Plan are placed
into the appropriate grade based upon their position and overall
responsibilities, as compared with similar positions within the comparator group
of companies. The *Salary Review Committee has responsibility for ensuring that
each participant is placed within the appropriate salary grade. To efficiently
administer this process, the Committee jointly develops and periodically reviews
guidelines and general descriptions of positions/responsibilities and levels
covered within each salary grade.

Each salary grade includes a recommended range for the annual incentive
compensation target percent. This percentage represents the target bonus as a
percent of each participant's base pay. The Salary Review Committee determines
the actual target percent assigned to a participant with input from the segment
VP, with final approval by the CEO.

*The Salary Review Committee is appointed by the CEO and currently consists of
the top Human Resources Leader(s)/Director(s) of each major business segment and
the Manager, Corporate Benefit and Compensation Plans.


               #4 - UPDATING THE MANAGEMENT COMPENSATION STRUCTURE

The Salary Review Committee, will review the compensation structure annually to
determine general industry trends for establishing merit-pay budgets and
updating pay structures. A more comprehensive analysis will be conducted
biennially to determine competitive-compensation levels in the area and in the
industry based on published data for a representative sample of the manager
positions. Wages are compared to local, regional, or national survey data
depending on the position. Changes to the existing structure, resulting from
both types of reviews, will be


                                       4


made prior to the beginning of the applicable fiscal year. Wage ranges for each
of the 13 salary grades will be adjusted accordingly.

Upon the recommendation of the ESC (Executive Steering Committee) and approval
by the Compensation Committee, a revised compensation structure will be
established. However, revisions made to the structure will not alter the grades
to which positions are assigned, nor will such revisions result in AUTOMATIC
changes in individual compensation rates. Compensation decisions will be
resolved on a case-by-case basis by the business segment.


                           #5 - ANNUAL MERIT INCREASES

Each manager's performance will be reviewed near the end of each fiscal year.
Merit increases will be impacted by performance. The increases should be
determined prior to September 30 if possible. If not, all raises will be
retroactive to the first full pay period of the fiscal year. The amount of the
merit increase granted should also be related to the member's current placement
in the compensation range. Members in the lower part of the range who perform
well are eligible for greater increases than members performing at the same
level, but with a higher placement in the range. The Merit Increase Guide below
ties the overall performance rating and the member's current placement in the
range to the amount of increase for which the member is eligible. Performance
evaluation will occur prior to distribution of merit increases. A Merit Increase
Guide will be issued annually by Human Resources concurrent with the issuance of
the revised compensation structure. All increases outside the standard
guidelines must be approved by the business segment vice president.



                            MERIT INCREASE GUIDE (ILLUSTRATIVE PURPOSES ONLY*)
- - - - ------------------------------------------------------------------------------------------------------------
                                                  EXCEEDING              MEETING               BELOW
                                                 EXPECTATIONS         EXPECTATIONS         EXPECTATIONS
- - - - ------------------------------------------------------------------------------------------------------------
                                                                                       
Upper third between target and limit               4% - 8%               2% - 4%                0%

Middle third around target                         8% - 10%              4% - 6%                0%

Lower third between threshold and target          10% - 12%              6% - 8%                0%

                  Below Threshold                    (See Special Compensation Actions - Policy #2)
- - - - ------------------------------------------------------------------------------------------------------------


     *  Assumes 5% merit budget. Amounts would be adjusted proportionately for
        larger or smaller merit budgets. Merit increase guidelines may also be
        expressed in quartiles rather than triads.


                                       5


     #6 - TRANSITION FOR MANAGERS OUTSIDE THEIR ASSIGNED COMPENSATION RANGE

In most cases, managers are paid at levels within the range assigned to the
salary grade. Thus, members paid at a rate lower than the range minimum may be
placed on an accelerated salary-review schedule. Normally, these members will be
eligible for increases every six months, but increases will be given only to
those members whose performance meets or exceeds expectations. The maximum
increase will not exceed the amount necessary to move the target base
compensation to the range minimum. Any deviation from these guidelines must be
approved by the business segment VP and the CEO.


      #7 - CHANGE IN JOB WITHIN THE PLAN (WITHIN A GROUP OR BETWEEN GROUPS)

The primary objective of this section is to ensure that adjustments that are
made to an individual's incentive program fairly compensate the member for the
year-to-date performance, while protecting the motivational impact of the plan
for the full plan cycle.

The treatment of performance year-to-date, and the redefinition of goals for the
balance of the year, will each depend on the number of months remaining in the
year.

MONTHS REMAINING        GOAL RESETTING GUIDELINES

At least 9 months       Set new personal goals with the full annual payout tied
                        to the new personal and financial goals (if applicable).

Between 6 and 9 months  Assume target performance on the original goals, unless
                        concrete evidence supports an "above-target" rating (the
                        CEO must approve any rating above target). Lock in
                        one-half of the bonus for the goals achieved and set new
                        one-half year goals. Adjust the payout to a one-half
                        year scale for both financial and personal goals.

Less than 6 months      Assume target performance on uncompleted personal goals.
                        (The CEO must approve any rating above target); the
                        financial goal portion of the plan will apply for the
                        balance of the year (i.e., be based on the ORIGINAL
                        goals).

CHANGE IN PARTICIPANT STATUS DURING THE YEAR
Members who become new participants in the plan as a result of a job change that
moves them from non-participant status to a participant status will be treated
consistent with newly hired members. See item 10 on page 8.


                                       6


                          #8 - INCREASES FOR PROMOTIONS

A promotion is defined as a change in a member's position, where there is a
significant increase in responsibility, which elevates his/her compensation
grade by at least one grade. A promotion may occur in one of two ways: (1) the
member is assigned to a new or existing position with a higher compensation
grade than his/her current position, or (2) the member's current position is
reevaluated and assigned to a higher total-compensation grade based on a
significant accretion of duties and responsibilities. Increases in compensation
due to a promotion will take place at the time of the promotion.

Promotional increases for managers could result in an increase of between
0 - 18%. The smaller percentages should be used for members who have recently
(within the last six months) received a salary increase or whose current
compensation is above the NEW grade's "target" level of pay. The higher
percentages should be used for members who are due for merit increases and/or
whose current compensation is below the new grade thresholds.

In certain instances, reduced promotional increases may be granted. Normally,
this would occur if the prescribed increase would place the member above the
limit of the new range. Promotional increases less than or more than the stated
policy may be granted only with the approval of the business segment VP and the
CEO.

        #9 - DEMOTION OR RECLASSIFICATION OF A POSITION TO A LOWER GRADE

A demotion is any change in a member's position, where there is a significant
decrease in responsibility which reduces, by at least one grade, the member's
current grade. A demotion may occur in two ways: (1) the member is assigned to a
new or existing position with a lower compensation grade than his/her current
position (this may occur at either Woodward's discretion or the member's
request), or (2) the member's current position is reevaluated and assigned to a
lower compensation grade. The policy for demotional decreases is dependent, to a
certain degree, on the circumstances which caused the demotion. In the following
cases, no salary decrease will occur unless the member's salary is above the
limit of the new range:

1.    Demotion is due to a reorganization of the department or any other
      situation in which the demotion is not reflective of the member's
      performance.

2.    Demotion is due to reevaluation of the member's current position.

In other cases, a salary decrease may be authorized by the business segment VP
and the CEO. Management will determine the appropriate salary level, taking into
consideration internal and external equity. Base salary and/or target bonus will
be decreased beginning the first full pay period in the new job.


                                       7


              #10 - APPLICATION OF PLAN TO NEWLY HIRED MANAGERS AND
        MANAGERS WHO FIRST BECOME PARTICIPANTS IN THE MIDDLE OF THE YEAR

BASE SALARY - A base salary amount for the new manager shall be determined by
the hiring manager, with approval from business segment VP, according to the
capabilities of the member and his/her compensation requirements. Human
Resources will provide market data to aid the hiring manager in making a
decision regarding pay. Human Resources will also recommend the appropriate
salary grade to the Salary Review Committee for approval.

BONUS - The new manager's target-bonus opportunity is established according to
their salary grade and is stated as a percent of base annual salary. Once the
target-bonus percentage is established, incentive-program goals shall be set for
the period REMAINING in the year. A manager's participation in the incentive
plan will begin with the first FULL pay period following his/her hiring date,
and bonus payouts will be prorated at a rate of 1/26. For managers paid on a
weekly rather than a bi-weekly bases 1/26 will be replaced by 1/52 the
earned-annual bonus for each pay period of participation in the plan. If less
than three months remain in the fiscal year, the new hire does not participate
in the Incentive Plan until the next fiscal year.

PERSONAL GOALS - If at least six months remain in the year, the personal goals
should be guided by the menu defined in the Performance Planning Manual. If less
than six months remain in the fiscal year, the business segment VP may elect,
with the approval of the CEO, to guarantee a prorated portion of this bonus for
the balance of the year.


                   #11 - VOLUNTARY AND INVOLUNTARY TERMINATION

In the event of a member's termination of employment, bonus payments shall be
made according to the following provisions:

o    VOLUNTARY RESIGNATION - To receive an annual bonus payment, the resigning
     member must have had full-time employee status on or at the END of the
     fiscal year. All payouts will be determined on the basis of actual
     performance for the relevant measurement period. Exceptions to this policy
     must be approved by the business segment VP and CEO.

o    INVOLUNTARY TERMINATION WITHOUT PREJUDICE - A member that is terminated,
     through no fault of their own (or other without prejudice reason), is
     eligible for a payout on the personal goals equal to the amount paid at
     THRESHOLD performance. Performance on the financial goals will also be paid
     at THRESHOLD performance at the time of termination. In all cases, the
     payouts will be prorated based on the month of termination. Exceptions to
     this policy must be approved by the business VP and CEO.

o    RETIREMENT - A member that retires mid-year is eligible for a payout on the
     personal goals equal to the amount paid at target performance. Actual
     performance on the financial goals will be determined as of the last day of
     the fiscal year. In both cases, the payouts will be prorated based on the
     month of retirement and payable within the normal timetable. Exceptions to
     this policy must be approved by the business segment VP and CEO.


                                       8


o    INVOLUNTARY TERMINATION-FOR-CAUSE - No bonuses shall be paid in the event
     of termination-for-cause. The business segment VP and CEO are authorized to
     determine whether a termination shall, for the purposes of this program, be
     regarded as a termination-for-cause or a termination without prejudice.

            #12 - GOAL ADJUSTMENTS DUE TO INTERIM BUSINESS DISRUPTION

The purpose of this policy is to guide the adjustment of financial and personal
goals when major disruptions to the normal flow of business invalidate
previously set goals. A goal can be adjusted only if one of the following events
occur:

1.   BUSINESS DISRUPTIONS - that substantially alter expected sales/profit
     performance:
     -        Bankrupt
     -        Labor dispute
     -        Change of customer ownership

2.   ACTS OF GOD - that interrupt a major customer's production or delivery:
     -        Flood
     -        Earthquake
     -        Fire
     -        Tornado
     -        Hurricane

Any adjustment to the goals must be approved by the business segment VP and the
CEO. Adjustments affecting an entire business segment require approval by the
Compensation Committee of the Board of Directors. If a goal is increased or
decreased significantly, a modification to the payout schedule is warranted. For
example, if the goal is decreased by 20%, the payout schedule may be discounted
by 10%.

GENERAL CONDITIONS OF THE PROGRAM

The following conditions apply to all members participating in the program:

o    Each member participating in the program will be notified in writing of
     such participation. If such participation commences other than as of the
     first day of each fiscal year, such participating member will be notified
     of the date of commencement of participation in this program. The use of
     the term "manager" within this administrative policy is intended to apply
     only to those members participating in the program and should be regarded
     as descriptive of all members participating in this program whether or not
     such member's job title includes the term "manager."


                                       9


o    All decisions made in accordance with the provisions of the program are
     final. As specified, business segment VPs, the CFO, and the CEO will submit
     their recommendations to the Compensation Committee of the Board of
     Directors to make decisions, which shall be final. The CFO and/or the CEO
     are authorized to interpret and apply the provisions of this program in the
     absence of any arbitrary or capricious interpretation, and such decisions
     shall also be final.

o    The Company may add, modify, curtail, or terminate any or all of the
     features of this Compensation Plan at any time with or without prior
     notice. No compensation to be paid pursuant to this plan shall be regarded
     as having "vested" to any member prior to payment. No participant shall be
     regarded as having any contract right to any payment to be made pursuant to
     this plan.

o    This plan shall not be construed as conferring or establishing any
     employment contract other than a contract terminable at the will of either
     the participant or the Company. In no way does the program restrict the
     rights of either the Company or the participant to terminate the employment
     relationship.


                                       10

EX-10.3

Exhibit 10 (e)
Executive Benefit Plan













                            WOODWARD GOVERNOR COMPANY
                             EXECUTIVE BENEFIT PLAN

                            EFFECTIVE JANUARY 1, 2001







                                TABLE OF CONTENTS
                                                                            PAGE


I.       PURPOSE AND EFFECTIVE DATE..........................................1

     1.1.     Purpose........................................................1
     1.2.     Effective Date.................................................1
     1.3.     Continuation and Combination of Two Prior Plan.................1


II.      DEFINITIONS.........................................................1

     2.1.     "Account"......................................................1
     2.2.     "Administrator"................................................2
     2.3.     "Affiliate"....................................................2
     2.4.     "Base Salary"..................................................2
     2.5.     "Beneficiary"..................................................2
     2.6.     "Board"........................................................2
     2.7.     "Bonus"........................................................2
     2.8.     "Change in Control"............................................3
     2.9.     "Code".........................................................4
     2.10.    "Company"......................................................5
     2.11.    "Deferral Contribution Amounts"................................5
     2.12.    "Deferral Election"............................................5
     2.13.    "Disability"...................................................5
     2.14.    "Distribution Election"........................................5
     2.15.    "Early Retirement Date"........................................5
     2.16.    "Election Period"..............................................5
     2.17.    "Eligible Member"..............................................5
     2.18.    "Exchange Act".................................................5
     2.19.    "FICA".........................................................5
     2.20.    "Investment Fund or Funds".....................................5
     2.21.    "Normal Retirement Date".......................................5
     2.22.    "Participant"..................................................6
     2.23.    "Plan".........................................................6
     2.24.    "Plan Year"....................................................6
     2.25.    "Prior Account Balance"........................................6
     2.26.    "Retirement"...................................................6
     2.27.    "Supplemental Benefit Amounts".................................6
     2.28.    "Supplemental MISOP Amount"....................................6
     2.29.    "Supplemental RIP Amount"......................................7
     2.30.    "Valuation Date"...............................................7


III.     PARTICIPATION.......................................................7

     3.1.     Participation..................................................7
     3.2.     ERISA Exemption................................................7


IV.      DEFERRAL CONTRIBUTION AMOUNTS.......................................7
     4.1.     Permissible Deferrals under the Plan...........................7
     4.2.     Deferral Elections.............................................8
     4.3.     Crediting of Deferral Elections................................9


                                       i


                                TABLE OF CONTENTS
                                   (CONTINUED)
                                                                            PAGE


     4.4.     Vesting........................................................9
     4.5.     Deferred Contribution Amounts Subject to FICA at Time of
                Deferral. ...................................................9


V.       SUPPLEMENTAL BENEFIT AMOUNTS........................................9

     5.1.     Computation of Supplemental Benefit Amounts....................9
     5.2.     Vesting.......................................................10
     5.3.     Crediting of Supplemental Benefit Amounts.....................10


VI.      ACCOUNTS AND INVESTMENTS...........................................11

     6.1.     Valuation of Accounts.........................................11
     6.2.     Hypothetical Investment Funds.................................11
     6.3.     Crediting of Investment Return................................11
     6.4.     Changing Investment Fund Options..............................12
     6.5.     Investment Alternatives After Death...........................12


VII.     PAYMENT OF BENEFITS................................................12

     7.1.     Distribution at Specific Future Date..........................12
     7.2.     Distribution Upon Retirement or Disability....................12
     7.3.     Distribution On Other Termination of Employment...............13
     7.4.     Unscheduled Withdrawal........................................13
     7.5.     Unforeseeable Emergency.......................................14
     7.6.     Time and Form of Elections....................................14
     7.7.     Form of Payment and Withholding...............................14


VIII.    DEATH BENEFITS.....................................................14

     8.1.     Death Prior to Commencement of Benefits.......................14
     8.2.     Death After Commencement of Benefits..........................14
     8.3.     Administrator Discretion Regarding Form.......................15


IX.      ADMINISTRATION.....................................................15

     9.1.     Authority of Administrator....................................15
     9.2.     Participant's Duty to Furnish Information.....................15
     9.3.     Interested Member of Administrator............................15
     9.4.     Indemnification...............................................15
     9.5.     Claims Procedure..............................................15


X.       AMENDMENT AND TERMINATION..........................................16


XI.      MISCELLANEOUS......................................................16

     11.1.    No Implied Rights; Rights on Termination of Service...........16
     11.2.    No Employment Rights..........................................16
     11.3.    Nature of the Plan............................................17
     11.4.    Nontransferability............................................17
     11.5.    Successors and Assigns........................................18
     11.6.    Payment with Respect to Incapacitated Persons.................18
     11.7.    Arbitration...................................................18
     11.8.    Gender and Number.............................................18
     11.9.    Headings......................................................18
     11.10.   Severability..................................................19


                                       ii


                                TABLE OF CONTENTS
                                   (CONTINUED)

                                                                            PAGE


     11.11.   Effect on Other Employee Benefit Plans........................19
     11.12.   Non-U.S. Participants.........................................19
     11.13.   Applicable Law................................................19

Exhibit A...................................................................20

              INVESTMENT FUNDS UNDER THE WOODWARD GOVERNOR COMPANY
                EXECUTIVE BENEFIT PLAN......................................20


                                      iii


                            WOODWARD GOVERNOR COMPANY
                             EXECUTIVE BENEFIT PLAN


I.    PURPOSE AND EFFECTIVE DATE.

      1.1.  PURPOSE. The Woodward Governor Company Executive Benefit 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 PLAN. 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:


                                       1


            (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 and/or the Woodward Governor Company
            Long-Term Incentive Compensation Plan.


                                       2


      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


                                       3


                  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.


                                       4


      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 and 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.


                                       5


      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.


                                       6


      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:


                                       7


            (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.


                                       8


                  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


                                       9


                        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.


                                       10


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


                                       11


            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


                                       12


            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.


                                       13


            (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.

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.


                                       14


      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


                                       15


            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


                                       16


            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,


                                       17


            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.


                                       18


       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.

                                      * * *

         IN WITNESS WHEREOF, the undersigned has caused this Plan to be executed
this ______ day of _________________, 2000.

                               WOODWARD GOVERNOR COMPANY



                               By:
                                   --------------------------------------


                                       19


                                                                       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 6 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 anything to the contrary in
          this Exhibit A or the Plan, 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. 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.


                                       20

EX-10.4

Exhibit 10 (f)

Form of Transitional Compensation Agreement


                      TRANSITIONAL COMPENSATION AGREEMENT

     THIS AGREEMENT, made and entered into as of _____________________ by and
between Woodward Governor Company, a Delaware corporation, (hereinafter called
the "Corporation") and _____________ (hereinafter called the "Executive").

WITNESSETH THAT:

     WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that it is in the best interests of the Corporation and its
shareholders to assure that the Corporation will have the continued dedication
of the Executive, despite the possibility, threat or occurrence of a Change in
Control (as defined below) of the Corporation; and

     WHEREAS, the Board believes that it is imperative to diminish the
inevitable distraction of the Executive which would result from the personal
uncertainties and risks created by a threatened or pending Change in Control and
to encourage the Executive's full attention and dedication to the business of
the Corporation currently and in the event of any threatened or pending Change
in Control and to provide the Executive with appropriate compensation and
benefit protection upon a Change in Control;

     NOW, THEREFORE, the Corporation and the Executive, each intending to be
legally bound, hereby mutually covenant and agree as follows:

          1. TERM. This Agreement shall become effective upon the occurrence of
     a Change in Control (as defined in Paragraph 4(d), below) (hereinafter
     called the "Effective Date") and shall remain in effect for a term
     continuing until the end of the twenty-fourth (24th) calendar month
     following the month in which the Effective Date occurs; provided, however,
     that, anything in this Agreement to the contrary notwithstanding, if a
     Change in Control occurs and if the Executive's employment with the
     Corporation was terminated prior to the date on which the Change in Control
     occurs, and if it is reasonably demonstrated by the Executive that such
     termination of employment (a) was at the request of a third party who was
     taking steps reasonably calculated to effect a Change in Control or (b)
     otherwise arose in connection with or anticipation of a Change in Control,
     then for all purposes of this Agreement the "Effective Date" shall mean the
     date immediately prior to the date of such termination of employment.


