exv10w9






Exhibit 10.9




TRANSITIONAL COMPENSATION AGREEMENT




     THIS AGREEMENT made and entered into as of November 20, 2002 and amended and restated as of
December 19, 2008 by and between Woodward Governor Company, a Delaware corporation, (hereinafter
called the “Corporation”) and Thomas A. Gendron (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.



     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 annual base salary.



     For purposes of this Paragraph 3, “executives with comparable annual base salary” shall mean
those executives of the Corporation whose annual base salary falls within a range the low end of
which is 90% of the Executive’s Annual Base Salary and the high end of which is 110% of the
Executive’s 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 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



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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.




     (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 Annual 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.



     (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



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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



     (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 and no more than thirty-one (31) days from the
date of such written notice; provided however, if the written notice is received in December, the
fifteen (15) days notice period may be shortened so that in no event will the Date of Termination
occur in the year following the year in
which the written notice is received by either party, (C) in the event of the Executive’s death,
the date of



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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 Paragraph 2, or
(D) failure by the Corporation to provide Executive with the executive or employee benefits and
perquisites 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 or becomes disabled 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 Termination 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



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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 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;
provided, however, that in no event shall any pro rata cash bonus be paid later than March 15th of
the year following 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) Payment in a lump sum on the Date of Termination of 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; provided, however, that such pro rata
amount shall not be less than the pro rata amount determined using the greater of (A) the full
year’s bonus to which Executive would have been entitled based on the Corporation’s performance for
the year, or (B) the greater of the Executive’s target bonus (x) for such year under such plan or
(y) for the year in which the Effective Date of this Agreement occurs based on the annual bonus
plan as in effect and applicable to Executive immediately prior to the Effective Date.



     (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 Base 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 greater of (A) Executive’s target bonus for year in which the Date of Termination occurs or (B)
Executive’s target bonus for the year in which the Effective Date occurs under the terms of the
annual bonus plan in effect immediately prior to the Effective Date.



     (v) Payment in a lump sum on the Date of Termination of a long-term incentive compensation
bonus replacement amount equal to three hundred percent (300%) of the highest of the long-term
incentive compensation bonus paid or payable to the Executive during the three (3) years preceding
the year in which the Date of Termination occurs or, if greater, the highest of the Executive’s
target long-term incentive compensation award opportunity for any award cycle ending during or
after the year in which the Effective Date occurs.



     (vi) Payment in a lump sum on the Date of Termination of a retirement replacement amount
equal to 300% of the sum of the Retirement Savings Plan and Executive Benefit Plan contributions
made or credited by the Corporation for the benefit of the Executive for the plan year of each such
plan during



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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.



     (vii) Continuation, for a period of three (3) years after the Date of Termination, of the
following employee benefits on terms at least as favorable 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 (“Corporation-Paid
Coverage”). Corporation-Paid Coverage shall be paid directly by the Corporation to the applicable
insurer and/or administrator when premiums for such coverage are due in accordance with the terms
and conditions of the applicable insurance policy or administrative services agreement.
Notwithstanding the foregoing, if the Executive is a “specified employee” (as described in Section
7 below) on the date of the Executive’s “separation from service” (as described in Section 7
below), continued coverage under the disability and life insurance plans shall be solely at the
expense of the Executive for the period beginning on the date of the Executive’s separation and
ending six (6) months thereafter. On the date six (6) months and one (1) day following his or her
separation (or, in the event of his or her death, at such earlier time as provided in Section 7
below), the Corporation shall reimburse the Executive for the Corporation-Paid Coverage under the
disability and life insurance plans portion of such expense in a lump sum cash payment. Thereafter,
Corporation-Paid Coverage under the disability and life insurance plans shall be paid directly by
the Corporation to the applicable insurer and/or administrator when premiums for such coverage are
due in accordance with the terms and conditions of the applicable insurance policy or
administrative services agreement. 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, payable on the Date of Termination. 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 (vii), the Executive and Executive’s dependents will be entitled to
elect Consolidated Omnibus Budget Reconciliation Act of 1985 (“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 and for purposes of Title X of COBRA, the date of the “qualifying event” for the
Executive and Executive’s dependents shall be the date upon which the Corporation-Paid Coverage
terminates.