                                       1


          2. EMPLOYMENT. After the Effective Date, the Corporation shall employ
     the Executive to, and the Executive shall, exercise such authority and
     perform such executive duties as are commensurate with the authority being
     exercised and performed by the Executive during the ninety-day period
     immediately prior to the Effective Date, which services shall be performed
     at the location where the Executive was employed immediately prior to the
     Effective Date. The Executive shall also continue to serve as a member of
     the Board of Directors of the Corporation, if serving as such as of the
     Effective Date. The Executive shall devote substantially his entire time
     during reasonable business hours (reasonable sick leave and vacations
     excepted) and reasonable best efforts to fulfill faithfully and responsibly
     his duties hereunder. During the period of employment after the Effective
     Date, it shall not be a violation of this Agreement for the Executive to
     serve on corporate, civic or charitable boards or committees, or be
     involved in civic, charitable or educational endeavors, or manage personal
     investments, so long as such activities do not significantly interfere with
     the performance of Executive's responsibilities as an employee of the
     Corporation hereunder. It is expressly agreed and understood that to the
     extent any such activities were conducted by the Executive prior to the
     Effective Date, the continued conduct of such or similar activities
     subsequent to the Effective Date shall not thereafter be deemed to
     interfere with the performance of the Executive's responsibilities to the
     Corporation.

          3. COMPENSATION AND BENEFITS. For the Executive's employment with the
     Corporation after the Effective Date, the Executive shall be compensated as
     follows:

               (a) The Executive shall receive an annual base salary at a rate
          not less than the highest aggregate annual base salary and
          seniority-based vacation plan amount paid or payable to the Executive
          by the Corporation during the 24 month period immediately prior to the
          Effective Date, to be paid in accordance the Corporation's regular
          payroll practices. Such amount, or such greater annual base salary
          rate which may be paid or payable to the Executive after the Effective
          Date, is hereinafter referred to as the "Annual Base Salary."

               (b) The Executive shall be eligible to participate on a
          reasonable basis in the Corporation's bonus and incentive compensation
          plans and programs which provide opportunities to receive compensation
          which are not less than opportunities provided by the Corporation for
          executives with comparable annual base salary.

               (c) The Executive shall be entitled to receive executive and
          employee benefits and perquisites which are not less than the
          executive and employee benefits and perquisites provided by the
          Corporation to executives with comparable duties or annual base
          salary.

          4. TERMINATION. Unless earlier terminated in accordance with the
     following provisions of this Paragraph 4, the Corporation shall continue to
     employ the Executive and the Executive shall remain employed by the
     Corporation from the Effective Date through


                                       2


     the end of the term of this Agreement as set forth in Paragraph 1, above.
     Paragraph 6 hereof sets forth certain obligations of the Corporation in the
     event that the Executive's employment hereunder is terminated prior to the
     expiration of such term. Certain capitalized terms used in this Paragraph 4
     and in Paragraphs 5 and 6 hereof are defined in Paragraph 4(d), below.

     (a) DEATH OR DISABILITY. The Executive's employment shall terminate
immediately as of the Date of Termination in the event of the Executive's death
or in the event that the Executive becomes disabled. The Executive will be
deemed to be disabled upon the earlier of (i) the end of a six (6)-consecutive
month period during which, by reason of physical or mental injury or disease,
the Executive has been unable to perform substantially all of his usual and
customary duties under this Agreement or (ii) the date that a reputable
physician selected by the Board, and as to whom the Executive has no reasonable
objection, determines in writing that the Executive will, by reason of physical
or mental injury or disease, be unable to perform substantially all of the
Executive's usual and customary duties under this Agreement for a period of at
least six (6) consecutive months. If any question arises as to whether the
Executive is disabled, upon reasonable request therefor by the Board, the
Executive shall submit to reasonable medical examination for the purpose of
determining the existence, nature and extent of any such disability. The Board
shall promptly give the Executive written notice of any such determination of
the Executive's disability and of any decision of the Board to terminate the
Executive's employment by reason thereof. Until the Date of Termination for
disability, the base salary payable to the Executive shall be reduced
dollar-for-dollar by the amount of any disability benefits paid to the Executive
in accordance with any disability policy or program of the Corporation.

     (b) DISCHARGE FOR CAUSE. In accordance with the procedures hereinafter set
forth, the Board may discharge the Executive from his employment hereunder for
Cause. Any discharge of the Executive for Cause shall be communicated by a
Notice of Termination to the Executive given in accordance with Paragraph 14 of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specifies the termination
date, which may be as early as the date of the giving of such notice. No
purported termination of the Executive's employment for Cause shall be effective
without a Notice of Termination.


                                       3


     (c) TERMINATION FOR OTHER REASONS. The Corporation may discharge the
Executive without Cause by giving written notice to the Executive in accordance
with Paragraph 14 at least fifteen (15) days prior to the Date of Termination.
The Executive may resign from his employment, without liability to the
Corporation, by giving written notice to the Corporation in accordance with
Paragraph 14 at least fifteen (15) days prior to the Date of Termination.

     (d) DEFINITIONS. For purposes of this Agreement, the following capitalized
terms shall have the meanings set forth below:

          (i) "Accrued Obligations" shall mean, as of the Date of Termination,
     the sum of (A) the Executive's base salary through the Date of Termination
     to the extent not theretofore paid, (B) the amount of any bonus, incentive
     compensation, deferred compensation and other cash compensation accrued by
     the Executive as of the Date of Termination to the extent not theretofore
     paid and (C) any vacation pay, expense reimbursements and other cash
     entitlements accrued by the Executive as of the Date of Termination to the
     extent not theretofore paid. For the purpose of this Paragraph 4(d)(i),
     amounts shall be deemed to accrue ratably over the period during which they
     are earned, but no discretionary compensation shall be deemed earned or
     accrued until it is specifically approved by the Board or the Compensation
     Committee in accordance with the applicable plan, program or policy.

          (ii) "Cause" shall mean: (A) the Executive's commission of an act
     materially and demonstrably detrimental to the financial condition and/or
     goodwill of the Corporation or any of its subsidiaries, which act
     constitutes gross negligence or willful misconduct by the Executive in the
     performance of his material duties to the Corporation or any of its
     subsidiaries, or (B) the Executive's commission of any material act of
     dishonesty or breach of trust resulting or intended to result in material
     personal gain or enrichment of the Executive at the expense of the
     Corporation or any of its subsidiaries, or (C) the Executive's conviction
     of a felony involving moral turpitude, but specifically excluding any
     conviction based entirely on vicarious liability. No act or failure to act
     will be considered "willful" unless it is done, or omitted to be done, by
     the Executive in bad faith or without reasonable belief that his action or
     omission was in the best interests of the Corporation. In addition, no act
     or omission will constitute Cause unless (A) a resolution finding that
     Cause exists has been approved by a majority of all of the members of the
     Board at a meeting at which the Executive is allowed to appear with his
     legal counsel and (B) the Corporation has given detailed written notice
     thereof to the Executive and, where remedial action is feasible, he then
     fails to remedy the act or omission within a reasonable time after
     receiving such notice.


                                       4


          (iii) A "Change in Control" shall be deemed to have occurred if:

               (A) Any "person" (as defined in Section 13(d) and 14(d) of the
          Securities Exchange Act of 1934, as amended (the "Exchange Act")),
          excluding for this purpose the Corporation or any subsidiary of the
          Corporation, or any employee benefit plan of the Corporation or any
          subsidiary of the Corporation, or any person or entity organized,
          appointed or established by the Corporation for or pursuant to the
          terms of such plan which acquires beneficial ownership of voting
          securities of the Corporation, is or becomes the "beneficial owner"
          (as defined in Rule 13d-3 under the Exchange Act) directly or
          indirectly of securities of the Corporation representing fifteen
          percent (15%) or more of the combined voting power of the
          Corporation's then outstanding securities; provided, however, that no
          Change in Control shall be deemed to have occurred (1) as the result
          of an acquisition of securities of the Corporation by the Corporation
          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 Corporation's then outstanding securities, but any subsequent
          increase in the direct or indirect beneficial ownership interest of
          such a person in the Corporation shall be deemed a Change in Control,
          or (2) as a result of the acquisition directly from the Corporation of
          securities of the Corporation representing less than 50% of the voting
          power of the Corporation, or (3) if the Board of Directors of the
          Corporation determines in good faith that a person who has become the
          beneficial owner directly or indirectly of securities of the
          Corporation representing fifteen percent (15%) or more of the combined
          voting power of the Corporation'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 Corporation 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 Corporation's then
          outstanding securities; or

               (B) During any period of two (2) consecutive years (not including
          any period prior to the Effective Date of this Agreement), individuals
          who at the beginning of such two-year period constitute the Board of
          Directors of the Corporation and any new director or directors (except
          for any director designated by a person who has entered into an
          agreement with the Corporation to effect a transaction described in
          subparagraph (A), above, or subparagraph (C), below) whose election by
          the Board or nomination for election by the Corporation's shareholders
          was approved by a vote of 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


                                       5


               (C) Consummation of (1) an agreement for the sale or disposition
          of the Corporation or all or substantially all of the Corporation's
          assets, (2) a plan of merger or consolidation of the Corporation with
          any other corporation, or (3) a similar transaction or series of
          transactions involving the Corporation (any transaction described in
          parts (1) through (3) of this subparagraph (C) being referred to as a
          "Business Combination"), in each case unless after such a Business
          Combination (x) the shareholders of the Corporation 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 Corporation or all or substantially all of the
          Corporation's former assets either directly or through one or more
          subsidiaries) immediately after such Business Combination, in
          substantially the same proportion as their ownership of the
          Corporation immediately prior to such Business Combination, and (y) 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; or

               (D) Approval by the shareholders of the Corporation of a complete
          liquidation or dissolution of the Corporation.

          (iv) "Date of Termination" shall mean (A) in the event of a discharge
     of the Executive by the Board for Cause, the date specified in such Notice
     of Termination, (B) in the event of a discharge of the Executive without
     Cause or a resignation by the Executive, the date specified in the written
     notice to the Executive (in the case of discharge) or the Corporation (in
     the case of resignation), which date shall be no less than fifteen (15)
     days from the date of such written notice, (C) in the event of the
     Executive's death, the date of the Executive's death, and (D) in the event
     of termination of the Executive's employment by reason of disability
     pursuant to Paragraph 4(a), the date the Executive receives written notice
     of such termination.

          (v) "Good Reason" shall mean any of the following without the written
     consent of the Executive: (A)(1) assignment of duties inconsistent with the
     Executive's position, authority, duties or responsibilities referred to in
     Paragraph 2, or any action by the Corporation which results in a
     substantial diminution of such position, authority, duties or
     responsibilities, other than an isolated, insubstantial and inadvertent
     action not taken in bad faith and which is remedied by the Corporation
     promptly after receipt of notice thereof given by the Executive, or (2) if
     applicable, removal or other failure to continue Executive as a member of
     the Board as required by Paragraph 2, (B) any reduction in Executive's
     Annual Base Salary, or bonus or incentive opportunities from those referred
     to in Paragraph 3(a) or 3(b), other than an isolated, insubstantial and
     inadvertent reduction not made in bad faith and which is remedied by the
     Corporation promptly after receipt of notice thereof given by the
     Executive, or (C) a relocation of Executive to an office location more than
     30 miles from the location referred to in


                                       6


     Paragraph 2, or (D) failure by the Corporation to provide Executive with
     the executive or employee benefits and perquisities referred to in
     Paragraph 3(c), other than an isolated, insubstantial and inadvertent
     reduction not made in bad faith and which is remedied by the Corporation
     promptly after receipt of notice thereof given by the Executive, or (E)
     failure by any successor to enter into the assumption of and agreement to
     perform this Agreement referred to in Paragraph 13. For purposes of this
     Paragraph 4(d)(v), any good faith determination by the Executive that one
     of the foregoing events has occurred shall be conclusive. In addition,
     resignation for any reason by the Executive, which resignation is to be
     effective at any time during the 30 day period beginning twelve (12) months
     after the Effective Date shall constitute a resignation for Good Reason;
     provided, further, that if the Executive dies after the execution of a
     definitive agreement for a transaction which will constitute a Change in
     Control but before the expiration of such 30-day period, then the Executive
     shall be deemed to have terminated employment for Good Reason on the later
     of (1) the effective date of the Change in Control or (2) the date of the
     Executive's death or termination of employment due to disability.

          (vi) "Qualifying Termination" shall mean termination of the
     Executive's employment after the Effective Date and during the term of this
     Agreement as described in Paragraph 1, above, (A) by reason of the
     discharge of the Executive by the Corporation other than for Cause or
     disability or (B) by reason of the resignation of the Executive for Good
     Reason within six (6) months after an event constituting Good Reason or (C)
     in accordance with the last sentence of the definition of Good Reason in
     subparagraph (v), above.

     5. VESTING OF EQUITY AWARDS UPON A CHANGE IN CONTROL. Immediately upon a
Change in Control, all stock options, restricted stock and other equity awards
to the Executive which are not otherwise vested shall vest in full, and all
options shall remain exercisable for the period provided for in the applicable
plan or award agreement.

     6. OBLIGATIONS OF THE CORPORATION UPON TERMINATION. The following
provisions describe certain obligations of the Corporation to the Executive
under this Agreement upon termination of his employment. However, except as
explicitly provided in this Agreement, nothing in this Agreement shall limit or
otherwise adversely affect any rights which the Executive may have under
applicable law, under any other agreement with the Corporation or any of its
subsidiaries, or under any compensation or benefit plan, program, policy or
practice of the Corporation or any of its subsidiaries.

     (a) DEATH, DISABILITY, DISCHARGE FOR CAUSE, OR RESIGNATION WITHOUT GOOD
REASON. In the event the Executive's employment terminates by reason of the
death or disability of the Executive (other than in circumstances which
constitute a Qualifying Terminiation under Paragraph 4(d)(vi)(C)), or by reason
of the discharge of the Executive by the Corporation for Cause, or by reason of
the resignation of the Executive other than for Good Reason, the Corporation
shall pay to the Executive, or his designated beneficiaries, heirs or estate, in
the event of the Executive's death, all Accrued Obligations in a lump sum


                                       7


within thirty (30) days after the Date of Termination; provided, however, that
any portion of the Accrued Obligations which consists of bonus, deferred
compensation, or incentive compensation shall be determined and paid in
accordance with the terms of the relevant plan as applicable to the Executive.
In addition, if the Executive's employment is terminated by death, disability or
retirement under a retirement plan of the Corporation or by resignation of the
Executive other than for Good Reason, the Executive may, in the discretion of
the Compensation Committee, be awarded a pro rata cash bonus for the year in
which the Date of Termination occurs.

     (b) QUALIFYING TERMINATION. In the event of a Qualifying Termination, the
Executive shall receive the following benefits:

          (i) Payment of all Accrued Obligations in a lump sum on the Date of
     Termination; provided, however, that any portion of the Accrued Obligations
     which consists of bonus, deferred compensation or incentive compensation
     shall be determined and paid in accordance with the terms of the relevant
     plan as applicable to the Executive,

          (ii) A pro rata cash bonus for the year in which the Date of
     Termination occurs, determined and paid in accordance with the terms of the
     then current annual bonus plan applicable to the Executive,

          (iii) Payment in a lump sum on the Date of Termination of a salary
     replacement amount equal to three hundred percent (300%) of the annual base
     salary required to be paid to Executive pursuant to Paragraph 3(a) above,
     or if greater, the rate of annual salary as in effect immediately prior to
     the Date of Termination,

          (iv) Payment in a lump sum on the Date of Termination of a bonus
     replacement amount equal to three hundred percent (300%) of the highest of
     the annual bonus paid or payable to the Executive for the three (3) years
     preceding the year in which the Date of Termination occurs or, if greater,
     the Executive's target bonus for year in which the Date of Termination
     occurs,

          (v) Payment in a lump sum on the Date of Termination of a retirement
     replacement amount equal to 300% of the sum of the Member Investment and
     Stock Ownership Plan, Retirement Income Plan and Unfunded Deferred
     Compensation Plan contributions made or credited by the Corporation for the
     benefit of the Executive for the plan year of each such plan during which
     the Date of Termination occurs or, if greater, for the plan year of each
     such plan (or any successor or replacement plan) immediately preceding the
     plan year in which the Effective Date occurs,

          (vi) Continuation, for a period of three (3) years after the Date of
     Termination, of the following employee benefits on terms at least as
     favorable


                                       8


     to the Executive as those which would have been provided if the Executive's
     employment had continued for that time pursuant to this Agreement, with the
     cost of such benefits to be paid by the Corporation: medical and dental
     benefits, life and disability insurance, and executive physical
     examinations. To the extent the Corporation is unable to provide comparable
     insurance for reasons other than cost, the Corporation may provide a lesser
     level or no coverage and compensate the Executive for the difference in
     coverage through a cash lump sum payment grossed up for taxes. This payment
     will be tied to the cost of an individual insurance policy if it were
     assumed to be available. Upon the expiration of the coverage provided under
     this paragraph (vi), the Executive and Executive's dependents will be
     entitled to elect COBRA continuation coverage on the same basis as would be
     extended with respect to an employee whose employment terminated at the
     time of such expiration.

          (vii) Outplacement services, at the expense of the Corporation, from a
     provider reasonably selected by the Executive, and

          (viii) Tax preparation services for the Executive's taxable year in
     which the Date of Termination occurs, provided at the expense of the
     Corporation, on the same basis as provided to Executive immediately prior
     to the Effective Date.

     7. CERTAIN ADDITIONAL PAYMENTS BY THE CORPORATION. The Corporation agrees
that:

          (a) Anything in this Agreement to the contrary notwithstanding, in the
     event it shall be determined that any payment or distribution by the
     Corporation to or for the benefit of the Executive (whether paid or payable
     or distributed or distributable pursuant to the terms of this Agreement or
     otherwise, but determined without regard to any additional payments
     required under this Paragraph 7) (a "Payment") would be subject to the
     excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
     amended, (the "Code") or if any interest or penalties are incurred by the
     Executive with respect to such excise tax (such excise tax, together with
     any such interest and penalties, being hereinafter collectively referred to
     as the "Excise Tax"), then the Executive shall be entitled to receive an
     additional payment (a "Gross-Up Payment") in an amount such that, after
     payment by the Executive of all taxes (including any interest or penalties
     imposed with respect to such taxes), including, without limitation, any
     income taxes (and any interest and penalties imposed with respect thereto)
     and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
     amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
     Payment.

          (b) Subject to the provisions of paragraph (c), below, all
     determinations required to be made under this Paragraph 7, including
     whether and when a Gross-Up Payment is required and the amount of such
     Gross-Up Payment and the assumptions to be utilized in arriving at such
     determination, shall be made by the accounting firm which is then serving
     as the auditors for the Corporation (the "Accounting Firm"), which shall
     provide detailed supporting calculations both to the Corporation and the
     Executive within fifteen (15)


                                       9


     business days of the receipt of notice from the Executive that there has
     been a Payment, or such earlier time as is requested by the Corporation. In
     the event that the Accounting Firm is serving as accountant or auditor for
     the individual, entity or group effecting the Change in Control, the
     Executive shall appoint another nationally recognized accounting firm to
     make the determinations required hereunder (which accounting firm shall
     then be referred to as the Accounting Firm hereunder). All fees and
     expenses of the Accounting Firm shall be borne solely by the Corporation.
     Any Gross-Up Payment, as determined pursuant to this Paragraph 7, shall be
     paid by the Corporation to the Executive within five (5) days of the
     receipt of the Accounting Firm's determination. If the Accounting Firm
     determines that no Excise Tax is payable by the Executive, it shall furnish
     the Executive with a written opinion that failure to report the Excise Tax
     on the Executive's applicable federal income tax return would not result in
     the imposition of a negligence or similar penalty. Any good faith
     determination by the Accounting Firm shall be binding upon the Corporation
     and the Executive. As a result of the uncertainty in the application of
     Section 4999 of the Code at the time of the initial determination by the
     Accounting Firm hereunder, it is possible that Gross-Up Payments which will
     not have been made by the Corporation should have been made
     ("Underpayment"), consistent with the calculations required to be made
     hereunder. In the event that the Corporation exhausts its remedies pursuant
     to paragraph (c), below, and the Executive thereafter is required to make a
     payment of any Excise Tax, the Accounting Firm shall determine the amount
     of the Underpayment that has occurred and any such Underpayment shall be
     promptly paid by the Corporation to or for the benefit of the Executive.

          (c) The Executive shall notify the Corporation in writing of any claim
     by the Internal Revenue Service that, if successful, would require the
     payment by the Corporation of a Gross-Up Payment. Such notification shall
     be given as soon as practicable but no later than fifteen (15) business
     days after the Executive is informed in writing of such claim and shall
     apprise the Corporation of the nature of such claim and the date on which
     such claim is requested to be paid. The Executive shall not pay such claim
     prior to the expiration of the thirty (30)-day period following the date on
     which Executive gives such notice to the Corporation (or such shorter
     period ending on the date that any payment of taxes with respect to such
     claim is due). If the Corporation notifies the Executive in writing prior
     to the expiration of such period that it desires to contest such claim, the
     Executive shall:

               (i) Give the Corporation any information reasonably requested by
          the Corporation relating to such claim,

               (ii) Take such action in connection with contesting such claim as
          the Corporation shall reasonably request in writing from time to time,
          including, without limitation, accepting legal representation with
          respect to such claim by an attorney reasonably selected by the
          Corporation,


                                       10


               (iii) Cooperate with the Corporation in good faith in order
          effectively to contest such claim, and

               (iv) Permit the Corporation to participate in any proceedings
          relating to such claim;

provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for all taxes (including interest and penalties
with respect thereto), including without limitation any Excise Tax and income
tax (including interest and penalties with respect thereto), imposed as a result
of such representation and payment of costs and expenses. Without limiting the
foregoing provisions of this paragraph (c), the Corporation shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner; and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Corporation shall determine; provided, however, that if the Corporation directs
the Executive to pay such claim and sue for a refund, the Corporation shall
advance the amount of such payment to the Executive on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, for
all taxes (including interest and penalties with respect thereto), including
without limitation any Excise Tax and income tax (including interest or
penalties with respect thereto), imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Corporation's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.

     (d) If, after the receipt by the Executive of an amount advanced by the
Corporation pursuant to paragraph (c), above, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Corporation's complying with the requirements of said paragraph (c))
promptly pay to the Corporation the amount of such refund (together with any
interest paid or credited thereon, after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Corporation pursuant
to said paragraph (c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Corporation does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of


                                       11


thirty (30) days after such determination, then such advance shall be forgiven
and shall not be required to be repaid; and the amount of such advance shall
offset, to the extent thereof, the amount of the Gross-Up Payment required to be
paid.

     8. DEFERRAL; GRANTOR TRUST. The Corporation shall provide Executive the
opportunity to defer the receipt of any amounts payable under Paragraph 6(b)(i),
(ii), (iii), (iv) and (v) hereunder and under the Unfunded Deferred Compensation
Plan to such dates or dates as are reasonably chosen by the Executive, such
deferred amounts to appreciate at an annual rate equivalent to 120% of the
Moody's Long Term Corporate Bond Yield Average for the twelve month period
ending on September 30 of the calendar year preceding the calendar year in which
such rate shall be used. The election to so defer shall be made by Executive no
later than one year prior to the date such payments would otherwise due or such
shorter period as the Corporation and the Executive shall reasonably agree upon.
The amounts deferred shall be distributed as elected by the Executivbe from
distributions options simialar to those available under the Unfunded Deferred
Compensation Plan as in effect immediately prior to the Effective Date of this
Agreement. In the event the Executive shall make an election to defer receipt of
amounts described in this Paragraph 8, the Corporation shall deposit into a
grantor trust that meets the requirements of Rev. Proc. 92-64, 1992-2 C.B. 422,
solely for the benefit of Executive, on terms reasonably acceptable to the
Executive, an amount equal to 110% of the amount so deferred. Such deposit shall
be made on the date such deferred amount would otherwise have been paid to
Executive. On each anniversary of the Date of Termination, the Corporation shall
deposit into the trust an amount sufficient so that, as of such anniversary, the
value of the assets of the trust are not less than the obligations of the
Corporation to the Executive under this Agreement.

     9. NO SET-OFF OR MITIGATION. The Corporation's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Corporation may have against
the Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement, and such
amounts shall not be reduced whether or not the Executive obtains other
employment.

     10. PAYMENT OF CERTAIN EXPENSES. The Corporation shall pay the reasonable
legal fees and expenses incurred by the Executive in connection with the
negotiation and preparation of this Agreement. In addition, the Corporation
shall pay promptly as incurred, to the fullest extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest by the Corporation, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement
(including as a result of any contest initiated by the Executive about the
amount of any payment due pursuant to this Agreement), plus in each case
interest on any delayed payment at the


                                       12


applicable federal rate provided for in Section 7872(f)(2)(A) of the Code, plus
an additional amount such that after payment by the Executive of all taxes
imposed on such additional amount, the Executive shall retain an amount equal to
the total taxes imposed on the Executive due to the payment by the Corporation,
to or for the Executive, of legal fees and expenses with respect to any such
contest; provided, however, that the Corporation shall not be obligated to make
such payment with respect to any contest in which the Corporation prevails over
the Executive.

     11. INDEMNIFICATION. To the full extent permitted by law, the Corporation
shall, both during and after the term of the Executive's employment, indemnify
the Executive (including the advancement of expenses) for any judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
incurred by the Executive in connection with the defense of any lawsuit or other
claim to which he is made a party by reason of being (or having been) an
officer, director or employee of the Corporation or any of its subsidiaries. In
addition, the Executive shall be covered, both during and after the term of the
Executive's employment, by director and officer liability insurance to the
maximum extent that such insurance covers any officer or director (or former
officer or director) of the Corporation.

     12. CONFIDENTIALITY. During and after the period of employment with the
Corporation, the Executive shall not, without prior written consent from the
Chief Executive Officer or the General Counsel of the Corporation, directly or
indirectly disclose to any individual, corporation or other entity, other than
to the Corporation or any subsidiary or affiliate thereof or their officers,
directors or employees entitled to such information or any other person or
entity to whom such information is disclosed in the normal course of the
business of the Corporation) or use for the Executive's own benefit or for the
benefit of any such individual, corporation or other entity, any Confidential
Information of the Corporation. For purposes of this Agreement, "Confidential
Information" is information relating to the business of the Corporation or its
subsidiaries or affiliates (a) which is not generally known to the public or in
the industry, (b) which has been treated by the Corporation and its subsidiaries
and affiliates as confidential or proprietary, (c) which provides the
Corporation or its subsidiaries or affiliates with a competitive advantage, and
(d) in the confidentiality of which the Corporation has a legally protectable
interest. Confidential Information which becomes generally known to the public
or in the industry, or in the confidentiality of which the Corporation and its
subsidiaries and affiliates cease to have a legally protectable interest, shall
cease to be subject to the restrictions of this Paragraph 12.

     13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the heirs and representatives of the Executive and the successors and
assigns of the Corporation. Amounts payable under this Agreement upon the
Executive's death shall be paid to his beneficiaries, if any, designated in
writing and filed with the Corporate Secretary, and in the absence of such
designation, shall be paid to his heirs by will or laws of descent


                                       13


and distribution. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
property or stock, liquidation, or otherwise) to all or a substantial portion of
its assets, by agreement in form and substance reasonably satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
this Agreement if no such succession had taken place. Regardless of whether such
an agreement is executed, this Agreement shall be binding upon any successor of
the Corporation in accordance with the operation of law, and such successor
shall be deemed the "Corporation" for purposes of this Agreement.

     14. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered by hand or by recognized commercial delivery service or on the third
business day after being mailed within the continental United States by first
class certified mail, return receipt requested, postage prepaid, addressed as
follows:

          (a)  If to the Board or the Corporation, to:

               Woodward Governor Company
               5001 North Second Street
               P.O. Box 7001
               Rockford, Illinois 61125
               Attn:  Corporate Secretary

          (b)  If to the Executive, to:

               ___________________________________
               ___________________________________
               ___________________________________

Such addresses may be changed by written notice sent to the other party at the
last recorded address of that party.

     15. TAX WITHHOLDING. The Corporation shall provide for the withholding of
any taxes required to be withheld by federal, state, or local law with respect
to any payment in cash, shares of stock and/or other property made by or on
behalf of the Corporation to or for the benefit of the Executive under this
Agreement or otherwise. The Corporation may, at its option: (a) withhold such
taxes from any cash payments owing from the Corporation to the Executive, (b)
require the Executive to pay to the Corporation in cash such amount as may be
required to satisfy such withholding obligations and/or (c) make other
satisfactory arrangements with the Executive to satisfy such withholding
obligations.


                                       14


     16. ARBITRATION. Any dispute or controversy between the Corporation and the
Executive arising out of or relating to this Agreement or the breach of this
Agreement shall be settled by arbitration administered by the American
Arbitration Association ("AAA") in accordance with its Commercial Arbitration
Rules then in effect, and judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Any arbitration shall be
held before a single arbitrator who shall be selected by the mutual agreement of
the Corporation and the Executive, unless the parties are unable to agree to an
arbitrator, in which case the arbitrator will be selected under the procedures
of the AAA. The arbitrator shall have the authority to award any remedy or
relief that a court of competent jurisdiction could order or grant, including,
without limitation, the issuance of an injunction. However, either party may,
without inconsistency with this arbitration provision, apply to any court
otherwise having jurisdiction over such dispute or controversy and seek interim
provisional, injunctive or other equitable relief until the arbitration award is
rendered or the controversy is otherwise resolved. Except as necessary in court
proceedings to enforce this arbitration provision or an award rendered
hereunder, or to obtain interim relief, neither a party nor an arbitrator may
disclose the existence, content or results of any arbitration hereunder without
the prior written consent of the Corporation and the Executive. The Corporation
and the Executive acknowledge that this Agreement evidences a transaction
involving interstate commerce. Notwithstanding any choice of law provision
included in this Agreement, the United States Federal Arbitration Act shall
govern the interpretation and enforcement of this arbitration provision. The
arbitration proceeding shall be conducted in Rockford, Illinois or such other
location to which the parties may agree. The Corporation shall pay the costs of
any arbitrator appointed hereunder.

     17. NO ASSIGNMENT. Except as otherwise expressly provided herein, this
Agreement is not assignable by any party and no payment to be made hereunder
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or other charge.

     18. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties hereto in two (2) or more counterparts, each of which shall be deemed to
be an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.

     19. JURISDICTION AND GOVERNING LAW. This Agreement shall be construed and
interpreted in accordance with and governed by the laws of the State of
Illinois, other than the conflict of laws provisions of such laws.

     20. SEVERABILITY. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement. Furthermore, if the scope of any restriction or requirement
contained in this Agreement is too broad to permit


                                       15


enforcement of such restriction or requirement to its full extent, then such
restriction or requirement shall be enforced to the maximum extent permitted by
law, and the Executive consents and agrees that any court of competent
jurisdiction may so modify such scope in any proceeding brought to enforce such
restriction or requirement.

     21. PRIOR UNDERSTANDINGS. This Agreement embodies the entire understanding
of the parties hereto and supersedes all other oral or written agreements or
understandings between them regarding the subject matter hereof. No change,
alteration or modification hereof may be made except in a writing, signed by
each of the parties hereto. The headings in this Agreement are for convenience
of reference only and shall not be construed as part of this Agreement or to
limit or otherwise affect the meaning hereof.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

Attest:                                    WOODWARD GOVERNOR COMPANY

__________________________                 By: ______________________________

                                           Title: ___________________________

                                           [EXECUTIVE]


                                           __________________________________


                                       17

EX-10.5

Exhibit 10 (g)

Form of Outside Director Stock Purchase Agreement


                            WOODWARD GOVERNOR COMPANY

                    OUTSIDE DIRECTOR STOCK PURCHASE AGREEMENT



                                                                     Dated as of
                                                         _______________________




WOODWARD GOVERNOR COMPANY
Attention:  Mr. John Halbrook, President
5001 North Second Street
Rockford, IL  61111

Dear Mr. Halbrook:

The undersigned, _______________, understands that you, Woodward Governor
Company, a Delaware corporation (the "Company") is authorized to issue
60,000,000 shares, designated Common Stock of the par value of $0.00875 per
share (the "Company Stock"), of which as of _______________, (i) __________
shares were issued and outstanding, and (ii) _______ shares were issued but are
not outstanding and are owned and held by the Company as treasury shares.

In accordance with the Company's Director Share Ownership Guideline, the Company
is authorized to sell treasury shares of the Company Stock to each of its
directors who are not officers, members or employees of the Company (the
"Outside Directors"). The aggregate purchase price to me for the shares of
Company Stock I purchase will be One Hundred Eleven Dollars ($111,000.00) (the
"Purchase Price"). The price per shall be equal to the Fair Market Value of such
stock as quoted on the Nasdaq National Market at the close of business on the
date of this agreement. The shares of the company Stock to be purchased by me
hereunder shall be the number of whole shares of Company Stock which may be
acquired for the Purchase Price based upon the Fair Market Value per share as of
the Purchase Date (the "Shares").

I confirm my agreement with the Company as follows in connection with my
purchase of the Shares. Accordingly, the company confirms its agreement with me.

     (1) PURCHASE OF SHARES. Subject to the terms and conditions herein set
     forth, I agree to purchase from the Company, and the Company agrees to sell
     to me, the number of Shares which may be purchased for the Purchase Price
     at a price per share equal to the Fair Market Value per share as of the
     Purchase Date.


                                       1


     (2) PAYMENT OF PURCHASE PRICE. In payment of the Purchase Price, I agree to
     deliver to the Company within 10 days following the Purchase Date a
     Non-Interest Bearing Installment Note from me in the amount of the Purchase
     Price dated the Purchase Date and payable to your order, expressed to
     mature in 60 monthly installments as follows: $1,850.00 on the 20th day of
     _______, and $1,850.00 on the same day of each and every succeeding month
     thereafter to and including a final installment on the 20th day of
     ____________, such note to be in the form of the Non-Interest Installment
     Note from me which is attached hereto as Exhibit A and hereby made a part
     hereof (the "Installment Note"). The remaining balance on the Installment
     Note will be accelerated in the event I cease to be an Outside Director of
     the Company for any reason and shall be payable 90 days thereafter.

     (3) PURCHASE DATE. The purchase and sale provided for herein shall be
     consummated and closed at the office of the Company, 5001 North Second
     Street, Rockford, Illinois 61111, commencing at 11:00 a.m., Rockford local
     time, on ______________.

     (4) ASSIGNMENT OF RETAINER FEES. I agree that commencing as of the Purchase
     Date, and on each of the next 60 payment dates thereafter, the Company may
     withhold and retain the monthly retainer fees due me from the company for
     my service as a member of the Board of Directors of the Company (the
     "Retainer Fees") in satisfaction of the payment of the Purchase Price for
     the Shares under the Installment Note. I hereby sell, assign, convey and
     transfer to the Company all my right, title and interest to any and all
     payments due me as Retainer Fees, including any and all increases thereof.
     The assignment of Retainer Fees shall be effective as of the Purchase Date
     until the Installment Note is paid and satisfied in full.

     (5) PREPAYMENT. The unpaid monthly installments of the Purchase Price for
     Shares to be purchased by me hereunder may be prepaid by me in whole or in
     part at any time. In case of any prepayment of the Purchase Price in part,
     such prepayment shall be applied to the installments hereof in the inverse
     order of their respective maturities. Any monthly Retainer Fees in excess
     of $1,850.00 shall be applied by the Company as a prepayment hereunder.

     (6) ISSUANCE OF STOCK CERTIFICATE. On the Purchase Date, the Company shall
     issue to me a stock certificate evidencing the number of Shares purchased
     by me hereunder.

     (7) TRANSFERABILITY AND CONTINUING OBLIGATION. The rights granted me
     hereunder may not be sold, pledged, assigned, transferred or otherwise
     disposed of in any manner whatsoever. Only I shall have the right to
     purchase Shares hereunder. Furthermore, except as mutually agreed otherwise
     by the parties hereto, I understand and agree that my obligation under the
     Installment Note and this Agreement are with recourse and binding


                                       2


     on me individually until satisfied in full, including without limitation,
     in the event (i) of my death, or (ii) that I am no longer an Outside
     Director for any reason.

     (8) FINANCIAL RISKS. I acknowledge that I have received all information
     which I deem necessary and appropriate to evaluate the financial risks
     inherent in my purchase of Shares hereunder, and I acknowledge that I have
     satisfactory and complete information concerning the business, operations,
     and finances of the Company in response to all my inquiries in respect
     thereof.

     (9) INVESTMENT REPRESENTATION. I represent and warrant that the Shares
     acquired by me pursuant to this agreement (i) will be acquired by me for my
     own account, (ii) will be acquired by me for investment and not with a view
     to, or for sale in connection with, any distribution thereof, (iii) will be
     acquired by me with no present intention of selling or distributing such
     shares. I agree that I will not dispose of the Shares purchased by me
     hereunder in such a manner as will violate the Securities Act of 1933, as
     amended, or any applicable rules and regulations thereunder and until and
     unless the Company shall have been furnished with an opinion of counsel
     satisfactory to it to the effect that any proposed disposition of such
     shares may be effected without such violation. I agree that all
     certificates evidencing the Shares acquired by me hereunder will be marked
     with a legend as follows:

               "The shares evidenced by this Certificate have not been
          registered under the Securities Act of 1933, as amended. The shares
          evidenced hereby may not be sold, transferred, pledged or hypothecated
          in the absence of an effective registration statement for the shares
          under the Securities Act of 1933, as amended, or an opinion of counsel
          satisfactory to the Corporation prior to the proposed transaction that
          registration is not required under said Act."

     I represent that I have been informed by the Company and understand that
     the Shares acquired by me hereunder will not be registered under the
     Securities Act of 1933, as amended, and that the Company does not
     contemplate and is not legally required to file any such registration.
     Accordingly, in connection with any future resale of the Shares acquired by
     me hereunder I acknowledge that my attention has been directed to Rule 144
     under the Securities Act of 1933, as amended, and that I have been advised
     that the Shares acquired by me hereunder must be held indefinitely unless
     they are subsequently registered under the Securities Act of 1933, as
     amended, or an exemption from such registration is available.

     (10) NOTICES. All notices, requests, demands and other communication
     hereunder shall be in writing and shall be deemed to have been duly given
     when delivered personally or when deposited in the United States mail,
     registered or certified, return receipt requested, postage prepaid,
     addressed as follows:

          (a)  if to me, to:


                                       3


          (b)  if to you, to:

                Woodward Governor Company
                5001 North Second Street
                Rockford, Illinois 61111
                Attention:  Stephen P. Carter, Vice President, Chief Financial
                                               Officer and Treasurer

     or to such other address or addresses as you or I may communicate in
     writing to the other by notice given pursuant to the provisions of this
     paragraph (10). Written notice given by any other method shall be deemed
     effective only when actually received by the party to whom given.


                                       4


     (11) MISCELLANEOUS. This Agreement (i) constitutes the entire agreement
     between you and me with respect to the subject matter hereof, (ii) shall
     not be assigned or transferred by your or me, (iii) shall be governed in
     all respects by the laws of the State of Illinois, and (iv) may be executed
     in two or more counterparts which together shall constitute a single
     instrument.

If the foregoing is in accordance with your understanding of our agreement,
please sign and return to me the enclosed copy of this Outside Director Stock
Purchase Agreement whereupon it shall become a binding agreement between us.

                                           Very truly yours,




                                           By ________________________________




The foregoing is hereby confirmed
and agreed to as of the ____ day of
__________, ______.

WOODWARD GOVERNOR COMPANY




By __________________________________
   John A. Halbrook, Chairman and CEO


                                       5

EX-13

Financial Highlights



FISCAL YEAR ENDED SEPTEMBER 30,                                             2000          1999         1998
- - - - -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS AND OTHER YEAR-END DATA)

                                                                                            
Operating Results
   Net sales                                                              $597,385      $596,904     $490,476
   Net earnings                                                             46,976 *      30,829       21,592
   Basic earnings per share                                                   4.17 *        2.74         1.90
   Diluted earnings per share                                                 4.15 *        2.73         1.90
   Cash dividends per share                                                    .93           .93          .93
Year-end Financial Position
   Working capital                                                         100,836       124,392      119,506
   Total assets                                                            533,723       550,664      563,435
   Long-term debt                                                           74,500       139,000      175,685
   Shareholders' equity                                                    275,624       241,992      220,102
Other Year-end Data
   Shareholders' equity per diluted share                                 $  24.35      $  21.43     $  19.34
   Worker members                                                            3,302         3,791        3,994
   Registered shareholder members                                            1,742         1,866        1,907
- - - - -------------------------------------------------------------------------------------------------------------


*Net earnings includes a gain from the sale of business, net of tax, of $17,082
or $1.52 per basic share and $1.51 per diluted share for 2000. Without this
item, net earnings would have been $29,894 or $2.65 per basic share and $2.64
per diluted share for 2000.



                                       1


To All Shareholders


In fiscal 2000, we again achieved strong sales and earnings. As Woodward moves
into this new century, we are building upon last year's excellent results, and
we anticipate even better performance in the future.

The growth, balance, and stability from participating in both the industrial and
aerospace industries strengthens Woodward's position in the marketplace. Our
industrial business is firmly connected to power generation while our aircraft
business with its large installed base provides a relatively predictable and
strong cash flow.