     (viii) Outplacement services, at the expense of the Corporation, from a provider reasonably
selected by the Executive; provided however, to the extent the outplacement services are taxable
under the Internal Revenue Code, the expenses must be incurred before the last day of the second
year following separation from service and the reimbursement must be made before the last day of
the third year following separation from service.



     (ix) 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; provided however, to the extent the tax
preparation services are taxable under the Internal Revenue Code, the expenses must be incurred
before the last day of the second year following separation from service and the reimbursement must
be made before the last day of the third year following separation from service.



     7. Section 409A.



     (a) Six-Month Delay. Notwithstanding anything to the contrary in this Agreement, no Deferred
Compensation Separation Benefits (as defined below) will be considered due or payable until the
Executive has incurred a “separation from service” within the meaning of Section 409A of the
Internal Revenue Code of 1986, as amended and the final regulations and any guidance promulgated
thereunder



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(together, “Section 409A”). Notwithstanding anything to the contrary in this Agreement, if the
Executive is a “specified employee” within the meaning of Section 409A at the time of his
termination (other than due to death), the severance payable to him, if any, pursuant to this
Agreement, when considered together with any other severance payments or separation benefits that
are considered deferred compensation under Section 409A (together, the “Deferred Compensation
Separation Benefits”) that are payable within the first six (6) months following his termination of
employment, will become payable on the first payroll date that occurs on or after the date six (6)
months and one (1) day following the date of the Executive’s termination of employment. All
subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with
the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the
contrary, if the Executive dies following termination but prior to the six (6) month anniversary of
termination, then any payments delayed in accordance with this Section 7 will be payable in a lump
sum as soon as administratively practicable after the date of the Executive’s death and all other
Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule
applicable to each payment or benefit. Each payment and benefit payable under this Agreement is
intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury
Regulations.




     (b) The foregoing provisions are intended to comply with the requirements of Section 409A so
that none of the severance payments and benefits to be provided hereunder will be subject to the
additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so
comply. The Executive and the Corporation agree to work together in good faith to consider
amendments to this Agreement and to take such reasonable actions, which are necessary, appropriate
or desirable to avoid imposition of any additional tax or income recognition prior to actual
payment to him under Section 409A.



     8. 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 8) (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. Notwithstanding the foregoing, if the Executive is a “specified employee” (as described
in Section 7 above) on the date of the Executive’s “separation from service” other than due to
death (as described in Section 7 above) and a Gross-Up Payment would not have been required under
this Section 8 in the absence of the benefits provided for in this Agreement, any Gross-Up Payment
otherwise due to the Executive on or within the six (6) month period following the Executive’s
separation from service will accrue during such six (6) month period and will become payable in a
lump sum payment (less any applicable withholding taxes) on the date six (6) months and one (1) day
following the date of the Executive’s separation from service.



     (b) Subject to the provisions of paragraph (c), below, all determinations required to be made
under this Paragraph 8, 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”),



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which shall provide detailed supporting calculations both to the Corporation and the Executive
within fifteen (15) 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 may 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 8, 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,



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



     (v) 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



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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 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.



     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 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



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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 13.



     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 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

1000 East Drake Road

Fort Collins, Colorado 80525

Attn: Corporate Secretary






	 	(b)	 	Thomas A. Gendron

1000 East Drake Road

Fort Collins, CO 80525

(Unless otherwise specified by Executive)




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     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.



     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 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.



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     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:  	/s/ Thomas A. Gendron	 
	 	 	Thomas A. Gendron 	 
	 	 	Title:  	Chief Executive Officer and President 	 
	 
	 	 	 
	 	By:  	/s/ James R. Rulseh
	 
	 	 	James R. Rulseh 	 
	 	 	Title:  	Chairman of the Compensation Committee of
 the Board of
Directors 	 
	 




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