Our accomplishments tell the story

In June, we announced a five-year, $500 million sales agreement with GE Power
Systems, the largest, single contract in the history of Woodward. We are
supplying fuel and combustion systems and components for GE's family of
industrial gas turbines for the power generation, oil and gas processing, and
marine markets.

In addition, Woodward recently finalized other new, long-term agreements with
major industrial OEMs (original equipment manufacturers), which total over $100
million in incremental business over the next four years. When we are able to do
so, we will announce these agreements. Furthermore, we are well positioned to
win other long-term agreements because of our breadth of energy control
technologies.

We moved forward with our strategy to expand our gas turbine OEM product
offerings for the global power generation market. In early fiscal 2001, we
finalized an alliance with Edward King AG in Switzerland, which positions
Woodward as the only supplier that can provide gas turbine OEMs with integrated
fuel systems from concept through field installation. We are excited about the
response from our customers and have already secured contracts for more than $11
million.

In the area of gas engines, we made significant progress on our core fuel and
combustion control strategy by adding ignition systems to our current product
offerings and completing a licensing agreement for advanced ignition technology.
Woodward achieved these goals in early fiscal 2001 by acquiring Hoeflich
Controls and entering into a licensing agreement with Adrenaline Research. With
our new product offerings, we now have a full complement of technologies to
provide complete integrated systems for natural gas engines.


Investing in our future

In fiscal 2000, Woodward invested nearly $30 million in new product development
for aircraft and industrial products. We are committed to these efforts and will
continue to introduce targeted products into our markets. In the industrial
arena, this investment has translated into more than 30 new and derivative
products over the past 18 months. And, our development efforts in aerospace have
resulted in several contract awards for new programs. The market sections that
follow highlight many of our successes.


Our customers recognize our efforts

In fiscal 2000, we received the Supplier Excellence Award from GE Aircraft
Engines (GEAE), our largest Aircraft customer. GEAE measures its suppliers on
four elements of performance: price, delivery, quality, and customer
initiatives. Good supplier excellence scores open the door for us to compete for
new GEAE engine programs.

Also, Caterpillar, a key Industrial Controls customer, recertified us as a
supplier for the



                                       2


eighth consecutive year. As a certified supplier, Woodward is a preferred
supplier when new contracts are released.

Recognition by these leading companies demonstrates our ability to perform to
their high standards. It also validates that establishing a Six Sigma culture
has enhanced our ability to meet our customers' high expectations of quality,
delivery, and cost.


The industrial market outlook

The markets we serve--power generation, transportation, and process
industries--are all strong; however, power generation is experiencing the
greatest amount of growth as the demand for reliable electricity exceeds the
supply. The world's escalating power needs will be met in various ways--from
central power plants that use large gas turbines to distributed power generation
that uses small gas turbines, natural gas engines, diesel engines,
microturbines, and fuel cells. In addition to the rapid growth of power
generation, the demand for high-efficiency, clean-burning, low-emission engines
continues to escalate. Our energy control technologies give us a strong
advantage to provide our customers with systems solutions.


The aerospace market outlook

Current deliveries of aircraft are relatively flat, yet the long-term growth of
revenue passenger miles is forecasted to increase at roughly 5 percent a year.
We are well positioned in the fast-growing regional and business jet segments.
This market has been experiencing significant growth, especially in North
America. Also, the military aircraft market is showing signs of recovery and is
expected to grow over the next several years. With our large installed base of
equipment on commercial aircraft, we are focusing on opportunities to expand our
 service offerings to grow this higher-margin segment of our business.


Strengthening our performance

We continually improve our organization by aggressively managing our operations
to increase quality, raise efficiency, lower costs, and enhance our ability to
bring solutions to our OEM customers. In fiscal 2000, we:

o   Created a single, streamlined approach to marketing, sales, and business
    development in both our business segments which helped us focus our
    operations globally.

o   Divested our turbine control retrofit business to concentrate fully on
    becoming the leading supplier of control systems for industrial engine and
    turbine OEMs. By divesting this business, we strengthened our position with
    our OEM customers.

o   Transferred our industrial fuel nozzle operations to Industrial Controls and
    consolidated our small industrial engine business into the same business
    segment.

Our goal is to offer complete, integrated fuel delivery and control systems and
components for industrial and aircraft engines and turbines. This systems
approach will help enable OEMs to reduce their supplier base, improve engine
efficiency, and reduce emissions.


The power of e-Business

All our major locations worldwide use the same core business systems, so we can
rapidly respond to changing business needs. The Internet, a powerful tool, is
helping Woodward improve our performance as it links us closer to our customers
and suppliers. We have developed an e-Business strategy for fiscal 2001 with
high-priority initiatives focused on the supply chain. The strategy will help us
continue achieving



                                       3


business improvements such as quality, delivery, and cost. We
have already seen good results by using Internet technology to improve supplier
management and will extend this success to customer support and service areas
for key OEM and aftermarket customers.


Financial performance

Our net earnings rose 52 percent in fiscal 2000 to $47.0 million or $4.15 per
diluted share, from $30.8 million or $2.73 per diluted share in fiscal 1999.
Results for this year included a gain on the sale of our turbine control
retrofit business of $1.51 per diluted share. Without this gain, earnings for
fiscal 2000 would have been $2.64 per diluted share.

Our results in fiscal 2000 also included costs associated with the sale that
were not reflected in the gain, costs associated with reductions in our
workforce, and certain other costs not indicative of normal operations which
totaled $0.59 per diluted share. Our results in fiscal 1999 included
restructuring expense and gains on the sale of real estate that netted to a
reduction of $0.27 per diluted share.


We are positioned to grow

As we look toward our future, we are excited about our prospects. We think the
potential for growth is strong--both organically and through acquisitions. We
anticipate organic growth based on the products we have in the markets today,
our new product introductions, and the strength of the markets. Our goal is to
be the preferred systems supplier to the top three to four OEMs in each market
segment we serve.

Next year, without considering acquisitions, we expect our core business sales
to increase at least 7 percent, driven primarily by the rapid growth in the
power generation business. At the same time, we expect earnings not including
any one time gains or expenses to grow in the 10 to 15 percent range. The
greater rate of earnings growth is due to expected margin improvements as a
result of increasing operating efficiencies and continuing benefits from our Six
Sigma efforts.

In closing, I want to emphasize that if it weren't for the people at Woodward,
we wouldn't be where we are today nor could we reach our future goals. I'd like
to thank our Board of Directors for their guidance as we strive to create value
for our shareholders. I especially want to express my appreciation and gratitude
to Carl J. Dargene for all his efforts during the past ten years. Carl retired
from our board on September 30, 2000. Also, I'd like to welcome our newest board
member Michael H. Joyce, president and chief operating officer at Twin Disc,
Inc. in Racine, Wisconsin.

I know our management team and members have the energy, enthusiasm, and skills
necessary to make the most of our opportunities in the months and years ahead.
I'm certain our performance will ensure that we deliver an attractive return on
investment.

I'm proud to say that our technologies, fuel systems strategies, and members are
unsurpassed in the industry. And, I believe the best is yet to come.

John A. Halbrook
Chairman of the Board
and Chief Executive Officer

December 4, 2000



                                       4


Our Customers Dominate Growing Global Markets

                                                                        
Power Generation           Aerospace                 Transportation              Process Industries

o  Power Plants            Commercial                Marine Propulsion           Oil and Gas

o  Distributed Power       Military                  Locomotive                  Petro Chemical

o  Back-Up Power           Aftermarket Services      Off-Highway Equipment       Paper
                           and Support
                                                     Alternative Fuel Trucks     Sugar
                                                     and Buses

Our customers include:     Our customers include:    Our customers include:      Our customers include:
Alstom                     GE Aircraft Engines       Caterpillar                 Dresser-Rand
Caterpillar                Honeywell                 Caterpillar Motoren         Ebara
Emerson Electric           Pratt & Whitney           Cummins                     GE Power Systems
GE Power Systems           Pratt & Whitney Canada    General Motors EMD          Mitsubishi
Kawasaki                   Rolls-Royce               GE Transportation Systems   Rolls-Royce
Siemens-Westinghouse       Rolls-Royce Deutschland   MAN
                           U.S. Government           Wartsila
                           Williams International
                           Major airlines worldwide




In all these markets, Woodward technologies ensure our customers' engines,
turbines, and other power equipment are dependable, efficient, and clean
burning.



                                       5










                               [GRAPHIC OMITTED]






     No One In The World Can Match Woodward's Energy Control Technologies

     Providing advanced energy control systems

The competitive stakes are high as our engine and turbine OEM (original
equipment manufacturer) customers strive to make their products cleaner, more
reliable, and more efficient. Our customers' goals are to decrease their product
development cycle times, lower costs, and manage a consolidated base of
suppliers that provide total system solutions.

Woodward is there with our energy control technologies. Our technologies are
based on a distinctive blend of advanced electronics design, software
algorithms, and mechanical components that work as an integrated energy control
system to ensure maximum efficiency and reliability.

With this broad range of technology available from Woodward, OEMs can rely on us
as the single supplier for their energy control systems. Woodward's technology
reduces their technical risks, gets their product to market quicker, and
provides the economies of scale from working with just one supplier that can
fulfill their needs from concept to integration to field support.

Woodward's capability to deliver unique, integrated energy control technology
solutions makes us a worldwide leader in our field. As our OEM customers grow to
meet the world's need for increasingly efficient engines, turbines, and power
equipment--Woodward will grow right along with them.

Woodward offers a wide variety of innovative solutions for our customers' power
equipment systems.



                                       7


Power Generation

Worldwide, electricity is the most rapidly growing form of energy consumption.
As interest in coal and nuclear power declines, opportunities open up for
Woodward's OEM (original equipment manufacturer) customers to provide clean,
efficient, and reliable engines, gas turbines, fuel cells, and microturbines to
generate electricity.

With our energy control technologies, Woodward is aligned with the power
generation market and the OEMs that serve it. Our wide range of systems and
components help improve fuel efficiency, reduce emissions, and enhance cost
effectiveness of engines and turbines.

Although power shortages certainly have an adverse affect on residential
consumers, the primary forces driving the power generation market are the
industrial and commercial economies. For instance:

o   Deregulation of the electricity generation and distribution markets and
    constraints on building large central power plants and transmission lines
    has created a need for new distributed power technologies to place smaller,
    cleaner power generation units closer to the load.

o   The digital economy is requiring more power with higher quality and
    reliability. Power delivery systems, which support computers, cell phones,
    pagers, satellite televisions, and wireless web browsers are greatly
    strained.

o   The growing global industrial infrastructure is escalating the demand for
    power at an unprece-dented rate. Key factors are rapid economic growth,
    greater industrialization, and more homes being added to the grid.


                                       8


As power needs increase, environmental concerns intensify. The competition to
meet future power generation requirements will be won by companies with clean,
efficient, and cost-effective solutions.

Woodward's focus is to provide core fuel and combustion control solutions that
help engines and turbines run cleaner and more efficiently. To optimize
performance, Woodward offers an array of digital controls that network with the
on-engine hardware and information technology systems. This provides our OEM
customers with comprehensive, well-integrated, reliable, and cost-effective
answers.

For the hundreds of thousands of small engine generators produced each year,
Woodward offers a broad range of fuel and air controls based on our LCS
integrated speed control and actuator. In its base form, the LCS is a compact,
self-contained device that precisely controls the fuel flow in diesel engines.

To adapt this technology for the 30,000 small industrial gas engines produced
worldwide each year, Woodward expanded the LCS range with the LCS ITB throttle
body/speed control and LC-50 integrated fuel mixer, throttle body, and speed
control. These new products position us to compete very aggressively in a market
that has grown at a 29 percent annual rate since 1995.

Enhancing our total system offering of core fuel and combustion control products
for gas turbines, Woodward introduced the following products: 1) SonicFlo(TM)
gas fuel control and stop valves, 2) liquid fuel control and stop valves, 3)
all-electric bleed valve for compressor bypass air, 4) fuel flow divider valve,
5) an expanded range of fuel nozzles and an integrated fuel nozzle, and 6)
combustion header assemblies.

Also new to Woodward's system control product line is the EGCP-2 engine
generator control. Introduced late in the fiscal year, the EGCP-2 is rapidly
becoming the control of choice for generator set and switchgear manufacturers
worldwide. Global acceptance of the EGCP-2 has been outstanding, with immediate
orders and shipments delivered to Europe, Japan, India, Brazil, Australia, and
the United States.

The control works together with a wide range of speed controls and automatic
voltage regulators to create a complete generator control and engine management
package, which provides a low-cost, integrated control for the distributed
generation marketplace.

We introduced another new product in fiscal 2000, the 2301D digital load share
and speed control. It is an updated version of Woodward's successful,
well-established analog product. The digital control offers OEMs greater
functionality for small industrial generators driven by gas or diesel engines.

In fiscal 2000, we installed our AtlasPC(TM) control system in its first field
operation. The AtlasPC, with its embedded-PC technology, enables Woodward to
compete in markets currently dominated by programmable logic controls. The core
fuel and package control was installed on a multi-million dollar GE gas turbine
generator at a cogeneration facility.

Another key accomplishment in fiscal 2000 was our signing of the biggest, single
contract in Woodward's history. In a five-year, $500 million sales agreement
with GE Power Systems, we agreed to supply fuel and combustion systems and
components for GE's family of industrial gas turbines. This is significant
because major manufacturers of gas turbines are sold out in North American
markets for delivery before 2003.

Woodward earned GE's business by developing a strong relationship, by
concentrating on our core fuel and combustion control strategy, by delivering
innovative products, and by focusing on Six Sigma to meet GE's stringent cost,
quality, and delivery targets.

As we develop new products for the power generation market, we continue to look
for ways to solve our OEMs' issues, so we can offer systems capabilities that
are not currently available anywhere else in the marketplace.


                                       9


Aerospace

The business and commercial aircraft segments, including regional, narrow- and
wide-body aircraft are strong and growing. For example:

o   Productivity and convenience are driving unprecedented growth in the
    business jet and rotorcraft markets.

o   Efficiency and passenger comfort are propelling the trend toward regional
    jets.

o   Industry experts agree that commercial passenger miles will continue to
    increase substantially over the next 15-20 years.

In addition, military spending is increasing for new aircraft and for upgrades
on existing aircraft.

To meet the needs of the growing business and regional aircraft markets,
Woodward provides:

o   An integrated suite of critical components for the Rolls-Royce BR710 engines
    for the Gulfstream V and Global Express business jets.

o   Integrated fuel control/pump units for the Williams International FJ44-1,
    FJ44-2, and FJ33-1 engines for Cessna and Raytheon business jets.

o   Fuel controls and nozzles for the GE CF34-3 and CF34-8 engines used to power
    Canadair, Fairchild Dornier, and Embraer regional jets.

o   Fuel metering units for the GE CF34-10 engines for the Embraer ERJ-190 and
    Fairchild Dornier 928JET regional jets.

Woodward successfully secured a contract with GE for fuel metering units on
their new GE90-115 engine. Boeing will use the engine exclusively on their
extended-range 777 wide body aircraft. In the future, airlines may choose to
maintain engine commonality, increasing GE's market share and benefiting
Woodward.

Also, on the latest narrow- and wide-body aircraft we won contracts to supply:

o   Pratt & Whitney with fuel nozzles for their new PW6000 engine for the Airbus
    A318.

o   The fuel return valve for the GE CFM56-5 engine, which is used for the
    Airbus A318/319/320/321 and A340 jets.

In addition, our installed base of equipment is growing, resulting in further
aftermarket opportunities for Woodward. The increasingly competitive aftermarket
requires long-term customer contracts and new approaches to the market. This
year, we signed a three-year contract with Snecma Services of France to repair
and overhaul components on their CFM56-3, CFM56-5, and CFM56-7 engines. The
CFM56 engine is the highest production volume, large gas turbine engine used
today. We also signed a ten-year repair services contract with American Airlines
and reintroduced our CFM56-3 and CFM56-5 fuel nozzles into the aftermarket.

After completing its first full year of operation, AESYS, our joint venture with
BAE SYSTEMS Controls, Inc. was profitable. AESYS complements our engine fuel
delivery systems strategy, which enables Woodward to meet our customers' needs
with complete system solutions. The AESYS team repairs and overhauls engine fuel
accessories for the military and commercial aerospace markets. While primarily
servicing TF39 engines for the Galaxy C5A military cargo aircraft, the team
anticipates expanding its services to repair the controls and accessories of
other engine types.

We are committed to expanding our product and service offerings to meet customer
requirements for integrated component suites and systems, reduced costs, and
improved reliability.



                                       10


Transportation

A robust transportation network is vital to the growth of a global economy. To
move goods rapidly around the world, we need reliable fleets of ships, trains,
and trucks powered by efficient, clean-burning engines.

To help our OEM (original equipment manufacturer) customers provide the
cleanest, most fuel-efficient engines possible, Woodward offers an extensive
range of innovative energy control technologies.

For compressed natural gas engines (CNG)--prevalent in alternative fueled
vehicle fleets worldwide--Woodward introduced the OH1.2 control system. Digital
electronics embedded with Woodward's most advanced closed-loop control algorithm
are matched to a full suite of precision sensors, actuators, and fuel metering
valves.

In addition to lowering emissions, the OH1.2 control system provides excellent
fuel economy and offers "diesel-like" driveability. Superior performance in all
three areas is unique. In the past, engine manufacturers have had to sacrifice
one feature for the other. In just the last few months, Woodward has received
orders worth $12 million from two OEMs in Korea for the OH1.2 system, which will
be installed on CNG bus engines.

In mobile equipment markets, Woodward's new LC-50 integrated fuel mixer,
throttle body, and speed control has helped our customers be more successful by
increasing the effective power output, improving the fuel efficiency, and
reducing emissions from their engines.

In fiscal 2000, Woodward played a critical part in the successful start-up of
the world's first gas turbine powered cruise ship--the Celebrity Cruises
MILLENNIUM. As part of the propulsion packages, we supplied the NetCon(R)
digital control system and DSLC(TM) digital synchronizer/load controls for the
ship's turbine generator sets. Our highly sophisticated controls address the
marine market's need for greater performance, improved operating speeds, and
lower emissions.

Also entering full production this year was a new Woodward diesel fuel injection
system developed specifically for the Caterpillar Motoren diesel engine.
Designed for high operational reliability, low fuel costs, and ease of
maintenance, the M 43 heavy-fuel diesel engine propels fishing vessels, chemical
tankers, container ships, and ferries.

As the need to efficiently move goods around the world increases, Woodward will
be there with innovative energy control technology solutions for leading OEMs.
Our reliable, efficient, and cost-effective systems will consistently play a
vital role in the transportation market.



                                       11


Process Industries

Together, oil and natural gas fuels comprise over 60 percent of the world's
energy use. However, as the drive to reduce global emissions escalates and we
decrease our reliance on coal and nuclear fuels, natural gas use is expected to
double between now and 2020.

Industrial engines and turbines of every shape and size span the entire process
industries supply chain--exploration, production, transportation, and
consumption. The equipment ranges from 10 horsepower pumps and compressors to
300,000 horsepower turbine compressors and electric power generation units.

Woodward's energy control technologies play a key role in helping OEMs (original
equipment manufacturers) produce cleaner more efficient engines and gas
turbines.

In fiscal 2000, Woodward and Enginuity Technologies announced an alliance to
serve the natural gas industry. Enginuity introduced the HPFi(TM) (high-pressure
fuel injection) technology for the gas pipeline industry--a first in advanced
combustion control technology for direct-injected, natural gas-fired engines.

With this technology integrated into a total combustion retrofit package, the
large and aging installed base of engines in the gas pipeline industry can be
upgraded to meet strict emissions standards, while improving reliability and
fuel efficiency to levels demanded by the competitive marketplace.

The Woodward HPIV (high-pressure injection valve) and In-Pulse+(TM) controls and
software are core to the Enginuity system. Enginuity integrates our components
into a complete HPFi system, supplies other combustion upgrades, markets the
product, and services it in the field.

For steam turbines in the pulp, paper, sugar, and petrochemical industries,
Woodward's 505, Peak 150, and TG governors are the model for the industry. These
products continue to set the standard for reliability, performance, and value.

In the petrochemical industry, it is critical for the machines to run at peak
performance. Every minute lost in downtime can mean thousands of dollars of lost
revenue. In these applications, Woodward has met our customers' demanding
requirements with MicroNet(TM) TMR (triple modular redundant) control systems.
Often used to control complex steam turbine driven, multi-stage compressors in
ethylene plants, the MicroNet TMR provides the ultimate in fault tolerance,
dependability, and performance.

Engine and turbine efficiency, dependability, and cost will continue to set
industry benchmarks worldwide. And, Woodward will keep providing energy control
technologies to bring our customers' systems solutions for their power
equipment.



                                       12


                                                               FINANCIAL SECTION
                                                       WOODWARD GOVERNOR COMPANY

Contents

Management Discussion and Analysis                     14

Consolidated Financial Statements                      22

Management's Responsibility for Financial Statements   34

Report of Independent Accountants                      34

Selected Quarterly Financial Data                      35

Cautionary Statement                                   35

Summary of Operations/Eleven-Year Record               36



                                       13


Management Discussion and Analysis


We prepared the following discussion and analysis to help you better understand
our results of operations and financial condition. This discussion should be
read with the consolidated financial statements, including the notes, and the
cautionary statement on page 35.
- - - - --------------------------------------------------------------------------------

Results of Operations

Our results of operations are discussed and analyzed by reportable segment. We
have two reportable segments--Industrial Controls and Aircraft Engine Systems.
Industrial Controls provides energy control systems and components primarily to
OEMs (original equipment manufacturers) of industrial engines and turbines.
Aircraft Engine Systems provides energy control systems and components primarily
to OEMs of aircraft engines. Portions of Industrial Controls, related to the
manufacture and sale of fuel injection nozzles for industrial markets, control
systems and related services for industrial users in retrofit situations, and
products for small industrial engine markets, were previously reported as
Aircraft Engine Systems or other operations. Prior-year amounts in the financial
information that follows have been restated to be consistent with the current
composition of our segments.

     The segment earnings reported for these segments in the discussion and
analysis do not reflect restructuring expense, gain on sale of business, or
allocations of corporate expenses, and are before interest, income taxes, and
equity in loss of unconsolidated affiliate. These other items are separately
discussed and analyzed.


Industrial Controls



- - - - --------------------------------------------------------------------------------
IN THOUSANDS FOR THE YEAR
ENDED SEPTEMBER 30,            2000      1999      1998

                                        
External net sales          $330,962   $310,038  $262,443
Segment earnings              41,258     35,959    22,077
- - - - --------------------------------------------------------------------------------


2000 Compared to 1999
================================================================================

External net sales of Industrial Controls increased 7% in 2000 over 1999.
Increases in sales volumes more than offset the impact of the sale of our
turbine control retrofit business, lower average selling prices, and negative
foreign currency translation effects. Our volume increase was related to strong
demand in the power generation markets, primarily benefiting our domestic
locations. In total, our domestic locations accounted for approximately 62% of
our 2000 sales. The sale of our turbine control retrofit business four months
prior to our fiscal year-end reduced our sales by an undetermined amount,
although we believe this business had annual sales approaching $50 million.
Prices averaged about 2% lower, and the strengthening of the dollar against most
foreign currencies reduced our sales by an additional 2%.

     We expect the strong demand in the power generation markets to continue,
particularly in the United States and in Europe, where our OEM customers have
been expanding their production lines. We are also beginning to see increased
demand for equipment related to oil and gas markets, triggered by rising fuel
prices, and in transportation markets. We intend to gain market share by
offering customers high quality products and competitive prices, as well as by
introducing innovative new products.

     In the first quarter, 2001, we finalized an alliance to strengthen our
integrated fuel systems product offerings. In the same quarter, we completed an
acquisition and entered into a licensing agreement to add ignition systems and
technologies to our product offerings.



                                       14


     In the third quarter, 2000, we signed a five-year $500 million contract to
supply fuel and combustion control systems and components for a customer's
family of industrial gas turbines for the power generation, oil and gas
processing, and marine markets. While it is difficult to quantify, we believe
about two-thirds of the sales under this contract will represent new business
relative to today's sales volumes and we will see a significant portion of the
sales increase begin in 2001. Also, we recently finalized other long-term
agreements with major industrial companies that total over $100 million in
incremental business over the next four years.

     Segment earnings increased 15% in 2000 over 1999. Segment earnings were
impacted by expenses we associated with the decision to sell our turbine control
retrofit business of approximately $4.2 million in 2000. These associated
expenses primarily involved foreign locations where we decided to relocate
certain ongoing business activities. Without these expenses, our segment
earnings would have been $45.5 million in 2000, an increase of 27% over 1999.
Using 1999's segment earnings as a percent of net sales, our increase in sales
accounts for 7% of the increase. The remaining difference is primarily related
to the following:

o  Selling, general, and administrative expenses decreased. Our selling,
   general, and administrative activities are relatively independent of changes
   in sales volumes, and expenses associated with our turbine control retrofit
   business were not incurred in the last four months of 2000 following our sale
   of that business. In addition, we benefited from the full-year impact of
   improvements made during our restructuring in the second quarter of 1999.
   These expense reductions were offset somewhat by a provision for a company's
   uncollectible receivables of $0.9 million in 2000.

o  Certain land located in The Netherlands was sold in 1999, which resulted in a
   gain of $1.9 million.


1999 Compared to 1998

External net sales of Industrial Controls increased 18% in 1999 from 1998. This
increase was primarily due to the June 1998 acquisition of Woodward FST. Sales
of Woodward FST industrial nozzles were more than double the full year pro forma
1998 levels, driven by strong demand in power generation markets. Exclusive of
Woodward FST, sales of Industrial Controls increased 6% due to greater sales of
turbine control retrofits and products aimed at the small industrial engine
markets. Increases in these areas more than offset decreases of other engine
control systems and components, which we attributed to softness in Asian markets
and in the oil and gas sectors in 1999. Turbine control retrofit sales benefited
from both higher volumes and price increases. Sales of products for small
industrial engine control markets benefited from the sale of new products in
1999, as well as the inclusion of twelve months of sales from Baker Electrical
Products, Inc., in 1999 compared to five months in 1998. We acquired Baker in
May 1998. Sales from our foreign locations, accounting for 45% of our 1999
sales, remained relatively flat, benefiting somewhat from favorable foreign
currency translation adjustments.

     Segment earnings of Industrial Controls increased 63% in 1999 over 1998.
Using 1998's segment earnings as a percent of net sales, our increase in sales
accounts for 18% of the increase. The remaining difference is primarily related
to the following:

o  Cost of goods sold and selling, general, and administrative expenses were
   reduced at our largest domestic locations by approximately 10% for 1999 as
   compared to 1998. This reduction was the result of our second quarter 1999
   restructuring and other cost control actions.

o  Cost reductions were offset somewhat by increased costs at our foreign
   locations and continued investments in developing new products for small
   industrial engines at a high level relative to current sales.

o  Depreciation methods for newly-acquired assets were changed in 1999 from
   principally accelerated methods to the straight-line method. This change
   reduced our 1999 cost of goods sold and selling, general, and administrative
   expenses by a total of $0.7 million.

o  Certain land located in The Netherlands was sold in 1999, which resulted in a
   gain of $1.9 million.

o  Expenses were incurred in 1998 related to the consolidation and integration
   of operations at one of our foreign locations.

o  Foreign currency transaction gains in Japan improved segment earnings by
   approximately $0.8 million for 1999 as compared to 1998.


                                       15




Aircraft Engine Systems
- - - - --------------------------------------------------------------------------------
IN THOUSANDS FOR THE YEAR
ENDED SEPTEMBER 30,           2000       1999      1998

                                        
External net sales          $266,423   $286,866  $228,033
Segment earnings              38,150     54,260    38,805
- - - - --------------------------------------------------------------------------------


2000 Compared to 1999
================================================================================

External net sales of Aircraft Engine Systems decreased 7% in 2000 from 1999.
This decrease was due about equally to both lower volume and lower average
selling prices. Most of our reduced volumes were in sales related to aftermarket
revenues. We believe the decrease in aftermarket revenues may be caused by
broader industry trends, including the lengthening of time between our
customers' discretionary repair and overhaul activities, increasing competition
from OEMs that have expanded their own aftermarket service offerings, and
increasing reliability of our components. We estimate that about 58% of our
sales resulted from sales to OEMs and 42% from the aftermarket.

     We expect sales to remain relatively flat, with perhaps some modest growth,
over the next several quarters as a result of relatively stable market
conditions. However, we are well positioned in the regional and business jet
portions of the market, which are growing at a faster pace than the market
generally. Also, the military aircraft market is showing signs of recovery and
is expected to grow over the next several years. Long-term, we are aware of
forecasts that show revenue passenger miles growing five percent a year. Our
efforts to increase sales in the aerospace market are focused on our product
improvement programs, maintaining high levels of satisfaction from our customers
to provide us with opportunities currently sourced elsewhere, and implementing
new aftermarket strategies.

     Segment earnings decreased 30% in 2000 from 1999. Segment earnings were
impacted by early retirement and termination benefits totaling $5.1 million in
2000. These benefits were offered as part of a workforce management program to
align staffing levels with expected demand. Without the expenses related to
these benefits, segment earnings would have been $43.2 million in 2000, a
decrease of 20% from 1999. Using 1999's segment earnings as a percent of net
sales, our decrease in sales accounts for 7% of the decrease. The remaining
difference is primarily related to the following:

o  Cost of goods sold increased as a percent of sales. Our cost of goods sold
   was relatively high in the first half of 2000. Near the end of the second
   quarter, we implemented our workforce management program to align staffing
   levels with expected demand. Our cost of goods sold in the last half of 2000,
   as a percent of sales, is relatively close to the comparable percent in 1999.

o  Selling, general, and administrative expenses did not decrease proportionally
   with sales. Our selling, general, and administrative activities are
   relatively independent of changes in sales volumes.

o  Offsetting the items above, in 2000, we had increased earnings resulting from
   our AESYS joint venture with BAE SYSTEMS Controls, a $0.9 million reduction
   in acquisition-related accruals, and $0.9 million in insurance proceeds in
   settlement of certain matters from previous years.

1999 Compared to 1998

External net sales of Aircraft Engine Systems increased 26% in 1999 over 1998.
Most of this increase was due to the June 1998 acquisition of Fuel Systems
Textron, Inc., which we subsequently named Woodward FST, Inc. Woodward FST
designs and manufactures fuel injection nozzles, spray manifolds, and fuel
metering and distribution valves for gas turbine engines in both aircraft and
industrial markets. (Woodward FST sales into industrial markets are included
with Industrial Controls.) Exclusive of Woodward FST, sales of Aircraft Engine
Systems increased 3% in 1999. Sales from our domestic locations other than
Woodward FST increased 2%, related to both price and volume changes. Our foreign
locations generated sales increases of 38%, primarily related to increased
volume. We believe the increase overseas was due to the positive impact of the
1998 consolidation of our European overhaul and service centers to a location in
Prestwick, Scotland. We estimated that about 60% of our sales were to OEMs and
40% to the aftermarket.

     Segment earnings of Aircraft Engine Systems increased 40% in 1999 over
1998. Using 1998's segment earnings as a percent of net sales, our increase in
sales accounts for 26% of the increase. The remaining difference is primarily
related to the following:


                                       16


o  Selling, general, and administrative expenses decreased 8% in the United
   States and 35% overseas. Our selling, general, and administrative activities
   are relatively independent of changes in sales volumes. The large decrease
   overseas is primarily because activities related to the start-up of our
   Prestwick, Scotland, location were completed in 1998.

o  Depreciation methods for newly-acquired assets were changed in 1999 from
   principally accelerated methods to the straight-line method. This change
   reduced our 1999 cost of goods sold and selling, general, and administrative
   expenses by a total of $1.1 million.

o  Amortization expense increased by $2.6 million because we recognized expense
   associated with our June 1998 acquisition of Fuel Systems Textron, Inc. for a
   full twelve-month period in 1999 as compared to four months in 1998.



Nonsegment Expenses and Gain
- - - - --------------------------------------------------------------------------------
IN THOUSANDS FOR THE YEAR
ENDED SEPTEMBER 30,              2000      1999       1998

                                           
Restructuring expense         $     --   $  7,889   $    --
Interest expense                10,897     12,746     5,227
Interest income                   (770)      (827)     (708)
Unallocated corporate expenses  20,418     17,113    15,017
Gain on sale of business       (25,500)        --        --
- - - - --------------------------------------------------------------------------------


2000 Compared to 1999
================================================================================

We incurred restructuring expense in 1999 primarily in connection with a change
in the structure of our internal Industrial Controls organization. We terminated
197 members, impacting all job functions to varying degrees. Most of the
terminations were in Fort Collins and Loveland, Colorado.

     Interest expense decreased in 2000 because we had lower levels of average
outstanding debt in 2000 as compared to 1999.

     Unallocated corporate expenses were impacted by a gain of $1.0 million on
the sale of non-operating real estate in 1999. Excluding this gain, unallocated
corporate expenses were 3% of consolidated net sales in both 2000 and 1999.
Also, expenses related to certain postemployment and retirement obligations were
higher in 2000 than in 1999, due in part to increases in the market value of the
company's common stock from September 30, 1999, to September 30, 2000.

     The gain on the sale of business in 2000 relates to a sale on May 31, 2000,
of certain assets associated with our turbine controls retrofit business for
cash, with the buyer assuming certain liabilities. The resulting gain was
reported separately in the statements of consolidated earnings. The amount of
the gain is an estimate, subject to final closing audit adjustments. We expect
to finalize the amount of the gain in the first or second quarter of 2001.

     The net sales and earnings of the turbine control retrofit business were
included as part of Industrial Controls and could not be separately identified.
However, we believe annual sales of this business were approaching $50 million
at the time of the sale. We believe the sale of the turbine control retrofit
business has strengthened our relationship as a supplier to key OEMs by allowing
us to focus on their unique needs.


1999 Compared to 1998

We incurred restructuring expense in 1999 primarily in connection with a change
in the structure of our internal Industrial Controls organization. We terminated
197 members, impacting all job functions to varying degrees. Most of the
terminations were in Fort Collins and Loveland, Colorado.

     Interest expense increased in 1999 because we had higher levels of average
outstanding debt in 1999 over 1998, resulting from borrowings for business
acquisitions made in May 1998 and June 1998.

     Unallocated corporate expenses increased in 1999 over 1998 because of
increases in corporate activities, offset somewhat by a gain of $1.0 million on
the sale of non-operating real estate in Stevens Point, Wisconsin. Excluding
this gain, unallocated corporate expenses were 3% of consolidated net sales in
both 1999 and 1998. The impact of the 1999 change in depreciation method from
principally accelerated methods to the straight-line method for newly-acquired
assets reduced our unallocated corporate expenses in 1999 by about $0.2 million.


                                       17


Net Earnings




- - - - --------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS, FOR THE YEAR
ENDED SEPTEMBER 30,                2000      1999      1998

                                            
Earnings before income
   taxes and equity in loss
   of unconsolidated affiliate   $74,363   $53,298   $41,346
Income taxes                      27,215    21,182    16,726
Equity in loss of
   unconsolidated affiliate,
   net of tax                        172     1,287     3,028
================================================================================
Net earnings                     $46,976   $30,829   $21,592

Basic earnings per share         $  4.17   $  2.74   $  1.90
Diluted earnings per share          4.15      2.73      1.90
================================================================================



2000 Compared to 1999

The increase in earnings before income taxes and equity in loss of
unconsolidated affiliate resulted in an increase in 2000 income taxes over 1999.
Income taxes were provided at an effective rate of 36.6% in 2000 compared to
39.7% in 1999. The most significant reason for this decrease is related to the
sale of our turbine control retrofit business, which allowed us to use capital
loss carryforwards for which we previously provided valuation allowances.

     The equity in loss of unconsolidated affiliate reflects our share of the
losses generated by GENXON(TM) Power Systems, LLC. In 2000, we incurred only
administrative costs associated with GENXON. In 1999, we also incurred costs
related to product development activities. We and our joint venture partner are
continuing to assess the role of GENXON.

     Both basic and diluted earnings per share increased about 52% on a net
earnings increase of 52% in 2000 as compared to 1999. Results for 2000 included
a gain on sale of the turbine control retrofit business, net of tax, of $17.1
million or $1.52 per basic share and $1.51 per diluted share. Without this gain,
net earnings would have been $29.9 million or $2.65 per basic share and $2.64
per diluted share for 2000.

     Our results in 2000 also included costs to streamline operations after the
sale, costs associated with reductions in our workforce, and certain other costs
not indicative of normal operations which totaled, net of tax, $6.7 million or
$0.60 per basic share and $0.59 per diluted share. Our results in 1999 included
restructuring expense and gains on the sale of real estate that netted to a
reduction of $3.0 million or $0.26 per basic share and $0.27 per diluted share.

     In 2001, without considering the impact of any new acquisitions, we expect
consolidated net sales to increase at least 7%, driven primarily by the growth
in the power generation markets. With this level of sales growth, we expect
earnings, not including any one-time gains or expenses, will grow 10-15% in
2001. We believe we will realize a higher earnings growth rate than sales growth
rate because of increasing operating efficiencies associated with higher sales
and continuing benefits from our Six Sigma efforts.


1999 Compared to 1998

The increase in earnings before income taxes and equity in loss of
unconsolidated affiliate resulted in an increase in 1999 income taxes over 1998.
Income taxes were provided at an effective rate in 1999 only slightly lower than
the effective rate in 1998.

     The equity in loss of unconsolidated affiliate reflects our share of the
losses generated by GENXON Power Systems, LLC. Since its inception, most of the
activities and costs incurred were directly related to product development.
GENXON reduced the amount of development activities in 1999 from 1998.

     Both basic and diluted earnings per share increased about 44% on a net
earnings increase of 43% in 1999 as compared to 1998. This difference was due to
slight decreases in the weighted-average shares of common stock outstanding both
before and after the assumed exercise of outstanding stock options.

     Our results in 1999 included restructuring expense and gains on the sale of
real estate that netted to a reduction of $3.0 million or $0.26 per basic share
and $0.27 per diluted share.


                                       18

Financial Condition

Our discussion and analysis of financial condition is presented by segment for
total segment assets, which consists of accounts receivable, inventories,
property, plant, and equipment--net, and intangibles--net. We also discuss and
analyze other balance sheet and cash flow items. Together, this discussion and
analysis will help you assess our liquidity and capital resources, as well as
understand changes in our financial condition.

Assets


- - - - --------------------------------------------------------------------------------
IN THOUSANDS AT SEPTEMBER 30,  2000       1999      1998
                                          
Total segment assets:
   Industrial Controls       $214,935   $223,874   $228,922
   Aircraft Engine Systems    260,712    272,898    270,537
Unallocated corporate
   property, plant, and
   equipment--net and
   intangibles--net             5,072      3,926      7,438
Other unallocated assets       53,004     49,966     56,538
================================================================================
Total assets                 $533,723   $550,664   $563,435

2000 Compared to 1999

Industrial Controls total segment assets at September 30, 2000, were 4% lower
than a year earlier. This decrease resulted from the sale of assets related to
our turbine control retrofit business and other changes in accounts receivable,
inventories, and property, plant, and equipment associated with the level of
business activity. Most significantly, receivables, inventories, and equipment
related to industrial nozzles increased. This increase was a result of higher
sales volumes in 2000 as compared to 1999, as well as anticipated sales volumes
in 2001. Intangibles decreased by the amount of amortization for the year.

     Aircraft Engine Systems total segment assets at September 30, 2000, were 4%
lower than a year earlier. Decreases in accounts receivable, inventories, and
property, plant, and equipment primarily resulted from lower business activity
this year as compared to the prior year. Intangibles decreased by the amount of
amortization for the year.

1999 Compared to 1998

Industrial Controls total segment assets at September 30, 1999, were 2% lower
than a year earlier. Increases in accounts receivable, attributable to increased
business activity, were largely offset by reductions in domestic inventory
balances from relatively high levels at the end of 1998. In addition, our
capital expenditures were less than depreciation and our amortization of
intangibles exceeded additions to goodwill. Additions to goodwill totaled $0.5
million in 1999, related to recording accrued pension benefit costs assumed as
part of the June 1998 acquisition of Fuel Systems Textron, Inc.

     Aircraft Engine Systems total segment assets at September 30, 1999, were
within 1% of the amount a year earlier. Increases in accounts receivable and
inventory attributable to increased business activity were largely offset by
reductions in intangibles due to amortization expense, net of additions to
goodwill. Additions to goodwill totaled $1.8 million in 1999, most of which were
related to recording accrued pension benefit costs assumed as part of the June
1998 acquisition of Fuel Systems Textron, Inc.

Other Balance Sheet Measures


- - - - --------------------------------------------------------------------------------
IN THOUSANDS AT SEPTEMBER 30,            2000       1999      1998
                                                   
Total assets                          $533,723   $550,664   $563,435
Working capital (current
   assets less current liabilities)    100,836    124,392    119,506
Long-term debt, less
   current portion                      74,500    139,000    175,685
Other liabilities                       50,142     46,620     40,111
Commitments and contingencies               --         --         --
Shareholders' equity                   275,624    241,992    220,102
================================================================================

2000 Compared to 1999

Our balance sheet remained strong at September 30, 2000. The decrease in total
assets and working capital is most significantly attributable to the sale of
assets related to our turbine control retrofit business, and the assumption of
certain liabilities by the buyer, as we used the cash proceeds from the sale to
reduce debt. Strong operating and investing cash flows in 2000 enabled us to
reduce our long-term debt by $64.5 million from the September 30, 1999, balance.
Increases in other liabilities relate primarily to changes in postemployment and
retirement obligations. Shareholders' equity increased 14%, resulting primarily
from 2000 net earnings in excess of cash dividend payments.

                                       19


     We are currently involved in matters of litigation arising from the normal
course of business, including certain environmental and product liability
matters. Further discussion of these matters is in Note P in the Notes to
Consolidated Financial Statements.

1999 Compared to 1998

Our balance sheet remained strong at September 30, 1999. Changes in our balance
sheet from 1998 included an increase in working capital and a reduction in
long-term debt, made possible from operating cash flows. Other liabilities
increased in 1999 due to pension benefit obligations assumed as part of the June
1998 acquisition of Fuel Systems Textron, Inc. and other changes in
postemployment and retirement obligations. Shareholders' equity increased 10%,
resulting from 1999 net earnings in excess of cash dividend payments.

Cash Flows



- - - - --------------------------------------------------------------------------------
IN THOUSANDS FOR THE YEAR
ENDED SEPTEMBER 30,                 2000         1999        1998
                                                  
Net cash provided by
   operating activities          $  55,210    $  59,932    $  43,053
Net cash provided by (used in)
   investing activities             15,736      (17,963)    (207,945)
Net cash provided by (used in)
   financing activities            (70,792)     (42,982)     162,626
- - - - --------------------------------------------------------------------------------


2000 Compared to 1999

Net cash flows provided by operations decreased by 8% in 2000 from 1999. For
purposes of preparing the statement of consolidated cash flows, the proceeds
from the sale of the turbine control retrofit business were not considered an
operating activity, but the associated income tax payments were reflected as an
operating activity. Exclusive of income taxes related to the gain, net cash
flows provided by operating activities would have increased by about 6% in 2000
over 1999. Most of this improvement is related to a small reduction in total
operating assets and liabilities on relatively flat sales in 2000, compared to
an increase in total operating assets and liabilities on a sales increase in
1999.

     Net cash flows for investing activities changed by $33.7 million in 2000 as
compared to 1999. Most of this change is the result of cash flows from the sale
of our turbine control retrofit business of $41.7 million. Without this item,
cash flows used in investing activities in 2000 would have been $26.0 million,
an increase of $8.0 million over 1999. This increase is primarily related to
higher capital expenditures for Industrial Controls because of increases in
current and anticipated sales, offset by the 1999 proceeds from the sale of
non-operating real estate in Stevens Point, Wisconsin and land in The
Netherlands. Based on current operating conditions, we expect a decrease in
capital expenditures in 2001 from 2000 to be more in line with depreciation
expense.

     Net cash flows used in financing activities increased by $27.8 million in
2000 over 1999. This increase is primarily associated with debt reductions, made
possible from greater cash flows provided by operations and from the sale of the
turbine control retrofit business.

     In the first quarter, 2001, we completed an acquisition of a company that
will enable us to add ignition systems to our current product offerings. This
company has most recently generated annual sales of approximately $4 million.

     Future cash flows from operations and available revolving lines of credit
are expected to be adequate to meet our cash requirements during the next twelve
months. However, it is possible business acquisitions could be made in the
future that would require amendments to existing debt agreements and the need to
obtain additional financing.

1999 Compared to 1998

Net cash flows provided by operations increased by 39% in 1999 over 1998. Higher
net earnings before noncash expenses account for most of this increase. The most
significant of these noncash expenses is depreciation and amortization, which
increased largely due to intangibles associated with the May and June 1998
business acquisitions, and deferred income taxes.

     Net cash flows used in investing activities decreased by $190 million in
1999 as compared to 1998. Without the cash flows associated with the May and
June 1998 business acquisitions, the decrease would have been $8.2 million. This
change is primarily related to proceeds from the 1999 sale of non-operating real
estate in Stevens Point, Wisconsin and land in The Netherlands, and reduced
losses associated with our equity in the GENXON Power Systems, LLC joint
venture.


                                       20


     Net cash flows for financing activities changed by $206 million in 1999 as
compared to 1998. Without the cash flows associated with 1998 borrowings under a
term note and a revolving line of credit made because of the May and June 1998
business acquisitions, the change would have been $22.6 million. Net cash flows
provided by operations in excess of net cash flows used in investing activities
enabled us to reduce our debt by a greater amount than in 1998.

OTHER MATTERS

Market Risks

Our long-term debt is sensitive to changes in interest rates. We monitor trends
in interest rates as a basis for determining whether to enter into fixed rate or
variable rate debt agreements and for the basis of determining the duration of
such agreements. Our primary objective is to minimize our long-term costs of
borrowing. Currently, all long-term debt is denominated in U.S. dollars and
consists primarily of variable rate agreements associated with LIBOR market
rates. We do not have any derivative instruments associated with interest rates.
A hypothetical 1% immediate increase in interest rates would adversely affect
our 2001 net earnings and cash flows by approximately $0.5 million and reduce
the fair value of our long-term debt, as measured at September 30, 2000, by
approximately $0.1 million. Last year, a hypothetical 1% immediate increase in
interest rates would have adversely affected our 2000 net earnings and cash
flows by approximately $0.9 million and reduced the fair value of our long-term
debt by approximately $0.3 million.

     Assets, liabilities, and commitments that are to be settled in cash and are
denominated in foreign currencies for transaction purposes are sensitive to
changes in currency exchange rates. We monitor trends in foreign currency
exchange rates and our exposure to changes in those rates as a basis for
determining whether to use hedging strategies. Our primary exposures are to the
European Monetary Union euro and the Japanese yen. We do not have any derivative
instruments associated with foreign currency exchange rates. A hypothetical 10%
immediate increase in the value of the United States dollar relative to all
other currencies, when applied to September 30, 2000, balances, would adversely
affect our expected 2001 net earnings and cash flows by approximately $1.1
million. Last year, a hypothetical 10% immediate increase in the value of the
United States dollar relative to all other currencies would have adversely
affected our expected 2000 net earnings and cash flows by $1.8 million.

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This statement provides guidance on
accounting for the costs of software developed or obtained for internal use. We
adopted the provisions of this statement on October 1, 1999. Net earnings in
2000 were increased by approximately $0.7 million as a result of this change.

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Following a subsequent deferral of the original
implementation date, it is effective in fiscal year 2001. This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. Among other requirements, it requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative. We
currently do not have any derivative instruments and do not expect this
statement to have any significant impact on our consolidated financial
statements.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This
bulletin provides interpretations and practices followed by the Division of
Corporation Finance and the Office of the Chief Accountant in administering the
disclosure requirements of the Federal securities laws regarding revenue
recognition. It is effective for us no later than July 1, 2001. We have
performed a preliminary review of our current revenue recognition practices for
particular transactions, and we intend to perform a more thorough review in the
upcoming months. We did not discover any revenue recognition practices that
would need to change to comply with this bulletin as part of our preliminary
review procedures. However, it is possible that we would find practices that
would need to change after a more thorough review is completed. As a result, at
this time we are unable to comment as to what impact, if any, compliance with
this bulletin will have on our consolidated financial statements.



                                       21


Statements of Consolidated Earnings

Woodward Governor Company and Subsidiaries



- - - - ---------------------------------------------------------------------------------------------
                                                               Year Ended September 30,
- - - - ---------------------------------------------------------------------------------------------
(In thousands except per share amounts)                    2000        1999        1998

                                                                        
Net sales                                                $597,385    $596,904    $490,476
Costs and expenses:
      Cost of goods sold                                  453,538     437,121     356,802
      Selling, general, and administrative expenses        77,463      79,043      79,332
      Amortization of intangible assets                     6,418       6,769       2,927
      Restructuring expense                                    --       7,889          --
      Interest expense                                     10,897      12,746       5,227
Interest income                                              (770)       (827)       (708)
      Other expense--net                                      976         865       5,550
Gain on sale of business                                  (25,500)         --          --
- - - - ------------------------------------------------------------------------------------------
        Total costs and expenses, net of gain             523,022     543,606     449,130

Earnings before income taxes and equity in loss
      of unconsolidated affiliate                          74,363      53,298      41,346
Income taxes                                               27,215      21,182      16,726
- - - - ------------------------------------------------------------------------------------------
Earnings before equity in loss
      of unconsolidated affiliate                          47,148      32,116      24,620
Equity in loss of unconsolidated affiliate, net of tax        172       1,287       3,028

- - - - ------------------------------------------------------------------------------------------
Net earnings                                             $ 46,976    $ 30,829    $ 21,592

Basic earnings per share                                 $   4.17    $   2.74    $   1.90
- - - - ------------------------------------------------------------------------------------------

Diluted earnings per share                               $   4.15    $   2.73    $   1.90
- - - - ------------------------------------------------------------------------------------------
Weighted-average number of basic shares outstanding        11,263      11,272      11,340
- - - - ------------------------------------------------------------------------------------------
Weighted-average number of diluted shares outstanding      11,318      11,292      11,379

- - - - ------------------------------------------------------------------------------------------


See accompanying Notes to Consolidated Financial Statements.



                                       22


Consolidated Balance Sheets

Woodward Governor Company and Subsidiaries



- - - - ---------------------------------------------------------------------------------------
                                                                    At September 30,
- - - - ---------------------------------------------------------------------------------------
(In thousands except per share amounts)                             2000         1999

                                                                         
ASSETS
     Current assets:
         Cash and cash equivalents                                $  9,315    $ 10,449
         Accounts receivable, less allowance for losses
              of $4,452 for 2000 and $4,417 for 1999               105,153     115,517
         Inventories                                               102,990     104,257
         Deferred income taxes                                      16,835      17,221
- - - - --------------------------------------------------------------------------------------
              Total current assets                                 234,293     247,444
     Property, plant, and equipment, at cost:
         Land                                                        6,032       6,100
         Buildings and improvements                                127,825     128,668
         Machinery and equipment                                   233,188     227,611
         Construction in progress                                    3,364       3,534
- - - - --------------------------------------------------------------------------------------
                                                                   370,409     365,913
         Accumulated depreciation                                  247,951     241,791
- - - - --------------------------------------------------------------------------------------
     Property, plant, and equipment--net                           122,458     124,122
     Intangibles--net                                              150,118     156,802
     Other assets                                                    8,450       4,287
     Deferred income taxes                                          18,404      18,009
- - - - --------------------------------------------------------------------------------------
TOTAL ASSETS                                                      $533,723    $550,664
LIABILITIES AND SHAREHOLDERS' EQUITY
======================================================================================
     Current liabilities:
         Short-term borrowings                                    $ 21,284    $  7,303
         Current portion of long-term debt                          22,500      34,650
         Accounts payable and accrued expenses                      81,342      76,772
         Income taxes payable                                        8,331       4,327
- - - - --------------------------------------------------------------------------------------
              Total current liabilities                            133,457     123,052
     Long-term debt, less current portion                           74,500     139,000
     Other liabilities                                              50,142      46,620
     Commitments and contingencies                                      --          --
- - - - --------------------------------------------------------------------------------------
     Shareholders' equity represented by:
         Preferred stock, par value $.003 per share, authorized
              10,000 shares, no shares issued                           --          --
         Common stock, par value $.00875 per share, authorized
              50,000 shares, issued 12,160 shares                      106         106
         Additional paid-in capital                                 13,295      13,300
         Unearned ESOP compensation                                 (5,308)     (7,450)
         Accumulated other comprehensive earnings                    3,045       9,351
         Retained earnings                                         284,431     247,420
- - - - --------------------------------------------------------------------------------------
                                                                   295,569     262,727
         Less treasury stock, at cost                               19,945      20,735
- - - - --------------------------------------------------------------------------------------
              Total shareholders' equity                           275,624     241,992

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                        $533,723    $550,664


See accompanying Notes to Consolidated Financial Statements.



                                       23


Statements of Consolidated Shareholders' Equity

Woodward Governor Company and Subsidiaries



- - - - ----------------------------------------------------------------------------------------------------------------------------------
                                            Additional   Unearned    Accumulated Other
(In thousands of dollars           Common    Paid-in       ESOP        Comprehensive    Retained     Treasury Stock        Total
except per share amounts)          Stock     Capital   Compensation      Earnings       Earnings    Shares     Amount      Amount
- - - - ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                  
Balance at September 30, 1997     $   106    $13,283     $(12,128)        $ 9,391       $215,211    713,034   $(15,249)   $210,614

   Net earnings                        --         --           --              --         21,592         --         --      21,592

   Other comprehensive earnings        --         --           --             458             --         --         --         458
- - - - ----------------------------------------------------------------------------------------------------------------------------------
   Total comprehensive earnings                                                                                             22,050

   Purchases of treasury stock         --         --           --              --             --    160,413     (5,174)     (5,174)

   Sales of treasury stock             --         10           --              --             --     (8,580)       206         216

   Issuance of stock to ESOP           --         11           --              --             --     (1,977)        47          58

   ESOP compensation expense           --         --        2,405              --             --         --         --       2,405

   Cash dividends--$.93
     per common share                  --         --           --              --        (10,543)        --         --     (10,543)

   Tax benefit applicable to
     ESOP dividend                     --         --           --              --            476         --         --         476

- - - - ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998         106     13,304       (9,723)          9,849        226,736    862,890    (20,170)    220,102

   Net earnings                        --         --           --              --         30,829         --         --      30,829

   Other comprehensive earnings        --         --           --            (498)            --         --         --        (498)
- - - - ----------------------------------------------------------------------------------------------------------------------------------
   Total comprehensive earnings                                                                                             30,331

   Purchases of treasury stock         --         --           --              --             --     46,700     (1,029)     (1,029)

   Sales of treasury stock             --         (3)          --              --             --    (13,049)       313         310

   Issuance of stock to ESOP           --         (1)          --              --             --     (6,287)       151         150

   ESOP compensation expense           --         --        2,273              --             --         --         --       2,273

   Cash dividends--$.93
     per common share                  --         --           --              --        (10,484)        --         --     (10,484)

   Tax benefit applicable to ESOP
     dividend and stock options        --         --           --              --            339         --         --         339

- - - - ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999         106     13,300       (7,450)          9,351        247,420    890,254    (20,735)    241,992

   Net earnings                        --         --           --              --         46,976         --         --      46,976

   Other comprehensive earnings        --         --           --          (6,306)            --         --         --      (6,306)
- - - - ----------------------------------------------------------------------------------------------------------------------------------
   Total comprehensive earnings                                                                                             40,670

   Purchases of treasury stock         --         --           --              --             --     64,076     (1,762)     (1,762)

   Sales of treasury stock             --        (12)          --              --             --   (100,990)     2,423       2,411

   Issuance of stock to ESOP           --          7           --              --             --     (5,363)       129         136

   ESOP compensation expense           --         --        2,142              --             --         --         --       2,142

   Cash dividends--$.93
     per common share                  --         --           --              --        (10,472)        --         --     (10,472)

   Tax benefit applicable to ESOP
     dividend and stock options        --         --           --              --            507         --         --         507

- - - - ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000     $   106    $13,295     $ (5,308)        $ 3,045       $284,431    847,977   $(19,945)   $275,624


See accompanying Notes to Consolidated Financial Statements.


                                       24


Statements of Consolidated Cash Flows

Woodward Governor Company and Subsidiaries



- - - - ---------------------------------------------------------------------------------------------------------------
                                                                                Year Ended September 30,
- - - - ---------------------------------------------------------------------------------------------------------------
(In thousands of dollars)                                                    2000         1999        1998

                                                                                           
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                                              $ 46,976    $ 30,829    $  21,592
- - - - -------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating
   activities:
Depreciation and amortization                                               30,419      32,036       26,642
Net (gain) loss on sale of property, plant, and equipment                      411      (2,848)           7
Gain on sale of business                                                   (25,500)         --           --
Deferred income taxes                                                           (9)      4,342       (1,046)
   ESOP compensation expense                                                 2,142       2,273        2,405
   Equity in loss of unconsolidated affiliate                                  271       2,079        4,808
   Changes in operating assets and liabilities,
      net of business acquisitions and sale:
   Accounts receivable                                                      (3,997)     (8,015)      (5,489)
Inventories                                                                 (3,746)      2,145       (8,313)
Current liabilities, other than short-term borrowings
      and current portion of long-term debt                                  7,792      (7,228)      (3,893)
Other--net                                                                     451       4,319        6,340
- - - - -------------------------------------------------------------------------------------------------------------
      Total adjustments                                                      8,234      29,103       21,461

Net cash provided by operating activities                                   55,210      59,932       43,053

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, plant, and equipment                    (27,416)    (22,789)     (20,862)
Proceeds from sale of property, plant, and equipment                         1,700       6,293        1,305
Proceeds from sale of business - net of direct costs                        41,742          --           --
Investment in unconsolidated affiliate                                        (290)     (1,405)      (5,462)
Business acquisitions, net of cash acquired                                     --         (62)    (181,805)
Other--net                                                                      --          --       (1,121)
- - - - -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                         15,736     (17,963)    (207,945)

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid                                                        (10,472)    (10,484)     (10,543)
Proceeds from sales of treasury stock                                        2,411         310          216
Purchases of treasury stock                                                 (1,762)     (1,029)      (5,174)
Net proceeds (payments) from borrowings under revolving lines              (39,826)    (23,050)      87,768
Proceeds from long-term debt                                                    --      75,000      100,000
Payments of long-term debt                                                 (21,650)    (84,068)     (10,117)
Tax benefit applicable to ESOP dividend and stock options                      507         339          476
- - - - -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                        (70,792)    (42,982)     162,626

Effect of exchange rate changes on cash                                     (1,288)       (964)        (307)

NET CHANGE IN CASH AND CASH EQUIVALENTS                                     (1,134)     (1,977)      (2,573)
Cash and cash equivalents, beginning of year                                10,449      12,426       14,999
- - - - -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                    $  9,315    $ 10,449    $  12,426
SUPPLEMENTAL CASH FLOW INFORMATION:
=============================================================================================================
Interest expense paid                                                     $ 11,854    $ 12,675    $   3,797
Income taxes paid                                                         $ 22,656    $ 19,024    $  11,255

NONCASH INVESTING:
Liabilities assumed in business acquisitions (sale)                       $ (1,430)   $  1,994    $  25,527


See accompanying Notes to Consolidated Financial Statements.


                                       25


Notes to Consolidated Financial Statements

(In thousands of dollars except per share amounts)


A.  SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the company and its majority-owned subsidiaries. Transactions within
and between these companies are eliminated. Results of joint ventures are
included in the financial statements using the equity method of accounting.

USE OF ESTIMATES: Financial statements prepared in conformity with generally
accepted accounting principles require the use of estimates and assumptions that
affect amounts reported. Actual results could differ materially from our
estimates.

FOREIGN CURRENCY TRANSLATION: The assets and liabilities of substantially all
subsidiaries outside the United States are translated at year-end rates of
exchange and earnings and cash flow statements are translated at
weighted-average rates of exchange. Translation adjustments are accumulated with
other comprehensive earnings as a separate component of shareholders' equity and
are presented net of tax in the statements of consolidated shareholders' equity.
We have no other components of accumulated other comprehensive earnings.

REVENUE RECOGNITION: Sales are recognized when products are shipped or services
are provided to the customer.

RESEARCH AND DEVELOPMENT COSTS: Expenditures related to new product development
are charged to expense when incurred and totaled approximately $29,100 in 2000,
$24,600 in 1999, and $18,500 in 1998.

INCOME TAXES: Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the company's assets
and liabilities. We provide for taxes, which may be payable if undistributed
earnings of overseas subsidiaries were to be remitted to the United States,
except for those earnings that we consider to be permanently reinvested.

CASH EQUIVALENTS: Highly liquid investments purchased with an original maturity
of three months or less are considered to be cash equivalents.

INVENTORIES: Inventories are valued at the lower of cost or market, with cost
being determined on a first-in, first-out basis.

PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment are recorded at
cost and are depreciated over the estimated useful lives of the assets, ranging
from 5 to 45 years for buildings and improvements and 3 to 15 years for
machinery and equipment. Assets placed in service after September 30, 1998, are
depreciated using the straight-line method and assets placed in service as of
and prior to September 30, 1998, are depreciated principally using accelerated
methods. Certain costs associated with developing software to be used by us that
were incurred after September 30, 1999, are included with machinery and
equipment. Prior to September 30, 1999, software development costs were
expensed.

The September 30, 1998, change in depreciation methods was made to better
reflect improvements in preventative maintenance practices that have generally
resulted in more uniform productive capabilities and maintenance costs of
machinery and equipment over the useful life of an asset. Net earnings in 1999,
the first year following this change, were increased by approximately $1,150 as
a result of the change. The September 30, 1999, change in accounting for
software development costs was made to adopt the provisions of Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," issued by the American Institute of Certified Public
Accountants in March 1998. Net earnings in 2000 were increased by approximately
$690 as a result of this change.

INTANGIBLES: Intangibles are amortized over the periods estimated to be
benefited using the straight-line method. No amortization period exceeds 30
years. We apply impairment losses on long-lived assets first to related
goodwill. Impairment losses are recognized whenever expected operating cash
flows are less than the carrying values of specific groups of property, plant,
and equipment, identifiable intangibles, and related goodwill.

B. BUSINESS ACQUISITIONS AND SALES: On May 31, 2000, we sold certain assets
associated with our turbine control retrofit business for cash, and the buyer
assumed certain liabilities. The resulting gain on the sale is reported
separately in the statements of consolidated earnings. The amount of the gain is
an estimate, subject to final closing audit adjustments. The actual amount of
cash proceeds from the sale, net of direct costs paid, is reported in the
statements of consolidated cash flows. We have accrued for cash amounts expected
to be paid in future periods, and such amounts will be recognized as investing
cash flows when paid. Net sales of the turbine control retrofit business are
believed to have represented less than 10% of consolidated net sales in 2000,
1999, and 1998.


                                       26

In May 1998, we acquired the net assets of Baker Electrical Products, Inc., a
manufacturer of electromagnetic coils for anti-lock braking systems, for $7,096.
In June 1998, we acquired the stock of Fuel Systems Textron, Inc. (subsequently
renamed Woodward FST, Inc.), a leading designer, developer, and manufacturer of
fuel injection nozzles, spray manifolds, and fuel metering and distribution
valves for gas turbine engines, for $174,771. These acquisitions were financed
using borrowings under a term loan and a revolving line of credit. Both of the
acquisitions were accounted for using the purchase method of accounting and
results of operations of the acquired companies were included in our
consolidated results from their acquisition dates. The excess of the purchase
price over the estimated fair value of tangible and identifiable intangible net
assets acquired is being amortized over 15 years for Baker Electrical Products,
Inc. and 30 years for Fuel Systems Textron, Inc.

The following unaudited pro forma information summarizes the results of
operations for the year ended September 30, 1998, as if the acquisition of Fuel
Systems Textron, Inc. had been completed at the beginning of that fiscal year:
Net sales, $558,630; earnings before equity in loss of unconsolidated affiliate,
$24,627; net earnings, $21,599; and basic and diluted earnings per share, $1.90.
This information reflects the actual operating results prior to the acquisition
and adjustments to reflect estimated interest, depreciation, amortization of
intangibles, and income taxes. These pro forma amounts should not be considered
indicative of the results that would have actually been obtained if the
acquisition had occurred on October 1, 1997, or that may be obtained in the
future. (The pro forma information excludes the acquisition of Baker Electrical
Products, Inc. as the resulting pro forma data would not have been materially
different from the results reported.)

C. RESTRUCTURING EXPENSE: We incurred expenses in connection with a change in
the structure of our internal Industrial Controls organization and the
consolidation of two of our facilities in 1999. These expenses are reflected as
restructuring expense in the statements of consolidated earnings. The amount of
restructuring expense accrued at September 30, 1999, totaled $475 and was
related to member termination benefits. These benefits were paid in 2000.

D. EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE: The equity in loss of
unconsolidated affiliate is related to our 50% interest in GENXON Power Systems,
LLC, and is presented net of tax benefit of $99 in 2000, $792 in 1999, and
$1,780 in 1998. This venture combines our proprietary fuel metering and control
technology with a unique catalytic combustion technology to offer an ultra-low
NOx emission control system. To date, most of the activities and costs incurred
were administrative, or were directly related to product development, resulting
in joint venture pretax losses of $504 in 2000, $4,157 in 1999, and $9,615 in
1998. At September 30, 2000, the joint venture had total assets of $678 and
total liabilities of $641. At September 30, 1999, the joint venture had total
assets of $608 and total liabilities of $646.

E. INCOME TAXES: Income taxes, which are presented in the statement of
consolidated earnings exclusive of the tax benefits associated with the
unconsolidated affiliate GENXON Power Systems, LLC, consisted of the following:


- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,       2000       1999      1998
                                         
Current:
   Federal                   $18,033    $11,242   $10,165
   State                       2,208      1,484     1,768
   Foreign                     5,456      3,929     6,586
Deferred                       1,518      4,527    (1,793)
================================================================================
                             $27,215    $21,182   $16,726

Deferred income taxes presented in the consolidated balance sheets are related
to the following:


- - - - --------------------------------------------------------------------------------
AT SEPTEMBER 30,                          2000      1999
                                            
Deferred tax assets:
   Postretirement and
    early retirement benefits           $18,793   $18,560
   Foreign net operating loss
    and state tax credits                 9,998     9,255
   Inventory                              8,357     8,624
   Other                                 20,047    18,748
   Valuation allowance                  (11,168)  (11,716)
- - - - --------------------------------------------------------------------------------
   Total deferred tax assets,
    net of valuation allowance           46,027    43,471
- - - - --------------------------------------------------------------------------------
Deferred tax liabilities:
   Intangibles--net                      (6,535)   (4,734)
   Other                                 (4,253)   (3,507)
- - - - --------------------------------------------------------------------------------
   Total deferred tax liabilities       (10,788)   (8,241)
================================================================================
 Net deferred tax assets                $35,239   $35,230

                                       27


We have not provided for taxes on $12,600 of undistributed foreign earnings that
we consider permanently reinvested. These earnings could become subject to
income taxes if they were remitted as dividends, were loaned to the company, or
if we should sell our stock in the subsidiaries. However, we believe that
foreign tax credits would largely offset any income tax that might otherwise be
due.

We recorded a valuation allowance to reflect the estimated amount of deferred
tax assets that may not be realized primarily due to capital loss carryforwards
and foreign net operating loss carryforward limitations. Remaining deferred tax
assets are expected to be realized through future earnings. The changes in the
valuation allowance were as follows:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,                     2000        1999
                                                
Beginning balance                         $(11,716)   $(11,296)
Foreign net operating loss carryforward       (624)       (376)
State net operating loss carryforward         (119)        (44)
Capital loss carryforward utilization        1,291          --
================================================================================
Ending balance                            $(11,168)   $(11,716)


The reasons for the differences between our effective income tax rate and the
United States statutory federal income tax rate were as follows:



- - - - --------------------------------------------------------------------------------
PERCENT OF PRETAX EARNINGS,
YEAR ENDED SEPTEMBER 30,       2000       1999      1998
                                           
Statutory rate                  35.0      35.0      35.0

State income taxes, net
   of federal tax benefit        2.1       2.5       2.5
Foreign loss effect              2.4       2.3       2.6
Foreign tax rate differences     0.1       2.1       1.8
Foreign sales corporation       (1.6)     (1.6)     (1.5)
Other items, net                 0.2      (0.6)      0.1
Capital loss carryforward
 utilization                    (1.6)       --        --
================================================================================
Effective rate                  36.6      39.7      40.5


F.  EARNINGS PER SHARE:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,            2000       1999         1998
                                                  
Net earnings (A)                  $46,976     $30,829      $21,592
- - - - --------------------------------------------------------------------------------
Determination of shares,
  in thousands:
   Weighted-average shares
    of common stock
    outstanding (B)                11,263      11,272       11,340
   Assumed exercise of
    stock options                      55          20           39
- - - - --------------------------------------------------------------------------------
   Weighted-average shares
    of common stock outstanding
    assuming dilution,
    in thousands (C)               11,318      11,292       11,379
================================================================================
Basic earnings per share (A/B)    $  4.17     $  2.74      $  1.90

Diluted earnings per share (A/C)  $  4.15     $  2.73      $  1.90
================================================================================


The following stock options were outstanding during 2000, 1999, and 1998 but
were not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market price of the
common shares during the respective periods:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,           2000        1999        1998
                                                  
Options                           203,429     220,375      181,935
Weighted-average exercise price   $ 32.22     $ 32.34      $ 32.46
================================================================================


G.  INVENTORIES:


- - - - --------------------------------------------------------------------------------
AT SEPTEMBER 30,                          2000        1999
                                             
Raw materials                          $  3,056    $  2,452
Component parts                          58,559      64,059
Work in process                          27,315      26,955
Finished goods                           14,453      12,021
- - - - --------------------------------------------------------------------------------
                                        103,383     105,487
Less progress payments                     (393)     (1,230)
================================================================================
                                       $102,990    $104,257

H.  INTANGIBLES--NET:



- - - - --------------------------------------------------------------------------------
AT SEPTEMBER 30,                          2000        1999
                                             
Goodwill                               $ 91,253    $ 95,552
Customer relationships                   40,879      42,357
Other                                    17,986      18,893
================================================================================
                                       $150,118    $156,802

Intangibles are shown net of accumulated amortization of $16,848 in 2000 and
$10,732 in 1999.


                                       28


I. SHORT-TERM BORROWINGS: Short-term borrowings reflect borrowings under certain
bank lines of credit. The total amount available under these lines of credit,
including outstanding borrowings, totaled $46,667 at September 30, 2000, and
$46,280 at September 30, 1999. Interest on borrowings under the lines of credit
is based on various short-term rates. Several of the lines require compensating
balances or commitment fees. The lines, generally reviewed annually for renewal,
are subject to the usual terms and conditions applied by the banks. The
weighted-average interest rate for outstanding borrowings was 6.5% at September
30, 2000, 4.4% at September 30, 1999, and 5.1% at September 30, 1998.

J.  LONG-TERM DEBT:



- - - - --------------------------------------------------------------------------------
AT SEPTEMBER 30,                         2000      1999
                                           
Term note                             $ 80,000   $  96,250
Borrowings under revolving line
   of credit facility                   10,000      65,000
ESOP debt guarantee--8.01%               7,000       9,500
Unsecured note--9.45%                       --       2,900
- - - - --------------------------------------------------------------------------------
                                        97,000     173,650
Less current portion                    22,500      34,650
================================================================================
                                      $ 74,500   $ 139,000


In 1998, we entered into uncollateralized financing arrangements with a
syndicate of U.S. banks, including a $100,000 term note and a revolving line of
credit facility up to a maximum amount of $150,000. The interest rate on
borrowings under the term note varies with LIBOR and was 7.32% at September 30,
2000. The revolving line of credit facility carries a facility fee of 0.25%,
with outstanding borrowings due five years from the inception of the agreement.
The interest rate on borrowings under the revolving line of credit facility
varies with LIBOR, the money market rate, or the prime rate and was 7.06% at
September 30, 2000.

In June 1992, the company's Member Investment and Stock Ownership Plan (a
qualified employee stock ownership plan) borrowed $25,000 for a term of eleven
years and used the proceeds to buy 1,027,224 shares of common stock from the
company. We guaranteed the payment of the loan and agreed to make future
contributions to the plan sufficient to repay the loan. Accordingly, the
original amount of the loan was recorded as long-term debt and unearned ESOP
compensation. The consolidated balance sheets reflect the outstanding balance of
the loan in long-term debt and the remaining unearned ESOP compensation as a
component of shareholders' equity. Unearned ESOP compensation has been reduced
using the shares allocated method for shares allocated to plan participants. The
unallocated shares were 218,076 at September 30, 2000; 306,088 at September 30,
1999; and 399,492 at September 30, 1998.

Exclusive of the revolving line of credit facility, required future principal
payments of long-term debt are: $22,500 in 2001, $22,500 in 2002, and $42,000 in
2003. At September 30, 2000, we classified borrowings under the revolving line
of credit facility as long-term as we have both the intent and ability, through
the company's revolving line of credit facility, to refinance this amount on a
long-term basis.

Provisions of the debt agreements require us to maintain a minimum fixed-charge
coverage ratio, current ratio, consolidated net worth, and a maximum funded debt
to total capitalization ratio, as defined in the agreements and permit the
lenders to accelerate repayment requirements in the event of a material adverse
event. In addition, the agreements require us to make a prepayment of all net
proceeds from future indebtedness and 50% of the net proceeds from future
issuance of equity instruments. Further provisions limit our ability to incur
debt, pay cash dividends, sell certain assets, acquire other businesses, and
purchase the company's capital stock, among other things. At September 30, 2000,
we had the ability to pay dividends and purchase the company's common stock up
to $58,181.

K.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES:



- - - - --------------------------------------------------------------------------------
AT SEPTEMBER 30,                          2000      1999
                                            
Accounts payable                        $25,065   $20,923
Salaries and other member benefits       28,153    27,706
Taxes, other than on income               5,501     5,479
Other items--net                         22,623    22,664
================================================================================
                                        $81,342   $76,772


L. RETIREMENT BENEFITS: We provide various benefits to eligible members of our
company, including retirement healthcare benefits, pension benefits, and
contributions to various defined contribution plans.

Currently, approximately 59% of our members may become eligible for healthcare
benefits, generally after reaching age 55 with 10 years of service or after
reaching age 65. We pay 80% to 100% of eligible healthcare expenses of retired
members, their dependents and survivors, which are not paid by Medicare, up to
maximum amounts established under the plans. Plan participants share in the cost
of these benefits in varying amounts based on years of service, and we have the
right to modify or terminate the plans. The plans are not funded, and there are
no plan assets. Changes in the benefit obligations, the unfunded status of the
plans, and the amount of accrued benefit costs for our retirement healthcare
plans were as follows:


                                       29




- - - - --------------------------------------------------------------------------------
AT OR FOR THE YEAR ENDED SEPTEMBER 30,                  2000        1999

                                                            
Change in benefit obligation:
   Benefit obligation at beginning of year             $36,819     $40,651
   Service cost                                          1,051       1,103
   Interest cost                                         2,758       2,587
   Contributions by plan participants                    2,394       2,208
   Net actuarial losses (gains)                            411      (6,325)
   Benefits paid                                        (4,838)     (3,405)
   Curtailment gain related
    to sale of business                                   (964)         --
   Other                                                 2,000          --
- - - - --------------------------------------------------------------------------------
Benefit obligation at end of year
   and unfunded status                                  39,631      36,819
Unrecognized net actuarial gains                         7,231       7,785
- - - - --------------------------------------------------------------------------------
Total accrued benefit cost                              46,862      44,604
Portion of accrued benefit cost
   included in accrued expenses                          2,000       2,000
================================================================================
Portion of accrued benefit cost
 included in other liabilities                        $ 44,862    $ 42,604


The components of the net periodic benefit cost associated with the retirement
healthcare plans were as follows:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,         2000       1999      1998

                                            
Service cost                    $1,051     $1,103    $1,054
Interest cost                    2,758      2,587     2,551
Amortization of unrecognized
   net gain                       (142)        --       (33)
Curtailment gain related
   to sale of business            (964)        --        --
================================================================================
Net periodic benefit cost       $2,703     $3,690    $3,572


In accounting for the retirement healthcare plans, we assumed the
weighted-average discount rate was 7.75% in 2000, 7.50% in 1999, and 6.75% in
1998. We also assumed net healthcare cost trend rates of 6.30% to 6.50% in 2001,
decreasing gradually to 4.50% in 2005, and remaining at 4.50% thereafter. A
1.00% change in assumed healthcare cost trend rates would have had the following
effects on amounts reported in 2000:



                                       30




- - - - --------------------------------------------------------------------------------
                                         1.00%      1.00%
                                        Increase   Decrease

                                              
Effect on total of service and
   interest cost components               $ 816     $ (624)
Effect on benefits obligation
     at end of year                       6,639     (5,272)
- - - - --------------------------------------------------------------------------------


Approximately 13% of our members are currently covered under defined benefit
pension plans. Benefits paid under these plans vary primarily due to members'
length of service and compensation. However, effective September 30, 1999, the
years of service factor was frozen for participants in one of our pension plans.
Changes in benefit obligations and plan assets, and the funded status and the
amount of accrued benefit costs for our pension plans were as follows:



================================================================================

AT OR FOR THE YEAR ENDED SEPTEMBER 30,                     2000       1999

                                                              
Change in benefit obligations:
  Benefit obligation at beginning of year                $28,461    $10,212
  Service cost                                               781      1,490
  Interest cost                                            1,352      1,575
  Net actuarial losses (gains)                              (843)       839
  Foreign currency exchange rate changes                    (165)     2,987
  Benefits paid                                             (293)      (711)
  Business acquisition                                        --     12,069
- - - - --------------------------------------------------------------------------------
Benefit obligation at end of the year                     29,293     28,461
- - - - --------------------------------------------------------------------------------
Change in plan assets:
  Fair value of assets at beginning of year               24,369     10,386
  Actual return on plan assets                             3,018      1,259
  Foreign currency exchange rate changes                    (174)     2,794
  Contributions by the company                               682        566
  Benefits paid                                             (293)      (711)
  Business acquisition                                        --     10,075
- - - - --------------------------------------------------------------------------------
Fair value of assets at the end of the year               27,602     24,369
- - - - --------------------------------------------------------------------------------
Funded status                                             (1,691)    (4,092)
Unamortized prior service cost                              (122)      (133)
Unrecognized net losses (gains)                           (2,112)       512
Unamortized transition obligation                            980      1,088
- - - - --------------------------------------------------------------------------------

Net accrued benefit cost                                  (2,945)    (2,625)
Portion of net accrued benefit
   cost included in other assets                             134        391
================================================================================
Portion of net accrued benefit
     cost included in other liabilities                 $ (3,079)  $ (3,016)


The business acquisition referred to above relates to the June 1998 acquisition
of Fuel Systems Textron, Inc. (more fully described in Note B.). The actuarial
valuation associated with the assumed defined benefit pension plan was not
completed until 1999.

The components of the net periodic benefit cost associated with the pension
plans were as follows:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,                          2000        1999       1998

                                                               
Service cost                                    $   781     $ 1,490     $ 467
Interest cost                                     1,352       1,575       413
Expected return on plan assets                   (1,230)     (1,529)     (420)
Amortization of prior service cost                   (9)         (8)       (7)
Recognized net gains                                  9          --        --
Amortization of transition obligation               100          90        80
================================================================================
Net periodic pension cost                       $ 1,003     $ 1,618     $ 533



                                       31


The following weighted-average assumptions, reflecting rates appropriate in the
United States and Japan, were used in accounting for pension plans:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,               2000      1999      1998
                                                  
Discount rate                          4.8%      5.3%      4.0%
Rate of compensation increase          4.2%      4.3%      3.5%
Expected long-term rate of
   return on plan assets               4.9%      5.2%      4.0%
================================================================================


Approximately 90% of our members are currently eligible for one or more defined
contribution plans. Contributions to these plans are discretionary. However, we
do have a qualified employee stock ownership plan that has outstanding
borrowings that have been guaranteed by the company. We have agreed to make
future contributions to the plan sufficient to repay the loan. The proceeds of
the borrowing were used by the plan to purchase common stock from the company,
the shares of which are allocated to plan participants as contributions are made
to the plan. Amounts charged to expense for defined contribution plans totaled
$11,062 in 2000, $10,551 in 1999, and $9,512 in 1998.

M. STOCK OPTION PLAN: In 1996, shareholders approved a plan in which options to
purchase shares of common stock could be granted to key management members of
the company. This plan reserved 800,000 shares of common stock for issuance.
Options granted under the plan generally have a term of 10 years. Options
granted before September 30, 1999, generally vested immediately and options
granted after September 30, 1999, vest evenly at the end of each year over four
years from the date of grant. We account for options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and therefore we do not recognize compensation expense in
association with options granted at or above the market price of our common
stock at the date of grant. As required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the following
table presents pro forma net earnings and per share information that has been
prepared as if compensation for these options was recognized:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,       2000       1999      1998
                                         
Net earnings                 $46,850    $30,298   $20,814
Basic earnings per share        4.16       2.69      1.84
Diluted earnings per share      4.14       2.68      1.83
- - - - --------------------------------------------------------------------------------


The determination of compensation expense for this pro forma information was
based upon the estimated fair value of the options granted on the date of their
grant using the Black-Scholes option pricing model and the following
weighted-average assumptions by grant year:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,           2000       1999      1998
                                              
Risk-free interest rate            6.9%       4.9%      5.8%
Expected life                      7 years    7 years   7 years
Expected volatility               26.4%      23.0%     21.9%
Expected dividend yield            3.7%       4.2%      4.2%
- - - - --------------------------------------------------------------------------------


Option activity was as follows:



- - - - --------------------------------------------------------------------------------
                                                     Weighted-
                                                      Average
                                                     Exercise
                                        Options        Price

                                                 
Balance at September 30, 1997           231,840        21.97
   Options granted                      226,641        32.33
   Options exercised                     (5,800)       23.50
- - - - --------------------------------------------------------------------------------

Balance at September 30, 1998           452,681        26.88
   Options granted                      200,000        22.00
   Options exercised                     (4,000)       22.00
   Options canceled                      (7,266)       32.18
- - - - --------------------------------------------------------------------------------

Balance at September 30, 1999           641,415        25.33
   Options granted                      145,100        24.75
   Options exercised                   (100,990)       23.38
   Options canceled                     (55,353)       30.46
================================================================================
Balance at September 30, 2000           630,172       $25.06


The weighted-average fair value of options granted was $6.82 in 2000, $4.27 in
1999, and $6.45 in 1998. The number of options exercisable was 501,972 at
September 30, 2000; 616,465 at September 30, 1999; and 419,331 at September 30,
1998.

The exercise prices and weighted-average contractual lives of stock options
outstanding at September 30, 2000, were as follows:



- - - - --------------------------------------------------------------------------------
                                   Weighted-
                                    Average
                                   Remaining
                      Options      Contractual     Options
Exercise Price      Outstanding   Life in Years  Exercisable
- - - - --------------------------------------------------------------------------------
                                          
 $16.625               62,200          5.3          62,200
  22.000              135,250          8.1         135,250
  23.500              138,600          6.1         138,600
  24.750              125,100          9.1               0
  30.594                6,200          7.7           3,100
  32.000               44,478          7.3          44,478
  32.250              118,344          7.1         118,344
================================================================================
                      630,172          7.4         501,972



                                       32


N. SHAREHOLDER RIGHTS PLAN: We have a shareholder rights plan to protect
shareholders against unsolicited attempts to acquire control of the company that
do not offer what the Board of Directors believes to be an adequate price to all
shareholders. In connection with this plan, a dividend of one preferred stock
purchase right for each outstanding share of common stock was paid to
shareholders in February 1996. Each right entitles its holder to purchase from
the company one-four hundredth of a share of Series A Preferred Stock, par value
$.003 per share, at a price of $75.00 (subject to adjustment, and restated for
the January 1997 stock split). The rights may not be exercised or transferred
apart from the company's common stock until 10 days after it is announced that a
person or group has acquired 15% or more of the outstanding common stock or 15
business days after it is announced that there is an offer (or an intent to make
an offer) by a person or group to acquire 15% or more of the outstanding common
stock. The Board of Directors may increase the 15 business day period referred
to above and may redeem the rights in whole (but not in part) at a redemption
price of $.003 per right at any time prior to an acquisition of 15% or more of
the outstanding common stock by a person or group. The rights expire on January
17, 2006.

O. LEASES: We have entered into leases for certain facilities. Future minimum
rental commitments under these operating leases are: $2,158 in 2001, $1,610 in
2002, $1,023 in 2003, $583 in 2004, and $425 in 2005. Rent expense for
facilities was approximately $2,878 in 2000, $2,634 in 1999, and $1,740 in 1998.

P. CONTINGENCIES: We are currently involved in matters of litigation arising
from the normal course of business, including certain environmental and product
liability matters. We have accruals of approximately $460 at September 30, 2000,
and $1,200 at September 30, 1999, related to such matters. These accruals are
based on our current estimate of the most likely amount of losses that we
believe will be incurred. These amounts have been included in accounts payable
and accrued expenses.

We have been designated a "de minimis potentially responsible party" with
respect to the cost of investigation and environmental cleanup of certain
third-party sites. Our current accrual for these matters is based on costs
incurred to date that we have been allocated and our estimate of the most likely
future investigation and cleanup costs. There is, as in the case of most
environmental litigation, the possibility that under joint and several liability
we could be required to pay more than our allocated share of costs.

It is our opinion, after consultation with legal counsel, that additional
liabilities, if any, resulting from these matters are not expected to have a
material adverse effect on our financial condition, although such matters could
have a material effect on our quarterly or annual operating results and cash
flows when resolved in a future period.

Q. FINANCIAL INSTRUMENTS: The estimated fair values of our financial instruments
were as follows:



- - - - --------------------------------------------------------------------------------
AT SEPTEMBER 30,                             2000         1999

                                                 
Cash and cash equivalents                  $  9,315    $ 10,449
Short-term borrowings                       (21,284)     (7,303)
Long-term debt, including current portion   (96,985)   (173,645)
================================================================================


The fair value of cash and cash equivalents, short-term borrowings and long-term
debt at variable interest rates were assumed to be equal to their carrying
amounts. Cash and cash equivalents have short-term maturities, short-term
borrowings have short-term maturities and market interest rates, and long-term
debt at variable interest rates is repriced frequently at market rates of
interest. The fair value of long-term debt at fixed interest rates was estimated
based on a model that discounted future principal and interest payments at
interest rates available to the company at the end of the year for similar debt
of the same maturity.

R. SEGMENT INFORMATION: Our operations are organized based on the nature of
products and related services provided and consist of two reportable
segments--Industrial Controls and Aircraft Engine Systems. Industrial Controls
provides energy control systems and components primarily to OEMs of industrial
engines and turbines. Aircraft Engine Systems provides energy control systems
and components primarily to OEMs of aircraft engines. Portions of Industrial
Controls, related to the manufacture and sale of fuel injection nozzles for
industrial markets, control systems and related services for industrial engine
users in retrofit situations, and products for small industrial engine markets,
were previously reported as Aircraft Engine Systems or other operations.
Prior-year amounts in the financial information that follows have been restated
to be consistent with the current composition of our segments.


                                       33


The accounting policies of the segments are the same as those described in Note
A. Intersegment sales and transfers are made at established intersegment selling
prices generally intended to approximate selling prices to unrelated parties.
Our determination of segment earnings does not reflect restructuring expense,
interest expense, interest income, and allocations of corporate expenses, and is
before the gain on the sale of business, income taxes, and equity in loss of
unconsolidated affiliate. Segment assets consist of accounts receivable,
inventories, property, plant, and equipment--net, and intangible assets--net.
Summarized financial information for our reportable segments follows:



- - - - --------------------------------------------------------------------------------
AT OR FOR THE YEAR ENDED SEPTEMBER 30,    2000      1999      1998

                                                   
INDUSTRIAL CONTROLS:
   External net sales                   $330,962  $310,038  $262,443
   Intersegment sales                        700       679       457
   Segment earnings                       41,258    35,959    22,077
   Segment assets                        214,935   223,874   228,922
   Depreciation and amortization          13,322    14,670    13,376
   Capital expenditures                   14,631     9,576     9,402
- - - - --------------------------------------------------------------------------------
AIRCRAFT ENGINE SYSTEMS:
- - - - --------------------------------------------------------------------------------
   External net sales                   $266,423  $286,866  $228,033
   Intersegment sales                      2,010     1,853     1,706
   Segment earnings                       38,150    54,260    38,805
   Segment assets                        260,712   272,898   270,537
   Depreciation and amortization          15,318    15,708    11,291
   Capital expenditures                   10,071    11,183    10,064
================================================================================


The differences between the total of segment amounts and the consolidated
financial statements were as follows:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,                  2000      1999         1998

                                                      
Total net sales for
   reportable segments                 $600,095   $599,436     $492,639
Elimination of intersegment
   sales                                 (2,710)    (2,532)      (2,163)
================================================================================
Consolidated net sales                 $597,385   $596,904     $490,476

Total earnings for
   reportable segments                 $ 79,408   $ 90,219     $ 60,882
Restructuring expense, interest
   expense, interest income,
   and gain on sale of business          15,373    (19,808)      (4,519)
Unallocated corporate expenses          (20,418)   (17,113)     (15,017)
- - - - --------------------------------------------------------------------------------

Consolidated earnings before
   income taxes and equity in
   loss of unconsolidated affiliate    $ 74,363   $ 53,298     $ 41,346
================================================================================




- - - - --------------------------------------------------------------------------------
AT SEPTEMBER 30,                          2000      1999      1998

                                                   
Total assets for reportable segments    $475,647  $496,772  $499,459
Unallocated corporate property,
   plant, and equipment--net,
   and intangibles--net                    5,072     3,926     7,438
Other unallocated assets                  53,004    49,966    56,538
================================================================================
Consolidated total assets               $533,723  $550,664  $563,435


Differences between total depreciation and amortization and capital expenditures
of reportable segments and the corresponding consolidated amounts are due to
unallocated corporate amounts.

One customer accounted for more than ten percent of consolidated net sales,
impacting both the Aircraft Engine Controls and Industrial Controls segments,
and totaled approximately $147,000 in 2000, $130,000 in 1999, and $76,500 in
1998.

External net sales by geographical area, as determined by the location of the
customer invoiced, were as follows:



- - - - --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,       2000       1999      1998

                                        
United States               $372,773   $350,999  $271,265
Other countries              224,612    245,905   219,211
================================================================================
                            $597,385   $596,904  $490,476


Property, plant, and equipment--net by geographical area, as determined by the
physical location of the assets, were as follows:



- - - - --------------------------------------------------------------------------------
AT SEPTEMBER 30,               2000       1999      1998

                                        
United States               $105,725   $106,325  $111,478
Other countries               16,733     17,797    18,574
================================================================================
                            $122,458   $124,122  $130,052




                                       34


Management's Responsibility for Financial Statements

Management is responsible for the accompanying financial statements and believes
that the financial statements accurately and consistently present the financial
position, results of operations, and cash flows of the company in accordance
with generally accepted accounting principles.

Management makes what it believes to be reasonable and prudent judgments and
estimates where necessary, and has a system of internal accounting controls
designed to provide reasonable assurance that its financial records are
accurate, assets are safeguarded, and transactions are executed in accordance
with management's authorizations. Self-monitoring of the internal accounting
control system, along with selective testing, is a part of our control
environment. Corrective actions are taken whenever deficiencies in our internal
accounting control system are identified.

PricewaterhouseCoopers LLP, the company's independent accountants, audits the
company's financial statements in accordance with generally accepted auditing
standards. Their report on these financial statements is presented below.

The audit committee of the company's Board of Directors, which consists of
directors who are not officers or employees of the company, meets with
management and PricewaterhouseCoopers LLP to review and discuss the audited
financial statements, along with other matters.



John A. Halbrook
Chairman and
Chief Executive Officer

Stephen P. Carter
Vice President,
Chief Financial Officer and Treasurer

Report of Independent Accountants


To Board of Directors and Shareholders
Woodward Governor Company

In our opinion, the accompanying consolidated balance sheets and the related
statements of consolidated earnings, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Woodward Governor
Company and its subsidiaries at September 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

As discussed in Note A to the consolidated financial statements, as of October
1, 1998, the Company changed from depreciating newly-acquired assets using
principally accelerated methods to the straight-line method.


PricewaterhouseCoopers LLP
Chicago, Illinois
November 8, 2000



                                       35


Selected Quarterly Financial Data

(Unaudited)



                                                2000 FISCAL QUARTERS                            1999 FISCAL QUARTERS
(In thousands except per share data)    FIRST     SECOND      THIRD    FOURTH           FIRST     SECOND     THIRD     FOURTH
- - - - ---------------------------------------------------------------------------------------------------------------------------------
                                                                                                
Net sales                             $133,592   $149,085   $155,496    $159,212        $144,908   $144,408   $139,239  $168,349
Gross profit*                           33,939     32,745     38,779      38,384          34,893     36,844     38,994    49,052
Net earnings                             6,007      5,372     26,165***    9,432           5,204      2,064**    8,079    15,482
Net earnings per basic share              0.53       0.48       2.33***     0.84            0.46       0.18**     0.72      1.37
Net earnings per diluted share            0.53       0.48       2.32***     0.83            0.46       0.18**     0.72      1.37
Cash dividends per share                0.2325     0.2325     0.2325      0.2325          0.2325     0.2325     0.2325    0.2325
Common stock price per share
 High                                 $  28.50   $  27.38   $  28.50    $  45.00        $  25.56   $  25.50   $  27.25  $  26.63
 Low                                     24.50      21.88      21.75       26.88           20.00      20.50      23.00     24.00
 Close                                   27.50      23.00      28.31       44.56           22.00      25.00      26.00     24.94
- - - - ---------------------------------------------------------------------------------------------------------------------------------


*Gross profit represents net sales less cost of goods sold as reported in our
statements of consolidated earnings.

**We incurred restructuring expense, net of tax, of $4,904 in the second quarter
1999. Without this restructuring expense, our net earnings in the second quarter
1999 would have been $6,968 or $0.62 per basic and diluted share.

*** We sold our turbine retrofit business for a gain, net of tax, of $17,203 in
the third quarter 2000. Without this gain, our net earnings in the third quarter
2000 would have been $8,962 or $0.80 per basic share and $0.79 per diluted
share.


Cautionary Statement

This annual report contains forward-looking statements, including financial
projections, our plans and objectives for future operations, expectations of
future economic performance, and various other assumptions relating to the
future. While such statements reflect our current expectations, all such
statements involve risks and uncertainties. Actual results could differ
materially from projections or any other forward-looking statement. Important
factors that could cause results to differ materially from those projected or
otherwise stated include the following: unanticipated global or regional
economic developments, particularly in, but not limited to, Asia, Europe, and
the United States; changes in business cycles of particular industries served by
our company, primarily OEMs of aircraft engines, both commercial and military,
and industrial engines and turbines, particularly in power generation,
transportation, and process industries markets; fluctuations in currency
exchange rates of U.S. and foreign countries, primarily those located in Europe
and Asia; fluctuations in interest rates, primarily LIBOR, which affect the cost
of borrowing under our existing term note and line of credit facilities; timing
and acceptance of new products and product enhancements, including, but not
limited to, products that integrate fuel technologies of a recent alliance
partner, and ignition products of the recently-acquired company and under a
recent license agreement; competitor actions that adversely impact our orders or
pricing, including, but not limited to, aftermarket sales; adverse changes in
the business acquisition climate; effects of any business acquisitions
or divestitures; changes in U.S. and other country laws and regulations
involving acquisitions, the environment, and taxes; relative success of quality
and productivity initiatives, such as the Six Sigma initiative and supplier
designation levels with key customers; unanticipated problems associated with
implementing our e-Business strategy; the outlook for GENXON products and
markets and its funding requirements; and unusual or extraordinary events or
developments involving litigation or other potential liabilities.



                                       36


Summary of Operations/Eleven-Year Record

(In thousands of dollars except per share amounts)
- - - - --------------------------------------------------------------------------------
Net Sales, Net Earnings, and Dividends FOR THE YEAR ENDED SEPTEMBER 30,



- - - - ------------------------------------------------------------------------------------------------------------------------------------
                                                            Net Earnings (Loss)

                                                     Per               Per                        % of Beginning     Cash
                                                    Basic            Diluted                      Shareholders'    Dividends
    Year        Net Sales        Amount             Share             Share        % of Sales         Equity       Per Share
- - - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                               
    2000       $597,385          $46,976***        $4.17***          $4.15***         7.9             19.4          $ 0.93
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1999        596,904           30,829            2.74              2.73            5.2             14.0            0.93
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1998        490,476           21,592            1.90              1.90            4.4             10.3            0.93
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1997        442,216           18,140            1.58              1.57            4.1              8.7            0.93
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1996        417,290           22,178            1.92              1.92            5.3             11.2            0.93
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1995        379,736           11,936            1.03              1.03            3.1              6.2            0.93
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1994        333,207           (3,273)          (0.28)            (0.28)          (1.0)            (1.6)           0.93
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1993        331,156           13,389**          1.13**            1.13**          4.0              6.1            0.93
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1992        374,173           20,212            1.81              1.81            5.4              9.7            0.92
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1991        361,924           24,293            2.22              2.22            6.7             12.5            0.92
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1990        340,128           29,439            2.68              2.68            8.7             17.0            0.84



- - - - ------------------------------------------------------------------------------------------------------------------------------------
Financial Position AT SEPTEMBER 30,
- - - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Shareholders' Equity           % of
                 Working          Total          Long-term           Total                       Per Diluted        Debt to
    Year         Capital          Assets            Debt              Debt           Amount          Share        Debt-Equity
- - - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                
    2000        $100,836        $533,723        $  74,500          $118,284         $275,624        $24.35           30.0
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1999         124,392         550,664          139,000           180,953          241,992         21.43           42.8
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1998         119,506         563,435          175,685           213,645          220,102         19.34           49.3
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1997         124,827         348,110           17,717            30,604          210,614         18.27           12.7
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1996         121,103         348,798           22,696            42,868          207,995         18.01           17.1
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1995         116,364         349,599           27,796            62,960          197,903         17.05           24.1
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1994         113,751         323,318           32,665            61,591          193,846         16.57           24.1
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1993         107,809         332,461           36,246            58,258          206,222         17.36           22.0
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1992         103,818         331,653           40,135            64,375          219,690         18.48           22.7
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1991         105,213         306,534           17,300            50,132          208,564         19.02           19.4
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1990         115,737         269,221           18,700            20,000          194,081         17.70           09.3



- - - - ------------------------------------------------------------------------------------------------------------------------------------
Other Selected Data FOR THE YEAR ENDED SEPTEMBER 30,                                                     AT SEPTEMBER 30,
- - - - ------------------------------------------------------------------------------------------------------------------------------------
                                                          Effective                      Weighted-
                                                           Income                         Average                   Registered
            Depreciation     Amortization                 Tax Rate       Capital      Diluted Shares     Worker    Shareholder
    Year      Expense          Expense     EBITDA*           (%)       Expenditures    Outstanding      Members      Members
- - - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                              
    2000      $24,001          $6,418     $114,638 ***      36.6         $27,416        11,318,000       3,302        1,742
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1999       25,267           6,769       95,174          39.7          22,789        11,292,000       3,791        1,866
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1998       23,715           2,927       67,699          40.5          20,862        11,379,000       3,994        1,907
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1997       21,854             983       55,884          38.6          21,152        11,525,000       3,246        1,994
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1996       22,786             608       61,075          37.0          21,163        11,570,000       3,211        2,029
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1995       23,334             452       47,239          40.9          18,988        11,623,000       3,071        2,179
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1994       26,114             500       24,652          37.0          16,515        11,765,000       3,439        2,256
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1993       24,837             419       50,314 **       42.0          18,335        11,889,000       3,264        2,301
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1992       22,241              --       57,260          38.7          52,684        11,179,000       3,632        2,301
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1991       18,236              --       58,727          36.1          33,075        10,967,000       3,953        2,303
- - - - ------------------------------------------------------------------------------------------------------------------------------------
    1990       15,397              --       62,685          36.3          22,057        10,966,000       3,673        2,209


- - - - --------------------------------------------------------------------------------
* EBITDA represents earnings before interest (expense and income), income taxes,
depreciation, and amortization.

** Net earnings and EBITDA for 1993 is before cumulative effect of accounting
changes.

*** Net earnings and EBITDA for 2000 includes a gain from the sale of business
of $25,500 before income taxes and $17,082 after income taxes, or $1.52 per
basic share and $1.51 per diluted share.


                                       37

EX-21

EXHIBIT 21
WOODWARD GOVERNOR COMPANY
SUBSIDIARIES OF THE REGISTRANT

                        Woodward Governor Nederland B.V.
                           Hoofddorp, The Netherlands

                        Woodward Governor (U.K.) Limited
                                Reading, England

                             Woodward Governor GmbH
                            Lucerne, Switzerland and
                           Hoofddorp, The Netherlands

                         Woodward Governor (Japan) Ltd.
                     Tomisato, Chiba, Japan and Kobe, Japan

                    Woodward Governor (Reguladores) Limitada
                           Campinas, Sao Paulo, Brazil

                         Woodward Governor (Quebec) Inc.
                            Montreal, Quebec, Canada

                        Woodward Governor France S.A.R.L.
                               Venissieux, France

                    Woodward Governor Asia/Pacific PTE. LTD.
                        Singapore, Republic of Singapore

                        Woodward Governor Poland, Limited
                                 Warsaw, Poland

                         Woodward Governor Germany GmbH
                                  Aken, Germany

                               Woodward HSC, Inc.
                                Buffalo, New York

                    Woodward Governor de Mexico S.A. de C.V.
                               Mexico City, Mexico

                 Woodward Governor Company (New Zealand) Limited
                            Christchurch, New Zealand

                        Woodward Governor India PTE. LTD.
                                Ballabgarh, India

                   Woodward Aircraft Controls Prestwick, Inc.
                               Prestwick, Scotland

                       Woodward Foreign Sales Corporation
                         St. Thomas, U.S. Virgin Islands

                         Baker Electrical Products, Inc.
                                   Memphis, MI

                               Woodward FST, Inc.
                                   Zeeland, MI

                    Woodward Tianjin Controls Company Limited
                                 Tianjin, China

EX-23

Exhibit 23
Consent of Independent Accountants



                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-10409) of Woodward Governor Company and
Subsidiaries of our report dated November 8, 2000, relating to the consolidated
financial statements, which appears in the Annual Report to Shareholders, which
is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated November 8, 2000 relating to the
financial statement schedule, which appears in this Form 10-K.




PricewaterhouseCoopers LLP
Chicago, Illinois
December 16, 2000